Tuesday, October 7, 2008

Government Guaranteeing Irish Deposits

Imagine a man walks into a VHI health insurance office. The man looks pale. almost sickly you'd say. His back is bent and he walks to the desk with a stoop. He then tells the clerk at the desk, he'd like to sign up for some health insurance and with that, he lets out a loud, rattling cough. The clerk at the desk asks him, "Ok, before we approve you, we need to know if you have any prior health conditions". The sickly looking man tells the clerk everything is fine, infact things couldn't be better. The clerk then happily rubber-stamps the application form and the man is now covered.

It sounds ridiculous, but this is exactly what the Irish government has done by acting as insurer for the Irish banks. Without even looking at the loan books of the banks, we have given an assurance that we will cover any potential liabilities that may arise from them.

3 comments:

Fergus O'Rourke said...

I am sorry, but this is nonsense. I hope that you have realised that by now. If not, see my article "Professor Kelly is Wrong".

Carrigaline said...

Nonsense? Well thanks for that well-thought out bit of insight.

I suppose we shall have to disagree on this one. I would maintain that it's ridiculous that we should guarantee the bank before examining the books. I don't know an investor in the world who would think any differently.

Carrigaline said...

I hate to say I told you so, Fergus.

"the cheapest bailout in the world so far" - Brian Lenihan in 2008

http://www.irishtimes.com/newspaper/finance/2008/1024/1224715115776.html

A year later, we've sunk several billion into Anglo Irish and insolvent private entities like Bank of Ireland and Allied Irish Bank.

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