Department of Finance’s Strong Responses?
This post was written by Karl Whelan
Shane Coleman of the Sunday Tribune reckons that
It was extraordinary to hear commentators’ reaction to the spat between UCD’s Morgan Kelly and the Department of Finance. The latter was roundly criticised in some quarters for having the audacity to put up a strong opposing case to Kelly’s thesis that it was a matter of when, and not if, Ireland went bust.
I recall offering a pretty negative opinion on the media stories about the government’s reaction to Morgan Kelly’s piece last Sunday while on RTE radio last week. I’m not sure what others said but my negative reaction was not about people having the “audacity” to oppose Morgan Kelly. Rather my criticism was that the response did not at all put up “a strong opposing case”. Let’s look at one example from the many of these stories that were reported, the one reported by Coleman himself.
Let me point out three problems with this response.
First, it relies on anonymous sources. Frankly, my stomach churns every time I see people who have been brave enough to step up in public to say their piece being attacked by anonymous government sources. Let’s be honest here. This is a political game. If Minister Lenihan or other people in the government wish to respond to an opinion piece, they should do so in their own name rather than using the civil service.
Second, the “strong opposing case” includes stuff like this:
“Professor Kelly cites Uruguay as an example of how his policy works. Would Irish citizens, public servants and social welfare recipients be satisfied with Uruguayan levels of public services, pay and social welfare? I think not.”
Frankly, that’s not strong, it’s pathetic.
Third, the anonymous DoF source said the following:
The vast majority of bonds were so-called senior bonds – equivalent to deposits and on which no risk premium was paid.
Despite all the confusion about pari passu on windup, it is patently false to say that senior bonds are equivalent to deposits. Prior to September 2008, Irish bank deposits were insured up to a €20,000. Senior bonds had no such insurance offered by the government.
A carefully considered public response, authored by a named individual associated with the government, would have been a good idea. That is not what we got.
May 31st, 2010 at 12:23 am
Perhaps if Morgan Kelly didn’t pen so many devastating (and blackly side-splitting) put-downs he would be treated with more respect and fairness by the DoF and associated parasites.
May 31st, 2010 at 12:53 am
It’s up to the media not to grant anonymity to taxpayer-financed spokesmen attacking named individuals.
May 31st, 2010 at 5:46 am
Frank,
that is rather pointed, given Chow and Lie’s anonymity!
May 31st, 2010 at 5:46 am
I wonder do the politicians who have been representing that bonds and deposits are effectively the same, either (a) not understand what they are talking about or (b) deliberately confuse the two? Not sure which is worse.
In case there are any politicians who read this they should note the following:
For deposits, there was a good rationale to guarantee these in September 2008 as deposits are discretionary – they may be withdrawn or not deposited in the first place especially the overnight inter-bank market that the Irish banks had come to heavily rely upon. Therefore a guarantee for deposits was probably necessary so the banks could fund themselves and avoid the dreaded run on the bank.
For historical bonds, there is no discretion. When the bond was issued the cash has been received by the bank and its liability to repay that bond crystallises on the date specified when it was issued. Bondholders could not and cannot ask to be repaid in advance of that contractual date (unless there has been a cross-default). There is a case to be made that it was prudent at that time to allow guarantees for future bonds issued by the banks in order to preserve their liquidity but what was the rationale for guaranteeing historical bonds that had repayment dates in the future?
Why do we persist with this guarantee even after the original guarantee expires in September?
May 31st, 2010 at 5:49 am
Your first point is one that the opposition should be making, if there were an opposition!
Your fourth point was that this response shows that MK has in fact made and won his point! Hence the MSM trying to put lipstick on that pig :->
May 31st, 2010 at 5:51 am
Pa Bandit
Good points!
There is clearly something rotten still going on between the managers of our taxes and those who are STILL receiving them, despite the nominally capitalist nature of our economy where risk is rewarded with low taxation to encourage risk and endeavour!
