Denis O’Brien and Contributions of Irish Economists
This post was written by Karl Whelan
RTE reports the following comments from billionaire businessman Denis O’Brien while speaking at a Dublin Chamber of Commerce:
Mr O’Brien also said the country’s third level sector supported 250 academic economists whom he accused of ‘writing blogs, twittering and taking out ads to stop NAMA’.
He said they generally made a nuisance of themselves - which would be fine if 99% of them had not failed to predict the economic meltdown facing the country. He said the other 1% predicted doom all the time.
‘I have a sense that all these economists need to come and work for real businesses to really understand how the economy works and see the actual stress and strain of running a business… only then will they have something to contribute,’ he said.
I think we would take Mr. O’Brien’s lecturing about people having something to contribute a bit more seriously if he himself was willing to, say, contribute income tax to the Irish state.
I suppose in any case it’s futile to point out that I don’t know of a single Irish academic economist who Twitters and takes out ads in newspapers. Or that far from spending all day blogging, our time is largely taken up with teaching, research, administration and professional service such as refereeing and journal editing. Or that there’s more to economics than issuing warnings about macroeconomic meltdowns.
That said, it’s definitely true that people like me could never understand the stresses and strains associated with being a billionaire businessman who made his fortune by being awarded a mobile phone license in circumstances that ended up being investigated by a Tribunal of Inquiry. But then, not many of us could.
October 16th, 2009 at 4:12 pm
Denis O’Brien is on a long term search for respectability following earlier - er - accusations that he made a lot of money in ways that involved opaque dealings and conflicted interests.
His schtik is to pose as a patriot by saying the right thing at the right time in a way that will cause his imaginary friend ‘the Irish establishment’ to think that he’s a good egg.
Other initiatives include popping up to provide donations to good causes at the moment of maximum publicity. I have no objection to his not paying tax in Ireland. It’s not as if Biffo and Co are going to use it wisely anyway.
But your point is well made. It suggests a double standard.
October 16th, 2009 at 4:23 pm
Ironically, tax exile O’Brien also reportedly said:
“Speaking at the same event, businessman Denis O’Brien has said the best performing government agency is the Revenue. He said it was the model for all government departments for the way it had combined change, technology and efficiency.”
And of course in relation to NAMA, as a tax exile, he won’t have to contribute a cent when this bailout scheme goes tits up.
Of course, “We don’t pay taxes. Only the little people pay taxes …” (Leona Helmsley)
We citizens and taxpayers really need to wise up, but I fear it’s to late.
When I hear the almost total media praise for Lenihan today, I totally despair….
October 16th, 2009 at 4:24 pm
A sense of proportion may not be among Mr O’Brien’s many assets:
‘…the McCarthy report’s proposed cuts in arts were akin to “what you’ve seen with the Pol Pot regime in Cambodia”.’
http://www.irishtimes.com/newspaper/ireland/2009/1003/1224255786985.html
So cutting subsidies to the arts = shooting people who wear glasses.
October 16th, 2009 at 4:26 pm
The following, from an address by Prof. Bill Hogan of the KSG at Harvard to the Royal Society in London in 2000 (http://ksghome.harvard.edu/~whogan/rsa0200.pdf) might be relevant in this context:
“Where you stand depends on where you sit. I sit in a chair at the Kennedy School of Government at Harvard. Many of you may be more familiar with Harvard’s Graduate Business School. As I tell our prospective students, there is at least one simple difference between these schools situated on opposite sides of the Charles River. At the Business School, my colleagues teach their students how to seek out or create advantage, and generally find protection from competition; all this in the interest of maximizing profits. At the Kennedy School, we teach our students how to structure the rules of the game so that these businesses succeed ndividually in the short run but fail collectively in the long run in avoiding competition; all in the interests of greater efficiency, where competition
eats away excess profits while leaving the improvements in products and services.”
In Ireland I think we need more focused economic input at all levels of government and regulation to keep these guys in line.
October 16th, 2009 at 4:31 pm
Hurlers on the ditch in Ireland probably also need to wear helmets and to paraphrase another Lyndon Johnson expression, peeing in on the tent usually has some consequences.
During the boom, no politician, senior civil servant or central banker took a principled public stand on any policy, including one they personally benefited from - - benchmarking.
Business in general were cheerleaders as the State is a huge buyer of services.
The consultancy industry made over €400 million in the past decade from the public sector.
Then there are the spoilsmen looking for baubles from the existing politicians in power or prospective power holders.
The truth is that it usually pays to keep your trap shut.
The establishment is small and the media also tend to go with the flow.
Like sports journalists who mute criticism as a trade for access to a manger, Irish political leaders only have to generally master the door-step interview.
However, in a mature democracy which Ireland isn’t, it is important that people are willing to rattle the gilded cages of the establishment.
October 16th, 2009 at 4:52 pm
@ Michael
Agreed and the borg mentality is taking over now also except in reverse
Agree with D’OB to some extent. The economists failed us. That’s the reality. ESRI medium term review 2008. Have a read.
Yet even I think Paul was a little OTT there.
October 16th, 2009 at 4:55 pm
@ Karl
Hard as it is I would not take these comments seriously . You are entitled to speak your mind . If people oppose your viewpoint then they should debate the facts with you . They just hate the fact that somebody like you would dare question them and that the media have given you the platform to reach a wider audience .
Even if you are 100 % wrong . I would rather that they proved this through a reasoned debate rather than through personal attacks .
As a non economist and finance person I really appreciate the fact that you are questioning NAMA . Everybody I have spoken to also appreciates what you are doing . And we can see through the negitive personal comments .
However as they seem to really dislike your questioning and persistence they will try and dismiss you in any way they can . But it seems to me its the questions and your conclusions that really annoys them . Sorry but they are much better at dismissing people than you are . I really hope that you don’t get dragged into a side show over personalities and ‘ who has done what ‘ .
October 16th, 2009 at 5:06 pm
I wonder what DO’Bs thoughts are on Irish Banks, Estate Agents and Stockbrokers econonists that actively promoted the credit bubble.
In terms of getting things wrong, they were worser
October 16th, 2009 at 5:23 pm
Emm… I know a few who twitter. And you probably know them too… you just don’t know they twitter
October 16th, 2009 at 5:33 pm
@ Alan
Thanks.
However, I deleted the email by Paul Middleton.
As anyone who visits this site regularly knows, I’ve no problem with people diagreeing with me.
But for someone to come on here and, without ever reading a single piece of research I’ve written, say it’s all useless (indeed, sure why would anyone ever do research on inflation, investment, consumption, productivity, trade) is ignorant and insulting. And to leave it be is just to encourage more of that kind of thing.
As a more general matter, I’m also of the disposition to delete any more emails that contain whinging about “this website is going downhill because …” Usually it’s because opinions have been expressed that the commenter doesn’t like. If you don’t like the site, don’t read it.
October 16th, 2009 at 5:36 pm
@ Michael
It’s true that what I don’t know about Twitter could fill a fair few tweets. Let me rephrase then — I’m pretty sure the average academic isn’t doing too much of the auld tweetin.
October 16th, 2009 at 5:41 pm
I don’t agree with DOB on much but I agree with him here. On the weekend that’s in it, reflect on the agenda of the Dublin Economics Workshop one year ago in October 2008:
Budgetary challenges
Tax matters
Public sector reform
The environment
Regulation & competition
There was no mention of banking, housing, bubbles, deflation or monetary policy. Instead we had lots of policy “train sets” for economists to play with. And this event was held after the government had had to rescue our banking system. Granted, the agenda was set in advance of that event but the absence of any prescience in setting the agenda is telling.
I wrote publicly about the bubble in early 2005, warning it could end up like Japan. I warned privately about it in government. I warned anyone I knew about the dangers of buying property. My wife and I have been renting since 2005. But I sounded like a crank when mainstream economists in the ESRI, Central Bank etc uttered soothing words that suited the political interest of those making policy and of those who thought they could borrow themselves rich.
The ranks of those economists who uttered clear warnings about what was happening before the bubble burst are thin. I can name David McWilliams, Morgan Kelly, Jim O’Leary and Rossa White. I cannot recall any prominent poster on this website. (But that could be down to inattentiveness on my part.)
October 16th, 2009 at 5:42 pm
Karl
Don’t act disgusted at Denis’ remarks. Remember, it takes two to tango, and to be honest, the “bloggers bandwagon” have been throwing more than their fair share of mud since mid-2008.
As far as NAMA goes, I have yet to see one economist look at the plan as one part of an entire economic cycle.
I studied economics for three years at UCD (under Profs. Walsh and Kelly). From following this blog for many months now, it has amazed me how all the contributers have failed to include some of the most basic economic principals in their critiques on NAMA. Professors Brendan Walsh and Morgan Kelly included.
You might go back to Macroeconomics 1001 and scratch your heads.
October 16th, 2009 at 5:58 pm
DOB should not throw stones lest he break glass. He was a Board Director of BOI in the middle part of the decade and is not noted for shouting stop. His foray into the irish media at the height of the boom has also proved a bit expensive. And as other point out, he will not be participating in the painful fiscal adjustment that we all must face.
His speech last night reminded one of Seanie’s attack on regualtion just before his world fell apart.
October 16th, 2009 at 6:02 pm
@ Michael Hennigan
“The consultancy industry made over €400 million in the past decade from the public sector.”
Is that figure correct Michael?
NAMA itself is about to give “consultants” €2.6Bn over the next decade.
October 16th, 2009 at 6:23 pm
Paul
Errr…cycles? Ok. Where does the cycle turn then? I think the majority of posters here think - sure nominal prices will rise, but….in ten years to go from 30% to 80% of peak?
Cormac
yes, fair cop. but the old saw about reformed fanatics etc…
October 16th, 2009 at 6:26 pm
DOB should know about throwing good money after bad given his “investment” in the Indo Group
October 16th, 2009 at 6:36 pm
@ Paul Collins
” From following this blog for many months now, it has amazed me how all the contributers have failed to include some of the most basic economic principals in their critiques on NAMA. Professors Brendan Walsh and Morgan Kelly included.
You might go back to Macroeconomics 1001 and scratch your heads.”
I studied economics at UCD for 4 years. It is important to note the distinction between Macroeconomics 101 and Monetary Economics. “NAMA” is an attempt by the government to get banks lending again. The banking system is just one area of Macroecoomics. Macroeconomics also looks at growth, inflation, unemployment amongst other things.
NAMA is a complicated piece of legislation with no easy solution. To suggest that these professors should go back to macroeconomics 101 and scratch their heads is a bit unfair.
October 16th, 2009 at 6:47 pm
There must be some irony in the fact that a key player in the Esat messiness to which Karl obliquely refers was Dermot Desmond. Dermot Desmond opposed NAMA, offered his own concrete alternative (which was ignored), and now apparently sees a future in sandwiches (via the takeover of O’Brien’s, no relation). Which may be a disturbing message about our growth prospects. But it’s not like private sector experience has created any unanimity of opinion to which the pointy-heads are opposed.
October 16th, 2009 at 6:52 pm
Sounds like Denis has figured a way to make money out of NAMA. Pity he could not have worked out a similar strategy with his investment in INDEP NEWS AND MEDIA which he freely admits has been a disaster! Maybe he should have taken some macro economic advise.
I don’t mind the bond holders calling the shots at INAM which is just a conglomerate but I do mind them calling the shots in relation to the country where I live and pay taxes. This over arching influence is what is embodied in and at the core NAMA.
October 16th, 2009 at 7:08 pm
I find O’Brien’s comments disturbing.
He did not ridicule estate agents, bankers, stockbrokers etc.
Were “independent” economists not observing NAMA O’Brien would not have bothered to comment?
