Lunch with the FT: Ken Rogoff

Ken Rogoff is profiled in today’s FT – the article is here.

56 replies on “Lunch with the FT: Ken Rogoff”

I agree we are not in endgame in Europe; there will be drama ahead before the endgame.

In Ireland we are failing to tackle the crisis. EU is becoming a synonym for Emigration and Unemployment with FG/LB the new EU Party. We should all put FG/LB on negative, junk bond watch.

Very enjoyable article. I dabble in chess occasionally enjoying a game with a son of mine, have a bigger interest in game theory and programming than economics, but lack the brains of Rogoff 🙂 I’ve got his book. But it was done by teams with a large contribution on the data side by his co-author Reinhart.

I share many of his views eg: “Certainly, a key part of the solution is to allow more banks to fail, ensuring that depositors are paid off in full, but not necessarily debt holders. But this route is going to be costly and painful.”

I also share his views on inflation, Central Banks should print more money. But I believe this is politically unfeasible in Europe. Because of this the solution to the crisis in Europe involves the breakup of the euro.

This would allow countries like Ireland to allow moderate inflation including exchange rate and debt write off to deleverage, close banks, open new ones. Prospects following this exercise for Ireland are better than Iceland’s currently down to 7% unemployment and 4.5% interest rates. With the EU(emigration/unemployment) parties in charge in Ireland, this is not on the horizon.

I would be sceptical of his lack of probity in uncovering many of the political variables underlying and giving rise to the economic data.

‘The key, Rogoff argues, is to ignore everything that governments say and instead to concentrate on the incentives that drive their behaviour. “One of the reasons that Carmen Reinhart and I hit it off, is that we are both incredibly cynical about governments.”

Now that’s why he was, and is still, a grand master.

Classical Chess is such a structured controlled envoirment.
Perhaps this is why Rogoff has got it so wrong over the years.

Its not just Goverments that are the players here.
Theres 3 players in this Game & the Board is just a little bit bigger.
The Goverment Elite
The Corporate Elite
The High Elite.

Its a Mad World out there – I blame the lead in the pipes again.

Paul, grandmasters keep the title for life regardless of later performance (unlike knights).

Rogoff’s cynicism about governments makes sense when it comes to forecasting what they will do. Unfortunately he often gives the impression that there is no point in demanding that they do better; as if there is some natural law which dictates that a financial crisis leads to a prolonged slump.

Add in unfunded debts in the social security system and public sector pensions and I am sure Mr. Rogoff will agree that Ireland’s debt levels are well over 130 per cent of GDP.

Its only debt when you hand over your money supply to banks , otherwise its merely a money token.
The “sovergin” debt market is a contraction in terms.
How can yee guys really rationalise this web of debt. ?

Honestly we would be much better off going back to Tally sticks in our internal money supply & Gold to sort out affairs between Kings.

The Post Napoleonic Bond market is a farce.
Hawthorn trees is a far more efficient medium of commerce.

@ Kevin

Thankis for that. Never had the kind of brain for chess.

It’s often the case that very bright people lack empathy and social responsibility. Elite training environments can also produce a real blindness to consequences. That why those knid of folk are so good at what they do. They lock the world out of their thought processes.
So yes I’m afraid the Dork has got in in one again with his Mad Tea Party Chess 🙂

I understand the Ron Paul view government is taking taxpayers money and wasting it on the banks; but I don’t believe its sufficient reason to do away with taxes altogether. The matter of taxes needs to be much more fully fledged out by the supporters of Ron Paul eg Tucker below. Advocates of conspiracy theories might point to a corporate noTax lobby between corporate America, the 1%
and this movement. The nordic counties would be horrified by the prospect of a no tax regime. Ultimately arguments should revolve around efficiency and value for money; inefficiency for some could point to wastage of taxes that are sent to the 1% in the form of debt recycles, or do away with tax altogether. Tucker advocates doing away with the FED altogether but has only vague notions on what would replace the FED. The arguments he uses here, that the markets will regulate themselves was previously used by Greenspan.

None of this is likely to get much traction in Ireland or Europe, but for the curious 🙂

This isn’t chess. It’s poker.
We had a reasonable hand and fluffed it. Current crew just as useless.

On one side of the table are “the markets”. They bluff well and have a huge stash of cash. On the other side are the rookies who fluff every hand.

