Free Speech and the Green Jersey

Last night’s Week in Politics Show on RTE provided a fascinating illustration of how bizarre the debate over the National Asset Management Agency has become.

Presenter Sean O’Rourke introduced 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 newspaper. The report itself showed Morgan Kelly criticising NAMA on the grounds that it relied on extreme upper tail optimistic assumptions and that it would still leave them undercapitalised.

The report then showed Pat McArdle, former economist with Ulster Bank, responding to Morgan Kelly as follows (22 minutes in):

Freedom of speech is fine and we’re all in favour of it. But there are sometimes when you have to temper things in the greater interest.

Following the report, presenter Sean O’Rourke effectively endorsed this line of reasoning, immediately putting the following question to Pat Rabbitte: (24 minutes in)

Is there something to be said, and this is a theme that Garret FitzGerald has touched on in the last couple of weeks in his column, that there may be a case for people to pull on the green jersey as it were, set aside some of their more extreme doubts about NAMA and just see it through and give it a fair wind?

So this is what it’s come to. People can object to the government’s policies on the budget or health or education or whatever but objections to NAMA—an initiative that involves spending up to €54 billion of public money—must be condemned as unpatriotic.

In a supposedly open and democratic republic, this idea—that you should refrain from objecting to a government’s economic policies because this criticism runs counter to the national interest—would normally be considered morally repugnant. It says a lot about this country that this opinion is now being regularly aired by mainstream commentators in our print and broadcast media.

The programme had plenty of other stomach-churning stuff such as McArdle’s claims that Kelly had just dreamt up his criticisms of NAMA in the last week, junior Minister Dick Roche’s claims that Morgan was being “brittle” in response to McCardle, followed up by bizarre stuff about how this put him in mind of the need for more one-armed economists. And best of all, when Pat Rabbitte failed to agree to pull on the green jersey, O’Rourke told him:

But coming back to NAMA, they’re operating on the best available advice from say the head of the Department of Finance, from experts in Europe, from the European Central Bank, from the new Governor of the Central Bank.

Ah yes, the European Central Bank and the new Governor. Sean must have forgotten about Bo Lundgren and the IMF.

122 thoughts on “Free Speech and the Green Jersey”

  1. The Green Jersey thing might be fitting in the sense that some people may feel the same way about NAMA as they do about the football team – We all hope the team will do well but history and common sense tell us we should probably look for another team to support come the finals

  2. “its a good bank rescue plan, but not a great one. Its workmanlike, solid, unadventurous. The irish economists are very talented, but their skills, their abilities, under this manager they cant display these. a 54b formation is crazy in the modern game. It gives us these ugly, boring plans….wheres the adventure, the passion?”

  3. I suppose I’m surprised that you seem surprised. It may say “open and democratic republic” on the tin, but that’s not how the contents are applied. Once political survival comes to the fore, every effort is made to close down debate and to subvert what exists of the democratic process.

  4. Surely that deserves a you tube clip???

    Seriously though, it does look like ‘de media’ are trying to put the same make up that they put on Declan Ganley onto Morgan Kelly???
    I am not sure who i just insulted, but apologies.

    They media: radio and tv have seriously underpreformed in this enterprise.
    They allow politicans to run out the clock with sound bites.
    The model of two sides and one ref has not resulted in a good outcome here.

    Al

  5. I would totally agree with Karl Whelan. People should be allowed to voice whatever opinions they have. In Morgan Kelly’s case, these are so extreme, they will eventually destroy his reputation (such as it is). If I was Sean O’Rourke, rather than asking Morgan Kelly to shut up, I’d have challenged him to say whether he was standing by his earlier predictions of (a) a 20% fall in GDP in 2009 (b) an 80% fall in average house prices in Ireland, bringing them down to €62,000. Just out of curiosity, can any of Morgan Kelly’s friends, who post here, enlighten us as to whether The Great One is still holding to these predictions. He’s gone very silent on them recently. Did he mention them at all at the junket in Kenmare?

  6. This to me seems like an outgrowth of the notion of turning the Republic of Ireland into Ireland Inc. I’m afraid this tendency to suppress dissent would only get worse, though, under KW’s nationalisation plan, as the difference between citizen and shareholder would be completely eroded. That, by the way, is not a problem inherent in nationalisation/bad bank rescue plans per se so much as a problem in contemporary Irish political/corporate culture that would manifest itself strongly under a nationalisation/bad bank rescue plan. If we edit out the more hysterical ‘don’t scare the horses’ jingoism, guys like McArdle are ultimately saying the perfect should not be the enemy of the good (or least bad).

    And allow me to plug a friends book on this subject:
    http://www.amazon.com/Cultural-Work-Corporations-Megan-Brown/dp/0230618723

  7. I’m pretty sure I heard Brian Lenihan having a pop at academic economists on yestersday’s Today FM business show. Something about you folk not being able to read bank balance sheets.

  8. I think the comment that is leveled at you guys all the time is you criticise Nama but havn’t come up with a consensus on an alternative. I know you guys might not have the time due to having day jobs ect, but if you guys did come up with an agreement on an alternative that would surely put an end to that and it would be a real challenge to Nama.

  9. @Ahura Mazda, it’s not that they can’t read bank balance sheets, it’s just that they don’t get the same explanations of the numbers that Mr. Lenihan does..

    On the green jersey, I remember a quote from Samuel Johnson, and looking for ref, I found this from ‘Boswell’s life of Johnson’

    “Patriotism having become one of our topicks, Johnson suddenly uttered, in a strong determined tone, an apophthegm, at which many will start: “Patriotism is the last refuge of a scoundrel.” But let it be considered that he did not mean a real and generous love of our country, but that pretended patriotism which so many, in all ages and countries, have made a cloak of self- interest.”

  10. This is just hte tip of the iceberg. The green jersey runs deep. I have had senior and influential professionals tell me that insolvent business mogels in Ireland should be supported through, with taxpayer support of course, because they are “one of us” and not “one of them”.

    NAMA is inextricable caught up in this approach.

  11. It’s much more interesting if you replace the phrase “Freedom of speech” with “Telling the truth”:

    Telling the truth is fine and we’re all in favour of it but there are some times when you have to temper telling the truth for the greater interest.”

  12. The “Green Jersey” loyalty supported Anglo-Irish, according to some quotes.
    As the other banks began to compete with Anglo-Irish, we now have the results of “Green Jersey” unthinking loyalty!.

    Others have been quite articulate on the need for freedom of thought and expression

    “Freedom only for the supporters of the government, only for the members of one party – however numerous they may be – is no freedom at all. Freedom is always and exclusively freedom for the one who thinks differently. Not because of any fanatical concept of “justice” but because all that is instructive, wholesome and purifying in political freedom depends on this essential characteristic, and its effectiveness vanishes when “freedom” becomes a special privilege……The only way to a rebirth is the school of public life itself, the most unlimited, the broadest democracy and public opinion. It is rule by terror which demoralizes.

    When all this is eliminated, what really remains? In place of the representative bodies created by general, popular elections, Lenin and Trotsky have laid down the soviets as the only true representation of political life in the land as a whole, life in the soviets must also become more and more crippled. Without general elections, without unrestricted freedom of press and assembly, without a free struggle of opinion, life dies out in every public institution, becomes a mere semblance of life, in which only the bureaucracy remains as the active element. Public life gradually falls asleep, a few dozen party leaders of inexhaustible energy and boundless experience direct and rule. ”
    Rosa Luxembourg on the Russian Revolution
    http://www.marxists.org/archive/luxemburg/1918/russian-revolution/ch06.htm

    Of course, this did not happen here during the past few years!

  13. @ Noel,

    I’m not sure I follow your logic. Just because economists don’t all agree on the same remedy, it doesn’t mean their (virtual) unanimity against a given, and poor, solution is invalid. An analogy to illustrate this point:

    1) Problem: Child is misbehaving

    2) Proposed (bad) solution: Give child sweets and toys every time he cries.

    3) All experts agree that this is a bad solution.

    4) Sweet and toy shop vested interests: Spoiling this child is the only show in town.

    5) Experts respond by coming up with a variety of different responses, that may differ slightly or overlap, but all differ radically from the sweet and toy solution (e.g. talk to child, create system of incentives, punish in an proportionate way, etc.)

    6) And now: “I think the comment that is leveled at you guys all the time is you criticise Nama but havn’t come up with a consensus on an alternative.”

  14. @John the optimist
    I agree with you. Time will tell who is right and who is wrong. The more extreme views will turn out to be very foolish (I hope). Morgan Kelly on one side and Nama making €4.5b on the other. And then these people need to be discounted from future forecasting and input.

    I presume they don’t want people to be able to say I told you so when this thing goes belly up. Too many people in Ireland were too timid to call the property crash, any that did were told they didn’t understand Ireland’s unique position (by the likes of Pat McArdle who can’t be too good at forecasting himself given the mess Ulster Bank is in).

