Profile of Morgan Kelly

Today’s Irish Times has a profile of Morgan Kelly. As is appropriate for someone who was correct in predicting the house price crash and its consequences for our banking system, the article is very positive.

The implicit comparison in the first sentence with Nouriel Roubini is interesting. My sense of Roubini is that while his predictions of doom were less accurate than Morgan’s (I seem to recall Roubini being very focused for a long time on a dollar crisis as the source of the impending doom) he gets far more respect in the US than Morgan does here. For instance, it’s hard to imagine representatives of the US press going to policy conferences and declaring that Roubini should not be allowed speak at such gatherings.

124 thoughts on “Profile of Morgan Kelly”

  1. “A prophet is not without honour, but in his own country, among his own kin..” (Mark 6:4). The 1st Amendment guaranteeing freedom of expression – and the unbridled contest of ideas, opinions and evidence – is part of the US psyche. Ireland, I fear, suffers from being too small, incestuous and hidebound.

  2. For me, the most memorable image from Morgan Kelly’s Irish Times pieces, was in December 2008, when he suggested the first State investment of €1.5 billion in the builder’s bank Anglo, might as well be incinerated on St. Stephens Green – – and that was only €1.5 billion!

    http://www.irishtimes.com/newspaper/opinion/2008/1223/1229728473144.html

    Then, given lending of about €80 billion to developers, it follows that Anglo Irish is facing losses on the order of €15 billion. The true figure could easily turn out to be twice as large.

    With likely losses of this magnitude, the Government’s proposed investment of €1.5 billion will vaporise in months, forcing it either to continue pouring good money after bad, or to repudiate Anglo Irish’s liabilities. For all it will achieve, the money might as well be piled up in St Stephen’s Green and incinerated.

    Anglo Irish epitomised the Irish bubble economy. Its rise began a decade ago as the boom created a demand for houses and commercial property.

    As prices started to rise, banks made a miraculous discovery: the more they lent, the more prices rose; and the more prices rose, the more people wanted loans to get into the booming market. And the more loans that bankers made, the bigger the bonuses they could award themselves.

    It was brilliant while it lasted. One of Bank of Ireland’s stable of developers would buy an office block for €100 million, and sell it on a year later to one of Anglo’s for €120 million, and so on: a process known to bankers as adding value.

    Everyone was a genius and nobody could lose.

  3. @All
    McWilliams deserves huge credit too. The tactics used by Official Ireland – the most discredited establishment in NW Europe – against them both are now being used by Official Ireland against Brian Lucey for an honest mistake. I hope the evil and corrupt Vatican of NW European democracies fails in this effort.

  4. You didn’t have to be an economic genius to write the first article Morgan wrote, in December 2006 (although Morgan is a fantastically gifted economist). You needed something far more important: moral and intellectual integrity and courage. I have known Morgan for over a quarter of a century, and he has always possessed these qualities in spades.

  5. My favourite Prof. Kelly contribution was a good 6 months before Brian Lenihan’s bank guarantee. The cronies were very upset in March 2008 when Kelly suggested there might be a bank run. Seeing the brewing media storm, Kelly seemed to take a F**k this for a game of soldiers and said he was just spouting off. I’m sure there are better links than the one below:

    http://www.independent.ie/business/irish/banking-collapse-economist-was-just-spouting-off-1318359.html

  6. I’m not ragging on Kelly or anything, but I always find it a little odd when newspapers do profiles on their own contributors.

  7. @Ahura Mazda
    The cronys hit the roof all right:
    “Jim Power of Friends First described them as “ridiculous” pointing out that Irish banks are very well capitalised.”

  8. @Kevin O’Rourke

    on Kelly’s ‘moral and intellectual integrity and courage’ …

    Our most valuable intangible processes and assets … we need such intangibles in Power … and soon … or Kelly’s predictions will come to pass …

    1789 … has The Enlightenment hit Ireland yet?

  9. “For instance, it’s hard to imagine representatives of the US press going to policy conferences and declaring that Roubini should not be allowed speak at such gatherings.”

    Please, tell me this hasn’t happened to Prof Kelly.

  10. @Oliver
    “McWilliams deserves huge credit too”..
    Sorry but nothing McWilliams predicted, or will predict can absolve him for the atrocities committed on the Engilish language with the coining of those awful “Breakfast Roll Man” and “Popes children” etc phrases. He owes us all an apology at the very least.

  11. And so another of Morgan’s predictions — that we may end up bulldozing surplus houses — looks like it may come to pass. It’s the fact that he’s been so right that makes the people who were so wrong so angry.

  12. McWilliams definitely well ahead of the pack on this one. Yes he was premature, but that was partly due to the loose monterary policy, both in the eurozone and the US and the increase in ‘financial innovation’.

    If December 2006 is the earliest record of Morgan Kelly’s predictions then the predictions were very short-term and certainly no more farsighted than your average punter (who had bought well in advance of the crash).

    His main contribution was to highlight the scale of the property crash, which in itself was hardly rocket science, but it did require some moral courage. McWilliams on the other hand, continues to get up the nose of the establishment be they political, financial or academic.

  13. @ David O’Donnell:

    ‘If borrowers don’t repay their loans, the agency can seize the underlying asset’

    Of the 66% of loans not paying interest, how much land (‘assets’) does that represent, which the Nama could feasibly take over?

    I’ve been very worried by the creeping possessiveness of the State:

    -most of the banks
    -Quinn by way of the broken banks
    -How much property now?

    Are we becoming an accidental soviet state?

  14. In fact, I think it is fair to say that McWilliams has, by some distance, been the most relevant economist in Ireland over the last decade. Any potential house purchasers who listened to him should now be sitting pretty. As for the rest, they would have left you in negative equity. Perhaps NAMA could fund a new chair of economics in Trinity or UCD specially set aside for Prof. Williams.

  15. To be fair, McW wasn’t alone in his predictions that things would go badly wrong. A fair number of people were saying it, but McW had a unique talent for memorable soundbites and was almost alone in the public space – at least until a new king of doom appeared in Dr. Kelly.

    McW’s recent idea that we should leave the Euro seems less likely to cast a healthy glow on his reputation in the next 5 years. Maybe he’s a visionary and I’m not, but I still doubt that it’s a good idea.

  16. @ Hugh
    Time will tell. Remember McWilliams getting heckled at a property/equity conference in UCD around 2000. There may have been others like you said but no names spring to mind. Can anyone else out there think of an economist who can rightly claim membership to the ‘i told you so’ club?

  17. What would be hugely interesting is to get a profile of Brian Lenihan and to try to identify the moments in his career when he got the training and knowledge to let him be a Minister of Finance in one of the most crisis affected countries in the world.

    A short article in the Times perhaps…”Brian Lenihan’s qualifications to be Minister of Finance”. From what I know it’d be up there with the other short tomes you might find on this list. http://www.naciente.com/shortbok.htm

    Now, whether or not you think that Brian Lenihan is an honest, intelligent man – or perhaps especially if you do feel that he’s an honest intelligent man – the fact that the article would be very short is a major problem when it comes to Ireland finding the right solutions to a monster financial crisis.

