McArdle: 15% = 0%

Looks like he Irish Times reign as ‘the paper of record’ is coming to an end. Madame Editor needs to get a grip.
As a frequent Irish Times reader I am appalled to see the paper become a shill for an enterprise like NAMA.
Of all the editors who have been at the Times, Ms. Kennedy is the one I would have least suspected of allowing the paper to drift in this fashion.

This is a grossly inaccurate statement;

“There is grudging acceptance that it is the best or “least worst” option available. Looking back now, it is hard to believe that anybody, apart from the ideologically motivated, could suggest nationalising the entire banking system.”

A story in the Irish Times – September 5, 2009 headlined;
‘Only 26% of voters support Nama plan.’

A story in The Irish Times – August 26, 2009 headlined;
‘Economists warn against going ahead with Nama project.’
The story dealt with a group of 46 economists who signed an article in that day’s Irish Times calling on the Government to reconsider the National Asset Management (Nama) project.
.
All the opposition parties in the Dail oppose NAMA.
.
Businessmen of the stature of Dermot Desmond PUBLICLY oppose NAMA.
.
Of all the people I know only one, an auctioneer, has voiced anything but utter contempt for NAMA.
.
Numerous alternatives to NAMA have been put forward.
I myself think we should rescind the bank guarantee and let the bankers go into liquidation;
http://celticmeltdown.webs.com/cancelourdebts.htm

It’s bad enough having to counter spurious arguments from ‘dubious’ sources regarding NAMA, but to have a paper like the Irish Times peddling NAMA propaganda is a very bad start to the New Year.

If you have a problem which arose as a result of excessive credit growth and excessive debt levels you cannot solve the problem by piling up even more debts, in other words monetising your debts and creating ever larger fiscal deficits.
NAMA will end up costing Ireland anywhere from €60 BILLION to €100 BILLION.
Ireland’s current external debt to GDP ratio is 1,267% – the largest in the developed world.

Current Irish National Debt €72 thousand million; http://www.ntma.ie/home.php
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.

The proposed billions for NAMA is money which is backed by nothing, producing nothing and simply piling more debt on that which already exists.
NAMA is going to break this country and set us back 20 years.

All the bankers seem to be doing is coming to government with the begging bowl and when it empties they simply come back again for more and the bowl seems to be getting bigger all the time.

But those same bankers will not inform Irish taxpayers, the underwriters of all this debt, as to who the bondholders of the banks are.

Two words are vital to the rebuilding of our economy and the improvement of confidence in our political and financial services sectors and those words are ACCOUNTABILITY and TRANSPARENCY.

Both are lacking in relation to the NAMA projectand this is not a good way to proceed.
It’s time for people to stand up and be counted in relation to what’s going.
We have the newly appointed Governor of the Central Bank calling for an inquiry into what caused the collapse of our banking system and we have the Taoiseach going against the advice his own Governor and openly opposing such an investigation.

Finally, a statement like this;

“Recent falls in bank share prices are a belated recognition that the Government will not overpay for assets transferred to Nama.”

Is plainly rediculous, the shares are falling because the banks are bankrupt and the bankers will not give the Irish taxpayers even the most basic information relating to how all this came about.
But our money is good enough alright.

Karl, you’ve submitted a few op-ed’s over the past year I think. Would it be somehow rude or inappropriate for an editor to turn around and say “hey, you’ve contradicted yourself a few times in this piece. Would you mind changing it a little?”
I just can’t understand how the IT sometimes seems to drop its guard like this. They’re ultimately responsible for the coherency of the pieces within the paper.
Re the ideology remark – these kind of remarks highlight the absence of better argumentation.

Economic policy is impossible without ideology.

Even Alan Greenspan, a disciple of Ayn Rand, has admitted that his ideology misled him.

Economists who believe they are free of ideology are delusional.

@ Cearbhall

“Current Irish National Debt €72 thousand million; http://www.ntma.ie/home.php
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.”

Eh, explain that one to me please? Isn’t it €29.8mio per day??

@ Karl

I assume Pat McA believes their is a key difference in the terminology of “overpaying” versus “paying LTEV”, ie “the government isnt overpaying, its just paying the LTEV”. But its a poorly written couple of paragraphs, and its making just a bit (!) of a leap between the two terms, without really explaining himself.

I personally think the terms “overpaying” and “paying LTEV” are used too much by both sides for what is a far more complex issue than can be explained by one simple term. As we all know, the debate surrounding “overpaying” vs “paying more than current mkt value” vs “paying the LTEV” is shrouded in ideology, politics, technicalities and a little bit of economic flexibility.

@ Eoin

I stand corrected

What’s really remarkable about this article is the manner in which the spin-machine is slowly (but obviously) shifting, from TOGIT territory, repeat-it-until-its-right argumentation, towards the obvious next move of ‘sure, NAMA was never going to be the final solution-let’s nationalise AIB’.

Minister Lenihan’s post-budget interview on RTE began the turn. Now people like Mr McArdle will perform the yeoman work of turning it so that 15% does indeed become 0%, nationalisation before Paddy’s day becomes TOGIT, and NAMA 2.0 gets mooted. Government Ministers with ‘walls of cash’, etc, etc.

And, each time the spin machine shifts, it will be justified in the nation’s interests, and those who oppose wherever the spin-machine happens to be taking us will be branded as a result.