There seems to me to be a disturbing trend in Ireland to ridicule those who disagree with State policy.
Where was his criticism of the Central Bank, The Regulator, The Politicians?
I’d like to see him ridicule our independent judiciary in the same manner.
Maybe he should stick to making sandwiches.
October 16th, 2009 at 7:13 pm
Denis O’Brien may be a tax exile, but he does pay tax on any income generated in Ireland. In addition he can only spend 140 days per year on average in Ireland.
In fact we are all tax exiles. We don’t pay income tax to the German, Dutch or any of the other 192 countries in the world. That is because we don’t live in these countries.
You pay taxes for a reason, that is because you receive a service from the state, Gardai to protect you, Doctors to help you, civil servents to serve you in your day to day living in Ireland. When you drive up the N7 to Newlands Cross its the taxpayer who pays for the operation and maintenance of the traffic lights. If the traffic lights break down Gardai are called out to serve the public road users.
If you don’t live in Ireland, then you don’t receive this service from the state then you don’t pay for a service you have not received.
Irish people don’t seem to understand this concept. In fact the big push is to make people who don’t live and work in Ireland pay tax for services they do not receive. A Irish solution to a Irish problem.
At a time when the country is broke we need money to flow into Ireland. There is a trickle down effect from the weathly people to the poorer people.
Now with the socalist / communist drive in full swing these wealthy people will be forced away from Ireland.
Maybe we should be looking at it from the other side. If the country continues to degrade financially then we might all require to become tax exiles in other countries to survive. France offers a top tax rate of 40%, and it comes in at 69,000 Euro. In addition the first 5000E is tax free.
Remember while we have a duty to help the poor, a poor man is of no use to himself or anybody else.
October 16th, 2009 at 7:31 pm
DOB did all he could there
Attack the man and not the ball.
Lazy and easy way of fitting in with the crowd???
‘They’ (attach your own value here!) cant play for the ball now can they?
Ye should have the chest out with pride that this blog is causing such ructions.
Anyone up for a pirate radio station???
Al
October 16th, 2009 at 8:34 pm
Adrian
WTF?
October 16th, 2009 at 8:45 pm
@ Adrian
“…a poor man is of no use to himself or anybody else.”
Why don’t you tell us what you really think?
Thank God for rich people like Sean Fitzpatrick and Denis O’Brien.
October 16th, 2009 at 8:55 pm
The pro-Nama elite thought they could just drive it through without any opposition. And, to paraphrase scooby-doo, “we would have gotten away with it too if it hadn’t a been for those pesky academic economists”.
O’Brien is a tax exile facing adverse findings from a tribunal. He has no right to speak on Nama. He blamed the fall of Anglo-Irish on Sean Quinn, which is a bit like putting the blame for the second world war on Mussolini, because Hitler generously provided you with funds when you were buying 98FM.
The pro-Nama faction want to bully critics off the public stage. They are desperate to get it through. Keep at them!
October 16th, 2009 at 9:41 pm
Gents,
Apologies if I irritated some of you, that was not my intention. The point I am trying to make is that Ireland needs wealth to get us out of the financial bind we are now in.
No disrespect to poor people, but they are too busy trying to survive on a day to day basis. Hence these people through no fault of their own cannot help Ireland’s finances.
Greg makes a very important point. He mentions Sean Fitzpatrick and Denis O’Brien. One of these gentlemen contributed greatly to the financial ruination of the institution he worked for. Building a bank on leverage, a giant house of cards. This had severe reprecussions for the country as we all know. However Denis O’Brien had no part in the banking mismanagement.
The point I am making is that while reckless financial mismanagement got Ireland into this mess, wise prudent financial management should get us out of it. For that to happen we have to encourage wealth to come into the country. Provided that wealth is used to create jobs and opportunities which will assist Ireland getting back on its feet again.
In relation to NAMA, to be honest I do not believe there is another way out. We borrowed money from the international markets. This money will have to be paid back some way or another. Ireland sure as hell cannot pay it all back right now. It will have to be paid back over a long time, maybe over the next 100 years. NAMA is a sort of 1/2 way house between these two extremes.
In addition I would not agree with bully tactics by either side, everybody is entitled to be treated with respect even if they are just expessing their opinion.
October 16th, 2009 at 10:09 pm
There are those of us who are not thick but who lack the basic technical skills necessary to analyse something like Nama. We can see how it fits into a pattern of behaviour and it scares us. And we try to understand why. Are we being too suspicious, or are we being steamrolled again?
To have a resource wherein experts - whether Karl or Zhou or anyone else of good will - debate the issues with respect and honesty is of immense value. It’s instructive and democratic. Thank you.
Centres of power fear and loath an independent resource that enlightens.
Denis, God love him, has his own problems, and his own reasons for what he says and does.
October 16th, 2009 at 10:41 pm
Karl - he’s having a laugh - you shouldn’t rise to it
and as Adrian pointed out he does pay tax on all Irish generated income and with the radio stations etc that is considerable. It’s the Carribbean/Eastern European money that is generated off-shore that is kept off-shore. The new “centre of interest” proposals would mean that there’d probably be no change for him there.
October 16th, 2009 at 10:57 pm
Where does this idea that he pays tax on his Irish income come from? He is not tax resident in Ireland and dividends are taxed in the countries they are received in. No?
It was, indeed, an excellent article that first brought my attention to that fact: http://www.sarahcarey.ie/2007/10/14/1184/
Indeed, according to the IT, not only does Mr. O’Brien pay no tax in Ireland, but it looks likely he doesn’t pay much anywhere:
http://www.irishtimes.com/newspaper/frontpage/2006/0915/1158271559252.html
“Denis O’Brien has taken up an address in Malta, the Mediterranean island which charges no tax on assets or income not brought into the jurisdiction.”
October 16th, 2009 at 11:23 pm
There is something deeply sick about this country. I would have expected an outcry from other economists, and academia generally, and from other journalists about the tenor of comments made by Fionan Sheehan, and others, who are supposed to be journalists, but instead demanded that the academic economists shut up and teach. Denis O’Brien is I am sure well aware that Bertie told the economists to commit suicide because of their scepticism - I don’t remember him doing the same thing to any of our real world living businessmen. The statements from O’Brien and from Brendan O’Connor about how we have too many economists (and presumably way too many of the vocal, sceptical sort) are deeply sinister, Nixonian style bullying.
@Sarah
Psychologists observe that humour is often a cover for anger - I think this is the case here.
Conclusion:
Why not escalate this in a way that will drive O’Brien et al completely nuts.
Lets start saying the following, which after all is true and endorsed by Noble winner Stiglitz:
Anglo and Nationwide should go straight to the senior bondholders. These two Dukes of Moral Hazard were deposit taking property companies operating in a massive property boom. If the property market recovers they will be fine. If not, by supporting them the country will suffer a huge loss. Give them the companies, that is all they deserve.
AIB, the King of Moral Hazard, is unfortunately systemic. We should make a deal with its bondholders, and there should be a clear-out of the top management. After ICI, Rusnak, DIRT and now this, it does not deserve another (fifth) chance. It should be broken up so that the next gun it puts to our head is a water pistol.
I realise that it is tempting to be infuriated by the escalating mendacity of this scheme. But if in public you repeated the same points over and over, calmly and logically, perhaps the message might get through.
Well, that’s what I think any way. At this stage the only hope may be to shame the perpetrators into reducing the scale of the larceny.
October 16th, 2009 at 11:32 pm
@ Eamonn76
Stop the looting. Start prosecuting.
Not original but good.
October 16th, 2009 at 11:48 pm
@yoganmahew
Yes, like Karl and many others, I was in error on that matter! Now, I feel duty bound to evangelise the truth….tax exiles DO pay tax! Go forth and spread the good news….
October 16th, 2009 at 11:48 pm
@Greg
I entirely agree. Maybe we will see financial wrong-doers in handcuffs but nothing that I have seen so far gives me any reason to believe it.
October 17th, 2009 at 12:28 am
@ Adrian
You can claim respect for stating an opinion, but that is a different issue from seeking respect for the content of an opinion.
“The point I am making is that while reckless financial mismanagement got Ireland into this mess, wise prudent financial management should get us out of it. For that to happen we have to encourage wealth to come into the country.”
??? All hail DOB???
To repeat a question
WTF????? !!!!!!
Al
October 17th, 2009 at 12:37 am
@ Eamon76
Someone might have more than a metaphorical water pistol to the heads of these journalists at the Indo. I have noticed with people like Sheehan and O ‘Connor talking tuff. However, when push comes to shove, they merely deliver the message of their political masters without fail.
They are smart enough to know, we are in the middle of a deep recession and now is not the time to prospect for new jobs. Sheehan was actually promoted recently, for services above and beyond the call of duty which shows that Sir Anthony believes him to be a very safe pair of hands.
In fact, these journalistic types are more useful to their masters, as they lull people into believing that they are independent thinkers by projecting the “hard man” image. They do this when there is nothing important at stake. Then suddenly, they cut loose with their hangdog expressions and their independence goes out the window, they are muttering, things like, “I suppose we best get on with NAMA” or “Lenihan is the only game in town”.
The modus operandi more often than not, is to obfuscate and obscure public debate and to corral analysis by delivering the editorial content demanded of them. Economists cannot expect any favours by way of highlighting the gross errors of NAMA. These guys do not work for the public.
October 17th, 2009 at 12:48 am
@ Rob Browne
Do you not think that this is a little conspiratorial
A bit Dan Brown>>?
Saying that, there is enough in this nama story for Dan’s next book.
Who will be the hero….
Al
October 17th, 2009 at 1:36 am
Denis O’Brien is engaged in revisionism. Economists DID warn that the property bubble would burst with catastrophic implications for the economy. Only banana republics attempt to stifle discussion. Unfortunately we cannot trust the mainstream media to ask the hard questions on Nama. The grave reservations -on Nama-expressed by economists are well founded. This mess was created by the government, bankers and property developers. Academic economists did not make the reckless decisions which have bankrupted the country. Mr O’Brien’s Pravda mentality should be roundly condemned. The wealthy elite has circled the wagons. Expect more attacks from their parrots in the media.
October 17th, 2009 at 2:49 am
Nama will not be stopped by analyzing anything that the PTB say. PTB=Powers that be.
The president has the power, and no one else, to dissolve the Dail and to refer the Bill if it passes the next Dail, to the Supremes. The Dail is a shower of !@#%@^&!
http://www.irishtimes.com/newspaper/opinion/2009/1017/1224256892874.html
Destroying the intellectual, financial, business and economic props to their scam is important and this blog has more than pulled its weight! Take a bow!
The failure to predict the depression is not new, but it does show that lessons were not learned fully and may have yet to be learned. There is a depression that is being kept at bay by governments blowing bubbles. By injecting money they hope to defer the depression. The multipliers upon which they rely are all now dead. The deflationary spiral is unstoppable but musical chairs of timing and who is where when the music stops are the order of the day. Nama is a terrible and clumsy attempt at this. Australia has avoided a recession by giving away cash too, but to voters. Directly. The multiplier was sufficient. They think it is all over and Reserve Bank rates are increasing. Hah! Wrong again but there you are.
This blog has again been distracted by the pygmies who lie cheat and steal their way to riches. That is not the capitalism of Adam Smith (?) author of the Freedom of Nations. Please redirect your energies to analysis of how to stop Nama not it is obvious that there is no merit to it.
October 17th, 2009 at 5:11 am
http://www.newscientist.com/article/dn17984-its-official-your-bullying-boss-really-is-an-idiot.html
October 17th, 2009 at 7:03 am
Denis O’Brien is wrong to criticise us for blogging. As academics, we have the duty (not universally observed) to advise society at large.
