The dead give away is the defence of NAMA and its rigorous overvaluation of assets by 15%. The defence of Nama is described from the position of the government, rather than McCardles’. It is almost as if some senior civil servant in the DoF had written the article themselves?

Perhaps even more telling is the assertion that the Central Bank has the most to lose from any inquiry into the crisis, rather than say the DoF which presumably bears little responsiblity for the collapse of the public finances. Dof/CB rivallry seems to be alive and well.

Could anyone tell me which of the pubs around Baggot Street or Merrion square I should go to in order to eavesdrop…….

“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.

Now how can I argue with you when you were so nice about me earlier in the thread? I think my last column on Nama urged the Greens to walk out over it. Hardly no surprise they didn’t listen!

Let’s go on Iceland watch. Should be instructive….

“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?

The funny thing is, the same insurance company who was aware of its trouble with the Empire State Building loan, did advance a much larger loan to John D. Rockefeller the second. A loan of $60.0 million, which was half of the (lowest) estimated cost to build the Rockefeller centre between Fifth and Sixth avenues. But on one condition. That Rockerfeller had no other loans taken out with regard to the said project.

The reason being, if things went bad for John D. the second, the insurance company did not wish to have any competitors or complications to deal with. The Rockefeller centre was built over 3 no. Manhattan sized blocks. The insurance company would be free to dispose of this land (only a lease on the land actually, as Columbia university owned the land itself) as it deemed necessary.

Compare that to our situation today with regards to NAMA. I know there has been a huge deal of economic debate and analysis here at IE blog. But I would like to make the point, that with NAMA, at least all of the property loans to various parties are integrated into one ‘bank’, that is, NAMA.

There is a world of difference between 1 no. ‘bank’ institution such as NAMA which buys all of the loans (or the significant proportion of loans) related to a particular property developer and/or project. It seems to be a solution, which is tailor-ed to the working out of deals and arrangements. The alternative, as we saw with the Zoe court case this summer, is where several lenders are all stuck together is some ghastly arrangement, which has no chance of a work-out.

No doubt, folk here at IE will argue that NAMA is a good deal for lenders, and possibly borrowers alike. But there are precedents for this kind of approach at earlier periods in history as I described.

“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?

“For one thing, his arguments are rather supported by the evidence of the past two years.”

Fair point. I remember reading his chapters about the Asian crisis a number of years back, and thinking to myself, wow, that is so exotice, so far away from anything we have ever experienced.

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?

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

Goldman Sachs lobbied hard for the repeal of the Glas/Steagal act which came into force during the great depression.
Various secretaries of the Treasury have come from GS under both Democratic and Republican administrations.
The G/S act was a barrier to investment banks exceeding prudent LTR .It worked very well until its repeal.
Hank Paulson who created the biggest bailout in history as US Treasury Secretary was a former GS man.
The political establishment of both parties in the US act as one when it comes to such matters .
Of course Clinton is still lionised in Ireland (cult of personality again)
but the decision to repeal G/S and setting up NAFTA under his watch have been enormously damaging to the US and further afield.

In Ireland a similar revolving door between the political,legal and business establishments exists.
For example Alan dukes ,former FG leader and Finance minister is now deeply involved with Anglo Irish Bank.
Would FG or Labour bin NAMA?. I doubt it.
Why did nt the unelected (FF appointed President) sign NAMA into law when there were clearly other Constitutional rights that would be impinged .?

The system has failed ,it continues to fail and greater risks are being made to right it by people who lack basic understanding of the Constitution and competence to do the jobs they were appointed to.

“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….

“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.”

That also is a very valid contribution and assessment I would think. Thanks for making this point.

I appreciate the way you have managed to juxtapose those ideas - risk assessment and NAMA.

Certainly a working knowledge of one can certainly shine some light in attempts to think about the other, rationally and objectively.

“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.

“Risk in fact increased with every stage of transmission through the system.”

Very astute observation.

“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.

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.

Shame the letters to our own dear president didn’t have the same effect with the NAMA bill. The NAMA bonds construe about the same proportion of GDP to Ireland as the Icesave debt does to Iceland’s GDP.

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.

re Iceland, just out: they’re sending the Icesave bill to a referendum. Disaster, or not, beckons…

http://www.icenews.is/index.php/2010/01/05/icesave-agreement-rejected-by-icelandic-president/

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.

Maybe this is the kind of conclusion we should aim for, as a result of an inquiry into the banking collapse in Ireland.

Maybe this is a useful conclusion to draw.

It tells us - in the case of a financial emergency, do not expect to situation to appear in any clarity.

Instead, except dis-organisation, lack of clarity and conflicting view points.

It would be wrong to begin an inquiry into the banking collapse in Ireland of late 2008, with the goal of trying to obtain clarity.

