Restoring Confidence in the Financial System

Good post Gregory
Leaving aside the ‘staff’ members, the CB Commission has
A macroeconomist (of great repute) : John Fitz
An ex commercial bank CEO Mike Soden
a trades union official Des Geraghty
a corporate lawyer Blaithnid Clarke
A economics lecturer and ex advisor to a finance minister Alan A.

No business men, few women, no financial lawyer, no sociologist/political scientist, no historian, no international experienced CBer…, no gadgfly contrarians…
A much beefed up and expanded CB commission would be a welcome start. (no, thats not a job application)

Methinks a touch of the gamekeeper from the keepers of the financially efficient markets hypothesis ivory tower?

Six years ago today I left Ireland and 6 days later news broke that the European Central Bank and the US Federal Reserve injected a combined $90bn into financial markets.

The day began with BNP Paribas, France’s biggest bank, announcing big subprime losses and saying that it could not move money from two funds because of a “complete evaporation of liquidity.”

Unlike the fortunate ‘Dr Doom’ aka Nouriel Roubini, there was no god who would send me manna in reward for my prescience!

Six years later and the Irish banking crisis continues. It’s likely that the goal to return to markets at the year end conflicts with sorting the debt mess. As in many other countries, there maybe a reluctance to scare the horses.

In the mortgage sector, the buy-to-let debt should be the easier to resolve but it’s not.

AIB said this week that in the buy-to-let sector, the level of 90 day plus arrears rose from a ratio of 43.6% at the end of December to 47.9% at the end of June.

Bank of Ireland said buy-to-let mortgages in arrears for more than 90 days rose to 26.01% from 23.36% at the end of last year due to the impact of borrowers on rising repayments as interest only periods come to an end. During the bubble, the bank’s interest-only period was typically 10 years. So loans issued in 2006, the craziest bubble year, will remain on an interest-only basis for 3 more years.

Fiona Muldoon said last April that half of the €50bn debt that is due from the SME sector is impaired. She said many of these loans are interconnected with property deals.

With so many loans non-performing, what economic scenario in the next 5 years will change the fundamentals?

Muldoon said:

“We believe that the banks now have credible credit assessment tools. We have overseen that operational skills and resources are improved and that appropriate external help is engaged where necessary.

Policies and Key Performance Indicators (KPIs) are in use in the banks to measure their success.  The banks’ management teams must now be accountable for the implementation of the strategy and measured in terms of their success in that implementation. We receive regular updates from the banks management on their progress against plan.  In this way, restructuring and re-underwriting will continue to take place throughout the year.”

Six years after the onset of the credit crunch management-consultancyspeak from the Central Bank isn’t very impressive.

Progress against plan? – seems that the Bank woke up to this problem late and continues to have a passive role.

DoD
Maybe Des G was prescient. Maybe he was lucky. Its not about him per se. Or any others. Its about a group of people that when you look at them WITHOUT PERSONALISING are pretty much dominated by insiders : the eminence grise of the semi official government economic service and son of an ex PM, the ex head of the largest bank, the ex head of the union congress, the ex advisor to the minister for finance… All fine people one and all but none exactly mad googley eyed contrarians. We need much greater diversity of opinion and backgrounds on all state bodies. I submit that we are unlikely to get same.
We could play fantasy cb commission all we like : id like to see Peter McVerry on it for example and perhaps someone like Ed Harty (SME exporter world leader in area). But thats me. Lets get greater diversity in all areas. And gender balance.

What about default on pension obligations in the private or government sector? The issue’s not unique to Ireland, but this is one area that concerns me generally. The private financial system is still in intensive care world-wide, despite the fact that workers in their peak earning periods greatly outnumber retirees, and are still shovelling their earnings into that sector (as they have been for the last 10 years). What happens when that music stops?

It’ll be easy to have a reasoned debate here on strategic default if social partnership veteran Jack O’Connor is setting the standard

SIPTU president Jack O’Connor made the controversial link between Mr Duffy and Joseph Goebbels, who was Hitler’s minister of propaganda. “If Goebbels had that man (David Duffy), Hitler would have won the war,” Mr O’Connor claimed.