At the moment we still have potential to win.
1st card: We are the country that proves austerity works (they can’t afford to let us fail)
2 nd card: If we don’t get a second bailout and default consequences would be pretty bad for our neighbours

Not a great hand but nobody has much better at the moment


Re”1st card: We are the country that proves austerity works (they can’t afford to let us fail)”

We’re proving austerity doesn’t work. They can’t bail us out
because the Germans believe, heard the German ambassador say this, eurobonds will not drive austerity; but will allow countries take their feet off the break and they would be badly spent. Plus there isn’t enough cash to go round.

Re 2nd card, “consequences pretty bad for the neighbours”
That’s a very interesting point. The deal on Greece has been postponed umpteen times now, latest deferral signalled on Friday last. Negotiations keep breaking down on PSI. How bad the tsunami will be is anybody’s guess at this point.

But it will be interesting to analyse the effects and fast forward to what will happen with other defaults across EZ; or even if the firewall can be built or if it can be made to work.

The finger in the dyke can’t hold on for much longer!

@ Dork It is not the money token that worries me it is the bill for recapitalising banks that are still essentially zombified.

@ Colm Brazel

As soon as they have ring fenced themselves as much as possible from Irish contagion they will let Ireland sink or swim on its own. The government are deciding this weekend whether to queer the political pitch by not having a referendum on the Fiscal Compact. Ireland have made access to ESM contingent on signing the treaty. In my view, Mario Draghi is engaging in massive QE but by doing so, he is merely postponing the debt crisis and making the eventual explosion even bigger. This LTFO, Sarkozy carry, will have the usual unintended consequences. It will change seniority on banks assets and make it much harder for the banks to get alternative funding. ECB is ‘forcing’ banks to load up on even more sovereign debt of peripheral countries. It is going to be much harder to allow even in their own terms “non systemic” banks to go bust because they will all be loading up on sovereign debt. Eventually, European banks are going to have to be allowed to fail. The stress tests were a joke. Now we are having the rescue via the carry trade but it is destroying balance sheets.

The markets know that Portugal is the country that is already discussing the best way to maximise sovereigh default. Matthews was in Germany week before last and he was surprised to learn that they knew very, very little about the view that Ireland had taken a few hits for the team. Later in his own parliament he was subjected to a stream of barracking from a colleague playing “ceann comhairle for the day. Eventually, he slumped into his seat. I almost felt sorry for him but I feel more sorry for us, but then we voted them in did we not?

@ Colm Brazel
Good points. That’s why it’s like poker. It’s not just what you have – its what they think you have and then it’s about thinking about what they think you have ( if you get my drift).
So, if a Greek default and Euro exit emboldens the Germans it might be time to do what all good players do – fold and walk away from the table.
If its against you it’s against you.

Ken Rogoff has an interesting article this week on Project Syndicate, on the link between the food and health industry.

Keep in mind that

Coronary capitalism is fantastic for the stock market, which includes companies in all of these industries. Highly processed food is also good for jobs, including high-end employment in research, advertising, and health care.

Kepp in mind that the US spends almost 18% of GDP on health and this week, then Bureau of Labor Statistics said the sector with the greatest jobs growth to 2020 will be in healthcare and social assistance. Also this week, newly prudent S&P said that it will begin downgrading countries that can’t control public health costs, from 2015.

So, who could complain? Certainly not politicians, who get re-elected when jobs are plentiful and stock prices are up – and get donations from all of the industries that participate in the production of processed food. Indeed, in the US, politicians who dared to talk about the health, environmental, or sustainability implications of processed food would in many cases find themselves starved of campaign funds.

Thanks Michael.

That’s very interesting and shows that my comments to Kevin above are off the mark at the personal level.
Looks like Ken Rogoff is perfectly aware of the degree to which democracy has been subverted by Big Biz, but can’t see any way to get past the problem.

Externalities are ubiquitous, multiform, and mostly concealed. What happened to the principle that the polluter pays ?

@ Robert Browne Snr

This LTFO, Sarkozy carry, will have the usual unintended consequences. It will change seniority on banks assets and make it much harder for the banks to get alternative funding. ECB is ‘forcing’ banks to load up on even more sovereign debt of peripheral countries. It is going to be much harder to allow even in their own terms “non systemic” banks to go bust because they will all be loading up on sovereign debt.

