Quote from Goldman Sach email re: Irish bank bailout policies

This statement:

“the NAMA operation is just the latest in a series of impressive steps by the Irish government to clean up the mess,”

leads me to queston Erik’s agenda or analysis of the situation or both.

One of these “impressive steps”, the liability guarrantee, could conceivably go down in history as an example of how easily minor players can create massive instability in the global financial system.

I know for a fact that in central bank boards the world over people roll their eyes at the mention of the episode.

@ Aidan C

not entirely sure what your comment has to do with GS’s analysis of NAMA? They’ve also already repaid in full the $10bn in TARP funds that they recieved from the US Treasury, money that they were essentially ‘forced’ to take by Paulson.

The analysis above is for the benefit of clients of Goldman Sachs. If the interests of those clients were the same as the interests of the Irish taxpayer, then and only then could this be seen as an endorsement of NAMA.

The negative comments and rebuttals are fine but please no clearly ad hominem attacks on the fellow who was generous enough to let me use his email quote – he was just being nice and got nothing for it. It does not seem fair or in the spirit of the irisheconomy.ie blog site to criticize him in a personal way. Otherwise all positive/negative comments welcome, and the above comments mostly seem fair game (maybe not the last one which strays a bit too close to ad hominem).

Can somebody explain: “The treasury will fund NAMA with EUR2.7bn (adding to the government deficit, so that will increase issuance by that amount), while the rest will be in the form of a bond issued by NAMA itself”.

Did Mr. Nielsen misunderstand the NAMA bond structure or does the €2.7bn referred to above relate to something other than the risk sharing NAMA bonds?

@ Gregory You say ‘Goldman Sachs’ chief European economist was gracious in allowing me to quote his recent email on Irish bank bailout policies including NAMA (the email was mentioned in today’s newspapers).’

mmmm – I’m all for good manners but you seem genuinely pleased and honoured that he allowed you to quote his email. Later you add that he was ‘…generous enough to let me use his email quote – he was just being nice and got nothing for it.’…..

Ireland’s position – its ‘international brand’ if you will is that it offers low corporate taxes. International capital likes this. It’s important to address this campaign of reporting about ‘Respected International Folk Who Support NAMA’

1. The Economist (though it should know better);
2. the FT (which should also know better);
3. Goldman Sachs (which can’t reasonably be expected to care);
4. The European Commission
5. The ECB

‘support’ NAMA for the following reasons:

1. The Economist (admittedly is not unqualified in its endorsement) likes it because it’s intellectually satisfying and provides what Therapists call ‘closure’. ‘Closure’ is good for international investors and mobile capital. It allows them to know where they stand.

2. The FT likes it for similar reasons.

3. Goldman Sachs represents international capital and hence, the same applies.

4. The Commission likes it because it seems to make the problem go away. The fact that it will impoverish a generation is neither here nor there. The EC can get back to its much more important task of defending the rights of ‘minorities’ and interfering in enterprise. Preserving the latter in some sense gives it something to interfere with.

5. The ECB doesn’t really support NAMA. Or if they do they do in the sense that the US Embassy wouldn’t necessarily pull its diplomatic staff out of an African country on the mere rumour that its President was a practising cannibal. The US doesn’t endorse cannibalism but the cannibal president could claim that they do…

Goldman welcome it in the same sense that a global mining company would welcome professional and transparent management of a major mining contract by a government ‘partner’ whilst ignoring the fact that the same government might be anti-enterprise and even downright kleptocratic in its treatment of its own citizens. Goldman has no opinion about the appropriate levels of personal taxation in Ireland. That’s a ‘matter for the Irish’.

You may think that being mesmerised by the comments of these international bodies is a substitute for proper analysis of the impact of policy on the country itself but in reality its just corporatism..

International bodies have no interest in the expensive dysfunctionality of government in Ireland (just look at any of the posts by Michael Hennigan of Finfacs on this site – he might even be so generous as to allow you to quote from one of these). When one tries to confront people like Goldman Sachs, the FT or the Economist Intelligence Unit one is made to feel like one is nit-picking. I tried this with Dan O’Brien of the EIU and he said ‘We don’t want to return to the days of having an inferiority complex’.