He made the comments after Mr Duffy had claimed that one in five homeowners in arrears was “strategically defaulting”.

http://www.independent.ie/irish-news/union-boss-stands-over-nazi-slur-on-aib-chief-29469341.html

I must have missed something,an ambulance passed by with a strategic defaulter or it may have been an irish developer kidnapping himself.
Either way,the ambulance was going too fast I was trying to hand them a link to my web site,luckily I came upon a bandstand to jump on instead…..

@Gregory,completely agree,reread your excellent post can’t find any mention off 35%.But like gazpacho some dishes are best served…
I tried some of the above links may be a us/yank IP thing, but when I enter shamelessplug.com it works,on the second link I just used google enter strategic default.The refuge off the new to a topic is a shotgun or scattered approach,link everything you can find,try to befuddle the reader…..

In a week when both AIB and BoI CEOs announces further losses and their share prices continue to reflect these husks simply exist as zombie banks… all the talk is of strategic default!

It’s not that the people in the banks continue to be colossally incompetent, it’s those pesky strategic defaulters… eating their lunches and drinking their milkshakes!

http://www.japlandic.com/2013/08/eating-their-lunches-drinking-their.html

The real way to restore confidence in the financial system would be to kill the zombies!

A very interesting address, especially as the speaker does not appear to have been speaking from a prepared text but rather off the cuff and in colloquial terms.

The nub of the matter is indeed the issue of restoring confidence in the banking system with none of the players in Ireland IMHO either individually or collectively being capable of doing so. The CB is no exception.

The markets evidently believe that the government will deliver on the conditionality associated with the bailout, the only thing – despite the posturing – keeping a floor under the economy. One key element is self-evidently cleaning up the debt situation, especially in relation to buy-to-let mortgage lending. Action on this will hit the parties in government where it hurts. As either near outright owner or major shareholder on behalf of the Irish people, it should get on with it.

On the original topic : its hard to have confidence in a system that persists in not punishing any wrongdoing. For years I have noted in my undergraduate lectures that we have the most ethical financial sector in the world. We know this as the numbers of convictions for financial crimes, such as insider trading or dublin-minnow-coz-we-dont-got-whale type things is asymptotically zero.
People got mortgages under fraud – of course they did the numbers in all senses were so high. How many convictions on both sides? Will we ever see anyone in Shelton Abbey for Cassoulet des comptes annuels? Will we see auditors (or even GASP economists) in the criminal dock … etc etc.
We spent a decade and a fortune investigating planning corruption and we have how many convictions? And on and on and on.
Meanwhile the banks puff and huff about getting tough on defaulters. Motes and Beams

Methinks the empirical evidence would stronglly suggest that it is both.

If I owe millions to banks, go abroad, transfer all available assets to my wife and go bankrupt, is this strategic default, a criminal offence or just good business practice?

@ John Gallaher

As someone remarked, stupidity, of the plain vanilla variety, even if collective, is not a crime! What the establishment in Ireland is expert at is proving the truth of this adage.

What we have now is silly season debate when the world and his wife knows that said establishment will sign on the – troika dictated – dotted line when push comes to shove. It has no credibility whether in Glenties or anywhere else!

@ Gregory Connor

If the members of the Executive of the ECB, from the President down, state that there is a limit to what central banks can do, why should the Irish CB be any different?

For me, the most interesting sentences in the speech are the following;

“Similarly there are many households in Ireland as in any economy who are net savers and there is still significant wealth in Ireland. There is €233.7bn in deposits (other than from credit institutions) in the Irish banks both covered and non-covered and €11.6bn in the credit union sector. That we have both borrowers and savers here in Ireland is obvious and that people can be borrowers or savers at different stages of their lives is also obvious.”

Getting the two sides to do business again is the key. They may already have started!

@ All

On the plain vanilla nature of the Irish crisis i.e. a property bubble, two recent items in the FT.

http://www.ft.com/intl/cms/s/0/00bf5968-f518-11e2-b4f8-00144feabdc0.html

http://www.ft.com/intl/cms/s/0/b69113a6-f600-11e2-a55d-00144feabdc0.html#axzz2ZiVOkX3f

Sub-prime, anyone?

@DOCM,hi DOCM,I certainly would hate to see people jailed for mortgage fraud,so the income was overstated big deal.The mortgage broker or banker looked the other way,hardly worth prosecuting and jailing people for that.
But they probably should downsize and sell….jail nah.

