Morgan Kelly on the Irish Banking Rescue

Morgan makes a new contribution in today’s Irish Times: you can read it here.

48 replies on “Morgan Kelly on the Irish Banking Rescue”

“While there has been considerable speculation about dark motives for bailing out developers and banks, I do not believe that the Government’s behaviour has been corrupt: it has been far worse. At least corruption implies a sense that you are doing wrong, and need to be paid in return. Our Government actually thought it was doing the right thing in risking everything to safeguard the interests of developers who had given us an economy that was the envy of Europe.”
FF and the PD,s have been captured for quite some time by financiers (local and international) , builders and property developers (mostly local ) for quite some time. The same could be said of senior management in the Department of Finance and the financial regulatory system.

I’m sure many were relieved this moring to read Morgan Kelly so simply and succinctly summarise the gravity of the crisis we face and the madness of the road we’re now on. Somebody in FF needs to read this piece, understand it and turn Lenihan and the mandarins in Merrion Street (and Treasury Buildings) around before it’s too late. A ‘STOP NAMA NOW’ movement must be started soon …

As an alternative to NAMA, Morgan Kelly proposes a straight debt for equity swap to leave the bank owned by the bond holders. There is also just nationalisation of course – which could be, as in the UK, a 90% government stake but still leaves the government, if it so chooses, at arms length. One point about the debate over these alternatives is that we assume that we have time to debate. Or, if you are the government, time to sort out the complexity that is NAMA. But we don’t have time. The longer we do nothing, the worse a bad situation gets. Look at the Bank of Ireland statement sthis morning: zero lending over the last quarter. Yes, zero. No lending means no economy.
This week, the BIS said:

‘Overall, governments may not have acted quickly enough to remove problem
assets from the balance sheets of key banks. The 1990s experience of the
Nordic countries indicates that addressing problem assets is necessary to
reduce uncertainties, re-establish confidence in a lasting way and lay the
basis for an efficient financial system. Despite acknowledging these lessons, the steps taken so far have focused largely on providing
guarantees and subsidised capital. At the same time, government guarantees and asset insurance have exposed taxpayers to potentially large losses.
Progress on problem assets has been slowed by the complexity of the
securities affected, legal constraints and, above all, the limited political will to commit public funds to the clean-up effort. The lack of progress threatens to prolong the crisis and delay the recovery because a dysfunctional financial system reduces the ability of monetary and fiscal actions to stimulate the economy.’

They couldn’t have possibly been thinking about Ireland could they? The key point is that we are following the Japanese script, to the letter.

This article is up to the usual Kelly standard. That is, it contains bogus statistics, wild exaggerations and alarmism. I hadn’t heard much from him in the media recently and was hoping he’d fled the country to escape the coming economic recovery and consequent loss of face. But, alas no! The people who claim to be terrified by Kelly’s predictions are the sort of people who fear bogey men and ghosts, and who probably spent 1st January 2000 in bed with the duvet over their heads, fearing all sorts of disasters would befall them if they went outside.

Typical are Kelly’s wild claims about the share of construction in Ireland’s economy. He claims in the article that construction will fall from a pre-global recession 20% share of the Irish economy to zero. In fact, the pre-global recession peak for construction’s share of Ireland’s GDP was 8.9% in 2006. In 2009 Q1, the latest quarter for which data is available, it had fallen to 6.0%. Both these figures are in Table 1 of the CSO national accounts release published this week (link below). Its never going to fall to zero. It may overshoot and go below the EU average of about 6.5% for a while, but that’s all. In the long-term, it will inevitably go back above the EU average, as our rate of natural population growth is by a mile the highest in the EU. Even if the population wasn’t growing (which it is), there’d still be need for replacement houses, roads, schools, shops, offices etc. Even in the 1950s and 1980s, when the population actually fell, there was still a sizeable construction industry that accounted for 5% or so of GDP. Even in countries whose populations are falling today, e.g. Germany,
the construction industry accounts for 5% to 6% of GDP. Kelly’s scenario of an economy with zero construction activity is pure bunkum.