    Having well qualified academics and journalists who are entitled to say “I told you so” is nice, but having a well qualified Minister would be even better.

  18. @ Paddy Orwell

    My father used to say self praise is no praise but as the issue has been raised, we took a strong stand against the bubble hysteria, even though banks were among our customers.

    – – the huge property investment overseas contrasted with the crumbs going into business venture capital at home; the broken political process; sham benchmarking; land rezoning bonanzas for multimillionaire farmers; development land scarcity in a country that was 4% urbanised; demography spoofers; poor standard of new housing compared with other countries in Western Europe etc; challenging wealth reports that put Japan and Ireland in top rankings when 35% of Japan’s workforce were temps while the claim for Ireland just wasn’t credible; highlighting how the employment growth was dependent on property while jobs in the tradable goods and services sector had stalled – – I challenged Cowen and Martin directly on this issue at a press conference.

  19. @Michael Hennigan

    Take a Chair Michael. The Institute for Stating the Bloody Obvious (ISBO) has one available at the mo.

  20. Sorry to be off topic but the NAMA opening statement to the Oireachtas is now available on the NAMA website at

    http://www.nama.ie/Publications/2010/NAMAChiefExecutiveStatementToJointOireachtasCommittee13Apr2010.pdf

    The statement “our own detailed due diligence on a loan by loan
    examination has revealed a troubling picture of poor loan documentation, of assets not properly legally secured and of inadequate stress-testing of borrowers and loans – all born of a mindless scramble to funnel lending into one sector at considerable pace and of a reckless abandonment of basic principles of credit risk and prudent lending” is pretty damning.

  21. @Paddy Orwell

    James Connolly was well ahead of the pack … and look what the establishment of the time did to him!

  22. ” ‘He certainly brings plenty of prestige to UCD…’ said one Government insider.” LOL, ’cause the rest of the faculty are a bunch of HACKS just shooting the breeze down at Belfield, obviously….

    Well done to Morgan Kelly.

  23. @All
    It’s time the establishment swallowed their pride and put Anglo/Nationwide into administration. This bank is poisoning our public life.

  24. Is it possible to draw up a “blacklist” of economists who were cheerleaders in the boom and now crack the whip in the recession.
    I don’t mind people getting it wrong or not pedicting things – it’s the arrogance with which these same people now sermonize that’s most galling.
    Regarding Brian Lenihan I can’t help but think that he can never stop being a barrister. He’s mastered his brief just enough to deliver his greatest piece of advocacy – letting the guys who robbed the country off scot free and having the rest of us framed. I used to think he was innocently duped by those gangsters but now I begin to wonder. His attitude regarding the public sector is sadistic. Even the language used is inherently abusive. He does not like us very much (us includes the private sector) I would venture to say that he does not like us at all. But I hope I’m wrong.
    I’m not an economist but it seems to me that the debate that’s happening on this blog should be happening in cabinet.
    I propose an end to this sadistic tyranny. Let’s give the govt until Jan 2011. If growth has not returned to the economy by then we have a national strike until they go. We replace them with a government of national unity with economists with a track record forming an emergency economic advisory cabinet.
    Simple as…

  25. @Eureka
    Seeing as I brought his name up, I do have to note that Jim Power has made some contrite noises.

  26. @Jagdip Singh – yes, that NAMA stuff is pretty hot alright. Fill your wellies and dive in there – you clearly have a gift for analysis and communicating your findings based on what I’ve seen of your posts here.

    @Eureka – “He does not like us very much (us includes the private sector) I would venture to say that he does not like us at all. But I hope I’m wrong.

    I’m sure there are good barristers out there but I haven’t met one yet. Most seem to think that all people outside their own profession are the scum of the earth and they treat everyone else as though they are ignorant serfs.

    There’s also a negative side to them (hat tip to gonzo journalism).

    As for the topic. Morgan Kelly is a diamond geezer innit? At least he’s got the guts to go with his convictions and is prepared to stand up and be counted (as are some of the other guys on this blog).

    Let’s not forget that there are some good people around in economics in Ireland and we are lucky enough to get to hear some of them here.

  27. WT… eh. What on earth is Minister Ryan, Minister for Communications and Natural Resources, let us remind ourselves, coming out debating economic policy for? I know Gonzos and B.Comms think they know everything, but for goodness sake. He doesn’t even know his own brief (“hands up on top of the bus if you don’t know what a broadband connection is”), so how he could be expected to know the one of two other ministers.. and on and on he proves that he doesn’t know what he is talking about.

    If it wasn’t so depressing, it would be comical.

  28. Wait a second Yoga

    Do you want to leave the Euro?
    Do you really want to leave the Euro?

    Besides, dont you know he has talked to Patrick Honohan.
    It would be great if the Professor got to grade his ministers!
    Or even a public viva!!

  29. @Al
    McWilliams has been everywhere and everywhere he has been very good. The opposition must put down a motion demanding that Anglo/Nationwide be put into administration when the guarantee runs out and that no further money directly by the government or indirectly by the Central Bank or NAMA is put into it. The continuance of Anglo/Nationwide is an outrage.
    How about this for an opposition plan:
    Put down motion as above.
    Put down motion of no confidence if it isn’t passed.
    Indefinitely suspend pairing arrangements until this government leaves office if that isn’t carried and start protest campaign.

    As I say this is an outrage, a €22 Bn outrage. The opposition should cancel normal service for good, as by keeping Anglo going the government are waging economic war on their own people. It is a historical irony that DeValera’s grandson will be remembered for doing the opposite of his grandfather by wilfully putting a huge debt onto the backs of the Irish public. Shame on him and the rest of them.

  30. Anyway, back on topic, when are we going to see economist top trumps, and who will be the star trump?

  31. @Joseph
    “Morgan Kelly is a diamond geezer innit? At least he’s got the guts to go with his convictions and is prepared to stand up and be counted (as are some of the other guys on this blog).

    Let’s not forget that there are some good people around in economics in Ireland and we are lucky enough to get to hear some of them here.”

    Couldn’t agree more. And yet we have to listen to Eamonn Ryan talk about the economy. He’s an expert in Irish wind alright (never knew that countries could claim national winds until now but there you go! Bound to be some jokes in that if I was wittier)!!.

    Seriously, though it’s time to get Morgan Kelly and the others into Government (or at least very close to government).

    Our children will be little comforted by the presience of bloggers as they beg to clean glasses in Hamburg or squat in New York. Ditto the old, left to die without dignity in squalor.

    If no improvement by January 2011 then bring on the national strike until a government of national unity is brought in on the proviso that Morgan Kelly, David Mc Williams, Brian Lucey and the rest get to do what we need them to do – i.e. contribute to policy.

    Blogs and newspapers won’t move this arrogant sadistic gombeenment. We need these guys where they can influence things.

  32. Said this on the Pin today and will paraphrase.

    Morgan is the best writer and the best polemicist (both equally) of all Irish Economists.

    Others can be very good, Messrs Whelan Ahearne (once) Lucey ( a U Limerick Guy whose name escapes me soz ) Michael Hennigan who is easily our most prolific Financial Journalist of all and of course David McWilliams who was great on Vincenzo lst night.

