Review of IMF Performance in the Run-Up to the Crisis

The main report is here.

One background paper looks at surveillance in selected member countries (including Ireland): link is here.

Full set of links here.

17 replies on “Review of IMF Performance in the Run-Up to the Crisis”

A reader very helpfully, back in Nov I think, posted a link to an IMF report on Ireland which suggested they had little insight into the nature of the boom, nor the risks the boom posed.

Prior to that there was talk of the IMF arriving and sorting the place out. The reality seems to be that they are quite tentative, a bit unsure of themselves, but quite good at monitoring numerical targets.

Did the IMF have as one of their goals bringing the 10 year yield back where it was in august or did they know the whole deal was a crock of sh*t from the outset ? I remember Olli Rehn saying around 20 November that the deal would calm the markets. And it doesn’t seem to have.

You have got to respect the choreography:
1: Doesnt matter who you elect we’re the main men in town and
2: doesn’t matter who you elect they’ll have to approve 10 billion recapitalization as their first act
The messages are being delivered very effectively.

I am sorry but this is just too much of a joke to let fly by. The ten year tiger closed today at 8.99%. Yes, well below 9%. Egypt, which is in flames, is around 6.5%. On a quantified basis, I would guess that Ireland is roughly 30% more likely to default than Egypt. And, here we are waiting for the IMF to degree how many angles can dance on the head of a pin…

Is it at all possible to move this debate beyond what is happening now, in Ireland, to what Ireland needs to DO now to be ready for what Ireland will HAVE to do AFTER the general election?

ALL the rest of the entire world wants to know is who will be representing Ireland after the election, what they will be saying and what they will be DOING.

“Kazakhstan takes for the world stage” is one of the slogans that country trots out in advertising features in the global business press.

Ireland is ON the world stage, for all the wrong reasons. How we behave and what we do next will have a considerable impact on “Europe”, which itself is already struggling to maintain ITS declining position on the world stage.

It is clear that after the election our room for manoeuvre is so constrained that it should be quite easy to agree on the two or three things we’re going to/be able to do. ( We’re NOT going to default, so let’s stop talking about it and simply be aware that the people we’re negotiatiating with are aware that we MIGHT have decided to default and be content with that!).

Over on the “Kazakhstan” thread, Aidan C. suggested a Pecora process, the process that investigated the 1929 crash, led to the Glass Steagall Act and the creation of the SEC, which led to a “sound” financial system in the US for almost 50 years. Until the ACT was repealed and the failure of SEC (and other) regulatory supervision allowed/facilitated the recent excess and mess.

So, let’s agree that the new Irish government will set up some process that will lead to the resolution, reprivatisation or sell-off of the “Irish” banks.

And lets say precisely that to the EU/ECB/IMF and get down to negotiating.

We can also set up a process to investigate fraud, with a view to punishing criminals and tell our negotiating interlocuteurs that we’ll let them know the results. And they might even help us.

Once that’s agreed, we can concentrate on the future, particularly the fundamental changes about to take place in the European economic and political governance calculus known, for now, as the “Competitiveness Pact”.

These changes, which will come about because Germany ( the only European country/economy capable of “playing” on the world stage) has finally decided, after paying for “Europe” for so long, to take charge of “European” governance. On behalf of its” nations”, it says. And itself, of course. (“Réalpolitik is not a Gaelic, French or Polish word!).

Incohérence (a French word!) has hindered “Europe” up to now, including its political and economic institutions, its currency, fiscal and monetary governance, and seems to guarantee relative European decline if these steps are not taken now.

These steps will finally put “Europe” on a correspondent if not equal footing with the US for the duration of the fundamental re-positioning in the global military, economic, political, social and cultural power shift that is now taking place between the “West” and the “emerging” world, mostly in the “East.

Coming back to what Ireland has to say and do in the coming “European” negotiations, Wednesday’s “No one Size fits All” editorial in the NY Times, in which Ireland is mentioned specifically, defines the European and global as well as anything I’ve seen recently:

“As Ireland has demonstrated, the costs of re-floating banks are too big for the hardest-hit countries to finance by themselves.

Europe as a whole should help re-capitalize Europe’s wobbly banks. And Berlin should agree to the issue of Euro-zone bonds, which could give countries working to trim their deficits access to lower interest rates.”

Perhaps it is worth adding that this is almost exactly what Felix Rohatyn, of Lazard Frères, former President of the International Advisory Committee of Lehman Bros. and the man who “saved New York from bankruptcy” back in the 70’s said here in Paris on Tuesday night.

