The Irish Economy in 2010 Post author By Philip Lane Post date December 30, 2009 You can find my views in this article for Business & Finance. Categories In Economic Performance Tags Irish economy in 2010 56 Comments on The Irish Economy in 2010 ← Hyun Shin: New Advisory Position → L’impôt carbone 56 replies on “The Irish Economy in 2010” @Philip Lane “While there is some prospect of private-sector interest in the banks, it must also be accepted that the Irish government may end up taking very substantial stakes in the two main banks.” AIB and BOI are completely insolvent. Given the cuts in the recent budget, any private shareholding kept in both is literally a transfer of wealth by the government from the blind and the disabled to bank investors and bankers. So therefore I assume that any private-sector interest you refer to is from bondholders converting into shares or fully nationalised banks issuing shares on a commercial basis. Any other outcome would be pillage and looting by a corrupt establishment at the expense of the rest of the population, particularly the poor and the unemployed. “In relation to the smaller banks and building societies, all the signals indicate that there will be a consolidation process in order to create a viable “third force” bank that can improve the competitive environment in the provision of credit.” Fine, so long as it excludes Anglo/Nationwide. They are utterly corrupt. Anglo was only systemic to FF/Property Developers. Nationwide is only systemic to the Golden Circle (mainly FF but including people from all parties and none). Irish financial institutions are sick enough as they are. Putting one or both of the Ebola banks into the hospital ward with them will kill them off entirely. The €4Bn already put into Anglo may as well have been incinerated. We’re never getting that back. Incinerating another €2Bn in Nationwide to save the Golden Circle and napalming more billions in Anglo to save FF/Developers is insane. Otherwise the article was very good. You have to work on your ordering of priorities though. Remember to put abolishing tax breaks at the top of the tax changes. You forgot to put making senior civil servants and politicians take a massive paycut (performance related) at the top of wage cuts and benchmarking them thereafter against our Eurozone competitors. You need to explicitly propose the benchmarking of professional fees. You also neglected to mention cutting excessive public sector pensions eg., Ray Burke. Then there are the ginormous pay-offs for people our government tell us ruined the country – surely we have to cut those out for good? You also forgot to recommend maximum transparency in government spending and decision-making. Finally, you forgot to put a bank inquiry at the top of the necessary steps for the banking sector, as well as a criminal investigation of all of our guaranteed banks. In addition you should have recommend full disclosure of the identities of all bond and shareholders and details of all major loans and all loans to politicians, senior civil servants and media people. You would have gotten a “B” but omitting the bank inquiry has made me reduce it to a “C”. To sum up: * NAMA is great! * The best thing about NAMA is that one day in 2010 we might learn how much more money the banks, who dictate the terms of NAMA to the government, say they “need”. * And give it to them. * And thus, by extension, to their shareholders and bondholders, who cannot under any circumstances suffer any loss. * Wages and living standards for the working people of Ireland are too high, and must be sacrificed for the aforementioned bond/shareholders, to whom the banks and their government owe their first duty. * The combination that NAMA offers, of security for the wealthy and impoverishment of the middling sort, is an academic economist’s wet dream. * Remember: there is no limit to the amount of taxpayers’ money that can be shoveled down monetary rat-holes created by insolvent developers and bankrupt banks, and thus to directly subsidize the ostentatious weddings, racehorses, private helicopters, and mansions of that class. There is only a limit to the amount of money that can be spent on wages for productive people and public services for everyone. * Belt-tightening is for the little people, and they would do well to remember that. Leibniz lives. Ben, you are a God. Your post nails the tendency of any profession – including the economics profession – to become institutionalised. @philip You say ‘Most prominently, the Irish banking system has required extensive State support, while sharp corrective action has been required in order to stabilise the public finances. Having endured this painful period, the prospects for 2010 are brighter.’ Yeah right. @Ben No, he wasn’t that bad. I disagree with him (I would surmise) on NAMA. On the other matters he was correct. I am a fan of his music – it’s the order in which he plays the tracks that I disagree with. Also he didn’t play “Transparency”, by Michael Hennigan, and “The Senior Civil Service Pay Dodge”, by Karl Whelan, but I am sure he will at his next concert. His version of “Professional fees are too high” was a bit flat. My biggest regret though was that he didn’t play “Banking Inquiry”, by Patrick Honohan, who was happy to play this publicly even though he works for the government. Keep on like this and there’ll be no giant payoff for you Honohan! Unfortunately his judgement on NAMA has been adversely affected by the green jersey he has on. It’s no wonder considering the material. The green jersey that our establishment have persuaded most of our commentators to wear is made out of FF kryptonite. It’s not the green of Ireland – it’s the green of FF. Iceland did not collapse because it’s Bolshie populace and media disgracefully revolted against its unblemished establishment. It collapsed because its establishment ran it into the ground. Only in an utterly submissive country like Ireland could a hugely corrupt elite have convinced almost all the commentators and even much of the population that removing it from office would make things worse. There’s really no danger – even one of the debt rating agencies said we needed an election. It’s a sad state of affairs when the debt rating agencies are more radical than most of our commentators. “The frightened children cling to nurse, For fear of getting something worse!” Lately, many of our commentators have been taking off their luridly green jerseys. Philip, it never suited you. It’s time to take it off. @E65bn Absolutely, utterly, completely on the money. See my post from last May… http://www.irisheconomy.ie/index.php/2009/05/26/a-critique-of-irish-economic-policy/#comment-8150 Hi Philip, You make this point: “With the prospect of an increase in the