The Economics of “Don’t Scare the Horses”

This post was written by Karl Whelan

I spent lunchtime at Newstalk defending the 46 guys article on the budget deficit against Dr. Garrett Fitzgerald. Podcast available here.

What it set me thinking about though was the following. As I’ve said, I think the statement in the article about the deficit is accurate and wholly defensible. However, what if it wasn’t? What if it was as badly thought out as Dr. FitzGerald seemed to think on Monday morning?

Would such an intervention actually cause problems for Ireland in the sovereign bond market as Dr. FitzGerald believes? The argument in favour of this position is something to do with its effect on “investor sentiment.” The argument against is that the sovereign bond market is populated by hard-headed individuals who rely on expert analysts that do their sums on revenues, expenditures and fiscal sustainability for every country and won’t pay any attention if some group of idiot economists put out a bad forecast.

I’d be interested in the thoughts of those who read this blog and have a closer connection to these markets than I do.

More generally, I do wonder whether “Don’t Scare the Horses” is just another version of the regular exhortation not to “Talk Down the Economy.” My feeling is that consumer and investor sentiment play a role in the economy but that this can never justify calls to limit free speech regarding economic fundamentals.

Update: A report on the latest Exchequer statement on the websites of both the Irish Independent and Irish Examiner states “The figures, published this afternoon, show a budget deficit of €18.7 billion for the first eight months of the year, compared to €8.4 billion for the same period last year.” Does this mean that the Independent and Examiner are now also being irresponsible and destabilising for referring to the Exchequer deficit as the budget deficit?


88 Responses to “The Economics of “Don’t Scare the Horses””

  1. Al Says:

    @ Karl
    “My feeling is that consumer and investor sentiment play a role in the economy but that this can never justify calls to limit free speech regarding economic fundamentals.”

    Surely it was an positive sentiment that got us into the mess in the first place?
    But isnt it an ‘Irish’ thing, that by talking positive things will improve.
    All were missing is the work part…

    Ps: Interviewer let both of ye down. Listening to the news bulletins after it seems like all they were after was a soundbite to repeat for the day.

  2. Marcus Says:


    I’m afraid GFitz is right. International investors large and small don’t care about dull statistical publications and indices. They like newspapers and radio-shows. They also read a lot of fhm and keep in-house psychics.

  3. Frank Galton Says:

    The GF argument doesn’t work well when carried a little further. Presumably some time we’ll have an election when the government will say that the Opposition plans will ruin the economy. Are they then gearing up the markets for a crash if the Opposition wins?

  4. Maurice O'Leary Says:

    Hold on to Nurse Cowen for fear of something worse.
    On reflection, it might not be a winning slogan.

    Fair play to you for having the bottle to call out Dr. F.

    It was outrageous of him to suggest that saying “certain” bondholders would alarm the senior bond holders. Now if Brian Lucey had simply said “bondholders “or “all bond holders” then he would certainly have a point, but at any level of textual analysis “certain” should be sufficiently clear for all interested parties.

  5. Joseph Says:


    “My feeling is that consumer and investor sentiment play a role in the economy but that this can never justify calls to limit free speech regarding economic fundamentals.”.

    History seems to indicate that those who have the power to directly limit free speech or are in poweer and need to have it limited will pull every trick in the book up to and including crude brutality and torture to make that happen. I suppose there is the consolation that they are just having a go at you and your colleagues verbally.

  6. Brian Lucey Says:

    The most drafted and redrafted element was in fact on the bondies…But I guess that GF thinks that the world still listens to what the domestic irish media say.

  7. Brian Lucey Says:

    exchequer deficit out…..

  8. Brian Lucey Says:

    july total 16,439,305, august 18,733,241 deficit. and thats all im saying re deficits!

  9. Graham Stull Says:

    There is scant little evidence in the literature that media reports have any effect on bond markets.

    However, there is plenty of evidence that high deficit spending pushes up investor risk and hence bond interest rates. Here, for example:

  10. Gregory Connor Says:


    You are on-target about this constant suppression of free discussion and its stifling impact on public discussion. There is an inaccurate notion, very popular among Irish politicians, that free discussion must be curbed to protect foreign investor sentiment. It is not a coincidence that, since knowledge is power, this constant suppression of free discussion increases the power of the ruling political elite. The suppression of free discussion LOWERS rather than increases the confidence of foreign investors in Irish markets.

    I also dislike how the governement has deliberately/accidentally suppressed sales price information in the property markets, using trumped up EU rules as a cover, and now are aghast that economist are making statements about the true prices of properties collateralized in NAMA loans without having enough information. We do not have enough information because the government has prevented its release.

  11. luke Says:

    you are too nice.being lectured on economics by gfitz. is like taking an ethics lesson from dick nixon. i’m just surprised eamonn kean has apparently fallen for the bait and switch routine.

  12. Karl Whelan Says:


    For what it’s worth, I thought Eamon Keane was just doing his job following up on Dr. FitzGerald’s points and getting my responses to them. His “Isn’t that right Karl?” approach may grate a little when the point being repeated is a nonsense but it’s probably a useful technique.

  13. Al Says:

    @ Karl
    I have great time for Eammon Keane
    (Not as mush time as Eoghan Harris though)
    Most of the time he is excellent, but as a daily listener I thought that segment was poor.
    If he recognised the issue, surely he would have focused on the important issues. He didnt.

  14. Marcus Says:

    @ Karl

    You were in studio right? Could you not have pressed Eamon to actually guide the discussion towards NAMA? What took place was a waste of time (in the bigger picture I mean, I can understand why you were keen to respond to Dr. Fitz), which was ultimately very beneficial for supporters of NAMA.

  15. Paul MacDonnell Says:

    Here are two posts together I’ve made elsewhere on this very subject…

    One of the signs that we have group think in NAMA is the appeals to ‘confidence’ and ‘patriotism’. Also there’s the motivational / threatening / intimidating turn of phrase. The argument:

    1) We are in the deepest crisis in the history of the state.

    2) The ‘only game in town’ to solve this is NAMA.

    3) If you oppose NAMA then you are guilty of treason.

    It’s very hard to win against that kind of argument and whether they admit it or not 1, 2 and 3 are the steel core at the heart of the Pro-NAMA argument. Take them out and all you have are vested interests helping themselves to taxpayers’ money and avoiding the consequences.

    It’s like when the young rich kid tries too hard to kiss Marge Simpson - breaking the strap on her dress - and he says ‘Please don’t tell anyone about this. Not for my sake you understand but for the sake of the reputation of the town’.