    None have been so utterly devastating over what has been a rather short series of written articles in the Irish Times ….no more than 10 articles in total I think.

    Some achievement. As the man said …..”I love the smell of napalm in the morning” 🙂

  33. @ OV

    Your narration of the Minister borders on …

    Back to work?

    Seriously though, the IT piece today, was a few years ago, some uber developer and their virile sucess story! Today it was Morgans turn.

    Does this highlight a navel gazing tendency within the media?

    Despite numerous editorials and all that, they arent exactly handing back any of the money they took in from the construction advertising?

    Do I have a point?

  34. @Al
    I’ve read with appreciation many of your wry observations. Just wondering though where do you stand overall? As for the celebration of Morgan Kelly, we really do need to celebrate dissenters.

  35. @All
    “Jim Power, the Friends First economist who stood with the ranks of Kelly-bashers in 2006, publicly switched allegiance last year.”
    Fair play to him for that. The role of banker and stockbroker economists generally in our public life must be debated though. If you work for a bank or a stockbroker you are much more likely to see things in a particular way. There are right and left wing economics lecturers. I have rarely heard a banker/stockbroker economist interviewed and thought he sounded left-wing.

  36. @ OV
    In fairness, I havent put cards on the table..
    So…
    I am’nt coming from an ideological position.
    Any position must reference ‘guarantee night’ as a reference point.
    Could things have happened differently, of course.
    But we are where we are.

    Come Sept, remove guarantee from Anglo at a minimum and execute the bank. I dont think this would be cost free, but we have to be willing to execute one of our own.

    We could also remove the guarantee from the other institutions, or at least threaten to.
    We as a nation, have allowed this process of loss calculation, recognition, and removal, to go on for far too long.
    There seems to be an unwillingness to declare whether we are conducting an biopsy or an autospy.
    If it be autopsy, then render the corpse, recycle the organs…

    Chapter 1 enough for tonight?

    Good night

  37. Sadly we cannot execute Anglo and INBS now that NAMA has accepted certain loans from those pieces of sh1t.

    Well Maybe we can total INBS because we are not the shareholders.

  38. @all
    How can all this talk be translated into action?
    I’m not a young hot-head. I’ve a young family and I’m sick and tired of another lenihan grooming our children for export.
    This has to stop!
    We must stop it!
    We know who has been right. We know who has been wrong.
    “For evil to thrive all it needs is for good men to do nothing…” well blogging and writing may be distracting from the fact that we are, in fact, doing nothing!
    Oliver’s point on pairing – I don’t understand 100% – but it sounds like a plan.
    Morgan Kelly is a great great man. So too btw are many of the people writing on this blog. We must seek to ensure that this great man (and others like him) triumph. There is a tone of history to this thread. Can’t write history while we’re still making it.
    Bring on the ideas for converting this into action

  39. @All

    Methinks the supine less supine – but still insufficient for a 1789. A little more ……………..

  40. @Al
    I basically agree with you except for the fact that the guarantee is a piece of legislation so we can repeal it tomorrow for debt pre-Sept 2008. Dail Eireann was mislead (at best) at the time so I see no reason not to do it tomorrow.

    @Everyone else
    I support the call for an election. Suppose though we get an Iceland situation and the new government take the bank investors side? The new government will be FG dominated and they haven’t covered themselves in glory. Labour shy away from putting any losses on senior bondholders (inevitable with Anglo). Would they send an administrator into Anglo when the guarantee expires?

  41. If he doesn’t have one already, Morgan needs to get himself a blog so that he can get his voice heard. It’s no surprise to me that the muppets whose lives exist only within the bubble of the D4 chattering-classes – namely, our great and glorious Irish media corps – probably detest him all the more now that he’s been proven right.

    I’m just thinking of a States-side econoblogger who finds himself in the same position, and who was (like Morgan) warning about what he termed the “Big Shitpile” of their property boom for years – Dunacn Black, ‘Atrios’.

    http://www.google.com/search?client=safari&rls=en&q=atrios+big+shitpile&ie=UTF-8&oe=UTF-8

  42. I support the call for an election. Suppose though we get an Iceland situation and the new government take the bank investors side? The new government will be FG dominated and they haven’t covered themselves in glory. Labour shy away from putting any losses on senior bondholders (inevitable with Anglo). Would they send an administrator into Anglo when the guarantee expires?

    Yes.

    Going into Anglo with a scythe would cripple FF’s ability to fundraise for decades.

  43. @ Oliver Vandt

    “Williams deserves huge credit too. The tactics used by Official Ireland – the most discredited establishment in NW Europe – against them both are now being used by Official Ireland against Brian Lucey for an honest mistake. I hope the evil and corrupt Vatican of NW European democracies fails in this effort.”

    First off I would like to say that I like David McWilliams and that he always has the best of intentions when giving economic advise in his commentary however a huge weakness that I think he has is that he often does not think enough about the consequences of his suggestions.
    When an inventor comes up with something new in their head that they think is a great idea, the next step is to then ask themselves Why wont this work?
    Mcwilliams can sometimes skip this step.

    Many people now see the Blanket guarantee given on the 30th of September as the Biggest financial mistake in the history of the state.

    However in the days leading up to the Guarantee it was McWilliam’s who was writing articles suggesting this type of blanket guarantee. We also know from his own book ‘Follow the Money’ that Minister Lenihan paid him a visit on the faithful night to ask him for his opinions.
    The Minister was carrying a copy of the independent.

    On the 24th of Sep McWilliams had written the following in his weekly article.
    “We can’t afford to do what the US is proposing and set up a similar toxic fund to bail out the Irish banks’ property debts. We don’t have the cash.

    However, there is something we can do. By giving a full deposit guarantee now, the State could re-energise creditors’ — both big and small — confidence in our banks. In fact, given what is happening all over the world, a comprehensive guarantee would prompt foreigners to lodge their money in Irish banks. As a member of EMU with the lowest State-debt-to-GDP ratio, Ireland would be ideally placed to offer itself as a financial port in this international storm.”

    As Richard Bruton says in his review of McWilliams Book
    “The idea of the blanket bank guarantee which McWilliams had been hatching in a series of articles was brought to life on his kitchen table.”

    Bruton goes on to defend McWilliams

    “McWilliams’s vision was that the guarantee would give breathing space, not to get the taxpayer to buy bad loans in order to save all the banks and their bond holders, but instead, to force the banks to confront their problems, to take their losses, and then Ireland would emerge with a smaller but fundable banking system”

    However when you think about it the problems with McWilliams plan, which the minister essentially followed, was that once you give a blanket guarantee banks may use it as a bargaining tool and once given it is not that easy to take it away again.

    McWilliams seemed to miss the point that once you give private financial institutions a blanket Guarantee at a time when they are hours away from meltdown, they may be likely to use this guarantee to their advantage.

    In his Article in the independent on the 1st of October entitled ‘Lenihans Masterstroke has bought us time to sort out our own problems’ he says

    “The minister obviously thought that by guaranteeing some banks and not others — as many of his advisers argued — he would open up the prospects of the weaker banks undermining the stronger ones. He has put the system first and this can only be a good thing.”