He did add, and I quote ” That depends on whether Ireland wants to be saved. That’s up to Ireland.”

On a minor aside –
Is Alan Dukes’ additional €15bn a game changer? Might it force the EU/IMF to realise that protecting unguaranteed bondholders is no longer credible to the markets as well as being political and social poison? (Obviuosly there are bigger issues than senior unguaranteed debt).

@Richard Fedigan

Of course we want to be saved. Felix Rohatyn may not appreciate the political problems within an EU where unanimity is required. If we were only dealing with the IMF & the Fed then we would have a better solution by now.

There is a question as to whether Europe can reach a coherent position where it wants to save itself. At the moment our position is coherent even if we are not getting our own way. FF/FG/Lab all envisage the same typ of renegotiation and all want to get as much amelioration for Ireland through as many mechanisms as possible.

Germany, France and the UK are individually coherent in acting in the self-interest of their tax payers.

However, all the EU countries together do not form a coherent whole and it is all of them which we must deal with.

Re: “So, let’s agree that the new Irish government will set up some process that will lead to the resolution, reprivatisation or sell-off of the “Irish” banks.”

No offence, but we might as well agree the sky is blue. We all know what we want to do. The problem is that it is beyond our wherewithal to do it and our collaborators are demanding a pound of flesh on behalf of their electorates.

Perhaps we have it coming, due to the gauche behaviour of some our countrymen when travelling the rest of Europe with Ryanair. However, people are not going to accept the medecine.

When all this started some years ago I thought there would be great social and political upheaval. I realise now that the social and political consequences come in slow motion.

Things are now much worse on the ground. Irish people have the same dark side as all other humans. Things will be very ugly in three or four years time if a coherent and effective EU solution cannot be found.

@zhou: absolutely. It’s the slow moving variables — state variables in our jargon — that always get you in the long run.


I’m sorry but you’ll have to explain to me why, politically, it is “beyond our wherewithal” for a leader to explain, clearly and truthfully that this is what we are GOING to negotiate with. That we are broke, have to pay our pound of flesh, can’t, (we don’t have the FINANCIAL wherewithal) and need to “Europeanise” the problem, to ease our “wherwithal” problem), so that we can survive.

If you tell me NOBODY has any guts, then “ugliness” is all you have to offer and the rest of the world will behave accordingly.

Felix is nobody’s fool. He left space in his question for a response that encompasses “not wanting be saved”. As he put it, and I agree, “That’s up to Ireland!”.

@Richard Fedigan

Not within our financial wherewithal means not within our wherewithal. There is no ambiguity but that Ireland wants to fix its banks. The question is whether Ireland can negotiate a solution that will allow its banks and the economy its banks are supposed to serve to survive. Our politicians have not failed to communicate what they are trying to do. Most people understand it.

The reasons it is becoming increasingly politically difficult to sell the deal to the Irish public, who are being asked to foot the bill for private debts, are:

(a) There is no moral or legal justification for lumping private debt on the tax-payer;

(b) To overcome this one must create a practical justification, i.e. show the Irish tax-payers that it is in their economic interest to do so;

(c) There is near consensus in the independent commentary (one of the pillars of democracy) that the solution as currently designed will not work and will destroy our economy and society if left as is.

What are Irish politicians supposed to tell their people? “We are so weak and have so little backbone that we will take any humiliating deal we can get, in the hope that we can beg on our bended hands and knees over the coming years to get some respite.”

Other Europe nations and Ireland have been down that road individually at different times before. The respite doesn’t come. Our politicians can bring the European horse to the water but they cannot make him drink.

The only hope for us is that the market, for reasons of its own, will show the horse a large whip and a shotgun to help the horse to make its mind up.

Of course, whips and shotguns do not always make one thirsty. We are indeed dependent on the kindness of strangers.


You’ll understand that arguments deriving supposed validity from what the arguer claims are what “most people understand” or “near consensus in the independent commentary” don’t offend me as much as they might appear to patronise the European partners bailing us out.

I’m at a loss as to what “reasons of its own” the market might have to bring “European horses” to water you say they don’t want to drink.

In simple, non-metaphorical negotiating language, the “Europeans”, having been lied to by Ireland about the need for a bailout, provided one ( with IMF help).

The “pillars of democracy” you refer to elected the Irish government ( not just once) that signed the deal and suggestions, for “moral or legal justification” reasons that Irish governments’ signatures are not to be trusted would put us in a whole new relationship with the international community.