@David O’Donnell

A most astute suggestion .. if somewhat belated.

It’s only belated if you think there is any hope of getting money back from the useless banks, otherwise they’re coming back for more – at which point you either throw good money after bad, or you accept your losses and take them behind the woodshed.

Ps – I have been saying the same thing for almost 5 years, but it will probably take another €15-20 billion demand from the banks for people to decide the issue is not as belated as one thinks!

.. just checking me notes and empirics on the Irish Financial System ..

CorpGov pre-crash = CorpGov post-crash

statsig *******************************

That’s one hell of a ‘confidence’ stat .. er? Nuff said.

“Mentioning strategic default is offensive to many people since it means acknowledging that some Irish people are acting dishonestly in their own self-interest against the interests of society”. No, it is not offensive. It is part and parcel of a carefully constructed dirty tricks plan.

It is sickening in the extreme to hear a procession of bankers throwing around these accusations, the very people who strategically maneuvered themselves into tens of billions of state funding dumping the burden willy nilly on the state.

These same people defaulted on their fiduciary responsibilities, they destroyed their shareholders, their own banks and they incinerated vast quantities of peoples savings. For Ritchie Boucher, David Duffy and others to play tag team with Gregory O’Connor and the likes of Karl Dieter, bad cops good cops, as regards who will throw the next dirty snowball is treacherous.

@DOCM,a lot of this is “new” legislation,untried it has been suggested on here that the banks roll out a pilot program,say targeted at a specific zip code oh like D4…regarding responsibility,that’s quite a moral question,I’ve always advocated and favored copying the UK BK system,big believer in second chances and fresh starts.
Only in Ireland would the non payment of unsustainable debt become a moral morass,if the banks are under capitalized deal with it.
It’s the responsibility of the CB to encourage strongly the banks to pursue higher value repo.’s or foreclosure on those with a viable resale value.
No point in having too large an REO portfolio of lower end houses,BTL is simple grab the cash.Otherwise the situation will arise where rent is getting diverted to lawyers to fund legal challenges,will mistakes be made and errors by banks yes of course.
@francis I will try track it down for you,Gregory has been the leading light,at the forefront on this issue.He has quite a few excellent academic and general postings on here regarding this,he has patiently and thanklessly moderated many discussions/comments,often from overly emotional and somewhat financially illiterate commentators.

At times there is too much emphasis on strategic default,default is default.

@DOCM it’s probably a very unpopular thing to say,but the Troika will leave quite a legacy behind.Gregory mentioned closing the legal lacuna here for one,off top my head the property price databank about time.Modern or somewhat personal insolvency legislation,Fiona actually starts her speech with that very topic off expenditure exceeding income!
As an aside,the Donal Ryan book you mentioned is not released in the states until October,however,just got a copy off The Spinning Heart looks great,going to read it in now,thanks for the recommendation.

“The current task now is the necessary and difficult work of putting together a business model for Ireland Inc. that expands on those parts of the economy not built on buying and selling houses and development land to each other at ever inflated prices. (Even ignoring the interest payments on debt), the State currently generates a net deficit or in common language spends more than it receives in taxes”

The Zingales article doesnt put the number at 35%. It estimates it. A subtle but important difference.
What is more, how it estimates is really worth looking at.
“To identify the proportion of strategic default, we use two questions. One asks “How many people do you know who have defaulted on their house mortgage?” Those who know at least one are also asked “Of the people you know who have defaulted on their mortgage, how many do you think walked away even if they could afford to pay the monthly mortgage?” By taking a ratio of the two, we obtain an estimate of the percentage of actual defaultsthat are considered “strategic” by the defaulters’ acquaintances. ”
Q: Have you deadbeat friends? If so How many….
Id be really really really cautious about taking this as a figure for Ireland, the more so when the paper readily admits that strategic is an unobservable event. Its so unobservable that we dont have a definition for it.

@ All

FYI

Colm McCarthy tells it as it is!

http://www.independent.ie/opinion/analysis/were-not-out-of-the-debt-woods-yet-29470960.html

@ BL

Does it really matter whether a debtor is strategic or not if his/her creditors take action against them? All the indications are, with the closing of the lacuna in the legislation following the Dunne judgement, that this is about to happen; with considerable doubt as to the outcome (as adverted to by CMcC).

