The Irish banks have run into some serious problems. The core of these problems are quite simple. But eight months forward from the official emergence of the crisis, there is no sign of an answer. There is serious criticism of the possible solutions that are coming up.Everyone is afraid that we will end up with a bunch of zombie banks, and that the people who caused the problem, property developers and bank officials, will end up being rescued from their sorry situation by the taxpayer.
Most of the objections are still tactical, rather than strategic. Zombie banks or a few rescues aren’t the biggest problem. The real problem is that we are going to end up with a zombie banking system, and that the government will end up as its political guardian.
So the problem is simple: the banks’ net assets are less than zero. The loans they have given out, for which they borrowed money from depositors and other lenders, are no longer considered likely to be repaid in full, or anything near it.
Solving the problem is far from simple. The following issues arise.