By Michael Murphy
THE DECISION by the government to nationalise Anglo Irish Bank and now recapitalise AIB and Bank of Ireland (BOI) to the tune of €7 billion of tax-payers’ money is an attempt to shore up the Irish banking system. All Irish banks are on very shaky ground.
A collapse of Anglo Irish Bank would have had a devastating effect on the entire banking system and the economy. The state would have been hit with a massive bill for Anglo’s bad debts because of the state guarantee given to the banks by the government in September.
The government is bailing out the bankers and property speculators who made millions from the property bubble they created by artificially pushing house prices way above their actual value. This forced thousands of young people to take out huge mortgages they will be lumbered with for up to 40 years.
Eighteen months ago, shares in BOI were trading at over ?17, now they are worth less than ?1 which clearly illustrates that investors have no confidence in the state’s two main banks.
These banks, while not as weak or over extended as Anglo Irish Bank with the debts of property speculators like Sean Quinn, are still exposed to the collapse of the property boom. The decision of the government to bail them out through re-capitalisation is an attempt to boost confidence in both banks and prevent any further collapse. However, the ?7 billion re-capitalisation may not be enough.
Some estimate that bad debts related to construction could be from ?10 billion to ?25 billion. On top of this, corporate debt defaults will increase in the year ahead as more and more companies go bust. Many of the hundreds of thousands who have and will lose their jobs will be unable to continue to pay their car loans, credit card debts and/or mortgages will mean that a wave of bad debts is coming down the line for the banks
In this scenario, it is likely that the government may have no option but to nationalise AIB and BOI. The Socialist Party is in favour of the nationalisation of all banks and indeed the major industries in Irish society. However, we are opposed to the “capitalist” nationalisation that has taken place in Anglo Irish Bank. In reality, the bad debts of the property developers and speculators have been nationalised while they have walked away from a crisis they caused unscathed and with no consequences for their actions.
Sean Quinn, for example, a billionaire business man owes a vast fortune to Anglo Irish bank. His companies could be nationalised and the profits used to immediately repay the taxpayer for the bail out of his debt. The Socialist Party believes that AIB and BOI should be immediately nationalised and run by and for the interest of ordinary people and society as a whole, not the wealthy few.
These banks have made tens of billions of profits in the last 15 years, this money has not disappeared. The vast resources of the banks should be used to create jobs, bail out workers at Dell and Waterford Crystal, and to fund our cash strapped health and education services.