Here are some of the points I made on the Right Hook tonight. Cleverly my new computer didn't record the interview. I'll ask them for one, and if I get one, I'll put it up here.
Some positives from the nationalisation:
Anglo Irish Bank, once it is nationalised on Tuesday, can be used as a bad debt sponge--the govt can use it as a vehicle to absorb all the bad debts accrued by the other banks during the crisis, scrubbing the books of AIB and BOI very efficiently---removing bad debts rather than pumping in liquidity to banks like BOI, which are of 'systematic importance'. It also means a default on developer loans is less likely, which should stabilise the market slightly.
The danger, of course, is that the loans are so bad they affect the government's ability to borrow on the international money markets, which means when the government wants to get money into the economy, they will pay more for it than before as our credit rating gets hammered. We've just taken on a potentially huge debt. The property portfolio for Anglo is around 70-80 billion. If half of that is bad debt, and the government needs to borrow to service that debt (because now it owns that debt) then the government has more than doubled its national borrowing requirement, at one go.
One simple and constructive solution would be to convert all Anglo's bad debts into a bond, buy the bond from the bank, injecting liquidity into the bank at very low rates of interest. This is possible. Make the bond a very long one, say, 30-50 years. That, in effect, puts the problem in a box to be sorted out later on, while we restore confidence in our banking system right now.
A question I've heard many people ask. Why didn't they just let the bank fail?
Two reasons: the failure of the bank would make borrowing on the open market much more difficult for the Irish government, and next, there is a significant chance that the buyout of the bank represents a capture of the government by a small minority of developers. If the bank fails, then the debts which accrue to the bank will now be the taxpayer's problem. But Anglo's nationalisation is NOT a bad thing, in the given climate. The fact that it was allowed to grow the way it did, virtually unregulated, is and was a very bad thing. But now that the problem is here, there's something positive we can do with our new bank (it's yours and mine). We can 'scrub' the books of BOI and AIB, and get them back in working order, by using Anglo to buy the bad loans from AIB and BOI, and so allowing them to escape nationalisation. Maybe. Does that help?
The Irish government has always used the external influence of the EU/IMF/etc to get unpleasant policies across to the public. The EU isn't issuing hard demands though, so this mightn't actually be the issue. Far more likely is regulatory capture, caution, and moral hazard as an explanation of what is taking so long.