    In the 1980s there was a silence on the antics of Fianna Fail and Charlie Haughey. Now at least we have the Fintan O’Toole’s and Vincent Brownes. We need the equivalent in economics and business. IBEC are worse than ICTU for going for consensus – social partnership and benchmarking.

    Keep going guys – I hope it doesn’t come to the day when you come under pressure from your employers to shut up.

  15. Karl, while I think that you voice sensible & serious concerns re NAMA, I am not sure about your description of a question from a panel host as an effective endorsement of a particular point of view. It was up to the panel members to express actual opinions on the matter.

    Pat Rabbitte and the Labour Party oppose NAMA and it is only right that O’Rourke should challenge their position or ask them to respond to remarks that were widely reported upon in the media. Equally, if and when he interviews a Fianna Fail Minister or other proponent of this solution, then I would expect him to ask tough questions regarding why they think NAMA is actually the way to go.

    Unless you can point to failings in that regard, then the only thing that Sean O’Rourke is guilty of is doing his job!

  16. There is a place for a green jersey with everybody taking a collegiate approach to getting ourselves out of this whole. However, all too often in Ireland collegiate is misinterpreted to mean excusing other people’s incompetence. Using the “green jersey” as a gag on those in the dressing room who question the manager’s tactics is a blatant mis-use of the metaphysical garment.

    @K.O’R.

    I cringed when I saw that on the front page summaries section of the FT Weekender. The Green Jersey is obviously not effective when scaring the sh*te out of the population.

  17. @ Graham

    I’m not saying that the the argument that the economists don’t all agree on an alternative to Nama is a valid argument in favor of Nama.

    Was just thinking if even a number of economists did agree on an alternative, that that would put pressure on Nama as it is. And it would be great i.m.o. if that was the case.

  18. For example that statement signed by the 46 economists I thing sent a powerfull message. (sorry it doesn’t seem possible to edit posts)

  19. @ Noel,

    Okay, I hear you now. And I agree that a broad concensus would be useful – and as Kevin points out above, I think it more or less exists. So the real point is the other side hasn’t put enough high-velocity spin on their counterproposals, but then again, they are not professional politicians whose life and job it is to put spin on an argument.

    As well – and this is a point that has already been made in relation to the “if you don’t like our bail-out, write a 250 page piece of legislation yourself!” – the Government is the one sitting on an entire executive branch of government whose job it is to come up with the details of a banking solution.

  20. Noel
    And the statement that the 46 and the 20 made, suggesting : recognize the losses, do whatever recap is needed by the state, sell off asap the state stakes ; is that not coherent ?

  21. This is the link to Brian Lenihan’s interview. Click on “Business Show Part 2 Sunday: 18/10/2009” It’s about 5minutes in. It’s actually a lot more cutting than just the balance sheet comment.

  22. I completely back the right of free speech in all matters, and particularly so on economics matters given the current uncertain times. However, as i said before, with free speech and an eager audience comes responsibility (wasn’t that Dr Fitz’s issue about the 30bn figure used by the ’46’?). If someone like Morgan Kelly makes an assertion about house prices falling 80% or NAMA making a loss of €35-40bn, this could negatively impact on the stability of the banking sector and the State finances themselves. As such, it’s not just an ‘honest opinion’ he’s giving, but possibly a market shaping event. Likewise talk about NAMA ‘bankrupting’ the state would seem to be a combination of scaremongering and band-wagon jumping.

    Remember, finance and banking are both based inherently on confidence underpinning them. No confidence and it all falls apart. This is why we saw bans on short selling and investigations into rumour-spreading about some of the troubled banks (i think a ban is too draconian, better disclosure would be a more effective and fair provision).

    If house prices end up hitting a trough at 50% of peak, and not the 80% that MK has suggested, i don’t think it would be unfair for some people to be angry with him given the attention and headlines his opinions generally make.

  23. @Longman Oz

    Mister O’Rourke clearly thought that the “shut up and pull on the green jersey” question was a legitimate one, otherwise he wouldn’t have asked it.

    You may say he is just doing his job. Well, I can say that I don’t like the way he does his job.

  24. When someone challenges freedom of speech in the way that P McA has done it is not ‘doing his job’ for O’Rourke of RTE to simply kick the ball on by asking ‘isn’t that a valid argument – or whatever’. The correct, much more interesting, and more professional response is ‘what is it about the anti-NAMA argument that makes you so uncomfortable and would cause you to say such things.’.

    The virtues of ‘unanimity’ we got with social partnership and ‘consensus’ politics are exactly the same as the virtues of unanimity we are getting with this ‘Green jersey’ argument. The whole social partnership system was a subversion of democracy. Let’s face it, it was nothing more than a clearing house for vested interests. Opposition and proper scrutiny was, quite literally, designed out of the system. All we’re getting now is the reaction from the gutless monster as it finds that its Group Think has got the elites into trouble.

    After the debacle of the 1980s we never had a moment of Truth in Ireland. I have always said that social partnership was a rescue for the elites who caused the crash of the 1980s. Moral hazard applies. No one was punished for this. They remained in power and simply looted the exchequer again when the coffers were full. It’s that simple.

    The only real scrutiny in this country is being provided by Constantin Gurdgiev and the economists who write on this blog and who dare to criticise public policy. You guys are the true patriots.

  25. @Eoin
    Morgan Kelly’s prediction of a 75% fall in property prices may be at the most pessimistic end of the spectrum but it is possible and he clearly believe is will happen.

    Why should he have to temper his views because the government doesn’t like them?

  26. @ Stuart
    ” Time will tell who is right and who is wrong. The more extreme views will turn out to be very foolish (I hope). Morgan Kelly on one side and Nama making €4.5b on the other. And then these people need to be discounted from future forecasting and input.”

    Eh no they don’t – both the best case and worst case scenario’s should be considered in conjunction with the more likely outcomes. Ignoring “extreme” events is part of what got us into this mess. It is ok to ignore them only if wqe are certain they cannot occur. Are we certain house prices don’t have a substantial way to fall?

    @Johntheoptimist
    As regards comparing forecasts to actuality – this is not the correct measure of performance. A forecast is made assuming no corrective action is taken usually, then in reality some action is taken and forecasts need to be re-evaluated. The idea that any forecaster should pick a figure and then defend it to the hilt in an evolving situation seems foolich to me.

  27. @Eoin:

    What say you to http://www.ft.com/cms/s/0/9edae672-ba6f-11de-9dd7-00144feab49a.html?nclick_check=1

    For a sitting minister to say something like that is far far more serious than 46 independent economists. Also, I did not hear any criticism of MH from Garret F. this past weekend either. I suppose it is ok to scare the horses wen it happens from the government side.

    As an aside, my assessment of the FT article;s worth plummeted when I read the line: “Mrs Harney, a leading economic reformer, said: “.
    WTF????

  28. @Karl
    Let’s not get hung up about whether Sean O’Rourke got the balance right. Journalists are generalists who work under great time pressure. We all wish we had said things in a different way last time we were on TV.

    If there is no going back on NAMA, then we should stop crying over spilt milk and make the best of it.

    I think it is premature, but it is of course a standard trick to say that the match is over when you’re 2-1 ahead.

    Azurri jersey anyone?

  29. @Richard

    The final NAMA bill has not been passed so it is indeed premature. More generally, it is bizarre to expect opposition spokesmen to shut up and start supporting a policy approach that they fundamentally disagree with, and with good reason.

  30. While on this subject, might I suggest that the Vice-Chancellor of UCD call Morgan Kelly in and ask him to refrain from using racist language. In his Irish Times article last week, Kelly referred to the people of this country as ‘feckless Micks’. At the Kenmare junket, he is reported in the Irish Times as referring to them as ‘Paddys’. As a Northern Protestant, I’m not sure if I qualify as a ‘Mick’ or a ‘Paddy’, but I find this sort of language inexcusable. Twenty years ago, it might have been ok to use these terms in the lower echelons of unionist society but, even in those circles, it would now be frowned on.

  31. The following has the potential to be taken on as a coherent approach, given that we often look to the United States for direction:

    If the US version of NAMA (i.e. TARP) wasn’t good enough for U.S. Congress, why should it be good enough for us? TARP was amended to let the U.S. taxpayer take equity stakes in U.S. financial institutions. Why can we not do the same here?

  32. @JohnTheOptimist

    Yes, I hear we in the Republic are called ‘mexicans’ now…

    I believe your interjection on this subject to be both baseless and demeaning to your otherwise excellent analysis, in a macardles sort of way… perhaps you should suggest to NWA that they change their name to AAWA?

  33. @ Garo

    i agree with you to some extent, but i’ve also made essentially the same point as MH all along – the govt deficit, via the public sector pay and social welfare bills, are far more serious issues for the long term financial stability of the Irish state. Over the lifetime of NAMA (assuming 10yrs) we will spend around €400bn or so on these two expenditures, and it’ll dwarf a NAMA deficit of even 10bn (and i still view it as being unlikely to be this big).