This blog is the main vehicle for academic economists to give unsolicited advice, free from the constraints of printed and broadcasted media.
With this blog, we are doing what the taxpayer is paying us to do.
(I tried but gave up tweeting, by the way, as it is too short and fleeting for me. And why would I take out an ad in the newspaper when they are giving me space for free, even pay me to write things?)
October 17th, 2009 at 7:24 am
@ Greg
The budget of €2.6bn includes lawyers, agents etc.
I had used the figure of €400 million for payments to consultancy firms from 1997 to late 2006, based on a Dáil PQ reply.
The Department of Health didn’t bother providing data and I had added an estimate of €170 million for that big spender.
You are right to assume it’s an underestimate as there are so many types of spending that could be termed “consultancy fees” but are not made to the likes of Accenture and Deloitte.
This is the problem with the Victorian era culture of opacity on public spending.
I note that Noel Whelan is promoting online transparency in the Irish Times.
He wouldn’t be the first newspaper columnist that Finfacts may have inspired!
http://www.finfacts.ie/irishfinancenews/article_1017081.shtml
@Cormac Lucey
I don’t think it’s fair to lump the ESRI with the central bank in your reference to “soothing words.”
There is a case for fighting fire with fire and the field was more often than not left to the shills in the financial sector.
Moore McDowell did enter the fray despite his brother being in the Cabinet.
Brendan Keenan hasn’t changed his tune with the times and George Lee did provide a sceptical view.
In the modern age, there is this perception that one has to develop a so-called media personality, to earn the tag of “leading” and with it the implication of relevance irrespective of a dubious record.
Despite our own dependence on advertising, we did our part in trying to debunk the myth that the politicians had discovered the philosopher’s stone which would transmute the boom into a permanent prosperity.
The whole country didn’t buy into the hysteria, but as with the Economist magazine’s warnings about the risk of a housing crash, Bertie Ahern was always able to counter criticism with some support from the demography boosters.
So even if academic economists had been more active in the media, it would not have mattered a damn.
When Cowen became Finance Minister, he hired one of the bubble booster economists as his adviser.
Bertie Ahern gave a flavour this week of the old times.
“I did not know the banks were using the inter-bank [market], the wholesale money market, to the extent that they did, that they were taking that chance,” he told Irish radio according to the Financial Times.
The Captain Renault routine would have continued to work but for the crash.
I saw Ahern being interviewed by David Frost on Aljazeera this morning and when questioned on the Mahon Tribunal, he said, he just got caught in the crossfire in a dispute between two Cork developers.
He has been very much available for interviews to promote his book, but was he every available for a detailed forensic broadcast interview, besides one on the Mahon allegations in 2006, during his 11 years as taoiseach?
As to why RTÉ allow senior politicians to call the tune is another story.
October 17th, 2009 at 8:37 am
@ Michael Hennigan
Thanks for that. It adds clarity.
The figures just seemed at odds.
One thing that is glaring is that “Fees/Expenses” will be €240m in the the final year of NAMA.
That’s a 7.3% on the average amount of “Principal repaid by borrowers” in the final year.
That kind of presentation is just sloppy and insulting to the public.
Still, maybe it’s just meant to be insulting to twittering economists.
October 17th, 2009 at 8:53 am
@ Michael
I see your point about the ESRI. But I don’t fully accept it for a number of reasons:
1. I wrote to the senior figure in the ESRI in October 2002 and, inter alia, said the following: “permanently low interest rates can lead to massive over-consumption and over-investment setting the stage for a horrendous recession driven by the then-ensuing over-capacity. The US telecommunications industry is currently undergoing an example of this latter sort of brutal recession. We Irish seem to suffer from the illusion that the Celtic Tiger was the result more of our virtue than of reversible economic factors.” I got a courteous and detailed response that essentially disagreed with my point.
2. The ESRI did not feature a housing shock as part of their core forecast. It was a risk scenario.
3. The ESRI did not seem to appreciate the knock-on effects a housing bust would have in terms of wealth effect (and implications for consumer spending) and impact on bank solvency (and implications for the capacity of banks to lend). Look, for example, at the ESRI’s 2005-2012 medium-term review, published in late 2005. On Page 91, the impact on GNP of a housing shock is modelled - it drags growth down to a low of +1%. Yet our real housing/finance shock has dragged GNP growth to a low closer to -10%.
Conclusion: the ESRI got it wrong on the Irish property bust in terms of (a) it was a probability not a possibility and (b) its colossal knock-on effects on the rest of the economy. They got it right in identifying that construction’s outsized share of economic activity could not be sustained - but that analysis required little insight.
October 17th, 2009 at 9:13 am
@Sarah
Personal income tax?
October 17th, 2009 at 9:21 am
@Cormac/Michael
For the record, the ESRI did warn about historically high house prices, wages rising faster labour productivity, the rise of the public sector, and potential instabilities in tax revenues. The ESRI did not foresee that the correction to the home-made problems would coincide with a major international recession.
October 17th, 2009 at 9:35 am
Off topic….
Did Mary just scare the horses while trying to scare the public.
http://www.ft.com/cms/s/0/9edae672-ba6f-11de-9dd7-00144feab49a.html?nclick_check=1
October 17th, 2009 at 9:44 am
@ Richard
The international recession aspect to our crisis is very small. Goodbodys’ recent analysis of the Irish economy has the following forecasts for 2009:
Exports -2.0%
Government -0.6%
Domestic demand -12.3%
Investment -32.6%
October 17th, 2009 at 9:49 am
@Cormac
Did you know that there was a crisis in banking?
October 17th, 2009 at 9:49 am
Cheap ad hominem attacks are surely the highest form of praise.
I think when all is said and done, and someone writes a PhD thesis on the public policy failings that led to Nama and Irelands “lost decade” in the teens, there will be a subchapter on the Irish Economy blog, with some choice entries from Whelan and Lucey.
The chapter’s conclusion might read: “In conclusion, while independent voices did exist, there were relegated to the blog medium which at the time had only limited connection with the mechanisms of soft power. The complicity of the Irish mainstream media, as we outlined in the previous chapter, was the dominant factor in stifling a potential public outcry over Nama.”
October 17th, 2009 at 9:55 am
@yoganmahew
Yes I l believe so. I had a quick search on the Rev site and found this quote from Frank Daly’s 2004 statement to the JC on Finance
“In this statement I have nothing more to add except perhaps to clarify that there is no such thing as a Revenue list of Irish citizens who are tax exiles. Tax returns did not historically request data on citizenship as the question of whether or not a person is an Irish citizen has no general relevance for tax purposes. There are considerable numbers of Irish citizens living abroad who make tax returns to Revenue in respect of income earned here (e.g. rental of houses etc.). However Revenue has a general entitlement to make all relevant enquiries in regard to any tax return or statement made to them and, where appropriate, to carry out an audit to verify the accuracy of the return or statement”
So, an Irish citizen must make a tax return in respect of income generated in Ireland and his accounts are subject to audit like anyone else.
btw, in the case of Tony O’Reilly, Des Peelo told me (while on Q&A one night) that he is a US citizen and therefore plays by the US rules which is that all income, regardless of where earned must be paid in the US. However presumably he is entitled to dual citizenship and therefore must pay income tax on Irish income here too! But there must be some international rule on that issue.
Anyway, I’m not justifying tax exile status btw and I stand by that first column completely. But I am saying that “tax exiles” do pay tax on Irish generated income (and in DOB’s case its not a piffling amount). Presumably others can arrange offshore vehicles to get around that rule.
As a final point, I think not enough attention has been paid to the ability of people who do live here to reduce their tax liability to practically zero. I think Joan Burton produced figures last year on this which were quite dramatic. I understand that many of these mechanism are being shut off, but I think anyone who has had a look at the figures knows that we do not have a progressive tax system since there are so many way to reduce one’s liability.
October 17th, 2009 at 10:00 am
@Adrian:
You said
“We borrowed money from the international markets. This money will have to be paid back some way or another. Ireland sure as hell cannot pay it all back right now. It will have to be paid back over a long time, maybe over the next 100 years.”
Who is this “We”? Certainly not the majority of Irish Taxpayers.
What we are told is that a coterie of Irish Developers and Builders borrowed €77Billion from the Banks, who financed these borrowings by borrowing the required funds on the international markets.
We also know that the Developers and Builders used the funds to:
buy lots of ag land at grossly inflated prices,
build commercial units which are empty and generating no income,
build estates of houses which are unoccupied,
started lots of other commercial and residential projects which lie unfinished and abandoned right across the land,
etc, etc.
You say the money will have to be paid back, to the International Markets, in some way or another.
You say “Ireland” cannot pay it all back right now.
You then say it will have to be paid back over a long time.
Are you saying that “Ireland”, that is all of us, have some responsibility to repay these debts?
October 17th, 2009 at 10:12 am
Perhaps Denis O’Brien’s criticisms need to be placed in context. In response to this hydra-headed crisis the Government has used every resource available to it to create a particular version of “reality”. This has been a collaborative effort involving the banks, developers and the senior levels of the “permanent government” and of the business community - the PTB to use Pat Donnelly’s acronym.
Richard Tol hits the nail on the head:
“As academics, we have the duty (not universally observed) to advise society at large. This blog is the main vehicle for academic economists to give unsolicited advice, free from the constraints of printed and broadcasted media. With this blog, we are doing what the taxpayer is paying us to do.”
This blog is to the Government and its allies what Thomas a Beckett was to Henry II. And in the same way that Henry did not specifically instruct his knights to rid him of this “turbulent priest” - even though four saw it as thier duty, the Government is clearly annoyed with this blog and, without formally mandating attacks, is not discomfitted should one of its outriders believe it’s his duty to mount an attack.
This blog has brutally and forensically exposed the Government’s version of reality as the hope-laden, ill-thought-through, conceived-in-the-darkness fantasy that it is.
However, now that the Government appears to have shored up the political power to enforce its version of reality, is there now a requirement to operate similar to a “loyal opposition” that simply scrutinises and comments on the enforcement of this reality?
October 17th, 2009 at 10:33 am
@Richard Tol
You ask “Did you know that there was a crisis in banking?” Yes, Richard, I had noticed the banking crisis. In fact, I predicted it in the April/May edition of Magill magazine when I wrote the following of the Irish economy:
“We can’t keep increasing our borrowings forever. The constraint on our indebtedness will not be interest rates as in previous decades. It will be our debt capacity. We risk maxing out on debt and thereby making ourselves vulnerable to any short-term economic set-back. The closest parallel may prove to be the Japanese economy. They too experienced a growth miracle built on a credit bubble induced by politically-determined interest rates. Their bubble was pricked in 1991. If their experience is anything to go by, the bursting of the Irish bubble would be a nightmare. The economy would prove impervious to monetary and fiscal stimulus, as individuals and corporations sought to curtail spending in order to reduce their bank borrowings. A downward spiral of asset prices, forced liquidations and further falls in asset prices could result. Growth would prove elusive and the financial sector would be in permanent crisis. That’s the bad news.
The good news is that we may still have some distance to go before we hit our debt limit. So enjoy the party while it lasts. But don’t be taken in by it. And be wary of those economists who failed to predict this bubble, who don’t explain it and who certainly won’t dare to predict its end.”
It seems to me that the bulk of the economic establishment failed to come close to anticipating what would happen. That’s why, on this occasion, I agree with Denis O’Brien.
@ Richard
I see you have a good line in sarcasm. But what economic insights do you have to offer?
October 17th, 2009 at 10:34 am
Sorry, I should have referred to April/May 2005 edition of Magill magazine above.
October 17th, 2009 at 10:48 am
@ Al,
Indeed your point about the content of a opinion is very valid and I would agree with you there. Having a opinion is not enough these times, the opinion has to make sense, it has to be constructive and insulting opinions achieve very little if anything at all.