ECB interest rate in 2010, debt servicing costs are set to rise – together with the decline in nominal incomes for many households, this means that the recovery in consumption will be weaker than in past business cycles” Agreed – the problem is we are out of synch with the rest of Europe. Given our minnow size…. could we not make a case for a two track monetary policy ? I’m thinking (monitored) liquidity funding from ECB to continue at low rates ? You lot are hard to please. Philip forgot to say ‘banking inquiry’, so deduct five marks, not fifty! Philip, the banking figs just released show a pretty small decline in PSC, when valuation changes/writedowns are excluded. YOY only a bit over 1%. This looks like a pretty slow deleveraging. Seems to me as if the banks have not tried to shift performing assets off balance sheet, or have not been pushed to do so, or have tried and failed (bad sign). Of course NAMA will have a dramatic effect, and non-guaranteed banks are included in the CB figs. It would be nice if the CB could include a consolidated balance sheet for the guaranteed banks in the monthly release. @Paul McDonnell My views would be to the left of yours but I agree with you when you say: “If international investors are ‘impressed’ by the Irish government’s ‘difficult decisions’ then it’s because the country is so small it never occurs to them that exploded out to a US or UK scale these ‘difficult decisions’ would spark revolution. They see Irish decision makers and they do not see power: they see the hapless global village idiot State and they feel (delete whatever doesn’t apply in the situation) 1) charmed or 2) pity.” However, even when foreigners don’t indulge us and instead openly disagree with us, as the EU did with McCreevy’s champagne spraying budgets, we just brush it off. Even though our state is now almost ninety years old it still acts like a surly adolescent when it comes to economic advice it doesn’t like, while at the same time mindlessly aping some irrelevant foreign things because they’re trendy. Our Minister for the Environment is always banging on about a future water shortage. This isn’t North Africa it’s Ireland. It’s sudden unexpected water surpluses he should be worrying about. If we ever do have less water we will have to take the drastic step…of fixing some of the pipes. @Colm McCarthy I am being a bit harsh on Mr. Lane. As I’d like to change the national greeting from “Hello” to “Bank Inquiry Now!” I may be biased on this subject. @ Phillip nice, neat and succinct article. Importantly it was doused in reality, something which is sadly lacking in some of the posts above. Textbooks and moralising ain’t gonna get us out of this mess folks. @Philip Is it not slightly contradictory to simultaneously support NAMA and advocate entry of a foreign bank into Ireland – given Bert Bruggink’s comments earlier in the year that NAMA was actually operating against non Irish banks? Here’s the Dutch reporting of it from fd.nl “Voor een buitenlandse speler als Rabobank is de situatie extra zuur, aldus de bestuurder. “Van de Ierse overheid krijgen allen Iers banken staatssteun, buitenlandse banken moeten hun eigen boontjes doppen.”” and from z24.nl (business news) “Een belangrijke reden voor Rabobank is dat het zeer moeilijk is om er als niet-Ierse bank te opereren. Alleen Ierse banken krijgen steun van de Ierse overheid, en dat maakt concurreren op de toch al moeilijke markt erg lastig, zoniet onmogelijk.” The Dutch text is pretty blunt, but it was reported reasonably accurately in the Irish press at the time, and essentially ignored by the Irish commentators. Essentially he says the Irish govt is making it difficult if not impossible for foreign banks to operate successfully in Ireland. Ouchie….and he means NAMA. You know, I suspect the Irish economy and the Irish people would be better off with blunt Dutch bankers (flaws and all) than spending huge treasure on a bunch of Irish incompetents while simultaneously chasing all the foreigners away. @All There is another terrible Irish Times editorial today with no demand for a bank inquiry. Even worse, the only comment on the €65Bn NAMA will lose is a brief, airy declaration that, “The question of whether Nama has paid too much or too little will not be known for a good while longer.” Marie Antoinette would have shown greater concern about the massive transfer of public money to an elite. http://www.irishtimes.com/newspaper/opinion/2009/1231/1224261476454.html Thankfully The Irish Independent is much better. On Dec 23rd they had this editorial: http://www.independent.ie/opinion/editorial/inquiry-would-clean-up-past-1985754.html On Dec 24th they had this editorial: http://www.independent.ie/opinion/editorial/lack-of-inquiry-helping-no-one-1988321.html And on Dec 30th they had this editorial: http://www.independent.ie/opinion/editorial/banks-in-the-spotlight-1992483.html I predict The Irish Times will write a strongly worded editorial – telling The Irish Independent to keep quiet! It’s no harm to begin a new year with some optimism, even though it may jar with current reality. Maybe there will be the start of “transformational” public sector reform or the taskforce reviewing the April 2008 OECD report on public sector reform will be induced out of its comatose state. It’s of course much easier to mandate cuts than engage in organisational change — an area where we are remarkable for our incompetence. We have the good fortune of being the host of some of the world’s best companies and the low tax rate, semi-tax haven status and focus of the US Congress on priorities other than tax breaks enjoyed by multinationals, means that we will continue to benefit for the foreseeable future. The international recovery may be more robust than expected and despite the bluster; China may unpeg the yuan from the dollar and it will likely not be enough to prevent President Obama, in the aftermath of mid-term election losses and looking ahead to 2012, from imposing special tariffs on Chinese imports. Finally, in The Economist’s The World in 2010, the FT’s Lucy Kellaway writes: “In 2010, the decline of the MBA will cut off the supply of bullshit at source.” She also says: “New television series are likely to take a grimmer turn and be modelled on the Argentine classic ‘Recursos Humanos,’ in which contestants competitively demean themselves in begging to be allowed a grotty job as a manual worker.” Maybe, it’s only a person who is secure in their own job, could make such a prediction! Happy New Year. More banks will make the sector more efficient. Really? Any credible evidence of that? The lending of the odd billion by one bank into the Anglo? Is that efficiency or inefficiency? NAMA is a good idea? NO! The government is the problem! It will not provide