    It’s already been pretty well establshed that the NAMA numbers don’t add up. Hence we should examine why those who support NAMA against all reasonable evidence choose to do so. I suspect it’s because being an outsider in Ireland right now is very frightening. It’s better to be seen to be part of the communal effort to ‘reconstruct the economy’. As I say above this also requires a faith in ‘financial experts’ and hunting down all opposition. An example of the latter is Fionnan Sheahan in today’s Independent. ‘The much-hyped 46 anti-NAMA economists are now something of a toxic entity themselves. After getting strips torn off them by former Taoiseach Garret FitzGerald for their irresponsible appreciation of figures, they have now gone to ground.’ This is classic propaganda. Sheahan has designed this sentence to assure anyone who is in any doubt about NAMA that its critics have no ‘expertise’ and that this has been exposed by Garret Fitzgerald. You can be sure that Sheahan has no grasp of the details of NAMA in particular or of finance in general.

  16. John Says:

    I am not surprised that Brian Lucey has decided to say no more on the deficits. The figures out today blow apart his forecast of a month ago (after the July figures came out) that the Government tax take would be only 30 billion in 2009. Incredibly, when he posted that, a few other posters said he was being over-optimistic. Dreaded_Estate forecast that the tax take would be less than 30 billion. In contrast, I posted (from my then holiday retreat in Vietnam) that these forecasts were absurd (actually, bonkers was the word I used) and that all the indications were that the tax take in 2009 would be close to Lenihan’s forecast of 34.5 billion (or thereabouts).

    Today’s figures confirm that I was correct.

    In the 8 months to August, the y-o-y fall in the tax take was 16.1%. If this was repeated for the whole of 2009, the tax take would be 34.2 billion (compared with 40.8 billion in 2008). So, very close to Lenihan’s forecast.

    However, that’s not all. The y-o-y fall is continuing to decline. In the first quarter, it was around 22% to 24%. In the 7 months to July, the y-o-y fall in the tax take was 17.6%. So, the cumulative y-o-y fall has gone down from 17.6% to 16.1% in one month. On my very quickly-done calculations (apologies if I got it wrong), the tax take was actually higher in August 2009 than in August 2008, the first time this has happened since 2007. If the trend of recent months continues, it is reasonable to hope that the y-o-y fall for the whole of 2009 will be less than 16.1%, and Lenihan’s forecast might even be exceeded.

    Bang goes the gallant ‘46′ forecast of a 30 billion deficit. Garret Fitzgerald was correct after all.

    Combined with this morning’s much-better-than-expected Live Register figures, today must be the best day for the economy since 2007. Ronnie O’Toole, who posts here quite a lot, said on RTE that average unemployment in 2009 would now be about 10% lower than even the Government forecast in April. So, that will reduce the deficit further.

    Pat Kenny, if you are reading this, please invite Brian lucey on to your show tomorrow to defend his forecast that the Government tax take in 2009 would be just 30 billion. A CRAP forecast, if ever there was one. So, not the best of weeks for Brian. Still, Kerry reached the All-Ireland Final, which might relieve his gloom.

  17. Pavement Trauma Says:

    When did the debt of banks (other than deposits) somehow start being treated as some sort of subordinated sovereign debt of the banks’ home States? Was I out the day that was decided by everyone?

  18. zhou_enlai Says:

    David McWilliams commented on the effect of NAMA on market sentiment today.

    DMcW takes a totally opposite view to Garret FitzGerald and says his view is based on trading experience.

  19. Eoin Reeves Says:

    I would be grateful if some of those with greater knowledge of financial markets than I, would give an indication of the likely impact (on interest rates on Irish government debt) if subordinate debt-holders take a hit. Terry McDonough over at the progressive economy blog states has no fears in this regard But other ‘finance academics’ I speak to paint a grim picture.

  20. Frank Galton Says:

    The cumulative exchequer returns for the year are still being swelled by the accelerated corporation tax payments. But the apparent resilience in VAT revenue is encouraging.

  21. Tadgh O Laighin Says:

    No doubt 15000 customers a day in IKEA are helping turn the tide on VAT returns.

  22. Stuart Blythman Says:

    Probably need to with hold comment on the tax take until we see October and November receipts when self employed and Corporation tax receipts come in (minus the amount brought forward). They make up a big amount of the year’s income and can be much more volatile which was why the early budget last year became nonsense so quickly.

    There are some hopeful signs that we are getting closer to the turning point. But….. while the rest of the world takes steps to sort out their banks we are not much further forward almost 1 year after the crisis came to light. We have not had the fallout yet that must follow no matter what route is taken.

    I have no idea if Nama is the right way or the wrong way. I do wonder why in Ireland we have to invent our own solutions to problems rather than learn from countries elsewhere.

    I have one question about Nama that I haven’t seen answered.

    Nama is passed and starts taking on the non performing loans at valuations higher than the current market price.
    What does it do then?
    Does it sell the assets? But not until the market recovers.
    So it sits on the assets waiting until the market recovers.
    How does the market recover with a large amount of unsold/unlet property hanging over it?

    Does this not mean recovery will be hampered by the lack of activity?

  23. Eoin Says:

    @ Karl

    speaking as both someone involved in the general markets here in Dublin, but who also has a brother who’s involved in the sovereign bond markets in London, yes, your article was likely read and discussed by many analysts and traders around Europe. Newspaper opinion pieces carry more weight than you think, especially in small and illiquid countries like Ireland. Hell, i’ve seen very serious economic analysis incorporate odds from Paddy Power on the prospect of the Lisbon Treaty being passed or there being an election this year.

    I’m not saying this means you shouldn’t be free to say what you think of policies or forecasts or whatever, but i think it means there is a responsibility to take into account the impact of an article or an opinion that you are going to release into the market. What Dr Fitz is saying is that it was irresponsible to use the 30 bio figure, as he believes it to be seriously wide of the mark.

    As for McWilliams, i generally like both him and his stuff, but i lost a lot of respect for him after his “Ireland should leave the Euro” article in the Indo 6 months or so ago. That particular ego-trip from him cost this country a couple of hundred million Euro in additional debt costs and was, i can assure you, read far and wide across the continent.

  24. Stuart Blythman Says:

    Unfortunately all you have confirmed is why you shouldn’t pay attention to what analysts think. Most of them are sheep following the herd mentality. We should do whatever is right for Ireland and ignore them. Pandering to their whims will mean we make the wrong decisions.

    We should all be grateful there is a lively debate. I do find it interesting the opposition to dissenters seems to have increased in scale. I hope none are getting leaned on by their respective employers. At the very least I believe they have reduced the price that would have been paid by several billion for which we should be very grateful indeed.

  25. Karl Whelan Says:


    The general point about opinion articles being read and digested is well taken. But on the more specific point of whether the specific figure mentioned would change assessments of fiscal solvency, I have my doubts.

    And trust me, I know what Dr Fitz is saying. I just don’t agree with him. I suspect he’s not used to being disagreed with.

  26. Greg Says:

    @ John
    September 2nd, 2009 at 9:57 am,

    September 2nd, 2009 at 4:18 pm

    I have posted on a previous thread that a vehicle of some sort is required.

    I oppose NAMA not because it is a vehicle. You could call it Securum or Resolution Trust. It makes no difference.

    I oppose NAMA because the vehicle is being used to transfer all of the risk to the citizen.

