Greg
Yeeaaeas. But what is the architect of the sub-prime crisis going to say? I understand he is saying that it is a depression.
But since a lot of BS is still being churned out by the Yanks, I propose not to read his exigesis on the basis that the man is a tool of TPTB and that the truth to him is a foreign country where he is not protected.
Be a good chap and read the 66 pages and analyze it for us?
So, at what point will he admit that Ayn Rand (whose circle he was a part of) was wrong…?
It is a tribute to the US system of transparency and accountability that such a senior retired official is prepared to consider so fully and publicly the lead-in during his watch to the debacle that subsequently unfolded. Not surprisingly there are attempts at avoiding blame and transferring it to others – e.g., “a significant proportion of the increased demand for subprime mortgage backed securities during the years 2003-2004 was effectively politically mandated” (political pressure to extend mortgages, yes, but not to mis-sell and re-package the resulting crud as AAA-rated securities), but the paper, among occasional regrets about the road not taken, is chockful of valuable reflections and insights that current policy-makers and regulators could well heed.
Unfortunately, but, perhaps, not surprisingly, it offers little that might guide the policies in an SOE trying to deal with an insolvent domestic banking system that retains the potential to cause a sovereign default. Almost 18 months into the guarantee and not a single loan has been transferred to NAMA and it appears (pace another post) that only now is consideration being gven to bank resolution legislation.
It is surely past time to move beyond “pure” economics and to consider how political and economic power is secured, exercised and retained. In this area, Alan Greenspan, drawing on his experience of working within a superior system of democratic governance, certainly offers some guidance, both explicitly and implcitly.
@All
Greenspan Concedes That the Fed Failed to Gauge the Bubble
Above as reported in New York Times – bit shorter than the 66pp
@EWI
Alan is no longer welcome at the Ayn_een Randite tea parties – these people make the Taliban look progressive. I give Greenspan some credit for acknowledging that he also was fooled by an ideology – he does not go as far as Posner – but his acknolwedegement, if qualified, of ‘error of judgment’ is welcome – particularly as this ideology is so powerful in US Academic departments – which of course are highly influential in Irish academic departments. I won’t mention f0x newz …
@Paul Hunt
.. this was never ‘pure’ ……… economics is a ‘fallible’ social science which has limits – troube begins when these limits are ignored ……..
@David O’Donnell.
My point about moving beyond “pure” economics is aimed at an audience nearer home. I have observed previously that the “freshwater” economists, the neo-con ideologues and senior policy and regulatory officials, such as Greenspan and Arthur C Levitt (former SEC chairman), swallowed the “pure” economics and proved to be very useful idiots for the super-rich elites. The current dysfunctionality in the US Houses of Congress – particularly, in the Senate – is preventing the exercise of effective democratic governance in response to the mess they made, but I have confidence that over time the necessary governance will be applied – as it frequently has in the past.
I have less confidence of this happening in Ireland – which shares similar deficiencies in democratic governance with many other EU member-states.
@Philip Lane & All
from the same Brookings Conference
The Labor Market in the Great Recession
Michael Elsby, University of Michigan, Bart Hobijn, Federal Reserve Bank of San Francisco, and Ayşegül Şahin, Federal Reserve Bank of New York
Hysteresis and Schelosis are back – ex-Citizens Joe and Joan Serf of the New Kleptocracy will work no more – their progeny must emigrate for ‘enjoyment’ purposes – and Blind Biddy must learn to do without being able to afford that other bag of coal – that is, if she survives to the next winter.
The Oracle might shrug it off with his associates – but Labour, once again, and this time more heavily, pays the price.
@Paul Hunt
Paul – Fuly_Understood on the ‘useful idiots’ or what I call ‘dangerous fools’ – that said, I’m not as optimistic as you are on the US (how can f0x propaganda get away with it?) – lets see if the Health Bill passes Congress – but around here I’m in agreement with you on Governance and I see no significant moves at all, at all, at all. We’re being fed BS, spin, and chicken-sh1t – treated like serfs, in other words.
An excellent dissection by Barry Ritholz. A 10 point primer of how Greenspan failed both as a central banker and as a regulator.
EWI
At the moment, those who were disciples of the Russian Cow, Ayn Rand appear to be getting away with the haul of the century. Her philosophy is so extreme that adherents are hypnotized into thinking that selfless acts are evil. Very odd. But apparently so far, very successful.
Now they have the gold, they continue to make the rules that they will not feel bound to obey. Psycopathic economics, perhaps?
Greenspan may be trying to ascribe the failure to reasons that exculpate the guilty, his Rand fellow travellers.
Surely someone has read it?
@ Paul Hunt,
It is surely past time to move beyond “pure” economics and to consider how political and economic power is secured, exercised and retained.
I agree.
This extract from Greenspan’s paper, III. 3. The Hundred Year Flood.
How much of the underlying risk in a financial system should be
shouldered [solely] by banks and other financial institutions?
Note Greenspan’s distinction between what is a financial system, and what are known as financial institutions. They are certainly not the same thing, and should not be confused as such. I wrote about it in my blog entry, The rise of dumb banking. I heard Ruairi Quinn TD with the Labour party on Newstalk 106 radio today, talking to Eamon Keane. Mr. Quinn notes how journalist type of commentators like Emily O’Reilly (who if I am not mistaken was an overwhelming fan of former Taoiseach Ahern’s electric campaign approach) love to tarnish all of those within the Oireachtas with the same brush – ‘The Politicians’. When in fact, she should more accurately, talk of government. In the same way, commentators need to learn how to distinguish between financial systems and financial institutions. The essence of the Irish Economy debate is one is allowed to get tough with the latter, in order to preserve stability of the former. BOH.
A question to all.
(I posted the following as a comment to Boone and Johnson’s Baseline Scenario blog entry yesterday)
2.5 times Ireland’s national GDP which 3 no. Irish banks offered in credit for commercial property speculation during the second phase of the Celtic Tiger (build-ing) boom. The point to remember is, while 3 no. Irish banks were offering credit to pay for that fiasco, the same banks were working the other end of the deal – the Irish residential property market.
How does one calculation the maths, on the amount of risk inherent in that type of a deal, for 6 no. Irish financial institutions? The Irish financial institutions were so un-diversified they finances both sides of the deal for crying out loud! How is a potential shareholder supposed to size up that level of risk? ? ? BOH.
@BOH
“The Irish financial institutions were so un-diversified they finances both sides of the deal for crying out loud! How is a potential shareholder supposed to size up that level of risk?”
Indeed. And never mind the poor sap of a shareholder who is at least paying his own money. How is the poor sap of a mortgage purchaser supposed to know that the bank who are giving him the money are interested in maximising the amount they give him (beyond prudent levels) so that they can offload the small, poorly built, poorly serviced apartments that they have also funded the land purchase, planning, corrupt zoning and council vote, building, marketing and sales of?
And even if this was fine by the shareholders and they saw this and were happy with it and didn’t restrain the bank management because, despite the risks they were happy with the gain, who is supposed to be protecting the poor mortgage purchasing sap? What ‘self-regulating market’ is supposed to protect him? What instinct of the lions is going to prevent them gorging themselves on the prey so the prey don’t breed in sufficient numbers? Well, lions feel full once they’ve eaten and they’re quite territorial. Banks, on the other hand, the more they eat, the more they want…
@ Yoga,
How is the poor sap of a mortgage purchaser supposed to know that the bank who are giving him the money are interested in maximising the amount they give him (beyond prudent levels) so that they can offload the small, poorly built, poorly serviced apartments that they have also funded the land purchase, planning, corrupt zoning and council vote, building, marketing and sales of?
The poor sap of a mortgage purchaser doesn’t stand a chance. You only have to look at statements like this from the Irish Times.