However, fair’s fair, Kelly HAS changed his opinion of the Irish economy in a number of important respects, compared with his previous outpourings. Up to recently, he was denigrating the Irish economy as a ‘Bob-the-Builder economy’. He was claiming that manufacturing and exports had collapsed since around 2000, that the only growth since then was in construction, that we were totally uncompetitive and that the workforce was unskilled. Read the articles he published in the Irish Times in 2006, 2007 and 2008 and that’s what he’s saying.

But, his predicted collapse in manufacturing and exports has failed to materialise. Indeed, Ireland is the only EU country to suffer virtually no fall in manufacturing output or exports during the global recession. So, now Kelly says: “the flexibility of the Irish labour market would have ensured that our incomes and share of global trade would have rapidly recovered.” That’s exactly the opposite of what he was writing last year.

I’d say the timing of Kelly’s article is not a coincidence. Since his future reputation (and probably income) depends on a complete collapse of the Irish economy and no recovery for years, he must be disturbed by recent events, in particular: the continued excellent manufacturing and export performance, the sharp improvement in wage and price competitiveness, the rapid improvement in the balance-of-payments, the stabilising in the government finances (they now look like hitting the revised target in 2009), the surge in consumer confidence in June (usually a precursor of increased consumer spending), the very sharp improvements in the manufacturing and services PMIs since April (up almost 10 points), and so on. All of these indicate that Morgan Kelly’s 15 minutes of fame are nearing an end. And not before time!

@ vincent
Problem is that its probobly the closest to the truth.

@ John

Although I aggre that this is what is required, the liklyhood of it happening within FF are slim to nil. Psychologicly for any senior FF to do this would take a massive amount of emotional intelligence, bravery, putting the national interest before party loyalty etc. etc.
Its not going to happen from within.
Thats why a “Stop nama now” movement needs to come from everyone outside FF.
Its actually not fair to expect FF to fall on their swords. They need a push. I suspect they are surprised it hasnt happened yet. The level of dossility in this country never seems to dissapoint.

I think that the lack of bondholder exposure is partly at the behest of European powers (and obviously the bondholders themselves).

“I have full confidence that Cowen and Lenihan are happy to admit that they were misled by the banks and have all but done so by saying the banks were in a state of denial. I have full confidence that Lenihan will take whatever good advice is given to him and that if Morgan Kelly could expose flaws in the logic of the current advisers that Lenihan would do the right thing.”
If the banks mislead the Government then the insurance policy issued by the state (the bank Guarantee) is null and void. ‘Utmost good faith’ is a key principle of insurance. So why would they introduce legistlation to extend it?
Your faith in Lenihan to “do the right thing” is optimistic at best.

“I’d say the timing of Kelly’s article is not a coincidence. Since his future reputation (and probably income) depends on a complete collapse of the Irish economy and no recovery for years,”

Really? I think not many people would share that point of view.

You’re extremely slanted opinion of MK paints your arguments in a very bad light…

It says a lot when Mary Harney has to plead with FF backbenchers not to give into the demands of the pharmacy socialists, when not one of them is prepared to publicly question the NAMA plan.

The challenges are already immense – the deficit and over 500,000 dole claimants by Christmas – without the risk of the bank bailout.

The cover given by the Obama administration’s forced restructuring of GM should at least give Lenihan a pause for thought.

As for the recovery, for much of the 1981-87 period, there was a recovery but real house prices fell year after year while emigration and job losses kept consumer demand down.

Now we’re back to having to save a deposit against a backdrop of job insecurity.

As for the economy, add in the big burden of debt, which will hobble our trading partners for the next decade.

For Ireland, servicing the national debt and paying unemployment will again become a black hole.

Just this week, the European Commission warned of a likely permanent loss in potential economic output as a  result of the crisis.

Another electrifying article from Morgan Kelly. The hairs were literally standing up on the back of my neck as I read it. The man was right about property prices, was right about Anglo and is now predicting national bankruptcy.

With NAMA, the Government has been acting as a team player at an international level. This is because (i) there is an international problem and nation states upon whom we depend have called their allies to economic arms, and (ii) the Government thinks that it must pursue a solution with international credibility to preserve our ability to borrow. The Govt believes it is being prudent in shirking the bleeding edge of national economic innovation. I have believed the Government is correct. I have always seen our following the international consensus as inevitable given that we are caught in a “credibility trap” (copyright zhou_enlai 2009).