I am not suggesting that DOB will be the saviour of the country. But I am suggesting that he is just one spoke in the wheel. We need business men and women to create wealth in this country. This will create jobs, exports and revenue for the tax man which we so desperately need at this time. Hence we require more of these people.
In addition as Greg pointed out we require good business people, not reckless irresponsible ones. We need to distinguish between good and bad. We should be encouraging good business in this country.
There can be no doubt Ireland is in a serious bind. However I am concerned that society appears to be on a path of self destruction. The level of public anger appears to be dividing us instead of uniting us. To call a person a “Tax exile” appears to be used as a slur. It’s like a word of shame. If you carry out a google search on Irish web pages about tax exiles there is all sorts of unsavoury comments. Some opposition politicans appear to be fixated on the issue of tax exiles. I am concerned that this public anger will be used (inadverantely) as a method to drive away wealth from this country. DOB could also be called a employer of several hundred people. But no many of us use the term “Tax exile Denis O’Brien” or “Tax exile Tony O’Reilly” as if we are trying to place shame on the person.
Richard Tol makes a important point about blogging and I would support his comment, however blogging alone will not create wealth or jobs for this country
October 17th, 2009 at 11:01 am
@Cormac
I specialise in energy and environment.
You still did not get my point though. The ESRI correctly predicted an end to the boom. The ESRI foresaw a soft landing (although the prospect of a hard landing was also raised).
Then, the INTERNATIONAL financial crisis broke loose. This turned what may have been a soft landing into a very hard one indeed.
Reading your 2005 piece, you did not foresee the international financial crisis either.
We cannot know what would have happened to the Irish economy had the world economy continued to grow. It surely would have been less dramatic then it is.
October 17th, 2009 at 11:06 am
@Adrian
We won’t blog our way out of this mess.
But this blog is worth its salt if Karl, Brian and the others have shaved only 1% of the losses of NAMA-as-originally-conceived.
October 17th, 2009 at 11:10 am
@ Cormac
i don’t think its as simple as “economists didn’t predict it/got it wrong”, i think there’s an inherent problem with how many of our economists have structured their professional lives. In many ways DOB is right, but in many ways he’s wrong, or at least misses the nuance thats required.
It seems to me that most economists, whether working in academia or for professional financial organisations, have tended to stick to one side of the aisle (academic vs professional vs oversight) in where they have worked, or at least two thirds of that aisle. Most academic economists have stayed in academic circles, rounded off with some regulatory or monetary authority experience (DoF, Central Bank, IMF etc). Most professional economists have tended to stay in professional life, rounded off with trips to similar regulatory or monetary authority experience. Very few seem to have completed the full circle of in depth experience in professional, academic and oversight roles.
The academic economist can often see the storm coming, but he will find it difficult to know what sort of effect it will have on the price of assets. Saying “the price of X is too high” doesnt resonate with most people. If house prices only fell by 5%, we wouldnt have a problem. If they fell by 10% we’d still be fine. Its when they go by 20% or more that we have issues. He doesn’t give an opinion, he only gives studies. The studies give the opinions, not him. Giving very exact forecasts is very difficult for the academic economist. He’ll also find it difficult to find people to listen to him, as most of his ‘customers’ are students. He sticks too rigidly to theory.
The professional economist sees the storm too late, but can better understand how it will affect the markets. He has a huge amount of customers ready to listen to him, but generally he’s trying to sell them something, and there’s less to sell if you think the market is going lower. He can only see the markets, and prefers pragmatism to theory.
The oversight economist can make the most difference in terms of setting the rules and framework which the markets operate in, but is too embroiled in politics and lobbying, and generally prefers to stick to the sidelines until the storm is upon us. He has no customers really, other than those that generally dont understand what he does (Joe Taxpayer), and who generally react badly when he tries to act with caution (eg higher interest rates). Only when things go very bad does he have the real power to act, and then he’s accused of being too late to the party. He sticks to the sidelines too much and tries to keep everyone happy.
What we need are more economists who have the full set of tools and skills to both see and be heard in terms of more exact forecasts/advice on the markets and asset prices. Roubini is one of the few that i can think of who has worked on all sides of the aisle, and who understands how asset prices are affected by theory, the regulatory structure and decisions, and the market itself in terms of its rationality (markets are very often irrational, despite what some on here think).
The problem is, as i see it, academics like the security and anonymity (i mean that in terms of not being in the limelight) of their theory-based world, they like the rationality and predictability that exists there. Market economists like the cut and thrust and excitement of the professional world and dont care for theory anymore, while the oversight economist loves the authority he has been given but often refuses to use it, he doesnt like to make waves or be controversial in his decisions, and so ends up doing very little. These gaps in the structure of our economic forecasters are the real problem that we need to overcome if we are to see the future storms before they hit us.
October 17th, 2009 at 11:25 am
@Cormac,
Just a few observations on your post. Among these 250 or so academic economists, relatively few specialise in the minutiae of economic policy design and implementation and, insofar as it impacts on the work of the others, it is likely to account for a relatively small and quite specialised portion. Even if all who believed they had competence were to publicly excorciate government policy in the last decade it wouldn’t have made a blind bit of difference.
In terms of policy design and implementation what ultimately matters is commanding a majority in the Dail. For any who doubt this, NAMA should provide an object lesson.
We are at nothing until the Dail is reformed to act more like a legislature and less like the location for a pow-wow between tribes. This requires much more qualified economic input, operating in a transparent manner, at the policy design stage and greater empowerment and resourcing of the Oireachtas and its committees to acquire economic advice so that the required degree of scrutiny may be applied and nonsense summarily rejected. Only in this context would this blog serve an enhanced purpose by informing public opinion and by providing useful advice to public representatives.
As it is, while serving an extremely valuable purpose, it runs the risk of fomenting public discontent and frustration since those who heed the advice proferred are constrained by the current arrangements for democratic governance from acting on this advice.
October 17th, 2009 at 11:39 am
@Richard,
You have a point, as the old saying goes..
Who is the most important person…… The minister.
Who is the second most important person…. the person who has access to talk to the minister.
Paul Hunt makes a interesting comment about Dail reformation. Maybe this tribal adverserial role has had its day and can no longer serve the Irish nation. Maybe the qualification of having enough votes from the electorate is not sufficient enough reason to be a minister of a Dept.
October 17th, 2009 at 11:58 am
As there are so many ‘Johns’ posting on the site now, most with very different views to my own, I am going to call myself ‘JohnTheOptimist’.
While Denis O’Brien may have gone over the top, wouldn’t a little bit more humility from the country’s economists be in order? The reality is that the quality of economic forecasting in Ireland is very poor. Why be in denial of that? Its not really that important who did or did not forecast the global recession, a one-off event. But, even in the past year, a large number of economic forecasts have proved to be very inaccurate - examples:
(1) Oct 2008: ESRI, the Dept of Finance and the Central Bank forecast that inflation in 2009 would be 2.5% to 3%. It was on this assumption that Brian Lenihan increased social welfare payments by 3%. It now turns out that they over-estimated inflation in 2009 by 5% to 6%, but we are left with the bill for increasing social welfate payments by too much.
(2) June 2009: the Irish Exporters Association forecast that the volume of exports would fall by 14% in 2009 - September 2009: they revised this to a fall of 1%.
(3) June 2008: ESRI forecast that net emigration in the year to April 2009 would be 50,000 - last week: they conceded that the actual figure turned out to be 8,000 (all east Europeans going home)
(4) February 2009: Morgan Kelly forecast in the New York Times that GDP in Ireland would fall by 20% in 2009 - the consesus now is for a fall of 6% to 7%.
I could extend this list to 100 examples.
It would be better if the country’s economists were a bit less touchy about criticisms from outside and improved their statistical expertise to the point where they could make more accuarate forecast.
October 17th, 2009 at 12:05 pm
@Paul/Adrian
Many countries have a bicameral legislation. The lower, more powerful chamber is composed such that it represent the national interests. The higher, less powerful chamber safeguards the regional interests.
Ireland has two higher chambers: One for the regions, and one for the classes. The Dail is essentially a composition of regional councils, much like the German Bundesrat, the main difference being that the Bundesrat has little power. These regional councils are so small that only populists stand a chance of election. The German Bundestag has party lists, where the top spots are populists and the middle ranks are field experts.
Ireland’s Constitution does not properly separate the power of the executive and the power of the legislative: Ministers are members of the Dail. (Constitutionally, they could be appointed members of the Seanad.) In other countries, ministers would have to give up their seat in parliament. This means that incompetent ministers can be booted out by rivals in their own party. Furthermore, ministers are often recruited from outside the circle of elected politicians, particularly for the more technical departments (health, education, environment) where managerial skills and field competence are more important than popularity.
Constitutional change, however, will not solve the economic and fiscal crisis.
October 17th, 2009 at 12:20 pm
@Irish Pancake,
To be honest I would say we all have a part to play in this. Bankers are lenders. Lenders on their own cannot achieve anything. Lenders require people to borrow. We all borrowed to some extent. Obviously some people borrowed more than others. Some borrowed wisely and prudently, others in a reckless manner.
Even those members of the public who had no part in lending or borrowing money benefited.
While this lending and borrowing went on the state made large revenues in the form of stamp duties, vat on raw materials used in construction, income taxes on construction workers etc etc etc.
That money was spent on the public, providing infrastructure, paying social welfare, funding health and education.
We allowed the this circle of money to continue under our noses, we voted in the same Govt again and again. We employed people to regulate the industry, to act as a watchdog on the banks. Unfortunately some of these people were not suitable for the task, they let the country and its people down badly.
I believe we all have a responsibility in this disaster. Yes some people did say STOP, but we chose to continue on.
Even if you are right in what you say. Even if members of the Irish public have no responsibility at all in this financial mess, what difference does it make? The international markets are not interested in the how or the why of Irelands mismanagement. They want the money back, regardless of whose fault it is. It would be a brave man to tell the international markets they will not be getting their money back. I believe this would have very serious results for this country.
October 17th, 2009 at 12:25 pm
@ Al
@ Robert Browne “Do you not think that this is a little conspiratorial”.
Short answer, No!
Whether you agreed with the LisbonTreaty or not, it is over. However, the Indo gave near blanket coverage to one side of the argument and did huge damage to the reputation of the media in this country. It is quite obvious that they are not reporting the news they are shaping the news. They did this recently withy Lisbon, with helping to push the Greens to remain in government. They have been complicit in pushing NAMA from the start.
@ Richard
The international crisis, caused by a massive credit bubble was predictable. But my concerns are now focused on what is going to happen next and not playing the blame game. This crisis of easy credit which gave rise to CDO’s and CDS’s (sub prime) is not going to be solved by the US administration printing more dollars.
Therefore, some commentators notably Schiff and Faber and to a lesser degree Meredith Whitney are predicting further major trouble ahead for the US economy and its dollar as the Chinese try to figure a way to deleverage from the US dollar without laying waste to the 2 trillion dollars they have already given lent the US.
I am astounded that our government would heap the burden of nama on us at a time when we obviously should be keeping an emergency reserve of borrowing capacity in the system. What happens if there is more trouble down the road? What happens if we do get a double dip recession? What happens, if there are massive currency problems on the way, as predicted? What has our ERSI to say about any of this?
Mr. Lenihan’s gamble “nama against the House” is totally unacceptable in terms of risk and in terms of the supposed financial leadership it gives. It exposes the Irish people to outright bankruptcy. Being “bust” as Colm McCarthy has said, is one thing. However being “bus”t should not preempt us from coming up with a strategy that does not crucify ourselves with unacceptable risk and more deb/servicing. NAMA is such a strategy. He cannot have it both ways, that is, warning us of our debt servicing becoming unsustainable while at the same time planning to raise it by another 54 billion Euro.