What we had in Ireland was subprime mortgages by a different route. In the real subprime lending in the US, the mortgagees were getting a basic residential property, probably at a half decent price. What mortgagees in Ireland got were slightly newer, better residential properties, at a price they simply could not afford. Whichever way you look at it – subprime US, or Irish mortgages in the boom years – it is the same difference. Except the US subprime borrowers had no chance of repaying because they had no income. The Irish borrowers have an income, but the house price was too many times their income. The difference is really academic at this stage. Peter Schiff though had a point, many who bought residential property were only buying to take advantage of ‘positive equity’ when they inevitably moved residence in a few years time. That was the kind of racket the Irish Times and so on, were advising people to get into. In that sense, myself and other smucks who didn’t get mortgages during the boom years, were viewed at the time as a real bunch of losers. And when you look at it, you were being given money in the form of ‘positive equity’, then the fact is, I was a big stupid loser during the boom years. I needed to really grow a pair and put my deposit down to get a big mortgage on a starter home. And take advantage of whatever breaks were there for ‘first timers’.
Something else I want to get off my chest is as follows. I was thinking about Dr. Peter Bacon this evening while at the supermarket, his discussion on PrimeTime this week about hotels with a cringe worthy Labour TD. You know what, I know this property business from the inside-out, as opposed to many here, who only know it the other way around. The fact of the matter is, the way I see it – the incumbent Fianna Fail government had no idea what was going on for the last two terms of office, 1997-2002 and 2002-2007. No idea or clue at all. That was the problem. Now what Prime Time and everyone else are doing, retrospectively, is to try and superimpose their view of the property industry on history – their view only being from the outside of the property industry looking in. The fact is, Bertie or the Fianna Fail government were incompetent, they didn’t know what was going on around them – all the guys in Zoe and the bigger companies knew this. But those tax breaks on hotels, or anything would have made no earthly difference at all, if you ask me. Because the whole thing was kick started and orchestrated from the beginning, without the government on board. All that happened, was the Fianna Fail governments in 1997-2002 and 2002-2007 became cheer leaders, and wanted to seem as if they were pulling some hugely important levers. They weren’t. That was what the tent at the Galways races was all about – FF trying to pretend they were pulling levers. If it suited the builders to allow FF to think they were ‘making it happen’, well and good. But this conclusion drawn by the Labour party, by Prime Time etc, in relation to tax breaks to force builders to do more business is so far from the truth, it is totally misleading. The Fianna Fail guys arrived late to the party, and to be honest, they weren’t even that welcome. BOH.
@Brian O’Hanlon – “The fact is, Bertie or the Fianna Fail government were incompetent, they didn’t know what was going on around them”
You have just restored my faith in humanity. At least someone out there recognises what was actually going on. The FF crew didn’t have a clue what was happening (and were kept in the dark). But in my book, that’s almost as big a crime as orchestrating it. The media were just as bad too.
As for the poor old mortgage payer….. it’s hard to believe that residential mortgage defaults are only running at around 3%. I was expecting them to be at least 5% (for 3 months in arrears) by April.
@BOH
I don’t buy it. The property bubble was starting to deflate in 2000/2001. The developers were bust then and the banks realised it. The tax breaks that McCreevy had removed were hastily reintroduced. New tax breaks were added. Fiddling with stamp duty etc. continued to try and keep the gravy train on the tracks. Somebody knew what was going on.
The NYT home of the economics doyen P Krugman, vilifying unfairly, a whistle blower at Lehmanns.
The MSM were part of the scheme, now their role is to spread as much confusion and minimize damage, not uncover any truths. Kleptocrats require allies and weakening media empires require bank loans to roll presses.
In Ireland there was still the opportunity to increase the debt load of the banks here. The Irish government may not have known what was going on, but the banks that directed the bondholders to invest did know. Just an extension of the US operation.
BOH
Well put! You are correct. Within the Irish banks there are people who will have had misgivings and they will have given voice to them and may have written them also. This must have triggered alarms also within the regulators office. The CB was probably asleep?
There is a trail to show awareness of this growing bubble and of the implications of a bust.
Perhaps people should take the time to converse with all their banking friends etc?
@ Brian O’Hanlon
I don’t accept your analysis.
To argue that the McCreevy tax cutting and tax incentives with the ignorant cheerleading of the PDs, was a sideshow, is not credible.
Coincident with halving CGT to 20% and massively extending tax incentives, pre-euro launch, the Central Bank governor, Maurice O’Connell, began a series of letters to lenders pleading for them to restrict lending rather than using powers he already had.
Then when there were some restrictions on tax benefits for the buy-to-let market introduced, they were reversed after demands from the builders.
In the gallery of villains for economic ruin, the people who had most responsibility were in government.
I don’t buy that the gov didn’t know what was happening. They have access to all the data as to what was coming in and what was going out. It was short term political objectives and the aim of pleasing everyone all the time.
It makes total sense that the banks were inflating the property bubble as they were lending money to both sides. How to resolve the issue is the problem!!
There’s little harm, but equally, probably little benefit in speculating about who knew, or did, this or that in the decade leading up to this implosion. There is a mini-industry of attempted self-exculpation by some people who should have known what was going on and been able to something about it. I call it the “reverse GPO” phenomenon. The GPO in 1916 would have been the largest building on the planet if it actually accommodated all of the people who subsequently claimed to have been in it. We’ll probably see similar numbers of people seeking to distance themselves from participation in the lead-up to this debacle.
The simple fact, as is made clear in the partially self-exculpatory narrative woven by Alan Greenspan, is that nobody in a position of power or authority had the courage or insight to behave as McChesney Martin, one of Greenspan’s long-serving predecessors, would have done and frequently did – “take the punchbowl away before the party gets going”.
There seems little chance that the modern equivalents of MCChesney Martin will be encouraged, facilitated or empowered to get us out of this mess – and to prevent a repetition. “Just keep the heads down, lads; it’ll blow over”.
Someone else thinks Krugman is naff and a shill. Roache has a good track record on calling the GFC.
@ Joseph,
As for the poor old mortgage payer….. it’s hard to believe that residential mortgage defaults are only running at around 3%. I was expecting them to be at least 5% (for 3 months in arrears) by April.
On February 19th 2010, Dermot O’Leary published a piece in the Friday Irish Times business section, which is worth having to hand I think. I describes some of the dynamics affecting the 2.0 million odd ‘households’ in the Irish republic. Making the point, that flooring of the ECB rate was going to assist households who were heavily indebted the most. In the European wide scheme of things, Irish households are much more indebted than those in other wealthy EU member states. Cumulatively speaking, Dermot O’Leary mentions, the interest payments from all households in Ireland fell from €10 billion in 2007 to €5.5 billion in 2009. This situation is deemed to change however, as funding costs are putting Irish banks out of profits, they need to re-build.
What I really hate myself, is the way the Irish government (not parliment mind you, government) speaks about controlling the cost of borrowing. In the €5.5 billion interest bill on households in 2009, the most of it was made up of mortgage debt. (This would reflect detailed investigations by Elizabeth Warren into the US middle class family, where prices of household gadgets and appliances, holidays, clothing etc have decreased when adjusted for inflation) The fact is, the Irish government in 1997-2002 and 2002-2007, were guilty of doing some of the dodgiest, most expensive fiscal borrowing ever – in building their taxation base around transactional property based taxes – to fund an over expansion of the public service, via benchmarking etc. As someone here at IE said, the FF government believes that employment creation, equals, expansion of the public service. The Irish government in the last 10 years borrowed vicariously through households, of which 80% are on the most expensive, variable mortgage borrowings one could imagine. That was not prudent fiscal policy by any measure. BOH.
@ yoganmahew,
I reckon whatever government gave away in taxation per annum to property developers in tax breaks, (I forget what figure RTE Prime Time reported in their ghost hotel episode) the same Irish government reckoned it could claw back again in transactional propety taxes on Irish individuals. Which they did. The Irish government was bringing in billions on the transactional tax side of things, while only giving out millions in the form of tax breaks to developers. The net result, was the Irish government were way up, at the end of the day.
I wish the Irish government would apply the same logic to NAMA though. What we should be doing is NAMA-ing both sides of the deal simultaneously I think. Because the Irish banks stupidly exposed themselves to the risk existing on both sides of the deal, that was the great Irish brickie pyramid scheme. How the Irish banks believed that was good sense, I will never no. So what NAMA I does today, is it creates an imbalanced approach towards the banking resolution process. It is only dealing with the risk that Irish banks accummulated on one side of the deal. So NAMA leaves the counter party (mirror image) side of the total risk, still lying on the books of the Irish banks, waiting to blow up.