    Can you see anything wrong with the State getting warrants for 40%/50%/60% of the equity of the failed credit institutions as part of the deal?

    On additional section added to the bill would cover this.
    If the failed credit institutions believe they can raise capital at a competitive rate elsewhere so be it.

  27. Eoin Says:

    @ Stuart

    in a perfect world you’d be right, but unfortunately we’re about to ask the international markets for close on 100 billion Euro over the next couple of years. So its not just their approval we’re looking for, we also need their hard earned cash. As such, we may have to pay them some attention, and take into account some of their worries, not all of which are mere ‘whims’.

  28. Stephen Kinsella Says:

    And apropos of nothing to do with this post–this blog has generated more than 1 million pageviews since it was set up only a few months ago, according to the site’s sitemeter.

    Congrats to all the posters and contributors, and especially Philip Lane, for creating this resource.

  29. Eoin Says:

    @ Karl

    do you think that Dr Fitz’s side-taking in the debate is a big deal, maybe even a game changer? He’s still very well respected across all parties and ideologies, and he’s still a demi-god in the FG ranks, so i’m sure a lot of people are going to reconsider their stances having read what he has to say.

    As for his direct argument, well i think some people would be freaked out at us running a 16% deficit this year when we claimed it was only going to be around 12%. If we were that out of whack with our basic budgetary figures, even after all the revisions and new cost & tax measures, then i’m sure it’d get people a little less keen to lend us money.

  30. jl Says:

    @ Pavement,

    Senior bank debt becomes a semi sovereign obligation when you decide to guarantee it, as we did in September 2008. In addition, it stays a contingent liability while the prosepect of a guarantee remains in place.

  31. Pamina Says:

    Is it too much of a stretch to say that since a politician’s livelihood is based on sentiment, they may overstate its importance in other spheres?

    Apparently senior politicians also think that bondholders will be scared from investing in Ireland because of statements from the opposition finance spokesman, because without first checking the accuracy of those statements with ratings agencies. Or indeed knowing their own business.

    Within the last week there were 2 cases of high profile statements which were considered to have impacts on bondmarket sentiment. Was there any observable effect? Or did that quick actions by our Taoisigh save the day?

  32. Andrew Says:

    Ahhh…the economists debating…

    “your forecast was wrong”…”no YOUR forecast was wrong”…repeat to fade…

    could we perhaps thin out some of these debates a little by making a list somewhere of the professional economists who predicted (even if only broadly) the events of the last 18 months prior to the fact, and those that did not.

    I, for example, am not a professional economist but felt very strongly for the last 4 years that something very bad was about to happen for fairly obvious reasons. Backing my own judgment and being luckily relatively mobile, I moved country during July of last year rather than sit around to wait for the inevitable.

    I personally find it very hard to take any economic commentator at all seriously if they did not at least hint that they thought problems might be afoot well over a year ago. It’s a simple distinction and would remove a lot of unnecessary fluff from the debate.

    Just listened to the radio debate between Karl and GF. Fitzgerald’s point seemed bizarrely pedantic to this non-economist. Also massively patronising generally and to me this sounded like little more than a sustained “shhhhhhhh…you’ll frighten the money men” argument. Have to applaud Karl for at least standing up to him a bit and would agree the host seemed interested in little besides basically agreeing with the good garrett.

    to Eoin above…thanks for that “intervention from Dr. Fitz is a game changer” comment…it has cheered me up immensely, funniest i’ve read all year!

    face it, the country is totally screwed and broke, thanks largely to the corrupt actions of a self-interested elite who have only their own interests at heart and are happy to see the rest of the country bail them out regardless of the long term consequences. if you accept nama this situation will persist and worsen.

    that is the simple bottom line, you can dance around it all you like and try not to offend people you’re about to beg for money or try desperately to keep the whole house of cards on the road but there it is…

    see for example the details of Frank Fahy’s property portfolio in today’s Times for an indication of where the interests of those making the decisions on these matters really lie

  33. RV Says:

    Well I have read a few notes from the the london based IBs today, their rates people surprisingly have little to say about a newspaper article in an Irish newspaper (no offense 46′ers). IR Sovie CDS has not moved much in the past week.
    I m going to put this out there, maybe we should move on and consign the quibbling over a sum that will pale in significance with what will come.
    There may be more reaction there and in the cash market when the Minister announces a massive issuance in contingent or/ actual liabilities on Sept 16th.

  34. Ciaran Daly Says:

    David McWilliams takes a strong line on this in today’s Indo,

  35. Brian Lucey Says:

    @RV….you mean they DONT hang on every word KW and Bl say?

    I wonder if there is a nice arbitrage play on the likely differential moves of irish bank cds’s and sov cds’s ?

  36. Enda Says:


    Your point of contention is a common one and one I’d like put to bed.

    You had a gut feeling that the housing boom was over-heated. Fair play, but so had my mother. This doesn’t mean she’s more qualified than Karl Whelan to evaluate NAMA.

    Specific growth projections are only a small part of economists’ work. You hear about the CB’s and the ESRI’s quarterly predictions, but not of the dozens of articles and working papers evaluating policy.

    There is a huge element of chance in any prediction involving markets. There is far less risk in evaluating policy, not least because bubbles can burst instantly whereas policies often take years to reverse. Thus your request of a “list … of the professional economists who predicted [this]” is well off the mark. Neither Dr. Fitzgerald nor Prof. Whelan publish quarterly reports but that does not impact on their credibility as policy analysts. Similarly David MacWilliams is not necessarily the best man for the job as head of NAMA even though he spotted a housing bubble c. 1974.

    So please bear in mind that predicting Ryanair’s share price for January 2010 is a completely different skill to minimising the cost of this mess to the taxpayer.

  37. Brian Woods Says:

    @ Andrew: Seems like you have decoded the signals correctly. Nine-out-of-ten economists didn’t know what the FIRE economy was! There were, however, 12 commentators who did, and who predicted the disastrous consequences of a vast credit-fueled expansion. Depends how well one did one’s research. This mess has merely paused - like the sorbet before the main course!

    I have made this point before, and I shall continue to do so until some glimmer of understanding appears in the commentaries. We are headed into an economic maelstrom. At the moment it is beyond the horizon, so obviously it does not ‘exist’. Its called The Export-land Model (ELM) of liquid fossil fuel depletion, of production and nett exports.

    The mainstream media and the majority of ‘commentators’ were either ignorant of, or dismissed the concept of the FIRE economy as rubbish. Well, they were wrong - really badly wrong. Now the ELM is real, is approaching, and since an accessible and reasonably priced source of energy is needed to just maintain our Permagrowth economies, what will be the consequence for these credit/debt-based economies when energy (and food) costs continue to slowly, inexorably increase year-on-year? Capsize is the term that comes to mind. Look what crude at $147/bl did to the credit markets.

