Morgan Kelly on the Irish economy

Morgan has an op-ed in the Irish Times describing the jobs and debt crises in Ireland: you can read it here.

80 replies on “Morgan Kelly on the Irish economy”

Sadly I agree, even if Ireland continues to attract FDI, as it flees the USA.

The problem is too large for IDA solutions. The embargo on jobs in the public sector is necessary because of Nama. The malinvestments will all unravel except for the biggest and least productive!

I have mentioned the IRA before. If they floated stock it would be a buy. There will be no shortage of recruits, while the Irish state disbands its own forces. Still, there will be some very powerful family dynasties created. Want to know the names? They include the folks who avoided publication as tax defaulters due to the timely Tax Amnesties!

If a King rules a kingdom, who rules a ……..?

Brian Cowen is undoubtedly turning out to be the most unpopular and divisive Taoiseach in the history of the state.
It’s just a short year ago since the Irish media were unanimous in telling told us that he was an erudite man of superior intellect, a man loved by the people who could rattle off the cupla focal and had all the attributes of a born decisive leader.
We have since discovered that this was far from the real Brian Cowen.

The man we now know is the one who denied young Irish girls the opportunity to get a cervical cancer vaccination which would protect them against unnecessary and painful death later in life. This was done because Brian Cowen’s government decided that it could not afford the €10 million cost.
But at the same time as his government cancelled this vaccination program, he had a major problem in the pork industry.
Our pork industry is worth €750 million per year to the economy and last year Department of Agriculture inspectors were derelict in their duty and allowed contaminated feed to enter the pork food chain (of course nobody was fired for this, because in the ‘public sector’ nobody ever gets fired for anything).
As a result of this failure in regulation and oversight the pork processors were out of business FOR ONE WEEK and they received compensation of €180 million from Brian Cowen’s government.
But he couldn’t find €10 million to protect the health of young Irish girls.

He is now considering handing over €60 THOUSAND MILLION, of our tax money, to the bankrupt bankers, yet he cannot find €10 million for a cancer vaccination program to protect the health of our youth.

Ólafur Þór Hauksson is the most important person in Iceland today. As head of The Office of the Special Prosecutor with a growing team of investigators, Hauksson is responsible for investigating and prosecuting the events that led up to the spectacular collapse of Iceland’s banking sector in 2008.

The government of Iceland has decided that the restoration of the financial world’s confidence in Iceland’s banking system depends on the success of his work.

Brian Cowen of course sees things in the exact opposite. He claims that such an inquiry now could damage confidence in Ireland.
Unfortunately for him AND the bankers, the truth will out anyway.

The Icelandic Government has appointed Norwegian-French Magistrate Eva Joly as a special adviser on the investigation of cases linked to the country’s economic collapse.
Norwegian born Joly specialised in financial affairs during her studies in France. In 1990 she joined the High Court of Paris as an investigating judge. She quickly made a mark with her tireless crusade against corruption, taking on, among others, former minister Bernard Tapie and the Bank Crédit Lyonnais.
Her most famous case was that of France’s leading oil company – Elf Aquitaine. In the face of death threats, she carried on the case to uncover several cases of fraud.
She was named European of the Year by Reader’s Digest in 2002. Mrs. Joly now works as a special advisor to the Norwegian government on money laundering and campaigns for tougher international action against fraud.

Recently Special Prosecutor Hauksson conducted a search at the offices of KPMG and PriceWaterhouseCoopers. Twenty-two people took part in the raid which was to gather information on whether leading bankers knowingly published misleading information about their assets’ worth in annual and quarterly reports.
The group that entered KPMG was composed of French accounting specialists while the one that searched PWC had Norwegians. They work for the Special Prosecutor’s office on the behest of Eva Joly.

12 months ago the Icelandic newspaper Morgunbladid investigated what kind of business ethics were practiced within the offices of KPMG.
The paper told an unbelievable story of an investor who approached the company for assistance on a business project in Croatia. Through an illegal shareholders meeting, two KPMG employees later shifted ownership towards themselves and an investor who had been a part of the operation. They used connections at the Icelandic Revenue Service to get the false documents ratified. The head of KPMG in Iceland Sigurdur Jonsson was aware of and approved this.

As a result of Special Prosecutor Hauksson’s work it is now becoming clear that Icelandic bankers, politicians, regulators, top officials of the government and the central bank, were all inter-connected in undermining the independence and adequate regulation of the banking and financial system. People in positions of power were typically chosen based on their political background and “connections” rather than their economic or financial expertise.


There were a bunch of incompetent, corrupt people running the nation, whose primary motivation was to line their own pockets rather than serve the nation.
But Iceland is finally getting to grips with the problem.

Here is an interesting Icelandic story;
Glacier Bonds are bonds that have been issued in ISK by foreign parties since August 2005.
It is estimated that foreign investors are sitting on 3-400 billion ISK through those bonds, an amount that equals a quarter of Iceland’s GDP.
But no information is available about the owners of those Glacier Bonds that are keeping the economy hostage.
There are now very strong and persistent rumours that those investors might not be foreign at all, but actually Icelanders.
These are the very same Icelanders who are most responsible for the economic collapse.
Ólafur Þór Hauksson and The Office of the Special Prosecutor will no doubt get to the truth of the matter in quick time.


But what do we have here in Ireland; our Prime Minister Cowen is now firmly opposed to any public enquiry into how our bankers wrecked their banks and the economy as a whole.
We have no information as to who the bondholders are in the Irish banks and we have no information as to the true level of debts in the Irish banking system.

NAMA is another issue which the public are very uneasy about, all the leading economists in the country say it is a bad idea, as do ALL the opposition parties.
U.S. Nobel Laureate Joseph Stiglitz sad that what Brian Cowen’s government is considering paying for the banks worthless debts is “criminal” and that these bankrupt banks should be put out of business and be replaced by new healthy banks who could immediately begin lending to the REAL economy and start creating jobs.

There are lots of things we need to know about what has, and is, going on in our banking system.
We need this information QUICKLY.
And we need to act QUICKLY as the Nations debts are rising at an alarming rate;
Current Irish National Debt €72 thousand million;
This has risen from €70 thousand million at the end of September.

The rate of borrowing was €298 million PER DAY over the two months Oct. and Nov. 2009.
Where is all this money going?

I’m sure the Irish taxpayers, who are the underwriters, would like to know what this 500 MILLION SWISS FRANCS is all about and what it was used for;

Official Notice Nr: 49038
Title: AIB Allied Irish Banks, p.l.c., Dublin, Ireland

Date: 23.12.2009
CHF 500,000,000 – Floating Rate Notes – 2009-2010

Valor-No.: 10542 883 – ISIN: CH 010 542 883 0
In accordance with the Terms and Conditions of the Notes the following interest fixing has taken place:
fixing date: 23.12.2009 – period 28.12.2009 (incl.) to 29.03.2010 (excl.)
number of days 91 – day count fraction actual / 360
3-Mts.-CHF-Libor 0,25167 – spread + 1,25000 – new rate 1,50167 % p.a.
amount payable CHF 379.588805 per CHF 100′000 nom.
due 29.03.2010 – remark Adjusted Modified Following Business Day Convention
Date: 23.12.2009

For me, the most telling part of Morgan Kelly’s article was;

“Bad banks do not just happen to be corrupt and anti-democratic institutions, it is what they are designed to be. Effectively, bad banks give governments the power to choose which of a country’s most powerful oligarchs will be forced into bankruptcy, and which will be resuscitated to emerge even more powerful than before.”

@ All,

A little while ago, Cearbhall recommended the Elizabeth Warren lecture available on YouTube.

The Coming Collapse of the Middle Class

I had a chance to sit down and watch the full lecture late yesterday evening, and I would second the recommendation.

The reason is quite simple. Don’t believe what Morgan Kelly or any other ‘publicity seeking’, over-dramatic Irish economist has to utter.

Instead opt for a speaker such as Ms Warren, who can hardly be described as over-dramatic or a hot head, at least in my judgement of the lady from the few exerpts of video coverage I have watched.

Ms. Warren paints a very real picture of the middle class as it may develop in the near future. She compares the middle class situation of a generation ago, which has some supports, more options, when things did go wrong.

One of my favourite quotes from her talk, is that the middle class is now buying schools. (Suitable schools to launch kids into middle class comfort are a shrinking resource) Parents would rather live beside a toxic dump than risk not sending their kids to a good school. Some tuition fees paid for kids in pre-school etc exceed university tuition fees!

Other things, amongst many, that Ms. Warren talks about is the mother of new born children who is now moved from the hospital within 24-hours. Ship them out early and sicker. The family of the patient are shown how to do after treatments themselves. Meaning that family have to take time off work whenever someone goes to hospital.