Morgan Kelly’s article is striking because it says
(I) the approach of the international community is not suitable or advisable for Ireland, and
(II) continuing down the current path will lead to penury or national bankruptcy.

Questions arise:

(a) Is Morgan Kelly correct that INBS and Anglo were not systemic?
We have been going around in circles on this for some time now. There has not been sufficient transparency and disclosure of Anglo’s and its creditors’ activities for definitive analysis to be conducted. This is intolerable. It allows to persist the fear that we have been swept up with in the emotion of EU finance Ministers vowing not to let banks fail.

(b) Is Morgan Kelly correct that the State could have done to banks what the USA did to General Motors?
It is not clear that the legislative framework to allow this was in place. It is not clear how it could have been put in place in time. Most of us recognise the Guarantee for the yoke that it is but cannot say definitively that it was the wrong thing to do at the time. In any event, one would expect that all necessary legislation would now be in preparation or prepared. Unfortunately, it is impossible to have faith in the Department of Finance or in the Parliamentary Draftsmen in this regard.

(c) Have we effectively lost our economic sovereignty?

Other countries and groups of countries of which we are a member have decided on the path we are following. NAMA was only announced after the EU Commission recommended such an approach across Europe. The only thing Irish about the NAMA solution is the catchy acronym.

The interlinking and interdependence of the international financial system is incomprehensible to the lay man. The effect of bonds defaults and calls upon derivative products is beyond the comprehension of the educated masses. If educated people cannot test the case in their own mind then there is no democratic accountability. At this moment, we are being asked to sacrifice our future prosperity to avoid the consequences of bond defaults by private banks. People tell us and our Minister that attempting to make arrangements with bondholders will have apocalyptic consequences. Their logic is opaque. All the while, hugely powerful (nationally and internationally) interest groups (banks, sovereign wealth funds, brokerages, insurers, retail multiples) lobby and influence politicians and policy makers (who themselves lack the relevant expertise) in the USA, the EU and Ireland. This is a huge cause for alarm.

If we are so weak that we must follow the prescription of other countries without demurring then we have no more sovereignty than the Eastern Bloc countries had in the days of the Iron Curtain.

Irish people are entitled to demand that our Ministers and Civil Servants have the guts and the ability to make the correct decisions for our country. If the State is not competent to act independently because it has eviscerated its expertise and must rely on undemocratic organisation such as the IMF, Goldman Sachs, the World Bank and the ECB for expertise and guidance then our sovereignty is a sham.

To fight against that sham the Irish Government must call on private citizens to give of their expertise. (If Irish bankers continue to act in their own narrow interest then they must be ostracised by all members of society. They should also be sued individually by the State for negligent or fraudulent misrepresentation at the tie of the Guarantee. The call to patriotic duty is a call on to duty not a plea for help.)

I am not convinced that Morgan Kelly is correct in his bowel-loosening analysis but I am convinced that his points need to be taken seriously and addressed in a transparent manner. I would love if Morgan Kelly would go and work with the Minister and his advisers for the good of the country.

Unlike Morgan Kelly, I have full confidence that Cowen and Lenihan are happy to admit that they were misled by the banks and have all but done so by saying the banks were in a state of denial. I believe Lenihan will act in the national interest and take whatever good advice is given to him. If Morgan Kelly could expose flaws in the logic of the current advisers that Lenihan would do the right thing.

Personally, I was not impressed by Martin Mansergh’s reluctance to work for FG in the past. I hope Morgan Kelly will be more of a National hero than Mansergh if called upon by FF.

[Apologies for the hyperbole – Kelly’s polemics demand it :)]

@Eamonn Moran

I editted that post to make it slightly more readable. [Thanks to the moderator for assisting.]

Your point about insurance and invalidity is bunkum from a legal point of view. However, the Government may revoke the Guarantee by statutory instrument. Your point becomes significant if the Government can persuade international markets that such amove is justified. That would seem highly unlikely as international investors are unlikely to be ad idem with Eamon Moran! Nevertheless, it is something to be kept in mind.