solutions or jobs and is busy destroying capital, you know, that which backs productive investment?! I expect you to regret writing this, ere 2010 is over. Bond. Eoin Bond… Moralizing …. That is correct if you mran the hypocrites do not help. But there is evil in banking, that is acceptable? I must meet you in a dark alley one night or is it better if I take much more by fraud? Do you not realize just what happened? Everyone has been mugged! @ Pat ive asked this before: would you prefer an inquiry which found out everything we wanted to know and jailed no one, or one which jailed a couple of hundred bankers and gave us almost no new information on the what/why/how/who caused it all to go so so wrong? If you select the latter, than i consider you as getting in the way of the recovery, not supporting it. It’d be great if we got the answers and some form of ‘justice’ (which are far more likely to be civil rather than criminal) in terms of those who did wrong, but i consider the answers far more important in the long term. “There is evil in banking” looks great on a protest placard, but its ridiculous over-simplification wont help solve the problems with the banking system, it won’t help us learn from the mistakes that have been done, and it sure as hell won’t create a job or help the economy to recover. @Philip Lane Pace Colm McC”s justified reprimand I don’t want to sound churlish….I think I was a little rude – apologies. You have done the state some service by establishing this blog and you and your colleagues have done much more by your contributions since. I tend to view things like taxation and expenditure as mainly political decisions with mainly economic effects. Sometimes when economists discuss them they do so as if they are mainly economic decisions. I suppose psychologists may view them as psychological decisions – i don’t know. Optimism is very important as Michael Hennigan says and one doesn’t want to kill it off with bitter cynicism. Cynicism can be just as deluded as optimism. For me, i am an optimist. I think that it is inescapable that Ireland needs a reformed political system. For this to happen things may have to get a lot worse. I have been talking to friends recently about the possibility that this recession will be a DNA-changing event for Irish politics. The establishment are counting on everyone surplus to requirements just leaving so as to take the pressure off ‘the economy’ – i.e. them. This blog and Gurdgiev’s trueeconomics are good deeds in a naughty world. Happy New Year. @Philip God is real says atheist? How can someone with such a knowledge of facts predict growth in 2010, I am no economist but I presume yoy growth of GNP is where growth is expected? Can I ask which element of the economy will show increased growth to compensate for reduced credit, wage cuts, decline in gov spending etc? I am intrigued or ignorant or possibly both Philip, I liked your B&F piece. It places our problems within an international context; something as rare as hen’s teeth in most of the media and political commentary of 2009 on this crisis. You have consistently been the quiet voice of reason, for all the good it does you judging by some of the comments above! According to your analysis, continued restructuring and recapitalization of the banking system and industrial disruption in the public sector are likely to be the two most immediate challenges facing the government early next year. They should be well-prepared to deal with both, since they’ve had more than enough advance warning of them. Other issues, like a new legislative framework to deal with failing banks, tackling the privileged position of sheltered vested interests, radical reform of the tax system are less immediate but also necessary for what you term ‘rebalancing’ the economy over the medium term. The Government’s legislative programme should be published in mid-January and contain proposals for legislation on banks’ regulation as a priority item. If it doesn’t, then serious questions must be asked. Apart from the question of political competence in key areas of government policy, I think that political inertia towards reform remains very strong. We’re hardly unique in that, anymore than our economic and fiscal problems are unique except in their specific national characteristics that require tailored national solutions. But there is, I believe, a real danger that if there were any signs of a significant pick up in the economy in 2010 a lot of necessary reform will be long-fingered or simply disappear off the political agenda entirely. You only have to look at the silly and threadbare proposals for reform of our political system and culture – from government and opposition parties alike – to appreciate the real risk of that happening once immediate pressure for change declines. There’s a reason, apart from his own folly, why the former Ceann Comhairle was put on the back of a donkey and beaten off into the political desert. I don’t agree with those who comment that you should have included a demand for an enquiry into the banks in your list of challenges for 2010. That’s separate to what I assume you were asked to do in this article. An enquiry is necessary, but even if a parliamentary model for such an enquiry was devised it will take several months if it’s going to be of any lasting value. The problems you have set out as reform priorities requiring action cannot wait for it. Now, if the government had any sense they would announce their proposal for an enquiry before the Dail resumes in January and their intention to have it up and running before the end of the month. I won’t hold my breath! Happy New Year. Would be interested to see the projections reworked with the addition of : – a Non-Zero probability of energy inflation (e.g. oil back up to $100/bbl) – a Non-Zero probability of continued contraction of the housing market – a Non-Zero probability of continued contraction of the labor market – a Non-Zero probability of basic foodstuff inflation – significant rises in interest rates in UK, US, EU pssst, wanna buy a 0.5 acre FPP site in roscommon, €100K? .. thought not.. http://www.zerohedge.com/article/frontrunning-december-30 NY Times: “If inflation picks up in France and Germany, the smaller economies will be left behind in stagnation and deflation,” said Jordi Galí, a Spanish economist recognized for his work on business cycles who heads the Center for Research in International Economics in Barcelona. “Such an asymmetric recovery is pretty likely, and if the E.C.B. raises rates, it could get very ugly.” @ Philip, You seem to be taking heavy flak in this thread!!! I found your article to be a fortelling of what is most probably goint to happen anyway. However certain comments are vague. For example.. 