Very interesting points you make there, presume you mean LTRO.

Consider this angle as well that bolsters your points there:

“Banks in weak countries have been issuing debt, getting a government guarantee, and then posting them as collateral at the ECB. There are examples of this for Greek banks for sure, but my understanding is it has also been occurring in Portugal and Ireland. It is the only way banks in Greece (and the other countries) can raise money.”

This is QE by the back door. Banks are addicted to this and lender of last resort LOLR is becoming ECB lender of first resort. The zeppelin ballooon of debt is being pumped up with even more toxic debt.

As for Matthews, he’s turned out to be rather a damp squib in making any impact whatsoever on informing the public on the contratemps of our fiscal policies.

He’s silent in the main leaving the running to the serpentine queue of snake oil economists who share our misgivings regarding the euro, but yet hope it will come good and yield a king’s ransom if we muck up to the austerity needs and expectations of swabian housewives 🙂

Hopefully Matthews will pay more attention to fiscal policies than to foreign embassies in the future. But I doubt it. Looks like some bad weather ahead.

Zerohedge above hasn’t got the full story though. Its even worse than they depict. Lots of banks vastly above the takeup that had been expected took up the offer.

Many argue the huge takeup showed the banking sector to be in a worse state than previously thought.

Another aspect of this is that rather than buying up sovereign debt, banks have been investing in US treasuries. Does this show there is a run on European banks fed by european banks themselves?

Eventually the hall of mirrors, ball of smoke of the ‘Compact’ euro will pop; but not before very long.

A bit too flowery for my taste.
I guess the LSE still think we never had it so good………….

IEA Total primary energy supply / Population UK.
Y1960 : 3.0343 ToE per capita
Y2000 : 3.7859 ToE per capita
Y2009e : 3.1983 ToE per capita

Y1960 : 158.9 TPES (MTOE)
Y2000 : 222.9 TPES
Y2009e :197.6 TPES

So the UK is back to the Beeching Cut energy density days but with a concrete infrastructure unsuited for purpose.
The only thing keeping the standard of living higher then back then is finished goods imports as now the UK has little Industry and also the decline of Military spending post Suez.

From a energy perspective the UK is the strangest economic beast on the planet at least the European side of the planet

Me thinks the Norman families have lost the run of themselves but if you really want proper flowery stuff then look no further then Kenneth Clarke.

Thanks for the link PR Guy…

I dont agree with huge amounts of it, e.g. theres no mention of resource or energy constraints but its thought provoking, worthwhile reading…

If I can recommend a link … this long running thread on the property pin… on Krugman

There are just 2 or 3 people posting on it… which makes the thread worthwhile…. they hold opposing views and post links to some great material backing their viewpoint…. hopefully me linking to it will not result in others derailing the discussion there..

@Garry PR Guy

Thanks for those links, from Krugman thread:

“There is no such thing as growth to infinity, every system has it’s limits. The FIRE economy should have been downsized and reformed and focus switched to other productive endeavours, instead they have propped up the shadow banking system, prolonged and extended the wars and have moved the problem around so that it manifests itself in the sovereign debt crisis.”

Bearing in mind the Klaus Regling and colleagues have gone back to China to try get them into the ESM; no luck there so far. Bearing in mind the recent downgrade by ICB of Ireland’s GDP to .5 % for 2012.

Have a luck at the question debated here ‘obsession by US academics on GDP”..second part of this Keiser video interview with Daniel Collins,,

In Ireland the shadow banking system is being propped up at the expense of austeritising the real economy.

What makes up GDP in Ireland? What percent of GDP is represented by the printed money, paper financial sector with transfer pricing and other trickery that has no real financial footprint in the real economy.

Max Keiser…where’s the economic growth? On what GDP, deducting printed money and transfer payments, GDP is a complete shibboleth illusion. Collins looks across various cities in the US looking for growth compared to a similar look across China and its manufacturing real growth. Its not hard to come to the conclusion that:

real China economic output = US real economic output + printed money/treasury/investment bonds output

The fact is both the US and EMU have become contaminated by a virtual money system that is now infecting sovereign debt in those areas, the only reforms we have are inept efforts to get the ponzi schemes going again in the US, EZ and Ireland.