October 17th, 2009 at 12:52 pm
@ Adrian
a lot of the international governments and markets view the Irish banking crisis as a quasi-soveriegn problem. In their view, if all the banks are overleveraged and semi-bankrupt, it becomes a collective state problem.
October 17th, 2009 at 1:26 pm
DOB, worth a billion+ when you make that kind of money it isn’t accident, luck or anything else, there is a level of skill required, even if it wasn’t all honest there was still a high level of business acumen required, you cannot remove those facts from the situation.
On the other hand, all he did was feather his own nest and there is a danger in looking to a person who has only succeeded at personal gain when trying to create a society wide programme of recovery. I accept that on his road to riches there were jobs created and business built but if you were to truly look at the motivation of the man, these things are as likely incidental as causal. hence we need economists, the arguments and disagreements that go with it and the blogs, the tweets etc.
i wouldn’t totally dismiss his comments, but i wouldn’t take them personally either.
October 17th, 2009 at 1:28 pm
@JohnTheOptimist
“It would be better if the country’s economists were a bit less touchy about criticisms from outside and improved their statistical expertise to the point where they could make more accurate forecast.”
Can I refer you on this point to something Philip Lane wrote on this blog?
http://www.irisheconomy.ie/index.php/2009/09/05/economists-and-the-crisis/
Almost everything that’s written in it is relevant to answering your comments but I would particularly highlight:
“One role for the economics profession is to attempt to forecast the future behaviour of the economy. This is mainly done by economists in policy roles (since policymaking requires projections of future economic performance) and economists in financial firms (since the return on financial investments also turn on future economic performance).
In fact, very few academic economists get involved in this task: to do it well really requires a lot of data resources and the tracking of many variables, such that is a full-time task that is best conducted by large teams of economists. “
So I can’t claim to be touchy about criticisms of my macro forecasts because I don’t issue these forecasts nor do the vast majority of the other academic that O’Brien is slating.
Now I’m guessing that at this point, you can’t imagine then what useful role we play if we don’t work on forecasting. Philip discusses one aspect of this in his post and, as I noted above, we do plenty of teaching, research and admin work as well. Beyond that many of us work on microeconomic issues.
That said, I’ve little doubt that you will continue to criticise academic economists as if we are all forecasting GDP every day. But you should realise that in doing so, you are mainly illustrating your own lack of understanding of the economics profession.
As for the idea that any response to criticism is “being touchy”, I’d note that you’re not slow to defend your opinions, so I don’t see why you think the economists on this site should be.
October 17th, 2009 at 1:29 pm
@Adrian
“Even those members of the public who had no part in lending or borrowing money benefited. ”
I’m getting a little bit fed up with this line of argument. We all got involved, we all benefited, now we all need to pay.
You see - we didn’t. The only benefit I got was the businesses I worked for were doing a little better than they might have otherwise. That would have fed to somewhat higher salaries and bonuses than normal but not a lot. In terms of public services hard to see how I benefited any more than if the government had less money. That’s the sad part about this boom - for all the extra government spending it’s hard to see the results.
There are people out there who genuinely made serious money out of the property boom. Forget the developers, think of the people who sold the land at inflated prices to the developers. They paid CGT of 20% on their gain and kept the rest.
Think of the businesses directly involved in serving the construction industry - the professionals, builders providers et al. Our local estate agent was driving a sports BMW by the end.
The reality is there is a significant amount of wealth out there but it remains untouchable for the most part. Unless it is generating income (interest, rent and dividends) it will not be taxed. CGT is only payable on capital transactions.
The impression you get is the people who made most out of this boom will pay in the least to get us out of the mess. The developers will remain very wealthy, Sean Fitzpatrick will be a multi millionaire and the banks will get off very lightly. It’s no wonder people are saying “no way”.
That’s life, but please don’t tell me it’s as much my fault as anybody else.
October 17th, 2009 at 2:01 pm
As other posters have said, the escalating lunacy that is Nama has been caused, in large part, by not giving non-systemic banks like Anglo & Nationwide to the bondholders.
WIth Stiglitz and many others agreeing with us, and the facts on our side, I think we would have no problem convincing the financial markets that these two were deposit taking property companies operating in a massive boom, and that any investor who did due diligence would have been aware of this.
As for the King of Moral Hazard, AIB, any investor who checked wikipedia would have been aware that this bank was managed recklessly and immorally. I think wiping out its shareholders and subordinates and giving a haircut to its seniors is being kind.
@Adrian
We had a celtic tiger before the property bubble and we would have continued to have one without it. We would just have had cheaper property, lower construction and a more balanced tax base. Also, we would be much better off than we are now and will be if Nama as is goes through. So without the property bubble we would have been better off not worse off. The banker/developer/politician axis were parasites, not real wealth creators. They took the profits from the bubble, now it has burst they naturally want to tell everyone else that we are all responsible. So far, they have not been punished. And if Nama as is goes through they never will be.
October 17th, 2009 at 2:14 pm
@ JohnTheOptimist
Ben Bernanke and Hank Paulson thought that the subprime crisis would be contained and 18 months later did not anticipate the fallout from Lehman.
Who did?
Specific forecasts are generally not dependable.
In Ireland, with the overwhelming influence of US firms on economic activity, it makes pinpoint forecasting difficult.
On an annual basis Irish industrial production for Manufacturing Industries for August 2009 was 13.9% lower than in August 2008, compared with 8.9% in the year to July. Sales were down 23.6%.
As Karl Whelan said, it’s not an easy task to forecast on a macro basis.
When the chemical/medical devices sector account for more than 50% of merchandise exports, in the short term , it’s difficult to know in relation to batch chemical production how much added value arose in Ireland and the factors behind the spike. The corporate tax and patent income regime may well have been a factor.
Net migration and the trade off between jobless benefit and the cost of staying in Ireland doing nothing is also difficult to estimate as there is no historical data..
October 17th, 2009 at 2:27 pm
It’s worth looking at DO’Briens lack of real business experience criticism in the context of Brian Lenihan. Who much real business experience does he have? The academics can only offer opinion, this dude is pressing various buttons. If a lack of commercial experience is O’Briens concern, shouldn’t he focus on those inexperienced individuals with executive power.
October 17th, 2009 at 2:57 pm
@Stuart,
You mention several facts which are unfortunatley true. Reading between the lines it is clear that the public did not get value for money. After all the money we have put into the health service is it better now than in 1985? For Ireland in the 21st Century is it acceptable to wait 16 to 22 hours in A&E to receive stiches for an injured limb?
Of course its not. And your anger and dissappointment is justified and understandable. You are not the only one who is angry, there are about another 4 million of you.
Yes you are correct, some did benefit more than others, however there was still benefits shared out to everybody, we now have better roads than ever before (still a long way to go however but getting there). Not all benefits came in the form of bonuses and bigger salaries. A benefit could be seen as the rural roads around Clonmel are gritted and salted more frequently in sharp weather. But society still benefited overall. Look at the money that was spent on social welfare, Health etc. We now have more Gardai to protect ourselves etc etc. That is not to say the money spent on social welfare or education was spent wisely. But that is a different argument for another day.
With the greatest of respect to you, I do not agree with your impression that “developers will remain wealthy”, SPF will get off the hook for his 100m loan etc etc. Many developers have gone to the wall, they are losing everything. As for SPF and his 100m loan he has shown that he cannot pay it back. I would consider SPF as a man who is bankrupt, insolvent and potentially facing ruination for the rest of his life.
Brian Lenihan is very aware that if the NAMA process becomes a tax payer bailout for these people then we are in big trouble, we could even be risking a minor civil war. For other decent people it would be a signal to migrate to another country where a better level of service is given for your taxes paid. But if NAMA works, where the debts are paid back, the tax payer eventually gets a just dividend and a example is made of these reckless bankers etc then Ireland might just come out of it o.k.
October 17th, 2009 at 2:59 pm
@Adrian
The fact that lenders want to get their money back is no surprise, neither is it surprising that they don’t care who pays them back as long as they get it back.
What is surprising is that people who didn’t borrow are now being told to show solidarity with the irresponsible borrowers and cover their debts.
But lets examine how this solidarity is to be shown:
Any buyer of new properties are now being asked to pay LTEV (if not NAMA will make a loss….). The LTEV is normal, uninterfered market price + NAMA premium. The NAMA premium could possibly be called developer bailout premium as it will ensure the developer is not selling at a loss and becoming insolvent.
This lucky buyer gets to pay extra for the property. In addition, this lucky buyer will incur extra costs by paying interest to the lender on the NAMA premium. Lucky buyer, who gets to show this amount of solidarity.
But wait, there is more. Since NAMA is unlikely to break even, someone has to cover the shortfall. The shortfall is financed by taxes. Taxes that might, possibly, theoretically be shared with the rest of the tax-paying population. So after making the prudent pay first, then the rest of the losses can be shared with the reckless.
I wonder if the ones that were prudent might make another good economic decision and leave? No mortgage and economic recovery elsewhere might tempt some
But just for fun, lets look at the benefits of NAMA for the SMEs:
They’ll get to pay more fees to help finance NAMA and not only that, they’ll get to pay rent with a NAMA premium. If squeezing them seems a little bit harsh, remember that NAMA will allow them to access more lending from the banks. Instead of funding themselves through profits they get to fund themselves through borrowing and paying interest. Better for them or better for the banks? Complicated question.
Socialisation of the losses will drive otherwise healthy & good business into bankrupcy. Socialisation of losses will drive away future FDI or does Ireland really have that great competitive advatages?
The losses has to be dealt with. The first ones to pay for the losses has to be the ones who incurred the losses. The rest of the losses is unfortunately to be shared by all. NAMA changes the order & will hinder economic recovery by continued misallocation of capital.
October 17th, 2009 at 3:08 pm
@ Ahura
that issue could be pointed at almost all our political class. Have any of them actually done anything in the real world? They’re professional politicians, most of them have started out as councillors in their late twenties/early thirties. I know someone on here questioned Vince Cable’s track record (Michael Hennigan perhaps?) but i think you have to agree its at least a good thing that someone of his experience is involved with politics. Brody Sweeney (O’Briens Sandwiches - notwithstanding the events there this week!) tried his hand with FG, but couldnt get elected, and it was in fact a much more atypical public representitive from FG (Terence Flanagan - councillor at 28) who got elected instead of him in the constituency.
October 17th, 2009 at 3:15 pm
@Bond. Eoin Bond… Says:
“These gaps in the structure of our economic forecasters are the real problem that we need to overcome if we are to see the future storms before they hit us.”
Bertie informed us on radio this week that he never listened to economists (except ones that got paid fees). Maybe the real problem is the failure to listen to a broad range of economic opinion.
October 17th, 2009 at 3:16 pm
@Richard,
“Constitutional change, however, will not solve the economic and fiscal crisis.”
Agreed (and many thanks for the observations on legislative/executive options), but, while there seems to be a general recognition at the moment that the current crises have been exacerbated by sequential and cumulative idiocy in policy-making (particularly, economic policy), it makes sense to consider possible reforms that will put policy-making on a sounder footing. The government is setting its course while paying the least possible heed to any external advice or constructive criticism.
The overwhelming desire of the “establishment” is to return to “business-as-usual” asap. Once any hint of “normalcy” returns, the demand for any change in the system of democratic governance will evaporate. And the risk of a repeat peformance will increase - we’ve been here before (and more than once).
Not sure if this is the forum, even though the reforms I believe are necessary would allow this blog to contribute more effectively in debates on economic policy issues - and would certainly reduce the incidence of posters on this blog being taken to task for failing to make accurate predictions!