    The question we will not know the answer to is if Mr Lenihan had followed the advise of ‘his advisors’ and let anglo go rather than McWilliams advise how much would it have saved the tax payer and burned the bond holders?

  44. @ Eamonn Moran

    “By giving a full deposit guarantee now, the State could re-energise creditors”

    The EU at this stage would probably have even more of an issue with a new deposit only guarantee, as this would disrupt interbank funding markets, making deposits far safer than bonds despite them being of similar debt ranking. At least with a guarantee covering bonds and deposits there is no favour being shown to one over the other.

  45. @Eoin: You haven’t bothered to ask the EU. So what you posted above is just idle speculation. Do you have any evidence that the EU is thinking that way or is it just “spouting off”?

  46. @ Eoin
    Not sure if you took this up wrong

    “By giving a full deposit guarantee now, the State could re-energise creditors”
    are not my word but the words written by McWilliams on the 24th of Sept 2008

  47. @all
    “We can’t afford to do what the US is proposing and set up a similar toxic fund to bail out the Irish banks’ property debts. We don’t have the cash.

    “..However, there is something we can do. By giving a full deposit guarantee now, the State could re-energise creditors’ — both big and small — confidence in our banks. In fact, given what is happening all over the world, a comprehensive guarantee would prompt foreigners to lodge their money in Irish banks. As a member of EMU with the lowest State-debt-to-GDP ratio, Ireland would be ideally placed to offer itself as a financial port in this international storm…”

    This is illogical on Mcwilliams part. He was suggesting that we had the money to cover all depositors if there was a run on Irish banks. I don’t know the figures for the rest but it seems common knowledge now that Anglo has 24Bn. Where were we hiding all that dough?
    Also it recalls the mails in a London branch of Anglo touting for deposits, just after the Guarantee – by some relative of was it Seanie?

  48. @Eamonn Moran
    I would define the blanket guarantee as covering deposits AND all bondholders. Did McWilliams propose this or just all deposits? Incidentally everyone is agreed that depositors are totally covered.

  49. Hat off to Morgan and McWilliams!

    But.

    Where do we go from here?

    Street action may impress, but do we really think GFF will see the light? A Garda baton charge has been used before on trouble makers. Some chat with high ranking might not go amiss? Likewise, some of the public servants at ASG level, are likely to be sympathetic. Bloodless is best …..

    Then what? What is the preferred economic policy, to be put up as a mandate after the no confidence motion fails?

  50. @ Eamonn Moran

    “By giving a full deposit guarantee now, the State could re-energise creditors”
    Yes, that is what he said.

    You appear not to know the difference between a depositor and a bondholder.

    Much like the Department of Finance in September 2008. Have they learned since then?

  51. @ Eoin,

    Seems to me there is a fundamental difference between a deposit and a bond in terms of the debt ranking. Deposits are a fundamental aspect of the system of money supply, while bonds are a debt obligation against a particular, private institution.

    Of course, their ‘debt ranking’ is as much a result of how these classes of lenders are treated by the state, so in a way your claim is a bit of a self-fulfilling prophecy.

    Most European countries, BTW, only protect deposits up to a certain limit, 50k EUR say.

    The logic is that if you have more than that in cash, you can afford the due diligence to risk-price your investments appropriately.

    As for banks getting money on interloan markets – wasn’t this where the problem came from in the first place ?!?

  52. @ Eureka

    ‘Blogs and newspapers won’t move this arrogant sadistic gombeenment’

    An Taoiseach presided over the bubble, as MoF. His position is now hugely embarrassing. The steps taken by the current MoF are equivalent to putting up scaffolding around an unstable building. We can bluff for a while longer for a while longer, but the gig is up.

    ‘We know who has been right. We know who has been wrong’

    With respect, and sympathy for your obvious frustration, this is a time for cool heads. The economic and social challenge before us is much more complex than you suggest.

    This wasn’t all the doing of a few individuals, or of one political party. While the vested interests are most glaring in case of FF, they are present in all parties, and in both public and private sectors. The property bubble and the public spending bubble are all part of the same unsustainable process.

    Insiders put the arm in, and facilitated others in doing the same, at all level of the economy. Services went crazy too. Like all bubbles, the common belief was that rising asset values would keep it all rolling along.

    The major private sector players, including the banks and especially their bondholders, knew that bubbles always burst, but they were confident that the state would rescue them. As indeed seems to be the case. Thus far.

    From a citizen’s perspective, it seems NAMA/ Anglo is about sustaining a certain status quo (saving capital investors and sustaining property prices), at the cost of employment, emigration and regression of the state. It seems also designed to preserve and protect institutions and professional bodies who abandoned their own claimed standards of integrity. Covering up once more.

    Those who support the current ‘recovery’ strategy are well organised and close to the levers of power. The opposition lacks political coherence, and includes various other vested interests.

    This blog includes folk who know much more about the specifics than you or me, and luckily they are willing to share their insights, so let’s try to reach a bit more consensus before we go charging ahead.

  53. @ Paul,

    In general would it not be better to keep this site for explaining & discussing the Irish economy? If not, then it will deteriorate and frighten away the talented people we might otherwise learn from.

    But I am moved to comment on one of your statements above.

    Re: “An Taoiseach presided over the bubble, as MoF. His position is now hugely embarrassing”

    Brian Cowen was put in charge of a runaway train created by Charlie McCreevy and Bertie Aherne, so he is not the one chiefly responsible, although of course he should have done more to try to get control of the ‘runaway train’ when he was Minister of Finance, even if all sorts of people (IMF etc) were still saying positive things about the Irish economy.

    There was a good letter in the Irish Times last August from a John Finn,
    http://www.irishtimes.com/newspaper/letters/2009/0820/1224252940645.html

    “Oireachtas banks inquiry proposal

    Madam, – Colm McCarthy has suggested a possible Government inquiry into why the banks “failed” (Home News, August 18th). In order to save time and cost to the taxpayer, I suggest he look at the 2007 Central Bank Stability Report which highlights that lending for construction and real estate grew from €5.5 billion in 1999 to €96.2 billion in 2007 – an increase of 1,730 per cent or €90.7 billion over eight years.

    In the same period total lending grew by €120 billion, implying that lending to all other sectors of the economy grew by less than €30 billion. Assuming that the banks report quarterly to the Central Bank/Financial Regulator, the explosion in property-related lending (the lion’s share of which related to the “real estate” rather than “construction” category) equates to 54 per cent per quarter. The disproportionate growth in such lending was both at odds with stated economic policy and sound risk management.

    It is inconceivable to think that such growth went unnoticed. I would respectfully suggest that this statistic alone clearly demonstrates the abject failure of the Financial Regulatory regime and the probable complicity of others. Such concentration of risk is a basic risk management error. That it was allowed to grow to a magnitude that threatens the economic health of the country for a generation is unforgiveable.

    Based on the above, the question is not how did it happen, but who allowed it to happen? – Yours, etc,

    JOHN FINN, Managing Director, Treasury Solutions Ltd, Monkstown, Cork. ”

    In terms of elected politicians (with the power to protect us) the answer to this last question is: Charlie McCreevy and Bertie Aherne.