@zhou_enlai INBS a mutual society had 80% of its loan book outstanding to commercial property investors, with an exposure of about 45% of the commercial loans to shops and offices in the London area.

Lenihan said sometime ago that INBS was systemic because it had a branch network, which was a ridiculous reason.

Anglo didn’t have a branch network and its loans were almost exclusively for property in Ireland, UK, rest of Europe and the US.

Simply, the two weren’t systemic to the economy.

Since Senior Debt ranks parri passu with depositors, can you actually force a debt equity swap?


We need to know who the borrowers were too.

Firstly, if an accountant with a medium sized practice got into property development and borrowed from Anglo for this purpose then if Anglo call in this loan it will possibly shut down his accontancy practice too if he has issued cross collateralization and if his licence to practice depends on him not being bankrupt.

Secondly, there is a multiplier effect with money where the money from the bank to the developer is paid on to staff, consultants and contractors and professional advisers who in turn employ staff and purchase goods and services. Many developers have gone into hotels and other businesses (diversifying) which are paying interest and running costs. If you call in all loans then you shut down all those businesses.

Thirdly, being systemic might simply mean that if one bank fails then it will lead to people fleeing the other banks. This would seem to have been a huge risk at the time of the Guarantee.

I appreciate that you may be correct that certain banks weren’t systemic. However, I think we need more thorough analysis than looking at those bare percentages. I think this is important as we may (unlikely) need or decide to let INBS and/or Anglo fail come September 2010. If we do have to let them fail then we will need to have the evidence to hand to show these banks are not systemic.

@ JL

im pretty sure you’re right, no debt/eqity swap can be enforced, it’d have to be agreed. To even get close to this agreement, the wide ranging govt guarantee on all bank debt would have to be scaled down considerably.

“The people who claim to be terrified by Kelly’s predictions are the sort of people who fear bogey men and ghosts . . .”

Good on you, John.

We need to be made of stronger stuff. I well remember, back in 2007, the eejit tried to scare the crap out of us, with his so-called warning about an alleged property bubble that would soon bring the economy to its knees.

That kind of negative thinking can’t be afforded in these perilous times. We can get out of this – I heard them say so this very morning on Pat Kenny’s radio show. Tough decisions, that’s what we need. And any nay-saying extremists from the social welfare classes – not to mention alarmists such as Morgan Chicken Little Kelly – should be taken care of courtesy of Mr Dermot Ahern’s excellent new never-mind-the-evidence-feel-the-fear legislation.

Even if NAMA was the greatest idea ever concieved you can bet your life that it will be full of legal loop holes that will keep the courts busy for years .

Brian Lenihan as a corpulent tooth fairy is an image that will remain with me for a long time. Unfortunately..

While I agree with Prof. Kelly when he says that we seem to be heading towards default, I still doubt that it will ever actually happen.

Euro membership is saving us from default because we are ‘systematically important’ to the project. It is bad enough having large differences between different euro sovereign bonds, but the idea of any sovereign euro bond going into default will probably not be countenanced.

The phrase ‘zombie banks’ is used to describe the situation where banks continue to exist, but are not capable of continuing normal everyday banking business (B. Lucey calls the effect Japanification after the banking system during Japan’s ‘lost decade’). Well perhaps economists will soon have a new word for their lexicon. ‘Irelandification’, after the worlds first zombie country, where the country is held in stasis by ECB liquidity, but remains unable to continue normal everyday economic activity.

Keep up the good work Morgan. Happy to hear you are still alive. Thought you had been captured by Willie O’Dea and placed under house arrest in Moyross.

@ John

You were hoping Kelly had fled the country to escape the coming ‘economic recovery’? Perhaps you are young. There are many people in Ireland – most of them younger than 40 – who have no idea that Ireland’s prosperity in recent times may have been an historical outlier. What’s not in doubt is that the government and its spending commitments – both in terms of NAMA and its own staff / pension / social welfare costs – would have caused this fiscal catastrophe even if the banks hadn’t gone bust. There is also a general bias towards assuming that the devil you know is your friend. The truth is that even if Ireland does everything perfectly from here on it is still bankrupt and there will be massive poverty. Would that even 1% of your analysis were correct. But alas Morgan Kelly’s article nails it.