October 17th, 2009 at 3:25 pm
@ podubhlain
actually meant to add a line saying that despite my criticisms above, there’s nothing inherently wrong with a non-real-world-acheiving politician, so long as he’s got good advisors giving him the necessary information and advice! But you kinda beat me to it with the Bertie example!
October 17th, 2009 at 3:30 pm
@Eoin,
Michael lowry?
It’s DOB’s arguement on real world experience. I’ve reserved my own view. I’m questioning his.
October 17th, 2009 at 4:04 pm
@Adrian
Stuart Blythman//Eamonn76//Jesper and others have put it more eloquently than I ever could.
I thank them for their contributions.
But, if you believe that satisfying the International Bankers by devising a scheme which elevates Moral Hazard to gargantuan heights, rather than utilizing any of the other suggested schemes, such as Honohan NAMA 2.0, Labours Temporary Nationalisation, Fine Gaels Good Bank, etc, if you truly believe that this NAMA-as-is is an acceptable solution for Irish Citizens and taxpayers then you are part of this dreadful conspiracy against the people.
You are a slightly more sophisticated version of the “free money from ECB/EU”, “Nama will make a profit”, IOU’s, “Sweden did this”, 1.5%, “kick the 46″ brigade.
Nobody is arguing for Sovereign Default, nobody is looking to destroy the Irish Financial System.
What people want is for those responsible for this situation to be made to face up to their responsibilities.
October 17th, 2009 at 4:10 pm
A bit off topic
A report in the Indo today-
“Meanwhile a senior bank executive predicted that the billions of euro which the big banks are set to receive from NAMA will result in lower deposit rates for savers.
Speaking after his address to the conference in UCD, Mark Cunningham, head of business banking with Bank of Ireland, said the flow of funds from NAMA would have significant benefits for the bank, helping to lower deposit rates across the board.”
He is a bit behind the curve - AIB are this week quoting 1% for 12 month deposit (substantial).
What are they playing at? Repeating the failed model of relying on short term wholesale funds (or ECB). Any idea Eoin.
October 17th, 2009 at 4:27 pm
@ podubhlain
the narrowing net interest margin is the biggest issue for the long term stability of the banks. The write-downs are somewhat out of their control, but margin management isn’t. A steep yield curve provided by the ECB and a widening of margins is the easiest way to recapitalise the banks via internal means.
While the banks want to move away from the old ‘failed’ model, they’re still going to rely on it via the ECB for the next few years. It’s fairly difficult to not make money when you’re borrowing short at close to zero and lending long at 3-4%. Only when the ECB really turns off the liquidity tap will the banks start chasing deposits. While lots of people argue with some merit that the ECB might do this sometime next year, there’s a growing suspicion in the markets that the central banks are actually going to keep the liquidity floodgates open for another couple of years (hence we had bonds AND equities make their year-to-date highs on the same day last week, and hence we have rapidly depreciating Dollars & Pounds and appreciating gold).
October 17th, 2009 at 4:33 pm
@Alan
We would have gotten all the benefits of the Celtic tiger without the property bubble. Our houses would have been worth less but so would the cost of developing infrastructure because of cheaper land prices.
Giving Anglo & Nationwide to their bondholders and breaking up AIB would give us a big positive out of a giant disaster. Irish bankers and developers would, for once, face the costs of their recklessness. Nama as is is a giant negative on top of a giant disaster, and an avoidable one.
What I want is a mini-Nama. Like Mini-Me it is much smaller than Nama. Although maybe more than one-eighth the size. It would fix AIB and BOI, not just keep them alive until something turns up.
What do you want?
Two clean, healthy banks plus EBS and Permanent TSB channeling liquidity to our parched businesses?
Or six zombie banks roaming a toxic loan poisoned Ireland, killing off any SMEs they come across?
October 17th, 2009 at 4:37 pm
@ podubhlain
also, while we view customer deposits as better than wholesale funding as they’re ’stickier’ i think that notion has to be questioned somewhat given the information and technology advancements of recent years. Its now fairly common for depositors to be multi-banked and to know what each institution is paying, and to use e-banking to effortlessly move money from one to the other with little or no cost. Its also much easier for a depositor to hear of potential problems at a bank via information on the share, bond and CDS prices. We no longer need queues forming outside of branches for their to be an old-fashioned ‘run’ on an institution. Longer term bond sales seem the best way of tieing in funding for the long term. Longer term structured deposits are possibly the best way of tieing in ordinary customer cash, though these have been notoriously difficult to get past the regulator as far as im aware.
October 17th, 2009 at 5:17 pm
@Eoin
Thanks for your insight.\
So effectively the banks are getting two bailouts.
1. Recapitalisation courtesy of the taxpayer.
2. Recapitalisation via hidden levy on ordinary depositors to generate
large profits.
This NAMA thing is really now showing that unintended consequences can arise in a myriad of ways. Or perhaps it was intended.
October 17th, 2009 at 5:23 pm
@ Podubhlain
well no 2 was always gonna happen. Its not just Irish banks doing that. Steep yield curves hurt people with mortgages and people with short term deposits (which most are). Its the quickest and easiest way for a central bank to allow banks to recapitalise themselves.
October 17th, 2009 at 5:34 pm
The next generation of future rappers will go into banking. Drug dealing hurts too few people and generates too little profit.
October 17th, 2009 at 5:49 pm
@Bond. Eoin Bond… Says:
Surely such a short term screw-the-depositors strategy has longer term implications for the banks. It takes time to build a deposit base (as one institution has discovered) and they tend to be loyal if not screwed. But at 1% minus dirt, is it not inevitable that large numbers of depositors will flee the two main banks and further erode the loan/deposit ratio.
October 17th, 2009 at 5:56 pm
@ podubhlain
well i don’t think they’re “screwing” the depositor. The ECB is at 1%, and 12 mth Euribor is around 1.25%. 1 month Euribor is at 0.43%. The banks were only paying over the odds because they were in such dire straits at the time. Obviously NAMA, as well as the recent bond issues, should allow for a ‘normalisation’ of deposit rates. Remember, its been fairly universally accepted that Irish bank’s net interest margin will have to be much wider than previously, yet the opposite was actually what happened over the first half of this year (much higher deposit rates, mortgage rates more or less the same (PTSB excepted), commercial lending rates a bit higher). In many ways the ECB is actually screwing the depositors by having rates so low, issuing so much liquidity and likely to keep both of these policies as is for a good while yet.
October 17th, 2009 at 7:10 pm
Would it not be helpful to look at this another way?
For the sake of argument, accept what Denis O’Brien says at face value.
Most but not all (and not just economists) were suffering from Group Think.
Having now seen the calamity that Group Think has delivered many are now, rightly, distrustful of government and opinion formers who would insist that “they know best” and that Group Think is the natural order.
Hopefully the Group Think spell is broken and remains that way. We do not need just independent economists we need independent minds. We need people who are capable of critical reasoning beyond RTE and the Punch & Judy show that is the Dail.
I would suggest that Irish society is relatively late in discovering the information and idea sharing potential of the internetwebbythingy.
Of course those who have had a virtual monopoly on opinion forming don’t like it, either for commercial reasons (they can’t engineer the outcome they want) or for personal egotistical reasons (they are losing their pedestal).
The most pernicious aspect of groupthink is its use by leaders to inflict group responsibility where such responsibility truly rest with the leadership. To continue on such a path when it is obvious that the group no longer trusts or believes in them is dangerous for society.
To be fair to Denis O’Brien I heard only what RTE broadcast. Perhaps someone can get a transcript of his entire speech so we can all judge for ourselves why he is so passionate in his defence of NAMA.
How to brainwash a nation.
http://www.youtube.com/watch?v=sZ8ZvYNlxiM&feature=related
And now Mary Harney suggests “qu’ils mangent de la brioche.”
October 17th, 2009 at 7:13 pm
Eamonn76 is in da house
October 17th, 2009 at 7:21 pm
@ Rob Browne
Rob, I lost my virginity a long time ago.
As I rule I dont look for it or expect it from the people I meet everyday.
Or the radio, tv, or the papers
Etc
Al
October 17th, 2009 at 7:27 pm
@ Al
Do tell.
October 17th, 2009 at 7:38 pm
“If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State.”
Now that’s someone who understood the “big lie”.
October 17th, 2009 at 7:44 pm
@ Greg
Chomsky?
Foucault?
Al
October 17th, 2009 at 8:08 pm
@ Al
http://en.wikiquote.org/wiki/Joseph_Goebbels
“The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie.”
October 17th, 2009 at 8:13 pm
Two things;
1. A question(s) for Brian Lucey or Karl - (and I’m asking this nicely - d’internet can make innocent questions look like someone’s being a smarty pants). Who would you rather was negotiating with the banks bondholders on behalf of Ireland Inc. The incumbents or Denis O’Brien or Dermot Desmond? And how do you think people would react if Brian Lenihan appointed them to the job? And how constructive would that reaction be?
2. I have a full copy of his speech and if anyone wants it I can pass it on. However I’ll post here his section on public sector reform which I thought was interesting (although I know one of the problems in the US was the toing and froing between universities and the public sector and Wall St - that created its own problems problems but it might solve some of ours)
So his speech begins at the quotes:
• “Another important initiative for us all is how do we build accountability with government? Ministers are getting it in the neck for the lack of performance of some civil servants managing initiatives that have not performed. It is the private sector equivalent of a company launching a new product with nobody responsible for its success
• Obviously, all Ministers like to be on the podium announcing a new initiative but then it’s over to the civil servants to execute, or some cases not. Maybe a better way would be for the Ministers to share the platform with his / her senior civil servants and let them take the glory or the failure of the initiative. The separation of the public servant and the elected political establishment has been taken too far and for too long. It is a model from another era and is now not fit for purpose. Instead of looking over the Irish Sea to see the civil service political model we should perhaps look across the Atlantic where public servants are regularly seen to be accountable for good and ill.
• Public servants need more of an airing. In a lot of ways the public service is insulated from the commercial world. There is an increasing air of distrust because of their lack of exposure to business men and women and vice versa.
• KPMG used to organise job swaps with senior civil servants but that seems to have died out.
• Converting a Director General to a Chief Executive role in a government department would be transformational in terms of the delivery of government services. I would also go so far to suggest for major government departments, the CEO report to a Dail committee twice a year on the progress of major initiatives. “
October 17th, 2009 at 8:36 pm
@ Sarah Carey
Sarah,
Ireland Inc is a construct designed to fool the citizens into a false sense of loyalty to one of the factors of production. Yes, that’s Capital.
It ignores Land & Natural Resources and Labour.
We must all do A,B,C for the sake of Ireland Inc while we receive not one cent for the €billions of natural gas off our shores and farmers plough perfectly good food back into the ground.
I am not a unit of Ireland Inc Sarah. I am a Citizen of a Republic, imperfect as it may be.
October 17th, 2009 at 8:39 pm
We are a country of 4 million people. We have thirty ministers. If they are not willing to take responsibility they should resign. They are not running a planet they are running a small island. If they dislike the responsibility of their job they should get another one, not try to shove their responsibilities on to civil servants that they will try to buy off when things go wrong and who will not answer any questions when they leave the stage. The government - in their insanity - seem to believe that the civil servants are the cause of their problems. “You should have stopped us squandering the boom. And what about your wasteful expenses and excessive salaries. They’re only for us!”
Lenihan told us not so long ago that he believed in traditional ministerial accountability. Yet another u-turn. I would like civil servants to be more accountable. But FF will implement this as no accountability for them.
Lenihan’s neck is so hard you couldn’t cut it with a diamond drill.