  54. @ Oliver vandt

    I am curious about the article you quote from in your post of April 13, 7.15pm.

    See link http://www.irishtimes.com/newspaper/weekend/2010/0403/1224267604942.html

    In my view the article doesn’t ring true.

    There are a number of odd things about it. For example, the liquidity rule doesn’t sound right. I’ve never heard of a liquidity rule whereby daily cash inflows have to equal 90% of cash outflows. I’ve heard of rules where cash balances have to be a percentage of debt, but not the ratio described in the article.

    I would also be curious if people find it credible that a risk manager who was only in the company for a few months would be allowed call in an outside Risk Management company from the UK to audit the company’s books.

    Morgan Kelly has been up front about his criticisms of Government policy. However this article quotes an anonymous risk manager about an anonymous company. I would be very sceptical about this article, but would be interested in what other people think.

  55. @ Eoin and Yoganmahew

    I think you guys are missing the point that I am trying to make.

    Oliver was saying that David McWilliams deserved huge credit as well as Morgan Kelly.
    What I was suggesting was that his Idea for a bank guarantee scheme to cover all banks including Anglo was essentially championed by him.
    Remember this type of guarantee had not been tried before.
    According to McWilliams, other advisors to the minister suggested otherwise.
    McWilliams wrote in his article on the 1st of Oct 2008
    “the minister obviously thought that by guaranteeing some banks and not others — as many of his advisers argued — he would open up the prospects of the weaker banks undermining the stronger ones. He has put the system first and this can only be a good thing”

    It is now argued by many that although letting anglo go would have had a negative impact on the other banks it would have been better not to have included it in the Guarantee.

    You may have noticed that McWilliams himself is now arguing that the Guarantee should be allowed to run out and that Anglo should be liquidated.

  56. @ Garo

    “You haven’t bothered to ask the EU. So what you posted above is just idle speculation”

    How do you know i haven’t asked the EU or the ECB? How do you know i wasn’t out for lunch today with Manuel and JCT???

    From the ECB’s opinion on the Irish govt g’tee…

    “3.3 The extension of a guarantee to cover interbank deposits should be avoided as this could entail a substantial distortion in the various national segments of the euro area money market by potentially increasing short-term debt issuance activity across Member States and impairing the implementation of the single monetary policy, which is a unique competence of the Eurosystem under Article 105(2) of the Treaty. The ECB has expressed this particular concern in a number of opinions delivered to the authorities of Member States, including Ireland16.
    Furthermore, in line with the Declaration, the ECB reminds the consulting authority that the euro area governments committed themselves to making available for an interim period a Government guarantee of new medium-term (up to five years) bank senior debt issuance. In the same vein, the ECB’s recommendations on government guarantees state that ‘Government guarantees on shortterm bank debt with maturity of three to 12 months could be provided so as to help revitalise the short-term bank debt market.’ Moreover, it is noticeable that under the draft scheme there is no stated minimum maturity for any guaranteed liabilities which means that liabilities with a maturity of less than three months may be guaranteed in practice.

    3.4 The ECB notes that the guarantee provided for in the draft scheme is to cover all deposits and short-term debt. In this regard, the ECB notes the points made by the consulting authority on why it considers it necessary that short-term funding with a maturity of up to three months can continue to benefit from a State guarantee. In summary, it advanced the following points: (i) notwithstanding the improvement in liquidity conditions overall over recent months, credit institutions in Ireland remain subject to liquidity pressures; (ii) because the existing scheme covers interbank deposits and obligations of less than three months duration, a transitional phase is necessary so that the guarantees in respect of such funding can be phased out in an orderly fashion; and (iii) it will be possible for participating institutions to issue unguaranteed deposits, a strategy which is encouraged by way of the fee arrangements provided for under the draft scheme.

    3.5 The ECB acknowledges the significant challenges currently faced by the banking sector in Ireland and notes the points made by the consulting authority referred to above. However, granting government guarantees for bank debt with a maturity of less than three months should be avoided to the extent possible. The ECB reiterates that it is essential that the scheme will not impair the implementation of the single monetary policy throughout the euro area.”

    Ok, so (a) this is the ECB (though the ECB is the monetary arm of most of the EU, so same diff…) and (b) it is a more heavily nuanced description of what problems they have or are worried about with the Irish g’tee. However, for the same reasons i’ve mentioned above, the ECB is worried that deposit schemes covering all deposits would disrupt the interbank markets and lead to shorter term bank lending. So how about you go and “spout off”…

    @ Ribbit/Eamonn

    for the same reasons as above, a blanket deposit scheme would actually have the affect of making it more likely that banks would only lend to each short term rather than via longer term bonds, as cash is a callable liability in most cases while a bond is a term specific funding agreement. As such, it seems likely that having catch-all deposit schemes (rather than 50k limits) would make matters worse for bank funding situations, rather than better.

  57. @Eoin: You are still spouting. Just because you post three long paragraphs does not make your point. If anything it shows the opposite! This document talks about inter-bank deposits and short-term debts. Nowhere do I see any reference to retail deposits.

    Must try harder!

  58. @Joseph

    We shall storm the barricades together! Or the flower beds, if it’s Merrion Square…:)

    @Eamon

    David’s pretty open about saying he suggested/persuaded Lenihan to introduce the guarantee – and you know, it did succeed in getting us past that crisis. The question remains..why Anglo….

    Possible Answers
    Eu – No bank left behind
    AIB/BOI – cos they had deposits/bonds in it?
    FF conspiracy – Even I find this hard to believe….
    Incompetence! – they just had no idea how bad it was….
    Anglo lied….

    This is what the bank enquiry will hopefully reveal..

  59. @Sarah,
    Other possible answers:

    1)If they didn’t cover Anglo, the Govt could have been in breach of competition law. As it was it was obliged to extend the guarantee to the British banks, but this became superfluous when the British implemented their own scheme.

    2)I imagine Anglo’s shareholders would have had a strong legal case against the Govt if it had been excluded from the scheme causing the bank to collapse.

    3)Confidence. What would have happened if depositors queued up and found that Anglo hadn’t the money to pay its depositors? It would have undermined confidence in the whole of the Irish banking system. The idea that your money is not safe in a bank would have been a big psychological jolt. The effect could have been depositors withdrawing money from the other banks notwithstanding the guarantee.

  60. @Eamonn
    “I think you guys are missing the point that I am trying to make.

    Oliver was saying that David McWilliams deserved huge credit as well as Morgan Kelly.
    What I was suggesting was that his Idea for a bank guarantee scheme to cover all banks including Anglo was essentially championed by him.
    Remember this type of guarantee had not been tried before.”

    No, I get the point you are trying to make. You don’t get the point I am making and Mr. McWilliams made as soon as the text of the guarantee was published. They guaranteed too much.

    There’s a huge difference between a bond and a deposit guarantee – deposits being largely mobile are the risk in a run. They come, they go. Bonds, largely speaking, have a fixed term. The existing ones aren’t in any danger of going anywhere. Guaranteeing them only leaves you open to contingent liabilities.