What Ms. Warren suggested, is that the perception of middle classes as dull and boring, has prevented us from critically analysing what is going on in that segment of society. Ms. Warren also noted how so many things in American culture, society and politics are built on to of the notion of a healthy and large middle class population distribution.

As I said, for a different perspective, one which is not offered by a publicity-seeking or over-dramatic Irish viewpoint, I do recommend checking out Elizabeth Warren’s lecture.

Finally, I have a copy of Alvin Toffler’s lastest offering, Revolutionary Wealth packed away somewhere in my pile of reading material. I have read a lot of Toffler’s latest book. Some of what Elizabeth Warren had to talk about, reminded me also of Toffler’s latest book.

I think Mick Costigan is correct, the collapsitarian meme has proven very potent in recent years. It is a meme which has worked its way through virtually every segment of research and study by now.

I find it hard to argue against, judging by what research has shown.

I expect Morgan Kelly will be criticised for donning the mantle of Dr. Doom, but, based on what we know of the current thust of Government policy, he paints a plausible, if depressing, picture of what could unfold.

A number of questions arise that should encourage some comment and, hopefully, some further analysis and input. Now that the markets seem to be, somewhat, reassured by the Government’s display of resolution in Budget 2010, the focus is on the burden the covered banks will impose on the public finances.

Standard & Poor’s, in their latest ratings report – (from the NTMA web-site) – hold the current rating but declare a negative outlook. The negative outlook is driven by their ignoring the Government’s facile attempt to shift NAMA off-balance sheet and an expectation that, at least, €20 – 25 billion will be required to recap the covered banks.

The NTMA funded the €7 billion AIB and BoI preference shares by drawing down €4 billion from the NPRF and by bringing forward the two €1.5 NPRF Exchequer contributions for 2009 and 2010. The NTMA has been able to keep the ship of state afloat by getting away successfully a number of tranches of short term treasury bills, but the cupboard is beginning to look vary bare.

For good reason it seems to be reluctant to tap the longer term bond market. But, with the bank recap (of a now unknown scale) looming, one would expect it to be building a “war chest” and the NPRF is probably the most convenient, if temporary, respository for this purpose.

The big question now is: should the State attempt to recap the covered banks? David McWilliams (in the SBP) proposes giving away AIB & BoI to bigger, better-capitalised European banks (presumably accompanied by a winding-up of the remaining covered banks). However, the Government appears committed to ensuring the solvency of, at least, the major covered banks broadly under current management.

If the Government acts on this commitment how should it be financed? The market appears to be signalling that, if the recap relies almost exclusively on borrowings, credit spreads and roll-over penalties could increase dramatically. This could threaten the state’s ability to finance the on-going gap between current expenditure and receipts.

Imo, a viable supplement to reduce the reliance on external finance is to release the inadequately-rewarded equity in the profitable semi-states. This would give a clear signal to the markets of the seriousness of the Government’s intent and should have a beneficial impact on both market perception and credit spreads. The Government is rapidly coming to the point where it has a sporting chance of having some “Irish” banks or retaining majority ownership of the profitable semi-states; but it can’t have both.

@ Paul Hunt,

I do encourage you to check out that Elizabeth Warren video Paul. Your explanation of the NTMA’s efforts to shore up the situation for Ireland is very well put. When I read it, I am reminded of what Ms. Warren spoke about, when she said the middle class has lost most of its traditional support systems.

Many comments often focus on the idea that middle class families bring home more income than they did a generation ago. This is quite true, but what Ms. Warren’s research has shown is that middle class families have used up all of their budget, even with improved income and many families have gone beyond using up their budget and gone into a debt situation.

I know the middle class family unit and the pension reserves at the NTMA are at different ends of the spectrum. But what it demonstrates again, is how desperate the situation has become in terms of the need to snatch some support from somewhere, to save the day. Like the middle class family unit, the NTMA is now max-ed out as it were. has a program called ‘Frontline’ available to view at their website. Ms. Warren is also featured in the ‘Frontline’ program on credit card industry – what is known in the trade as ‘revolving credit’ – in her capacity as a contracts lawyer. I do recommend that program on credit card industry by PBS also.

That is, for those of you who might wish to explore a little bit more into the subject which Morgan Kelly touches upon in his IT article – personal and family debt.

There is a lot in common when one thinks about it, between the family that gets a payment or two behind in their ‘revolving credit lines’ and the NTMA’s bond auction experiences.

The missed payment by the family on their credit cards, triggering a universal default across all the other cards. Old agreements on interest with consumers are replaced by new agreements, new fees, tarifs and other charges.

It appears as though this consumer credit industry has run out of control. One wonders how healthy things are at the top end of the market, regarding government bond issue etc. The credit industry as a whole is driven by ruthless profit seeking.

The ‘good’ customer who pays on time etc, is considered to be a ‘dead beat’, a non-profitable customer. The whole concept with credit is to get the customer into trouble, because that is where maximum profit is made. Ireland at the moment is like a family with one huge credit belly ache.

@Cearbhall O’Dalaigh- xcellent contribution, as indeed is Elaine Byrne’s account of Iceland’s nascent political transformation (representatives drawn by lots working out future trajectory of Icelandic political society)
I will be fascinated to c if what appears from Byrne’s article to be an informal process outside of teh constitution succeeds o well it is brought within the Icelandic constitution.
Without such a similar radical transformation of how our political masters and mistresses are chosen, and how state appointments are made throughout every sector of Irsh political economy (semi-states; rte; poverty industry; schools; etc), we’re going down. It makes me so sad to see how far away we are presently from such innovation as Byrne describes in Ireland.


I’m not denying the signifcance of these momentous intergenerational, behavioural and resource allocation shifts, but my focus is on current and short-term economic policy in Ireland. The Government has maintained its grip by defining and addressing sequentially a number of significant challenges – Lisbon II, revised programme of government, NAMA and Budget 2010. It is now facing a requirement for further fiscal stabilisation measures, for some measures to boost employment and, most importantly, recap of the covered banks.

As a general comment there is no denying the requirement for thorough-going reform of democratic governance. Yesterday’s IT editorial ( is particularly emphatic on this. But Prof. Kelly’s op-ed piece (which kicked off this thread) implicitly assumes the continuation of the current Goverment and the implementation of its current policy thrust.

And this is what is likely to happen. Having gotten to the end of the year while maintaining a sufficient majority in the Dail its prospects of continuing have been strengthened. By all means let’s continue to debate the nature of the major reforms required, but let us also recognise that the Government we have is most likely to be the government we’ll have for some time as they have no intention to depart the scene voluntarily.

For the foreseeable future the decisions of this Government will impact on the lives and prospects of all citizens. So it makes sense to pay attention to the matters on which they will decide in the near future, as these decisions will have long-term economic impacts.

Morgan has boldly forecast – Paul Hunt also makes one, that there will be no major political change. I endorse that. WIthout a massive shock to the system I despair of any meaningful governance change. This year was an opportunity but it has been lost.

@ Cearbhall O’Dalaigh,

That was quite a long post, however there is a misleading theory which I feel should be highlighted.

Blaming Mr Brian Cowen for the deaths of young Irish girls from cervical cancer is wrong and factually incorrect.

There are several causes of cervical cancer and it is not yet fully understood in medical science. But there are definite facts, a major cause of cervical cancer is the HPV virus, or should I say a strain of it. Genital warts in other words. Genital warts is passed through sexual contact. Blaming Brian Cowen because young Irish girls are becoming sexually active at a younger age is unfair, misleading and untrue.

If teenagers become sexually active earlier in life, they will have more partners, increased risks of infection. As a result the girls will have a much higher chance of developing cervical cancer later on in life.

This is the reason why the vaccination programe is there, to reduce the cost to the state when the person is in their middle age who now requires cancer treatment. A stitch in time as they say.

This is not to say that every woman who has suffered from cancer of the cervix behaved in a promiscious manner when younger. To make a statement of this magnitude would be misleading, hurtful and deeply insulting to sufferers of this diesease. There are other causes as well, such as genetics. As I have written it is not fully understood.

Irish society has abandoned the teenage generation. Collectively we have shirked our responsibility to them. Instead of guiding them, counselling them, parenting them properly and managing to control the peer pressure we have adopted a stance “Well what ever you think is best” “Do what you feel etc”, as if a 16 year old would actually know what is best for them.

The great dignity of human sexuality has been washed away, it has become commercialised and seen as a plaything. But like most things in life there are consequences.

I accept there are a great many Irish parents who have moved heaven and earth, done everything possible to keep their teenage children on the straight and narrow. But the force of peer pressure is now so strong that even for both parents it is a major struggle, and unfortunately despite their best efforts not all parents are successful.