@ Paul

there seems to be a thinly (or not) veiled attack on mobile capital and the market based system in your comments? Would you prefer if this capital didn’t like the NAMA process? Can i just point out, again, that we require somewhere in the region of 100bn of this capital from international investors like GS over the next 18mths or so. Having them onside re NAMA is a necessary requirement of that process…

@ Concubhar and Eoin.

It’s the first time I’ve ever been accused of attacking mobile capital – you made me smile.

Well bear with me on this and if I’m wrong in my logic or facts then maybe you and others can point out where but –

If the Government had

1) Used, say, a nationalised bank or even An Post or some such to take over all deposits and domestic payments system etc..

2) Nationalised the banks and wound them down at the expense of shareholders and bond holders then the national debt would not be as badly (to the tune of 50%?)

(Probably 2 should come before 1..but you catch my drift..)

and was decisive in its actions then the international markets would be even more favourable. Remember other than the expiring guarantees the state has little obligation to the bondholders and none to the shareholders. So it’s not the same as a default on sovereign debt.

Hence international investors might complain but if you lend money to a private business in Ireland and it goes bust then you can’t complain to the government.

Hence international markets would be OK with it. Remember it’s not international investors who are lending us this money anyway – it’s the ECB, right?

McWilliams wrote about this recently and he summed it up pretty well. He argued that those who think that our government’s credit rating would be hurt by private banks defaulting on private contracts (bonds) don’t understand how international finance works.

Remember the international bodies want ‘closure’ and a clear plan. This delivers these…..but not at the expense of tax payers.

Where am I going wrong??

@Paul
Very good post.

There appears to be a number of posters here who are against anything that takes the side of NAMA. There has been a fair bit of personal stuff on the motives of respected figures like Dr Garret Fitzgerald (more here) and now Mr Nielsen. Anybody that argues for NAMA is implied as being a FF supporter or in favour of a bailout for Bankers,Bondholders and Devolopers. This is not correct but if there is to be balance to the debate then as Karl Whelan suggests there must be more than one side projected here. There are more issues to be dealt with by Government to restore our economy which at times I feel some people here do not care about. Confidence is the key ingredient now missing in Ireland and if we want to make matters worse well just keep being against everything and everyone.

@Eoin – well I think it would take some time and I’m not, by any means, as expert in this as others on this site but put it this way. If I were Taoiseach I would call in the the banking experts and economists and I would say that I want to perform euthanasia on the banks, I want the sharehholders wiped out completely I want the bond holders who lent to THEM not to the ‘nation’ as you put it (whoever they are) wiped out if possible, I want 99.9% of the employees laid off and I want a replacement system – either through nationalising one bank to temporarily provide a system – and / or inviting foreign banks in to take the accounts over – the latter would re-hire bank employees as needed – and I want to spend very, very little, – if possible nothing at all – on the whole thing.

You might say ‘You will bring the wrath of God down on this nation’ and I would reply ‘I AM the wrath of God’.

@TRP ‘..personal stuff on the motives of respected figures like Dr Garret Fitzgerald’?

Actually no one mentioned Garret in this thread…but since you do then i can’t resist…..(Sorry Karl you may want to remove what follows!!!)

Garret’s motives are only relevant in so far as, like so many people with a ‘conscience’ – from Peter Sutherland to Alan Ahearne – he finds the detailed reality of government policy as it affects individuals and families, easy to ignore. Not only does it not fit the socialist or (in Sutherland’s and Ahearne’s case) corporatist model but such disdain – for that is what it is – for the individual or family in the private sector who are taking all the risk in the economy can be passed off as ‘seeing the big picture’ and ‘showing vision’.

Charles Haughey was sent to Ireland by God in the 1980s to destroy the country. Then God sent Garret Fitzgerald to make sure. That sums up Fitzgerald’s legacy. Yes he can use a knife and fork and he’s respectable but he’s just a papist version of Mansergh (I have an earlier post on Mansergh on this site somewhere…) Garret Fitzgerald doubled our national debt for no reason other than that he was a study in political cowardice wrapped in transcendental disdain for the common man. His sole achievement was to make Haughey look good. And, by God, that took a certain kind of talent. Garret Fitzgerald was much worse than Haughey because Garret masqueraded as the cure when, in fact, his took Ireland to the same place as Haughey but via a kind of awful, cloying, social democratic, sanctimony.