    Having a loss making NAMA may cost an unsettling amount and obliterate many basic rules surrounding moral hazard, but it’ll hopefully keep our financial system functioning at a time of dire funding requirements. It’s not going to bankrupt the nation.

    Having a government deficit in double digit per centages is unsustainable in even the medium term and has to be corrected ASAP. Failure to do this runs a very real risk of national bankruptcy.

    I think this could be viewed as the point our government is trying to get across. NAMA is about maintaining funding/liquidity, the budget deficit is about maintaining solvency.

  34. Can the moderators explain why my post is entered twice with the absurd comment ‘Sorry, forgot to add great post! Can’t wait to see your next post!’ added at the end? This is clearly nobbling. It should be possible to check where the second one came from. Certainly not from me.

  35. @ DE

    i never said he has to ‘temper’ his views. What im saying is that if he is proved wrong by quite a distance, having previously shouted from the rooftops to anyone who would listen about the impending apocalypse, i don’t want someone saying “Ah well, he was just giving his opinion”. The old phrase about freedom of speech being fine until you shout “Fire” in a crowded theatre would spring to mind.

  36. I made my point on Pat McArdle’s suggestion at the Kenmare session.

    There is a clear double standard at play here. It appears anti-Nama economists are frightening the horses. The poor dears in the financial markets can’t analyse this stuff themselves so we should keep schtum in case they cotton on. At the same time threatening the IMF is not considered alarmist at all.

  37. @Eoin

    What is the problem if Morgan Kelly is wrong? Is there a suggestion that by criticising NAMA he (and others who also think NAMA is a bad idea) is hurting Irish interests in some way?

  38. @Eoin
    The problem with that view, and it is one I had some sympathy with a few years ago, is that people making what are reasonable sounding statements at the time have proved to be so terribly wrong in hindsight. Disastrously wrong in terms of what it means for the economy now and, eh, goin’ forward. The Dan McLaughlins, Austin Hughes, Pat McArdles of this world told us it was all going to be grand. Even more, they told us in 2005 that there was no chance the ECB would raise rates. Then they kept telling us they were done and dusted. Then they kept telling us we’d have a soft landing. And so on.

    The point is that hopelessly wrong optimistic advice is far, far more dangerous than hopelessly wrong pessimistic advice. Likewise, rosy views of the returns on NAMA are more dangerous than clouded views. We should be taking a grim view on the likely outcome and working up from there. Not taking a rosy view and envisaging a soft landing…

  39. @ Declan

    i don’t have a problem with critising NAMA so long as it is reasoned and responsible, indeed much of the critisism on these pages would fall under the correct, fair or reaonable argument columns. Suggesting 80% falls in Irish house prices and 40bn losses from NAMA appears to be seriously OTT and, yes, hurting Irish interests. More people read these opinions than you think. Given the uncertainty and financial situation present in the country, lots of foreign investors are more than willing to believe this stuff.

    As an example, McWilliams penned an article about how Ireland should leave the Eurozone back in the Spring. It probably cost this country a few hundred million in permanently higher government debt yields.

  40. @ YM

    i agree completely that those that didn’t see the downturn coming should be taken to task for it. However there’s a difference between taking the ‘grim’ view & being safety first going forward, and predicting national bankruptcy or 25% of national income losses arising from NAMA. In a time of financial crisis like we have right now, continuely talking the economy significantly lower can have a self-fulfilling dynamic to it. Again, honest but responsible debate is required, though the government could obviously help by not trying to point fingers at those who are genuinely trying to provide constructive critisism like on here.

  41. @ Eoin

    “More people read these opinions than you think. Given the uncertainty and financial situation present in the country, lots of foreign investors are more than willing to believe this stuff.”

    If these investors are not able to do their own analysis and judge the merits of arguments then they really are in the wrong game. If a pro-NAMA article appears in the paper do they then buy in again?

    If you think his comments are OTT then why wouldn’t a ‘foreign investor’?

    Perhaps any putative sell-off may not be because they foreign investors are scared by Morgan Kelly but rather because they agree with him?

    I shudder to think how much Mary Harney has cost us so. (I am of course referring to her IMF comments and not her expenses).

  42. @ Declan

    MK: an independent economist based in ireland who called the first half of the Irish property collapse right – he’s entitled to have his words gain traction with anyone with interest here. International investors can easily gain high level macro analysis of the Irish economy, but gaining info and insight into something like the Irish property market is much more difficult. As such, some of them will definitely listen to him. Thats not the debate. The debate is whether his doomsday scenario, which he is putting out (it seems) as the ‘likely scenario’ and not just a worst case one, is a reasonable one. 80% property falls and €62k average house prices seem like scaremongering to me, but they might not to the likes of Hans Von Stuggart Investment Mgt GmBh. Markets are less rational than people give them credit for.

  43. A few hundred million in interest or tens of billions of permanent damage to Ireland’s economy and reputation due to feckless bankers. You take the choice. BTW, I think McWilliams was utterly wrong on that one.

    But I find it interesting that people like Eoin and Johntheoptimist complain about McWilliams and Morgan Kelly but are totally quiet about the ruin caused by bankers such as, presumably, Eoin’s bosses. The condemnation of Mary Harney’s IMF comment was muted or absent. And if Morgan Kelly is so outrageously wrong and OTT – before the final judgement is in mind you – what about folks like McArdle? I mean he was so consistently wrong and cost so many people so much money. why is he being listened to and not attacked with the same vitriol you guys reserve for MK and DMcW?

  44. By “that one”, I meant pulling out of the Euro. IMHO, if Ireland did that – and there is no easy mechanism for the same – Ireland would be utterly f**ked.

  45. @Garo

    Just for the record, I have no connection with banks. I work in the field of GIS software exports (in R. Ireland, N. Ireland and Britain). Business is booming. But, I see nothing wrong with working for a bank, as Eoin does. Because he works in a bank, he knows infinitely more than me about NAMA and financial matters in general.

    Regarding Mary Harney’s comments, the first I heard of them was references on this site this morning, so I looked them up. Her comments are completely potty. She ought to be to told to stick to her portfolio and not stray out of her depth. Just how silly they are can be gleamed from the ESRI report just published today and put up on another thread on this site.

  46. @ Garo

    its not vitriol (on my part anyway), i just think DMcW’s piece was an enourmous ego-trip based in no reality. Ireland leaving the EZ would have been a complete disaster (and technically a default on the sovereign debt, btw). But wow did it get headlines, which i think was his entire point. He’s good, he has real insight, and he has a real ability to connect seemingly boring economic issues with the general public. But he overstretched badly on that one.

    In MK’s case my disagreement is more based on the idea that his ideas are so obviously eye-catching and headline making, that i really think a detailed piece with assumptions etc needs to be provided to show how he gets to these levels of property losses. Simply saying “it happened in Japan” is too simplistic given the severity and importance of the situation and the importance that goes with his words. We expect detailed workings on the NAMA business plan, and it was rightly critisised for being sloppy at best and overly optimistic and assumptive on much of what was underlying it. Why shouldnt we hope for something similar from MK (and no, i dont mean it has to be 50-100 pages long – is a 10-15 page piece too much to ask?)

  47. Still no critical analysis of the performance of bankers or bank economists like Pat McArdle? Or is it the case that nobody expected the INTERNATIONAL financial crisis?

  48. @Eoin

    you say:
    “As an example, McWilliams penned an article about how Ireland should leave the Eurozone back in the Spring. It probably cost this country a few hundred million in permanently higher government debt yields.”

    If it were to be true, then the sellers of Irish government debt might not be as good at their job as people in Ireland would like them to be. The word of a journalist is apparently more believable than theirs and as a consequence the Irish government debt is more expensive.

    Can you substantiate it?

    Could your statement, if left unsubstantiated, be classified as guessing and irresponsible scaremongering?

  49. It is all about the race to the “bottom”. M Kelly is acting the Mick. Sorry wrong choice of words. My issue is that I do not mind M Kelly or any other “economist” having any views they like on NAMA, banks etc etc. It is when they pen the word “Professor of Economics” after their name that I object to. This gives them street cred with the International and Irish media and it usually costs the country millions and loads of pain to hard pressed ordinary people with house mortgages and less lending to the business sector. As far as I am aware no matter what M Kelly says he will be paid a large salary by UCD and therefore can say it with impunity but for lots of us his words when picked up by the media worldwide cause a lot of financial grief. As regards Harney she is already at the “bottom” and has no street cred as she is not Professor Harney although sometimes she thinks she is a Medical Prof. BTW I am a Huguenot Paddy.

  50. “As an example, McWilliams penned an article about how Ireland should leave the Eurozone back in the Spring. It probably cost this country a few hundred million in permanently higher government debt yields.”

    Now bond markets are supposed to react to the mood swings of journalists making copy?

    Arguably, the european market always prices euro breakup probabilities. The idea that an article from McWilliams has caused the implied breakup probability for Ireland to permanently shift is daft.

    I don’t know what the purpose of such a manifestly daft assertion could be.