Which is why Prof. Whelan, that lefty-righty pinko chickenhawk, gets a kicking from all sides occasionally.

But I know he’s secretly an anarcho-communist with liberalist socialist leanings. So there.

@Cearbhall

How do you explain Deputy Editor Fintan O’Toole then?

I have been critical of some of the muck the Times has allowed through its comment department, but it’s definitely equal-opportunity muck. O’Toole and Browne have come up with plenty of nonsense themselves on the populist end of the spectrum.

@Dave

O’Toole and Browne are not on the “populist” end of anything. The “populist” point of view is and always will be incarnated by Fianna Fail. What am I talking about? What could be more “populist” than telling people for months that the budget was going to be the toughest in living memory because the situation was so grave and then sparing 80% of the population any costs whatever?

Is that what you think O’Toole and Browne were advocating?

@CL
“LTEV is a metaphysical notion. The whole debate is riddled with obfuscation which has the ideological function of cloaking the reality that the ‘value’ of the assets will be fixed at a rate by those with the political power to do so in their own interest, and to the detriment of society generally.”

This is close to what Steven Seelig said about the definition of “long-term economic value” on bank loans: “sufficiently vague” to allow “appropriate flexibility”. He will be appointed to the board of Nama in May 2010, when he retires from the IMF. God help us!

PS Here is a list of over 50 “namas”. I particularly like Camp Nama in Bagdad and the National Anger Management Association.
http://www.planware.org/briansblog/banks/nama/

@All
Here is an idea from Derek Brawn about how we might save some money instead of cutting the blind and the disabled (about a quarter of one per cent of our total national spending. There must be alternatives):
stop building additional homes. We are funding the banks and the banks are funding the developers to add even more to the unsold home mountain. When they are built the taxpayer will buy them at a 15% premium through NAMA. This year we have built three times more than we sold. It’s insane.

Brawn’s estimate of the number of unsold homes is 160,000. The geographers believe it is over 200,000. Whatever it is, it’s ginormous.
And we’re adding to it through our funding of the banks and then buying it through NAMA? Demented.
http://www.tribune.ie/business/article/2009/dec/27/how-low-do-we-have-to-go-to-get-the-economy-on-the/

McArdle says “ultimately the market process must be paramount”. I presume he means paramount ‘after’ the banks including the one he previously worked for, have been well and truly rescued from the wickedness of the market process.

The mortgage interest rates in 2009 were lowered to a level that was not “prudential”. Where was all this prudential stuff when he worked for Ulster Bank before it had to be nationalised? He knows all too well, that interest rates were lowered to try and save banks not to save borrowers, if borrowers beneffited that was only by accident.

@E65bn plus
The planning authorities need income in the form of development fees so they will look after themselves and continue to give out planning permissions for everything. Complain, as I have done and they will tell you that economics or financial considerations are not part of their planning permission brief. It defies common sense. The current Dublin City Development Plan is still all about favourite high rise developments and zones blotting the landscape even further. The NAMA to them, is a tribe in Africa.

We should absolutely stop all further developments of houses and apartments for the next 5 years and it will be sheer folly to develop any of these green field sites especially by NAMA. Local authorities will be in the market for the excess on top of the excess they are sponsoring. They require houses and apartments for ‘social housing’ so it may be in their interest to drive down prices even more. When NAMA stockpiles cannot be held any longer and must be depleted they will get them for next to nothing, probably below the cost of production.

We need to divert builders away from building more houses and apartments towards building infrastructural projects such as the underground Dart which should be ‘fast tracked’ maybe Metro North also. NAMA deprives us of funds for projects that are needed and puts the ‘stimulus’ into creating more surpluses of all that we don’t need houses, hotels, apartments and retail.

NAMA’s plan to finish off buildings will simply increase supply and drive down prices of assets being held outside the dangerous NAMA monopoly. Whatever clients move in to rent or buy these selected developments means that these potential clients are no longer in the market for other developments making these developments and developers outside the NAMA process even more insolvent.

@ALL
Regarding The Irish Times:

The constitution of the paper commits it to the following:

http://www.irishtimes.com/150/articles/memorandum.html

“The Memorandum and Articles of Association of the (Irish Times’s) Trust:

2: The progressive achievement of social justice between people and the discouragement of discrimination of all kinds;

3: The promotion of a friendly society where the quality of life is enriched by the standards of its education, its art, its culture and its recreational facilities, and where the quality of spirit is instinct with Christian values, but free from all religious bias and discrimination;”

Were any of these aims furthered by the most recent budget?
Is cutting benefits to the blind and the disabled consistent with progressively achieving social justice and in accordance with Christian values? The papers editorial was laudatory:

http://www.irishtimes.com/newspaper/opinion/2009/1210/1224260419652.html

“The Irish Times – Thursday, December 10, 2009

A time to grin and bear it

There will be many editorials written about the harshest budget in the history of the State. Suffice to say, on first reading, that the decisions taken rise up to the occasion financially. They were courageous, bold, above party politics, above sectional interest and they appear to have put the country first.”

Extremely supportive.

“The high-earners were affected proportionately.”
Were they, even in percentage terms?

“The public service pay cuts were scaled.”
Wrong again.