May 31st, 2010 at 5:53 am
http://globaleconomicanalysis.blogspot.com/2010/05/can-chris-christie-fix-new-jersey.html
The above is to demonstrate that Irish teachers are underpaid and reasonable value!!!!!!
May 31st, 2010 at 9:59 am
Since MK’s blast the powers that be have continued to talk as if “Irish bank debt” and “irish sovereign debt” are, always have been, and always will be, synonymous. Unless this mindset is abandoned (which seems unlikely) the expiration of the explicit guarantee appears meaningless.
May 31st, 2010 at 10:05 am
@Pa Bandit
How would we be in a better place if we had excluded bonds from the guarantee? How much has guaranteeing these bonds cost? The only way to default on these bonds is to have the bank liquidation we are trying to avoid. The guarantee was only for TWO years and has so far and most likely will cost nothing. To that extent the TWO year guarantee was a resounding success, all upside and we didn’t have to pay out, like insuring a catastrophe which never happened.
Of course we now face the decision as to whether to roll-over the guarantee.
May 31st, 2010 at 10:09 am
@ Karl
Petty points Karl. If Uruguayy is being cited as a role model it is right to say “careful, you may get what you wish”. Deposits are different from bonds? Of course they are and you cite one difference. They also have a different name. But the essential point is that when it comes to default they rank the same
May 31st, 2010 at 10:16 am
Civil Servants are, to one degree or another, forced to be professional arse-lickers. They must not rock the boat or generate any personal animosity against themselves or against their departments. They are governed by the Official Secrets Acts, by their fellow workers extensive rights and by the constraints of intra Civil Service diplomacy. Lord help you if you alienate the draftsman’s office!
They are also under the scrutiny of the FoI Acts. Any written criticism of your fellow civil servant may be viewed by the person criticised as the equivalent of taking out a front-page advertisement in the tabloids blackening their name.
Politicians must also cling tenaciously tot he middle ground. Elections are fought at the fringes and offending even small groups of people can be fatal. Similarly, the power structures within political parties allow those at the top to be capricious in their treatment of those beneath them. Backbenchers and others who would run for election bide their time and keep their counsel.
Most other workers in the state are compromised to some degree or other be it by their bosses and organisations, by their customers or clients or simply by the market. However, for Civil Servants and politicians it is worse than most. When Morgan Kelly abuses them so succintly and bluntly it offends against the religious tenets of their organisation.
It also pricks painfully at their deeper knowledge that they have compromised themselves to a point where they cannot attack imcompetence as they should be able to. The more comprehensive the compromise, the deeper the errors, the more vicious the prick, the more bitter the reaction. No criticism elicits a more malevolent response than a true criticism of a dishonest person [I am not suggesting particular civil servants or politiciancs are dishonest]. This is a bit unfair on Morgan Kelly as he is not calling them corrupt or dishonest but rather he is calling them stupid.
@Pat Donnelly
I didn’t attack Morgan Kelly and I am not a “taxpayer financed spokesman”.
May 31st, 2010 at 10:41 am
@ zhou,
Thanks for this accurate and insightful view of the psychology of the much-maligned civil servant.
Prof. Kelly may no doubt have made some enemies in middling places, but surely the future of the Irish economy is at stake here. Bitter APs and AOs might grumble over their roast dinners at the Baggot Street Golden Arms, but they should not allow that to translate into cheap, off-the-point attacks at the substance of Prof. Kelly’s arguments.
I remember getting good advice from a retired career civil servant when I was on the cusp of embarking on such a career. He told me the CS could best be described by an anecdote of two men, Mr Sparky and Mr Cute, who were both going for a big internal promotion.
When they got before the board, their CVs were reviewed. Mr Sparky had done 100 things right and one thing wrong. Mr Cute had done only one thing right, but had done nothing wrong.
It was Mr. Cute who got the job.