  51. @TRP – “I do not mind M Kelly or any other “economist” having any views they like on NAMA, banks etc etc. It is when they pen the word “Professor of Economics” after their name that I object to.”

    So it’s only informed opinion to which you object?

  52. @ Jesper

    “Can you substantiate it?

    Could your statement, if left unsubstantiated, be classified as guessing and irresponsible scaremongering?”

    Huh, ask a question and then immediately give an opinion on my supposed non-answer?

    First off, its actually an article from DMcW about Ireland defaulting on its national debt and comparing us to Iceland, and some other related interviews at the same time he gave about Ireland leaving the Eurozone and devaluing, that i have issue with. Secondly, DMcW isn’t just a journalist.

    The article was released on January 14th. Irish 10yr bond yields the day before were 4.55%, and 4.50% the month before. It touched off 6% a week and a half later. (*Anglo nationalisation happened in the same window, so obviously related)

    http://www.davidmcwilliams.ie/2009/01/14/cold-facts-of-how-we-could-be-iceland-inside-the-euro

    For the next couple of weeks he was giving interviews and comments about how Ireland should leave the Eurozone and that we might default. Google his comments and you get a lot of hits from foreign publications. It was on Sky News and CNBC. I had guys in our HQ asking about it. It was a big story. Before this it had never been really debated at a serious level about a Eurozone country leaving the Euro. Then a “former UBS director, central banker, and now journalist” started raising ridiculous questions about us defaulting and devaluing, without ever mentioning the enourmous costs that come alongside such a decision. Trichet got asked about Ireland leaving the Eurozone at an ECB press conference. By the middle of February Irish CDs was touching off 400 from sub 200 before he opened his mouth.

    So in a month when DMcW was being quoted far and wide about us defaulting/devaluing, we have the Irish CDS levels double and the Irish bond yield increase by 140bps or so. Markets now started pricing in a real outside risk of us leaving the Euro or defaulting. Yes the Anglo nationalisation was an issue as well, but so was this.

    http://www.irishtimes.com/newspaper/finance/2009/0122/1232474673092.html

    http://www.telegraph.co.uk/finance/globalbusiness/4285331/Help-Ireland-or-it-will-exit-euro-economist-warns.html#

    It was only when the Germans and the ECB started making soothing noises about a “Eurozone member not collapsing” and no country leaving the Euro did it all finally settle down.

    So yes Jesper, i do have firm empirical data linking DMcW’s ego-trip to real costs to the Irish state. It’s not just guesswork, unlike your assertions that my opinions were.

  53. I was at the meeting and almost fell of my chair when Pat McArdle made his comment. I never thought I would hear such comments during any debate. But then again, I would probably wear an orange jersey anyway I suppose 🙂

    Also, I don’t understand the fixation of many on what “the international markets” may think. Somehow I don’t think that the whole world came to work this morning anxiously switching on their computers checking what was said in Kenmare this weekend.

  54. @eoin

    “As an example, McWilliams penned an article about how Ireland should leave the Eurozone back in the Spring. It probably cost this country a few hundred million in permanently higher government debt yields.”

    Here you say “permanently”.

    “It was only when the Germans and the ECB started making soothing noises about a “Eurozone member not collapsing” and no country leaving the Euro did it all finally settle down.”

    Here you say “it all finally settled down”.

    Anyone who thinks that McWilliams piece has lead to “permanently” higher yields does not understand how bond markets work.

  55. Pat McCardle is the Comical Ali of the pro-Nama side. Morgan Kelly takes the view that because our property boom went on for so long and reached such peaks the correction is going to be correspondingly extreme. 85% declines in site values in Dublin which have already taken place support him. Given that extreme recklessness by many Nama backers got us into this situation they are the last people who should accuse others of irresponsibility. Morgan Kelly’s forecasts are at least as likely to be realised as the €5 Billion profit forecasted by the business plan. Presumably if those who wrote it are responsible the business plan was being conservative, and they expect Nama to make an even bigger profit, maybe €10 Billion, perhaps even up to €20 Billion if all goes well!
    Those who drew up the business plan were being responsible and conservative, weren’t they? Comical McCardle should be ignored.
    Telling the public that Nama may go badly wrong is not irresponsible, it’s brave, reponsible and adult. The pro-Nama side should stop pretending to be frightened children – they are the opposite of innocent and guileless. Well done Morgan Kelly.

  56. @ bg

    (a) ‘settled down at distressed levels’ is probably a better way of wording that. Its still very expensive for the Irish government to issue debt because there’s an implicit premium being charged due to discussion about us defaulting or devaluing.

    (b) the 1bn eleven year bond we issued in March at 120bps more expensive than than a similar issue would have cost pre-DMcW seems to be permanently more expensive to service over the life of the debt. Could be wrong though. Likewise the 800mio nine year bond issued the following month also seems a tad pricey at 85bps more expensive than previous. Those two will permanently cost us 200mio euro over their existance.

    My point was that it wasn’t just peoples opinions that were changed, but the actual pricing and coupons on our debt. But again, maybe i dont understand how the bond markets work.

  57. @Eoin

    things happening at the same time is not the same as they are related.

    You are in your reply stating that there were other factors as well. Anglo nationalisation. Maybe some might even had suspected an emergency budget in the offerings and put some risk premium due to that.

    But, maybe you’re right. The bonds sold at that time were probably sold at a risk premium. Whether or not it was more due to a journalists comments or more due to the nationalisation of a bank is anyones guess.

    It is impossible to prove either way.

    He analysed facts and came to one conclusion. Others analysed facts and came to their own opinion. Bondtraders may or may not have done due diligence and analysed the facts, and they may or may not have listened to a journalist instead of doing due diligence and their own analysis.

    One way of reading your comment is that bondtraders can’t/don’t do analysis, they read journalists opinion pieces. For that reason nothing negative can ever be said in public about a government initiative because the bondtraders might increase the cost of government borrowing. That would be scaring people into silence, hence the scaremongering comment.

    If you want to put all the cost of higher borrowing costs to one journalists writing it is up to you. I don’t believe it and I don’t think it should be stated as a fact as it cannot be proven as such.

  58. @Eoin
    You should be much more worried about what the markets will say when the country has another €51.7 Billion in debt (54 less risk premium).
    People in Italy routinely say they would be beter of if they had the Lire.
    If McWilliams has the power you attribute to him then going ahead with Nama as is, in spite of his trenchant opposition, will drive interest rates on our borrowings through the roof. I think you should call on the minister to stop Nama and revise it until McWilliams approves it. Brian Lenihan would be as irresponsible as Harney if he did anything else.

  59. @ Jesper

    please stop calling DMcW “a journalist”. It’s not Fintant O’Toole we’re talking about here. The guy has a lot of experience in the financial markets, from both a central bank as well as trading side of the game. He knew his words would get a big headline, and that, way up above, was my point. It was a vanity exercise on his part and he should’ve acted more responsibly. The risk and costs from leaving the Eurozone would be truely enourmous, even in ‘good’ times. Given the state the world was in at the time suggesting such a thing was ludicrous, and McW never went even remotely to explaining the likely downside of his idea. I never said i was “proving” that McW caused it all to happen, only that i was substantiating the contention with evidence. Its almost impossible to “prove” a lot of things that happen in the markets in terms of their cause.

    As for

    “Whether or not it was more due to a journalists comments or more due to the nationalisation of a bank is anyones guess.”

    Well, i thought nationalising the banks would be a good thing for Irish debt in your opinion? Can’t have it both ways. And aren’t lots of people claiming that the recent improvement in Irish debt levesl is down to the looming budget and not NAMA, so wouldn’t that make your reference to an “emergency budget” also somewhat incorrect?

  60. @Eoin
    “i never said he has to ‘temper’ his views. What im saying is that if he is proved wrong by quite a distance, having previously shouted from the rooftops to anyone who would listen about the impending apocalypse, i don’t want someone saying “Ah well, he was just giving his opinion”. The old phrase about freedom of speech being fine until you shout “Fire” in a crowded theatre would spring to mind.”

    The current “optimistic” projections behind the NAMA plan are far more dangerous to the country than any effect MK’s could have on bond market sentiment.

    What about the government projections for a soft landing not so long ago? Those projections look absurd now!
    The lack of forward planning to deal what looked obvious to many, including MK, at the time has done far more damage to the economy.

    There are dangers of being overly pessimistic but right not I think being overly optimistic is far more dangerous to the state.

  61. @TJmMCINTYRE

    I do not consider it “informed” when someone says that “house prices will fall by 80% from peak to trough in real terms” and ” construction but not demolition of residential and commercial property will fall to zero for the foreseeable future” IT 13/01/2009 or even less “informed” that “Irish national income will fall by less than 20 to 25 per cent in the next few years” IT 20/01/2009. This article was followed up by 2 corrections and clarifications by the IT on the 22/01/2009 – one concerning the Minister for Finance and corrupt motives.

  62. @eoin

    “there’s an implicit premium being charged due to discussion about us defaulting or devaluing.”