We should be identifying methods to reduce peer pressure on the younger generation. Because it is the youth of today who will be Irelands future. Like a growing crop, teenagers require nurturing, guidance.

But blaming Brian Cowen for the voluntary consensual decisions of young Irish teenagers is false.

We seem to have drifted away from consideration of the specific policy decisions that underpin the unfolding of Prof. Kelly’s dismal scenario.

The key problem – to which no one has a solution (because there isn’t one) – is that there is no constitutional mechanism to allow the people to demand and secure the “meaningful governance change” that Brian Lucey desires.

And even if that were possible, there appears to be little enthusiasm to empower an alternative FG-Labour combo. I suspect that many voters remember the last time such a combo was elected to office, inherited a ballooning fiscal deficit and signally failed to bring it under control.

This perhaps is the reason for the apparent docility of the electorate – the lack of a credible alternative. FG and Labour seem to be torn between, on one side, assembling a programme of government focused on the radical reforms required and, on the other, arranging a marriage of convenience, ousting FF from power for a generation and retaining the current governance arrangements.

This a double failure – constitutional and political – and there are no readily available remedies.

In the meantime, perhaps all we can do is focus on what the Government is doing and planning to do.

@ Sporthog

While I think your analysis has much validity, Cearbhall O’Dalaigh is not entirely incorrect in his conclusion. The reasons given for the withdrawal of the programme were lack of resources. Fianna Fail and the Green Party and entirely responsible for that Socio Economic decision.

“In a statement, Ms Harney said: “Public resources, including those for health, are very scarce indeed and will remain so.

“I have decided that the best that can be achieved in these circumstances is to prioritise funding for the development of the cervical screening programme and treatment services at the eight designated cancer centres, which includes the challenge of funding very expensive cancer drugs.

“I will not therefore be proceeding with the introduction of a HPV vaccination programme,” she added.”

Per Kelly

“Mass mortgage defaults caused by unemployment and falling house prices are the next act of the Irish economic tragedy.”

This is the elephant in the room. A generation has been enslaved into debt peonage. With the prospect of interest rates rising to “normal” levels in two to three years time these debts will become un-payable.

The government and the banks are in a dance of death. The government looks tough by “instructing” the banks not to foreclose and the banks won’t foreclose because losses would crystallise. But crystallise they will. And as Kelly points out it will likely happen after NAMA and after recap. So we will be looking at Recap II.

Any comparison with the US and how Obama dealt with foreclosures is of course irrelevant as for most States in the US a primary mortgage on a family home is non-recourse. They can simply throw the keys back to the bank and rent.

In Ireland it is debt for life with bankruptcy the only way out.

@ Paul Hunt,

Apologies, I deviated a touch from the original discussion. I read Prof Kelly’s piece, and depressing reading it is. The future does not look good, I must admit I found it upsetting to read.

Unfortunately you raise several valid points. In relation to a alternative, is there not a greater movement away from voting for a party to voting for independants? Prehaps if the party system was disbanded votors could pick the best from all parties and ask them to form a Govt.

@ Greg,

I take your point, there is the social injustice issue. Billions for the banks etc, but as for 10m for this vaccination program, well that is not going to happen is it? So yes Cearbhall does have a point. But Irish society should take greater responsibility for our own actions, blaming the Gov’t is not always correct.

Maybe they should forget about the Laptop programe and one or two other pet projects to collect the 10m for the vaccine.

Or could we offer a tax break to the private sector for this vaccination program to be introduced? (Don’t tell BP Wood!!!)

Regarding the policial opportunities presented by a financial crisis, to place that into some context, I will link to Mark’s contribution here:

It is worth a read again. I speaks about the sudden shift in the nation’s outlook away from a global view, back to an inward local level view, in a very short space of time. Reading Mark’s comment again yesterday, I find it very difficult to argue.

The Micro and Macro textbooks have significant quantities of Calculus type stuff, so I take it that economists (mostly) are math literate. Morgan, and several other commentators have ‘done the math’ on the present economic predicament. You cannot argue against the math – except your original premises is problematic, then your conclusions ARE vulnerable to to evidence. This predicament is a slow-motion affair.

The predicament we are in – together with many of the economies around the globe is that the FIRE economy has generated a massive, unpayable quantity of debt. The PC economy is the only one capable of generating surpluses that can be sold for profit – that is, disposable incomes to pay down any debt accumulated. We, (US, Europe), have dismantled our PC economies and free-gifted them to East Asia, which has a massive under-employment predicament. They make, we buy. Well, this little charade has come to a nasty conclusion. We cannot buy any more – we’re broke! They on the other hand, have neither sufficient surplus fossil-fuel, nor creditworthy consumers to ‘grow’ their way out of their predicament.

Our way out may have to be by debt destruction – a sort of Financial Shoplifting! We could also use monetary inflation – a sort of financial mugging! There is no other option available. This leaves East Asia completely stranded.

The Math: The 36% Rule (there are several others). Your total debt repayments and associated servicing costs MUST NOT EXCEED 36% of your gross income. If it does you will become insolvent – its merely a matter of circumstance and timing. Ditto for corporations, municipals, and states. We’re insolvent! That’s the math. Argue anyway you like. If your disposable income is insufficient – your insolvent!

B Peter

Niall Ferguson’s excellent TV series, The Ascent of Money on is worth a look at for those of you interested. Ferguson travels through time and place, looking at the history of various ‘instruments’ invented in finance so that humans might circumvent the element of risk present in all our lives.

Re: The peer pressure issue and sexual activity.

Lets face it guys, that peer pressure only lasts for a brief stage of a person’s maturing and development. There are other peer pressures that replace that in turn. Namely the pressure, that the ‘right’ thing to do is to borrow vast sums of money from a bank, because a home investment represented the only form of salvation and future insurance to many.

It made sense to borrow more to pay more for a home. The price of the home wasn’t the primary concern. The main concern was not the buying of the home. The primary concern was to buy security and hedge risk for the future. The Irish builder of homes wasn’t building and selling homes. They Irish builder, McInery, Carroll, Menolly or whoever it was – was effectively selling hedging against future risk.

The more money that one could borrow today, to hedge against future risk, that was debt worth taking on. In fact, it could even be deemed as sensible to any young person. The real question to ask is where did young Irish people, the first generation to replace on the island and not take planes and boats out of here – where did they suddenly become so aware of future risk and place such high value on it’s avoidance.

I read in the ‘comments’ section at Prof. Morgan Kelly’s IT article, that Derek Brawn was quickly in with a comment about the Irish Auctioneers and Valueer’s Institute. The queues of young Irish (and multi-national) people who stood in line to wait and buy homes in Dublin over the past decade – they didn’t want to buy a home. They wanted to hedge against future risk.

The home investment represented for many a way out of the lower classes and into some kind of middle class secured zone. Property ownership, in itself was a way to drag oneself out of low income obscurity and into a more high profile, high society and circulation.

By owning the property you were telling society, I am secure, I am risk-free. This is the product that bodies such as the IAVI peddled. The first generation of young Irish men and women (and influx-ing foreign nationals) had no precedent to follow. No generation before had stayed at home in Ireland. Everyone had left.

This generation, as McWilliams calls it, the Pope’s children were forced to come up with their own rules, to come up with their own solutions.

It is in this context we must put the political opportunism argument as mentioned by Brian Lucey. In this in this context, a first generation of home-steaders to the island of Ireland will either stand or fall. It is in this context they will create the first precedent for all to follow. They have no where to go as it stands. That solution doesn’t exist anymore.

It is either deck-land or nothing. How do we make deck-land work? It certainly was designed to work or to last from the ground up. It’s only architects were speculative builders, no people with social vision.

Membership of deck-land gained you acceptance into the new society of Ireland’s Celtic Tiger. This was not a real society.

Things like tennis club memberships became woefully important. Membership of a society was no part of the ajenda.

I did my Leaving Cert in the early 1990s. It was still accepted wisdom by that time, Irish people would not stay at home. We had never heard of anything like deck-land. There was no need to build a new society, no need to build a new political system either.

The trouble with my generation is that we rushed off and spent borrowed money building decks, but with no eye towards political reform.

If you presented the concept of a deck-land to young Irish people of the early 1990s, none of us could imagine what use it could be. We didn’t grow up dreaming of a life of comforting security, working to pay for the timber deck and the Celtic Tiger dream.

What changed?

Even more strange was that folk from abroad came to Ireland and they wanted the same dream, the same timber deck and the same tennis club membership. That is something I couldn’t believe myself. A country, Ireland, like a garden where for many decades, not even weeds could grow – suddenly was able to support prize winning vegetables.

Executive summary:

The first generation of Irish people to stay at home on this island, did not have any precedent for how to behave in such a way as to ‘seem responsible’.