You said ‘I believe Lenihan will act in the national interest and take whatever good advice is given to him. If Morgan Kelly could expose flaws in the logic of the current advisers that Lenihan would do the right thing.’

Yes that’s it. All Lenihan needs is the right advice.

You also say

‘Personally, I was not impressed by Martin Mansergh’s reluctance to work for FG in the past. I hope Morgan Kelly will be more of a National hero than Mansergh if called upon by FF.’

Your comments and those by John above are a bit like arriving in Communist ‘Warsaw for Christmas circa 1980 – having travelled from your mansion on the shores of Lake Geneva – and being told by your Polish hosts: ‘We are so rich that we have only pickled onions for Christmas dinner. You never see pickled onions for dinner in Geneva. You must be very poor’.

Yes. If only Martin Mansergh were advising Lenihan or had advised FG in the past things might be so different. I mean he speaks so well and seems to be educated. I believe he owns a gold watch and a motor car.

One more thing. To even suggest the possibility that in this or any parallel universe Martin Mansergh – who, in his dealings with Northern Ireland’s nationalists, was like a fake doctor treating a patient who himself was faking an illness and who since then has role played posh Anglo-Irish totty for Fianna Fail in a relationship which for both parties may have been like kinky sex but which for observers was a weird and disturbing example of the atavistic journey travelled by some Protestants down the human evolutionary ladder in a sickening tableau of Ireland’s cultural and moral decline with overtones of Gandon (burn my country house down and turn me on) – is, despite his, obvious economic illiteracy, part of the solution is, well, ludricrous.

@ P.MacD.

I was suggesting that Morgan Kelly might be part of the solution.
As far as I can recall (i.e, I am open to correction), Martin Mansergh opted not to work on the Northern Ireland problem for the Rainbow Government when invited.
I hope that if Morgan Kelly is asked by Minister Lenihan to work on the economic crisis that he won’t decline the invitation for the sake of his obvious dislike of all things FF.

I enjoyed your last post immensely all the same; almost as much as I enjoy polish pickled onions.

Finally, someone talking about bondholder haircuts. This article makes a lot of sense. As an Irish taxpayer I do not understand why I have to suffer because the banks and developers screwed up big time. Let the people who lent them money suffer first. It is a basic rule of investing. If there is no risk, it is not an investment.

@zhou_enlai I’m afraid ‘Martin Mansergh’ is a trigger word for me to start shootin’. I do have a problem with the notion that hiring Morgan Kelly as an ‘advisor’ will be of any use. There is a fallacy abroad – from a false analogy with the physical sciences – that what’s needed are ‘experts’ – in the way that we need engineers to build roads. The real problem in Ireland is not one of economic science but one of morality and governance. The state has been criminalised by greed and vested interests. We pay lawyers millions to discuss the misappropriation of thousands. The government doesn’t lack information or advice. It is simply corrupt without being illegal. The solution is not FG or Labour: It is a political revolution that would destroy the power and privilege of the entire administrative / professional class. The problem with some of the professional economists writing on this site is that they misunderstand the fable of the Tortoise and the Hare. To suggest that the Hare, by repeatedly halving the distance between itself and the tortoise, can never catch it is exactly analogous to those who – upon hearing a suggestion that we can a) alter judges pensions, b) reduce public servant privileges or c) let Anglo Irish go to the wall – talk about ‘legal or constitutional issues’ and begin salami slicing the issue into ‘analysis’ and economic theory.

…I dream of public servants that were never fired and ask ‘Why Not?’