October 17th, 2009 at 8:44 pm
@ Sarah,
Why don’t you ask Karl to put it up and open a thread or you put on the IT webpage and provide a link?
Sounds like Denis wants to privatise Government.
I’m intrigued to know what Denis actually had to say about NAMA.
October 17th, 2009 at 8:46 pm
@Greg
True, but not the point I was making. Brian and Karl frequently say things like “the civil servants do not understand the international bond market”. If they don’t and DOB and DD do, would they like to have them on board?
@Eamonn76
Also true, but again not the point. The Ministers ARE accountable. The suggestion was to make the civil servants accountable too. (for the good stuff too!).
I’m a citizen of Ireland and I’m terrified that the people running the country don’t know what they’re doing. So Denis’s point and mine, is how do we get more qualified people or how do we improve the qualifications of the people in there. These are fair points but some people can’t get past the person who’s making them. If you cant do that - we’re definitely going nowhere.
October 17th, 2009 at 8:51 pm
I agree with Denis O’Brien and I also think that the snide digs made are unecessary. We have had a number of academics here predicting the future after NAMA and then we are told that Academic Economists are not involved in forecasting. The simple fact is that it was the Economist magazine (UK) who first predicted our property bubble would burst and kept saying it, and, not one economist in Ireland including the eejits working in the Central Bank producing monthly figures showing growth rates of 25 - 28% in Private Sector Credit predicted the Credit Crunch and meltdown of our banking system. I first twigged to the problem in 2001 when I took out a mortgage with Bank of Ireland and saw the word “Securitisation” in the mortgage document. When I found out what it meant I decided to sell my surplus commercial property portfolio at the earliest opportunity in 2004 and downsized my debt including paying off the mortgage taken out in 2001. Securitisation was Ireland’s nemesis and not one economist pointed out the dangers to our banking system caused by the explosion in debt which it allowed to foster. Previously credit growth was controlled by the level of growth in bank profit and deposit resources but Securitisation manufactured credit growth exponentially and no one in academia had a view on it. So in my view Denis O’Brien has made fair comment.
October 17th, 2009 at 9:07 pm
@ Sarah,
The Minister is already spending vast amounts of money on “qualified” bankers. They “know” the bond market.
It is not that the Minister lacks advice, it is that he and Fianna Fail have set their minds on making bond holders whole at the expense of the Citizen. Their reasons for this are know only to themselves.
No we do not need Denis O’Brien or Dermot Desmond to “step into the breach”. We need a Government that values the interests of the Citizen above the interests of Capital.
And let me be clear Sarah, I’m no raging communist. I believe in free enterprise and the freedom of labour to organise.
But I know a pig when I see one.
October 17th, 2009 at 9:09 pm
@Ray
You may have foreseen the credit crunch. Judging by his INM investment Denis didn’t. I’d make you Minister for Finance not him.
@Sarah
No FF ministers have ever resigned in modern times that I am aware of. Ivor Callely was fired. As was O’Keefe. None since. None before. Apart from the Haughey/Reynolds conflict which was strictly political. None have gone over our economic collapse. None will. Mary Coughlan is just the latest example. Ministerial accountability does not mean holding general elections. It means much more than that. But just like Lenihan in this case FF have redefined it to reduce their own responsibility.
October 17th, 2009 at 9:27 pm
@ Al
I am reflecting on how the public NOT ME, certainly not me, are being led by their leaders and the media. Lost my own, longer than I care to admit!
A bit of culture required!
Circus Animals Desetion
What can I but enumerate old themes?
First that sea-rider Oisin led by the nose
Through three enchanted islands, allegorised dreams,
Vain gaiety, vain battle, vain repose
Themes of the embittered heart
The suggestion in the above lines is that Oisin (the Irish Economy) did not act of its own free will as it was lead through three different places (phases) and by whom?
Firstly, the land of Tir Na nOg as occupied by all those who thought the bubble would not burst. Secondly, Isle of forgetfulness as occupied by all those politicians and economists who conveniently forgot the roles they played. Finally the Isle of Dreams! The place where Mr. Lenihan and his NAMA colleagues think they are heading
October 17th, 2009 at 9:28 pm
That should be Circus Animals Desertion!
October 17th, 2009 at 9:41 pm
@ Robert Browne
“Lost my own, longer than I care to admit!”
Damn, this is turning into a right confessional.
October 17th, 2009 at 9:57 pm
Constntin has a good pop at Denis over at his blog
“Point 1 for Mr O’Brien: I work for real businesses - both in this country and abroad. In fact, I also run my own business.
Point 2 for Mr O’Brien: last week I lectured Mon-Friday each day for 6 hours in TCD, Wed-Fri for additional 2 hours in UCD, and on Saturday - for 3 hours at TCD again. In between, apart from Twittering and blogging, I also wrote several press articles, worked on two research papers and had a number of business meetings. I also worked on a long-term private sector research project and advised my clients in the US.
Point 3 for Mr O’Brien: in 2004-2007 I warned repeatedly that Ireland is facing a crisis in public spending, housing markets and private sectors debt. I did so from various platforms, including his own Newstalk106 and TodayFM. In 2008 I was at the fore front of private sector economists who were pointing at the depth of developing crisis. I also made a point of always offering a potential solution to every problem I was able to identify. Not that I called everything right in my life, but Mr O’Brien’s statement is a bit rich.
Point 4 for Mr O’Brien: it is precisely
* because we are seeing real businesses being squeezed by the banks in anticipation of Nama,
* because we are seeing people sliding into perpetual dependency on the dole,
* because we are seeing the depth of the crisis,
* because we are seeing the taxpayers of this country being destroyed by wrong policies,
* because we are seeing people losing their entire retirement savings to the same ideas and policies that now back Nama,
that we are warning about the risks that Nama and other Government policies have.
Mr O’Brien might not see it this way - and it is his right to disagree - but throwing about silly statements in an attempt to ingratiate oneself with those in power is a strange position for a successful entrepreneur and businessman like Mr O’Brien.”
October 17th, 2009 at 10:28 pm
@ Greg and Rob
Maybe.. we need to find it again!!!
October 17th, 2009 at 10:35 pm
Someone once said that making accurate predictions is very difficult - especially when they are about the future.
A famous fund manager, Peter Lynch said that while he noticed that commentators may luck out or hit the nail on the head with an accurate forecast once, none of them got a major prediction right twice - and they were always predicting. So Morgan Kelly may have written a very insightful analysis on the problems the property bubble would cause the banks in 2008 but he flopped out when forecasting GDP for 2009.
But if only economists would not act as if they had some infallible knowledge or superior forecasting ability which is laughable. The opinion of the average small business person or farmer would be just as valuable and worth listening to in my view.
October 17th, 2009 at 10:53 pm
Like a virgin.
Now what was it Madonna said about that?
For the very first time?
Sorry. I think it’s too late. The banks have had us again and again and again.
October 17th, 2009 at 10:59 pm
@ Gaffer
It’s not about predicting. If it were we would consult astrologers.
It’s about protection.
It’s about protecting the Citizen.
That’s want government claims to be about.
How can Government ignore the voices.
To ridicule those who disagree with Government makes plain that Government is not about protecting the Citizen. It’s about something else.
It’s about protecting the banks.
Sad but true.
October 18th, 2009 at 12:22 am
@ Sarah Carey
“So Denis’s point and mine, is how do we get more qualified people or how do we improve the qualifications of the people in there”. Mr. O’Brien should know from his tribulations at the tribunals that qualifications are not the answer.
May, I respectfully suggest, with regard to qualifications that getting qualifications does not guarantee any degree of “expertise” of the people “in there”.
We need political reform to allow people with drive, ideas and a can do attitude to get into the political arena without having to prostrate themselves to the masses before they can legislate. At the moment, the TD system is like a filtering system to make sure that talent is the rare exception in the Dail. Our system of electing people is a disaster.
Bill Gates dropped out of college to start Microsoft and so did many others to start great companies. I know people who went around offices in their bare feet telling programmers working in C++ “they knew nothing about computers”, nor did they want to know anything about them, on the other hand, they knew exactly what had better be in that report they wanted on their desk monday morning.
Leadership has very little to do with qualifications or the qualifications industry I have attended two universities Limerick and Galway and in between wrote a whole load of essays, reports, theses etc for friends who had to get “qualified”.
First and last prerequisite of a leader is not to suffer fools gladly and better still not to suffer them at all.
October 18th, 2009 at 12:31 am
@ Gaffer
“Someone once said that making accurate predictions is very difficult - especially when they are about the future.”
Correct.
It was a Danish cartoonist. His name was Robert Storm Petersen.
He started his career working in his father’s butcher shop, but soon moved on to acting, painting and writing.
In 1913, he came up with his famous characters The Three Small Men, and with their ’sidekick’, The Numberman, whose job it was to put the numbers in the comic panels.
Sounds a bit like NAMAman putting numbers into a tragic comic picture of the “Orish”
October 18th, 2009 at 2:50 am
@ Sarah Carey
“So Denis’s point and mine, is how do we get more qualified people or how do we improve the qualifications of the people in there”.
The fundamental problem is that there is limited accountability in a system from the era of the donkey and cart, where effectively, the buck stop nowhere.
Read the C&AG’s annual and special reports and they come back to the same issue time after time.
The Irish are a very conservative people and despite a crash that has ruined the lives of tens of thousands of people, where is the constituency for significant change?
If the alternative government parties are not ready to hit the ground running after the next election, it will be business as usual with more commissioning of reports and an opportunity for the vested interests to stall progress.
Change comes ever so slowly and if at all, only in response to a crisis.
This week, the head of a public body, an Bord Pleanála, felt compelled to call for public sector reform.
There are 88 planning authorities in Ireland and members with commercial property interests make decisions on planning.
Also this week, the Taoiseach announced that the Government would appoint a CIO who would report to him and have responsibility for all IT projects in the public sector.
Seems like a good idea but wonder why something so obvious would take so long and exactly 4 years after Cowen himself was involved in signing off on new rules on major public projects - - only after a public outcry on huge cost overruns on road and public IT projects.
There has been a litany of waste and while a US website for providing public information on federal contracts can cost $1m, $50m is spent in Ireland on a public services portal and it’s just junked.
Science Foundation Ireland, responsible for innovation, spends €400K on an IT system and it’s just junked.
In Oct 2005, I wrote: “The penny has at last dropped for the computer illiterate Government Ministers, senior bureaucrats and political advisers who have been paid well, to ask the questions that a business person would be expected to, when signing off on major expenditures….Instead of putting party flunkeys on the public payroll, has there been anyone in government with the savvy to propose a CIO - Chief Information Officer - with key experience in world class IT organisations and successful project implementation experience? A similar function with responsibility for major infrastructure projects would surely have also been merited.”
With the buck stopping nowhere and ministers living exemplars of the Peter Principle, what should be expected?
Jan 2007: Bertie Ahern requests the OECD to review the Irish public service.
Apr 2008: OECD reports, Ahern says of the 800 State agencies/quangos, there are “too many by half.”
Oct 2008: Justice minister cuts Equality Authority budget by 43%; Most other State quangos subject to single-digit cuts
Oct 2009: Taskforce still reviewing the report
Jan 2012: 5 years after the original commission, baby-steps in progress.
RTÉ is an illustration of what happens when the interests of the producers are paramount as is the National Consumer Agency (NCA) - - set-up in response to concerns about rip-offs but becoming a rip-off itself.
The NCA with its 14-strong board, a head earning more than the Fed chairman and a €200k PR budget for issuing press releases, cannot afford to get a start-up to produce a value for money online price comparison site!