“The welfare reductions will make life miserable for those in need. But public opposition may be muted because of the balanced manner in which income cuts have been made.”
i.e. mute your reactions blind, disabled and widows, let alone the truly evil like low paid public sector workers, because the cuts have been balanced.
But if you get really upset I’ll jump on the band wagon.

“Mr Lenihan invoked the concept of fairness in justifying cuts and charges. Top earners using tax shelters will now pay a minimum rate of 30 per cent. A levy of €200,000 will be imposed on wealthy tax exiles.”
Those who can afford to use tax shelters will now be paying a punitive 30%. Social justice achieved.

“The Taoiseach and Ministers will contribute more than other public servants, who will pay according to a sliding scale.”
The ministers took a 5% cut in this budget – the same as the lowest paid public servants. And as regards to pay cuts we know what the senior civil servants have taken (the biscuit).

“There will be new medical charges and cuts in welfare payments. But old age pensioners and child benefits for low-income mothers will be protected. As a package, it is as tough as people had been led to expect.”
i.e. tough…but good.

“Mr Lenihan’s declaration that “the worst is over” was designed to enhance public confidence and encourage spending But, should this be treated as a mental reservation?”
She got that one right but..
“The tax base will, as the Minister acknowledged, have to be broadened.”
And as we know, tax shelter users are already doing their bit. So it will have to be lower earners.

“But, equally important, the detail of the cuts for people on disability, carers, medical card holders and others will have to be unveiled before a final judgment can be made on this Budget.”
The details were announced in the budget. It was a 4% cut. This is mental reservation/backside covering.

The editor and most of the paper’s coverage over the last 8 months – reportage, commentary and opinion alike – have lauded Brian Lenihan, the government, the most recent budget (a deeply unfair one) and NAMA, a bailout for the Golden Circle. Much of the business coverage on NAMA and the banks has been poor. It looked to be improving but the end of year supplement witnessed a terrible relapse. Most strikingly of all, how do the editorials and McArdle’s articles as the paper’s official commentator on the budget and de facto official commentator on NAMA comply with these parts of its constitution?

“C: In pursuance of the foregoing and to enable readers of The Irish Times to reach informed and independent judgements and to contribute more effectively to the life of the community to ensure that the following principles govern the publication of The Irish Times:

1: that news shall be as accurate and as comprehensive as is practicable and be presented fairly;

2: that comment and opinion shall be informed and responsible, and shall be identifiable from fact;

3: that special consideration shall be given to the reasonable representation of minority interests and divergent views.”

I don’t want The Irish Times turned into an overwhelmingly left-wing, anti-FF paper. I enjoy and appreciate the contributions of Sarah Carey, who writes what she believes – this should not be taken for granted – and has a pure heart (although it’s blue). But, given the make up of our media, The Irish Times’s current right-wing, pro-establishment stance has deformed our public debate. The country is in crisis and even “non-socialists” like David McWilliams are outraged at how the elite are stuffing everyone else.

The paper needs to make some drastic changes.

@ Robert Browne,

quite good observations and good analsysis there. I would encourage you to read some of my own waffle, which I published on a nearby address on the web not so long ago, to look at potential development sites – sites which are convenient to the main drag, as it stands, but could also strategically alter the dynamic of how our cities operate. By placing accomodation for startup and fluid type companies in the right place. Putting larger institutional and more ‘static’ entreprise a little further away.

For instance, I would argue that Anglo Irish bank’s headquarters in St. Stephen’s Green represents an excellent location to offer flexible lease office space to new entreprise. With the bulk of Anglo’s new operations being accomodated at some other location.

The basic trouble with how we operated, in my experience working for Liam Carroll the developer – was our potential tenants were two main categories: (A) State, semi-state, quango or (B) Banking institutions, mainly large floorplate back office accomdation.

Nowhere in that business plan, did there exist any plan to accomodate what we now refer to as a ‘smart’ economy. It is quite funny, because with all of the incentives we managed to dish out for all kinds of building types and functions down through the years of the buildings boom – the one policy which the government is pursuing today, the smart economy, is the one type of building function it created no real incentive to accomodate!

How is that for joined up thinking? That is why I appreciated what George Lee said some time ago. Our government commissions consultants to write up separate reports. But there is no one looking carefully at how the entire strategy should fit together. Indeed, Ed Walsh’s article in the Sunday Business Post also described the un-likelihood of creative policy management by 166 Oireachtas house members, 80% of whom are drawn from a pool of approx. 1,000 local authority councillors.

If one has to draw one’s entire knowledge resources from such a pool, then it is un-surprising if they resort to ‘expert reports’ compiled by consultants and have little or no sense of the bigger picture, and how it should all fit together. That is my question really, how does Taoiseach Cowen intend to proceed with the roll-out of the new ‘Smart’ economy, when he has previously wasted all of the incentives to build empty hotels and heavens knows what other nonsense?

New Knowledge Campus for Custom House Docks.

http://www.archiseek.com/content/showthread.php?t=7692

Brief summary: I suggest that when we gain substantial control of AIB that we kick them out of the IFSC buildings completely. Furthermore, we boot Irish Life and Permanent from their accomodation at Abbey Street, to somewhere further down the docklands into a new project. We do the very same with Anglo Irish and possibly even Irish Nationwide beside the LUAS/grand canal.

I could not envisage a more suitable collection of office accomodations, than the said buildings, which could be managed so as to offer very good accomodation to young start up businesses in Dublin City.

