Earlier today, the Irish government attempted to stave off financial crisis by guaranteeing all deposits and certain debts in 6 Irish banks. The full government statement can be found here.

The move comes 2 weeks after a US-style FDIC deposit protection limit of €100,000 was introduced and follows Monday's record losses for Irish financial stocks.

The plan, which guarantees an estimated €400 billion ($567 billion) of liabilities, covers retail, commercial and inter-bank deposits as well as covered bonds, senior debt and dated subordinated debt.

This proposal has been offered by some as a potential alternative to the Paulson Bailout Bill, now stalled in Washington D.C. Below, several Minyanville professors take a look at the Irish bank guarantee and consider whether something similar should take place in the U.S. to stem the financial crisis here.

Mr. Practical: Just Protect the Deposits.
The Irish have shown their peers on the continent how to do it, and one shouldn't be surprised if many others follow. It's good to see someone showing strong leadership, though we must watch Irish sovereign Credit Default Swaps today just in case.

Todd Harrison: A Step in the Right Direction
Yes, it would mean the destruction of many smaller banks and concentrate the savings and functionality in a consortium of survivors (which, in the new, regulated, transparent world, would also decline in value, as they should). We are, in many ways, moving toward that anyway, as debt destruction (through time and price) is the only true solution that would ultimately allow for a legitimate foundation for future economic growth.

The quickest way from one point to another is a straight line. While this isn't something one would "wish" for, it would make accountable those who created the imbalances (including financial institutions that financially engineered their balance sheets, policy makers who were complicit through acceptance, and consumers who over-extended on credit) while protecting -- and thereby rewarding -- those who stayed out of debt and lived within their means.

Obviously, it's not a complete solution, but it's seemingly a good start. A regulated exchange of off-board derivatives (CDS, CDO) would also be a step in the right direction, and I would imagine that segments of the housing sector would have to be included in any plan.

Yes, there will be profound and unintended consequences, but we're searching for the least of all evils here, one that will fortify the integrity in the free-market system and shift the psychology of the masses.

The process of price discovery would be painful as debt and equity values diminish but that is an inevitable consequence of debt destruction that will manifest either as cancer or the car crash.  Taking our medicine now and move towards the eventual (and currently inconceivable) "outside-in" recovery.

It's a step in the right direction.

All in my most humble opinion, of course.


Professor Scott Reamer: Up in Smoke
The Irish government plan doesn't protect any more than the FDIC protects. In addition, it creates a moral hazard that protects a structurally bankrupt institution. While it may have the effect of decreasing short term volatility, it creates with high probability the tail event whereby everyone's savings (instead of the few risk seekers who didn't do their homework) goes up in smoke (either short term with a failure or long term through monetary inflation - which destroys that savings just as assuredly).