What we need now is a massive legal offensive, to lay out alternatives to total liquidation of financial institutions and for individuals, business and so forth. So we can get an orderly wind and resolution process for both sides of the risk exposure. NAMA is an incomplete strategy, because it doesn’t address either. BOH.
@ Michael Hennigan,
To argue that the McCreevy tax cutting and tax incentives with the ignorant cheerleading of the PDs, was a sideshow, is not credible.
Yes Michael, I know my argument wasn’t credible. It doesn’t stand up to much in the way of attack. But it is still important to extend the argument which I did, I believe. The reason? To counteract some of this lazy, pandering to peoples’ emotional state, journalism that we get in the tabloids etc. I can tell want I find weird in recent times. It isn’t so long ago, that I remember people who praised former Taoiseach Ahern, for being a man who could work out deals, take care of you, pull a few strokes etc. That is why former Taoiseach Ahern gained a lot of popularity. Irish society liked this image of a virile leadership capable of using the ‘back channels’. What I find astonishing, is the exact same public today, deny ever having felt any emphathy with former Taoiseach Ahern. To pick up on what Paul Hunt said about, about the reverse GPO factor – so many people around nowadays, are claiming to have seen through former Taoiseach Ahern for the sleeveen that he was. If I had taken dictaphone recordings a number of years ago, I would prove this same public to be complete hypocrits today. Honestly, I believe the biggest let down for the Irish public is, they wanted to believe their Taoiseach was a virile leader capable of pulling strings. That whole intellectual system the public built up, has now crumbled, and they are left with a vacuous feeling inside, all of a sudden. Which is filled by RTE Prime Time and Labour party TDs’ assertions of FF using tax breaks to fuel the bubble. Which doesn’t tally, from my experience of the same. BOH.
Greenspan:
“Unless there is a societal choice to abandon dynamic markets and leverage for some form of central planning, I fear that preventing bubbles will in the end turn out to be infeasible. ….Assuaging their aftermath seems the best we can hope for.”
So I’d guess that that’s a ‘no’ on my question, then – according to Greenspan, it’s a choice of either an unregulated financial and banking system, or else Communism.
@Paul Hunt
“There’s little harm, but equally, probably little benefit in speculating about who knew, or did, this or that in the decade leading up to this implosion. ”
and
“There seems little chance that the modern equivalents of MCChesney Martin will be encouraged, facilitated or empowered to get us out of this mess – and to prevent a repetition. “Just keep the heads down, lads; it’ll blow over”.”
Unfortunately, I think that your two statements lead one to the other. If we do not identify the sins of commission and omission and extract, at the very least, a recognition of personal and institutional failing, an apology and a promise to do better, the same farrango of slack-jawed “shure nobody could have seen it coming, anyone for a pint and an ole sing-song?” will continue again and again. In Ireland no-one is ever to blame and that is why nothing changes. The state failed in the ‘eighties, nobody who was in a position to do anything about it *did* anything about it and so the same failures lead us to disaster again.
It matters very much who knew what, who knew that Neary and Hurley were not competent to manage the regulatory side, that Cowen and McCreevy were not competent to manage the fiscal side. It matters whose idea it was to deliberately inflate a property bubble through the use of tax incentives. It matters who looked the other way and wrote a paper about freshwater micro-economics instead. All these things matter. There is harm is not finding out, there is benefit in making particular mistakes unrepeatable.
@BOH
“I reckon whatever government gave away in taxation per annum to property developers in tax breaks, (I forget what figure RTE Prime Time reported in their ghost hotel episode) the same Irish government reckoned it could claw back again in transactional propety taxes on Irish individuals. Which they did. The Irish government was bringing in billions on the transactional tax side of things, while only giving out millions in the form of tax breaks to developers. The net result, was the Irish government were way up, at the end of the day. ”
Re-read what you’ve written – you’re saying it is fine to enrich some select group because the rest of us will pay for it and much, much more? And that the select group is paying the politicians off with poxy amounts of money to get this lucrative benefit? That’s all fine too, because the exchequer took in loads of revenue?
@ Yoga,
Re-read what you’ve written – you’re saying it is fine to enrich some select group because the rest of us will pay for it and much, much more?
The basic conclusion I have come to is: the 1997-2002 and 2002-2007 governments could not afford to waste their limited supply of brain cycles to try to figure out the ethical dimensions of what you have described in your statement.
As for the media.
The job of the media in Ireland is to make a static object (government) appear to be dynamic. The job of the media in Ireland is to make the government look good while pretending to make the government look bad.
So it doesn’t matter whether the revolution is televised or not, as far as Ireland is concerned. Didn’t the communist party in the old USSR have a habit of bringing dead state leaders to sit at formal dinners in the Kremlin? BOH.
@EWI
According to the present fundamentalist hard-line Ayn_een Randites – The Oracle has become a KOMM-Uuuu-NIST (-; Sharah Phelan can’t spell it so she has to declare him a SOoo_SHALL-EEeeST (-; Of course you do realise that the Randites were in Government around here for a decade …… look around – good few of them still in government, the meedja and akadeemja as well and not forgetting all those upper_echelon boards of directors who got us into this mess and are now supposed to get us out of it ……… Pride of place amongst the Randites must go to Dik_een Shay_nee who filtered over $50 billion to his own ex-firm as a contribution to all the freedom_lovin aliens who presently plan to rule the world.
@YM,
In principle, I don’t disagree. I’m just seeking to be more pragmatic in terms of resource and effort given the hole we’re in, what’s needed to get us out and to prevent a repetition. As I’ve pointed out previously, most economic and fiscal policy is determined by a small coterie comprising the MoF, special advisers and senior DoF officials. Breaking the power of the whips and making the process subject to proper scrutiny and amendment by Oireachtas committees adequately resourced with the necessary economic expertise would be a big step forward.
And yes, I know that the more open system in the US didn’t prevent Wall St. driving a coach and four through any policy or regulatory constraints, but the system is presenting some evidence of being able to heal itself. By looking back we run the risk of descending into a slugfest of recrimination and defensiveness.
We need change in the structure and process of governance, but I’m not convinced that the political classes understand what’s required or have the gumption to secure the people’s consent to implement it.
@Paul Hunt
Perhaps what we need is light touch from government? Leave the Central Bank and the FR to do their jobs. There’s an admission today from Eddie George that the BoE has blown bubbles to prevent a recession, this is monetary policy used as fiscal stimulus. The danger is that what is cheapened on one side (the cost of money) results in more expense on the other (increase in the longer-term cost of money and drag on growth as debt repayments such out life). So why are they doing this? The great fanfare of independent central banks has been undermined by political considerations. The financial regulator the same.
The Central Bank and regulator are not permitted to comment on government policy. They are not allowed to say tax breaks are bad and causing distortions.
In the US, the SEC was consistently underfunded and restricted as a result of congressional action. It could not have regulated Lehman’s and the other investment bank holding companies even if it had wanted to (which is in doubt).
Not least of the problems is the political interference in the form of “we can’t allow x to collapse or go bust”.
So there is a huge problem of political interference which will prevent organic healing – the system is going to be told to run another sprint on its knackered legs instead of being left to heal for the marathon ahead. How do we stop this interference? Palming the whole thing off on faceless foreign bureaucrats has its attractions…
So there is a huge problem of political interference which will prevent organic healing – the system is going to be told to run another sprint on its knackered legs instead of being left to heal for the marathon ahead. How do we stop this interference? Palming the whole thing off on faceless foreign bureaucrats has its attractions…
At least the criticism from European Committee level of minister Lenehan’s rosy growth projections beyond 2010, was a welcome rebuttal to the order of business here in Ireland, wouldn’t you say? BOH.
@ Paul Hunt,
I have read many of your comments on political reform here at IE. On the whole, there is always something useful to be gleaned in reading them. Thanks for the effort of putting those thoughts on record, so that we can access them here.