Ditto, for many other cities and towns around Ireland, subject to further feasibility analysis etc.

Some time ago, I issued some comments in relation to a mad-cap idea of mine, to save both our economy and hotel industry on the IE blog:

http://www.irisheconomy.ie/index.php/2009/11/12/report-on-hotel-sector/#comment-24386

Cearbhall O’Dalaigh

Geraldine K was targetted by surveillance by the GS. Why? Perhaps she has moved on from there and now enjoys insider status? As a msm editor, she is wedded to the consume and borrow economy. She knows what she is doing, but does not care that her paper prints lies.

“….too much borrowing.”

Correct. But there are excessive deflationary forces at work. Not only is the economy damaged by the overbuilding and over developing, the credit drug is now withdrawn and cold turkey is in full effect. There is therefore an overshoot. I see no way out of it, but I wish to emphasise that the borrowing was encouraged by the government not using the necessary countervailing fiscal policy. They therefore do it now making it worse. And instead of borrowing for investment purposes, they throw good money after bad, 20 years of 5,000,000,000 euro a year, averaged, repayments of interest and capital! Kathleen Ni Houlihan has just been raped twice by the same gang!

Calan

“Economic policy is impossible without ideology. ”
Excellent point! Clearly I have a viewpoint and so does anyone who opines publicly. The good thing about free speech is that one can judge who is lying. Sadly, there are many tricks to raise one side above another. Censorship, FOI gaps, Official Secrets etc. Is the IT not obliged to allow another view of NAMA?

CL

Do you mean “they are stealing via NAMA”?

For all the above, McArdle is a disgrace and the IT is likewise condemned. It is not enough to say that it is a broad church.

@ kevin denny
It will increase capacity of Dart from 33 milion passangers annually to 100 million trips/capacity. It will link the disparate transport modes of Dart, Intercity, Luas, Metro and of course Bus corridors.

During the ‘boom’ years people were priced out of the Dublin property market. The Dart Underground will enable these people to reach employment, education jobs or prospects by linking the Maynooth and Kildare lines with the city centre. It will seriously help with the grid lock caused by cars pouring into Dublin city centre every day. Who in the private sector, with no access to free car parks can afford to pay 3 to 4 Euro an hour to park? And what about the people who shop in Dublin and keep it alive? These serious costs of time and money wasted are killing and driving jobs out of Dublin every day.

It will also provide an average of between 6,000 and 7,000 jobs for every single year of construction.

It is a common sense moral boosting project that will be there after the recession passes. A project that pays for itself. The tragedy is, that there are plenty of Spanish or Japaneese companies that will build it for us if we are unable to help ourselves. And so be it, if that is the case! The same with the banks as Greg says somewhere above, it is not written in stone that the baking system of this country has to be Irish we need a parallel banking system to be put in place as qickly as possible.

I will contact Iarnroid Eireann for the “real” cost benefit analysis and post them on this site.

@ Brian
Thanks, I always try to mine your contributions here and elsewhere for those gems you come up with. Happy new year All!

I might as well throw the hammer after the hatchet, as I am at it.

http://www.irisheconomy.ie/index.php/2009/12/29/politics-and-economic-policymaking/#comment-30276

There is no way in the world, Niamh Brennan, a straight-talking accountancy professional and teacher from University College Dublin – with the best will in the world, could ever see constructive relationships between different state owned entreprises like Dublin Docklands Authority and Dublin Airport Authority.

Worse than that I fear, if professor Niamh Brennan wanted to study their relationship, it would more than likely be deemed outside of her remit or brief.

Despite the fact that both public entreprises adopted the same business model. It worked in one case and failed catastrophically in the other.

I think criticism of the Irish Times is over the top.. they are just another newspaper; they are not the paper of record, whatever that means…

Certainly, the few times I have had the real inside track, its coverage is laughably inaccurate and simplistic.

I expect their coverage of NAMA to be of a similarly low standard and so am never disappointed.

The Irish Times is a major investor in the Irish property market. It spent 50M on a web site myhome.ie at the peak of the bubble, which is probably right up there with some of the stupidest purchases during that era. But I’m sure the people behind that decision are still there rationalizing it etc.

So while they do try to put a balanced view forward but are hindered by the laws of libel, their own lack of expertise and their history.

I think they, at a high level, decided some time ago that a NAMA like “fix” for the property market is the way forward. Because its the best solution for everyone who works there, the alternative is the “appalling vista” which is most sensationally spelled out by Morgan Kelly.

Just like most other stories, the NAMA story is multi faceted. As usual they miss the real essence but give 2 ladybird book like versions for ‘balance’.

So they give Mr. Kelly some space and balance it with Mr. McArdle. At least they give 2 sides…

The cold hard truth is thats all most people want to hear.

But though I am on the outside on this one, Ive read enough to know the real story of NAMA has not been presented properly in any newspaper yet.

@ Kevin
I am glad you pulled up Robert regarding cost-benefit analysis. I had a look at that for Metro-North (there is an ESRI working paper). Given the passenger projections Metro North would pass a cost-benefit analysis, but I have seen no evidence supporting those projections. Furthermore, these projections will be widely off the mark at this point, and probably for a very very long time. An alternative evaluation methodology would not pass Metro-North. This is why I called for a re-evaluation of such projects last March (on Primetime).