The only thing the Troika are focused upon is maintaining the tricked up GDP figures, debt repayment cycles, at the expense of the real Irish economy of jobs and real economic output.

I’Ts a ponzi scheme bailout.

@ paul quigley, the Dork and others

As we idle at the back of the thread class.

What do you make of Paul Virilio?

‘The invention of the ship was also the invention of the shipwreck.’

He seems to be saying things in tune with some of your contributions. Should I be reading him?

@ Paul Hunt

“At least we now know where Hogan has gone.”

What now? Where has he gone?

Banking & war go together hand in glove – its just that the nature of war has changed since the rise of the modern market state.
Banks can only make money from 3 things – tulips(pointless speculation) , conflict / wage arbitrage & windmills (productivity improvements) .

I remember a guy appearing on the Late Late show, oh it might have been 1989 -90ish.
He declared the ending of the Cold war will lead to economic collapse – his arguments were met with derision by a audience in the depths of the BONO / Sinead o Connor rapture.
But that is not to say I am in favour of defense spending – it was just a mechanism to recycle economic surpluses.
I have mentioned before Free Market Edwardian Britain recycled 25% of its tax income into the RN & therefore considerable sums were spent on applied technology without a profit motive.
These mechanisms now do not exist in the modern market state.
Almost everything is consumption – although war is a form of consumption – the consumption of lives and materials as successful capitalist economies create a surplus that MUST BE WASTED – see the modern idea of defecit aggregate demand.

But England did not bankrupt herself in 1914 – it took 4 more years of waste through money transfer via the US to do that.
But now we live in economic systems where production is not really that productive but super effecient , because of this it cannot afford to experiment – the remaining waste was in personel consumption but that has also hit a lagging energy wall as the old production systems were run down to express more efficiency.( for example power plants were not replaced to sustain consumption on consumer durables)
Credit production is a form of efficiency expressed through leverage but it is a dangerous tightrope of reduced redundancies to extract more consumption out of less inputs.
One gust of wind and………….
The European core projected out these perceived efficiencies to the periphery in a spectacular fashion.
A general characteristic of the PIigs makeup is their extreme energy import dependency & also tourism / export reliance which depends on discretionary spending of the core.
Much of this peripheral fast growth was a result of low capital intensive NG operations that can rise & fall in spectacular negative feedback loops.

Talk of cutting wage rates and standards of living is a consequence & not the cause of a lack of productivity through efficiency mechanisms in Industry & too much wasted (not end use) consumption by consumers – it will not solve the problem in a elegant fashion.
The Colm mcCarthy approch of cutting the money supply (goverment defecit) so banks can begin the credit cycle again is deeply flawed – its a Malthusian solution that will become highly unstable over time.
As it is not credit we need but money.

@ The Dorc

Those interested in financial reform, the nineteenth century historical struggle between private banking versus public banking, progressives vs agrarians, the many failures, stops and starts that went into the creation of the FED, arguments, the people eg Andrew Jackson, Hamilton, Wilson plus compromises you can find something of here:

Perhaps the euro’s EMU should have worked more on its foundation.

Fascinating stuff – I have read so much from this era with different slants & angles one is not quite sure what to believe although historical records of European banking conflicts of this time are much more silent perhaps because we have been banked to death.
But I see the control of energy as key to all this – back in the 19th century agriculture (food) was still a important energy component in manufacturing , transport etc.
W.J Bryan in his famous cross of Gold speech made the statement that if the tin & straw men put down their tools the cities & the banks inside them would come to a sudden stop.
But that is not the case today or at least yesterday.
The western cities & banks natural hinterland is not the fields around them but the oil fields of Arabia & the slave factories of Asia.
This is a very important seismic change.
It means capital can bypass local labour using cheaper foregin labour in combination with cheap energy to extract the hidden surplus.
This is what the Pascal Lameys of the world are up to.
The EEC lost its significance as a productive economic area when capital could bypass its trade structures.
Now its just a base for global financial operations orbiting around extractive wage arbitrage operations.
The vast amount of capital exported from Europe in the 90s & 00s more then anything else built those 2 Chinese coal fired power stations a week.

When the European banks made a loss in 2007 / 08 on this global slavery arbitrage they came back to their home nests and shat all over the gaff.

