Month: July 2010

How housing slumps end

Agustín Bénétrix, Barry Eichengreen and I have a piece over at Vox looking at the end of house price collapses. Historical patterns don’t suggest that Irish residential prices will stop falling any time soon; the best way to ensure that they do is to let them adjust downwards as speedily as possible.

Update: in light of a recent article in the Sunday Tribune, I should clarify that nowhere in the Vox piece do we present estimates of the extent to which house prices will decline in Ireland. When asked by the journalist in question how far they would have to fall, I replied that I agreed with Morgan Kelly’s analysis, or words to that effect. When pressed as to what that meant, I gave the figure mentioned in the Sunday Tribune. I am always happy to cite and give credit to Morgan’s work in this area, but I am not happy to be presented as an independent source of analysis on the subject, much less to be described as a “leading housing researcher”.

There. That feels better.

Recovery Secnarios for Ireland: An Update

For those who are interested, our article on the above topic is available here.


No Frank, NAMA is Not Being Funded by the ECB

On RTE radio this morning (on Today with Pat Kenny with, em, Myles Dungan) Fianna Fail TD Frank Fahey said:

I stand by what I said about NAMA from the very beginning. NAMA is being funded … the bonds are being funded by the European Central Bank.

Now I know that language is a flexible thing and perhaps philosophy graduates could spend all night debating what the meaning of “being funded” is. But, I would suggest that the only reasonable interpretation of this statement is that it implies NAMA are receiving funds from the ECB.

This is not at all true. The ECB has no direct relationship with NAMA at all. NAMA bonds can be used by the banks that have received them as collateral for loans from the ECB but that’s it, that’s the full extent of the ECB’s involvement in relation to NAMA. Furthermore, AIB and BoI executives told the Oireachtas last year that they had no particular plans to use the bonds in this fashion.

The NAMA bonds are fully backed by the Irish government. They are a liability of the Irish state, albeit one entered into at the same time that it acquired some property assets that may or may not yield enough to pay off the bonds.

It is long past time for government politicians to stop misleading the Irish public that NAMA somehow involves the state getting money from the ECB. I would plead with any journalist interviewing Deputy Fahey or any other commentator making this claim in the future to point out to them that it has no grounding in fact.

Moody’s “Negative to Stable” Comment Refers to the Rating Not the Economy

I have heard various RTE reporters state in three different reports that despite yesterday’s ratings downgrade, the good news is that Moody’s changed their “outlook for the Irish economy” from “negative to stable”. I know the vast majority of our readers know that this is incorrect. But, just in case anyone has been mislead by this, here’s where Moody’s use the phrase stable:

On 19 July 2010, Moody’s announced its decision to downgrade Ireland’s government bond ratings by one notch to Aa2 from Aa1. Moody’s has changed the outlook on the ratings to stable from negative as we view the upside and downside risks as evenly balanced at the current rating level.

So, you can see that it is the outlook for the rating that has been changed from negative to stable. Having downgraded the debt, they’re saying they’re not anticipating further downgrades now. In relation to the economy, Moody’s said the following:

The Department of Finance has based its debt projections in the SPU on the expectation of growth rates exceeding 4% in the period 2012 to 2014. For the reasons mentioned above, we believe these forecasts to be optimistic and instead expect real growth to range from 2% to 3% from 2011 onwards.

So, for what it’s worth, Moody’s are more pessimistic on growth in the Irish economy than the government.

Budget 2011

In an earlier post, I wrote about postponement of water charges and property taxes — partly because proper preparations started too late and have not progressed fast enough. The same is true for privatisation and, it emerged today, for child benefits. It looks increasingly likely that there will be €3 bln worth of spending cuts in the 2011 budget.