As for political interference, (I don’t know why this is) for me the outstanding political interference of all in the last decade was former Taoiseach Ahern’s appointment of Sean Fitzpatrick as ‘head of risk management’ for the Dublin Docklands Development Authority in 2002. Yeah, that year was an election year also. One can only wonder what old account that was settling up for. The position of risk manager was only a disguise of course. What it did was to allow Anglo Irish bank to reach out to a considerable base of customers in need of credit at a time of major construction activity expansion in the capital city of Dublin. All of those debts created by Anglo, since 2002, have to be serviced, re-paid, accounted undergo a resolution process and otherwise dealt with (at huge risk to the taxpayer via NAMA). Okay, so a number of hotels were built on foot of tax exemption schemes introduced by government. Okay, the hotel room market in Ireland was regulated into severe distress and chaos, rather than the opposite. But I would argue, that in sheer level of debt added to the Irish citizenry – the introduction of Sean Fitzpatrick to the board of the DDDA in 2002, has resulted in much greater amounts, than the hotel tax exception schemes ever did. That is my only point. We find it easy to blame government tax relief policy for so many of our woes, since government rubber stamped them. But think about this. A well known Silicon Valley entrepreneur who moved into the Venture Capital industry a while ago, described his new occupation as that of providing social introductions and connections – not so much capital – as capital was taken care of easily, in the period of the credit bubble. Venture capitalists had to learn to offer something proprietary which wasn’t credit or financial investment based. You have to look at former Taoiseach Ahern’s manipulation of important board level recruitment in the same fashion. Believe me people, I know the propery world from the inside out. The FF governments put up those tax incentive schemes on purpose, to throw you people onto the wrong trail. Think about what Michael Somers of the NTMA testified to a Dail Committee in relation to lodging deposits at Anglo Irish Bank. Somers was reluctant to do so, as early as 2007, but was coming under pressure. These are the more important factors in my humble opinion – forget about the tax incentives – they are interesting from an academic market economist’s study point of view. But not really interesting in solving Ireland’s mess. BOH.
@ Joesph:
As for the poor old mortgage payer….. it’s hard to believe that residential mortgage defaults are only running at around 3%. I was expecting them to be at least 5% (for 3 months in arrears) by April.
Well, there’s a certain voluntary period of grace in action at the moment (12 months?), there’s likely a desire not to further antagonise the public at this moment with NAMA in progress, and the banks are further unwilling to write off these mortgage debts at this moment, given that their balance sheets are in such a precarious position.
@ PD:
Someone else thinks Krugman is naff and a shill. Roache has a good track record on calling the GFC.
You really believe Roache, an Asia manager for Merrill Lynch (who undoubtedly have strong motivation to be on good terms with China)?
an Asia manager for Merrill Lynch
Gah – Morgan Stanley, of course (in my own defence, same difference).
Samuelson not too impressed with Alan Greenspan’s response:
Peter Schiff on Greenspan
@ Ciaran,
That Schiff fellow doesn’t pull any punches, does he?
@YM,
“Palming the whole thing off on faceless foreign bureaucrats has its attractions…”
I can understand the attraction, but I don’t think we should give up on the principle of popular consent to be governed.
@B O’H,
Many thanks. Both you and YM have highlighted an important symptom of the problem.
Perhaps we’ll have to wait and see what FG comes up with in its “New Politics”.
My interest is in seeing how robust economic analysis may be applied in the design and scrutiny of policy.
@BOH
“But I would argue, that in sheer level of debt added to the Irish citizenry – the introduction of Sean Fitzpatrick to the board of the DDDA in 2002, has resulted in much greater amounts, than the hotel tax exception schemes ever did. That is my only point.”
And that is fair enough.
One of my points in specifically targeting the hotel tax breaks is that they are a symptom of all that went on. Not the only one or even the most relevant (as you point out), but a clear and obvious bung without economic logic. Even in the best of times hotels struggled to justify a return on the capital invested in them. Increasing the number of available room nights by 50% while tourist numbers declined, some kind of madness or method, anyway.
It does also tie in rather nicely with my thesis that the tiger sickened in 2001 leaving many exposed. A new bubble had to be blown; it was consciously and deliberately.
@ Yoga,
I wrote a blog about former Taoiseach Ahern and his peculiar focus on his venture capitalist skills, rather than on his official office. I am not saying that move by Taoiseach Ahern was a bad one in theory. The idea of the national leader who gets involved with business and gets involved in the brokering of deals. But I have learned in my own experience, what seems fine in theory, in practice can turn out to be a lot more work and more complex than one expected. I have learned this myself, in my attempts at getting involved with property deals etc. The people you are working with, I always discovered were very different to the people I thought they were. Sometimes they turn out to be better people, and sometimes the opposite. Hence, why you have to devote your full resources to doing a single project at the one time. Not the manner in which Taoiseach Ahern went about this business, in which he had multiple deals in the air, going in all directions, simultaneously. No one human being is able to supervise and watch all of that. The legacy of former Taoiseach Ahern, is that lesson for all politicians, in my view. BOH.
We are probably looking at a next bubble too, which will crash around 2020. I agree with the analysis of Brian Lucey. The 2008 collapse in Ireland, didn’t teach us anything. BOH.
Those who have been aware and seen through the inflation, theft by stealth of central banking, knew this was coming. Those in the subset involved in banking may have positioned their family fortunes accordingly.
Note the spin of the book and the review. Also, the emphasis in the reveiw on what I and others have asked: who were the pushers of debt onto the virginal innocent Irish banks? Someone should punish the pushers! They conducted economic war on Ireland. If we knew who they were, we might say this is the second time they have done this?
Kondratieff, as I understand him, suffers from the same limitations that historians of revolutionary theory do, Colin Lucas for example, being their theories are a combination of sufficiently vague, sufficiently exciting and sufficiently indeterminate to allow any retrospective justification; it is technical analysis writ large. I much prefer Fischer’s debt-deflation as being a theory with a specific relevance – once you get to a certain level of debt, the normal rules no longer apply. Down becomes up, cats do indeed eat dogs.
We are in the position of having taken on too much debt.
We are also in a low inflation environment; in essence we might as well have a gold pegged currency because everyone believes the ECB when they say that inflation in the eurozone will average 2% or below over the cycle (or 1.5% plus the average growth of the six lowest eurozone economies, or whatever method is chosen today – it doesn’t matter, the ECB has credibility, we have a solid currency with lots of ‘confidence’ behind it).
Within that currency union, we have had massive inflation over the last ten years. It is not sustainable. We will have to have massive deflation to get back in line. This will mean lower standards of living for many of us. That is what Fischer’s theory means to me. We will be text book examples for future generations of students…
Yogan
I agree with you. Nonetheless, it seems that Kondratieff and Fischer are again correct despite 99% of all economists that ever drew breath being alive now.
Fischer apparently, was not the first with Fischer thesis! I will post the ref if I copme across it.
My further point is that it was predictable. It was used as a game plan by many. Like wise study of the Winter and Spring phases by later theoreticians may enable folks reading them to avoid further loss!
50 replies on “Alan Greenspan: “The Crisis””
Greg
Yeeaaeas. But what is the architect of the sub-prime crisis going to say? I understand he is saying that it is a depression.
But since a lot of BS is still being churned out by the Yanks, I propose not to read his exigesis on the basis that the man is a tool of TPTB and that the truth to him is a foreign country where he is not protected.
Be a good chap and read the 66 pages and analyze it for us?
So, at what point will he admit that Ayn Rand (whose circle he was a part of) was wrong…?
It is a tribute to the US system of transparency and accountability that such a senior retired official is prepared to consider so fully and publicly the lead-in during his watch to the debacle that subsequently unfolded. Not surprisingly there are attempts at avoiding blame and transferring it to others – e.g., “a significant proportion of the increased demand for subprime mortgage backed securities during the years 2003-2004 was effectively politically mandated” (political pressure to extend mortgages, yes, but not to mis-sell and re-package the resulting crud as AAA-rated securities), but the paper, among occasional regrets about the road not taken, is chockful of valuable reflections and insights that current policy-makers and regulators could well heed.