1) You mention encouraging more foreign banks into Ireland, and give reasons for doing so. However you did not specify just how many banks we should have competing against each other on this small island. There has to be a appropiate figure which would be suitable for Ireland. Too few banks leads to lower efficiency and poor value to the Irish citizen. But I ask you, could too many banks lead to reckless lending as each bank tries to outbid the others to encourage new clients? Look at NIB, they came into the Irish market (25 years ago or so) and were very competitive. But they did not grow as well as they hoped. Irish clients did not switch over in droves. NIB continued offering exceptionally good value products, tracker mortgages 0.5% above ECB rate etc. But now look what is happening to NIB, Danske bank describes the Irish market as depressing. NIB is closing 1/2 its branches, the other 1/2 are going cashless. They have refused to lower their variable rate as they have to keep this high to try fund the money they are losing on all the trackers they gave out. While we can stand back and blame management, we can also choose to ignore the fact that too much competition can lead to risks being taken which end in a major crash and burn session. You do use the phrase “Third Force”, but I would ask you and everybody reading this comment, what would be the appropiate number of banks to operate in Ireland? You mention elimination of some tax breaks. What tax breaks are you talking about? Commentators talk about tax breaks, but has everybody examined all tax breaks in detail? In other words do people know what they are talking about? The Tasc report makes a list of various tax breaks, but does not go into the fine detail of the reasoning why each tax break is there in the first place, the consequences of removing the tax break in question etc. Some commentators on this forum have adopted fundamentalist opinions that all tax breaks are wrong. I would argue that there is nothing wrong with tax breaks as long as it is beneficial to all concerned and that the Private investor is justly rewared for risks taken. For example I have a private pension, as most people should have in the private sector. If you were to eliminate tax relief on this then I would be faced with double taxation. Taxed on my contribution and taxed on my fund when I draw it down. Is this just? And before others jump in about tax breaks notice I stated in the above paragraph “beneficial to all concerned”. Ireland is going to require more tax breaks in the near future, as this state is now so poor that it will not be able to provide necessary services for people to live and work in this country. People don’t seem to be able to understand this including certain commentators on this forum. For example, why were the vast majority of shools in Ireland run by religious institutions? The reason being because the state was too poor to fund, manage a vast network of schools. Only in recent times has their being a slow withdrawal of control from religious orders to the state in relation to school management. You mention lowering tax credits, are you aware that the personal tax credit in Germany will be 8K for 2010, France 5K. We require to be carefull so to get the balance right. You correctly point out that the lower earning will have to be brought into the tax net, as the emphasis is too much on the higher paid. As Minister Brian Lenihan correctly pointed out in his budget speach, a person on 100K+ earns 4 times more than somebody on 25K, but the higher earner pays 11 times more tax than the lower earner. Despite this fact, there are still fundamentalists out there who claim that Irelands tax is not progressive enough. Of course a fundamentalist cannot be reconciled with the truth. I sometimes wonder is there a deliberate agenda to make Ireland such a backward inhospitable place to live and work so as to drive its citizens out of Ireland to live elsewhere in Europe. Don’t get me wrong Phillip, I am not having a go at you, however I am stressing that we all require to be more specific in offering solutions to Irelands problems. @Eoin If I don’t pay my TV licence I don’t get the choice of an inquiry that establishes the full facts about my non-payment or a prosecution. Say instead of losing €65Bn NAMA losses a providential €10Bn, as you yourself have predicted. Eamon Ryan, a minister in the government, believes there has been widespread malpractice. More and more evidence points to this. Say for each unpaid TV licence of €160 there is a penalthy of one week in prison. Assume we treat politicians/bankers/developers/civil servants as being as evil as TV licence evaders. We then start out with 62,500,000 days in prison. I think because the establishment consider themselves to be more important than ordinary people they will deeply discount this. Each member of the Golden Circle, is to himself and his judicial, police, business, political and administrative peers worth how much more than a TV licence non-payer? I would say they consider themselves to be worth a million times more than a TV licence payer – even though their net worth to society is a massively negative €10 BILLION, even in providential conditions. So I predict that after all the investigations one person will be sentenced to two years, out in perhaps nine months. This is after he and his colleagues have done between €10BN and more than €65BN worth of damage. I believe the Golden Circle will divide the punishment an ordinary person would get by one million. What would you divide it by Eoin? Why divide it at all? Remember, the bankers have ruined the country. The non-payment of TV licences just means Marian “Mespil” Finucane gets slightly less dosh. @Sporthog TASC found that no analysis was done on most of these tax breaks. Simple solution: benchmark them and our tax rates against Sweden. If we want lower rates than Sweden discount everyone’s rates by the same amount, or less for the superrich. @Sporthog “I sometimes wonder is there a deliberate agenda to make Ireland such a backward inhospitable place to live and work so as to drive its citizens out of Ireland to live elsewhere in Europe.” There is, it’s called FF/PDs. But since our citizens are emigrating to Europe lets benchmark ourselves against Europe. Good lord what’s new in this article? It’s a rehash of stuff thats been obvious to most business people – those in the real world – for at least the last six months! Must do better – c-! @ E65bn did your comment at me actually have a question, cos it was more of a monlogue than anything? However i think i got the gist of it – heads on plates first, actual answers and solutions afterwards (if at all). Give the public their pound of flesh and inquiryize ourselves out of this recession!! Its