The purpose of such an inquiry, more than anything else, should be to underline the fact for future generations, that in the case of a crisis, you will not have any allies, any supports, any real sign posts which may help.

What do you do in such a situation in order to avoid pressing the panic button and setting off in motion an even worse calamity and sequence of events?

I am reminded once of a conversation I had with an oil-worker, who had undergone his training before moving to an oil rig in the North Sea. They immersed him in a simulation helicopter crash into a swimming pool in pitch black darkness, upside down.

To the mans amazement, no matter how hard he tried, he was trapped in the cockpit, because he could not even find the handle of the door. He couldn’t figure out which way was up or down.

I am suggesting the purpose of a banking inquiry is to understand this same phenomenon, in a situation where the financial system goes underwater, in the darkness, in the middle of a rough sea.

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!

I commented very recently at IE, that the British and US banking problems were dealt with in different ways.

I think I was watching the British documentary series The Love of Money which seemed to allude to Gordon Brown and Allistair Darling’s version of events. Namely, that Britain in the end decided it best to take a different tack, to that in the US.

Keenan says:

“There has, of course, been a bit more plain speaking over there. Several analysts said the fall of such banks would have halted the financial system.”

Stuck in the middle of that in Keenan’s article is a suggestion to the collapsitarian meme, which Mick Costigan noted in a recent comment here at IE.

Keenan says:

“People would not have been able to buy bread, said one. Troops would have had to be deployed, said another.”

Mick’s comment is here:

http://www.irisheconomy.ie/index.php/2009/12/23/the-dynamics-of-smithian-decline/#comment-29370

The collapsitarian meme, has gained huge popularity here, everywhere in fact. Stewart Brand even has delivered a very good public speak on behave of the nuclear industry, what happens if the gulf stream turns off and Northern European countries turn into Canada over night.

But because this collapsitarian-ism has been embraced by the environmentalists and financial theories of today, doesn’t mean it is new.

Bill Moyers of PBS did 2 no. excellent programs for his TV show, where he uses the actual recordings of Lyndon B. Johnson, Robert McNamara, Bobby Kennedy and others discussing the situation in South East Asia in the early 1960s. A phrase often used is this one the dominoes might fall. To describe a delicate geo-political stability, the US were keen to preserve.

To get back again to minister for Finance Brian Lenehan and September 2008. Luckily enough, between the books published to date, the news reporting, the discussion and the analysis it is finally becoming somewhat clearer what exactly happened. It is sobering to note today, how scattered, disorganised and vague things were in September 2008 for all of us. We simply didn’t know what was happening around us in Ireland.

A theory that people may not be able to buy bread might have seemed as good a theory as any, at that time. Maybe even still today.

But to take a long view on things. Minister for Finance, Brian Lenehan I do think genuinely believed the country of Ireland was in danger of going down along with Iceland. I believe that is how minister Lenehan would testify in an inquiry if it were staged today or at any time.

But what would the long term consequences of that be? Would the civil service of the Irish nation completely collapse? No money to pay salaries for basic public services. How would that play out?

This is why I offered the example of Mike Davis’s book Planet of Slums, because unlike Stiglitz who has studied situations in many countries, Davis has looked a little bit more into society in countries affected by financial collapse. Davis has looked at cities where no civil service exists anymore. Teachers etc are job-less, the same with doctors and nurses.

To give credit to minister Lenehan, maybe he was looking at this wider picture. It is one thing to win academic arguments here at IE blog, to do with bondholders, shareholders, risk-takers and so forth. It is quite another thing to contemplate a reality for Ireland where minister Lenehan may not even have a canic treatment facility to benefit from in this country. He may have to fly to the UK or somewhere else for basic treatments.

Davis has looked at that sort of reality and described it better in its small tomb referred to above. Much better than Stiglitz ever has. Stiglitz’s focus is on the over-arching mechanisms of globalisation and economic day-to-day systems. The abstract if you will. Davis tells a different story, like what happens to a few remaining middle class employed in certain African cities, when they are forced to stop at traffic lights.

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

http://www.independent.ie/opinion/columnists/brendan-keenan/revenge-lurks-in-saltwater-notion-that-banks-be-let-fail-1910358.html

I can see, reading some of the contributions above why Joseph Stiglitz’s writing has been so successful in shining a light onto problems with the IMF and world bank interventions. The think is, back when I read some Joseph Stiglitz, it was always ’safe’ because I was reading about some far away African nation or somewhere that was in difficulty.

It is a whole other ball game now though. I am reluctant to pick up any Joseph Stiglitz writing of late, as it would only remind me of the reality of our own predicament in Ireland.

A book I will mention though, because it deals with a lot of the same material that Stiglitz does in his writings - is another book, by famous author on cities and urbanism, Mike Davies, Planet of Slums. I merely mention the book, for those of you who may enjoy a take on IMF intervention etc, but one which is slightly different in its point of view from Stiglitz’s one.