    In case you missed it, Ireland’s relatively high cost of funding is due to feckless and stupid actions within the irish financial industry. It is not, as you think, due to “discussions” among journalists and commentators.

    You might want to try connecting bond prices with political and economic reality. Radical, I know. Trying to correlate price movements with newspaper articles or twitter isn’t going to get you very far.

    If your wholly bizarre views on bond pricing are shared by the rest of the irish financial industry, we are in even worse trouble that I thought.

    [btw emu breakup models are as old as emu. It is not as if euro breakup never occurred to bond market players prior to recent events.]

  63. @TRP, Eoin etc,

    I woish you would be as transparent as MK and come straight out and admit that it now anti national for people to do the following
    *say the irish economy is in a prolonged economic downturn due in part to domestic factors
    *criticise the NAMA process for overpaying fir toxic loans
    *criticise the assumptions underlying the NAMa business plan
    *say anything negative about the Irish banks capital or liquidiity
    *critique governemnt policy & its implementation.
    Is there anything else we should not do? Should joining Zanu FF now be made compulsory?

  64. Here’s what Pat McArdle said in November 2006 regarding bank lending:

    “The banks are doing their utmost to assist, not for any altruistic motive but because competition is keener than ever-before and, indeed, keener than in most other EU countries.

    Outsiders looking at the Irish market frequently look no further than the loan to income multiple and recoil in horror when they learn that it is now five or more. However, this fails to take into account the more sophisticated affordability measures now employed by Irish lenders.”

    If you want a real laugh here’s the link: http://www.daft.ie/report/pat-mcardle

  65. @Eoin

    Yes, I do believe temporary nationalisation would be good for Irish debt. Selling banks with cleansed balance sheets would raise cash and therefore reduce borrowing need.

    However, nationalisation creates some uncertainty and with the uncertainty there is for a period a risk premium. Same with the need for a new budget only a couple of months into the year, it also created some uncertainty. I believe the market was behaving irrationally at the time (Anglo was/is insolvent). I believe it unfortunate that bonds had to be issued at this time.

    If someone is to blame for the spike, then I’d blame the corporate governance of Anglo in making so big losses.

    Current low spreads might have something to do with the funds the ECB is making available for bailing out of banks. The banks will do something with them, I believe they’ll use a significant part to buy government debt. Increased competition for a resource is usually good for the seller.

    The looming budget seems to be promising lower spend and higher intake so yes, this would also increase competition for government debt and be good for the seller.

    I don’t know if the new budget is the most important factor in pushing down bond spreads. It might be or it might be the ECB funds. Or it might even be my comments here 😉

  66. @ bg

    well we can either view the very very strong correlation of comments from one of the leading commentators on the Irish economy with bond prices, or we can view it all as coincidental twittering. I dunno, its a judgement call i guess. After all, markets are entirely rational at all times, or so im continually reminded on here. The only problem i have with that is that efficient market hypothesis we all learned in college appears to have a few flaws in it as seen over the last few years, and i heard some old guy talking about “irrational exuberance” a while back. But im sure you’re right, Dave McW puts out these puff pieces for the craic, and widely read business and economic media are known for printing/referencing whatever crap hits their desks. Do the World Economic Forum still give him glowing citations or was that just a one-off?

    Question: do you think the EMU break-up model is pricing in a higher or lower possibility of EMU break up now vs a year ago? Do you think the Irish portion of this model is in particular pricing in a bigger probability than before, or was back in the Spring at least? If its pricing in a higher probability, why would this be?

    @ DE

    listen, im not cheerleading for the NAMA draft proposal. In fact, i’ve been pretty honest about saying that NAMA could very well come in with a chunky enough loss. What i have also said is that (a) this loss won’t be anywhere in the same universe as MK suggests, and that (b) my forecast for a possible loss puts the state in austerity mode, while MK’s puts it in bankruptcy mode. Thats the key difference in my view. As i noted above, markets aren’t always rational, and in the information vacuum of a crisis, doomsaying can become self-fulfilling-prophesising.

    The NAMA business plan was overly optimistic, detail sloppy, and used lots of unexplained assumptions. It was a classic DoF submission, where they used very basic assumptions, plugged them into a spreadsheet, and then fiddled round with a few numbers to get a happy ending. I imagine lots of their long term tax and expenditure figures are similarly calculated. They then dressed this up as a “business plan”. It would have been far more honest and less controversial for them to issue it as part of a broader far reaching scenario analysis, and then detail the basic assumptions they were using for the baseline scenario. They then could have framed a business plan around this, while admitting that forecasts for an entire decade were going to be extremely difficult to formulate with any real precision. The problem with this is that no doubt we’d complain that there was no detailed business plan! But anyway…

  67. @ jl

    at no point have i said that it’s anti national or unpatriotic or that you should not be allowed say what you believe. What i’ve said is that some people have ulterior motives (DMcW ego trip) and some people need to ensure they are responsible in their comments given the attention they receive. For instance, all i feel is that MK should detail how NAMA loses 40bn or how Irish house prices fall 80%, what assumptions he’s working off etc etc. But obviously you feel that this suggestion is in fact part of a much broader plan to stifle debate and free speech and opinion. I dunno, seems a little too conspiratorial in my view.

  68. @Henry
    “Here’s what Pat McArdle said in November 2006 regarding bank lending:

    “Outsiders looking at the Irish market frequently look no further than the loan to income multiple and recoil in horror when they learn that it is now five or more. However, this fails to take into account the more sophisticated affordability measures now employed by Irish lenders.””

    And he is questioning the right of other people to speak? Irish lenders were shown to be insolvent within a year. Comical McArdle is too kind.

  69. @Eamonn76

    I thought you might like that. Maybe a dent in his spear carrier ambitions? Listening to him on Prime Time from last week (which I have only just watched) made me wonder why he was so full of confidence when spouting his claptrap (and it really was garbage). When I read this it made me wonder even more.

  70. @KW: Chopper Harris!!!! Jesus C, what are you watching in your time off! I reckon, Larry, Moe and Curley would be closer.

    B Peter

  71. I posted on another thread that I thought the combination of the following individuals spontaneously attacking the academic economist critics of Nama at the same time, and from different angles, seemed highly implausible:

    – Denis O’Brien: there are too many of them, tweeting & blogging away about Nama (the implication being completely wastefully)

    – Brian Lenihan: twice as many of them agree with me, they are just not saying because academics in Ireland are reluctant to criticise each other
    (as an FF parliamentary party member, I can condemn others about a lack of open debate)

    – Pat McArdle: talking about the possible decline in our property market, and hence the possible losses of Nama, is irresponsible. To paraphrase a British admiral early in the last century talking about submarines:
    Nama criticism is unfair, underhanded and damned un-Irish.

    – Even Pat Farrell’s apology on behalf of our banks, seemed calculated. Why now, after all this time? Defang the critics a bit at a crucial time?

    A 360 Degree assault. Comical McArdle is too cuddly a nickname.

  72. @Eoin
    “i’ve been pretty honest about saying that NAMA could very well come in with a chunky enough loss. What i have also said is that (a) this loss won’t be anywhere in the same universe as MK suggests, and that (b) my forecast for a possible loss puts the state in austerity mode, while MK’s puts it in bankruptcy mode.”

    What is your reckoned worst case?

    Mine is 35 bn, btw, and has been for a while. Best case 15 bn loss (changed recently from 10 bn, based on the extra money that will be put in).

    Which is the more dangerous scenario to be wrong on? Small profit, small loss, big loss? Which one has a fat tail?

    I don’t subscribe to the view that “if it makes a big loss, we’re all stuffed anyway”. We must ensure that it doesn’t make a big loss. We will not do that by throwing money at it for no security.

  73. Disgusted at Sean O’Rourke falling for the TINA line. Hope someone has the chutzpah to tell SOR his line of questioning is unpatriotic some time soon.

    Do you think the BBC would loan Paxo to RTE for a wee while?

  74. @Eoin
    Prosperity will lead to higher property prices. Keeping property prices high will stifle prosperity and fail in the long-run. If our property prices remain low we will be more competitive, have more jobs, people will be better able to pay their mortgages. Doing the opposite will have the opposite effect. We will not just waste huge amounts of money in the process, we will cause a huge amount of damage to our prosperity and delay recovery.
    Nama will make us a bitter, economically stagnant country. Exactly how bitter and how stagnant it makes us is uncertain. But MK’s comparisons to the previous bubble in Irish agricultural property and the devastating bust that followed are not just credible, they are probably the most likely outcome.
    A €35 Billion loss and massive economic distortion is too high a price to pay. If Alan Aherne came up with this he is the Baldrick of economic planning.