May 31st, 2010 at 10:45 am
@Karl Whelan
“A carefully considered public response, authored by a named individual associated with the government, would have been a good idea.”
Yes - but well into 2nd year this is not what we get - political spin, failure to seriously address serious comments [such as Morgan Kelly - and a few others around here and elsewhere] ……. and what should be/is most worrying - IGNORANCE in the real sense of the term.
Corporate Governance Update:
With the appointment of three “outstanding” non-executive directors to the board of Anglo-Irish Bank [well connected insider upper-echelon of course] I find no evidence to update the Corporate Governance Equation:
CorpGov before the crash = CorpGov now; stat sig ***
The lunatic kleptocrats remain in firm control of the banking asylum, which is kept afloat by pumping in the socialized blood of the Irish Citizenry. 1789
May 31st, 2010 at 10:50 am
@Zhou Enlai
These problems are as old as the founding of the free state and if you follow my posts in the McWilliams “Outsiders” thread you will see evidence that some senior civil servants in the past have raised their head above the parapet and kept it there but it requires a very strong will to do this and by the nature of the civil service such actions are likely to occur behind closed doors.
May 31st, 2010 at 10:50 am
The portrayal of this debate as a a brave outspoken inmdividual versus a faceless state apparatus is pathetic and disingenuous.
First of all the last thing Morgan Kelly wants is to be cited as “academic sources”. He revels in the publicity.
Secondly, whenever someone on the official side does put their name to an opinion they are immediately dismissed on this blog as being in the pay of the government. Is it not more honest to simply be told government sources so there is no suggestion of independence.
May 31st, 2010 at 11:06 am
“The portrayal of this debate as a a brave outspoken inmdividual versus a faceless state apparatus is pathetic and disingenuous.”
Personally, I prefer to think of them as a faceless state ‘apparat’ - it more clearly conjures up images of the Irish govt gulags in the wilds of Leitrim…
But wait for the film version “The Morgan Identity”, in which MK is chased around the UCD campus by members of the Dept of the Taoiseach’s elite revolutionary guard - great climax scene on top of the water tower, involving the Garda helicopter.
May 31st, 2010 at 11:23 am
Having written a long post on the ethics and theory of journalists granting anonymity to sources, I then lost everything I had typed by idly following one of PD’s links!!
Suffice to say, nothing that amounts to much more than quoting pre-prepared spin allied to the lack of any real and present danger if the source were identified… I think I can quote Karl Whelan here and use the word “pathetic”
I daresay a number of the hacks who frequently quote “anonymous sources” have never really studied theory anyway. A lack of good grounding.
I vaguely recall reading something by Coulter (2005) - was/is at Queen’s? - related to this. Perhaps you can find it on google. No time to look at the moment.
May 31st, 2010 at 11:59 am
@Ribbit, the Morgan Identity would be a nice antidote to this (obviously completely unrealistic) portayal of academic economists which was on the telly last night:
http://www.thevisitorfilm.com/
May 31st, 2010 at 12:01 pm
@All
Just keeping in touch with those charged with protecting the Interests (sic) of the Irish Citizenry over at Anglo-Irish Bank ………..
GARY KENNEDY
joined the Board on 24th May 2010. He is a Director of Elan Corporation plc, Greencore Group plc, Friends First General Insurance Company Limited and Travelport Limited. He is also a Director of a number of private companies. Previously, he was Group Director, Finance and Enterprise Technology at Allied Irish Banks plc and was a member of its main board. Prior to that he was group vice president at Nortel Networks Europe after starting his management career at Deloitte & Touche. He served on the board of the Industrial Development Authority of Ireland for 10 years and also on the board of Calyx Group plc.
DR. NOEL CAWLEY
was appointed to the Board on 24th May 2010. He is Chairman of Teagasc and a Director of Board Bia and One51 plc. He was previously Chief Executive of the Irish Dairy Board and Chairman of the Irish Horse Board.