forward thinking like thats gonna get the country going again. But then im “evil” in your opinion, right, so what the f*** would i know? Also, i’ll only agree to benchmark ourselves against the likes of Sweden if you can promise me that we’ll get a public service as efficient as them. Until then, i’m out. So when do you reckon, 2025 or so? 2035? @Eoin This lady here didn’t get the choice of an enquiry either. http://www.wexfordpeople.ie/news/mother-jailed-at-christmas-over-fine-1993645.html From poster Eoin Smith on politic.ie. @Eoin Benchmarking our public service – on performance, efficency and pay – against Sweden is a great idea. Let’s do that and our tax breaks as well. @All Happy New Year! 2009 was the year of the cover up. Let’s hope 2010 is the year of truth and justice. @ E65bn you see, the problem is you don’t actually read what other people say. Or rather, you read it, and then its gets all jumbled in your head. I’m not saying we shouldn’t send criminal bankers/developers to jail, what im saying is that that shouldn’t be the purpose of an enquiry. The purpose of the enquiry should be to find out the truth, plain and simple. If the truth leads to prosecutions and convictions via the criminal and civil courts, well super. But if it doesn’t, then i’d at least be happy that we got to the truth. If we don’t get to the truth, then the rosy glow that the convictions might bring to your cheeks for a few weeks are going to be scant use to the Irish economy. If the express purpose of the enquiry is to “jail bankers and builders”, then who in their right mind would even risk interacting with it in case they fell foul of something small, even without knowing it, somewhere in their past? As i asked before, if the choice boils down to the truth and learning from our mistakes, versus sending a few hundred bankers and politicians to jail, which would you choose? Can your sanctimonious moralising create a better economy? But like a pig in sh1te, at least you’ll be happy with your lot, eh? Happy New Year to everybody. Lets hope 2010 brings us some positive thinking on how to get out of this mess, as Phillip has done above, and less moral grandstanding from people who can’t actually provide even a scrap of realistic helpful solutions. @Eoin “if the choice boils down to the truth and learning from our mistakes, versus sending a few hundred bankers and politicians to jail, which would you choose?” You are setting up a false dichotomy… the tribunals haven’t stopped corruption, therefore the tribunals were a waste of time. Politicians weren’t jailed, because we wanted to find out what happened. This is working from the agenda of those who want to keep the cake they have filched – enquire it away, no consequences ever. A series of court cases might be a better use of inquiry time. Pick the usual suspects, see who Frank Dunlops… if that doesn’t work, move down the food chain. Repeat until you know what happened. At the end of the process, write it up. If there are any gaps, write some reports on them. PS as an example, the commercial court cases into Mr. Carroll’s empire were more revealing than any expose could be while at the same time ‘resolving’ the situation. Still there’s hope: “One way of utilising surplus land suggested by FKL was to release it for cemeteries to alleviate shortage of burial spaces. “Unfinished estates in inappropriate locations for housing could be turned into ‘Cities Of The Dead’ on a European model with the unfinished houses reused as crematoria and chapels and the remains housed in semi-detached tombs,” FKL said.” http://daftproperty.blogspot.com/2009/12/scarey-shadowland-ideas-for-ghost.html Let’s hope the workers on these projects wear green geansais. There simply aren’t going to be large scale prosecutions of bankers for the simple reason that very few of them can be shown to have had criminal intent – incompetence is not a crime, and even gross incompetence will not result in a conviction to the best of my knowledge. Some of the Anglo shenanigans may be proven to be criminal breaches of company law (and I imagine that from a PR perspective, the government would be very happy for one or two prominent bankers to do the perp-walk) but for the most part, the sins that got us into this mess are sins of incompetence. Eoin, I am at a loss as to why you continue to engage in debate with the more lunatic fringes on this blog – you’ll give yourself a hernia man. @ YM Im not making a false dichotomy, or at least no more than the counter argument is – that if an enquiry doesnt yield heads upon plates, than whats the point? I’m all for what you are proposing – letting the criminal and civil justice systems go to work and do their best to secure convictions where we believe wrong to be done. In the course of their proceedings they should unearth much of the truth. The problem is they probably wont unearth it all, and because of the rather grey areas surround the actual criminality, rather than immorality, of the actions of the bankers and developers, its going to be rather difficult to ‘force’ people to cooperate. As such, there has to be a fallback situation where we DO find out the truth, but perhaps don’t get to string up a neat set of convict-bankers for the crowds to throw fruit and/or stones at. As i said before, if the choice DOES come down to convictions vs truth/finding solutions, which would you prefer? @ Concubhar you’re way more succinct than i am. I need to start taking notes. On a more serious note, happy new year to one and all. Lets all hope that regardless of how mediocre 2010 turns out to be/not be, that 2009 really is the low point in all of this. @ALL Error in my calculation. That should have been 62.5 million weeks rather than days in prison deserved by members of the Golden Circle. Dividing by one million – to reflect how much more important Golden Circle members are than TV licence evaders – gives us 62.5 weeks, or just over 14 months to be served. I’d say there will be many years of investigations and appeals. Probably there will be at least one escape to a country with no extraditon treaty. I can hear it now: why did they not take away his passport? How silly of them, just simple, purely innocent, enormous carelessness – as usual. In the end, I will say total time in jail served won’t be more than 9 months. @Eoin I want thorough investigations of all of our banks. I won’t be deciding who is guilty the courts will. Let’s hope they are as tough as they are on TV licence evaders. An enquiry is vital but we need thorough investigations across the banking system. It’s not a witch hunt it’s the justice process. Is investigating burglary or TV licence evasion a witch hunt? We have tried the enquiry first and investigations after approach before. It’s called the