Unfortunately, but, perhaps, not surprisingly, it offers little that might guide the policies in an SOE trying to deal with an insolvent domestic banking system that retains the potential to cause a sovereign default. Almost 18 months into the guarantee and not a single loan has been transferred to NAMA and it appears (pace another post) that only now is consideration being gven to bank resolution legislation.
It is surely past time to move beyond “pure” economics and to consider how political and economic power is secured, exercised and retained. In this area, Alan Greenspan, drawing on his experience of working within a superior system of democratic governance, certainly offers some guidance, both explicitly and implcitly.
@All
Greenspan Concedes That the Fed Failed to Gauge the Bubble
http://www.nytimes.com/2010/03/19/business/economy/19fed.html?8au&emc=au
Above as reported in New York Times – bit shorter than the 66pp
@EWI
Alan is no longer welcome at the Ayn_een Randite tea parties – these people make the Taliban look progressive. I give Greenspan some credit for acknowledging that he also was fooled by an ideology – he does not go as far as Posner – but his acknolwedegement, if qualified, of ‘error of judgment’ is welcome – particularly as this ideology is so powerful in US Academic departments – which of course are highly influential in Irish academic departments. I won’t mention f0x newz …
@Paul Hunt
.. this was never ‘pure’ ……… economics is a ‘fallible’ social science which has limits – troube begins when these limits are ignored ……..
@David O’Donnell.
My point about moving beyond “pure” economics is aimed at an audience nearer home. I have observed previously that the “freshwater” economists, the neo-con ideologues and senior policy and regulatory officials, such as Greenspan and Arthur C Levitt (former SEC chairman), swallowed the “pure” economics and proved to be very useful idiots for the super-rich elites. The current dysfunctionality in the US Houses of Congress – particularly, in the Senate – is preventing the exercise of effective democratic governance in response to the mess they made, but I have confidence that over time the necessary governance will be applied – as it frequently has in the past.
I have less confidence of this happening in Ireland – which shares similar deficiencies in democratic governance with many other EU member-states.
@Philip Lane & All
from the same Brookings Conference
The Labor Market in the Great Recession
Michael Elsby, University of Michigan, Bart Hobijn, Federal Reserve Bank of San Francisco, and Ayşegül Şahin, Federal Reserve Bank of New York
http://www.brookings.edu/~/media/Files/Programs/ES/BPEA/2010_spring_bpea_papers/spring2010_elsby.pdf
Hysteresis and Schelosis are back – ex-Citizens Joe and Joan Serf of the New Kleptocracy will work no more – their progeny must emigrate for ‘enjoyment’ purposes – and Blind Biddy must learn to do without being able to afford that other bag of coal – that is, if she survives to the next winter.
The Oracle might shrug it off with his associates – but Labour, once again, and this time more heavily, pays the price.
@Paul Hunt
Paul – Fuly_Understood on the ‘useful idiots’ or what I call ‘dangerous fools’ – that said, I’m not as optimistic as you are on the US (how can f0x propaganda get away with it?) – lets see if the Health Bill passes Congress – but around here I’m in agreement with you on Governance and I see no significant moves at all, at all, at all. We’re being fed BS, spin, and chicken-sh1t – treated like serfs, in other words.
An excellent dissection by Barry Ritholz. A 10 point primer of how Greenspan failed both as a central banker and as a regulator.
Required Reading!
http://www.ritholtz.com/blog/2010/03/explaining-the-impact-of-ultra-low-rates-to-greenspan/
EWI
At the moment, those who were disciples of the Russian Cow, Ayn Rand appear to be getting away with the haul of the century. Her philosophy is so extreme that adherents are hypnotized into thinking that selfless acts are evil. Very odd. But apparently so far, very successful.
Now they have the gold, they continue to make the rules that they will not feel bound to obey. Psycopathic economics, perhaps?
Greenspan may be trying to ascribe the failure to reasons that exculpate the guilty, his Rand fellow travellers.
Surely someone has read it?
@ Paul Hunt,
It is surely past time to move beyond “pure” economics and to consider how political and economic power is secured, exercised and retained.
I agree.
This extract from Greenspan’s paper, III. 3. The Hundred Year Flood.
How much of the underlying risk in a financial system should be
shouldered [solely] by banks and other financial institutions?
Note Greenspan’s distinction between what is a financial system, and what are known as financial institutions. They are certainly not the same thing, and should not be confused as such. I wrote about it in my blog entry, The rise of dumb banking. I heard Ruairi Quinn TD with the Labour party on Newstalk 106 radio today, talking to Eamon Keane. Mr. Quinn notes how journalist type of commentators like Emily O’Reilly (who if I am not mistaken was an overwhelming fan of former Taoiseach Ahern’s electric campaign approach) love to tarnish all of those within the Oireachtas with the same brush – ‘The Politicians’. When in fact, she should more accurately, talk of government. In the same way, commentators need to learn how to distinguish between financial systems and financial institutions. The essence of the Irish Economy debate is one is allowed to get tough with the latter, in order to preserve stability of the former. BOH.
A question to all.
(I posted the following as a comment to Boone and Johnson’s Baseline Scenario blog entry yesterday)
2.5 times Ireland’s national GDP which 3 no. Irish banks offered in credit for commercial property speculation during the second phase of the Celtic Tiger (build-ing) boom. The point to remember is, while 3 no. Irish banks were offering credit to pay for that fiasco, the same banks were working the other end of the deal – the Irish residential property market.
How does one calculation the maths, on the amount of risk inherent in that type of a deal, for 6 no. Irish financial institutions? The Irish financial institutions were so un-diversified they finances both sides of the deal for crying out loud! How is a potential shareholder supposed to size up that level of risk? ? ? BOH.
@BOH
“The Irish financial institutions were so un-diversified they finances both sides of the deal for crying out loud! How is a potential shareholder supposed to size up that level of risk?”
Indeed. And never mind the poor sap of a shareholder who is at least paying his own money. How is the poor sap of a mortgage purchaser supposed to know that the bank who are giving him the money are interested in maximising the amount they give him (beyond prudent levels) so that they can offload the small, poorly built, poorly serviced apartments that they have also funded the land purchase, planning, corrupt zoning and council vote, building, marketing and sales of?
And even if this was fine by the shareholders and they saw this and were happy with it and didn’t restrain the bank management because, despite the risks they were happy with the gain, who is supposed to be protecting the poor mortgage purchasing sap? What ‘self-regulating market’ is supposed to protect him? What instinct of the lions is going to prevent them gorging themselves on the prey so the prey don’t breed in sufficient numbers? Well, lions feel full once they’ve eaten and they’re quite territorial. Banks, on the other hand, the more they eat, the more they want…
@ Yoga,
How is the poor sap of a mortgage purchaser supposed to know that the bank who are giving him the money are interested in maximising the amount they give him (beyond prudent levels) so that they can offload the small, poorly built, poorly serviced apartments that they have also funded the land purchase, planning, corrupt zoning and council vote, building, marketing and sales of?
The poor sap of a mortgage purchaser doesn’t stand a chance. You only have to look at statements like this from the Irish Times.
http://quotesfromthebubble.blogspot.com/2009/07/edel-morgan-irish-times-hournalist.html
What we had in Ireland was subprime mortgages by a different route. In the real subprime lending in the US, the mortgagees were getting a basic residential property, probably at a half decent price. What mortgagees in Ireland got were slightly newer, better residential properties, at a price they simply could not afford. Whichever way you look at it – subprime US, or Irish mortgages in the boom years – it is the same difference. Except the US subprime borrowers had no chance of repaying because they had no income. The Irish borrowers have an income, but the house price was too many times their income. The difference is really academic at this stage. Peter Schiff though had a point, many who bought residential property were only buying to take advantage of ‘positive equity’ when they inevitably moved residence in a few years time. That was the kind of racket the Irish Times and so on, were advising people to get into. In that sense, myself and other smucks who didn’t get mortgages during the boom years, were viewed at the time as a real bunch of losers. And when you look at it, you were being given money in the form of ‘positive equity’, then the fact is, I was a big stupid loser during the boom years. I needed to really grow a pair and put my deposit down to get a big mortgage on a starter home. And take advantage of whatever breaks were there for ‘first timers’.