AIDAN EAMES
was appointed to the Board on 24th May 2010. He is a commercial lawyer and Managing Partner of Eames Solicitors, Dublin. He is a Director of Bord Gáis Éireann and is Chairman of their Risk Committee. He has served as Chairman and Board Member of a number of private and state enterprises and acts as advisor to leading commercial and technology companies.
http://www.angloirishbank.com/About-Us/Company_Directors/
MAURICE KEANE
who joined the Board on 21 January 2009, is a former Group Chief Executive and a former member of the Court of Directors of Bank of Ireland. He is a Director of DCC plc and Axis Capital Holdings Limited and is also a member of the National Pension Reserve Fund Commission. He is a former Chairman of BUPA Ireland Limited and Bristol & West plc
ALAN DUKES
who joined the Board in December 2008, is a Director and Public Affairs Consultant of Wilson Hartnell Public Relations Limited. He has served as Minister for various portfolios including Finance and Justice and is a former leader of Fine Gael. He was Director General of the Institute of European Affairs from 2003 to 2007.
DONAL O’CONNOR
was appointed Chairman in December 2008 and Executive Chairman in February 2009, having joined the Board in June 2008. He was the Senior Partner of PricewaterhouseCoopers (PwC) in Ireland and was a member of the PwC Global Board and Chairman of the Eurofirms Board. He is a Non-executive Director of Elan Corporation plc and Readymix plc. He is a former Chairman of the Dublin Docklands Development Authority and a former Director of the Irish Auditing and Accounting Supervisory Authority.
MIKE AYNSLEY
joined the bank as Chief Executive Officer in September 2009. Mr. Aynsley has over 30 years industry and consulting experience in banking and in financial services in Australia, New Zealand, the Asia Pacific Region and the United Kingdom. Mr. Aynsley has been working on a number of high-level projects since January 2006, in the areas of financial sector development, risk management, liquidity management and governance risk assessment. Previously, he held senior positions, including Chief Risk Officer in New Zealand for ANZ Bank and National Bank of New Zealand. Prior to this he was a Global Partner, Banking and Financial Services with Deloitte Consulting for five years. He was General Manager - Global Markets, Global Wholesale Financial Services for National Australia Bank from the early nineties, having held senior management positions with Security Pacific National Bank from the early eighties in Australia, Japan and the United Kingdom. He holds a Master of Business Administration degree from Macquarie University, which he obtained in 2007.
No comment!
May 31st, 2010 at 12:57 pm
@David O’Donnell
Nobody from Goldman Sachs on the board then!
Was Mike Aynsley with National Australia Bank when they owned National Irish Bank/Northern Bank in the 90’s? Any idea if he had any involvement with them at the time? Or should I ask George Lee and Charlie Bird??
May 31st, 2010 at 1:00 pm
Dr Noel Cawley was Chairman of the Irish Horse Board? Should be useful when it comes to closing any stable doors afterwards.
May 31st, 2010 at 2:05 pm
@Joseph
We obviously learned nothing from the Blaney/Grace Report into National Irish Bank ……… or the Beef Tribunal ……. from the connections of the three new non-execs …. the play is simple enough: circle the wagons.
IMHO, none [I repeat, NONE] of these directors can claim to be ‘independent’ …………. the upper-echelon kleptocrats remain in control ……….. no change …….. think we probably need a revolution to clean/clear out the web of institutionalised power in control of the resources of the nation …… I’m not holding my breath ……….
May 31st, 2010 at 5:19 pm
what exactly is different between what professor kelly is saying now and what he said in his paper last december? why the fuss now and not then? he went off and coauthored a very good paper on the LIA, chalanged a few orthodoxies, but doesn’t seem to have upset (or insulted) any geologists. did he strike a nerve this time?
June 1st, 2010 at 5:38 am
@ Brian Woods
“The guarantee was only for TWO years and has so far and most likely will cost nothing.”