Europe does not need these global banks anymore – they cannot extract a surplus from foregin colonies because of poltical blow back & higher energy costs so therefore what is their purpose ?
They will now feed off Europas blood until it can no longer stand upright.
They have courted Germany’s poltical arm and whispered sweet nothings in its ear.
Extract from the periphery and drive them into surplus again and we shall both live happily ever after.
Its sad really , after all that has happened Germany should know better.

Honestly , I don’t think they are as bright as they pretend to be.

@ All

As this thread appears to be going no where in particular (a bit like the interview with Rogoff), this link may be found to be topical.,1518,813524,00.html

The refererences to the action without consultation by the Grand Coalition in Germany in bumping up VAT from 16 to 19 percent with the proceeds used to lower employer social contribution costs (i.e. to promote export industries) may be noted. Also the implication from Juncker’s remarks that his interpretaion of the fiscal pact may not be shared by all i.e. that the German government, or elements in it, think that applies to everyone else but not to them, with the same holding true, but to a lesser extent, of France.

The new regulation in relation to dealing with imbalances would tend to bear this out as the limits set for current account imbalances are skewed in such a way that Germany is unlikely to be troubled by them to a degree that would require a fundamental change in policy.

@ All

And a view from the Antipodes both to add to the debate and to remove any doubt as to where the real problem lies; excessive government debt in Europe and the resultant lack of safe assets, further and, perhaps, fatally, exacerbated by the unforseen major fault line in the euro viz. that all member countries, other than Germany and a diminishing number of AAA rated countries are, effectively, borrowing in a foreign currency.


A little off thread to comments made by Guy Verhofstadt on RTE (This week Sunday 5th. Comments about two minutes in).

He said that ‘for the moment German taxpayers paying the bill. They have put more than €1,000 million in this crisis’

I am not aware that Germany has put any funds ‘in this crisis’ so far.

Can anybody verify what the truth is on this question?

To borrow from Michael H’s example, debt in Europe is akin to obesity, but the willingness to diet amongst those with a hearty appetite is lacking. In my experience, dieting is always good for someone else.

People can eat very decent protein if they go back to forequarter cuts and some internal organs. But again the appetite for that step isn’t there.

I read on the web today that Irish welfare recipients may ‘need’ 540 euro per week to live one. As that Chinese bloke involved with China’s sovereign fund said the incentives in Europe all out of whack.


RE Juncker interview with Spiegel:

SPIEGEL: But the Socialist presidential candidate in France, François Hollande, says he won’t back the fiscal pact.

Juncker: Ms Merkel has stated that she finds that inconceivable. And I also expect that France will introduce the debt brake. Even newly elected presidents must abide by European agreements that were made by their predecessors before they entered office.

SPIEGEL: Mr. Prime Minister, thank you for this interview.

Note Junckers’ response. ” Ms Merkel has stated….”.
He does not say that the other treaty signatories would have something to say, etc etc. It is “Ms Merkel has stated…..”

Clearly there is no doubt in Mr Junckers mind as to who is running the show and who he reports to.

@ Joseph Ryan

The comment by Verhofstadt is rather meaningless as he fails to distinguish between national actions and combined actions through the EU. Germany has certainly paid a high cost for bailing out its banks, as have other countries their banks.

The recent Commission report on the state aid to the banking sector states;

“The combined total support to financial institutions pledged by governments in the EU has been unprecedented. Over the September 2008 – December 2010 period, Member States committed a total of nearly €4 300 billion. That total pledged support budget that has been
approved by the Commission amounted to 36% of the EU GDP and to 10% of the total assets of the European banking sector38. Nonetheless, there were strong differences in both absolute and relative size of support pledged by Member States throughout the crisis. The amount pledged by Member States ranged from less than € 3 billion (Cyprus, Latvia) to more
than € 500 billion (United Kingdom, Germany). That discrepancy in commitment of resources to State aid is also visible when looking at support as a percentage of the size of the banking sector, ranging from less than 1 % in Italy to more than 30 % in Ireland, with nine Member
States pledging more than the average of 11 % of the assets of their national banking sector”.

At the EU level, Germany provides the biggest share of the capital guarantees for the various bailout funds which is not surprising as it is the largest economy. The figures can be checked in the documents relating to the ESM and the EFSF.

