What the hell does Lenihan think he’s doing? First of all, he says going to buy toxic assets off banks at under book price. Fair enough, a bad bank model, if a spectacularly bad one (he reserved the right to nationalise banks if the assets didn’t perform as well as he expected – way to boost investor confidence...) But now it seems the government is not only going to buy bad assets, but good ones as well. I didn’t think it was possible, but Lenihan has proven himself even more skilled at taking the worst of both worlds.
The problem with a bad bank scheme is that the government is not necessarily the best judge of value, especially in a volatile bear market like we’re in – they may end up paying too much for loans they can never offload. The advantage is it doesn’t cost as much as nationalising the banks. But now he’s decided that buying up perfectly functioning assets is the way to go, creating a sort of “fairly ok bank”, costing the taxpayer god knows how many extra billions of dollars. And how is this money funded? Borrowing. In other words, this government is borrowing money to put into property...
In this case, nationalising the banks could be by far the safest and cheapest option. The top three banks could be bought for a song - €3bn or thereabouts. That includes all their assets. This way, the taxpayer is ensured that the only assets that will be written off are those that are definitely going under – there is no chance that the banks will make profit out of underwriting bad loans. And of course, any profits go back to the taxpayer – ending the farce of socialised losses and privatised gains.
Naturally, it will take a few months before people finally realise they will have to nationalise the banks anyway, at which point €40bn of taxpayer money will have been given into private hands to spend.
In other news, the rest of the budget is as unfair as one would expect...
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