6 replies on “Accounting Devices and Fiscal Illusions”
Accounting Devices and Fiscal Illusions ….
Looks like a neat piece of work – ideal for final year graduates and ministers in the remedial classes – surprised not to find a little case vignette on The Dublin Docklands Development Authority (DDDA) in here ….
Whatever possibility economics might have at aspiring to ‘objective realism’, as Professor McCarthy might put it, when it comes to the realm of accounting and particularly the obscene con of auditing … well … I’m in charitable mood today so the less said the better … wonder who is auditing Anglo_II these days? Must fon Two_of_7?
Is not one of Ireland’s greatest illusions that NAMA debt is not part of General Government Debt?
Even though the Govt owns 49% of NAMA directly, and now owns ILP and AIB so controls 83% of NAMA.
Even though any eventual loss at NAMA will be recharged to banks which we own (Anglo/INBS/AIB/INBS account for 90% of NAMA loans and would account for 90% of any ultimate NAMA loss)
Even though NAMA’s chairman Frank Daly is now a member of a politically accountable NAMA advisory board.
Even though NAMA has racked up a €1.1bn loss in its first full year and is facing a highly uncertain outlook in Ireland.
I wonder will Eurostat ever revise its preliminary opinion of NAMA debt? I have a feeling in my waters that it shortly will!
Fascinating doc, Global set of fiscal standards for accounting rule compliance required with markings for each sovereign out of a 100?
Top of the list should be the requirement for derivative liabilities to be declared:
“That liability, however, may not have to be counted as debt; derivative liabilities are excluded, for example, from the definition of debt underlying Europe’s debt rule. 5 From 2001 to 2007, Greece reportedly used such arrangements to mask €5.3 billion of debt (2.3 percent of GDP) (Eurostat, 2010a) and reportedly paid fees to Goldman Sachs and other investment banks that were higher than those charged for issuing ordinary debt (Dunbar, 2003; Story, Thomas, and Schwartz, 2010). Belgium, Germany, Italy, and Poland reportedly used similar swaps (Katz and Martinuzzi, 2010; European Parliament, 2010; Piga, 2001).”
Fascinating re NAMA, I notice its given the title, ‘entity’
” On the other hand, Ireland’s banking-crisis-resolution entity was considered to comply with a list of statistical criteria established by Eurostat for classification outside general government, including majority private ownership; limited duration, scope, and expected losses; and establishment to deal with a crisis (Eurostat, 2009). The entity acquired banks’ large commercial property loans at a substantial discount financed by government-guaranteed debt, amounting to 19.7 percent of GDP at end-2011″
There’s a discussion on this with a comment by Seamus Coffey MArch 10 here I found interesting:
“If the 120% of GDP for the GGD is such an important threshold (I don’t believe is it) what will happen if the inclusion of NAMA on Ireland’s balance sheet pushes the GGD up to around 130% of GDP for 2011 and a forecast peak of more than 140% by 2013/14? Would the Finance Ministers meet all night to bring it back down to 120% or will we start hearing caveats about “net debt”, “offsetting assets” etc.?
In my opinion any debt sustainability analysis is primarily driven by the interest rate, the inflation rate, the growth rate and the size of the primary balance that can be achieved. The absolute size of the debt only affects the last of these in that a larger debt makes it harder to run a primary surplus.”
I happen to disagree with Seamus on that one on the basis of debt sustainability that requires government borrowing at rates because of weight of debt overhang drives interest rates to heights that are beyond reach and to ultimate default, where we are. The absolute size of the debt determines almost every economic index there is.
Where does this leave a Constitutional FC vote where one of our current financiers is expressing the view that the deficit and debt numbers are quite literally not worth the paper they are written on?
If there was ever a reason to vote NO on 31st May well this paper is sufficient for me and should be attached to all the information booklets that the Referendum Commission will seek to distribute before the 31st May.
In simple terms writing anything into the Constitution which has the hand of known accounting scams as part of its make up should be avoided at all costs.
Facinating … a truly facinating read … highly educational ….
Reminds me of my first effort at an ‘accounting module’ a good few moons ago … as I struggled through and it dawned on me, naive as I was at the time, that this stuff really did not overbother with the basics of what I then considered to be mathematics … yet out of this jugglers’ art form (which bears no relation whatsoever to the aesthetic turn in economics) emerges the pristine clarity of 0.5, 60.0, 1/20, yes, no and I’m in awe … absolute awe at the merkozian genius who eventually figured it all out …. almost as magical as BigBlue who when programmed with all facts and data available and was requested to come up with the answer to the riddle of the universe eventually printed out … 42
This IMF paper by Mr Irwin fully deserves a Booker award for Faction. Well done!
@Colm McCarthy
‘The deferral of the cash payment on the IBRC promissory note that was due yesterday is unimportant. In reality, the payment has been financed for only a year, through borrowing from the Bank of Ireland against a longer-term bond. There has been no change to the level of debt outstanding. Nor is there any recognition that a substantial portion arises because of the imposition on Ireland by the ECB of full repayment to unguaranteed bondholders in Anglo and other bust and defunct banks.
This deal does not open any obvious corridor to further negotiations. The Government needs to prosecute vigorously with Europe the case that debts the ECB has imposed on Ireland not merely inhibit Ireland’s ability to deliver on the programme and re-enter the bond market, but are also an arbitrary and unprecedented imposition on a country that is already unable to finance itself.
The loss of investor confidence in European sovereign debt has been exacerbated by the ECB’s insistence that bank bondholders come first and that the resolution of failed banks must be at the expense solely of taxpayers and sovereign bondholders.’
6 replies on “Accounting Devices and Fiscal Illusions”
Accounting Devices and Fiscal Illusions ….