    That current deficit is tragic. We will never be able to pay it down - except the CBs decide that inflation of the money supply is the only workable solution. Any of you like to comment of the increased savings rate and the increase in debt repayments? What will this do for ‘consumption’, jobs and VAT? Please be patient. These matters take time to resolve themselves. Remember the 12 guys that got it ‘right’. Ask yourself, How? Answer is quite simple really.

    Brian P

  38. Eoin Says:

    @ Rv and Brian Lucey

    im not saying that they hang on the word of every opinion piece that comes out of the Irish newspapers, nor am i saying that we shouldn’t be able to have an open and honest debate where we’re free to express our opinions on what may or may not happen to the economy here. However, playing devils advocate somewhat on this, what i am saying is that i think its foolish to simply dismiss the possibility that the opinions of a group of fairly well respected economists, in the form of a hugely talked about and referenced article in the Irish Times, with some controversial figures involved in it, may sway at least somewhat the opinions and analysis of international investors who we’re soon going to be asking for a lot of money off of. As such, there is a duty of care in the opinions and figures used in these articles.

    At the moment there appears to be a strain to this debate where some people are saying “ah, we dont need to pay any attention to the international markets”, or “sure what does it matter what these opinion pieces say, the gist of it is right”. I think that this is somewhat myopic and unrealistic. We need to accept that while we may want to have a fully just and fair solution and debate to NAMA etc, we also need to work with the financial market realities that currently exist.

  39. Maurice O'Leary Says:

    Excellent post on the difference between evaluating policy and predicting markets.

    I love the final line.

  40. Mick Costigan Says:

    Let’s take a leaf out of the book of another government with large projected borrowing requirements faced with the ransom request of a the bondholders of a “ward of the state”

    I realise that the lessons may not be directly transferable - i.e. we are not as powerful as the US government - but take this as a plea for a little more understanding of the political economy of government decision-making on this blog. Economics, strictly understood, can only take you so far in these times.

  41. Aidan C Says:

    I have been a long time admirer of Garret Fitzgerald’s lifelong commitment to the well-being of the citizens of Ireland as a politician and latterly as a commentator. I understand his alarm at the current state of the banking sector and the state of the public finances, contributed to in large measure by the parties now in government.

    However I believe he was mistaken to chastise both opposition parties and economic (and other) commentators/ bloggers for questioning the government’s NAMA proposal or for proposing better solutions to both the fiscal and banking crises, even if it causes an election.

    Both Garret Fitzgerald and Karl Whelan are very responsible people as far as I can tell. (I wish there were more like them at the helm for the last 12 years). And, contrary to conventional cynicism, there are politicians who are also responsible and wish to sort out the fiscal, banking, unemployment, household debt, etc problems in the country. We need to work together for a common purpose, even if there are disagreements and debates along the way.

  42. Greg Says:

    @ Pamina

    “Is it too much of a stretch to say that since a politician’s livelihood is based on sentiment, they may overstate its importance in other spheres?”

    I interpret there use of sentiment in a more cunical way. They know what they are doing. They are playing on FEAR. They did the same with Lisbon I. Remember? “There’s no Plan B”. If you don’t vote yes the sky will fall in.

    They’re doing it again with NAMA and as we get closer to Lisbon II (God bless democracy) they will use it again.

  43. john Says:

    In the Irish Times article Garret Fitzgerald stated that “I have hitherto avoided any comment on the relative merits of NAMA vis-à-vis other possible approaches because I have NOT FELT COMPETENT to comment on the finer points of what is a highly technical issue”. Here he admits his lack of competency. I have listened to his interviews on RTEs Morning Ireland and on Newstalk. In both cases he has been snappy and arrogant.
    and certainly unsure of his facts on NAMA. He speaks about the possibility of a crisis if NAMA does not go through quickly. NAMA without a radical refinement is a time bomb. As far as Garret Fitzgerald is concerned Ireland can marry NAMA in haste and repent at leisure. Dr Fitzgerald could learn a little humility. In relation to the 46 economists he has played the man and not the ball. He has failed to satisfactorily address issues raised. In short he has gone on the attack to mask the inadequacies in his argument. Dr Fitzgerald has admitted a lack of competency on the issue. It is time for him to depart the stage.

  44. Greg Says:

    @ Aidan

    “We need to work together for a common purpose, even if there are disagreements and debates along the way.”


    Now, can the Green Party see their way to insisting on significant warrants on the equity of the failed credit institutions as part of that “common purpose”?

    I have my doubts.

  45. Sean Healy Says:

    I’m guessing Obama’s negotiating position vis a vis Chrysler would have been a lot weaker if he had first guaranteed the car companies liabilities and only THEN started talking to bondholders about taking pain. Cowen and Lenihan draped the country over a barrel last September. When people say ‘we are where we are’, that’s what they mean.

  46. Al Says:

    @ Stephen Kinsella
    “Congrats to all the posters and contributors, and especially Philip Lane, for creating this resource.”

    I would like to second that.
    It is also an indictment of the political scene that it seems like the whole country has turned to forums like these for commentary.


  47. Greg Says:

    @ Stephen Kinsella

    “Congrats to all the posters and contributors, and especially Philip Lane, for creating this resource.”

    I agree and would add that it has taken consideralbe courage to do so.

    @ Al

    “It is also an indictment of the political scene that it seems like the whole country has turned to forums like these for commentary.”

    I would add that it is also an indictment of Public Service Broadcasting.

    I hope Prime Time (the best we have as PBS) do there usual professional job tomorrow and deal with the issues rather than allowing Fianna Fail scare the daylights out of the children.

  48. Ahura Mazda Says:

    I don’t work in gov bonds but assessing sovereign risk is relevant to part of my work. I take data and opinion anywhere I can find it. My preference is data. Rating agency reports and their analysts are always consulted. Any investment bank reports taken on board. However these can be a little too conservative. And local consultants depending on what we’re doing.

    Opinion pieces/articles/blogs/research reports are always worth reading. They can be useful to alert you to local risks. Numerous service providers offer custom press summaries. Some of these prove useful. However, if something grabs my attention, I make sure I understand it. For example, if a number looks bigger than I expect, I get it verified. It’s also important not to base my opinion on someone who wears a tinfoil hat.

    If the 46’s article caused any bond investor to change their opinion based on the two elements GFITZ focussed on, I’d politely suggest they’re not doing their job. In fact, if I wasn’t familiar with Ireland, GFITZ’s article would be more likely to concern me -i.e. what’s got his back up. If he was genuinely concerned, the way to address it was to ask the 46/The Irish Times to print a clarification. I believe he wrote his article with an Irish audience in mind and for a different purpose. He likes nama, you don’t.

  49. Dreaded_Estate Says:

    @Ahura Mazda
    Good post.

    As someone who is involved in assessing sovereign risk would you think Irish sovereign debt is a better risk without or without NAMA as it is currently planned?

  50. Greg Says:


    That should have been considerable.

    I wonder who “Albe” is and why anybody would consider him or her.

  51. Andrew Says:

    @enda I think you’re missing my point, or possibly misrepresenting it, not sure.