The first generation of Irish people to stay at home on this island, were well educated for the most part, eager to succeed and do well. Well to please, and eager to ‘seem responsible’.

As I said, they had absolutely no precedent in this country, for how to be young and be responsible in this country. They were lambs to the slaughter when you put them into a system dominated by weak politicians, greedy bankers and short-term housing estate builders, instead of society builders.

How do we get out of this?

Do what we should have done to begin with – put everyone with a brain (including priests and nuns who are supposed to be experts in this department) to the task of figuring out what kind of society we aught to aim for and start from there. The rest will figure itself out I have no doubt.

@Paul Hunt
I believe that we need at most one SME focused Irish owned bank, with a government stake to ensure it remains independent. We could achieve that by buying the small business unit of AIB or BOI. We don’t need to retain any ownership in the rest. The goal should be a competitive, strictly regulated financial sector, not an Irish owned duopoly. It is a bad time to sell equity in the semi-states but if it has to be done it should certainly not be done to save the shareholders of AIB or BOI.

Anglo is systemic only to FF/Mega Developers. Nationwide is an even more extreme case – it is systemic only to members of the Golden Circle, including the one-man golden circle identified by the excellent Prime Time Investigates programme. The feeble case for saving Anglo was that if it went down it would bring the property market to equilibrium slightly faster, damaging the illusion that AIB and BOI are solvent. This feeble case no longer applies. It is now crystal clear that the only thing giving AIB and BOI a shareprice is the imaginary LTEV. But the false claims that no longer applied to Anglo never applied to Nationwide. Why on earth are we wasting €2Bn of taxpayers money – almost three times the cuts in assistance to the poor in the budget – on what has always been the private property investor for the elite?

The behaviour of Nationwide was no less reckless than Anglo but we never hear this stated. Is this because too many powerful members of the Golden Circle would be exposed in the fall-out? Our finance minister until 2004 was a member of one of these super-reckless banks, and got a 100% loan from them (in contravention of the society’s own regulations) just before the bubble burst. Our former Taoiseach until 2008 was a personal friend of the chairman and former CEO of the other bank.
What does this say about how our politicans viewed reckless banks?

@ Paul Hunt

“The key problem – to which no one has a solution (because there isn’t one) – is that there is no constitutional mechanism to allow the people to demand and secure the “meaningful governance change” that Brian Lucey desires.”

Don’t be so sure. Fianna Fail has been the dominant political force for the past 25 years mainly because they treat politics as a serious business. When it comes time to ditch a leader they can do it with swiftness and velocity. A dyed-in-the-wool Fianna Fail man said to me on St. Stephens Day “we have two years left to turn things around and we can do it, but I think it’s time to tell the banker’s you can have Brian Cowen but you can’t have Fianna Fail.”

There are many in Fianna Fail who are not happy with the direction Mr. Cowen is leading the country and they believe he could do the party terminal damage. Mr. Cowen’s backers know this; consequently there has been a lot of noise recently about a certain person’s legitimate mortgage and an attempt to paint it as something it’s not.

Minister Lenihan’s health issue could be a damaging blow to the country, as he was just getting the measure of the bankers. One would hope that he makes a speedy recovery and gets back to his desk as soon as possible.

Iceland illustrates that there are many people in high places who have a lot to lose if Ireland decides to appoint an ‘Office of the Special Prosecutor’ and those people know that Brian Cowen is their last hope. His open opposition to an inquiry into the banking sector is proof of that.

There are also lots of other things in the offing which could bring down this government, such as a sovereign default in the EU. When you are borrowing €298 million per day, a cut-off of funds even for a month or two could spell disaster.

Then there is also ‘the people,’ don’t write them off just yet. The people are capable of defeating far superior foes when they decide the time has come to act together;

Paul Hunt – when was the last time FG-Lab ‘combo’ were in office and what was their record in economic terms?

@BO’H. History may be interesting – to Historians. But please acknowledge that ‘we’, (humans in general), DO NOT learn anything from history. Worse, our cognitive structure has a very deficient understanding of the likely impact of future events – events that we know with 100% probability will occur. So, our understanding of future events that are merely possible is wretched. Hence the much used phrase, “No one saw it coming!” But some do! In life all is simple, until you include the folks!

Please consider the 20/28/36 Rule. Its the nearest financial rule to a science as makes little difference. Cantillon and Adam Smith have some interesting and apposite comments on our current economic predicament. This is not the first time economies became insolvent.

Its time to ‘buy the farm’.

B Peter

@Brian O’Hanlon,

I check out Elizabeth Warren and I was impressed. However, to me she is say the same thing as Morgan Kelly except from a different perspective. to paraphrase Kelly, what we saw in the Celitc Tiger was a massive expansion of the middle class. Expectations rose accordingly, but are now dashed. Not only that, but the “traditional” Irish middle class finds itself increasingly pauperised. Boston policies a la Mary Harney have done for Ireland what they did for the US.

In the US, we see a rich class determined to hold on to its gains & seeing that a second easily-exploited class of poor will assist, especially as they remain focussed politically on God, Guns & Gays. Fianna Fail are really in the same business, though with different slogans.

I only hope that Ireland has learned at least a basic lesson, that a mad rush by a young generation to build out a deck-land for themselves, a kind of an imagination nirvana, a kind of Disney land they constructed in their brains as kids and got to build as adults isn’t the answer.

One cannot decide to roll out deck-land on the one hand without going through the messy and un-predictable process of building a society at the same time, to support it.

If it was possible to build a deck-land without building a society, Ireland would have succeeded by now. We certainly pinned enough hopes, enough dreams and enough resources towards that end. It seems as if the imaginary Disney land was not to be.

Naomi Klein’s book, No Logo isn’t a bad read. I got a bit of time to sit down and read another chapter his xmas. Highly recommended.

Indeed, underestimating the political success of the dominant centrist parties in ireland is foolish. FF/FG/Lab have kept an iron grip on power for the entirety of the states existence. Thats because they are generally very very good at being office seeking parties. The nature of the state structures reinforces this. However, the powerful centrist and centripetal forces do not then and cannot allow for easy change. To put it in kuhnian terms – we need a political black swan event, one that the troika parties says cannot happen. 2009 clearly, evidentially, is not that event. In terms of Lakatoh what we have had are attacks on the auxiliary hypotheses of the troika, the core remaining unchanged.
Where to go then? I have said before, in public and private, that unless the system crashes, visibly, painfully and for all, we are unlikely to see meaningful change.

Is there any reason why other academic economists in Ireland do not enjoy the same access to the Irish Times as Kelly does? In that thread last week about blogs, some of them were complaining that they frequently submitted articles to the Irish Times, but were never published. I think Kevin O’Rourke was one. Yet, Kelly gets stuff published every few weeks, even though he’s just re-gurgitating the same old stuff time every time.

Its not as if his forecasting record made him more worthy of publication than others. This time last year he was forecasting that GDP in Ireland would fall by 20 per cent in 2009. As I would never be published in the Irish Times in a million years, I had to make do with this humble site for posting my counter-forecast to Kelly’s. Shortly after Kelly published his forecast of a 20 per cent fall in Ireland’s GDP in 2009, I posted on this site that Ireland’s GDP would actually fall by only 5.9 per cent in 2009. In the event, my forecast has proved much more accurate. It now looks as if Ireland’s GDP will fall by between 6 per cent and 7 per cent in 2009.

Dispite the abysmal accuracy of his forecast for Ireland’s GDP fall in 2009, Kelly is now back predicting that Ireland’s GDP is going to grow much less than Iceland’s up to 2015. This he attributes to Iceland devaluing its currency and different treatment of banks. As 2015 is a long way off, all one can say at this stage is that his forecast has got off to a very bad start. The quarterly changes in GDP in Ireland and Iceland respectively in 2009 are as follows:

Q1 2009: Ireland GDP: -2.1% – Iceland GDP: -5.1%
Q2 2009: Ireland GDP: -0.6% – Iceland GDP: -0.4%
Q3 2009: Ireland GDP: +0.3% – Iceland GDP: -5.4%

cumulative change in GDP in first 3 quarters of 2009:

Ireland: -2.4% – Iceland: -10.9%

Oh dear! Not looking too good, Morgan.