    And a deposit guarantee is the standard response to a financial crisis, so you know where you can stick your “and remember…”. It is the guarantee of the whole system that has never been tried before. Unfortunately, Mr. Lenihan is no Scottie and his attempt to break the laws of banking physics will cost us dear.

  61. @Eoin
    “for the same reasons as above, a blanket deposit scheme would actually have the affect of making it more likely that banks would only lend to each short term rather than via longer term bonds, as cash is a callable liability in most cases while a bond is a term specific funding agreement. As such, it seems likely that having catch-all deposit schemes (rather than 50k limits) would make matters worse for bank funding situations, rather than better.”

    Not if you have a credible deposit guarantee and a guarantee of new bond issueance – the EU suggested solution and the standard (i.e. market expected) method of dealing with financial crises.

  62. @ Sarah Carey

    The key question here is not specifically why Anglo was not left sink but why during the post-Lehman crash phase of the financial crisis, only Ireland and Denmark guaranteed all bank liabilities?

    Wouldn’t a decision on issuing a sovereign guarantee of unlimited bank deposits at the late September meeting have stalled the outflows?

    Or if it was thought necessary to also guarantee liabilities, couldn’t that have been considered as a separate issue later in a more calm atmosphere?

    On Sept 30, 2008, the first day of the bank guarantee and the last day of Anglo’s financial year, IL&P transferred €4.5bn to Anglo.

    IL&P likely wouldn’t have done that without the guarantee of liabilities – – as they would have feared it would be viewed as a loan rather than a deposit.

    Do we know why liabilities were guaranteed and was it Seán FitzPatrick who suggested it?

    One strange aspect of that meeting was that FitzPatrick wasn’t at it but I assume there was an open phone line to Government Buildings.

  63. Would a decision on the fateful night to close all banks for a few days have created a breathing space for more informed decision-making or would it have just caused even more problems?

  64. @John Martin

    Agree.

    @Michael Hennigan

    Two supplementary points..

    1. Remember AIB claimed it was asked would it deposit money (7bn?) in Anglo on the night of the guarantee but it was never followed up. When Gillian Bowler refused to resign after the 4.5bn B&B was exposed, I always presumed that was because she went into Lenihan, sans sunglasses, and said “f&ck you, I was told to do this – why should I resign?”. [could be wrong of course, but it seems to fit]

    2.Lenihan has claimed that on the night of the guarantee, he did not speak to and was not contacted by Anglo – it was AIB…….that really leaves me wondering about what involvement AIB had with Anglo.

    (and of course John Martin’s points may be relevant and therefore we are speculating in the wrong direction…)

  65. @ Peadar

    Michael Hennigan is probably right about the order of responsibility. An Taoiseach is, unfortunately, on that list. Certain things follow (or ought to )follow from that. Unless, of course, we intend to carry on regardless.

    It would be genuinely helpful to me if you were explicit about which of my comments you feel are out of place on this site, or likely to frighten people away. I am simply describing what I see, and I am happy to be challenged or corrected.

  66. @ Garo

    “Nowhere do I see any reference to retail deposits.”

    You’re right. But there’s no reference to retail deposits in my original comment either! I just said that a “deposit only” guarantee would be an issue for the EU (or ECB per my second post). Further, for those that suggest, ‘fine, make it only applicable for non-bank deposits’, there would be obvious ways around this such as banks setting up non-bank subsidiaries. The key point im trying to make is that unlimited blanket guarantees of deposits are unlikely to be allowed by the ECB at this point, so its not the “easy” way to prop up the system.

    YM suggests that by having a bond issuance g’tee system you could get around this, but i still think that many banks would decide instead to keep much of their money in shorter dated cash deposits due to their callable nature, especially at times of uncertainty given their callable flexibility.

    Anyways, as Eamon said, this is rather a moot point as i dont think anyone is suggesting a new deposit g’tee scheme, i simply misread his post which had a quote in from DMcW back in 2008…

  67. PS as a ‘for instance’, i was talking to a large Irish insurance company today and they said they are still keeping a huge amount of their capital purposely with only the Irish g’teed banks. They’re just waiting until Sept when the g’tee ends and then they are going to decide what to do with it in terms of bonds etc…

  68. @Yoganmahew
    I think we can all agree then that McWilliams only suggested guaranteeing deposits.

    @John Martin
    Given the huge number of financial scandals we have had for our population (thank God for Iceland!), which is not much larger than Berlin’s,
    the basic thrust of the article seems believable to me, what with one of the largest insurers in the land, Quinn, being as it is.

    We can be sure that there are enormous but unrevealed scandals going on in our financial sector RIGHT NOW.

  69. I don’t understand the comments that this type of guarantee was completely novel and had not been tried before as I thought that this was the kind of extensive guarantee used in Sweden previously. I have not read about the Swedish guarantee since last year so but I recall Bo Lundgren saying when he came to the Oireachtas that he was supportive of an extensive guarantee and he specifically argues about covering the bondholders. I just found his comments where he did say by the way, that an alternative was to close down the banks for a while like in the US during the Great Depression as someone mentioned earlier. http://debates.oireachtas.ie/DDebate.aspx?F=FIJ20090707.xml&Ex=All

    “We presented a comprehensive package in September 1992 when we had a total collapse in confidence like Lehman Brothers in the US suffered last September. It was due to the currency turbulence in the medium-sized Gota Bank going bust. We had to guarantee the creditors of the bank and then suddenly one saw the spreads widening immensely and markets stopped working and we had to put the package into effect. The main ingredient to restore confidence was a blanket guarantee for all creditors, not for shareholders, not for perpetuals but for all creditors and all depositors. That gave immediate confidence, even if we had to explain the situation. That can be achieved in other ways. In 1933, President Roosevelt with the help of the former administration closed down all US banks for one week and then reopened the banks that were solvent. That gave back confidence to the banks and the banking system even if they had more problems in the US economy at that time. We also said that under the umbrella of the blanket guarantee we needed to be able to support banks since most of the big Swedish banks needed some kind of support. We got parliament to give us unlimited economic frames to go in with capital injections, mainly equity in that respect, provide guarantees or whatever measures were needed to handle the situation in different banks.”

    A speech on the Riksbank website also talks about a guarantee for the entire banking system.http://www.riksbank.com/templates/speech.aspx?id=1722
    “In September 1992 the Government and the Opposition jointly announced a general guarantee for the whole of the banking system….The bank guarantee provided protection from losses for all creditors except shareholders.”

    I am not saying that the Swedish decision to issue a guarantee was infallible and should be followed blindly in all cases but I don’t agree that the Irish guarantee was some mad decision concocted out of the blue with no rationale behind it. Without a bank resolution scheme, which we badly need and should have had in place (did the Swedes have one, I wonder?) I don’t think that we would have gotten an orderly wind down of Anglo with no repercussions for the banking system. I also think that it was reasonable AIB and BOI to be afraid of the impact of the collapse of Anglo on the system. I think that I might be in a minority on this site with that view though.