October 18th, 2009 at 4:03 am
Globalisation and the Irish Economy - - March 2006
http://www.tcd.ie/iiis/documents/seminar%20papers/IIIS%20Globalisation%20and%20the%20Irish%20Economy.pdf
Philip Lane and Frances Ruane, Trinity College
The study, which explored the extent to which globalisation has impacted on the Irish economy, concluded that it was extremely vulnerable to a global slowdown in either the high-tech or financial services sectors, since such a large proportion of our trading activity is concentrated in these sectors.
Such a slowdown would also reduce tax revenues, both from the foreign-owned firms and from those directly employed in them and associated businesses.
October 18th, 2009 at 8:10 am
So Denis O’Brien has launched a website.
moriartytribunal.com
And I thought he didn’t like blogs and such.
He generously offers the advice,
“You’re paying for it- start judging for yourself!”
I’d be delighted to “judge for myself”
But on closer inspection the website does not allow for comment.
Nice of Denis to offer his incontrovertible view.
This man is obviously in love with his own opinion.
It’s not independent economists he dislikes.
It’s independent thought.
October 18th, 2009 at 9:30 am
@Eamonn
The political system does allow for accountability - the problem is that through the democratic system the people don’t enforce that accountability - i.e. they could choose not to re-elect governments whose policies have inevitably brought us to the point we’re now at. Why would FnFers resign over failures when they are guaranteed re-election despite them? So your argument is not with the system, but with the people within that system (both in the Dail and at the ballot box). Arguing that the people make bad choices is quite a different matter from arguing about the system itself and the fact is that systemically, there is no accountability for the public servants.
Let’s not start arguing about the Tribunal here. So off topic.
October 18th, 2009 at 11:01 am
@ Gaffer
“I agree 100% with DoB on the Moriarty tribunal, barristers on 000s per day for 10 years, the climax of the investigation being enquiring how many times a day Bertie ventured into the bedroom in that house in Drumcondra! Well I suppose it has some entertainment value but it could only happen in Ireland!”
Methinks you mix up tribunals here
De Bert was up before the Mahon (Flood) Tribunal of Inquiry into Certain Planning Matters and Payments.
Infacta
DOB was up before Moriarty Tribunal Into Payments to Politicians and Related Matters.
nuff tribunal stuff !!
October 18th, 2009 at 12:33 pm
@ Ray,
If Irish banks had issued more securitisations they be in a much better position. Instead they relied on interbank loans which left the risk on their balance sheets.
I do agree more generally with your point on private sector credit growth.
October 18th, 2009 at 7:35 pm
@Sarah Carey
“The political system does allow for accountability”
How can there be any serious accountability when
1) the Government completely dominates the legislature eg. the Taoiseach, Tánaiste and Minister for Finance must be members of the Dáil (Constitution Art 28.7.1);
2) Government Departments are “corporations sole” ie. the civil servants are extensions of the Minister?
As one observer put it, “when you talk to Ministers they blame the civil servants and when you talk to civil servants, they blame the Ministers”
Or as Montesquieu, a pre-revolutinary French thinker, put it
“When the legislative and executive powers are united in the same person, there can be no liberty”
October 18th, 2009 at 8:01 pm
@Karl Whelan
In reponse to my criticism that the forecasting record of Irish economists is very poor, your defence is not that I’m wrong and that its actually very good, but rather that all economists should not be tarred with that brush because the vast majority of them have far better things to do with their time than to make economic forecasts. Very well, I accept that, and I humbly apologise to the economics profession. It doesn’t alter the fact that the forecasting record of those Irish economists who do make economic forecasts is very poor (as illustrated by the examples I gave above). What’s more, in many cases our taxes pay for those very poor forecasts.
@Michael Hennigan, Sarah Carey, and others too numerous to mention
Do you think that constantly implying that the Irish people are mentally deficient because they have repeatedly elected Fianna Fail Governments in recent decades (a theme repeated ad nauseum by the Dublin 4 media set) might be one of the reasons why the Irish people have repeatedly elected Fianna Fail Governments in recent decades?
In fact, Fianna Fail’s electoral success in recent decades is wholly rational. Since 1986, economic growth in Ireland has averaged 6 per cent per annum. If any other country had achieved that, they’d have been repeatedly electing the same government to power. Of course, it can be argued, and I’d probably agree, that Fianna Fail were just lucky in coming to power in 1987, and that the growth since then would have still have happened, even if there had been a Fine Gael/Labour government since then. But, electorates in most democratic countries generally aren’t concerned with luck and tend to re-elect governments who are in power when economic growth is strong.
Its more than likely that the next election will see a Fine Gael/Labour government coming to power (by a landslide if its held in 2010, by a much smaller majority if its held in 2012). I’m sure that Fianna Fail, and their one or two supporters in the media, will not then spend the subsequent few years implying that the Irish people are mentally deficient for doing so.
October 19th, 2009 at 8:50 am
@John the Optimist
“It doesn’t alter the fact that the forecasting record of those Irish economists who do make economic forecasts is very poor (as illustrated by the examples I gave above). What’s more, in many cases our taxes pay for those very poor forecasts.”
The real question tho is this : is the forecast better than chance? A subsidiary question is : do private sector forecasts outperform public sector forecasts. A third question is: allowing for “vintage” effects, whats the answer to the above two?
October 19th, 2009 at 9:49 am
Lads…. first DOB is just getting onside for NAMA… its nothing personal, he’s made a business decision… NAMA is being pushed through… he wants in….
Second I regard the criticisms as evidence that economists have done their jobs…. told some uncomfortable truths..in reasonably plain language..the truth as they see it…
which thanks to the internet will be online and immediately available for comparison no matter how it turns out… Wouldnt it be interesting to see the thoughts of economists et al in the run up to FF’s 1977 manifesto?
October 19th, 2009 at 9:56 am
@Richard Tol
“The ESRI did not foresee that the correction to the home-made problems would coincide with a major international recession.”
“Then, the INTERNATIONAL financial crisis broke loose. This turned what may have been a soft landing into a very hard one indeed.”
As a matter of interest, can you give any kind of indication as to how the ESRI investigates international economic factors and possible disruptions? Does the ESRI second guess the conclusions reached by US government bodies, the IMF and so forth? If we are a small open economy by design then our ability to foretell and anticipate global disruptions and global opportunities must be as important as our ability to analyse our domestic economy. One would hope that we have developed significant expertise in that regard.
Perhaps Lehmans was unlikely, and perhaps a general financial crisis was unlikely (although I was told in 2004 by a guy who was buying silver bars that derivatives were false and would collapse the system). Nevertheless, we know that these events have had devastating effects for Ireland when combined with domestic problems. This makes clear that domestic policy should take account of possible disruptions in international trade and economy to ensure that domestic policies do not amplify any external shock waves.
October 19th, 2009 at 10:01 am
Denis O’Brien loves to lecture the nation on how to run business, run the state, and now, on what economists should be doing with their time.
Anyone who is a tax exile loses their right to preach economic policy and public expenditure.
And, as for Sarah Carey defending the tax exile (in a round-about ‘I am not really’ kind of way). Well, given that she thinks there is no wealth to be taxed in Ireland, and that Ireland has high levels of social protection expenditure, who can be surprised.
October 19th, 2009 at 10:42 am
@Garry
It was a TCD economist who thought up the FF 1977 manifesto.
@Brian Lucey
Good questions. I don’t know the answers. Maybe one of our economists could conduct some research into the quality of economic forecasting in Ireland. And, for good measure, add a section on how much the bad forecasts have cost the economy.
October 19th, 2009 at 10:43 am
“The ESRI did not foresee that the correction to the home-made problems would coincide with a major international recession.”
“Then, the INTERNATIONAL financial crisis broke loose. This turned what may have been a soft landing into a very hard one indeed.”
I have to agree with Zhou on this one. The problem in sub-prime were plain for everyone to see from August 2007 onwards and to a lot of smart economists at least a year before that. granted the ESRI could not predict that Lehman would be let go in such a disorganized fashion causing a massive crunch but it is not an adequate response for economists to say that the “INTERNATIONAL financial crisis broke loose”.
The ESRI is still living in denial if what the irish Times reports is accurate. The latest quarterly report says that house prices were over-valued by one-third in 2007 based on economic fundamentals. Just one-third? They’ve got to be smoking something strong to say that now after all that has happened.
October 19th, 2009 at 10:49 am
@ Stringer Bell
this whole “DOB is a tax exile and so has no right to say anything” line is bizarre. You can question some of his alleged ethics or what he actually said, but not his right to say it. Tackling the man and not the ball, as some people here are fond of saying.
(a) Dermot Desmond is a tax exile. When he came up with some good ideas for a NAMA alternative im pretty a lot of people sat up and listened to them. Joe Stiglitz has probably never paid a dime in Irish taxes in his life, but plenty of people thought he had something interesting to say on Irish public policy.
(b) DOB is a tax exile in a personal capacity, but has plenty of investment here, creates and maintains plenty of employent in this country, and pays millions in business-related taxes. I’d also note he gives an awful lot to charitable or philanthropic activities here.
(c) your personal attack on Sarah Carey is foolish, misconceived and utteraly ignorant of what she actually said. Tackling the woman this time and not the ball.
October 19th, 2009 at 10:50 am
[...] a report on the Dublin Economics Workshop in Kenmare (18 minutes in) by quoting Denis O’Brien’s comments about academic economists spending all of their time twittering and taking out ads in the [...]
October 19th, 2009 at 11:41 am
Why does DOB care about ternishing the reputation of Academic economists?
Why does he want them to desist from obstructing NAMA?
At first, I was thinking how is Dennis making money from Nama.
Then I thought he could just be protecting the interests of his boys club i.e. protecting Bond holders/internaional investors like Garreth Fitzgerald has been doing. I still think it could be the latter but their is another possibility.
This site and others like it, are a form of independent media.
It is a form of media that is not under the control of media Mogels.
If people start getting their information from independent sources then things happen that Denis doesnt like.
1. His print radio and TV media loose market share to online media.
2. He looses the power of being able to influence a growing area where people get their information.
3. It promotes the idea that getting your news doesnt have to be accompanied by advertising.
I think Denis is meerly trying to discredit people wh give opinions away for free so that people will go back to only uses opinions that they are prepared to pay for and can be filtered by himself and other media heavyweights when the nessesity arises.
It is a bit like People getting their news from democracynow.org, because it is not paid for by advertising from the bussiness world, it doesnt have to see the world through big business tinted windows.
He is trying to discredit your opinions because he doesnt like that you give them away for free and that he cant get you sensored when you say things that dont match his agenda.
October 19th, 2009 at 1:20 pm
[...] they’ll talk us into another recession. Sure, they didn’t predict any of this anyway, right? Prominent tax exiles have recently aired similar views, discussed at length on this blog, and former Taoiseach Bertie [...]
October 20th, 2009 at 8:20 am
@Frank Galton:
Just a minor correction:
>>Dermot Desmon …now apparently sees a future in sandwiches (via the takeover of O’Brien’s, no relation)
Wrong Desmond. That’s Denis Desmond.
November 2nd, 2009 at 8:19 am
Maybe because O’Brien was involved in handy deals like this:
http://www.gavinsblog.com/2009/10/01/sean-fitzpatricks-loans/
August 17th, 2011 at 7:56 pm
The greatest national asset Ireland has are it’s successful business people,
Mr Denis O Brien is a hard working dymnic businessman, who shouldn’t have to listen and endure years of insults levied against him by paid servants of the state. These lawyers under the guise of investing dishonesty are ripping our country of millions by issuing lotto style invoices for nothing short of waffle. It’s the biggest scam in Ireland. Professional rip off merchants prancing around like dressed up clowns (wigs and gowns), codding themselves that they are respectable members of society when everyone arounds thinks they are scammers, no better than chancres or dressed up thinker’s. They are in short a disgrace to there very own “profession”.