This is not the venue for it, but it’s been a while since I posted anything so I make the following suggestion here first. What Ireland needs is a people’s bank of sorts to take money from households who want to save and funnel it directly to businesses, bypassing the moribund banking system.
The bank losses in Ireland were so disastrous that despite the Government buying shares, and despite it buying many loss making loans from them at much higher than market rates, they still have no money to lend to business. Business representatives complain that banks are withdrawing money from the system by not renewing overdrafts or providing new loans for investment, which means that businesses can’t pay their suppliers and the like. When the businesses close, their employees join the dole queues. Part of the problem is that the mortgages on over-priced property that are putting the strain on households, if anything, are putting more strain on the banks. About half the outstanding mortgages have interest rates that track by a fixed margin the European Central Bank’s historic-low interest rate. Since the banks didn’t lend their own money but borrowed on short-term money markets to supply these mortgages to people, they are now paying much more interest on the money they borrowed than householders pay back to them. That’s why they are not going to suddenly start lending more money to business.
The general economic mood is bleak. Those with jobs (1,859,100 souls according to the Central Statistics Office’s latest Quarterly National Household survey, out of a population in the region of 4,239,848, which was the figure from the last census (in 2006)) fear the worst is still to come. They are not flashing their cash about but are saving more than ever. The banks are happy to take that money, but we need to direct it to more deserving beneficiaries.
This might work: Let the Government or some more trustworthy individuals aggregate the savings of thousands of households and lend them to businesses. Something like this is what a bank is supposed to do. It makes a profit from lending at higher interest rates than is pays to savers. As a stimulus measure, the Government could pay the administration costs of the scheme and run it on a non-profit basis so that businesses pay the same rate as the savers get.Of course, some businesses might go under even with assistance but we couldn’t expect donors to absorb the losses associated with that. But perhaps this could be accommodated by aggregating the loans and by charging slightly more to businesses.
Perhaps the Government would not support this type of thing because it would compete with the banks and deprive them of deposits. The Government also has its own scheme, a National Recovery Bond that will give you a guaranteed 150% of your original deposit after ten years (i.e. interest rate of ca. 3.6%). The National Recovery Bond is certainly a better deal for the Government than the 6.5 or so percent it is paying on the international bond markets for ten year bonds.