The Irish Guarantee - a load of old Horlicks?

HankMcSpank

When I heard that a piddley little nation like Ireland was going to guarantee *ALL* savings deposits, my immediate thought was - "What with? A couple of bags of potatoes & some Boyzone CDs?"

It seems I'm not alone, here's the *highly* respected Financial writer John Mauldin latest column...

http://www.investorsinsight.com/blogs/thoughts_from_the_frontline/archive/2008/10/10/where-do-we-go-from-here.aspx

Extract...

"As noted last week, Ireland set off a feeding frenzy when it guaranteed all deposits in its banking institutions. Five billion euros poured in over the last week. One by one, European governments are having to guarantee their loans to keep money from leaving their institutions.

Let's look at the Irish guarantee on the face of it. There are six Irish banks, holding assets of $576 billion. That works out to three times Ireland's gross domestic product, or about $200,000 for every working person in the country. (Bedlam Asset Management) Yet depositors flooded them with money in just a few days.
This is a sign of panic. One goes where one can, trying to protect what one has. On the face of it, how could Ireland really guarantee all the deposits? Yes, there are real assets against the loans, but at what price? Could Ireland borrow enough to make good on even a portion of those assets, should they decide to walk? This is sheer panic."

IMHO, a guarantee counts for nothing if the person making it can't actually back it up.

opinions4u

HankMcSpank wrote: »

IMHO, a guarantee counts for nothing if the person making it can't actually back it up.

Absolutely spot on.

Like the Icelandic protection scheme the quote says they have no intention of honouring.

I would rather have the British government behind my savings (which are admittedly less than £50k) than a smaller foreign government.

And that isn't to say I think the British government is fantastic!

cvd

Agree 100%.

The decision to honour these guarantees is a political decision.
No UK government could survive the collapse of a major financial institution which meant large numbers of UK voters lost their money or were even not able to access to it for any length of time.

If a couple of Irish banks collapsed, then the Irish government would step in and ensure the Irish economy continues to function. This means that people in Ireland would have access to their money and so the guarantee does mean something to them.
But no democratic government would survive the decision to make a financial crisis in their own country worse by recompensing people in another country.

It is disappointing that some sites and newspapers are still peddling this guarantee as 100% when it is OBVIOUS it is not. Indeed I am amazed at the naivety of people who still claim it is after the behaviour of the government of Iceland which has done exactly what any government would do when faced with a financial crisis - you ensure the normal daily financial life in your own country can carry on.

Darling has said that the compensation for savers in Iceland banks was a one-off. So people who transfer their funds to an Irish bank are really on their own.

k8r4u

Hank, John et al:

One question: do you have a clue how much do they have to guarantee, and how much is out on loan ? Your post/quote doesn't say, but without that information I'm afraid your speculation doesn't mean anything. You'll have to find somewhere else to stick your potatoes ...

Irrespective of the amount that "flooded in" (which they just need to stuff under the mattress to guarantee 100%), the loan/deposit position beforehand is what counts. With a big enough safe, any of us could offer a 100% guarantee this week

opinions4u

k8r4u wrote: »

Hank, John et al:

One question: do you have a clue how much do they have to guarantee, and how much is out on loan ? Your post/quote doesn't say, but without that information I'm afraid your speculation doesn't mean anything. You'll have to find somewhere else to stick your potatoes ...

Irrespective of the amount that "flooded in" (which they just need to stuff under the mattress to guarantee 100%), the loan/deposit position beforehand is what counts. With a big enough safe, any of us could offer a 100% guarantee this week

Safes can be cracked.

100% guarantee doesn't exist anywhere and never will.

baby_boomer

There are millions fewer people in Ireland than there in 1850. The population drain predated the Famine and has continued long, long after the Famine.