Of course the fiscal situation is also a lot worse – while some of these projects are PPPs and as such do not appear in the public borrowing, they still constitute a liability that the market is likely to factor in.

While there is no doubt that we will need to improve some of our infrastructure, I think it would be considerably better to divert unemployed builders to other sectors via effective training rather than having the sector depend on open-ended handouts from government which are going to cost the hard pressed tax payers dearly (maybe the lessons have still not been learned).

@ Garry & E65Bn plus economic costs & NO extra lending!

The State broadcaster RTÉ, is the main influencer on issues such as NAMA and it has difficulty in handling a complicated issue such as this.

The combination of poorly briefed interviewers, the “I didn’t interrupt you” type interviewees and ministers who call the tune, more often than not, results in a Tower of Babel confusion.

As for the Irish Times Trust, keep in mind that most countries and organisations are organised hypocrisies.

The genesis of the Irish Times governance system, was the announcement of the plan to introduce a capital gains tax in 1974.

The cashouts by five shareholders coincident with the slump triggered by the first Arab oil embargo, almost bankrupted the company.

@ Brian O’ Hanlon

“Eddie Hobbs’s TV programs struck some kind of chord here I believe.”

Maybe?

Eddie joined the 14-person board of the National Consumer Agency, which was a response to concerns about what was termed “rip-off Ireland” and the NCA itself became a symbol of “rip-off Ireland”.

I wonder would it work if someone such as Ed Walsh ran for president of Ireland. If Mr. Walsh has ideas about altering the constitution and so on – bearing in mind that Mr. Walsh, like Eddie Hobbs and some more, seem very in touch with the younger generations – is there any law to say that a future president of Ireland could not intervene into a discussion regarding alterations to the constitution of Ireland?

Or does such a figure have to stay removed from discussion and merely sign the dotted line?

I mean, someone such as Mr. Walsh as a viable alterative to someone like Bertie Ahern.

@Michael Thanks, I wasn’t aware of the history of the ITT, and most organisations are organised hypocrisies is a pretty good way to describe things. There are always truths in organizations that are best adhered to.

On NAMA, I think even with all the analysis here, its essence has yet to be captured. I think the views of economists are welcome but I believe the views of legal and accounting experts would be even more valuable in describing the philosophy and approach behind NAMA.

Some prediction for the new year.

1) After NAMA has been running, the pro NAMA commentators will immediately begin distancing themselves from it. Those who were plugging it as the only game in town will begin expressing reservations etc.

2) Towards the end of 2010/early 2011 a fall guy will be needed for NAMA. No prizes for guessing who now.

I’m disappointed that no academics with commercial legal expertise have gave an opinion on NAMA. I suspect thats where the ultimate truth is, specifically the differences between whats legal inside NAMAland and what applies to entities outside NAMAland but who interface with NAMA. I expect plenty of hay to be made on these interfaces. But for it not to become apparent for quite some time. But once it becomes apparent, it will be as blindingly obvious as the unsustainable nature of funding an economy with stamp duty from a property boom.

Pat McArdle writes as an insider and is unfortunately typical of the type of commentator we now need less of. Remember his comments about Morgan Kelly earlier this year? He carries little credibility but should be read as a reminder of the damage that ‘insiders’ have caused to this economy and broader society. Of course the banks should be temporarily nationalised, in order to start the process of restructuring. His comments regarding the removal of senior management etc are delusional as none have been fired. The NAMA issue has been well ventilated, but it is certainly not the least worse option, it is the worst by a distance as we will discover to our cost.

@ Garry,

I like the basic outline points you have made in this comment also:

http://www.irisheconomy.ie/index.php/2010/01/01/mcardle-15-0/#comment-30197

I feel you are actually on the right track, or getting there, in terms of how we should attempt to look at NAMA, what it will mean and it’s probably future results. Be they successful or not.

@All
From poster Cassandra Syndrome on politics.ie:

“2 Bedroom Apartment in Bundoran, Donegal going for 45,000 Euro.”

http://www.daft.ie/searchsale.daft?id=455792&search=1

He also says the following:
“There was a place in Laois a couple of weeks ago advertised for 35,000 Euro. There are quite a few properties in the 5 figure amounts now.”

Economists who believe they are free of ideology are delusional.

Seconded on that. From the outside looking in (as a layman), it seems that there’s rather too much philosophy involved, which can lead to the temptation to cook the numbers to fit in with the ideology.

As an aside, the most revealing comment I’ve seen recently on ‘ideology’ has been Sarah Carey’s, incidentally in the IT:

“Moore McDowell, who sports an actual beard though not an ideological one”

This would be the Moore McDowell who was one of the trio behind the so-called Open Republic Institute a few years ago, an organisation which had ties to a variety of interesting right-wing think-tanks.

(And for those who aren’t aware, yes, McArdle has a beard too)

That non-ideological Sarah and Mr. McArdle have been brought in as regular columnists by Madam Editor (who also recruited the odious Steyn and Krauthammer) says a lot more the new direction of the paper than O’Toole’s status as one of the few remaining lefties there.

@ kevin denny
Given that the shadow price is the value of the Lagrange multiplier at the optimal solution, it’s implied that the optimal solution gradient of the objective function would be a linear combination of the constraint function gradients. Weights being set equal to the Lagrange multipliers. Each constraint becomes an optimization problem which will yield your “shadow price”.