@All

Brian Lucy is 100% correct we simply haven’t a clue as to what is or isn’t a strategic defaulter and even more importantly we haven’t any sort of idea as to how many of them there are.

So with the greatest respect to Gregory et al stop pretending this is one of the single biggest factors preventing a ‘normalisation’ of the housing and Irish banking markets, it isn’t – far from it in fact. As indicated here many times the single biggest problem we have is that we allowed some hair brained idea to seep into our being that most of the property deals struck between 2001/2 to c2008 ever made sense in the first instance.

Why do we continue to believe that enforcing debt deals on consumers which the financial markets have indicated by their refusing to roll over liquidity financing and ceasing to lend on a longer dated basis to the banks that struck these deals when the going got tough, beats me. The market stopped believing, but many here continue the lie.

The markets spoke in 2008/2009 – these mortgage ‘assets’ were not realistic, the metrics behind the lending were daft and the income assumptions required to maintain the vast majority of the these mortgage debt deals assumed a low interest rate environment forever and couples would continue to work in a two income household forever. Crazy.

All the while more and more bank created credit feed into a market for the period under discussion where prices relative to cash income streams from the underlying asset became ever more bizarre by the passing year. All this against a regulatory background where those supposedly in control allowed institutions to run up almost too incredible beyond belief loan to deposit metrics where even the merest kink in the asset line would have all these institutions scrambling for additional capital. But it seems the CBI, Govt and many commentators here are still convinced that the legals behind these deals as contained in the credit agreements stack up. Something’s not making sense here. Logic has left the blog.

So Gregory et al please face reality and stop peddling an argument that any sensible analysis would suggest is simply not credible against the hard facts on the ground. The house prices were wrong and as a consequence the lending attached was wrong – any basic yield, DCF or IRR computation would have told you so. Trying to cement in debt deals on the back of novice property consumers where all the facts were suggesting the deals were off the wall in the first instance is plain stupid, strategically speaking.

“It is important to remember that the weak regulatory stance of the Irish Central Bank during the credit bubble period was one of the chief causes of the Irish economic crisis. The Irish Central Bank’s soft and timid approach, and its willingness to be swayed by political and business interests, was a major cause of Ireland’s economic disaster (for evidence, see my paper with Brian O’Kelly)

ICTU general secretary, David Begg was a director and member of the board of the Central Bank from May 12th, 1995 until summer 2010, a period of 15years. His tenure covered the period between 2003 and 2008 which is studied in the published paper referenced.
David Begg was a very senior member of the board of the Central Bank. He was chair of its audit committee/audit and risk management committee on which three members of the regulatory authority also sat.
Irish people and Irish trade unionists in particular are entitled to an explanation from David Begg

“While exact numbers vary depending on who is counting, everyone agrees that the incidence of strategic default is on the rise. Studies from the University of Chicago Booth School of Business indicate that in September 2010, 35% of mortgage defaults were strategic, up from 26% in March 2009.”
http://blog.washingtonfederal.com/wp-content/uploads/2011/06/FICO-Strategic-Default-Analysis.pdf

John G
thats the same paper reference as I have noted. Same caveats apply. note the definition : 90 plus on mortgages and current on other debt . Not a whole pile of use if you are using the credit card to buy petrol is it…

@Brain ya mean this one here that I just reread 🙂
http://www.kellogg.northwestern.edu/faculty/sapienza/htm/guiso_sapienza_zingales_strategicdefault.pdf

For all those who believe the poor innocents in the banks are being tricked by the feckless, reckless strategic defaulters – three questions:

1 – If you think 14% of the loan book in mortgage arrears is attributable to people conning the bank – when normally the alarm bells would be ringing if 3% of your loan book was in trouble – what does that say about the abilities of the people running the banks?

2 – If you think, 5 years after they imploded (followed by massive government bailout) the losses announced this week indicate people in the banks don’t care about getting repaid (the loan book continues to deteriorate because they know they effectively have a government guarantee to fill the hole) – what does that say about the abilities of the people running the banks?

3 – If the guys in the banks are too stupid or too incompetent to be running the thing, don’t you think it kinda suits their purposes nicely to suddenly find that these huge losses they continue to make are simply not their fault?