planning tribunal. It has gone on for 12 years, been vastly costly and resulted only in token sentences. It has outlived the property bubble that the corruption it was enquiring into caused. Still no final report either. “Public hearings concluded in September 2008 and the tribunal is currently preparing its final report.” http://en.wikipedia.org/wiki/Tribunal_of_Inquiry_Into_Certain_Planning_Matters_and_Payments After publication it will then be considered at length etc etc. Here is an idea. Why doesn’t the Institute of Bankers take the lead in calling for full investigations and an enquiry and encourage its members to cooperate? It would give them some much needed credibility: Recent Past Presidents 2008 Richie Boucher, Bank of Ireland 2007 Cormac McCarthy, Ulster Bank 2006 John Trethowan, National Irish Bank 2005 Donal Forde, AIB 2004 Ted McGovern, EBS 2003 Aidan Brady, Citibank Ireland Financial Services 2002 John G. Collins, Bank of Ireland 2001 Eugene J. Sheehy, AIB 2000 Martin J. Wilson, Ulster Bank 1999 Brian J. Goggin, Bank of Ireland 1998 Thomas P. Mulcahy, AIB 1997 Harry Lorton, TSB 1996 John R. Wright, Northern Bank and National Irish Bank 1995 Patrick W. McDowell, Bank of Ireland 1994 Eamon F. McElroy, AIB 1993 David Went, Ulster Bank 1992 Patrick J. Molloy, Bank of Ireland 1991 Gerald B. Scanlan, AIB 1990 Sam H. Torrens, Northern Bank 1989 Tim O’Grady Walshe, Central Bank of Ireland http://www.instbank.ie/index.php?option=com_content&view=article&id=12&Itemid=311 Nice to see they made someone from the Central Bank their president. All very cosy. I’ll bet they’re love bombing Honohan right now. Hopefully it won’t succeed. @Eoin I hear you about the gray areas. What I am interested in, though, is areas like Mr. Fingleton’s bypassing of the credit committee of his own bank. A credit committee that was required by the Financial Regulator. Add to this the sidelining of risk management, the promotion of inappropriate people to those positions of responsibility, that sort of thing. Most of these (all of them?) are no criminal offenses, but civil cases from disgruntled shareholders might be interesting? It is the civil and particularly the commercial courts that I am talking about. The government is a significant shareholder in BoI and AIB. Does it have a case? That it invested under false pretenses? That the guarantee was under same? A happy, healthy, peaceful and prosperous 2010 to all. . 2009 has been an eventful year and this forum has been a great help and assistance in making some sense of what has been happening. . You are doing a wonderful job, THANK YOU. What needs to be said is best said by Willem Buiter; “Academics have no duty other than to state the truth as they see it – to ’speak truth to power’. This gives them the ability to be undiplomatic, blunt, tactless and outspoken in ways that are unacceptable in the wider world – the world of grown-ups. The joys of academic freedom and irresponsibility include the ability to participate in public debate using expressive, forceful language, strong metaphors, analogues and similes, to go over the top from time to time, to overstate the case and over-egg the pudding and not to worry about giving offense to the high and mighty. Because of their sheltered existence, academics can be reckless with impunity in their excursions into the forum of public opinion.” . John Cleese has some timely words for all those greedy bankers who have caused critical damage to our economy in 2009 and appear intent on magnifying the damage in 2010 through NAMA; http://www.youtube.com/watch?v=4beL8coMc2A @ E65bn “I want thorough investigations of all of our banks. I won’t be deciding who is guilty the courts will. Let’s hope they are as tough as they are on TV licence evaders. An enquiry is vital but we need thorough investigations across the banking system. It’s not a witch hunt it’s the justice process. Is investigating burglary or TV licence evasion a witch hunt?” Again, whether deliberately or not, you are mixing up the calls for a normal criminal and civil investigation of the banks and their specific dealings, with a call for an outright ‘bank inquiry’. An inquiry is not, in fact, part of the ‘justice process’. Its seperate and very different. Up at the start, you chastise Phillip for not looking for a thorough banking inquiry, and then at the end you say how little the previous enquiries and tribunals managed to discover. What is the purpose of this “bank inquiry”? How will it differ from the criminal and civil investigation? How is it going to find out more than previous enquiries? The fraud squad is knee deep in files from Anglo, so what else do you want them to do? Is the purpose of the banking inquiry to find people guilty of crimes? Will it operate independently of or alongside the criminal investigations? As i said, people seem to be mixing up terms and concepts in all of this. At the very heart of it, as Concubhar noted, they seem to be mixing up sh1t banking skills, cronyism, and poor regulation, with criminality and acts of illegality. @ YM you are correct that civil cases are the best and most appropriate route for shareholders to get justice. However, there’s no money left to get, so do you really see a group of IRNW shareholders taking a case against Fingleton? Its sad that this is the likely scenario, but its also the reality of where we are. Ditto to some extent with AIB/BOI, where the situation is far more grey and, as i said above, more about incompetence than illegality. @Eoin “However, there’s no money left to get,” I agree it is about incompetence rather than illegality. The difficulty comes with deciding what is the appropriate response to incompetence in a regulated industry. In medical circles, doctors are struck off. In legal circles, solicitors and barristers are debarred, in the courts drivers are banned from driving… in banking and finance? I was thinking more of cases against individuals rather than institutions, that is, individuals given a responsibility within an organisation, given a salary and bonus for performing the task, but, with hindsight, utterly failing in their responsibilities. Individuals who have walked away with significant sums, sums, even the taxpayer who net pays tax, could only dream of making in a generation. @ YM you actually raise a very important point – despite the banking industry being quite heavily regulated at an overall level, its only in the last year or two that the regulator has pushed for actual mandatory qualifications, training or skills for bankers to have, and there’s still nothing approaching the sort of “licence” that many other industries require before you can even work in them. I suppose we always figured that there was only so much damage a wayward banker could do, but we know