If labour were to be constrained (there is an abundance) our shadow price would indeed inform our CB analysis as to how much we should be willing to fork out for additional hourly units of labour.

These projects can be analysed from all kinds of perspectives but sometimes when you look at the minutiae of problems and judge things only from a mathematical perspective the result becomes… inaction.

Can anyone explain to me how our banking sector has evolved into the mess it is in? Was there nobody doing the number crunching? And with NAMA we have people crunching numbers for targets such as LTEV? In short, someone is aiming for a target but the target in time and space, is some years ahead! Small wonder failure is guaranteed.

@Robert I am familiar with the theory thanks. The problem is knowing what the multiplier is. In a Walrasian economy you can just look at prices but in a Keynesian one, say, the market doesn’t tell you.
There is an old paper by Patrick Honohan worth looking at in this regard.

http://homepage.eircom.net/~phonohan/costbenefit.pdf

.
Icelanders petition president to block support for bankers

http://news.yahoo.com/s/nm/20100102/bs_nm/us_iceland_petition

@Pat,

History lesson noted, but the printing press is in Frankfurt. Following on from the CSO’s recent publication on the national capital stock I would dearly love to see some work on the State’s balance sheet which might be aligned with the “tennis club” accounts the Government uses and projected forward on a pro forma basis for a number of scenarios. It has always struck me as strange that, when examining a business one looks at the income statement, funds flow and balance sheet – going forward, but weighty pontifications and decisions are made on gloriously inadequate “national accounts”.

Harsh words from Professor Joseph Stiglitz;

“The justification was that bailing out the banks, however messily, would enable a resumption of lending. That has not happened. All that happened was that average taxpayers gave money to the very institutions that had been gouging them for years – through predatory lending, usurious credit-card interest rates, and non-transparent fees.

The bailout exposed deep hypocrisy all around. Those who had preached fiscal restraint when it came to small welfare programs for the poor now clamored for the world’s largest welfare program. Those who had argued for free market’s virtue of “transparency” ended up creating financial systems so opaque that banks could not make sense of their own balance sheets. And then the government, too, was induced to engage in decreasingly transparent forms of bailout to cover up its largesse to the banks.
Those who had argued for “accountability” and “responsibility” now sought debt forgiveness for the financial sector.

http://www.chinadaily.com.cn/opinion/2009-12/31/content_9249981.htm

The trouble of course, if one follows the vicious cycle, as described by senator Shane Ross and so forth – infrastructural projects set into motion this cycle, whereby banking institutions are in a position to lend to ‘borrowers’, to lock down all of the land available, which has gained new strategic importance due to the infrastructural improvement.

In other words, one way or another, a major windfall from the project finds its way on to the balance sheet of the financial institution. But we should try to view national-isation, or part national-isation of the Irish banks through this lense. If Ireland does take a large portion of ownership in our banks, why waste the opportunity, by not investing in infrastructure?

My logic being, that any money invested by the state into infrastructure, would ultimately be reflected in improvements of the balance sheet of our part-nationalised banks, regarding the assets or loans which relate to land adjoining the new project. We have an opportunity to create a virtuous cycle for real social gain. Granted we do not want public owned banks forever, but for that brief window of opportunity, we could certainly make it work to our advantage.

I mean, the ‘private’ element in the private-public-partnership (PPP) is going to have to obtain finance from somewhere. I.e. Loans from part-nationalised banks.

@ Kevin & Robert

The point about labour abundance and the shadow wage is well taken – the current Department of Finance manual on CB parameters does not take into account the new envionment. However, I don’t believe that anyone is planning to re-evaluate the big projects.

I have made the point elsewhere that it is not good enough to simply say this project creates so many jobs – other projects/prgrammes may be considerably better value for money. Indeed I have pointed out that IDA created jobs come at a much lower price than construction jobs. Furthermore, these are often self-sustaining whereas the construction jobs are only there as long as the money keeps flowing.

The government can do all sorts of things with our money thyat will have some positive effect but surely as tax payers we should be concerned about value for money and opportunity cost.

This is essentially what happened to John D. Rockefeller (Junior) in 1929. His initial strategy had been to lease 3 no. blocks of land at mid-town Manhattan owned by the trustees of Columbia university.

Having secured this lease and options for 3 no. extension periods from the university, Rockefeller had intended to offer the land resource to private development firms to build on, to add value so as to obtain higher rental income. John D. agreed to pay over $3.0 million dollars per year (in 1929) to obtain the lease and assumed this would be more than covered by income through private development companies who would earn rents and manage the building stock.

Unfortunately, after the stock market crash, there were no private development companies left with an appetite for such a deal. In other words, John D. was stuck between a rock and a hard place. His situation had altered radically. He was committed to paying the university over $3.0 million per year and currently only had $300k in rents from the various brothels, speak easies and boarding houses between fifth and sixth avenues.

It boiled down to one thing. John D. could not afford not to build what became known as the Rockefeller centre by himself. Furthermore, he had to invest further millions of his own money to buy out the 1,000 odd speak easies and various other un-desire-able sub-leases as part of the existing 3 no. blocks worth of land!

That is kind of the position that many of Ireland’s largest property companies were in too, as the Celtic Tiger progressed. The further time went on, the more and more they had to build to keep their heads above water, to avoid going completely broke. Look at Sean Dunne at Ballsbridge as a prime example, but he is not alone.