Technically spot on - the Eur 30 billion or so that has been spent on the banks (excluding the Nama giveaway) so far is not a direct call on the guarantee. However, do you think it might be related or connected in any way? Also, most of it is in promissory notes so that’s not real money anyway.
June 1st, 2010 at 10:21 am
@ Pa Bandit
Maybe the recaps are related to the guarantee. But my point is that the inclusion of bonds in the guarantee is irrelevant. I am amazed that a sort of conventional wisdom is forming which says that including bonds on that night was a mistake in hindsight. This does not make any sense at all. I ask how would we now be in a better place if we had only guaranteed deposits and not the bonds?
More specifically where would we be in a different place? Can only be different if somehow we had defaulted on those small amount of coupons and redemptions due in the 2 years i.e. if we had by now put the banks into liquidation and paid out massive sums on the deposit guarantee and saved piddly amounts on not including the bonds.
Now if the guarantee had extended to all existing bonds for all time yes that would have been a step too far and unnecessary. It was a 2 year breathing space. We may need another 2 years and yes indeed there may come a time when liquidation is the least worst option, in which case no guarantees should be renewed. We are not there yet IMHO.
June 1st, 2010 at 1:21 pm
Lucky Lenihan is an accomplished politician.
With his fathers genes, from No Problem, through to the sallow complexion and the hair, we should not be surprised.
The Oxbridge veneer means that he has the grace of a Cameron.
As Minister for Finance he has displayed a masterful grasp of the politics of spin. His deft non sequitors leave his detractors gobsmacked. In another circumstance it would all be wonderful fun.
Sadly his reputation is based on the acclaim of stockbroker economists for guaranteeing the bonds they peddled to their clients.
Meanwhile, back at the ranch,
“The hungry sheep look up, and are not fed,
But swoln with wind and the rank mist they draw,
Rot inwardly, and foul contagion spread “
June 1st, 2010 at 11:02 pm
@Brian Woods 2
The bank guarantee is not costless - it’s COSTLY. Indeed it was almost FATAL. We have a relatively low national debt and are taking steps, well received steps, to tackle our deficit. We shouldn’t be a PIIG at all - it’s our banks that are bust not the country. Without the guarantee we would be borrowing much more cheaply and this would be aiding our deficit and therefore our economy. When introduced it immediately drove up (and has kept up) our borrowing costs to a point where, according to economist William Buiter, Germany had to publicly back us to prevent a total closure of the bondmarkets to us.
“When Ireland was about to be swept away by a wave of global financial mistrust triggered by the Irish government’s decision to guarantee effectively all liabilities of its banks, the then German Finance Minister Steinbruck made the amazing statement (which he obviously had not checked with his coalition partners, his Chancellor or his voters) that the Eurozone countries would not let one of their own go into default”.
So as a result of the guarantee:
“…Ireland was about to be swept away by a wave of global financial mistrust triggered by the Irish government’s decision to guarantee effectively all liabilities of its banks.”
http://blogs.ft.com/maverecon/2009/11/the-intrinsic-unimportance-of-dubai-world-and-the-important-wider-message-it-conveys/
As usual official Ireland hushed this up and I have not read coverage of it in the newspapers since.
June 1st, 2010 at 11:17 pm
@Brian Woods 2
You also excluded from the costs of the guarantee:
the €16.9 Bn napalmed on Anglo/Nationwide
(per Jagdip Singh “So now the “dead-money” bailout has cost us €16.9bn (€3.8bn + €8.3bn + €2bn + €2.7bn + €0.1bn) (Anglo 09 + Anglo 10.1 + Anglo 10.2 + INBS 10 + EBS 10).”)
and losses on the NAMA loans
and the 4.7 Bn “LTEV” overpayment by NAMA
and, well, that’s rather a lot to be going on with.
June 1st, 2010 at 11:36 pm
@Brian Woods 2
And there’s the ten billion the Central Bank lent Anglo, as well as the additional billions the government is putting in to a non-systemic bank.