Something else I want to get off my chest is as follows. I was thinking about Dr. Peter Bacon this evening while at the supermarket, his discussion on PrimeTime this week about hotels with a cringe worthy Labour TD. You know what, I know this property business from the inside-out, as opposed to many here, who only know it the other way around. The fact of the matter is, the way I see it – the incumbent Fianna Fail government had no idea what was going on for the last two terms of office, 1997-2002 and 2002-2007. No idea or clue at all. That was the problem. Now what Prime Time and everyone else are doing, retrospectively, is to try and superimpose their view of the property industry on history – their view only being from the outside of the property industry looking in. The fact is, Bertie or the Fianna Fail government were incompetent, they didn’t know what was going on around them – all the guys in Zoe and the bigger companies knew this. But those tax breaks on hotels, or anything would have made no earthly difference at all, if you ask me. Because the whole thing was kick started and orchestrated from the beginning, without the government on board. All that happened, was the Fianna Fail governments in 1997-2002 and 2002-2007 became cheer leaders, and wanted to seem as if they were pulling some hugely important levers. They weren’t. That was what the tent at the Galways races was all about – FF trying to pretend they were pulling levers. If it suited the builders to allow FF to think they were ‘making it happen’, well and good. But this conclusion drawn by the Labour party, by Prime Time etc, in relation to tax breaks to force builders to do more business is so far from the truth, it is totally misleading. The Fianna Fail guys arrived late to the party, and to be honest, they weren’t even that welcome. BOH.
@Brian O’Hanlon – “The fact is, Bertie or the Fianna Fail government were incompetent, they didn’t know what was going on around them”
You have just restored my faith in humanity. At least someone out there recognises what was actually going on. The FF crew didn’t have a clue what was happening (and were kept in the dark). But in my book, that’s almost as big a crime as orchestrating it. The media were just as bad too.
As for the poor old mortgage payer….. it’s hard to believe that residential mortgage defaults are only running at around 3%. I was expecting them to be at least 5% (for 3 months in arrears) by April.
@BOH
I don’t buy it. The property bubble was starting to deflate in 2000/2001. The developers were bust then and the banks realised it. The tax breaks that McCreevy had removed were hastily reintroduced. New tax breaks were added. Fiddling with stamp duty etc. continued to try and keep the gravy train on the tracks. Somebody knew what was going on.
Besides, stupidity does not absolve of cupidity.
http://www.cjr.org/the_audit/problems_in_an_nyt_column.php
The NYT home of the economics doyen P Krugman, vilifying unfairly, a whistle blower at Lehmanns.
The MSM were part of the scheme, now their role is to spread as much confusion and minimize damage, not uncover any truths. Kleptocrats require allies and weakening media empires require bank loans to roll presses.
In Ireland there was still the opportunity to increase the debt load of the banks here. The Irish government may not have known what was going on, but the banks that directed the bondholders to invest did know. Just an extension of the US operation.
BOH
Well put! You are correct. Within the Irish banks there are people who will have had misgivings and they will have given voice to them and may have written them also. This must have triggered alarms also within the regulators office. The CB was probably asleep?
There is a trail to show awareness of this growing bubble and of the implications of a bust.
Perhaps people should take the time to converse with all their banking friends etc?
@ Brian O’Hanlon
I don’t accept your analysis.
To argue that the McCreevy tax cutting and tax incentives with the ignorant cheerleading of the PDs, was a sideshow, is not credible.
Coincident with halving CGT to 20% and massively extending tax incentives, pre-euro launch, the Central Bank governor, Maurice O’Connell, began a series of letters to lenders pleading for them to restrict lending rather than using powers he already had.
Then when there were some restrictions on tax benefits for the buy-to-let market introduced, they were reversed after demands from the builders.
In the gallery of villains for economic ruin, the people who had most responsibility were in government.
I don’t buy that the gov didn’t know what was happening. They have access to all the data as to what was coming in and what was going out. It was short term political objectives and the aim of pleasing everyone all the time.
It makes total sense that the banks were inflating the property bubble as they were lending money to both sides. How to resolve the issue is the problem!!
There’s little harm, but equally, probably little benefit in speculating about who knew, or did, this or that in the decade leading up to this implosion. There is a mini-industry of attempted self-exculpation by some people who should have known what was going on and been able to something about it. I call it the “reverse GPO” phenomenon. The GPO in 1916 would have been the largest building on the planet if it actually accommodated all of the people who subsequently claimed to have been in it. We’ll probably see similar numbers of people seeking to distance themselves from participation in the lead-up to this debacle.
The simple fact, as is made clear in the partially self-exculpatory narrative woven by Alan Greenspan, is that nobody in a position of power or authority had the courage or insight to behave as McChesney Martin, one of Greenspan’s long-serving predecessors, would have done and frequently did – “take the punchbowl away before the party gets going”.
There seems little chance that the modern equivalents of MCChesney Martin will be encouraged, facilitated or empowered to get us out of this mess – and to prevent a repetition. “Just keep the heads down, lads; it’ll blow over”.
http://www.huffingtonpost.com/2010/03/19/stephen-roach-we-should-t_n_505989.html
Someone else thinks Krugman is naff and a shill. Roache has a good track record on calling the GFC.
@ Joseph,
As for the poor old mortgage payer….. it’s hard to believe that residential mortgage defaults are only running at around 3%. I was expecting them to be at least 5% (for 3 months in arrears) by April.
On February 19th 2010, Dermot O’Leary published a piece in the Friday Irish Times business section, which is worth having to hand I think. I describes some of the dynamics affecting the 2.0 million odd ‘households’ in the Irish republic. Making the point, that flooring of the ECB rate was going to assist households who were heavily indebted the most. In the European wide scheme of things, Irish households are much more indebted than those in other wealthy EU member states. Cumulatively speaking, Dermot O’Leary mentions, the interest payments from all households in Ireland fell from €10 billion in 2007 to €5.5 billion in 2009. This situation is deemed to change however, as funding costs are putting Irish banks out of profits, they need to re-build.
What I really hate myself, is the way the Irish government (not parliment mind you, government) speaks about controlling the cost of borrowing. In the €5.5 billion interest bill on households in 2009, the most of it was made up of mortgage debt. (This would reflect detailed investigations by Elizabeth Warren into the US middle class family, where prices of household gadgets and appliances, holidays, clothing etc have decreased when adjusted for inflation) The fact is, the Irish government in 1997-2002 and 2002-2007, were guilty of doing some of the dodgiest, most expensive fiscal borrowing ever – in building their taxation base around transactional property based taxes – to fund an over expansion of the public service, via benchmarking etc. As someone here at IE said, the FF government believes that employment creation, equals, expansion of the public service. The Irish government in the last 10 years borrowed vicariously through households, of which 80% are on the most expensive, variable mortgage borrowings one could imagine. That was not prudent fiscal policy by any measure. BOH.
@ yoganmahew,
I reckon whatever government gave away in taxation per annum to property developers in tax breaks, (I forget what figure RTE Prime Time reported in their ghost hotel episode) the same Irish government reckoned it could claw back again in transactional propety taxes on Irish individuals. Which they did. The Irish government was bringing in billions on the transactional tax side of things, while only giving out millions in the form of tax breaks to developers. The net result, was the Irish government were way up, at the end of the day.
I wish the Irish government would apply the same logic to NAMA though. What we should be doing is NAMA-ing both sides of the deal simultaneously I think. Because the Irish banks stupidly exposed themselves to the risk existing on both sides of the deal, that was the great Irish brickie pyramid scheme. How the Irish banks believed that was good sense, I will never no. So what NAMA I does today, is it creates an imbalanced approach towards the banking resolution process. It is only dealing with the risk that Irish banks accummulated on one side of the deal. So NAMA leaves the counter party (mirror image) side of the total risk, still lying on the books of the Irish banks, waiting to blow up.