Until it has paid up the the capital for the ESM, Germany will not have provided any cash with a direct budgetary implication. But this is a rather theoretical distinction, as I understand it, as it has accepted the largest contingent liability for both the EFSF and the ESM.

It is also the major shareholder in the ECB and, as Professor Sinn never fails to point out, is confronted with major budgetary claims in the event of a collapse of one or more members of the Euro Area.

It could be argued that Germany is also benefiting from the crisis in the sense that is pushing down borrowing costs for Germany.

That is my not very expert take on the situation.

Conclusion; the crisis is costing Germany a lot of money and, in absolute terms, probably the largest amount. But Germany is not alone.

P.S. You are mis-reading the comment by Juncker. He is simply underlining a political reality with regard to the politics of the situation as between France and Germany.

Look lads – this is how Europe worked – I did not like it but this is how official Europe worked for Ireland & other poorer European countries.
Peripheral areas were in either a non optimal economic trading areas & later a non optimal currency area.
To counter this Europe transfered MONEY (that was spent in the economy before it went back into the banking sector)
Think of the euro farmers dole , road infrastructure / CRH dole etc.
The European banks then collected interest income from these investments.
This distorted the domestic organic economy hugely but was sustainable for a time.
But things like road infrastructure need low energy costs to be viable – we don’t have that anymore as much of the oil producing and eastern Industrial regions are moving closer to defecit.

Now much of this money is recycled withen the Euro banking sector without it actually getting spent into the peripheral economy.
This means much of the periphery is moving into surplus as Empires / financial centres must remain in defecit if they are to continue as centres of power.

We are essentially becoming proper colonies again now that the Saudi Sun is sinking.

Guy VerHofstadt is really talking about investments that will not increase our oil burn so as to remain in sustainable surplus without messy political outcomes.
I am surprised this has not happened to be honest – its really bad colonial policey if you ask me.
It seems to be more early Victorian rather then Late Edwardian.

You really need to distinguish between money transfered that is spent directly into economies and commercial Bank incest .

This is not fiscal union – we are about as Belgian as the Belgian Congo.

Ps – it looks to me like the commissions small fiscal fund has become dwarfed by the shadow bank sector & perhaps whoring expenses.
The Commission & the ECB should really get out more …………..

Hold hands , kiss in public – that sort of thing.

On the Delusional Duo ….

‘… Merkel and Sarkozy are being driven by desperation. The president would seem to be hopelessly behind his challenger Francois Hollande in surveys. A repeat of the German job miracle in France — Sarkozy is hoping that such a promise will attract voters.

Merkel, for her part, is horrified at the prospect of a President Hollande. The Socialist is in favor of euro bonds and opposed to the anchoring of a balanced budget amendment — the so-called “debt brake” — in the French constitution. Hollande also doesn’t think much of Merkel’s fiscal pact, which she recently managed to push through in Brussels. Should Sarkozy’s re-election bid fail, then Merkel’s European strategy could fail as well, the Chancellery fears.,1518,813583,00.html#ref=nlint


Press release:

Patricia the Irish Sovereign-in_Exile sends best wishes to HRH on her 60th.


“The EEC lost its significance as a productive economic area when capital could bypass its trade structures.
Now its just a base for global financial operations orbiting around extractive wage arbitrage operations.
The vast amount of capital exported from Europe in the 90s & 00s more then anything else built those 2 Chinese coal fired power stations a week.”

Interesting point, but its not the singlemost cause of our current malaise. For that you have to examine changes to the regulatory oversight of banking that occurred in 2 ways round about 1970; the ditching of the gold standard for the dollar and the creation of derivative based financial products that spawned a new industry:

Brooksley Born investigations and warnings were ignored:

Inside Job documentary should be available free on the internet somewhere, but it depicts the causes/fall out from the 2008 Lehman’s meltdown seen through the eyes of a smart documentary maker.

I’ll not bore you with the mention of Glass Steagall and the financial legislation that dismantled the safeguards Glass Steagall imposed on banks to prevent the 1929 crash happening again eg Gramm-Leach-BLiley Act in 1999.

Basically all the above made it more profitable for banks to push instant financial paper around the globe, prey upon economic development, rather than provide credit, outlaw financial abuse, stimulate trade.