But given the fact the Irish state has had Sean Dunne x 10 running around the place – to whom, not building was a more expensive option – they had no option except to stomach construction inflation, because not build-ing was not an option. The word got out, and every skilled tradesperson or craftsperson, and many professionals in Ireland and much of western/eastern Europe got wise to the fact, Ireland’s builders were in a complete bind.

Edgar. Totally agree. Indeed as economists we should be particularly concerned about value for money and opportunity cost.

@Paul Hunt
I accept that the banks will need additional financing. I assume you do agree though that what Karl Whelan calls Baconian Equivalence (after its major proponent Peter Bacon) is false?

http://www.irisheconomy.ie/index.php/2009/04/11/arguments-against-nationalisation-part-2-baconian-equivalence/

It really does matter how many shares in the banks we get in return for the property loans. The less we get the more the cost to the taxpayer. For a minister for finance to basically egg on his valuers to produce the highest possible valuation – and therefore the lowest possible state ownership – is to me deeply immoral. It is a direct transfer of wealth from the citizens of the state to the shareholders of the banks.

I noticed yesterday that Brendan Keenan, the economics editor of The Irish Independent, said that talk of the IMF since the April budget (let alone after the most recent one) was scaremongering. But Deaglan de Breadun, the political correspondent for The Irish Times, had been convinced – presumably by the government’s spinners – that Greece’s difficulties mean Ireland is still right on the brink.
If Ireland is on the brink, why have ministers and higher civil servants only taken an additional paycut of 5% this year (and remain vastly better paid than comparable countries)? Remember, they said the 10% cut earlier this year was a pension levy.
Why did they leave the billions of pork identified by McCarthy virtually untouched, let alone have the superrich who use tax shelters only pay 30% income tax?
Commentators need to realise that we are not on the brink of default and they are the only people who are acting like we are. Meanwhile, the government and most of the establishment are mounting a massive cover-up, bailing themselves out at taxpayer expense and feathering their own nests.

BTW, Mike Davis’s book looks quite a lot at the after effects in countrys where the state funded departments and associated employment in those departments disappeared altogether. Davies looks at the absolute extreme condition, not only where state employment is restricted or curtailed, but is eliminated altogether. Mike Davis’s book will certainly open one’s eyes.

@Sarah
Brendan Keenan appears to believe that governments don’t have to pay debt back (according to his comments on RTE radio on Sunday), so you’ll forgive me if I take anything he says with a pinch of salt… a slice of lime and a stiff shot of tequila.

@Sarah
Oh, don’t worry, I no more hold a candle for Mr. Stiglitz than I do for Mr. Wolfowitz or indeed Mr. Krugman. Like our own Mr. McWilliams, they are far stronger on criticism than they are on solutions. And it is solutions we need. My point is that Mr. Keenan offers no workable solutions either.

In a eurozone bent on avoiding inflation, indebting yourself out of debt is not a solution.

Oooh new word 🙂 “collapsitarian”. Thanks Brian 🙂

And well observed. Someone said to me recently on Iceland – the worst happened, they’ll owe a stack of money forever, and yet life goes on.

Some comfort for us!

To use the metaphor of the helicopter door handle, I guess in Ireland’s situation that became the National Pension Reserve.

When you think about that, it is hard to blame the former ‘Asian Tiger’ nations for stock-piling so many US dollars in reserve, to see them through some future turbulence.

The ‘Asian Tiger’ economies as described so well in many of Stiglitz’s writing have undergone the simulation, or rather the real thing. They have been under the waves, stuck in their own cockpits, no knowing which way is up.

It is a different story, when you have lived through it once.

Recent comments focus on Lenihans decision in September 08 as a choice between survival and social armageddon.

Whats missing is Lenihan and his cabinet colleagues collective responsibility allowing such a scenario to develop at all.
There were few redundancies built into the economy and dept. of finance that would have flashed amber and then red as each contributing factor in the crisis reached those points.

In many human and natural systems such redundancies are constructed and evolve which prevent failure in one area from spreading throughout the system.
For example if you cut your finger you dont bleed to death, a building does nt collapse when a window is broken.
Horizentally and vertically, damage to the system is contained in that area and risk is prevented from spreading throughout the system.

The theory behind financial derivatives was that risk was spread throughout the financial world through many companies and countries and that this risk dissipated as it made its way.
What was not appreciated was there was no comparmentalisation of this risk and so owners of houses in California who defaulted on mortgages effectively brought down banks worldwide and transferred liability onto sovereign governments.Risk in fact increased with every stage of transmission through the system.

In Ireland massive amounts of euros came from Europe following our joining the eurozone at rates of interest out of whack with our economic cycle. As Germany remained in recession a low interest rate environment provided fuel for the boiling property market here.
There was no control mechanism which could mediate this transmission of risk into Ireland.It was impossible for our own government to set interest rates and fiscal policy was used by FF akin to someone striking matches in a fireworks factory.
There was no equivalent of the Glas/Steagal act which would have set limits on the amount of finance pouring into Ireland.

Failure to identify risk and reduce its effects meant that other mindless policies ensured economic collapse inevitable.
For example immigration was deemed to be one of the fundamentals of the economy and property market and so an open borders policy was pursued.The result is an inventory of houses built for people who have either gone back to their own countries or cant afford them as they are on the dole due to the collapse of property market.