We are talking, very simply, of an element of renegotiation ( or easing) of an already signed agreement that would involve “Europe” ( Germany) recognising that the Irish “wherewithal” problem is part of a European “wherewithal” problem that can be convincingly communicated to both markets and the much wider European voter-taxpayer funding the bailout. Who also needs to keep faith with tenuous European “pillars of democracy”.

The way we approach the negotiators who represent “the kindness of strangers” will much influence whether they are convinced about remaining our “friends”.

The fundamental institutional transformation being attempted in “Europe”, driven by a longtime and reluctant paymaster, will not be facilitated by metaphors, whips, shotguns or without a measured recognition by all parties that the “wherewithals” are interdependent.

If this does not come about, then “respite” may never come. For anybody. In Europe, at least.

@Richard Fedigan

The expressions “most people understand” and “near consensus in the independent commentary” sought to express what I see as the political position. I don’t have the resources to conduct an opinion poll or to survey the populace on their understanding of what the Goverment are trying to do. You will appreciate that I was trying to express people’s view of the what is happening rather than making any averments or assertions as to the accuracy of such view. I hope that this doesn’t offend you.

I have not suggested that Ireland should renege on any agreement entered into by the sovereign. It is our decision whether to draw down funds from the facility or not. If you have the time, please clarify how you inferred such a suggestion.

Similarly, you have decided that I think Irish taxpayers should not share the burden of getting the EU financial system back on a sound footing. Again, you have misunderstood something.

You will note that I refered to “unguaranteed bondholders” at the start of my first post. For clarity, I was referring to people owed money by banks without the benefit of any state guarantee.

If you find my metaphor of the horse a bit distasteful and unpleasant then I would suggest that it is as nothing compared to the really distasteful social unrest we have seen in Europe before. I don’t think banning metaphors will help us. The point I was making was that there is a major power play going on in Europe at the moment where certain countries are openly insisting on enforcing their political will on others.

At the end of the day, the taxpayer cannot be asked to subsidise private wealth unless it is to the taxpayers own benefit. As things stand, it is not clear to the public that such benefit will arise. That is unsatisfactory in circumstances where private debt governed by national laws is to be turned into public sovereign governed by foreign laws.

@Richard Fedigan

“We are talking, very simply, of an element of renegotiation ( or easing) of an already signed agreement that would involve “Europe” ( Germany) recognising that the Irish “wherewithal” problem is part of a European “wherewithal” problem that can be convincingly communicated to both markets and the much wider European voter-taxpayer funding the bailout. “

I agree.

I have just read the summary and I have to day that I was encouraged by the frankness of the it.

The IMF’s ability to correctly identify the mounting risks was
hindered by a high degree of groupthink, intellectual capture, a general mindset that a major financial crisis in large advanced economies was unlikely, and inadequate analytical approaches.

Compared with the self serving European commission report and the Bini-Smagi Chicago schoo amnesia it at least starts by admitting that it got thinks wrong.

@Joseph Ryan

We seem to be of (dangerously!) like mind on tactical fundamentals.

Joseph’s juxtapostioning of the the IMF report with Bini Smaghi’s running off at the mouth points up a fault-line in the “European” position that could work to Ireland’s advantage as we select, appoint and brief a “renegotiation” team after the election.

The IMF self-criticism underlines a (publicly) unconfessed awareness in Europe that inadequate pre-Competitiveness Pact institutions and regulatory oversight in “Europe” were at least partly to blame for failure to highlight Ireland’s inadequate regulatory incompetence and the excesses that led us to where we are today.

And these lapses created the necessity for the “Europeanisation” of both the problem AND the solution.

This is the key “renegotiation” link that makes Ireland’s “wherewithal” problem a “European”wherewithal” problem.

Incidentally, this is also what Germany wants and its, for now non-Euro, neighbour, Poland, which takes over the EU Presidency on July 1st has already moved to incorporate givernment debt level limits and a higher retirement age into national law.

I strongly believe that “Europeanisation” of Ireland’s “renegotiation” position is the way forward and it may be that the IMF would support us in this.

Let’s not forget that the IMF would not have been involved in this bailout if “Europe” had been able to solve what are essentially its own problems in the first place.

@ The IMF

Wee bit of ‘Regulatory Capture’ what! Let’s meet up next time you’re in town for a vacation and we can compare notes over a sane lunch – had a spot of bother with it ourselves as you well know – you are not alone.

No hard feelings on pulling out of that December ’10 bash with the U-No-Who – didn’t really suit either of us – we’re well out of it – both our reputations reasonably intact.

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