The financial reforms required to clean up the mess have been buried in place of further banking bailouts aimed to patch holes in financial balloons and pump more toxic air credit. Its a ponzi scheme, the last person to hold the ball gets it first, the rest get it later 🙂

@ DOCM 10:06

Re “Conclusion; the crisis is costing Germany a lot of money and, in absolute terms, probably the largest amount. But Germany is not alone.”

Sorry, your conclusion is based on a false premise. The proposition upon which your argument is based is that bailout comes with no strings attached.

Its a common fallacy to believe Germany, the Troika, the IMF is transferring funds over to the periphery. When the bank manager gave you a mortgage, he wanted his money back.

Similarly, bailout for Ireland meant interest rates of 6-8%. Not only does the principal get to be handed back, but the interest payments are a liability to us and an asset to the banks who lend to us.

I don’t want to get into any ELA controversy and magick money, but bottomline, money is not handed to us free gratis.

Its also another common fallacy to speak of saving Ireland money through some hoped for discount on the interest rate; to the same degree you get robbed for ¢1 bn rather than ¢10 bn.

I know you probably meant the above, but the above should be clearly noted in discussion re Germany on the hook for losses to the periphery. The only way enters the equation is through PSI haircuts or debt wiping/burden sharing when losses on loans come into play.

So far, Greece is the only country up for burden sharing and PSI loss to Germany/France among others. But until this happens, until Germany writes its loans to current value among the periphery, its still not losing in the way you suggest there. Germany is still doing very well on its government bond yields as the following graphs show:

FYI I should point out the IMF in its negotiations re Ireland were up for burden sharing; and haircuts on our debt, but the ECB refused.

The ECB are roasting us on a spit, shed no crocodile tears for the penal colony of debt the Troika have made for us!

Sooner we get out of that mess the better.

The only thing I can think of to get this thread back on topic is if he thought the menu costs in Davos were high, he should try going to Cannes during film week festival. The cost of an omelette and ‘pommes frites’ at a fairly ordinary, but seafront, hotel there (as I had) would truly make your eyes water compared to that Davos bill for lunch.

The chess stuff was a bit boring too. A bit of a puff piece all round I thought and not as good as the others in this series. But hey, whoever said economists were interesting 😉

Forgot to mention Elizabeth Warren:

First class research on the collapse of US middle class fueled by the financial services industry:

Same thing happening here in Ireland as in Greece: money is hosed upward to pay the debts of the banks and the few who played the casino credit bubble.

In the US instead of releasing credit for small business, QE, in EZ Fiscal Compact, bank recapitalisations is not fueling credit for business, but more financial, casino arbitrage.

investment banking needs to be regulated, sanctioned and severely curbed, just as it was prior to Glass Steagall. A secondary problem is the ‘Compact’ and Stability/Growth, sovereign deficits. But you’ll find problem 2 elevated to hide problem 1, problems in shadow banking and FIRE economy.

@ Colm

“FYI I should point out the IMF in its negotiations re Ireland were up for burden sharing; and haircuts on our debt, but the ECB refused.”

They were up for haircuts of unguaranteed senior bank debt, they did not suggest any sovereign of guaranteed debt being haircut.

@ Mr Bond

While you’re there: a quick question.

I note that according to John Ihle who singlehandedly wrote the entire SBP on Sunday, that the ECB is getting ready to allow banks to offer (implicitly poor) business loans to be used as assets to access fresh cash from them. Up to a trillion I believe.

Is there any way that NAMA could do this direct, or if not, give the loans back to AIB/BoI at the same cost and have the banks put them in to the ECB?

I gues the answer will be no, but I wonder why exactly not.

@Bond 2:20

Yeah, we should have won those negotiations with a 2:1 majority, but our cave in negotiating team lost the day again. We’ve just paid over the impossible ¢1.25 bn on rubbish that was downgraded by the rating agencies last year and travelling at 60cents on the dollar last year.

But here, I’m a flexible guy. The ECB want us to pay it, no problem: but let them fund it.

Let’s see Anglo owes circa ¢30 bn on the promissory notes at approx ¢3 + bn/yr for the foreseeable future. Apart from anyone in their right mind agreeing to this, did we get a discount to take into account those payments? No.

What does it take to get Honahan, Cardiff and the negotiating team fired ? Every country in Europe must be laughing at these keys. Sarkozy gets a great laugh out of Enda every time they meet 🙂

In previous centuries, guys like these were hung drawn and quartered for results like these. In Ireland, you get promoted !