better now, right!!? Getting back to the case against individual bankers – Fingleton left with a pension of €27mn, but its highly probable that this has been significantly reduced as a result of exposure to financial sector and property assets. Sean Fitz probably had a net worth somewhere north of €100mn at the peak of it all. I’d wager that both of them have very little in relative real wealth now, and most of this would probably be in heavily protected forms such as a pension or the family home or trusts for their children. As i said, there’s no real money left to take, so any action would really be for principled or justice-seeking reasons only, ie looking to punish these guys for wrongs committed. Now i’m all for that, i’d really love to see these guys buried in legal action for the next decade or whatever, stripping them of what little they have left, but as i said above, who is actually going to spend the time and money to actually do that? @Eoin. I would take sending even 10 bankers and politicians to jail anytime. We know how shameless these people are even in the face of damning reports on their cupidity. They just laugh it all off – just look at Bertie Ahern who believes he is as innocent as the driven snow because there is no CCTV of Owen O’Callaghan passing him large wads of cash. So send a representative sample of the b@stards to prison “pour encourager les autres”. @ Maurice just so im not confusing what you’re saying – you would prefer an enquiry which yielded no answers or solutions or new ways to learns from our mistakes, but which saw a few handfuls of bankers/developers go to jail? I appreciate your honesty, but cannot but be dismayed, or perhaps even appalled, by your lack of forward thinking. If we don’t learn from our mistakes, we are unfortunately bound to repeat them again. @ John: ‘Would be interested to see the projections reworked with the addition of : – a Non-Zero probability of energy inflation (e.g. oil back up to $100/bbl) – a Non-Zero probability of continued contraction of the housing market – a Non-Zero probability of continued contraction of the labor market – a Non-Zero probability of basic foodstuff inflation – significant rises in interest rates in UK, US, EU.’ => Woops! @ Sporthog: ‘Some commentators on this forum have adopted fundamentalist opinions that all tax breaks are wrong.’ Wrong? They are just plain inequitable. Since when did inequity morph into fundamentalism? No offense, but read Adam Smith on monopolies, cartels, other forms of ‘cronyism’, – including government support for the aforesaid – and their baleful affects on the public. I’m assuming you hold Permagrowth [aka: Smithian growth) as your economic Model-in-Use. If not, my apologies. @ PL: Putting anything into public domain is an open invitation to critique same. ‘Nihil nisi illegitimii carborundum!’ Growth? Sustainability? Whence these come? Probability of 0.1 for some time. Competitiveness? If you mean wages and costs same as East Asia, yep, will do the business – but, considering Ricardo’s principle of CA: this won’t work! Ricardo had neither the knowledge nor foresight to envisage fossil-fuel powered FIRE* economies. A very major economic re-think is required. The Permagrowth paradigm is completely discredited. But since many (but thankfully, not all) contemporary economists have such a massive ‘sunk cost’ in a corrupted version of AS, a Kuhnian ‘economic revolution’ is improbable. If the academics do not reform and lead the way … ??? * Input; virtual money (credit). Output; real, growing debt. This requires an exponentially increasing population and a parallel consumption in finite resources. I believe this poses a significant problem. B Peter @Bond. Eoin Bond “you would prefer an enquiry which yielded no answers or solutions or new ways to learns from our mistakes, but which saw a few handfuls of bankers/developers go to jail?” Why do you believe we must choose between the two? I see no reason why we cannot have both. @ DE i dont think we HAVE to choose between the two OUTCOMES, but (a) i’ve said we may need to accept that an enquiry, constitutionally, cannot be used to find criminal culpability, and (b) an enquiry, practically speaking, may not function particularly well if its express purpose is to find criminal culpability. I have always said that an enquiry, in reality, is going to have to function independent and external to the criminal and civil justice system. As YM has suggested, and i have agreed with, the normal workings of the justice system may actually end up turning up more ‘truths’ and lessons than any enquiry ever can. However the other main purpose of my question is to figure out what people’s real motives are, or at least what the priority of their motives is, ie dishing out retribution to the bankers and developers, or actually trying to make the country a better functioning place in the future? The way people answer the question tells you more about their true mindset, in that some people would rather the country became a basket case just so long as some bankers have their heads put on plates. http://johnquiggin.com/index.php/archives/2009/05/03/austrian-business-cycle-theory/ See if anyone is fully convinced by Quiggin’s argument? http://delong.typepad.com/sdj/2009/05/one-last-time-the-austrian-theory-of-the-recession-just-does-not-work.html And another! He is a democrat who was on the Clinton team. When one is a member of a kleptocracy, it is very useful to put an intellectual gloss on BS that has to be swallowed by the slaves. That way they keep working, if they have jobs!, and do not try to find out what actually happened. http://www.slate.com/id/9593 How did Paul Krugman qualify for the Nobel Prize? Note his even handed method of letting people know that those who say “excessive credit is always a bad thing” are moralizers who do not realize that in Krugman’s world liberality, with OPM!, is the solution! It’s all so simple! @eoin @eoin – I have to row in on the side of those who primarily want any investigations to assign blame. I can’t see any inquiry uncovering anything fundamental about the origins of the crisis, to me the causes are well documented in this blog among other places (irrational exuberancea, renumeration based on short term growth, political expedience etc etc). I am sceptical therefore that enquiry would reveal anything new or profound. An enqiury could however but political mismanagment in black and white and therefore prevent those who contributed most from continuing to deny their responsibility. Those looking for heads on plates may be dissapointed however as it would seem to me that most wrongdoing was incompotence rather than criminality. @ Pat D: Are the ‘economists-that-be’ so monumentally thick that they are unable to