  75. @ Eoin or Bond,Eoin Bond
    Are you one of the same?
    Quote from Eoin” If someone like Morgan Kelly makes an assertion about house prices falling 80% or NAMA making a loss of €35-40bn, this could negatively impact on the stability of the banking sector and the State finances themselves. ”
    correct me if I am wrong,but I think there is a strong inferance in this statement that estimating that the loss on NAMA will be 35billion is not in the national interest. therefore, if his spreadsheet throws out that calcualtion, he should shut up. For what it is worth I think NAMA will lose a minimum of 20billion because i) th asset value underpinning the loans is probably in the mid 30 billion euros area & not 45billion ii) much of the security or “equity” will disappear iii) NAMA will not be competantly managed and will be politicised & iv) govt. policy is undermining the value of the collatoral. In that respect, in my view, MK is closer to reality than the DOF business plan.

  76. I am trying to understand what exactly Eoin finds distasteful about a reduction in Irish property values. along the lines of what Morgan Kelly suggested. It seems clear enough to me that, in particular residential property, is still vastly overpriced. Also I don’t see any particular downside in that, apart that is from the vested interests who stand to make a killing from the reinflation of that bubble. It should increase our competiitiveness, and reduce the impact of any possible wage cuts. Personally I hope MK is right.

  77. @eoin

    So, just how big is the “permanent” damage to Irish bond spreads attributable to DMcW weekly newspaper column?

    What is the McWilliams premium 10bps? 30bps?

    How about the Lucey premium? Or the Whelan premium?

    If, for example, DMcW writes an article stating that Ireland should remain in the euro, will this “permanent” damage be reversed?

  78. @ Eoin,

    Can you provide five reasons, other than not scaring the bond markets, for proceeding with NAMA as is?

    No need for paragraphs. Less than ten words per reason ought to do it.

    Thanks.

    😈

  79. @ jesper/bg

    just want to get this right, cos it is genuinely confusing given the amount of twists your version of events takes.

    In January, we had a combination of Ireland-out-of-Euro chatter, the Anglo nationalisation, and potentially an emergency budget. One, two or all three of these events led to a spike in Irish govt debt yields/CDS. We either believe that opinion pieces can at least somewhat influence market participants and events in terms of creating a theme or story, that nationalisation was at that point viewed as a very bad thing by the markets, or that an emergency budget was somehow viewed as a bad thing by the markets (were we going to tax government debt??). There was also generally a ‘risk off’ attitude in the markets at the time.

    I don’t actually have too much issue with this theory, as it was probably a combination effect. The problem that i have is that im continually told that markets are always rational and level headed, but yet you also want me to believe that barely six months later the markets reacted in exactly the opposite way to two of the above contentions!

    Now as things stand, far from the markets being worried about nationalisations and budgets, im told that the markets will react even more positively than the recent price movements if we nationalise the banks, and that the main part of the recent improvement is in fact down to the likely budgetary adjustment, and it is not at all down to NAMA. That’s just another coincidence obviously!

    Far from bond traders actually using newspaper opinion pieces to influence to at least some degree their investment attitudes, they actually just read the articles and ignore whats in them!

    Far from non-guaranteed bond issues indicating that NAMA has already somewhat-worked, im told that bond buyers are either happy with an implicit g’tee now, or going with a ‘buying-first-assuming-later’ theory that a new g’tee will be brought in to cover these bonds, even though the bonds have been sold as explicitly non-g’tee and you have to explicitly ask for them to be included in the g’tee!

    Do you not see where i might have a problem with believing your multi-directional storyline? Do you not see where, having demanded ‘substantiation’ from me on my assertions, you actually provide no evidence for your own, other than it being an opinion of yours that actually goes against how the markets have moved? Do you know bond traders who bought Irish govt debt in hope that they’d nationalise the banks? Cos i know bond traders who did the opposite (bought irish govt debt in the hope they’d bail them out) and made a fortune.

    Do you not see the glaring double standards in demanding evidence from me, while not providing any of your own? Do you not think that holding me to one standard of proof, but letting MK or DMcW away with a lower standard, is somewhat back to front? I’m not the expert here, im not the one with something to gain. Just because they got forecasts right in the past, you’re going to accept their current views without any backing? Lots of people got big parts of the financial crisis wrong but have completely missed out on the bank and credit revivial in the last 6 months. All im actually asking for is a detailed idea of what MK’s property forecasts are based on, or what the likely cost of EMU-exit would be for Ireland per DMcW. Yet im the one who is being labelled as not understanding how markets work or of not being honest in my opinion? Huh??

    To be honest lads, im fed up doing the heavy lifting in backing my opinions up here. Market events have backed up my claims. Maybe its coincidence, or maybe there’s other factors also at play in tandem, but to be honest i feel its up to you to disprove, rather than disapprove, of how i see things playing out so far.

  80. @ bg

    the McWilliams premium is difficult to tell, as he simply started the story, and others made their own mind up afterwards. However, i never read any serious analysis that EMU-break up was a possibility until his pieces starting hitting the headlines. I read a GS one which emphatically ruled it out (it was a 10yr Euro anniversary book). I’d say it was a 1% probability before DMcW, and i’d say it reach a 7-8% pricing in the early Spring when the nationalisation story was at its peak. Right now its probably back to 3-4%. But the genie is out of the bottle and its going to be difficult to put back in. Lisbon has maybe helped a little, but ill note that DMcW did his best to both stay on the Yes side whilst simultaneously doing as much as possible to help out the No’s. At least most of the major contributors on this site went out of their way to look for a Yes vote and tried to keep the NAMA debate wholly seperate for the national interest, as it were.

    @ Greg

    1. it provides stability (financially and politically) – note recent price movements
    2. it works with the markets – note recent price movements
    3. it actually cleanses the bank balance sheets by taking the bad assets off them.
    4. it uses the only semi-sustainable balance sheet available in Ireland, the Irish sovereign, to its fullest extent to buy for time and maintain existing adjustments to the funding situation. It can always tax and levy any losses at a future date.
    5. it maintains private capital skin in the game and encourages the influx of additonal private capital.
    6. via risk sharing and additonal taxes/levies, any losses in the saner realm of reality are long term manageable, where as any significant set back to the short term funding situation is quite possibly not.
    7. EU and ECB acceptance and help.

    @ Aidan

    “Personally I hope MK is right.”

    80% falls in property good and hoped for? Why not 100%? Why not make it free? Are you including mortgagees and house owners as being in the group of vested interests? If we were a renter soceity like in Germany there might be something to your claims, but we’re a hugely home-owning society (wasn’t it 65% a few yrs ago?), and as such have most of our personal wealth in property. 80% falls in our primary asset does not strike me as a good thing, regardless of it’s likelihood or not. It sounds more like an anarchist’s wishlist than a considered economic opinion.

    @ jl

    1. same guy. work vs home.
    2. if he’s right he’s right. My moaning about him won’t change that. I’ve just asked for the underlying assumptions and a hope that he’s being responsible when he issues his opinions. If me and a couple of others questioning his forecasts are the extent of the critisismon here, than im not really sure why you’re worried. Sure we’re obviously just outlying kooks! If he calls it right the guy will be worthy of all the plaudits that go with it. But if he’s wrong by a distance, then i think it’d be fair to say that his wrong headed calls imperilled the financial stability of the nation at least somewhat. As i said above, a simple “hey, it was just an opinion” are not a get out in times of crisis.

  81. @Eoin
    It is not the government’s job to set the house price. I want a genuine market price. The only non-market thing I would do is implement the Kenny report on development land. Somehow I feel that might be the sort of government intervention you don’t like. I hope I’m wrong. It is not the government’s job to say to the housing market, thus far shall you fall and no further. A prosperous country will lead to healthy housing demand, you, and sadly our minister too, have got the causality completely wrong.
    That alone is enough to damn Lenihan in my eyes.

    The financial markets are looking for us to do something for our banks. But when the costs of Nama become clear, and the indirect costs to our prosperity from overpriced housing could be as great as the direct Nama
    losses, they will turn against us very quickly, and the applause that greeted Nama will seem a very long time ago. When they see we have probably added €40 Billion to our national debt they will react with horror. It will be a terrible indictment of our government.

    The best thing for our country and for it’s banking sector is prosperity. That is how we will earn the approval of the financial markets. Taking all the losses from the bondholders of Anglo, Nationwide & AIB will get us kind words but nothing else.

  82. N.B. If you a public servant and reading this please remember the following:

    1. Brian Lenihan has attacked critics of Nama by saying that they are attacking the public service.
    2. He just made a speech saying that public servants should take more responsibility (and get more credit. But I doubt that is how he is thinking).
    3. When Nama fails he won’t be taking the blame.

    My suggestion, and I am making it purely in a personal capacity, is that you should pass on any information you have to Fintan O’Toole, whom you can trust to use it responsibly.

    Remember, when this fails Lenihan will blame the public servants. And it will wreck the country for a decade.

    P.S. I am not Fintan O’Toole.