Like all socialists and those who profess to ‘care’ about the poor people like Garret and Sutherland (Sutherland once told me that he supported the CAP because he ‘believe[d]’ in the right of European peasants (sic) to earn a living.’ He and Garret are European Princes. Their social conscience is a sort of medieval Royal laying of hands on the poor to ‘cure’ them of disease. The purpose of this medieval custom was not to cure the peasants but to emphasise the divine status of the king as Christ’s successor on earth. That’s why Posh folk are left-wing.

They see the poor as victims – not as sovereign economic actors with the same rights as Goldman Sachs’ executives. All this talk about NAMA being necessary is the necessary theology that supports the transferring of risk from the rich to the poor because, for example, the ‘views’ of Irish people and the reputation of the government in their eyes doesn’t count. Citing ‘Authoritative Sources’ – to return to the topic of the thread – is like citing the Medieval Pope on a dispute the impact of which will affect large numbers of people. We are being told to take seriously the opinions of those who don’t really count as a way of making those who do count – the Irish taxpayers – irrelevant. It’s a way of legitimising the discount applied not just to the opinions of Irish people but to their RIGHTS. The absence of curiosity by pro-NAMA people about the alternatives has been very telling.

I was at the launch of Transparency International a few years ago and got into an argument with Garret about tax evasion in the 1980s. I said that the rates were so high and the government so venal that tax evasion could be characterised as ‘direct action’ – rather like Nell McCafferty going to Belfast to get condoms. Garret was outraged and said he found it sickening that anyone could ever try to justify tax evasion. I replied ‘Yes – but what if the rate of income tax were to go to 90% would you be justified in evading tax then’. He replied ‘you should pay that much if the democratic will of the people says you should through the government’ I replied ‘Dr. Fitzgerald, you clearly do not know the difference between democracy and liberty’. We left it there. Garret was always utterly unfit to govern.

Question
Were Goldman Sachs outside advisers to the Gov, in relation to NAMA?

@Paul and Others

Just to clarify. I am not the “moderator” of the blog. Each comment thread can be moderated by the person who wrote the original post.

@Karl..got that. I think the question of the role of ‘International Authorities’ and the citing of them to justify policy in Ireland is interesting. Economists – like all scientists – will have a series of validation buttons which if pressed can persuade them of one policy or another. They can suffer from confirmation bias.

I think that they can also, in so far as they are close to policy-making, become infected with group think. Certainly I get the feeling that Alan Ahearne and a few other economists are like pilots flying through high winds, much too close to the ground yet refusing to look out the window – relying solely on their instruments or data. It would make an interesting study to ask what it is they think they are doing and how it relates to the real world.

My own view is that if Ireland needs 100 poilcy initiatives right now the first 99 of them have to do with cost of government / competition issues. Mabe no. 100 is about ‘Developing a Knowledge Economy’ or ‘Using the Diaspora for Ideas’ (or as I put it to McWilliams a couple of weeks ago – giving visas to Gauchos with hurleys).

Jan Golden above is not an economist but has the real relevant data. Bloated Dublin City Council soaking businesses for rates.

Why aren’t Alan Ahearne, David McWilliams etc..talking about this? This is the relevant stuff.

Quaffing champagne with Peter Sutherland and Garret and Geldof and witternig on about the Knowledge Economy is nonesensical.

The fact is Michael O’Leary is right and I think sound economic analysis would bear him out.

@Paul McDonnell

Is there no way you could set up your own blog for all this “Stream of Consciousness” type stuff.

I know you are extremely exercised by the NAMA proposed solution, but it is rather difficult to trawl through all your off-topic meanderings, posting whenever the muse takes you, ranting on and on.

I usually don’t post unless I have something to say relevant to the OP, so apologies for this one, but such a constant stream derails the thread from serious discussion, and all the Ad Hominem stuff is simply unworthy.

@Peter Maguire [Ye have been doing some real capitalist stuff for some time now, and the horses are well and truly petrified.]

oh I don’t know…we aren’t capitalist. We’re corporatist. Social Partnership and all that. Dr. Gurdgiev, Moore McDowell and I tried to get business support for a pro-market think-tank – the Open Republic Institute and businesses didn’t want to know – seeing it as a risk to their reputation / brand vis-a-vis government. The head of marketing at BoI phoned me up when we were looking for support for a previous think-tank in the 1990s and he said ‘Paul the BoI agrees with your aims (free markets, open economy etc…) but you see we have large trades union customers and they would not be happy if we gave you any money so we can’t help you’.