    I had a gut feeling about the housing boom it is true, but not that alone. I also had a gut feeling about the visibly poor and worsening quality of living and public services and the honesty not just of elected officials but of many of the financial institutions in the country. I would classify it ultimately less as a “gut feeling” and more as an obvious realisation of the blindingly apparent. If I see a car coming towards me at 70 miles per hour I am more than happy to trust my “gut feeling” on what the options available to me are.

    Just because myself and your mother thought something was broken doesn’t mean that we were or are wrong. I don’t need a professor to tell me my window is broken if I feel a draft. I don’t mean that as a dig against Karl mind you and my original points were meant to be broadly supportive of his position.

    The point you make about quarterly forecasts is not really what I meant or said. Quarterly forecasts are neither here nor there. What I am suggesting is that any qualified economist should have been able to see any one of the several massive systemic problems that were obviously building up over the last decade or so, globally and locally, possibly warn in advance of some sort of risk or maybe even suggest alternative courses of action along the way rather than cheerleading an imaginary Irish economic miracle.

    This is not just about the housing bubble although I would suggest that an economist who didn’t see and publicly state the obvious problems that were there shouldn’t really be taken seriously on anything else to do with the economy. My gut feeling is one thing and I am happy to stick with it. I am not paid to predict, analyse, avoid or ameliorate the Irish economy. Other people are and they have signally failed in their duty over the last number of years.

    I’m not saying David McWilliams should be put in charge of Nama. Personally I think Nama is a total scam, should not be implemented and the banks should be let go to the wall. You should at least give him some credit though for accurately noticing what was going on WHILE it was going on and saying something about it. That alone puts him ahead of the vast majority of current “experts” on the subject.

    Why should anybody in Ireland trust a government that has gotten us into this mess or a corrupt banking hierarchy to get us out? Your optimism and faith in the people who caused this is touching but this will, trust me, end in tears.

    As for short term predictions, the whole thing will crash again in either November or December but that is just my amateur guess. I will leave it to the experts to work out how to pilfer future generation’s futures for their own gain.

  52. Richard Smith Says:

    Totally support you Karl, Fitzgerald should realise we are not idiots and see through the smoke screen a technical difference of €10 billion is the least of our worries if I had credit card debt and a motgage the debt is the combined figure in reality this is how i decide to manage it not like a bloody ostrich. shame on Garret - tell the truth

  53. Mick Costigan Says:

    @ Sean Healy

    I fear you are right but am even surer that the government doesn’t have the mettle, the experience or the tactical nous of a Rahm Emmanuel to know when to call the bondholders bluff.
    Btw, did the government really undertake to guarantee all liabilities of the banks or just all deposits?

    @Eoin Reeves
    “I would be grateful if some of those with greater knowledge of financial markets than I, would give an indication of the likely impact (on interest rates on Irish government debt) if subordinate debt-holders take a hit.”

    Exactly the right research question, my uneducated guess is there is little recent data, the Greenspan put has not been around for that long. Anyone got any answers?

  54. Greg Says:

    @ Richard Smith

    “Totally support you Karl, Fitzgerald should realise we are not idiots and see through the smoke screen……….”


    Dr (I don’t pay my debts) Fitzgerald knows you are not an idiot. He knows the idiot audience he is addressing.

    Dr (I don’t pay my debts) Fitzgerald is a politician. He never retired.

    He is still playing the narcissist Social Democratic game that he always has.

    Dr (I don’t pay my debts) Fitzgerald knows what’s best for you.

    I am astounded by your ignorance Richard.

    Don’t you know what’s best for you? Don’t you know that Dr (I don’t pay my debts) Fitzgerald knows what’s best for you.

    Shame on you Richard. Shame on your ignorance. The Social Republican Progressive Green Fianna Democrats have only your interest at heart.

  55. jms Says:

    Great defence.
    So what if we used a somewhat misleading figure and a guess in our letter to the IT, sure no one reads it anyway.

    Imo, if this was a PR game under FA rules, the 46 are 2-0 down with full time fast approaching.

  56. Paul Hunt Says:

    @Ahura Mazda,

    Thank you. You (and some others) provide some valuable insight into the perceptions of bond and equity investors. Karl W has called out for more input of this nature as it is an extremely necessary and useful input to this debate.

    Although I fully accept that Dr. FitzGerald is entitled to his opinion, I fear he is using some blustering and scare-mongering similar to that which he employed in the run-up to Lisbon I last year. His primary concern seems to be continued external financing of the fiscal deficit that minimises the credit spread and possible roll-over penalties.

    And we seem to have lost sight of the fact that NAMA plays a major role in this. It makes sense not to test the market’s appetite for sovereign Irish debt to destruction (Colm McCarthy has weighed in frequently on this and it is a very valid point). Overpaying for the banks’ dodgy loans allows the Government (via NAMA) is issue bonds at a coupon much lower than the market rate which the banks can repo at the ECB to buy Government bonds. This is a profitable business for the banks - allowing them to build their capital reserves (and to atrract more equity) - and it reduces the Government’s reliance on the international bond market.

    Overpaying also minimises the Governmen’s recap of the banks which would be at full cost of funds.

    I expect these are the kind of calculations that are being performed in the DoF. We’ve seen some spreadsheets on this site, but it would be very useful if someone had to wherewithal and capacity to generate some numbers along these lines. We tend to veer between sharp economic analysis and polemic on this site. I’m never happy until I can get my hands dirty in the quantitative stuff.

    Putting some numbers out there might flush out a bit more clarification of NAMA. The Government’s usual approach is to simply reject any qualitative argument however well-presented or solidly based. They would, of course, seek to reject consideration of any numercial analysis, but there would be more of an onus on them engage.

  57. Greg Says:


    I have to admit I didn’t see your letter in the IT. Can you provide a link?

    “Imo, if this was a PR game”

    I don’t follow FA rules. Do the rules allow diving in the penalty box? Are you in the PR game?

    What are the rules of the PR game?

    Do they look something like this?

  58. Pat Donnelly Says:

    It was excessive credit creation, not good humour, that caused the bubble!

  59. Pat Donnelly Says:

    Gregory Connor
    You are a danger to the current style of Irish democracy!
    It is a credit to you! Betcha Chow_and_lie does not agree tho’!

  60. Pat Donnelly Says:

    Stuart Blythman
    I have made that point before also!
    What happens to the bagmen? “They haven’t gone away you know!”

    There will be more and more rezonings as they foresee that the writing is on the wall for them and for mortgage broking.

    More land for development. The market will never recover! HAHHAHAHA!

