Month: September 2009

The invaluable Dutch CPB, on whose trade data Barry Eichengreen and I have been relying for our ongoing vox piece, has just published a book (in Dutch) on the Grote Recessie. They also have an accompanying website (in English) with lots of data and links, that at first glance looks to be a very nice resource indeed.

Here’s an interesting editorial from Finance Dublin, the in-house magazine of the IFSC. A quick excerpt:

It is now time to call a halt. The provision in the NAMA legislation that enables equity shareholders in the banks at the time of the crash (Autumn 2008) to emerge with anything more than a non zero sum should not be invoked at the expense of the taxpayer.

A moral hazard also exists in regard to the subordinated debt and deposit guarantees. This publication supported the decision to introduce it in October 2008, because it was necessary to protect the systemic integrity of the money system at the time of the bank guarantee. The blanket guarantee introduced then now has a little more than a year to run, and proposals should begin to be put in place to make an orderly withdrawal from that arrangement too, with a target for the reasonable medium term of scaling back the extent of the Irish guarantee to comparable international levels.

If moral hazard was cleared out of the equation regarding the banks entering the NAMA/Guarantee scheme, then the taxpayer-owned NAMA and the taxpayer-owned banks will not have an embedded conflict of interest in determining the valuation of assets. This could facilitate an orderly re-financing of the banking system, and the restoration of stability to the property market (which will be a required element in any economic stabilisation plan for the Irish economy).

At the end of the day, such a solution will require ‘nationalisation’. In normal circumstances it would be anathema for this publication to suggest such a course, but the system is broken, and must be put under repair, before a new privatisation of the banks concerned takes place.

When the time for re-privatisation of Irish banking comes, and it should at the earliest available opportunity, the new framework that should be established must have moral hazard stripped out of the equation for once and for all, and that applies to all aspects of the new framework. That will include the remuneration of the executives that will run the Irish banks of the future. One of the lessons of the present crisis is that incentivising management with equity options was a recipe for encouraging the imprudent risk taking that bedevilled the global and Irish banking systems.

Can we safely put this advocacy of nationalisation down to left-wing ideology or naivety about how international financial markets work?

Many thanks to all those who have been contributing and commenting on this site.   A few notes:

• First-time commentators are held in the ‘moderation’ queue – while this is cleared fairly rapidly, please be patient if there is a delay
• On occasion, a comment from even regular contributors gets sent to the SPAM queue. We also clear this quite rapidly but there is no need to re-post your comment if it is does not automatically appear: please be patient
• The aim of this blog is to promote intelligent discourse on the Irish economy.  Please refrain from comments that digress too far from this goal.

Many thanks, Philip Lane

There are two articles on NAMA in today’s Irish Times.

The one by Anthony Leddin is sceptical, while that by Pat McArdle is more optimistic.