The same policy mistakes are now being made with NAMA.The entire economic ,social and political future of Ireland is at real risk of systemic failure .There are no offsets to diversify or compartmentalise the risk NAMA poses to the entire country.
All that is happening is the bets being placed by FF are getting bigger and bigger.

Whilst people are lauding praise on Lenihan and sympathy for his illness, this should nt mitigate his own responsibilty for the disaster.
Indeed since his appointment as minister for Finance his policy mistakes have been huge.The increase in VAT rates lost about a billion euros in business to the North,NAMA (‘the only game in town’) is unravelling before it starts,two or was it three disastrous budgets before he got one through which has been deemed competentent by the ‘authorities’.

The cult of personality has been successful in the past in fooling the Irish people.Its better to watch what Lenihan does rather than allow natural sympathy for his illness and admiration for his ‘leadership’ occlude your judgement.

@ YM

same proportion, but assuming you place a non-zero MV on the NAMA assets, then its slightly different.

The repurcussions of the Icesave deal falling apart are reasonably serious – IMF deal stalling, trade sanctions potentially being placed, EU membership being taken off the table.

@Sean

“Whats missing is Lenihan and his cabinet colleagues collective responsibility allowing such a scenario to develop at all.”

Agree. That’s the purpose of an inquiry. Not if what we did to deal with the collapse was correct, but how the regulators ignored the rather obvious warning signs that a collapse was inevitable. Otherwise, why shouldn’t this happen again? People have short, short memories.

Sean O’ says:

“There was no equivalent of the Glas/Steagal act which would have set limits on the amount of finance pouring into Ireland.

Failure to identify risk and reduce its effects meant that other mindless policies ensured economic collapse inevitable.”

That sounds like a very good analogue for the reality as I experienced things myself during the Celtic Tiger boom period. We in Ireland fool-ish-ly gained more and more false confidence in ourselves and our drive to achievement. We did not identify any risk at all hardly, in the course we pursued.

That is roughly the size of it, when all of the dust settles down.

@Brian and Sean

“There was no equivalent of the Glas/Steagal act which would have set limits on the amount of finance pouring into Ireland”

Well of course, there wasn’t one in the US either since it was repealed under Clinton….

@Sarah

Of course Stiglitz has an agenda though I fear Mr. Keenan’s article is rather operatic in plot. EVERYONE has an agenda but whereas some agendas are for personal enrichment others are for the enrichment of the country or of humanity. I rather suspect that Stiglitz is motivated by more than just the red mist. For one thing, his arguments are rather supported by the evidence of the past two years. For another, no one has really told us why letting a few banks fail would have meant the end of the world. Why would the failure of banks have led to no bread in the shops of troops on the street? Where is the evidence for these fantastic claims that Mr. Keenan chooses to repeat? Would we really have been in a worse position than we are now, waiting for the second half of the hurricane?

@Garo

“no one has really told us why letting a few banks fail would have meant the end of the world.”

Did the fall of Lehman’s not prove that failure has enormous consequences? No bread crisis, but a paralysing effect on global finances nevertheless. Or do you think that might have passed?

@Sarah Carey
We’ve been over this before. All we need to do is pass the necessary legislation, repeal the law giving a guarantee to bondholders before Sept 2008 and then in this new year have a bank resolution. As Morgan Kelly said:

“Nama then, will turn out to be expensive, corrupting, and inadequate. While the abject, almost endearing, eagerness of the Greens to please their Fianna Fáil masters means Nama is almost certain to go ahead, it is perhaps worth asking what would happen if it did not.

All that needs to be done is for ownership of Irish banks to be transferred to their bondholders. This process of converting debt into equity occurs sufficiently often in banking to have a name: resolution. Resolution offers a way for Irish banks to be adequately recapitalised at no cost to the taxpayer, and able to manage their business without political interference.

Under existing Irish corporate law, this transfer would be a recipe for centuries of litigation. That is why most other industrialised economies have, or are introducing, special legislation to resolve failing banks with limited judicial review. Particularly impressive is the UK’s Special Resolution Regime introduced last February, which could easily serve as a template for similar legistlation here.”
http://www.irishtimes.com/newspaper/opinion/2009/1013/1224256508947.html

Stop playing by FF’s rules. Who do you trust? Morgan Kelly or the crony capitalists who are getting the taxpayer to bail them out while they shamelessly cover up their corruption?

@Sarah Carey
I don’t want The Irish Times to become a left-wing monolith but The Irish Independent is right-wing and The Irish Daily Mail populist but right of centre. The Examiner too seems right wing:

“There is no sweet way to say it but these cuts do no more than recognise our desperate situation and are absolutely unavoidable. There is no alternative if we are to avoid bankruptcy and encourage the nascent recovery Mr Lenihan assured us was at hand yesterday.”

http://www.irishexaminer.com/opinion/editorial/budget-2010–very-tough-medicine-for-tough-times-107494.html

No mention of cuts to pork spending or reduction in tax breaks there!
Under the current editor in the current crisis The Irish Times has been right-wing. I expect that after the crisis is over the paper will move left a bit but this is when we need them most. Even if the paper were to be relentlessly sceptical rather than deeply trusting it would be a huge improvement. At the moment it’s 4 – 0 to the right.
I just want it to be 3 -1.