  61. Pat Donnelly Says:

    Correct! But the problem is that those still in Ireland lack the additional perspective of an emigrant. They fail to realize the real despair we feel for the country and the innocent who live there, unable to acquire that perspective, forced to live out the misery imposed by the corruption. I used to think it was only at the very top, but it is corrosive and the hard edge to the humour on this and other Irish blogs shows a lot. Most have almost unconciously adopted the craven attitude that a disrespect for egalite engenders. There is no liberte where gossip ruins career, despite achievement. Loyalty to those who have power is a virtue in Craven Eire. It is worse in Haiti. But then we have further to fall ….
    What the fatuous old man FitzGerald fails to see is that he is part of the problem, not the solution. To attain power in a corrupt regime, it is necessary to be compromised so that power can be “given” to one. That is how the power handlers control those in power. Having the power to destroy those who adopt an attitude of integrity ensures that it happens very seldom.

  62. Brian Lucey Says:

    Bo Lundgren was on Morning Ireland this morning, and will be in more detail on 6.1 news. In essence, as he has said before, he suggested the solution was
    Reorganize (loans)

    Now, where have we heard that before…..Personally, id put BLundgren as slightly more credible than GF when it comes to steering your country through a crisis, more so a banking crisis.

  63. Pat Donnelly Says:

    Your point about what some economists do is not a full answer to Andrew. It is merely a defence of your failure and that of others who knew or should have known, to alert people to disaster affecting every homeowner and shareholder in Ireland.

    I have already said that you and others are under no duty to do so, especially if you intend to quite reasonably, short banks etc when it becomes obvious that they have been shown up as incompetent. You have a right to make money out of other peoples stupidity. More power to you!

    But some are paid to predict this. They are also economists. Are you defending them?

    Others told those of us who are interested in economics. They did so for free. Perhaps they hoped we woould join with them in their short plays? But they did give reasons and saved many people at least some of their capital.

    Did you warn anyone? Did you know what was coming?

  64. Pat Donnelly Says:

    Sean Healy
    I think it is time to consider that the guarantee, which is merely political, should be stated as likely to be wound down sooner than Sept 2010.

    If nothing else, this is likely to bring shareholder values down a tad …. maybe to 0.01 cent.

    Do you agree? Does anyone else?

  65. Pat Donnelly Says:

    Franchises are a recognized weapon of economic colobialism. This is directed to the poster who has a site which advertizes such weapons!

  66. Pat Donnelly Says:

    Mick Costigan,
    A very reasonable suggestion Mick, except the powers that be, TPTB, are likely to lose too much moolah by doing so. they have many conflicts of interest in respect of NaMa!

  67. Brian Lucey Says:

    @Pat Donnelly
    Speaking entirely personally - any chance you could combine your posts into one when commenting on a number of authors. I, like you, tend to reply “one at a time” but tbh its easier to answer in a concatenated way .

    I wasnt aware it was a game? I thought speaking truth to power was (oh how naieve..) the duty of any active citzen in a republic? But, as Greg has said, if you have the rulebook send it on.

  68. Pat Donnelly Says:

    Greg Says:
    September 3rd, 2009 at 12:38 am

    Hee hee hee! C Haughey did not pay his overdraught either!

  69. Pat Donnelly Says:

    Hi Brian!
    Sorry. My health means that I might not finish a long reply.
    I know of blogs that allow “reply” after each contibution so that we might have a mini thread going on each interesting point. But I deeply appreciate the time of the organizers of this esteemed blog, so cannot ask for that … you can tho’!
    Thanks for the reply. I sometimes get paranoid … Have a good day. I miss Trinity.

  70. Maurice O'Leary Says:

    As far as the pro-NAMA vested interests, this is a PR battle - they don’t need to win on content so long as they get their bail-out.

    It is not been fought under FAI rules.
    It is certainly not been fought under the Marquess of Queensbury rules.
    No this is being fought under Donnybrook rules.

    Donnybrook is defined as an uproar; a free-for-all.
    (After Donnybrook fair, held annually in Donnybrook, and noted for its brawls.)

  71. Kevin Ryan Says:

    Eoin said: ‘At the moment there appears to be a strain to this debate where some people are saying “ah, we dont need to pay any attention to the international markets”, or “sure what does it matter what these opinion pieces say, the gist of it is right”’

    I haven’t detected that, Eoin. While it’s true that the reaction of the sovereign debt markets is an important consideration, it’s also true that this question is being raised with some relish by those who really don’t have much of a background in that area and don’t cite much to support their assertions/suppositions.

    In particular, where this reference is made by those who’ve landed us on the path to default (boom cheerleaders, Dept of Finance), it’s hard to see it as anything other than a Pauline conversion (unlikely, given the appetite for dumping NAMA debts on the exchequer) or, depressingly, a below-the-belt tactic to shut down debate. I accept that Garret Fitzgerald and others aren’t in that category but they should be aware of the company they’re keeping and who’s seizing on the points they’re making.

    I think we know what’s coming next: the fellas promoting NAMA will wheel out some current holder of Irish government debt who will pronounce that he and his institution will be most displeased if NAMA doesn’t go through. Maybe Paddy Power will give us odds on whether he’ll have the chutzpah to mention the Lisbon vote in the same dark tones.

  72. Michael Hennigan - Finfacts Says:

    @Brian Lucey

    Last march, Peter Thal Larsen and Chris Giles of the FT, presented a detailed analysis of the model and it is not all it’s cracked up to be.

    The writers said: “Contrary to the myth that surrounds the Swedish model, the authorities nationalised only two banks: Nordbanken, which was already state-controlled, and Götabanken. Co-operative and savings banks were merged but other private banks ultimately chose to raise private capital.”

    Private banks were encouraged to place their bad loans in separate entities. However, in contrast with the recent debate in the US, the authorities never contemplated removing bad assets from those banks.

    “We refused to buy assets from privately owned banks because it would have been impossible for us to agree on the price and we were never in the business of giving privately held banks subsidies,” says Riksbank Governor Ingves.

    Larsen/giles said: “Yet the most important part of Sweden’s banking bail-out may have been the devaluation of the krona, a move that the government had actively resisted.”

    It’s interesting also that a plan for toxic assets announced by US Traes Sec Tim Geithner, earlier this year, was stillborn, again because of the difficulty of valuation.

  73. zhou_enlai Says:

    I think that the relevance of the Govt’s warrants in AIB and BoI needs to be given more attention.

    By not giving AIB and BoI ordinary share capital the Govt has kept its foot on their neck and has maintained its ability to commercially compel them into NAMA. Imagine they already had the ordinary equity and could be sure they were solvent and would survive as zombies? It is to be recalled that the FT Lex column first called on the Govt to put in real capital instead of warrants and later called on the Govt to accept an internal write-down by the bank and to recapitalise on that basis rather than putting an AMC in place.

    However, the warrants are something of a golden handcuff. The Govt cannot realise the value of the warrants if there is 100% nationalisation. The Minister described the warrants as mechanism to mitigate against the risks of over valuation. The logic of that statement needs to be analysed even-handedly.

  74. Ahura Mazda Says:


    There may be certain aspects to government bond markets that I’m unaware of, though I expect there’s a large overlap with what I do.

    To answer your question, a state with less debt is more attractive. The rate at which debt is increasing in Ireland would alarm many observers.

    An area where the government has performed very poorly is drawing the line between Sovereign and Corporate debt. This is very simple but extremely important.

