OPINION:THE UNFOLDING drama on Wall Street begs the question as to whether we are taking our own banking problems seriously enough, writes John McManus

The decision of the US authorities to peremptorily nationalise Freddie Mac and Fannie Mae is particularly pertinent.

The posture of the US authorities seems to be one of assuming the worst and taking action.

It's almost impossible to read an analysis of the US policy response that does not, by way of explanation, touch on the Great Depression, where the failure of the US authorities to confront the unfolding crisis greatly exacerbated the problem.

Whether things are really so bad this time round as to justify the sort of action we are now seeing is an open question.

But the US treasury does not seem to want to take the chance, and the willingness of the US authorities to think the unthinkable stands in stark contrast to the attitude that seems to prevail in Dublin.

On the face of it, the Irish banks appear to be in relatively good shape, and are being punished rather unfairly - because of their exposure to property - by those who do not understand the dynamics of the Irish economy.

To underscore this point, their supporters point out that none of them has reported a significant rise in bad debts since the start of the global credit squeeze.

While this is all true, the Irish banking system's exposure to commercial property development remains the proverbial elephant in the room.

The true extent of the problem is unknown. At the moment the banks are - to use the phrase currently in vogue - "rolling with it".

This in effect means they are keeping their troubled property clients afloat through various means - rolling up interest, rescheduling loans, etc.

One suspects that every trick in the book is being tried to stop these problem loans spilling over into fully-fledged bad debts, the whole approach being predicated on a pick-up in the property market to sort everything out.

Standing where we stand today this may seem a bit unwise, but that would be to ignore the way in which we slipped in to the credit squeeze.

Six months ago nobody knew how long it was going to last, and the same applies today. There is no shortage of predictions, ranging from the truly apocalyptic to the deludedly optimistic, but fundamentally it's impossible to call.

We cannot be too far away from a point when there needs to be a rethink, however.

As of today there are very few reasons for optimism. There is not a single economist at any major Irish bank who does not expect house prices to fall by something close to double digits next year.

And just maybe it is time for the banks to start to face up to the likelihood that some of their developer clients are now beyond saving, and to all that means for the market and their loan books.

But for the time being they appear to be living in denial.

Questions must also be asked of the Central Bank and whether it is acting correctly by letting the banks restructure loans and enter into agreements that in the cold hard light of day may turn out to have been little short of fantasy.

It is scary stuff. And it does not bear thinking about, but that is the point. We really need to know whether the banks are refusing to face up to the problems in their property loan books, and whether the Central Bank is letting them away with it?

That would certainly seem to be the view of some observers, including Dresdner Kleinwort, which predicted last week that when Bank of Ireland and AIB finally face up to the problems in their commercial property loan books, they will be left with a capital shortfall.

If this is the case, the question then arises as to how things will unfold from here.

It would appear that the banks are putting on their tin hats, digging in and hoping for the best. But if Dresdner and others are right, then barring a miraculous recovery in property prices and the economy generally, they will inevitably have to come out and grudgingly admit more and more bad debts, before looking for fresh capital and/or being swallowed up by another bank.

It's going to be bad news for shareholders - it's just a case of how bad.

The Central Bank - on current form - will presumably simply stand back and watch this disaster unfold.

An alternative would be some sort of US style pre-emptive intervention - presumably backed by the ECB - with the Central Bank stepping in now to help the Irish banks face up to, and deal with, the problems in their property loan books. It's not very likely.