  83. @ Eamonn

    no problems with the Kenny report or similar types of measures. Not against low levels of land and property prices in principal either. The problem is that we have a huge, like biblical huge, amount of our national collective equity invested in property. We need time and liquidity to work it out and re-adjust our situation and exposure to it. We need time to change our planning, bankruptcy and regulatory laws to catch up with the economic realities of the messed up aftermath of a credit fuelled property and public sector bubble. We need time to re-skill our workforce away from construction and related industries and toward high tech and other productive sectors. We need to re-train our solicitors to deal with intellectual property rather than the bricks and mortar kind. We can manage an adjustment of this magnitiude over a decade, but not over 2-3 years. If property prices fall by 80% we’ll have around half the population somehow exposed to negative equity, and likely affecting the younger rather than the older segments of society. Countries that emigrate dont succeed. They fail. Ireland’s upward path closely matched its demographic and migration trends in the 90’s. Emmigration is a short term solution to social welfare payments and little else.

    You argue that property price falls of 80% are the ‘truth’ (fair enough) but the notion thats its a ‘good’ thing are simply wrong. Any good from the competitive angle would be undone from the levels of personal and national bankruptcy and the flight of foreign capital and the most mobile of our society from the state. An entire generation of collateral wealth would have been destroyed and its difficult to see how we could borrow to fund investment without it.

  84. @Eoin,

    It seems that there might be a few things regarding my position and assumptions that needs to be clarified:

    I believe there are good and bad traders in all markets. I believe the bond market to be included in the all markets. I believe there are some bondtraders who are bad (by bad I mean not as good as at least the average bondtrader).

    I believe that bad bondtraders are asking for a government bailout.

    I believe there are good and bad corporate governance. I believe financial institutions can have good or bad corporate governance.

    I believe that financial institutions with bad corporate governance are asking for a government bailout.

    I believe bailouts come at a cost. I believe that the cost should first be born by the ones asking for the bailout and then, if needed for systemically important reasons, the rest of the society should maintain the systemically important institutions. Maintaining systemically important institutions means putting them into hands that can be trusted in managing systemically important institutions. That would in my opinion exclude reckless risk-takers. Temporary nationalisation would at least give a chance that someone better were to replace them.

    I believe, as stated in my previous post, that markets are not always rational.

    I believe, as stated in my previous post, that the reason for the reduction in cost of government debt comes partly from the availability of ECB funds, partly from an expectation that the government is addressing the deficit with a tougher budget.

    I believe NAMA is more expensive than temporary nationalisation because with temporary nationalisation it is possible to sell the banks with cleansed balance sheets.

    I don’t believe the Irish state can afford financing a pricefloor. The market (ARC entering the market will certainly exert downwards pressure) will force down the prices and the money spent on trying to keep the pricefloor will have been wasted and delayed economic recovery.

    I do see your arguments, on merit of the arguments presented I am still convinced that temporary nationalisation is a better alternative.

  85. @Eoin
    Just on house prices. We bought our house as first time buyers in Dublin 18 for €66k in 1987. Don’t know where it’s at now but at the height of the boom it was €750k. We had it valued in 2006, we thought about moving, thankfully we didn’t as the house we were looking at went for crazy money.

    An 80% drop on €750k brings you to €150k. Not cataclysmic. The question is where is the real value. Using rental yields of 5% I’m guessing somewhere between €350k to €375k. Let’s say 50% drop. I’m with Eamonn, let’s let the market decide.

    I happen to agree with you that Nama will make a loss, no idea how much but that we had to do something. Wish we’d do it quicker. I also reckon the banks will need to raise some serious capital and the shareholders (I used to be one – got out recently) are still facing massive dilution. The banks shares have seen some major slippage in the past week.

    Finally I also studied the efficient market hypothesis in college and maybe it works over the long term but in the short term the markets are anything but rational. I do my own share dealing and there’s money to be made from doing the opposite to what the markets think. Do you think in pleasing bondholders in the short term (making Nama work) we might make a mess of it in the long term?

  86. @ Eoin,

    7……..You spoil me.

    “1. it provides stability (financially and politically) – note recent price movements”

    That’s a bond market argument. The stock prices of the banks reflect the unjustified passing of risk to the public purse.

    Perhaps we need political instability to get a better asset management model.

    2. it works with the markets – note recent price movements

    That’s a bond market argument.

    3. it actually cleanses the bank balance sheets by taking the bad assets off them.

    That’s a bond market argument. It passes the bad assets to the public purse. That’s why the bond market likes it.

    4. it uses the only semi-sustainable balance sheet available in Ireland, the Irish sovereign, to its fullest extent to buy for time and maintain existing adjustments to the funding situation. It can always tax and levy any losses at a future date.

    That’s a bond market argument. The bond market wants to raid the public purse by swapping their impaired debt for Irish Sovereign debt. The levy will never happen.

    5. it maintains private capital skin in the game and encourages the influx of additonal private capital.

    That’s a bond market argument. Private capital will flow in any event if the price is right.

    6. via risk sharing and additonal taxes/levies, any losses in the saner realm of reality are long term manageable, where as any significant set back to the short term funding situation is quite possibly not.

    That’s a bond market argument. Risk sharing under NAMA is a joke. NAMA will not default.

    7. EU and ECB acceptance and help.

    http://www.irisheconomy.ie/index.php/2009/08/31/ecb-opinion-on-nama/

    The ECB just want their money back. How will they treat Ireland then?

    http://www.sbpost.ie/themarket/eu-commission-will-not-prop-up-anglos-finances-45032.html

    Oh, and for all of the above. The NAMA business plan is a dog’s breakfast of assumption and estimation.

  87. @ Stuart

    i think we’re fighting an enourmous fire, and we need to simply get through the short term to have a decent chance at the long term. Or at least thats certainly where we were when the g’tee was brought in and when NAMA was selected as the ‘solution’. Now we’re tied into the path we’re on, and i think trying to re-route the path completely risks undoing all the previous work. Markets are still fickle and irrational, and we still rely on them for our funding needs. If we can come up with a decent way to protect ourselves longer term without straying from the basic plan, then absolutely. I’ve asked for increased risk sharing up to 15% or more. I wouldnt at all be against locking in some sort of options on large shareholdings in the banks (keep us off the register, but still in the game). Im for putting in the levy on a statutory basis provided it doesnt mess up their shorter term balance sheets via an explicit contingent liability issue. I fully expect the govt to go after any bit of security or collateral that they can get from defaulting developers. But i dont see how we fundamentally change NAMA, and i dont think its feasible to enforce losses on most of the debt in the banks.

    As for your house, well given that you bought it 22 yrs ago for 66k, of course a fall to 150k isnt that much of a hit for you, but, without saying you’re old (!), an entire generation after you probably had all round LTV’s north of 50% when the bubble burst. An 80% fall in house prices means this LTV becomes 250%. Even a 30% LTV at peak becomes 150%. Lots of people are tied to property through personal ownership, employment, pensions, second homes, whatever. It could be argued that while the government shouldn’t “set” property prices, it is still in the national interest to provide support for them in the short-to-medium term.

    I think general residential property price drops of 50% are manageable (if we’re at 35-40% drops now), and eventual recovery to 60-65% of peak in a decade are reasonable assumptions to have (ie property prices more or less where they are right now). They’d also give NAMA a chance of getting out with a bloody nose rather than a broken neck.

  88. N.B. If you a public servant and reading this please remember the following:

    1. Brian Lenihan has attacked critics of Nama by saying that they are attacking the public service.
    2. He just made a speech saying that public servants should take more responsibility (and get more credit. But I doubt that is how he is thinking).
    3. When Nama fails he won’t be taking the blame.

    My suggestion, and I am making it purely in a personal capacity, is that you should pass on any information you have to Fintan O’Toole, Gene Kerrigan, or Fox/Clifford from the Tribune, whom you can trust to use it responsibly.

    Remember, when this fails Lenihan will blame the public servants. And it will wreck the country for a decade.

    P.S. I am not Fintan O’Toole or the others above.

  89. On the same program we had O’Keefe being given the usual free run by O’Rourke “we are elected to make the hard decisions” he said. Did he mean the hard decisions by FF that have bankrupted the country? Not once but twice! In the 80s and now again!

    Yes Minister the politicians were elected to “make decisions” but not decisions that would bankrupt the country they were supposed to be running!

    This government, and all current politicians have no moral authority to govern this country! You governed it and you bust it! We need a new Constitution and a new form of government! Enda Kenny is onto something BIG!

  90. I post this here as a subversive but open act. I hope the group thinker shills are counting their retainers rather than looking at these musings!
    I have noticed little support for my suggested role of the President in relation to Nama. Could some of the academic lawyers and pros too, ask what number of the constitutional Bar have been retained to fight for Nama? As such is not on the near horizon, I suspect a Euro 1 retainer would be enough for many to be unable to join those who might fight against NAMA, should it come to court action. Once an advocate has been briefed, they cannot accept an offer from the other side, by professional rule of etiquette. Could some offer Euro 1 to some of the SCs to reserve them for a battle?
    The problem is that there is Euro 2,600,000,000 for the other side to tie up the best or indeed all the constitutional Bar altogether?

  91. @Bond. Eoin Bond

    For what it’s worth I think your post at 10.57 is spot on. I don’t agree that people shouldn’t give their views (re 80% reduction which I think is absurd) but do think such views should be substantiated. I think an 80% fall would be a disaster and is highly unliekly. I think Fitsch have come close with their estimated 50% fall = 5.5x average earnings = UK (where not so much over supply as here).