    The government should have moved to protect banks’ mobile funding (deposits/interbank). Bank bonds lock the holder in til maturity. Instead new bank bonds could have been guaranteed (in a controlled manner).

    It is to be expected that any existing bank bondholder will try to mitigate their losses. I would if I were in their shoes. Even if the taxpayer pays their current losses, they would still have to justify future purchases of Irish risk to their employers (/customers/shareholders). Which puts them in a similar position to any potential purchaser.

  75. Irish Pancake Says:

    Sorry for butting in here, just heard on the wireless there.

    Prof. Patrick Honohan has got the CB gig.

    Poisoned Chalice?

    What now for NAMA 2

  76. Joseph Says:

    @Kevin Ryan - “I think we know what’s coming next: the fellas promoting NAMA will wheel out some current holder of Irish government debt who will pronounce that he and his institution will be most displeased if NAMA doesn’t go through”

    I suspect that you are right.

    The pro group PR company is battling to seize the agenda (they have even infiltrated here and are heavily on most BB’s this week with both the pro-NAMA and pro-Lisbon messages) and it is not about content and facts any more. They will be playing the fear card and what ‘might happen if we don’t’ very heavily over the next few days.

    I see the same PR people have been giving B Cowen a good polish over the past month judging by his rare public appearance on the news last night. Practicing the ‘reasonable’ voice too.

  77. Tomaltach Says:

    I think Garret made a mountain of a mole hill.As posters here pointed out he first admitted he wasn’t competent to assess NAMA and then ran with a side issue which he defended with more passion than it deserved - and with a hint of arrongance. In the podcast it was clear that Karl Remained composed while Garret became agitated. But the big pity is that the real debate - about the substance of the criticisms of NAMA - couldn’t be addressed.

    I note that a poster here said that analysists and traders around Europe would note the content of opinion pieces and so on. Perhaps they do, but the question is what weight do serious investors place on such commentry and in reality wouldn’t they be very likely to check out the hard figures before committing large sums of money (as Karl noted in the radio show). Even as an amateur, if I wanted to invest in a company, or buy their bonds, I would hardly depend on opinion pieces from the newspaper. I’d be looking for some solid figures.

    The point seemed to be lost on Garret that the piece in the Times was intended for a general audience. Garret said, yes but traders and others, might read it too. But if they did they’d instantly spot that it was a general piece, they’d glean the thrust of its arguments and wouldn’t be mislead by the fact that every definition wan’t pinned down in technical terms.

  78. jms Says:

    “I wasnt aware it was a game? I thought speaking truth to power was (oh how naieve..) the duty of any active citzen in a republic? But, as Greg has said, if you have the rulebook send it on.”

    I said “if this was a PR game under FA rules”, it’s not, so the rule book isn’t necessary. Smartarse remarks are equally unnecessary.

    You say, “I thought speaking truth to power the duty of any active citizen” and I’d agree with that. However, it’s hard to reconcile “truth” with your 30 billion guesstimate figure for the real value of the securing assets on the bank loans, given that you have next to no hard information on the detail of those loans to go on.

  79. Karl Whelan Says:

    @JMS and BL

    “Smartarse remarks are equally unnecessary.”

    Pots and kettles come to mind.

    I think we should wrap this thread up. Any post not on substance as opposed to politics\PR will be deleted from here in.

  80. LD Says:

    Its not that the traders and credit analysts form their entire credit opinion on what they read in the papers but the noise around certain issues certainly is taken into account when decisions on credit are made. I know of one UK investment institution whose credit committee made and entire judgement against investing in Ireland on the basis of what one member of its credit committee read in the Telegraph. Maybe he was right??? There are other investors such as Money Market funds who take more hands on advice from their own investors as to where they should invest, I know the view from the UK and many on the continent has been NO Ireland when talking to their fund managers, again, a lot of this judgement seems to be from papers and media outlets as many of the users of these funds would not be terribly sophisticated investors. That’s why they use the fund. There is a lot of nervousness in financial markets at the moment, noise directed in a certain direction makes investors twitchy. Also remember who funded most of the boom over the previous years….our continental cousins and neighbours…as we know not all of their debt has matured yet. If you are worried whether your current investment will be repaid why even think about going to a credit committee to increase.

    No one has a right to stifle argument or debate on any issue which disturbs them, particularly one as serious as the NAMA one. I think part of Dr F’s argument on this, while not put across necessarily very well, was that we should ensure our forecasts don’t suddenly become fact just because they appear in a paper of record.

  81. Enda Says:

    Firstly, I certainly did not mean to misrepresent your point and I apologise if I have done so.

    “What I am suggesting is that any qualified economist should have been able to see any one of the several massive systemic problems that were obviously building up over the last decade or so”

    Many qualified economists did indeed see and forewarn about serious problems with both our fiscal structure and the housing system. For example:

    - Philip Lane (IBR, 1998) called on the establishment of a reserve fund because we were due to lose our monetary policy.
    -IMF (Report on Ireland, 2003) house values are “16.5 per cent higher than [their] long-run equilibrium”
    - John Fitzgerald (QEC, 2005) warned about the large number of vacant dwellings, and that in “some cases these dwellings may have been financed under various tax incentive schemes”.
    - Morgan Kelly (QEC, 2007) “predict falls of real house prices of 40 to 60 per cent over a period of 8 to 9 years. The unusually large size of the Irish house building industry suggest that any significant house price fall that does occur could impose a difficult adjustment on the economy” and “[problems of the boom] may require a lengthy period of high unemployment to reverse.”

    There are others. You’re less likely to have heard about these because people aren’t all that interested in them, which is fair enough. It’s not true to claim that there were no warnings, though.

    @Pat Donnelly, Andrew
    There were warnings. Not every economist banged that drum: Karl Whelan was giving out stink about inflation modelling, Philip Lane was investigating globalisation, Kevin O’Rourke was busy writing about 9th century Iraq. (I was busy sitting exams.) It’s not the case that they were sitting on their hands with nothing to do, they were looking at different fields, and doing great work. Karl in particular has since shifted his attention mostly toward this and has (I expect) shelved the models of inflation. But simply because they were writing about other things doesn’t affect their ability to analyse the current scenario.

  82. Richard Fedigan Says:


    Just listened to the podcast ( here in Paris) GFitz was right. Not about the substance of what you were saying. But simply about the fact that a tiny bit more precision ( changing two words) would left you open neither to his “technical” criticism, nor to any (unlikely) misunderstanding on the part of international bondholders.

    More importantly, the “technical” imprecision HAS, to some extent at least, undermined your otherwise excellent “free speech” in the mind of ordinary readers ( and voters!)

    Keep up the good work.

  83. Joseph C Says:

    Is the information in the public domain that would allow a sort of high level cross reference between:

    1) the holders of senior and subordinated debt in the two main financial institutions

    2) Govt Bond holders

    The economics of “Dont Scare the Horses”, works best i would imagine if you can convince people that to upset one horse will upset the ________. (what is the correct term for a groups horses?)

