Something which could ease the markets?

Discussion in 'Politics, Religion, Social Issues' started by paddy, Sep 30, 2008.

  1. paddy macrumors 6502a

    paddy

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    TN
    #1
    Source

    I'll admit I'm no expert on the banking system and financial markets, but does anyone think that a move like this (followed by other Central Banks), could bring some sort of stability to the system?
     
  2. Peterkro macrumors 68020

    Peterkro

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    #2
    It's my guess that it was actually a panic move to try and head off rumours of a collapse of the Irish banking sector,I watched one german analyst saying it had doubled the risk rating of the Irish banks on his scale,but given the share prices have gone up somebody must believe it's a good thing.
     
  3. Ugg macrumors 68000

    Ugg

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    #3
    Are deposits insured now? If so, for how much?

    While this is a good way of restoring confidence, it doesn't seem to be a long term solution. The Irish economy has been overheated for a long time and this might just heat it up even more.

    I'm not an economist so...
     
  4. paddy thread starter macrumors 6502a

    paddy

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    #4
    Yes, deposits are insured up to €100,000 at the moment. What this plan does is more or less guarantee inter-bank lending i.e. if the Irish banks borrow from larger foreign banks, and than the Irish bank goes bust, the Irish gov will honour the otherwise defaulted payment.

    Seems like a good way of bringing liquidity back into the market.

    @ Peterkro, the article is quite wrong in stating an Irish banking sector collapse. Ugg is right in that we've been overheating as an economy for quite a while, but from what economists within Ireland are saying our banks are (for the most part) not to badly exposed to the whole sub-prime business. What this move does is ensure liquidity within the Irish financial system.

    Here's hoping Brussels doesn't put it's foot down on the idea.
     
  5. Ugg macrumors 68000

    Ugg

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    #5
    How are home prices holding up? If prices start to drop, will Ireland end up with people defaulting on their loans? That could be disastrous since home prices have evidently skyrocketed in Ireland over the past 20 years.
     
  6. Peterkro macrumors 68020

    Peterkro

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    #6
    I also have worries about the EU allowing it,plus it's a tremendous risk to back around €400 billion in loans of all types, at present those with largish amounts of money to bank would see Irish banks as the best choice,but it was a risky response to the huge drops in the banking sector on Monday,presumably the market had lost confidence in the banks for some reason,true or not who knows.
     
  7. Macaddicttt macrumors 6502a

    Macaddicttt

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    San Diego, CA
    #7
    I'm no economist, but this sounds like a huge risk. It also sounds like the government is saying, "It's no problem to make risky loans, we'll cover them," effectively privatizing profits and publicizing losses. I'm not convinced that this will do anything other than legitimize the bad loans without creating a means or incentive for the banks to begin responsible lending again. They won't have any more capital and anything they do is guaranteed by the government.

    The US did a similar thing with Fannie May and Freddie Mac, but the only reason that worked is that the loans were all home loans and the goal was to ensure that they didn't start calling in mortgages to pay off debts and force people out of their homes. This Irish deal is way different because these are actual banks, not mortgage companies.
     
  8. Desertrat macrumors newbie

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    Jul 4, 2003
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    Terlingua, Texas
    #8
    This same sort of thing happened in the last day or so with one German bank and a bank in (IIRC) the Netherlands which provides service to Belgium/Holland/Denmark.

    Worldwide, many economies have been overheated, with way too much easy credit and liquidity--which is why we've been having these "good times" for the last dozen years.

    What's scary right now is that there is this short-term flight of capital into US Treasuries, indicating distrust of foreign central banks' stability. As bad off as we are, and others regard us as a haven? Sheesh!

    'Rat
     

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