…the point about the fable of the Tortoise and the Hare is that to see the race in terms of cutting pieces off the distance between you and your opponent ensures that you never catch him – let alone pass him out. The fable is not about the ‘wisdom’ of the slow tortoise over the ‘hasty’ hare. It’s about the fallacy of thinking that merely mentally slicing up a problem is, itself, going to solve it. The point is that measurements / economics etc..exist only in our head. They are tools but the things they measure are real. The entire Irish governing / administrative / political class is paralysed by the equivalent the Father Ted scenario when the answer ‘That would be an ecumenical matter’ is suggested to Dougal as a good answer to any questions from visiting Bishops that seem difficult or complicated. You should try this for yourself. Let’s call it Economic Crisis Bingo. Person A. says to you ‘The economy is screwed we need to cut government costs and realise bank losses’. You say ‘We are where we are’. They say ‘Look at we’re paying these senior public servants and lawyers….’. You say ‘If you pay peanuts you get monkeys and if you pay monkeys real hard cash they may, when you squint your eyes, no longer be monkeys…’. People will think you’re a philosopher. This is what Alan Ahearne answers to any questions he’s asked these days.


“The entire Irish governing / administrative / political class is paralysed by the equivalent the Father Ted scenario when the answer ‘That would be an ecumenical matter’ is suggested to Dougal as a good answer to any questions from visiting Bishops that seem difficult or complicated.”

I hesitate to interrupt such an entertaining and articulate rant, but the entreaty to ecumenicalism was actually “suggested” to Father Jack……………. You will appreciate that this inaccuracy casts serious doubt on your credibility.

However, the unrestrained diatribe about Martin Mansergh should be in the running for post of the year. Classic.

Feck ! DRINK !


The Government NAMA strategy appears to be “Pray and Delay”. Recent press suggestions that some of the transfers will be delayed until next year so that the banks will not have to take immediate writeoffs seem accurate. If Morgan Kelly is correct and the Government pays 75 billion for the Trash, it will have to be bought with Government Bonds. By spreading this over two years the ECB will not have to absorb lorry loads of Irish Bonds (in return for cash) all at once. The trouble is that the interest on these Bonds will negative any savings/income generate by the next budget. It would be naïve to believe that the Trash would generate sufficient interest income over the next few years to cover the cost to NAMA. It would seem that the Professor is right when he states that the drift into national bankruptcy looks increasingly unstoppable; the good news is the ship is sinking at a slower pace. We might be able to get off.

Now why is it that you and me are being asked to bail out the banks when the vast majority never actually invested in them?? why are these bondholders not being made to suffer first?? Who are these people that they are being put before the Irish citizens??

I think Lenihan mentioned it is to do with reputation well our reputation will be in tatters when we go bankrupt anyway so I guess it is down to who you want to protect Mr. Lenihan…..the bondholders or the tax payers!


I agree with your comments. If someone does not bother to read the stats how can you make the analysis that is valid.

What really worries me is that my taxes are being used to come up with this drivel. The “Cuts” Board could do us a favour.


Lenihan long ago decided that he was protecting bondholders.
So who is providing the kep advice?

The big stockbrokers have an interest in looing after these people as they sold the bonds to them in the first place.
These self same stockbrokers were criticised for selling perpetual bonds to credit unions – it was deemed an inappropriate investment for unsophisticated investors.

Back in the CJH era, it is clearly documented that Dermot Desmond was very influential. In the Ahern dig-outs, Ahern claimed that Padraic O’Connor, then head of one of the stockbrokers, was a close friend.

To my mind the untold story here is the influence of the major stockbrokers, defending bondholders interests, and spooking Minister Lenihan into doing what he is told.

Minister Lenihan may have learnt some of the vocabulary of economics but he has no grasp of the grammar. He can speak fluently but with very little understanding of the subject. The sacry thing is that he thinks he is right – he doesn’t know that he doesn’t know.

So we will end up paying about 35 billion for the bank failure.

I too though Morgan was gone for good, after the IT had to apologise for him and he went to the US to proclaim his joyous news on the Irish economy, just in case any American investors hadn’t heard him from here.
He could have done his country some service, but no, he came back.

Anyway, I thought it odd, given all the support here for Morgan Kelly, that there was not one word from anyone to explain his misuse of statistics. Maybe if he’s telling you what you want to hear, little things, like facts, don’t matter, even if so I think we have a right to expect better.

Apart from the share of national income from construction, which at 20% he seems to have plucked out of thin air, he also seems to believe we have about 400,000 empty housing units all looking for a new owner. I speak only for myself here, but that was news to me. I do so wish he had taken the trouble to say where he got this notion.