  70. @Oliver Vandt
    If the basic details of the story are wrong, it also calls into question the basic thrust of the article below:

    http://www.irishtimes.com/newspaper/weekend/2010/0403/1224267604942.html

    I would still like an opinion on whether:

    1) the Financial Regulator’s Office has a liquidity rule whereby daily cash inflows have to equal 90% of cash outflows. I’ve heard of rules where cash balances have to be a percentage of debt, but not the ratio described in the article.

    2) it is credible that a risk manager who was only in the company for a few months would be allowed to call in an outside Risk Management company from the UK to audit the company’s books, especially if the company was indulging in dodgy practices.

    If you are saying that because you think Ireland has a huge number of financial scandals that gives journalists licence to make up stories to prove this “truth”, I would have to disagree with you.

  71. There are many things in my life that i regret. Spending 9 years with Bank of Ireland is one of them, but appearing on RTE’s Prime Time with Morgan Kelly early in 2007 is top of the pile. Despite my deep scepticism about Fianna Fail’s stewardship of the economy since 1997, I went on and argued that Morgan Kelly’s views on the housing market and the banking system were over the top. I was totally wrong and he was totally right. I haven’t met Morgan since, but when I do I will offer him my sincerest apologies for doubting his prescience. I now realise that I was totally duped by what the regulator and the banks themselves were telling us about the health of the banking system. I had no idea that the banks could possibly engage in the quality of lending that they did or indeed that they could possibly get away with the quality of guidance that they were providing up until very recently. I also realise that i need to educate myself on the workings of a bank balance sheet and the credit cycle. Contrary to what the IT said, Morgan is a past pupil of Templeogue College, of which I am now on the Board of Management. The College is quite proud of its former pupil, as indeed it should be. Fair play to you Morgan and have some sympathy for us lesser mortals who have to ply our trade in the awful financial services sector.

  72. @Eoin: Fair enough. Though I would say that the regulator and government can make an explicit rule to keep deposits from bank subsidiaries and shell companies out of the guarantee. In general I agree with the ECB that unlimited deposit guarantees are a form of moral hazard and I don’t see the need to guarantee any deposits including retail above a limit say 100k or 200k. If you have that much in cash you can afford to do the due diligence.

  73. @ Sarah Carey

    Lenihan may not have been in contact with FitzPatrick but his bank was the big concern and he had yet to be declared personally toxic or have the prefix “disgraced” added to his name . It would have been strange that the chairmen and chief executives of his two big rivals had been invited to the meeting and he would be totally out of the loop.

    Brain Cowen was likely to have been in contact with FitzPatrick through that evening as they knew each other well.

    Cowen likely still at that point had a high opinion of FitzPatrick.

    If not FitzPatrick, who was providing necessary information on the state of Anglo?

  74. PS: Obviously if you are only guaranteeing deposits to 100k you cannot give a guarantee to senior debt.

  75. Kudos to Jim Power for his honesty in admitting past mistakes.

    Jim, many of us didn’t see it coming or perhaps saw something coming that was less serious than Morgan’s predictions. Few are willing to come out and say in public that they got it wrong, so congratulations for doing so.

  76. @ Jim Power

    This is a very admirable contribution.

    I wrote last year on economic policy in 2001:

    A survey by Finance Magazine before the 2001 Budget, of the leading economists working in Ireland’s financial institutions, showed a substantial majority providing broad encouragement for the Government’s economic policy approach, with approval given to continued cuts in income taxes.

    Economists such as Jim O’Leary, Dan McLaughlin, Eoin Fahy, and Alan McQuaid all called for cuts in both the top rate of tax and the standard rate, with ABN AMRO’s Dan McLaughlin pointing out that the old target rates for income tax of 40% and 20% should be replaced with new medium term targets of 30% and 10% respectively.

    The dissenting voice amongst the nine economists was Jim Power, chief economist of the Bank of Ireland, who rejected the supply side consensus.

    “Cutting taxes further will not increase the supply of labour,” he said. “It is fine to make headlines about the need to attract foreign workers into the country, but the reality is that we are not in a position to house these workers.”

    http://www.finfacts.ie/irishfinancenews/article_1016709.shtml

  77. Much more on topic-ish, if you want to read about the guys in the US who spotted the sub-prime crisis there first (and actually staked big on it collapsing) you should read Michael Lewis’ (he of Liars Poker) new book The Big Short. Interestingly, most of them appear to be recluses or borderline insane, as anyone even remotely ‘normal’ was sucked in by the consensus view.

  78. @Eoin
    thanks for that post – hadn’t heard of this guy I confess but a quick sniff along the google trail seems to indicate the answer to the mystery question I was asking last week elsewhere on the site – i.e. where has all the money gone? Somebody suggested the “gnomes of Zurich” or the “elders of Zion”, or some such. But a more plausible explanation albeit still a conspiracy theory is Goldman Sachs. Here he is on them:

    http://www.bloomberg.com/apps/news?pid=20601039&sid=a2X3hNaWcbeg

  79. @Jim

    Echoing KW’s remarks, well done. There are many striking features of this crisis, one being the reluctance of almost anybody to put their hands up.

  80. .. and from Matt Taibbi in Rolling Stone of all places:
    “. All that money that you’re losing, it’s going somewhere, and in both a literal and a figurative sense, Goldman Sachs is where it’s going: The bank is a huge, highly sophisticated engine for converting the useful, deployed wealth of society into the least useful, most wasteful and insoluble substance on Earth — pure profit for rich individuals.”
    http://www.rollingstone.com/politics/story/29127316/the_great_american_bubble_machine

  81. @ Jim
    Your honesty is extremely refreshing! You are definitely ahead of the curve in the contritition stakes!

  82. @ Jim

    It’s heartening to hear someone fess up when they called things wrong. Fair play to you.

    I think more of this is what is required when people talk about tolerating failure – it is okay to fail and to make mistakes so long as we learn and move on.

  83. @Jim Power
    Well done. It must be very difficult to do but judging by the reaction here the public are quite open to it.

  84. @John Martin
    “If you are saying that because you think Ireland has a huge number of financial scandals that gives journalists licence to make up stories to prove this “truth”, I would have to disagree with you.”
    I believe that we’ll have to agree to disagree.

    @Michael Hennigan
    I think the boom went on for so long and seemed so unstoppable – especially after the slowdown after 9/11 was so short – that some who had been cautious either kept silent or joined the cheerleading. I am not an expert so my overview of the state of the nation was based on the views of others with greater knowledge (negative on house price bubble) and what I read and watched (positive generally).

    In late 2007 my summary would have been that Ireland was:
    an exporting country;
    which was having a housing boom like Britain in the eighties;
    but with strong fundamentals.

    I thought that the house prices would fall significantly for some years but would recover in nominal terms within less than say 10 years due to a dynamic, young, exporting, flexible, energetic, golden, sunlight uplands future economy. This was the impression the government gave me up to and long after the 2007 election (minus any reservations about house prices).

    Then we hit the iceberg they had been steering the country towards at ever greater pace for the previous half decade.

  85. @Jim Power
    Thumbs up.

    See if you can prevent the next generation from climbing on the madness train. Transition year might be an apposite time to give the basics of sound household finance?