  84. Joseph Says:

    @ Joseph C

    I believe there are several terms (herd, stable, troop, team, etc.)

    Some of the more interesting ones are a (and these are genuine - I think they were made up by bored rich Victorians): nuisance of cats; shrewdness of apes; storytelling of crows; congress of baboons; business of ferrets; bury of conies (not sure what cronies is though); implausibility of gnus; sneak of weasels; generation of vipers; ambush of tigers; sounder of swine; shiver of shark; cartload of monkeys; deceit of lapwings; etc and my personal favourite, a rhumba of rattlesnakes.

    Many of which I’m sure may be applied to the current political and economic climate?

    I really must get back to work and stop taking holidays.

  85. Brian Lucey Says:

    …a tumbril of politicians?

  86. Joseph Says:

    A ‘tumbril’ (cart carrying the condemned) as in the French revolution Brian?

    It also means a ducking stool - an instrument used for social humiliation to punish scolding and backbiting!

    I could live with either.

    I digress.

  87. Andrew Says:

    @enda I take your point and the list of names you give is interesting.

    As you mention, not many people know what most economists’ previous views (if any) were. What I was suggesting is that in a lot of cases it might help if the previous views of participants in the debate were at least brought up. Obviously not everyone will have been paying particular attention to it over time, they may have been involved in other fields or whatever, so it may not always be relevant.

    If somebody previously highlighted the problems accurately I, and others I think, would automatically give their current views more credence. I don’t think at all however that having said nothing previously should disqualify people from the debate. As you point out, many able people were otherwise engaged for whatever reason at the time.

    One thing that should really be looked at though is if somebody previously said, more or less, “there is no problem here, this is a normal part of the extraordinary modern economic success in Ireland and you should all keep borrowing money to buy houses”. In that case, and that is 90% of politicians and members of the Irish establishment, their current contributions to the debate should be looked at with at least a degree of suspicion.

    I don’t remember hearing Garrett Fitzgerald saying anything about the risks of excessive borrowing or speculation or the inevitability of a crash in the last decade but I have to admit that I rarely made it past the first sentence of his fantastically boring weekly columns in the Times so maybe I am completely wrong. I find his recent entry into the debate rather bizarre.

  88. Ciarán O’Hagan Says:

    Wow … 88 comments, and growing!

    To help put the original question in context, it is useful to remember that the value of Irish sovereign debt, most of the time, relative to France or Germany, is determined by global risk aversion or appetite (proxied by equity or credit indexes).
    That said, Irish bonds suffered a few basis points on the day the letter was published, and independently of other markets. But, as I noted at the time, it was also a day when the perceived success of NAMA succeeding actually improved (through the government compromising a bit on it). This is a far better reason for the underperformance than a piddling letter that just advances a deficit guesstimate for one year by a few billion.

    The perceived value of Irish debt depends on far, far more than the deficit. And if deficits are important, it is not 2009. Rather it is the debt profile of Ireland Inc over the next 5, 10 years and beyond. That draws in quite a range of factors, just as a rating agency might discuss in one of its reports, or as can be read in an IMF Article IV. That extends through the resilience of political and economic institutions and agreements, such as EMU.

    In this context, NAMA and the challenges of rolling over debt are uppermost in investors’ minds… not this year, but over the coming years. So yes, analysts might do sums on revenues, expenditures and fiscal sustainability, and certainly won’t pay much attention to some idiot guesstimate. But far more is involved than just these sums.
    In the realm of deficit forecasting, what the European Commission says carries a lot of weight, both among institutions and investors, for a number of reasons. The EC’s 15.6% deficit / GDP ratio for Ireland 2010 (the forecast dates from May), on unchanged policies, is already enough to have placed Ireland in the outer stratosphere in the minds of many.
    But it is the bank guarantee and NAMA that probably gives Irish sovereign credit its wide and steep credit curve.

    @ LD
    “a lot of this judgement seems to be from papers and media outlets”
    Well it will be for some. That is what makes a market. Quite some diversity. For much of the money, the economic and financial data, the prospects for the stability of economic and political institutions, and for good policy making, are what sets the background, and helps generate those opinion pieces further down the line.

    “we should ensure our forecasts don’t suddenly become fact”
    There is no fear of that. The data will be out soon. And it will be almost irrelevant by the time it is out.

    @ Eoin [not Reeves]
    “Newspaper opinion pieces carry more weight than you think”. They can be catalysts at times. They can help crystallise pre-existing problems. But no, over a period longer than a few days, it is almost wholly noise.

    “very serious economic analysis incorporate odds from Paddy Power”. Yes maybe. And if the bet is seeing some interest and is representative, the informational value could be interesting…

    @ Marcus
    “International investors …don’t care about dull statistical publications”. Well they use these to forge an informed opinion, I’d say.

    @ Paul Hunt
    “It would be very useful if someone generated some numbers along these lines”.
    Not hard. But quite a range of scenarios. And you immediately realise how uncertain and risky the enterprise is. That might be fine for a punter at Monte Carlo. But surely not a nation’s future for a generation.

    @ Eoin Reeves
    “the likely impact (on interest rates on Irish government debt) if subordinate debt-holders take a hit.”
    It might not be very big (as sub debt outstandings not massive) so Irish sovereign debt may not richen that much.

    Terry McDonough is on the right track I think with his first scenario (but I wouldn’t use terms like “mad at”). The “Response to downside” is fair.

    David McWilliams too understands how markets work. I liked his Stalingrad analogy. I don’t however share his view that the government could have additional leeway to expand the budget deficit on a go it alone strategy.

    Common to both these notions is the idea that the taxpayer has to defend him or herself and will be respected for doing do. Bang on. David McWilliams also is strong on presenting the specific interests that motivate one policy choice or another.

    @ Eoin [not Reeves]
    You say DMW’s “Ireland should leave the Euro” article added to the costs of the national debt. A catalyst on the day, maybe. But it is the policy mistakes that allowed investors develop serious doubts. Don’t shoot the messenger.

    @ Stuart Blythman
    “shouldn’t pay attention to what analysts think. Most of them are sheep following the herd mentality”
    Well you need to figure out in investment what the herd is doing. And then you probably at some stage want to do exactly the opposite. Indeed an investment that tracks exactly what the market prices will return zero economic profit (or worse). Tricky, for anyone.

    @ Dreaded_Estate Says:
    Irish sovereign debt is a better risk without NAMA.

    @ Ahura Mazda
    the government has performed very poorly is drawing the line between Sovereign and Corporate debt.
    Of course. Well said.

    Michael Hennigan
    Bang on with the Swedish and Geithner parallels, or rather lack of parallel. They don’t fit. There is no parallel. And you hear sources affirm regularly in the press that this model is being followed around Europe at present.
    How can the journalists continue to allow such truflais propagate itself? Indeed how can the public be led up the garden path without barely a moo-moo or a bah-bah from them?

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