Kelly attributes the poor outlook for Ireland to a lack of competitiveness that has caused exports to slump. His exact words in today’s Irish Times article are: “after 2000, competitiveness collapsed” and further down: “The Irish economy has been faking it for a decade”. By that he means that there has been no growth in exports, only from property speculation. Very well, explain these figures, Morgan.

changes in VOLUME of exports in EU15 countries between 2000 and 2009:

Luxembourg +47.9%
Ireland +43.3%
Germany +43.0%
Austria +34.5%
Netherlands +27.6%
Sweden +26.9%
Denmark +21.3%
EU15 +20.4%
Belgium +17.4%
Portugal +17.3%
U. Kingdom +16.2%
Spain +15.0%
Finland +14.7%
France +4.9%
Greece +3.8%
Italy -10.4%

If you are in the habit of logging onto this site, Morgan, as I’m sure you are, why don’t you come on and post your explanation as to why, if ‘competitiveness collapsed after 2000’ and ‘the Irish economy has been faking it for a decade’, Ireland’s export VOLUME growth between 2000 and 2009 was the second highest in the EU15 and twice the EU15 average? If you don’t, your silence will speak volumes.

From past experience, I’m pretty certain that my detailed rebuttal of Kelly’s wild claims will have no effect on his fans here. If Kelly published an article in the Irish Times saying that Dublin was about to be submerged in a tidal wave, half the posters on this site would be living in tents in the Wicklow mountains by lunchtime. I, on the other hand, can spot a fraud a mile away.

On the other hand, don’t take my word for it. Perhaps in support of BP Wood’s argument, is the Levittowns in post war USA.

Stewart Brand always has some interesting comments to make about Levittowns. It will be interesting to return to deck-lands in a few decades time and see how they have faired out.

@E65Bn plus economic costs & NO extra lending!

For me, culpability for this mess is not an issue. But I think the people should be allowed to pass judgement. Yet this Government is constitutionally entitled to continue – even if it does not have a democratic mandate for the policies it is pursuing. This is the reality we must confront.

@Cearbhall O’D

Imo, changing Taoiseach would stretch the tenuous democratic legitimacy of this Government beyond breaking point. In any event it would not lead to the nature of the thorough-going reform required.


You may have misunderstood; I was referring to the 1982-87 government – and its record should be well known. The Rainbow Coalition was not elected. It secured office when Dick Spring changed horses in midstream. Despite providing reasonably competent governance, the people severely punished him and Labour for such hubris. Quite rightly they are jealous of their inalienable right to decide who governs them.

@Brian Lucey

“I have said before, in public and private, that unless the system crashes, visibly, painfully and for all, we are unlikely to see meaningful change.”

Be honest! Which of the following do you HOPE will happen.

(a) ‘The system crashes, visibly, painfully and for all’, and you get the meaningful political change you want.

(b) The system doesn’t crash. The economy returns to its long-term (i.e. half a century long) growth rate of 4% to 5% from 2011 on (as ESRI predict it will), and we continue to be governed by various combinations of FF, FG and Labour.

@ Brian Lucey,

I take your point about the auxilliary hypotheses getting lost in 2009 and the core principles remaining un-changed. That is a rather excellent summary of 2009 on so many levels.

However, I liked the comments of a man named Alan Kay, a computer software architect amongst other things. Alan Kay was referring to the Intel corporation (it’s lack of attention to the development of software as opposed to hardware).

Alan Kay noted how the sub-goals of an industry, namely the improvement in the semi-conductor manufacturing technology, over time has managed to replace the primary goals – the creation of better and more useful software. (mathematical problem solving)

Alan Kay noted how the same old architecture of the 1970s was sped up several times over the last couple of decades to produce marginal gains, as opposed to real gains in performance.

Similarly in education, even higher level education has been replaced by what he termed a ‘vocational training’ where no students are able to build new stuff anymore. But rather to accept the products they have dished out to them. To put it in Alan Kay’s words, the universities have totally caved into the vendors, including his alma mater, mighty Stanford in California.

Search for his presentation on ‘Croquet’, a software project of his on YouTube. There is a quite interesting question time at the end of his brief demo. From an educational perspective, I am sure you would find it interesting. It kind of takes your valid point about ‘auxilliary hypotheses’ and central principles – and turns it the other way around. With the same devastating impact I might add.

BTW, I could adapt Alan Kay’s excellent observation about Intel corporation to a similar point on Ireland’s construction of its deck-land. Whereby the sub-goals were allowed to replace the primary goals. Building a sustainable society from the ground up.

To put it slightly differently – I am less worried about sub-goals being eliminated and primary or ‘core’ principles remain-ing intact.

I am much more worried, across the spectrum, of a situation whereby sub-goals are elevated completely – and the world has no core principles in effect remain-ing at all.

I choose a
Why? Because its not just, dare I say it here, about economic growth. I live in a society of which the economy is part. I dont want to live in an economy of which society is a part. I still bristle at neo-thatcherian societal nullification.
So, a. Let it crash, then we will have learned the social lesson, and can decide what sort of society we want. To belabour a point, Iceland has crashed, and is at least thinking about what it wants.
And its not political JtO – its governance – that includes senior civil and public service decision making, appointments to the senior ranks of the police and army, the judiciary (heres a mad idea – lets have judge school, and a professional cadre of judges not political appointees from a small pool) , how we run the educational system, the incentive-punishment structure, etc etc. Politics is only the half of it.

@ Cearbhall O’Dalaigh
As Michael Hennigan, Pat Donnelly and yourself have frequently highlighted, the major weapon in our elite’s arsenal is secrecy. In Britain exposure of politicians expenses almost brought down the government, and is forcing dozens of MPs to stand down at the next election. We now all know that the politican selected by the Dail as the embodiment of the values of the house was living a life of shocking excess at taxpayer expense. There is no reason to believe that our politicians were any less greedy than the British ones – and much evidence to suggest they were much more greedy.

But our elite have the answer – they simply refuse to release any more information. The trough swilling on the opposition side has ensured that they have remained almost totally silent since O’Donohghue’s fall. The media complain occasionally but on nothing like the scale of their campaign against public sector pay – now that was a real disgrace, or indeed their lavish praise for the government taking action, much of it at the expense of the poor, to stop their disastrous policies literally bankrupting the country.

Whenever they finally summon up the will to bring down the government our opposition must, if necessary by constitutional amendment, do the following:

Details of politicians expenses must be fully revealed.
Details of all the bondholders and shareholders of banks getting assistance through NAMA must be revealed.
Details of all those whose property loans are being transferred to NAMA must be revealed.
Details of all politicians, senior bankers, senior civil servants and developers – past and present – dealings with NAMA institutions must be revealed.
It should be a criminal offence for a politician to hold a bank account abroad or to hold large amounts of cash and all of their bank accounts should be randomly inspected.
We need complete transparency across government, administration and public life.

There have been some encouraging signs of a more questioning attitude to our country’s collapse in the media, as shown by Eamon Keane’s programme and in our two major newspapers. Why don’t they take it a step further and issue a joint editorial on the above issues, the need for criminal investigations of all of our banks and demanding a constitutional amendment guaranteeing free speech?

It is a year and three months since the inexplicable and crazily reckless bank guarantee signalled that our banks had collapsed. If the opposition and the media do not drastically step up their efforts they will lose the only opportunity we will have for a generation to transform the country. To future historians their relative silence in the face of a massive establishment cover-up will make them complicit in it.

@ Euro the ever lengthenging title.
Part of the problem, a large part, is that the governing classes live lives divorced from the rest of us.
In another branch of my life I am involved in the local railway action group. I have suggested time and again that a simple way to improve public transport is to give to all ministers (apart from the taoiseach and maybe justice minister for security reasons) an annual bus/rail pass. That will never happen of course, but can one imagine? Oh, and no expenses from the railhead.
Another small example would be the housing of the govt jet at dublin airport, not baldonnell, when the ministers and “our betters” consistently use DA as the point of departure. No fast-tracking of em thru the airport either. We must reclaim the status of citizen for our leaders.

@Paul Hunt – ‘reasonably competent governance’? – a budget surplus,productive economic growth at 5%+,1,000 additional jobs being created on a weekly basis – and not construction based – sound borrowing levels and an overall economic approach based on sound ‘German’ principles……goodness what ‘reasonably competent governance’!!!

@ All,

How many times have we seen discussion about a new political order? From the ideas of Plato in “The Republic” thousands of years ago, to Martin Luther, Reformation, to the Second Reich, Third Reich etc.

France underwent several revolutions, there are several other countries which have undergone change, China, Vietnam etc. Yet sometimes the more things change, the more they stay the same.

While I accept we require accountability I fear if we call for radical change now we might be starting something that could spin out of control.

Some things never change however. As a human being we are prone to greed. No matter what political system we have, human greed will always be present. It is a vice which is part of being human. Unfortunately it gets the better of us at times.

I am currently reading a book by H. Wilson, “Europes Tragedy”. Some of you may have read it already. It deals with the 30 year war in central Europe, 1618 to 1648. Absolutely fascinating, the political problems they had then are similar to the ones we have today. It is hard to believe that the greatest time of peace Germany has experienced in the last 400 years was from 1945 to the present.