Can anyone tell me who the bondholders are? Irish individuals? Institutions Irish or otherwise. Enquiring minds would like to know. They’re talked about like a species of post-national aliens.

I think Morgan Kelly describes the scale of the problems facing the Irish economy very well. It may scare some folk, but that’s probably overdue. I’m not aware that Kelly had any say in Anglo’s credit policies. He is not to blame. I appreciate his contributions.


That is my basic question as well

@Maurice O’Leary

ok so the stockbrokers have influence and want to protect their clients, understandable, but why is Lenihan so blindly following their rationale?? What are the stockbrokers saying to Lenihan?? Are they saying their clients are of “systemic” importance?? and again why should we asked to foot the bill for something they invested in??

Someone else stated that we would loose our international reputation for financial investment and therefore our borrowing costs would go up. But at present our credit rating is being reduced as our economy is in tatters and we are further bankkrupting the country by bailing out the banks so how if we went down the route of the bondholders wouldn’t the economy be in a better position and hence our credit rating?? And who the hell wants to invest in a bankrupt country anyway… sorting it out this might actually be good for our reputation!

Thanks for that, I misread Morgan’s point on the 20% to 0% of national income. I got the impression he was talking about the State’s income, he could have said GDP instead of “national income”, that might have been helpful, to the reader at least. No matter how he phrased it, construction going to 0% of GDP or “national income” or even State income is very hard to see, dramatic, I’ll grant, but likely, I don’t believe so.

In any event that was not the figure I was wondering about, it was his idea that we have 400,000 new housing units awaiting sale that had me in a dizzy.

Morgan Kelly’s article essentially says we should not have given the guarantee but should have instead got the bondholders to take over the banks. Clearly that could not have been done with the click of one’s fingers. Indeed, nobody has suggested how it could have been done at all. Nobody has suggested what the bondholders would have done once they assumed ownership. In any event, that ship sailed with the granting of the guarantee. This makes Kelly’s article essentially a lament.

We need to learn from what has happened. We need legislaive framework for the orderly winding up of financial institutions. We need to look at the guarantee again and see is there a way out, such as altering it to guaranteeing a percentage of debts rather than the whole debt. If the percentage were higher than what the bondholders could have reasonably expected to recover (with the benefit of hindsight) before the last guarantee was granted then they will not have suffered loss.

We also need to consider carefully the consequences of further unilateralism in dealing with our economic problems (as counselled by M. Kelly). What hope does Ireland have of returning to prosperity in a de-globalised world or in a fractured Europe?


I didn’t see the figure of 400,000 unoccupied units in the article, but in any event it may be an underestimate. The number of unoccupied housing units identified in Census 2006 was just over 266,000 up from approximately 104,000 in 2002. New completions from Q306 to Q408 were almost 180,000. At best approximately one quarter of these may be occupied and with evidence of falling rents and return migration among workers from Eastern Europe the figure could now be lower. At 25% occupancy, added to the 2006 Census gives a figure of approximately 403,000 unoccupied units at end of 2008. This does not include the unquantifiable number of incomplete units which as Kelly notes may never be completed.

TR, thanks for reply.

Kelly didn’t refer to unoccupied units, he said we had 10 years supply of housing units available for sale, with a demand of say 40,000 units per year I took that to mean 400,000 units, at least that’s the impression I think he was trying to give.

The most sensible estimate I’ve seen for our overhang of surplus housing over and above the EU average was from Goodbody’s in the Irish Times at the end of last year. After discounting the census figure for holiday homes and allowing for any surplus produced from April ’06 to end ’08, they estimate the figure to be a little over 100,000.

In the same report they also compared our unoccupied housing stock with the EU average at the time of the census, the figures were 7.3% for the EU & 11% for Ireland.
In the end it doesn’t matter how many unoccupied units we have, if they’re not for sale they don’t affect the market.

It’s possible of course to use statistics in any way you want and it’s Morgan Kelly’s privilege to go for the most dramatic figure he can stretch to, just as it’s mine to reach for the largest pinch of salt I can manage.

Morgen Kelly may be wrong about the statistics but he is certainly not wrong about the facts. Just as he forecast the bubble, just as he warned the government about Anglo, until he was blue in the face, he now rightly predicts the obvious that we are heading for national bankruptcy.