Despite this the I believe that some major Irish banks have given money to Sinn fein. Go figure.

No. We’re not capitalist. Never were.

@Paul McD

I’m sorry I did not mean to come accross as pompous, but it’s good that I made you laugh.

I do not have your extensive qualifications and experience, and would not dream of entering into serious debate with you or Constanin G et al. on matters Economic. I would not be equipped to have that debate.

It’s just that, for a layman such as me, on a steep learning curve, seeing about one third of the posts on this topic have come from you, it’s hard to see the wood for the trees.

Your message could well be getting lost.

Did you not have your own web-site “openrepublic institute” or something?

I would be more than interested in that, as there is probably a great need for independent thought and analysis offering real atternatives to this NAMA such as that coming from Dr. Constantin G. at trueeconomics.

Cheers, and chill 🙂

@Irish Pancake. I’m not an expert on the technology of what the solution should be. In so far as I understand it I’d rely on Karl W. Dr. G. etc….Doubtless I’ve been simplistic and more than a little rhetorical. This thread was really abuot the Goldman Sachs comment. You will notice that there is a stream of reports of a similar nature. I’m expecting the Irish Times to report tomorrow.

‘COUNCIL OF ELROND ENDORSES NAMA’

We have closed our think-tank down for lack of money. But that’s OK. I will defend the right of BoI or whoever to refuse to give us money but I suspect the reason is that people value their ‘relationships’ with government.

in a sort of political campaign in favour.

@Eoin. Sure will. And what do you think about there ever having been more than one show in town?

@ Eoin

NAMA got more discussion because that was the culmination of the government strategy – OGIT. I have to conclude that the fact that only one solution was being advanced is the reason behind the economists speaking up when they did. Rather than putting the onus on the opposition to come up with alternatives to any propopsed piece of legislation surely it is the responsibility of good governance to be reasoned and wise (and in this case timeous) in their choice of legislation in the first place. Obviously we agree to differ on NAMA as a reasoned and wise proposition. I believe that most of the government’s reasoning is worthless and they not shares their detailed analysis with us. Judging by the more recent yield argument fiasco from the government (viz. Ronan Lyons “Do The NAMA Figures Add Up”) I have grave doubts that their detailed analysis would stand up to scutiny anyway.

I agree that stability is needed, but not regardless of flaws. I also agree that the taxpayer is bound to be burdened with a considerable amount of cost, but should only be so after risk takers suffer the consequences of taking those risks first. They would have happily taken the profit.

Finally, I sadly have to accept the reality that the government have achieved their OGIT goal, but it is to their shame and our cost.

@ Paul

by politically viable i mean that it won’t be still born in the Dail. We need a solution of some sort in order to regain stability. To let things continue as is, which seems to be where your leaning, would see the country suffer a depression lasting a decade while we try to piecemeal rebuild our financial system. FG and Labour are still very much at different ends of the solution and spectrum and do not seem able to jointly get something passed. I suggested (here, not in the Dail!) a govt of national unity way back in the spring to get a consensus solution passed, but no one seemed to want to back down from their ego.

In terms of workable/coherent, I’d suggest reading Donal O’Mahonys piece from the other day.

Again, all of your suggestions are related to what you don’t like about NAMA, and not what we could have as an alternative, other than letting the whole thing go up in smoke and seeing what rises out of the ashes, if anything. I consider your idea to be a non-proposal.

@Eoin Thanks. I will read O’Mahony as you suggest.

I believe that all this ‘We need a national gov’t lark’ is just more group-think. What got us here was, ultimately social partnership which is ‘national unity gov’t’ in all but name. Actually what we need is political conflict which one side – preferably the left / unions – will lose decisively – a la Thatcher. Then the adults can run the country. There is no ‘We’. Those who are broke need to know it and be unprotected from the pain. I have outlined alternatives…also look at Gurdgiev and Whelan…I am against NAMA because I favour alternatives..

@David O’Donnell David I’ll take your post according to its assertions and answer each…

You say: that I ‘blame ’social partnership’ for Seanie’s Folly and Michael’s Manky Mountain …… BOI/AIB following follies ……]

I don’t. I blame it for the state of the public finances even before the global crisis.