I would go along with tinkering at the edges of what we have, honing, refining making it better etc. But calling for something too radical I fear could result in serious unrest. E65 calls for banning foreign bank accounts for politicians sounds too extreme for me.

As Paul Hunt says just who do we put in charge instead? It’s not as if Labour or FG have the answer, or have ever had the answer.

But I have mentioned in a post above, what about disbanding the party system?

There are good people in all parties, and a lot of ballast as well.

If we were to vote for ministerial positions instead of voting for candidates would that work? For example, you would vote for a certain person to be minister for health etc.

@Brian Lucey – in addition to pols using public services etc – add in the ‘permanent govt/mandarins’ and their underlings/equivalents across all public sectors!!

@Brian Lucey
You are completely right. It is probable that ministers and senior civil servants never rely on the public health, transport, education or housing systems and this can only have negative effects. In the most extreme example, despite having a chauffeur driven luxury car John O’Donoghue didn’t even bother using the roads.

This is one of Europe’s most stable, indeed conservative democracies. The radical change we need will turn us into a transparent, accountable society like Sweden is now, or Iceland is hopefully becoming. “E65 calls for banning foreign bank accounts for politicians sounds too extreme for me.” I don’t think this is extreme, it will hardly even be an imposition. For the few who do need them they should be fully inspected and full details published annually. It really isn’t the guillotine.

@Brian Lucey
Re. the ever lengthening title. Just wondering about the appearance of the AIB and BOI heads at the Oireachtas recently. I had thought that they were trying to be honest and were motivated to declare that NAMA would result in no extra lending because they did not want to be associated with the government’s misrepresentations. On reflection this doesn’t make sense because Irish bankers are purely evil. The more likely motivation is that they were putting the government’s testicles in a vice grip i.e. if you don’t overpay enormously enough for the property assets to keep significant private shareholdings in our banks we won’t lend. Our opposition, media and civil society generally should be raising hell – not sitting quietly while our establishment mafia carve up the spoils in public.

@John the Optomist

As ever your contribution is factual and deals with the Issues head on not the prejudice spewed out by the usual suspects here. Like you I do not know why M Kelly is given so much print space by the IT but also as a Alumni of UCD in Economics I just wonder why the management of that Taxpayer Funded entity continue to allow the name of UCD to be used in these rantings.

I believe Mr Kellys prognosis is largely correct, however his style of delivery leaves a lot to be desired

Further, his alternative vision is not credible: allowing Irish banks to be effectively wound down or for their bondholders to carry teh can is at this juncture wholly unlikely and undesirable

There is simply no way that international investors would stomach that and the State would be financially murdered overnight

At least Mr Kellys piece does attract attention to one very pertinent point and that is the plight of home-owners who cannot meet their mortgage repayments: this is at the kernel of the issue

To the best of my knowledge only Ray McSharry has advised for the government to directly intervene in the housing market to stabilise the price of housing (he recommends buying up to 50000 units straight away – i think the reference is Irish Indo sometime in early december)

Another useful intervention would be to buy part of the mortgages off those who are in most severe difficulty

Trouble with both ideas is assumption that State has resources to do so which is unclear at best and unfeasible at worst

Still, dramatic and creative action will be needed to stave off the impending social disaster on homeloans

So Morgan correct diagnosis but incorrect rehabilitation programme; in other words only direct intervention at the micro level will work, and re NAMA, we are stuck with it now so it is senseless pointing the finger of blame



As regards the troika of FF, FG and Labour I submit that the only party that represents a change to this pattern would be a stronger Sinn Fein. They are already in power in in 1/4 of Ireland.

Ah yes, the “cribbing and moaning” defense. Your right, of course. Academic freedom – sure what has that ever got us. No, much better to keep quiet, dont speak ill of ones betters, defer to the status quo and not rock the boat.
What prejudgements have been shown btw?


I don’t mind Morgan Kelly spewing out all these apocalyptic predictions. Well, actually, I do mind, because my taxes (at least the part of them that I pay south of the border) are helping to pay for them, as no doubt are your’s. But, leaving that aside, what I object to most is the fact that the media never challenge him on them. They never question him. He’s just given free rein to rant and rave. If any member of the government (or indeed of any political party) had made a forecast for GDP in 2009 and it was wrong to the tune of 13/14%, he’d never be allowed to get it away with it by the media. I’ve challenged Morgan Kelly at least a dozen times to post on this site a reply to the factual points I’ve made. But, he never does. There’s more chance of getting Osama Bin Laden to engage in debate on this site that of getting Morgan Kelly to do so.

@brian Lucey

Fair play to you. At least you are honest. I admire that. You’ve admitted that you want the economy to crash and everyone to suffer lots and lots of pain because you think that will bring closer some of the political and societal changes you want. Its certainly food for thought. I’ll now have to ponder overnight whether I’d consider my becoming unemployed and penniless in the economic crash you seek as a worthwhile price to pay for your desired changes in the way judges are appointed. A tough decision!

But, your reply does confirm what I’ve long thought. A significant minority of academic economists in Ireland are actually political activists first and foremost, some of the far-right, some of the far-left. All their outpourings should be seen in that light. They long for a great economic crash that will bring the political changes they seek. I’m not criticising them for that. I was like that once. In my early twenties, at Queen’s University Belfast, I was a proper little Che Guevara and longed for the whole economic system to come crashing down, just as you do now. But, then I had to go out into the real world, earn a living in the market place, and grow up. The great thing about being an academic economist is that you don’t have to go down that path. You can still be an adolescent revolutionary all your life when you are an academic economist and the taxpayers are paying for it.

@Brian O Hanlon
Sorry but I just have to pick you up on your characterisation of Niall Ferguson’s TV series The Ascent of Money as being ‘excellent’. Much of it was interesting, but really his primary 20th century thesis that countries which attempt to pay pensions to their citizens go down the drain necessarily because of introducing a welfare state is implausible, unless he was purposely factoring in US/Operation Condor dirty tricks against such countries as Chile and Argentina or a puported impossibility of investing pensions cash wisely by states. To argue, as he did, that Chile under Pinochet grew exponentially because it abandoned the welfare state is to miss the most salient fact about Chile at that time: it was a dictatorship whcih murdered its political enemies. As such he appealed to his anti-communist audience in the US, but to a civilised European he was very wide of the mark.

@ Stephen D,

Good comment. All very true.

Over the whole 4 no. programs, I thought that he spanned a huge amount of time and history.

By contrast for instance, you look at something like David McWilliams series recently broadcast on RTE television (I think it was aimed at Australian TV market also).

McWilliams dealt with the past decade or so. Which is fine. But there are certain lessons which can be gleaned from taking a look at the history of money over a 400 year period.

What I mean is, certain procedures we have taken for granted, certain instruments we have gotten ‘used to’ in the modern world. It is nice to get the potted history of those innovations, and discover where they came from.

Having read Galbraith’s History of Economics myself for the first time about a year ago, I found Ferguson’s documentary series a nice addition in terms of history of economics study.

My opinion of the IT’s coverage is completely the opposite of yours.
You’ve heard of how journalists were embedded with military units during the Iraq war? The Irish Times has an embedded pro-NAMA lobbyist. They might as well hire Paul Wolfowitz to give them impartial comment on foreign policy. They also have Noel Whelan, Brian Cowen’s only remaining fan, Garret Fitzgerald, bank bailout addict and their editor and many of their political commentators aren’t much better.

Publishing Morgan Kelly and other academics is better than nothing but still grossly inadequate. Given that NAMA is a bailout of property gamblers by property gamblers all our media should relentlessly question it. Instead many of them give it the benefit of a vastly unreasonable amount of doubt.

Morgan Kelly predicts losses of €35Bn plus interest of €25Bn (and another €5Bn to finish graveyard developments) for a bailout that won’t work. Peter Mathews says it will lose €20Billion (excluding interest and finishing costs) and won’t work. Dr Constantin Gurdgiev says it will lose tens of billions and won’t work. He also refers to the disastrous damage caused by the hostility to independent analysis of our arrogant, incompetent, greedy, secretive establishment:
“All along, Irish Government and banking sector have made all efforts to evade and silence critical independent analysis of the causes of the current crisis: inept regulation and enforcement, reckless risk-taking in lending and funding, and wrong-footed solutions advanced by the State. The Irish taxpayers are now facing a bill of tens of billions of Euros, as well as the decade-long prospect of zombie banking, development and property markets and construction sectors – courtesy of Nama.”

Even Dan Boyle has said that the NAMA business plan’s projections are a joke. Next time Paul Gogarty is in an irate state the opposition should ask him what he thinks.

@ K Newman,

Personally speaking, I think the impulse to buy and absorb more personal debt than was sane during the Celtic Tiger – was one of the most unsavory aspects of the Irish society I will ever come to witness. And there are quite a number of aspects one could choose from.