    @ Pat Donnelly

    Thank you for introducing me to the word “shill”. There is a lot of shilling going on just now and it is pretty obvious to anyone with their eyes and ears open. I’m wondering whether an on-line petition should be started.

  92. When will the Judiciary be told to “put on the green jersey”

    http://www.examiner.ie/ireland/fears-of-surge-in-home-loan-defaults-103741.html

    “A spokesperson for Finance Minister Brian Lenihan said it was deeply misleading to base general valuations on what happened at the High Court.

    “They are before the court because they are bad assets, you cannot use that as a reliable yardstick. Long term economic value will only be added to the value of certain NAMA loans and will be no more than 15% on those. Each property will be assessed individually.” “

    So they have changed their assumption from 10% to 15%.

    Nice.

    A fifty 50% change in the assumption in little more than a week.

  93. Everything’s ok then. The Greeks can get their sums wrong as well.

    http://www.ft.com/cms/s/0/3e7e0e46-bd47-11de-9f6a-00144feab49a.html?nclick_check=1

    “Greece, which is already under scrutiny in financial markets on account of its shaky public finances, has come under fire from its eurozone partners for revealing that its budget deficit this year is likely to be far higher than previously forecast.

    “The game is over. We need serious statistics,” said Jean-Claude Juncker, chairman of the 16-nation eurozone’s finance ministers group, which met in Luxembourg on Monday evening.”

  94. @Eoin
    Is there not a danger in the effort to make sure no one suffers loss that we delay the recovery? Yes there is a generation behind me (and some of my own – I’m not that old, I started younger) who are in trouble but there is a new one after that waiting to jump on the ladder. I wouldn’t advise anyone to buy a house yet – would you?

    So we keep house prices artificially inflated to “help” those who bought in the last 5-10 years and construction remains moribund. Would a better way not be to let the market forces decide the value of houses and find a different route to helping those in trouble.

    It’s not just residential – it’s commercial as well. Rents are way too high. On another post I pointed out that retail rents jumped some 400% in about 15 years (based on my experience in warehouse retailing). Propping up this doesn’t make sense at all but won’t do Nama much good.

    A by product of capitalism is people do suffer financial loss in the downturn. If we’re not going to let that happen then we’re in some new form of economic model.

  95. @ Stuart Blythman

    You are absolutely right.

    Maintaining an artificial floor in residential or commercial estate values can only delay recovery.

    But hey, it’s a price worth paying as long as the bond holders are made whole.

    Happy days.

  96. Who is protecting the bond holders from making losses/having to do a deal with the government?

    I dont think it is fair to point the finger at Lenihan/the government on this one.
    I think it is fairer to blame the ECB.
    It is they who have decided that they dont want any bank to fail regardless of the fact that that is exactly what is supposed to happen in Capitalism. It is also the view Of Joe Siglitz and many other economists.

    It’s European Policy that they dont want any bank to fail, even though many are completely insolvent.

    Given that it is european policy, then I dont see why the Irish taxpayer should have to pay for it alone.
    I mean I know they are extending the credit to us but its credit to bail out banks that they are making us bail out and they expect us to pay the money back with interest.

    In this light their comments telling Ireland UK Greece and Spain that they would have to reduce their social payments seems disgraceful.

    I know the idea of going back cap in hand to europe seems ‘a bit rich’ (pardon the punn) but if we are being prevented from taking a cheaper form of action by European policy then we have a legitimate case.

    If morgan Kelly is right in his estimate that the “Irish banks are to big to save” then Europe is in effect handing the Irish a noose to hang themselves.

  97. @ Stuart

    “Is there not a danger in the effort to make sure no one suffers loss that we delay the recovery”

    1. i don’t think property prices are ultimately gonna fall by 80%. I just think its dangerous to predict this unless you’re willing to back it up with some assumptions and figures. It’s very difficult to debate MK when most of his backers claim only that it either “happened in Japan and with Irish agricultural prices” or that “he called it right before”. He also called for “at least” a 20-25% drop in GDP here, but that doesn’t appear to be how it will turn out, so why should i believe his house price assertions if they are lacking accompanying data?

    As Henry noted, we got a more detailed Fitch report yesterday than anything ive seen from Kelly, and its going for a 45-50% total drop. Per Mk’s own slides back in January, he predicted a 60% drop to get back to equilibrium. His 80% case then was an overshoot “possibility” but now appears to be his central baseline scenario, even though we have a massively revised up GDP outlook than he was using at the time. Is he still expecting another additional 10%+ drop in GDP or unemployment at 20%? Is he still expecting a 50% loss rate on NAMA despite admitting that comparable US cases hit 20%?

    2. However, if we did end up with this being a serious possibility, i dont think we should just let it happen. At some point its arguable that sticking so rigidly to free market economics is in danger of collapsing or damaging an entire nation beyond repair.

    I never said no one suffers a loss or negative equity. I just think that some levels of loss or negative equity would further destabilise the economy and the State, perhaps permanently so. 80% property falls wipe out almost the entire personal equity in the property market. We’d be wiping out an entire generation or two’s main source of personal wealth.

    I’m not saying we put a ‘floor’ under the market, only that we look to support the general confidence in the property market and the banking sector, and enact measures to make it easier for those on the ladder to stay on it and for the banks to recapitalise themselves. NAMA would appear to let us work out much of the oversupply and overpricing over a 10 yr period, and give us the time to right the now glaring issues pervading much of the set up of our economy. Maybe im suggesting that NAMA ends up costing everyone in the country €2,500 each over a decade rather than costing 500k people €100k each in lost wealth and personal bankruptcy over the next 3 or 4 years (at 80% property falls personal bankruptcy is a no brainer – you need house prices to rise 150-200%+ to get you out of negative equity). Most of these people would also be our most productive and most mobile (25-40yrs). Subjecting them to choices comprising of either a life of negative equity, emmigration, or personnal bankruptcy seem like overly harsh choices for the generation who are supposed to be set to lead us for the next few decades.

  98. @Eoin

    I believe, though I stand to be corrected, that Morgan Kelly is talking about property prices encompassing all the elements of property – land, commercial, C&D and residential. The Fitch report, as I recall, is only considering residential.

    Mr. Justice Kelly stated the other day that most of the commercial properties he sees before him are down 70-80% from peak. We already know that land prices have fallen as much as that and probably further (in aggregate). Some residential prices will fall that much, but not all. But if you are trying to calculate damage to bank balance sheets, surely the aggregate figure is enough?

  99. @Eoin
    “NAMA would appear to let us work out much of the oversupply and overpricing over a 10 yr period”

    That’s too long for business. Forget residential for a second. Consider commercial. I set up my own e-tail business 2 years ago. One of the reasons I went online is a shop was way out of my reach. Still is for an individual. I have 16 years experience in retail park retailing. The rents went too high. For all its footfall there are shops in Dundrum losing money because the rents are ridiculous. Why did O’Briens Sandwich Bar fail – high rents. These need to come down a lot faster than over a decade to boost activity again.

    From what I hear this is actually happening behind the scenes quietly – let’s not rock the boat. Well I say let’s rock the boat because it’s sinking.

  100. @ YM

    you have a fair point.

    However, the title of the MK’s slide that has the “internationally unprecedented falls of 80% or more are therefore a real possibility” line in it is called “Extent of house price falls”.

    As such, i stand by my assertion on his predictions. It also again underscores why we need far more detail on how he gets to these figures.

  101. @ Eamonn Moran

    I think you’re right.

    The ECB is behind this.

    But Fianna Fail have made the situation exponentially worse.

  102. @Eoin

    “I’m not saying we put a ‘floor’ under the market, only that we look to support the general confidence in the property market and the banking sector, and enact measures to make it easier for those on the ladder to stay on it and for the banks to recapitalise themselves.”

    Oh, and for the bondholders to be made whole.

  103. “The game is over. We need serious statistics,” said Jean-Claude Juncker, chairman of the 16-nation eurozone’s finance ministers group, which met in Luxembourg on Monday evening.”

    And to paraphrase Mr Juncker.

    “The game is over. We need a serious business plan for NAMA”

    But hey, what does that matter as long as the bondholders are made whole.

    Happy days.

  104. @ Greg

    “The ECB is behind this.

    But Fianna Fail have made the situation exponentially worse.”

    Perhaps in accepting the easy credit and fuelling a property and general economic bubble they did but this is true of UK and US Governments too.

    I am not a FF suppoerter but given that we are where we are how could the government not set up some way to distribute large amounts of new public debt into the banks?

    I mean it just seems to me like they are doing what they are told to do.
    What choice have they got?

    If Richard Bruton was in BL’s position what could he do, other than obey Europe like BL is doing?

  105. I think there’s a lot in your ECB theory.

    They want their money back.

    Richard Bruton could grow a pair.

    We can but hope.

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