@ Gavin

I didnt read the SBP at the weekend, so i dont know exactly what was claimed, but i was previously led to believe that only performing loans could be used as collateral at the LTRO, although i think national regulators/central banks were going to decide on the eligible criteria.

Secondly – NAMA funds itself by issuing NAMA bonds to the banks. These have a coupon on them of something pretty close to 6 month euribor plus 30 bps or something like that. The banks can them use these at the LTRO to access funding at ECB base rate (1% right now, and not expected to go vey far north for the entire course of the LTRO). So, via the jigs and the reels, and without wanting to get into the infernal “who funds NAMA” debate, the banks and NAMA are already able to access the LTRO with these impaired loans as is. Or are you referring to something else?

@ Mr Bond

“Or are you referring to something else?”

No, that was pretty much it.

I’ve found the ECB ‘terms and conditions’ for the LTRO which I link below.

My thinking was as simple as:

In the days before this new ECB support, NAMA buys from banks (with NAMA bonds?) loans at a discount of, say, 50% and tries to work them out – looking for 100% return as first preference.

Now ECB say: “the underlying assets of which comprise residential mortgages and loans to small and medium-sized enterprises (SMEs), will be eligible for use as collateral in Eurosystem credit operations.”

I was wondering if NAMA could simply sell the loans back to the functioning banks, which could then use them to access fresh funding.

However, it seems unlikely as there are still fairly strict conditions, eg.

“(b) the cash-flow-generating assets backing the ABS cannot include loans which are: the time of issuance of the ABS, non-performing; or

“ any time, structured, syndicated or leveraged;”

And they have to have a certain credit rating.

However it does also say:

“The NCBs are allowed, as a temporary solution, to accept as collateral for Eurosystem credit operations additional performing credit claims that satisfy specific eligibility criteria. The responsibility entailed in the acceptance of such credit claims will be borne by the NCB authorising their use. Details of the criteria for the use of credit claims will be announced in due course.”

So perhaps the ICB could attempt something fruity.

Re Gavin,

“So perhaps the ICB could attempt something fruity.”

Nope, ICB can’t do that. Every other ICB in Europe will do that before it will occur to them. Plus I’m not laying out my prejudice stall in saying this. Isn’t it at all ironic the Greeks under its new PM economist, Papademos, are stalling, staLLing as they excruciate over the terms being offered to Greece by the EZ? Can’t but recall Honahan tripping over himself to announce the Troika deal before even Lenihan gave the final say.

It would be impossible to track if LTRO were following any guidelines laid out for it as NCB’s dealings with ECB are to a large degree confidential.

Don’t know why NAMA was ever set up, its loans should have been left with the banks. Bond’s explanation that NAMA bonds are already accessing LTRO opens the question as to why Irish banks then are not then using LTRO to buy Irish sovereign debt or rejig the Troika repayments or PN’s ? Could not the Irish government issue a sovereign bond that would be covered by LTRO given NAMA put down ¢30 bn for the toxic loans?

Arguably LTRO at the moment is just one of the tools used by the ECB to manage inflation throughout the ECB, see above; so perhaps there are even other conditions attached to LTRO to do with inflationary/deflationary pressures that have nothing to do with collateral.

Irish banks and LTRO should be more closely scrutinised to see if we are missing out on something benefiting all other banks across the EZ. But confidentiality smothers debate here as on other matters to do with NAMA and ICB.

@ Colm/Gavin

you forget the one key restriction that the Irish banks face which others in Europe are not similarly faced with – enforced deleveraging requirements as part of the Troika deal. They cant go out and buy up 20bn in Irish govvies, or at least not without reducing down “real” assets by the same amount.

@ Bond,

Tks for that point , post it up if you have the deleveraging specifics/links/schedules..should be interesting read now that the whple of the EZ is deleveraging…so they really got us by the you know whats…

There is a mention of a BIS dataset on house prices that Rogoff used for “this time it’s different”. Is it the same one Morgan Kelly used for his 2007 “on the likely extent of house price falls in Ireland” which was proven so wrong by the passage of time as predicted back then .

I see he spent a lot of time advising Boy George as well. That advice is really paying dividends now, isn’t it? All those ethereal jobs that the private sector created just like he presumably said they would.

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