Month: September 2009

Lenihan on Two-Part Payments

Quoted in the Sunday Tribune, Minister Lenihan discusses two part payments:

A levy on bank profits is still planned if NAMA leaves the taxpayer with a shortfall, and there is the idea of paying for the banks’ loans in a two-stage process—possibly 80% up front and the remainder later on, depending on how the loans perform.

But Lenihan has a warning about all these ideas. “There comes a point where you leave so much contingency and risk in the banks that there is no confidence in them. There is a balance you are trying to strike,”

It is becoming increasingly clear that the government is engaging in its own two-stage process in relation to Patrick Honohan’s risk sharing plan. Stage One involves re-interpreting the original plan, which makes a lot of sense, as something completely different which is very flawed—giving the contingent second payment to the banks instead of the bank shareholders as Patrick proposed. Stage Two is to then point out that this reinterpreted plan is flawed and can only be implemeted in a very limited form.

This statement is also the best indication yet that the government’s commitment to its levy idea is, at best, half-hearted.

Article on NAMA in Sunday Independent

Following up on this post from a few days ago, I have written an article for the Sunday Independent discussing the Minister for Finance’s confidence that no further banks will be nationalised.

I’d note that since I’ve “gone to ground” following Dr. FitzGerald’s appearance on Morning Ireland, I have written fourteen blog posts and a newspaper column and have also appeared on two national radio shows. Next week, I’ll be maintaining the low profile, briefly emerging from my cave to make appearances at a gathering of the Labour Party Parliamentary Party and a Green Party membership event as well as writing another newspaper column (wifi isn’t so good in the cave.)

Update: In an interview in the Sunday Tribune, Minister Lenihan persists with the circular logic, this time in a more entertaining form. He says:

I have made it quite clear, a majority state stake is not a problem. But if the valuations of certain commentators were accepted, the Bank of Ireland board, the Allied Irish Bank board would have resigned by now, because they couldn’t perform their duties as directors, presiding over insolvent banks.

Can anyone spot any flaws in this line of thinking?

Government Adopting Honohan Plan?

Since the announcement of Patrick Honohan’s appointment as Governor of the Central Bank, there has been a series of media stories implying that the government are going to amend NAMA to feature some version of Patrick’s risk-sharing proposals. The most concrete report is at the bottom of this article in today’s Irish Times: 

Government sources yesterday said Ministers have been looking very closely at the issue of risk-sharing and the two-tier model that has been suggested by Patrick Honohan, the incoming governor of the Central Bank.

One of the options given serious consideration, said the sources, was the creation of two classes of bond. This approach provides for one class of bonds to be issued immediately and the other to be deferred and paid at a future date if it were shown the scheme was working. However, it is understood that discussions have not yet moved to the question of what percentage would be made available immediately.

I have also heard this story from a number of sources who rather than describe it in terms of the second class of bond payment being deferred describe it as immediate issuance of  two classes of bonds, the second of which is a “subordinated” NAMA bond, which may not pay off under certain conditions.

I think it is important to emphasize that these proposals do not at all correspond to the essentials of Patrick’s plan.

Continue reading “Government Adopting Honohan Plan?”

Economists and the Crisis

As has been tracked by several previous posts on this blog, there is by now a considerable debate on what the crisis teaches us about the role of economists.

One dimension of this debate has focused on the failure by the economics profession to predict the onset of the crisis.  A second quasi-related dimension relates to the failure to sufficiently appreciate the instability of the pre-crisis financial system.  To some, these failures suggest that those economists who did not accurately predict the crisis should have no role in resolving the crisis and constructing the new post-crisis economic system.    This debate is playing out at the global level and also in relation to the domestic situation.

These are all big issues and I do not attempt to provide a comprehensive set of answers here. Nevertheless, it may be useful to make a few points.  I also mainly focus on the role of academic/research economists and the field of macroeconomics.

Continue reading “Economists and the Crisis”

Ahearne on NAMA

Alan Ahearne has an article on NAMA in today’s Irish Times. Mostly, it’s stuff that’s hard to disagree with about the need to fix our banking system, something which those opposed to the government’s current strategy also wish to achieve.