Looks like a neat piece of work – ideal for final year graduates and ministers in the remedial classes – surprised not to find a little case vignette on The Dublin Docklands Development Authority (DDDA) in here ….
Whatever possibility economics might have at aspiring to ‘objective realism’, as Professor McCarthy might put it, when it comes to the realm of accounting and particularly the obscene con of auditing … well … I’m in charitable mood today so the less said the better … wonder who is auditing Anglo_II these days? Must fon Two_of_7?
Is not one of Ireland’s greatest illusions that NAMA debt is not part of General Government Debt?
Even though the Govt owns 49% of NAMA directly, and now owns ILP and AIB so controls 83% of NAMA.
Even though any eventual loss at NAMA will be recharged to banks which we own (Anglo/INBS/AIB/INBS account for 90% of NAMA loans and would account for 90% of any ultimate NAMA loss)
Even though NAMA’s chairman Frank Daly is now a member of a politically accountable NAMA advisory board.
Even though NAMA has racked up a €1.1bn loss in its first full year and is facing a highly uncertain outlook in Ireland.
I wonder will Eurostat ever revise its preliminary opinion of NAMA debt? I have a feeling in my waters that it shortly will!
Fascinating doc, Global set of fiscal standards for accounting rule compliance required with markings for each sovereign out of a 100?
Top of the list should be the requirement for derivative liabilities to be declared:
“That liability, however, may not have to be counted as debt; derivative liabilities are excluded, for example, from the definition of debt underlying Europe’s debt rule. 5 From 2001 to 2007, Greece reportedly used such arrangements to mask €5.3 billion of debt (2.3 percent of GDP) (Eurostat, 2010a) and reportedly paid fees to Goldman Sachs and other investment banks that were higher than those charged for issuing ordinary debt (Dunbar, 2003; Story, Thomas, and Schwartz, 2010). Belgium, Germany, Italy, and Poland reportedly used similar swaps (Katz and Martinuzzi, 2010; European Parliament, 2010; Piga, 2001).”
Fascinating re NAMA, I notice its given the title, ‘entity’
” On the other hand, Ireland’s banking-crisis-resolution entity was considered to comply with a list of statistical criteria established by Eurostat for classification outside general government, including majority private ownership; limited duration, scope, and expected losses; and establishment to deal with a crisis (Eurostat, 2009). The entity acquired banks’ large commercial property loans at a substantial discount financed by government-guaranteed debt, amounting to 19.7 percent of GDP at end-2011″
There’s a discussion on this with a comment by Seamus Coffey MArch 10 here I found interesting:
“http://economic-incentives.blogspot.com/2012/03/presentation-on-fiscal-compact.html”
“If the 120% of GDP for the GGD is such an important threshold (I don’t believe is it) what will happen if the inclusion of NAMA on Ireland’s balance sheet pushes the GGD up to around 130% of GDP for 2011 and a forecast peak of more than 140% by 2013/14? Would the Finance Ministers meet all night to bring it back down to 120% or will we start hearing caveats about “net debt”, “offsetting assets” etc.?
In my opinion any debt sustainability analysis is primarily driven by the interest rate, the inflation rate, the growth rate and the size of the primary balance that can be achieved. The absolute size of the debt only affects the last of these in that a larger debt makes it harder to run a primary surplus.”
I happen to disagree with Seamus on that one on the basis of debt sustainability that requires government borrowing at rates because of weight of debt overhang drives interest rates to heights that are beyond reach and to ultimate default, where we are. The absolute size of the debt determines almost every economic index there is.
Where does this leave a Constitutional FC vote where one of our current financiers is expressing the view that the deficit and debt numbers are quite literally not worth the paper they are written on?
If there was ever a reason to vote NO on 31st May well this paper is sufficient for me and should be attached to all the information booklets that the Referendum Commission will seek to distribute before the 31st May.
In simple terms writing anything into the Constitution which has the hand of known accounting scams as part of its make up should be avoided at all costs.
Facinating … a truly facinating read … highly educational ….
Reminds me of my first effort at an ‘accounting module’ a good few moons ago … as I struggled through and it dawned on me, naive as I was at the time, that this stuff really did not overbother with the basics of what I then considered to be mathematics … yet out of this jugglers’ art form (which bears no relation whatsoever to the aesthetic turn in economics) emerges the pristine clarity of 0.5, 60.0, 1/20, yes, no and I’m in awe … absolute awe at the merkozian genius who eventually figured it all out …. almost as magical as BigBlue who when programmed with all facts and data available and was requested to come up with the answer to the riddle of the universe eventually printed out … 42
This IMF paper by Mr Irwin fully deserves a Booker award for Faction. Well done!
@Colm McCarthy
‘The deferral of the cash payment on the IBRC promissory note that was due yesterday is unimportant. In reality, the payment has been financed for only a year, through borrowing from the Bank of Ireland against a longer-term bond. There has been no change to the level of debt outstanding. Nor is there any recognition that a substantial portion arises because of the imposition on Ireland by the ECB of full repayment to unguaranteed bondholders in Anglo and other bust and defunct banks.
This deal does not open any obvious corridor to further negotiations. The Government needs to prosecute vigorously with Europe the case that debts the ECB has imposed on Ireland not merely inhibit Ireland’s ability to deliver on the programme and re-enter the bond market, but are also an arbitrary and unprecedented imposition on a country that is already unable to finance itself.
The loss of investor confidence in European sovereign debt has been exacerbated by the ECB’s insistence that bank bondholders come first and that the resolution of failed banks must be at the expense solely of taxpayers and sovereign bondholders.’
“NO” to this odious dictatorship.