understand that their economic Models-in-Use (Freshwater, Saltwater, Keynesian, Austrian, or whatever) are totally discredited – from just a plain vanilla scientific aspect. The models are academic baloney. Their only unifying theory is Ideological Confusionism. I am assuming that these individuals have above average intellects -so what’s missing then? When will a contemporary economist break ranks, Kuhnian style – and declare that Smithian Growth is over? That exponential population growth (an irresistible force) is totally incompatible with finite resource depletion (an immovable object). Our ‘growth’ has plateaued, inflected, and we are now on the downside of the curve! Should we open a Book on this event? Perhaps not. B Peter ps: Krugman was not a worthy recipient: they just needed to keep it in the ‘club’. In fact the prize should be scrapped. @BP Woods: “When will a contemporary economist break ranks, Kuhnian style – and declare that Smithian Growth is over?” – Minsky ? .. http://en.wikipedia.org/wiki/Minsky_moment @BP Woods: “Should we open a Book on this event?” – only if I can collect. Or buy gold … @B P Woods – “Our ‘growth’ has plateaued, inflected, and we are now on the downside of the curve! ” That’s not a paradigm shift (a la Kuhn) then. That’s just global war to secure diminishing resources. I expect they (the winners) will use Ireland as a vegetable garden and a source of clean water by that point. Maybe they can use the various unused/repo’d buildings in the land to rear livestock in too? I suspect the bubble-blowers are not quite finished or on their downward curve just yet. I suppose it’s only a matter of time though. The day I see Kalahari tribesmen buying 2 bed apartments off plan at €400,000 a pop I will start to worry though. We will be getting close to the end of days by then. @ Sam you’re looking for an enquiry which yields actual answers, and apportions responsibility on people for the mess. Im all for that. What others are looking for is actual heads on plates in the form of custodial sentances, massive civil fines, and possibly enforced job dismissal. You’ll note that most of the people looking for this don’t actually discuss getting answers along the way, though some say that we can get both without actually accepting the constitutional and practical problems that a joint-mandated enquiry would probably have. This is where my problem lies. My other issue is that no one has as of yet said what form they would like this enquiry to take? Everything is ultra vague in structure, but razor narrow in outcome – ie heads on plates. @ John and Joseph: Have HM: Stabilizing an Unstable Economy. Been too busy with other reading (Cantillon and AS). Thanks for reminding me, I had forgotten about it. Gold is fine – am long Au since 2005! Have a small farm: growing trees. Take your point about the ‘curve’. Its just that I have v-significant concerns about the future. That point about water – this is becoming a real problem. I read somewhere that Dublin may experience shortages in a few years time. Is this correct? Thanks again. B Peter @B P Woods – “I read somewhere that Dublin may experience shortages in a few years time. Is this correct?” I’m not aware that this has been identified as a potential problem and I live in Dublinland – but then I may not have been looking in the right place. What I am aware of is that outside of Dublin, the water infrastructure is creaking badly – witness the numerous water shortages/outages during the recent cold snap in places like Donegal (I know, I was there for the past two weeks and what a godforsaken place it is) etc. Leakage seems to be a big problem in places like the UK and Ireland where the original systems were built back in Victorian/early 20th century. I can’t speak for the rest of Europe. But leakage in a system is the kind of thing you can at least fix when push comes to shove. I can’t imagine rainfall in Ireland is ever going to go anywhere other than up. One would have thought that if we actually paid for our water here that we might get a better service/less leakage etc. but that implies a road to privatisation of the service and paying for it would then just simply line the pockets of shareholders and directors rather than giving a better service I suspect. I presume privatising things like water has to be on the agenda sooner or later or how else are we going to start to reduce the mountain of debt our lovely government are building up if we don’t raise some money somewhere. Who knows? Maybe privatisation of these kind of things will form part of what happens in the Irish economy in 2010. When you think about it though, water is more likely to cause a fight between nations (or even within nations) than even oil. You can’t drink oil and given the amount of water we ‘mainly made out of water’ humans need just to survive a few days….. Here’s an old joke for you. Q: How do you know it’s summer in Ireland? A: The rain’s warmer. I really must go to bed. Some idiot has called an early breakfast meeting in the morning and I can’t get out of it. He had better bring the bacon sarnies or he is toast. @B P Woods: “I read somewhere that Dublin may experience shortages in a few years time. Is this correct?” Yes. I’m afraid I can’t give you a URL because Dublin City Council has changed its website to use ASPX pages, which give me blank screens, but if you can search their site for “shannon” you will probably find the stuff. Essentially, it seems that folk in the greater Dublin area all have jacuzzis and swimming pools and lawn sprinklers (this isn’t actually in the scientific reports, you understand: I’m just filling in the background for you) and anyway there are more and more of them every year, so they’re going to run short of water soon. Dublin City Council, as the lead authority, has been investigating this for years and has produced two serious reports. Potential new sources of supply near the east coast would not be adequate and a desalination plant would be expensive, so the Council proposes to steal ^H^H^H^H^H take water from the Shannon and pipe it to Dublin, despite the antediluvian protests of the natives. No serious alternative has been proposed and it seems that discussion focuses now on (a) where the water should be taken from: whether from Lough Ree or from Lough Derg and (b) whether there should be a reservoir (Navan suggests itself to me), so that Dublin can take the excess during floods without causing the river to run dry in droughts. (Dev would be proud of them: he himself never managed to drain the Shannon.) If you can find them, there are fairly hefty documents available online. And there has been the usual sort of consultation. bjg […] The Irish Economy » Blog Archive » The Irish Economy in 2010 […] Comments are closed.