What we need now is a massive legal offensive, to lay out alternatives to total liquidation of financial institutions and for individuals, business and so forth. So we can get an orderly wind and resolution process for both sides of the risk exposure. NAMA is an incomplete strategy, because it doesn’t address either. BOH.
@ Michael Hennigan,
To argue that the McCreevy tax cutting and tax incentives with the ignorant cheerleading of the PDs, was a sideshow, is not credible.
Yes Michael, I know my argument wasn’t credible. It doesn’t stand up to much in the way of attack. But it is still important to extend the argument which I did, I believe. The reason? To counteract some of this lazy, pandering to peoples’ emotional state, journalism that we get in the tabloids etc. I can tell want I find weird in recent times. It isn’t so long ago, that I remember people who praised former Taoiseach Ahern, for being a man who could work out deals, take care of you, pull a few strokes etc. That is why former Taoiseach Ahern gained a lot of popularity. Irish society liked this image of a virile leadership capable of using the ‘back channels’. What I find astonishing, is the exact same public today, deny ever having felt any emphathy with former Taoiseach Ahern. To pick up on what Paul Hunt said about, about the reverse GPO factor – so many people around nowadays, are claiming to have seen through former Taoiseach Ahern for the sleeveen that he was. If I had taken dictaphone recordings a number of years ago, I would prove this same public to be complete hypocrits today. Honestly, I believe the biggest let down for the Irish public is, they wanted to believe their Taoiseach was a virile leader capable of pulling strings. That whole intellectual system the public built up, has now crumbled, and they are left with a vacuous feeling inside, all of a sudden. Which is filled by RTE Prime Time and Labour party TDs’ assertions of FF using tax breaks to fuel the bubble. Which doesn’t tally, from my experience of the same. BOH.
Greenspan:
“Unless there is a societal choice to abandon dynamic markets and leverage for some form of central planning, I fear that preventing bubbles will in the end turn out to be infeasible. ….Assuaging their aftermath seems the best we can hope for.”
http://www.nytimes.com/2010/03/19/business/economy/19fed.html?ref=business
So I’d guess that that’s a ‘no’ on my question, then – according to Greenspan, it’s a choice of either an unregulated financial and banking system, or else Communism.
@Paul Hunt
“There’s little harm, but equally, probably little benefit in speculating about who knew, or did, this or that in the decade leading up to this implosion. ”
and
“There seems little chance that the modern equivalents of MCChesney Martin will be encouraged, facilitated or empowered to get us out of this mess – and to prevent a repetition. “Just keep the heads down, lads; it’ll blow over”.”
Unfortunately, I think that your two statements lead one to the other. If we do not identify the sins of commission and omission and extract, at the very least, a recognition of personal and institutional failing, an apology and a promise to do better, the same farrango of slack-jawed “shure nobody could have seen it coming, anyone for a pint and an ole sing-song?” will continue again and again. In Ireland no-one is ever to blame and that is why nothing changes. The state failed in the ‘eighties, nobody who was in a position to do anything about it *did* anything about it and so the same failures lead us to disaster again.
It matters very much who knew what, who knew that Neary and Hurley were not competent to manage the regulatory side, that Cowen and McCreevy were not competent to manage the fiscal side. It matters whose idea it was to deliberately inflate a property bubble through the use of tax incentives. It matters who looked the other way and wrote a paper about freshwater micro-economics instead. All these things matter. There is harm is not finding out, there is benefit in making particular mistakes unrepeatable.
@BOH
“I reckon whatever government gave away in taxation per annum to property developers in tax breaks, (I forget what figure RTE Prime Time reported in their ghost hotel episode) the same Irish government reckoned it could claw back again in transactional propety taxes on Irish individuals. Which they did. The Irish government was bringing in billions on the transactional tax side of things, while only giving out millions in the form of tax breaks to developers. The net result, was the Irish government were way up, at the end of the day. ”
Re-read what you’ve written – you’re saying it is fine to enrich some select group because the rest of us will pay for it and much, much more? And that the select group is paying the politicians off with poxy amounts of money to get this lucrative benefit? That’s all fine too, because the exchequer took in loads of revenue?
@ Yoga,
Re-read what you’ve written – you’re saying it is fine to enrich some select group because the rest of us will pay for it and much, much more?
The basic conclusion I have come to is: the 1997-2002 and 2002-2007 governments could not afford to waste their limited supply of brain cycles to try to figure out the ethical dimensions of what you have described in your statement.
As for the media.
The job of the media in Ireland is to make a static object (government) appear to be dynamic. The job of the media in Ireland is to make the government look good while pretending to make the government look bad.
So it doesn’t matter whether the revolution is televised or not, as far as Ireland is concerned. Didn’t the communist party in the old USSR have a habit of bringing dead state leaders to sit at formal dinners in the Kremlin? BOH.
@EWI
According to the present fundamentalist hard-line Ayn_een Randites – The Oracle has become a KOMM-Uuuu-NIST (-; Sharah Phelan can’t spell it so she has to declare him a SOoo_SHALL-EEeeST (-; Of course you do realise that the Randites were in Government around here for a decade …… look around – good few of them still in government, the meedja and akadeemja as well and not forgetting all those upper_echelon boards of directors who got us into this mess and are now supposed to get us out of it ……… Pride of place amongst the Randites must go to Dik_een Shay_nee who filtered over $50 billion to his own ex-firm as a contribution to all the freedom_lovin aliens who presently plan to rule the world.
@YM,
In principle, I don’t disagree. I’m just seeking to be more pragmatic in terms of resource and effort given the hole we’re in, what’s needed to get us out and to prevent a repetition. As I’ve pointed out previously, most economic and fiscal policy is determined by a small coterie comprising the MoF, special advisers and senior DoF officials. Breaking the power of the whips and making the process subject to proper scrutiny and amendment by Oireachtas committees adequately resourced with the necessary economic expertise would be a big step forward.
And yes, I know that the more open system in the US didn’t prevent Wall St. driving a coach and four through any policy or regulatory constraints, but the system is presenting some evidence of being able to heal itself. By looking back we run the risk of descending into a slugfest of recrimination and defensiveness.
We need change in the structure and process of governance, but I’m not convinced that the political classes understand what’s required or have the gumption to secure the people’s consent to implement it.
@Paul Hunt
Perhaps what we need is light touch from government? Leave the Central Bank and the FR to do their jobs. There’s an admission today from Eddie George that the BoE has blown bubbles to prevent a recession, this is monetary policy used as fiscal stimulus. The danger is that what is cheapened on one side (the cost of money) results in more expense on the other (increase in the longer-term cost of money and drag on growth as debt repayments such out life). So why are they doing this? The great fanfare of independent central banks has been undermined by political considerations. The financial regulator the same.
The Central Bank and regulator are not permitted to comment on government policy. They are not allowed to say tax breaks are bad and causing distortions.
In the US, the SEC was consistently underfunded and restricted as a result of congressional action. It could not have regulated Lehman’s and the other investment bank holding companies even if it had wanted to (which is in doubt).
Not least of the problems is the political interference in the form of “we can’t allow x to collapse or go bust”.
So there is a huge problem of political interference which will prevent organic healing – the system is going to be told to run another sprint on its knackered legs instead of being left to heal for the marathon ahead. How do we stop this interference? Palming the whole thing off on faceless foreign bureaucrats has its attractions…
@PH
re: lack of independence
http://www.timesonline.co.uk/tol/news/world/ireland/article7069824.ece
@ yoga,
So there is a huge problem of political interference which will prevent organic healing – the system is going to be told to run another sprint on its knackered legs instead of being left to heal for the marathon ahead. How do we stop this interference? Palming the whole thing off on faceless foreign bureaucrats has its attractions…
At least the criticism from European Committee level of minister Lenehan’s rosy growth projections beyond 2010, was a welcome rebuttal to the order of business here in Ireland, wouldn’t you say? BOH.