  86. And even now, the Government appoints people to advisory committees who think the banks were well-regulated and that Kelly was simply a sensationalist.

    P.

  87. @ Jim Power,

    Jim, hats off for your apology to MK and your humility in accepting your mistakes. One doesn’t hear much of this in Irish public life and it is tremendously to your credit that you are holding your hands up.

    It does, however, continue to baffle me as to how all you guys called it so wrong. I got a dodgy B in my Economics Leaving Cert some time in the last millennium and even as an amateur I could see this all coming from 2003 or 2004 onwards. There was never a moment of doubt in my mind. I am genuinely non-plussed as to how professional commentators and economists in such overwhelming numbers couldn’t see it. I guess it is a testament to the power of bubble psychology.

    Anyway, I don’t want to be unmagnanimous by having a go. All I really wanted to say was fair dues to Jim.

  88. @Jim Power

    You may not have led the world in predicting how bad the banking crisis would become but in a world where few apologise and those that do are rarely credible, that showed the way. Not easy to do. Well done!

  89. Jim,

    Well done and bravely said. I might now refrain from circulating the link to the aformentioned Prime Time clip which I use to illustrate the hubris of the financial establishment and its spear-carriers during the boom.

    Instead, I think I shall use your mea cupla comments on this thread to illustrate that nemesis is possible, and can be recognised as such. Someone once said that for a apology to matter it must hurt a bit.

    Now it’s my turn. Some years ago you and I regularly debated the wisdom of the UK and therefore NI joining the euro. Thank Jaysus we didn’t. Now we have to figure out how to deal with the deficit, but the facts are that the ECB would never have allowed a eurozone state run up the deficit which Alistair Darling did to (necessarily in my view) mitigate the recession in the UK.

    Now, of course, the Tories are planning to undo all that by xeroxing the great plan which has wrecked the economy of the Republic of my birth. But that is something for another thread…

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  91. http://www.crackshackormansion.com/

    This game reveals a mass of concern about Vancouver. I got 13 out of 16. Not too hard, once I got the hang of it. Prices can be set at the margins, by significant buying by persons unfamiliar with the market, and even can be self reinforcing. Sounds like a winner!

    Jim Power
    The credit cycle is what banking is all about. A creeping madness that ends as a myriad of mal investments the yanks call Ponzi schemes. Pyramids. It takes two generations, Yogan!

  92. @Sarah, Jim
    Now, I’m sure you two would like to be left alone together for a few moments ….

    bjg

  93. I am not so sure about Jim Power’s mea culpa. I noted ever since I saw a youtube video of Power and Joe Higgins in a socialist party debate in Wynns hotel a couple of years ago that he was making moves to cross over to the ‘other side’ in the post crash scenario, for purposes of future survival or because of a genuine new-found enlightenment I could not tell.

    As we see here the transformation is ongoing. A lot of you will no doubt find that unmagnanimous but I would ask you to bear the following in mind:

    – during the bubble Jim Power ran with the crowd. Now in the new environment he is running with the crowd. Therefore he has form in this regard.
    – I am not an economist but over the last 8 – 10 years I have educated myself on economic matters primarily by reading the commentary available on the internet, which was fully available to all of these ‘experts’. The quality and depth of this commentary has been superb, especially by independent american and english commentators and former insiders.
    It is not credible to anyone who has read the commentary available on the web that the homegrown crop of ‘experts’ who have populated the television, radio and newspapers in Ireland during the bubble were speaking from a position of understable error. When one is acquainted with the facts there is little chance that these people were speaking from error because the outlines of the crisis were clear and inevitable for at least the last 7 years or so. It is much more likely that these people were liars looking to the main chance, particularly their careers.
    In light of that Jim Power’s assertion that he now realises “that I was totally duped by what the regulator and the banks themselves were telling us about the health of the banking system. I had no idea that the banks could possibly engage in the quality of lending that they did or indeed that they could possibly get away with the quality of guidance that they were providing up until very recently” rings untrue to me. It is simply not possible that this is the case and I say this as one who is not economically trained.

    You may say this is unmagnanimous but I would reply that I am merely employing logic, which I have done at every point throughout this decade and which, along with the excellent and honest commentary on the net, has steered me right for a decade.

    Perhaps Power is genuinely remorseful, if so that is a private matter for him. In the public sphere neither he nor any of the other ‘experts’ who have wrought such havoc upon our country by their actions should be allowed to occupy further public space. That is the least penalty they should pay for what they have done.

    As in all things so in this: caveat emptor.

  94. From McWilliam Column today in the independent.
    “Initially, the guarantee — which I was a supporter of — was about containing the crisis. If you see a contagious bank crisis as a forest fire, doing nothing in the chaos of September 2008 and allowing the banks to go under would have been like a firefighter letting a forest fire blaze out of control, irrespective of what was burned in its wake. The State had to do something at the time.

    However, the initial advice was to limit the guarantee to two years and then let it lapse. In this way, you could contain the crisis, see how bad the banks were and step back, giving the problem back to the banks and their creditors who had (a) caused it in the first place but also (b) are best placed to unravel it.

    We are now being told that if we were to take the guarantee away now, the banks would collapse because of their funding difficulties. Well if a bank, as a business, can’t survive without government support, then it ceases to be a proper business and should be given to a liquidator to get the best price for any assets it has. The deposits can be guaranteed, transferred and form the capital base of a new or existing bank and away we go. No old bank, no old problem.”

    I think this puts to bed the arguement made by some that David McWilliams only favoured a deposit guarantee.

    If he had done surely he would have mentioned it above?
    Also he clearly states in his article on the 28th of sept 2008 that “The only option is to guarantee 100 per cent of all depositors/creditors in the Irish banking system”

    So why is it the right thing to let the rules of Capitalism go into full force now but not back in September 2008?

    If Anglo had not been included originally it would just have been hard luck to bond holders but removing the guarantee now is essentially a sovereign default.

    I would love to know if David still thinks including Anglo was the right thing to do or was the option of the ministers advisors who had suggested only guaranteeing AIB and BOI a better option in hindsight? Given that the government has put in 12,000 million and are likely to put at least 10,000 million more into Anglo alone I know where my opinion lies.

    In my opinion the guarantee did two things
    1. Prevented the realisation of the losses at that that time
    2. Exacerbated the proportion of the losses that would fall on the tax payer rather than on private creditors.

    So when Sarah says that the guarantee “got us through that crisis”. I have to say that i think it actually just delayed and exacerbated it and left us with a much larger bill to pay over a longer time.

    When promoting the Idea of the guarantee McWilliams said the great thing about it was unlike other options that it would not cost us anything.
    “the beauty of guaranteeing deposits is that you use no money – not a penny”
    His presumption was obviously that it would never be called on.

  95. civic.critic
    I agree with all that you say!
    The info was available. And what happens next is highly probable, too! The path of a depression is well known. Just recall that for Japan it is now twenty yuears without resolution. USA since 1999. They reinflated so aggressively the Irish fell for it. But the mal-investments have yet to be resolved in Japan. Ireland seems to want land values to remain high. Japan is slowly losing that battle. Drawing out the agony is an interesting way to kill the economy. Liquidate today and lower costs!

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