I suppose on the one hand, many people are learning harsh lessons at the moment.

But it is very similar to the Lehman Brothers bankruptcy argument. On the one hand, perhaps the Federal reserve bank had to make one example as a lesson to the world. However, on the other hand there is a feasible argument that says, a rescue by the US government for Lehman brothers would have cost a lot less money than the devastation which follows its collapse. *

In the BBC documentary series running on RTE television these past couple of evenings, The Love of Money the point comes across strongly, that a damage inflicted on the financial system by Lehmans collapse, in turn has inflicted massive damage on the real economy.

This metaphor, that a disease which creates a problem in one organ of the system spreads around to affect a collapse in other organs. This patient on the table metaphor for financial problems is often quite useful.

At other stages in the BBC documentary The Love of Money, the point is offered – it was very difficult for the British authorities to suggest any correction to the property bubble was needed, for fear or ‘scaring the horses’. While on the other hand, if one did nothing, one was seen to be complacent.

Geithner also featured towards the end of one of the programs. He mentions the fact that the US financial authorities require better tools for dealing with the problems. Greenspan hints at that also. He hinted that as a surplus of savings suddenly became available on the world markets – a fairly significant proportion of the financial system was no longer under direct control of the financial regulations, as they existed. I assume that is meant to tie up with Geithner’s idea that new tools and better tools are required.

This would seem to back up to some degree the ‘party line’ as we hear it from Brian Cowen, or from Gordon Brown. The problems of the banking institutions of Ireland or Britain may be a result of a global meltdown.

That will not provide a convincing argument to people such as Senator Shane Ross, would certainly do not buy the argument that Ireland’s problems are a result of global financial turmoil.

I think Kevin O’Rourke linked a paper on ‘moral hazard’ sometime lately, by Andy Haldane, Bank of England executive director. It is worth a look if you can find the paper in one of the older blog entries.


Kelly mentioned two booms … what we now call the telecom bubble, the boom in internet products that crashed in 2001, & the other boom artificially created by corrupt politicians to enrich their clients and themselves.

Having done well in the 2001 bubble after a lifetime in electronics, we have now left in Ireland only a pale shadow of what was once the pride of the IDA. North Dubln had Motorola, Solectron, Celestica, Lucent and a host of others now all gone to the Far East. Maybe not a bad thing, let the Chinese do the grunt manufacturing, & keep the smart stuff.

Except, instead of immediately seeking a new field to replace electronics assembly & test, Ahern and his mafiosi buddies set about continuing on an artificial boom in housing, which was basically life support to a zombie economy. Not just life support … it was steroids as well. The last eight years are “the years the locusts have eaten” & Brian Cowen is as much to blame as anyone.

What I get from the public is a sullen acceptance, but another year of the hair shirt may see Fianna Fail fray some more at the edges & possibly a new political alignment.

As per usual, I will defer to John the Optimist’s expertise regarding the economic holes in Morgan Kelly’s arguments.

One thing I find irritating about his commentary is that it is presented without any international context (except perhaps Iceland) which leads readers to perceive that Ireland is far and away the biggest basket case in the known universe – given the state of the UK public finances for example, I doubt this is the case.


So the fall in competitiveness wasn’t an issue?

Microsoft Ireland Managing Director Joe Macri, said in January 2007, that the Republic of Ireland’s corporation tax rate of 12.5% was the prime reason why multinational companies choose to remain in Ireland. While access to the EU and the availability of cheap labour were key factors in attracting foreign investment to Ireland 20 years before, these had largely been eroded by rising costs, falling productivity and the enlargement of the EU to central and eastern European countries, he said, adding: “That leaves us with tax.”

Intel’s ex-CEO Craig Barrett said in September 2009, that there were about 14 reasons why Intel came to Ireland in 1989 but that only one remained: the tax rate.

Ireland’s share in world export trade has fallen since 2002 and the performance of the indigenous sector has been poor.

It did seem crazy that over €10 billion was being invested annually by the Irish in overseas commercial property but less than €200 million was only available for venture capital investment in Irish exporting firms – – one overseas property deal was done last year by farmers on CAP benefit, who purchased a shopping centre in Saarbrucken, Germany!

Job numbers in the export sector have been almost static over the past decade and while medical/pharma output has jumped to now account for more than 50% of merchandise exports, from 32% in 2000, employment has been almost unchanged at 40,000 since at least 2003.

The number of new greenfield and expansion projects, approved by IDA Ireland, rose from 70 in 2004 to 74 in 2008 while related capital investment fell from €5 billion to €1.5 billion.

In its 2009 statement, the IDA announced “125 foreign direct investments won” ” but this includes R&D grant approvals and compares with 130 in 2008.

Grants paid have halved since 1999.

So while the export data may seem impressive, it’s clearly not good enough.

@ E65bn

“On reflection this doesn’t make sense because Irish bankers are purely evil”

Glad to see you haven’t lost the run of yourself over the Xmas break…


Ireland’s Current Account deficit at peak was less than 6% of GDP. How much of this do you put down to excess domestic demand sucking in imports, and how much do you put down to the supposed massive external imbalance which you believe we had (and still have)?

@ Brian O’Hanlon,

Good point about foreign savings being released into the market. There are billions of people in Asia, all of them are working hard to provide for living expenses but also saving for retirement. Social welfare in these countries is not at the same level as the W.World. So these people save and save, the banks have to grow the money, so the money goes West in search of growth and it has all gone pear shaped.

These Asian countries should be increasing their taxes, introducing high levels of social welfare so that this money is not released onto the global markets to cause such carnage.

I fear we are bound to repeat the same mistakes again.

@ Brian Lucey,

Maybe you should start thinking about setting up your own Political Party. In the current climate it might be easier than you think, even though it is a huge commitment. No I am not goading you, or asking you to walk the walk. But it might be worth thinking about!!!

Imagine yourself in charge!!! You could have E65 as the Minister for Virtue and Vice!!! (Just Kidding!!!)

Does anyone here believe that Pharma will be still in Ireland on the same scale in ten years time?

Where does Morgan Kelly say that GDP will decline by 20% in 2009? Having read the article he wrote in the Irish Times in January 2009, it seems that he predicted a 20% decline in national income over the next few years. If we take GNP figures as a measure, will he be wrong?

@ Isaac

his full quote:

“As the private sector haemorrhages jobs it is hard to see how Irish national income will fall by less than 20 to 25 per cent in the next few years. Unemployment will easily reach 15 per cent by the end of the summer, and 20 per cent by next year”

The unemployment rate was 12.6% at the end of the summer, and has since stablilised (actually dropped very slightly to 12.5%).

The “national income” quote could be tagged under a similar debate as the “general vs exchequer budget deficit” argument, in that people need to quite clearly state which measure they are referencing so as to avoid confusion. Saying GDP will fall by 12-13% and GNP by 20-25% may be both correct, but they are quite clearly different in their headline grabbing abilities.

His “house prices will fall by 80%” quote is less unclear however. Some people say he meant “land prices”, but in the slide linked to on this site, he clearly says “house prices”. If he wants to clarify, all good, but thats how the record stands right now.

By the way, someone suggested that Kelly’s “earning potential” has been diminished by his comments, as they have upset the government. Eh, are you actually for real??? He’ll be coining it in for the next decade on the back of this (and fair play to him).


Surely you know that basing your arguments on GDP figures for the Irish economy is completely misleading and that GNP is the best description of what is really going on.

As for measuring our competitiveness based on the tax-sheltered employee-less production of patent phemaceuticals, you really can’t be serious. Just look at what has happened to indigenous exporting businesses who are daily suffering a squeeze that has never been previously experienced in Ireland.

Welcome back to the ’50s where 400,000 people emigrated in one decade.

Thanks for the idea but id rather a visit from Montezumas revenge….
@JtO….where to start..
“But, your reply does confirm what I’ve long thought. A significant minority of academic economists in Ireland are actually political activists first and foremost, some of the far-right, some of the far-left. All their outpourings should be seen in that light. They long for a great economic crash that will bring the political changes they seek”

Im confused here. Im surprised that you think “first and foremost”, as in 20 years of professional finance academia (subtly but importantly different from econ) I have spent one year in the public view. Ditto with Karl frinstance…Where do you place me btw? Left or right, bearing in mind you know me only from what you hear/see me say here and other places? And do you think that my outpourings on say volatility transmission in precious metal markets are “tainted” by my (pretty nonexistent) political views you think I possess? I mean, you said all…

“But, then I had to go out into the real world, earn a living in the market place, and grow up. The great thing about being an academic economist is that you don’t have to go down that path. You can still be an adolescent revolutionary all your life when you are an academic economist and the taxpayers are paying for it”.