@ Paul Hunt,
I have read many of your comments on political reform here at IE. On the whole, there is always something useful to be gleaned in reading them. Thanks for the effort of putting those thoughts on record, so that we can access them here.
As for political interference, (I don’t know why this is) for me the outstanding political interference of all in the last decade was former Taoiseach Ahern’s appointment of Sean Fitzpatrick as ‘head of risk management’ for the Dublin Docklands Development Authority in 2002. Yeah, that year was an election year also. One can only wonder what old account that was settling up for. The position of risk manager was only a disguise of course. What it did was to allow Anglo Irish bank to reach out to a considerable base of customers in need of credit at a time of major construction activity expansion in the capital city of Dublin. All of those debts created by Anglo, since 2002, have to be serviced, re-paid, accounted undergo a resolution process and otherwise dealt with (at huge risk to the taxpayer via NAMA). Okay, so a number of hotels were built on foot of tax exemption schemes introduced by government. Okay, the hotel room market in Ireland was regulated into severe distress and chaos, rather than the opposite. But I would argue, that in sheer level of debt added to the Irish citizenry – the introduction of Sean Fitzpatrick to the board of the DDDA in 2002, has resulted in much greater amounts, than the hotel tax exception schemes ever did. That is my only point. We find it easy to blame government tax relief policy for so many of our woes, since government rubber stamped them. But think about this. A well known Silicon Valley entrepreneur who moved into the Venture Capital industry a while ago, described his new occupation as that of providing social introductions and connections – not so much capital – as capital was taken care of easily, in the period of the credit bubble. Venture capitalists had to learn to offer something proprietary which wasn’t credit or financial investment based. You have to look at former Taoiseach Ahern’s manipulation of important board level recruitment in the same fashion. Believe me people, I know the propery world from the inside out. The FF governments put up those tax incentive schemes on purpose, to throw you people onto the wrong trail. Think about what Michael Somers of the NTMA testified to a Dail Committee in relation to lodging deposits at Anglo Irish Bank. Somers was reluctant to do so, as early as 2007, but was coming under pressure. These are the more important factors in my humble opinion – forget about the tax incentives – they are interesting from an academic market economist’s study point of view. But not really interesting in solving Ireland’s mess. BOH.
@ Joesph:
As for the poor old mortgage payer….. it’s hard to believe that residential mortgage defaults are only running at around 3%. I was expecting them to be at least 5% (for 3 months in arrears) by April.
Well, there’s a certain voluntary period of grace in action at the moment (12 months?), there’s likely a desire not to further antagonise the public at this moment with NAMA in progress, and the banks are further unwilling to write off these mortgage debts at this moment, given that their balance sheets are in such a precarious position.
@ PD:
Someone else thinks Krugman is naff and a shill. Roache has a good track record on calling the GFC.
You really believe Roache, an Asia manager for Merrill Lynch (who undoubtedly have strong motivation to be on good terms with China)?
an Asia manager for Merrill Lynch
Gah – Morgan Stanley, of course (in my own defence, same difference).
@All
http://www.newsweek.com/id/235202
Samuelson not too impressed with Alan Greenspan’s response:
Peter Schiff on Greenspan
@ Ciaran,
That Schiff fellow doesn’t pull any punches, does he?
@YM,
“Palming the whole thing off on faceless foreign bureaucrats has its attractions…”
I can understand the attraction, but I don’t think we should give up on the principle of popular consent to be governed.
@B O’H,
Many thanks. Both you and YM have highlighted an important symptom of the problem.
Perhaps we’ll have to wait and see what FG comes up with in its “New Politics”.
My interest is in seeing how robust economic analysis may be applied in the design and scrutiny of policy.
@BOH
“But I would argue, that in sheer level of debt added to the Irish citizenry – the introduction of Sean Fitzpatrick to the board of the DDDA in 2002, has resulted in much greater amounts, than the hotel tax exception schemes ever did. That is my only point.”
And that is fair enough.
One of my points in specifically targeting the hotel tax breaks is that they are a symptom of all that went on. Not the only one or even the most relevant (as you point out), but a clear and obvious bung without economic logic. Even in the best of times hotels struggled to justify a return on the capital invested in them. Increasing the number of available room nights by 50% while tourist numbers declined, some kind of madness or method, anyway.
It does also tie in rather nicely with my thesis that the tiger sickened in 2001 leaving many exposed. A new bubble had to be blown; it was consciously and deliberately.
@ Yoga,
I wrote a blog about former Taoiseach Ahern and his peculiar focus on his venture capitalist skills, rather than on his official office. I am not saying that move by Taoiseach Ahern was a bad one in theory. The idea of the national leader who gets involved with business and gets involved in the brokering of deals. But I have learned in my own experience, what seems fine in theory, in practice can turn out to be a lot more work and more complex than one expected. I have learned this myself, in my attempts at getting involved with property deals etc. The people you are working with, I always discovered were very different to the people I thought they were. Sometimes they turn out to be better people, and sometimes the opposite. Hence, why you have to devote your full resources to doing a single project at the one time. Not the manner in which Taoiseach Ahern went about this business, in which he had multiple deals in the air, going in all directions, simultaneously. No one human being is able to supervise and watch all of that. The legacy of former Taoiseach Ahern, is that lesson for all politicians, in my view. BOH.
http://designcomment.blogspot.com/2010/03/ventures-in-valley.html
@ Yoga,
We are probably looking at a next bubble too, which will crash around 2020. I agree with the analysis of Brian Lucey. The 2008 collapse in Ireland, didn’t teach us anything. BOH.
http://www.irisheconomy.ie/index.php/2010/03/18/the-baseline-scenario-on-ireland/#comment-40828
Yoga
What do you think of Kondratieff?
Those who have been aware and seen through the inflation, theft by stealth of central banking, knew this was coming. Those in the subset involved in banking may have positioned their family fortunes accordingly.
And made out like bandits!
http://www.nakedcapitalism.com/2010/03/debunking-michael-lewis-subprime-short-hagiography.html
Note the spin of the book and the review. Also, the emphasis in the reveiw on what I and others have asked: who were the pushers of debt onto the virginal innocent Irish banks? Someone should punish the pushers! They conducted economic war on Ireland. If we knew who they were, we might say this is the second time they have done this?
http://www.globalresearch.ca/index.php?context=va&aid=18263
Not news, but helpful to Brian O’H?
@Pat
Sorry for the late reply.
Kondratieff, as I understand him, suffers from the same limitations that historians of revolutionary theory do, Colin Lucas for example, being their theories are a combination of sufficiently vague, sufficiently exciting and sufficiently indeterminate to allow any retrospective justification; it is technical analysis writ large. I much prefer Fischer’s debt-deflation as being a theory with a specific relevance – once you get to a certain level of debt, the normal rules no longer apply. Down becomes up, cats do indeed eat dogs.
We are in the position of having taken on too much debt.
We are also in a low inflation environment; in essence we might as well have a gold pegged currency because everyone believes the ECB when they say that inflation in the eurozone will average 2% or below over the cycle (or 1.5% plus the average growth of the six lowest eurozone economies, or whatever method is chosen today – it doesn’t matter, the ECB has credibility, we have a solid currency with lots of ‘confidence’ behind it).
Within that currency union, we have had massive inflation over the last ten years. It is not sustainable. We will have to have massive deflation to get back in line. This will mean lower standards of living for many of us. That is what Fischer’s theory means to me. We will be text book examples for future generations of students…
http://www.nakedcapitalism.com/2010/03/guest-post-greenspan-says-the-financial-crisis-was-caused-by-a-once-in-a-century-event-%e2%80%a2-taleb-says-any-pilot-who-doesnt-know-about-storms-shouldnt-be-in-the-cockpit.html
Yogan
I agree with you. Nonetheless, it seems that Kondratieff and Fischer are again correct despite 99% of all economists that ever drew breath being alive now.
Fischer apparently, was not the first with Fischer thesis! I will post the ref if I copme across it.
My further point is that it was predictable. It was used as a game plan by many. Like wise study of the Winter and Spring phases by later theoreticians may enable folks reading them to avoid further loss!