It is common sense really for anyone that can perform any kind of basic mathematics. A current budget deficit of almost 30 billion total revenues of 32 billions for 2009 an accrued national debt already exceeding 61 billions. Unemployment to reach 500,000 by December. A government paralysed, unable and afraid to act on any front, soon to run away on “holidays”. Colm McCarthy’s report interdicted and kicked further down the road into 2010. The idiocy of Peter Bacon becomes the governments holy grail called NAMA. To cost the already broke taxpayer another 63 billions by best estimates! In the meantime businesses cannot get access to finance. All in all, you have a formulae for national disaster alright and probably civil war!

If I was a retired civil servant or politician I would be taking out some credit default swaps on whether or not I would still be receiving any pension by 2011.

Yes an excellent article. I’m not sure a bond swap would be the best idea in the circumstances. But this is certainly the kind of thinking that will be needed from the next government…. if it were ever to be so capable.
I am astounded
1) that the public takes all this lying down.
2) that the opposition is not opposing in any effective way.
3) that journalists are not asking the questions, and finding answers.
I hear comments on RTE that “there is no alternative” to taxpayers paying the full tab. Such comments go unchallenged. Remarkable (it possibly reflects the difficulties journalists have in preparing for interviews and understanding the issues).
Unfortunately, I am unable to challenge them much either from my armchair.

@ ec “Can anyone tell me who the bondholders are?”
Some professional tools such as Bloomberg report some holders.

The issuer will know who the holders are when a bond is first sold. Afterwards, it becomes more difficult, as there is probably no register of who the bonds might be sold on to, other what services such as Bloomberg or eMaxx-Reuters etc (some investors are required to declare holdings and these are than collected and posted by data services).

Bloomberg is showing an outstanding of bonds
1) for Bank of Ireland of over €36bn of BoI
2) for AIB of €28.5bn.
There might be more in other instruments.
Bloomberg shows that the price of a subordinated AIB bond (expiry June 2019 and paying a 12.5% coupon) rose from 91.5 to 95 over July. A large part of this move was driven by lower global yields and greater risk appetite. The bond was issued in June at par (i.e. 100). So it is still trading very close to par, suggesting confidence.

@ zhou_enlai “we must follow the prescription of other countries without demurring”
This is not so. NAMA is unique (Germany has some difficulty with setting up its bad bank). I am not sure there is much international approval anymore for NAMA style solutions.

@ Eamonn Moran “the lack of bondholder exposure is partly at the behest of European powers”.
Not so. The EC, the IMF, and other governments I am sure would prefer to see sensible and resolute policy making in Ireland. International governments and the international public have a vested interest in Ireland’s long term political and economic stability.

@ zhou_enlai
“the Government thinks that it must pursue a solution with international credibility to preserve our ability to borrow”.
Most policies that alleviate the financial burden on the Irish taxpayer will help the credit ratings of the Republic of Ireland. The government will be able to borrow at a much LOWER cost once the taxpayer no longer has to pay the cost of the bank rescues.

@ LorcanRK Says “Euro membership is saving us from default”
Default should not be viewed as a binary event i.e. government repays / does not repay. Many intermediate possibilities are feasible.

@ Garo Says: “As an Irish taxpayer I do not understand why I have to suffer”.
@ Paul MacDonnell. “revolution”
@ DeRoiste “Now why is it that you and me are being asked to bail out the banks when the vast majority never actually invested in them?”
@ zhou_enlai “that ship sailed with the granting of the guarantee. This makes Kelly’s article essentially a lament.”

Well I am not an Irish taxpayer. And I don’t understand why citizen taxpayers do not ACT. Moaning here does not advance the cause much.
An appropriate government-managed policy, even at this late stage, would be preferable to a sudden, improvised change in course.

Irish citizens are acting, they are out marching every Tuesday evening at 7.30 to the Dail and plans to stand outside the Dail every Wednesday from 12.30 to 1.30, but of course they have been labelled “anchists” as that suits certain interests. I would urge you to listen to Max Keiser at, he is telling like it is and it aint pretty! Much worse coming down the track according to him.

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