You say that I blame Social Partnership for [‘…- the “shit” that Irish citizen/taxpayers are expected to clean up for decades …..]

Yes I do. I suppose. All this collectivism / group think – this ‘We decided to have a property bubble’ is really the result of corporatist thinking. The trouble with corporatism is that it treats as the basic moral unit of society and political economy the group / union / IBEC / Farmers and not the individual. As such it is morally repugnant – even when it appears to ‘work’ as in Sweden or Nordic countries.

You say [Germany and some Scandinavian were corporatist and pretty successful at it]

Well I’m not sure. Sweden stayed out of WWII but made loads of money providing iron ore to help Germany re-arm. Also its wealth is built on a 19th century industrial base that was aggressively laissez-faire. Since it went social-democratic in the 1930s Sweden has, relative to other countries in Europe, declined. But I’ll grant you it has done OK. That’s because it doesn’t have an aristocracy, is traditionally homogeneous, and has Protestant honesty..

My contention is that Ireland was corporatist from the 1930s (it’s in our Constitution) and that this consensus was shattered in the 1980s as public sector unions became infected with Scargillite socialism and wrecked the economy. The ‘social partnership’ that came after was a rescue operation for the old order which worked.

[..and you appear to be a fan of the ‘OpenRepublic’ ideology and a close sibling of the neo-cons and the Atlas Shrugged brigade]

Well I co-founded the Open Republic Institute so I suppose that’s true.

[…which is precisely the ideology that gets us into the present mess due to severe lack of oversight and regulation]

Nope. We were pointing out to everybody who wouldn’t listen for years that public spending was rising to dangerous levels and that the coalition were using benchmarking to loot the treasury.

You have a point about deregulation – but even there – you have government failure: money too cheap and lack of appreciation for systemic risk. Everyone was caught off guard on that one and it’s true – North Korea hasn’t suffered in the credit crunch.

[…this ideology of non-intervention adopted by PDs and key FF’ers for a decade ……….]

Very silly statement. Let me put it this way. Gordon Brown of the UK is, in economic terms, to the right of every single member of the Oireachtas – including Michael McDowell.

I see where your problem is. You have a cartoonish / children’s pantomime idea about the free-market. If you think that what Ireland had since 1987 was the free market then you are not living on planet earth.

The Celtic Tiger was a state-led experiment in low corporate taxes. What followed was an explosion of debt and an orgy of greed (AT LEAST HALF OF IT GOVERNMENT GREED) which resulted in the current mess.

I’m a capitalist and in opposing NAMA I’m walking the talk. The government has no business using tax payers money bailing out failed businesses.

[‘ ……… and perhaps drawing on post 1929 etc advocate a third world war against corporatists, just society Garrets and their ilk, and of course the concentration camps in Cuba for socialists, deviant heterodox economists, those misguided sould who think they see a society as well as an economy]

Well the core philosophy of the above was pretty similar to the core philosophy of the 3rd Reich and Mussolini’s Italy – so, actually, it’s not a bad idea.

[….and everbody who has ever worn spectacles or read more than two books in the past year. Seanie Shrugged!]

Read more than two books? Which two books have you read?

@David O’Donnell. David..I’ve no idea where your post has gone. I can’t think it was deleted because it was deemed offensive or libellous…usually the reason. Gregory is the man to ask.

@Gregory Connor

Gregory – I do not for one nano-second accept your implied ‘ungentlemanly’ – but you do get a 1st as first time I’ve had a post deleted anywhere in the known universe. I too am busy and certainly do not ‘save’ the posts I bother to find the time to address ….. to err is human etc (and all those cowboys getting massively rewarded for it ………)

@ Paul McDonnell
Hi Paul – we have different views on reality and are in agreement, prob for different reasons, on some issues [Naa-Maa]. Hence substantive if contentious debate possible (if a little too hot for other more serene surroundings) – corporatism, morality, ‘unfettered’ free-market etc In this case, due to system constraints {unless Gregory has an un-delete button} into my original post it makes no sense for me to accept an abridged version of meself within this thread! Gotta be 2 sides to the table – and I’m left with a chair with two legs and a skelp of my side of the table truncated – no way to conduct deliberations. Might meet up again on another one ……………… I assume you are not going away either (-;