Ah, the old taxpayers. Well…. Again, the issue of who pays for what. I suspect that its uncomfortable for many to realise that what you pay for in academics is a bunch of mouthy opinionated smart people, who when they reach close to the top of their profession start to spread their views (while doing the day job still) to the world. If you don’t like that, too bad my friend. As someone who works in a b-school, I have a passing acquaintance with the real world, professionally, and also as someone who competes. If you want to have a chat about competing world wide in the provision of educational services at masters level, ring me. Meanwhile on any accounting metric you care to mention JtO I cover my salary by a multiple, so your subliminal fears on the fate of the taxpayer as regards my possible abuse of their monies can be laid to wast


The relatively modest sums we as taxpayers pay to academic economists protected by tenure are so insignificant that the term “drop in the ocean” might have been coined for them compared to the horrendus sums we will pay for the rest of my lifetime for the mistakes made by a group of politicians who thought they were Masters of the Universe rather than a bunch of small town go-fers for Big Money.

@ John The Optimistic

What is your current best guess at the real level of mortgage default right now.

What do you think it will be in 12 months from now.

@ John The Optimistic

“A significant minority of academic economists in Ireland are actually political activists first and foremost, some of the far-right, some of the far-left”

Did they start out as “political activists”?

What are the non-academic economists? Political atheists?

Do they not work for Banks, Media, Political Parties, Religious Interests?

Is it a requirement that economists be politically neutral (other than agreeing with your politics)?

Is economics not in essence a political science?

Are not all meaningful economic debates those of politics?


I have followed your comments for some time. You seem to me to be the most politically partisan commentator on this blog.

And yes, I do mean Fianna Fail.

Maybe I’m wrong. I look forward to your political neutrality.

@ Brian Lucey
The moment for the cathartic political change we need so desperately was probably missed when George Lee decided to stand for FG.There were only a handful of people who had the right profile and credibility to get a new party off the ground in a serious way and Lee was one of them.I would so dearly love to have an alternative comprised of people who were untainted by what has gone on even though I accept I would have to take much of what it might take to govern well on trust.Absolutely unwilling to see SF in that light,particularly where economics is concerned.


I have no objection at all to academic economists having strong political views. Good luck to them. I’m merely saying that these should be taken into acount when they publish forecasts.

Economists’ forecasts are treated by the media as if they were almost scientific forecasts, in the way that, say, weather forecasts are. They are presented in the media as if these are the people who have done all the statistical calculations scientifically and objectively and come up with certain results. My point is that they are not like that at all. They are heavily influenced by their political bias, whether consciously or subconsciously I know not. Its blindingly obvious that Morgan Kelly hates Fianna Fail. Of course, he’s entitled to. I have no objection to that. All I’m saying is that his forecasts for economic depression over the next decade, and indeed his early-2009 forecast that GDP would fall by 20 per cent in 2009, are the result of this hatred of Fianna Fail, rather the result of any properly-conducted scientific analysis of the available economic data. You may say that I am equally biased in the opposite direction, of course. And, fair enough, if you think that, don’t take any of my forecasts seriously.

@Brian Lucey

Ditto as for Greg.

I don’t know if you are of the left or right. I have no objection whatever to your holding any political views you wish, regardless of whether or not your salary is paid for by the taxpayer. I believe totally in democracy and academic freedom. However, what I challenged you on was your statement that, in the hope of seeing various political changes, you actually wish for the economy to crash and for everyone to experience severe economic pain. While I admire your honesty in admitting that, and wish certain other economists were as honest, to my mind, actually wishing economic misfortune to fall on the country and its population is Beyond The Pale.


I’m not sure of your point. I said it now looks as if GDP will fall by between 6% and 7% in 2009, while you give a figure of 7% negative. Almost the same, surely? We obviously won’t know the exact figure until Q4 is published. But, for the record, a few quick calculations shows: if no change in GDP in Q4 over Q3, then GDP falls by 6.8% in 2009 over 2008; if GDP grows by 1% (optimistic) in Q4 over Q3, then GDP falls by 6.5% in 2009 over 2008; if GDP falls by 1% (pessimistic) in Q4 over Q3, then GDP falls by 7.0% in 2009 over 2008. So, a fall of between 6% and 7% looks likely.

@Maurice O’Leary

“Welcome back to the ’50s where 400,000 people emigrated in a decade.”

This is an example of where people, who actually look at the published statistics, have an advantage over those who get their ‘information’ from reading articles by Morgan Kelly and David McWilliams.

McWilliams has been banging on for 2 years about how there is now 1980s-level emigration of young Irish people. He wrote an article last year about GAA clubs being decimated by players leaving for London and New York. He was writing in similar vein yesterday. However, if we actually look at the published CSO statistics, this is what we find:

(a) There is currently a definite net outflow of foreign nationals from Ireland, mostly Poles going home. In the 12 months to 2009 Q2, this net outflow amounted to 7,800. The QNHS report published last week showed that this increased somewhat in 2009 Q3. This is happening right across western Europe. As Poland has avoided recession, the number of Poles living in virtually all western European countries is falling. Of course, we mustn’t exaggerate this trend. The number of foreign nationals in Ireland is only down by about 8 per cent since the recession began.

More importantly, however:

(b) There is not a scrap of evidence of any net outflow of Irish nationals, at least up to September 2009 (the most recent period for which the CSO has published statistics). None at all. Nothing. Zero. Zilch. That doesn’t mean that none are emigrating. Some are. But, their numbers are balanced almost exactly by Irish nationals returning. According to the CSO figures published in September, in the 12 months to 2009 Q2, 17,800 Irish nationals left Ireland and 17,800 Irish nationals returned to Ireland from abroad. The net outflow of Irish nationals was ZERO. It is the net outflow which is the important figure as, in this globalised world, people are always coming and going. The QNHS report published last week showed this trend continuing. It showed that, while the number of foreign nationals living in Ireland is falling (as I said in (a) above), the number of Irish nationals living in Ireland is continuing to increase rapidly. The QNHS report published last week showed that were 41,200 more Irish nationals living in Ireland in 2009 Q3 than in 2008 Q3, which is more than the natural increase, implying that, contrary to scores of scaremongering media reports, there is as yet no resumption of net emigration of Irish nationals.

@Morgan Kelly

Your silence speaks volumes.

@ JohnTheOptimist
The fact of the matter is that Morgen Kelly has been proved correct almost every time. Firstly, his call about the prepitious decline in property prices was met with fury by the government and vested interests but was bang on the money. Once that happened construction related revenues went through the floor and took the economy with it. Secondly, he issued a dire warning to the government about Anglo and that too was ignored, now Anglo is burning its way through 30bn of our money. Thirdly, NAMA he said, would not work, could not work and would not only be an economic disaster but would be totally divisive. It is!

Has he been proved wrong? Quite the opposite, so there is hardly a need for him to come on this site and defend his truths.

@John the Optimist

Morgan Kelly didn’t forecast 20% gdp decline for 2009, but a 20% decline in national income over the next few years. He wrote this in January 2009. Looking at gnp, he may be right.

BTW, your posts are an interesting anitidote to the doom & gloom.


Actually, according to this Guardian report from March 2009, he didn’t use the term ‘national income’ – he used the phrase ‘economy to contract by 20 per cent’. It doesn’t specify whether he meant in 2009 or over a period of a few years starting in 2009. But, that is academic now, since virtually all forecasters now agree that any further contraction after 2009 will be negligible. In fact, most are now predicting resumed growth within the next six months. Of course, I don’t blame anyone for not referring to this one. Kelly spews out so many apocalyptic fore casts, its impossible to keep track of them.

If you read the article, you’ll see that it isn’t just me who considers Kelly to have gone way over the top. Other prominent economists quoted in the article say so too. In particular, Patrick Honahan dismisses his predictions. And, that was before he joined the Central bank.

@Brian Lucey
“And its not political JtO – its governance – that includes senior civil and public service decision making, appointments to the senior ranks of the police and army, the judiciary (heres a mad idea – lets have judge school, and a professional cadre of judges not political appointees from a small pool) , how we run the educational system, the incentive-punishment structure, etc etc. Politics is only the half of it.”

I agree entirely.

Nothing mad about a judge school. I gather it is normal in some other non-english speaking, non-common law jurisdictions. If I have understood it correctly – just as some people interested in law choose to become solicitors or barristers, it is posible to choose to become a judge.

“From the clash of ideas, minds ignite” Patrick Lynch.

Happy New Year to all!

Brian Lucey: “Let it crash, then we will have learned the social lesson, and can decide what sort of society we want.”

You might consider posting such ad libs under a pseudonym. I see that “Mao Zedong” is still available ;-).

Comments are closed.