Also – another thing to contemplate…

AIB are trying to pawn off worthless shares in themselves to avoid paying back €3.5 billion in preference shares owed to the government, which should also mean they incur a €0.9 billion charge.

BoI are trying to avoid paying €1.8 billion in those same state preference shares (the hope that Wilbur Ross will jump in is a complete fantasy) and a late payment fee of €0.5 billion.

Both of those actions will be effectively writing off €6.7 billion – kinda put the “strategic defaulters” in the ha’penny place!

@ WGU: Lovely!

Re: 1: They are incompetent bankers.

2: They’re ‘geniuses’ – of a very unusual sort. 😎

3: Naturally!

If only a real minister (not one of those half-arsed staties) would break ranks. Tell the truth (sky won’t fall). Then challenge their leader to fess-up or feck-off.

Regarding BofI,and BEB most likely knows more,they are looking to retire them to avoid a step up or penalty?
As far as I know they are current on all obligations to the state, simply good business practice to do what they are attempting,I read the transcript off the conf call,printed out the report,but was reading AIB’s numbers.
I thought ulster had some numbers out too last week….
Link to transcript,AIB has a nice glossy presentation or cheat sheets available,all reports at their sites.
http://seekingalpha.com/article/1598792-bank-of-irelands-ceo-discusses-q2-2013-results-earnings-call-transcript

@Colm McCarthy

“As if the Government’s debt burden was not enough to worry prospective lenders, the State has further off-balance-sheet liabilities both for guaranteed bank borrowings and for the borrowings of NAMA, the agency which bought the dud commercial property loans from the banks. It also has massive unfunded pension liabilities for State employees and the worrying prospect of further bank rescue costs if mortgage loan recoveries go badly.”

Too often ignored. I have never queried the necessity of fiscal adjustment. What I have constantly queried are the HOW and DISTRIBUTION of adjustment – far too regressive – with sundry corporates, stallions, land, the very highly paid, and other untouchables somehow outside the mix while the likes of Blind Biddy and her disability allowances and the education fund for Travellers and others constantly hit; this simply ain’t republican.

BIS blame creditors?..
http://www.telegraph.co.uk/finance/financialcrisis/10221869/BIS-blames-Europes-creditors-for-eternal-euro-crisis.html

“The Club Med debtor states are now being forced to slash spending without offsetting stimulus in the creditor bloc. This creates a deflationary bias making it even harder for them to repay debts. “Widespread defaults would hurt lenders in surplus countries,” said the BIS.
The watchdog called for “symmetry in adjustment between creditors and debtors” to avoid repeating the 1930s, warning that global recovery will remain stunted until the creditors chip in. It said there had been an “extraordinary explosion” of cross-border assets before the global crisis, due chiefly to the chronic surpluses of the creditors.”
Interesting?

A MUST READ – Yves turns pessimistic on the € Confidence front ….

Saturday, August 3, 2013
European Pundits Starting to Give Up on the Eurozone

We’ve been pointing out for some time that Germany has refused to budge from wanting contradictory things relative to the Eurozone. Germany wants to continue to run trade surpluses, which are now predominantly with other countries in Europe. That means it needs to finance its trade partners’ deficits. But Germany simultaneously does not want to do that, at least with other Eurozone members. The only way to square that circle would be if the euro were vastly cheaper, so that Germany’s trade surplus was more with the rest of the world than with its fellow Europeans, and that countries like Spain could come closer to a trade balance or achieve a trade surplus via trade with the rest of the world. No one has entertained that as a solution, since the required level of euro depreciation would be so large as to invite retaliation from Europe’s major trade partners (I haven’t seen good estimates, but early on, Wolfgang Munchau suggested between .6 to .9 to the dollar).
[…]

Now something still has to break, but some of my correspondents who’ve just been in Europe now think that we will see a political crisis in Europe before we see an economic one, and that, like objects in your rear view mirror, may be closer than it appears.

I was disappointed at the fact that (based on the thin comments) few readers apparently read an important interview with James Galbraith that we posted last week (Ambrose Evan-Pritchard saw fit to link to it from the Telegraph).

JG: I think that ultimately the decision on the future of Europe will be made in Germany, and Germany has to decide, does it want it or not? If it wants it, it has to take minimal steps to stabilize it on the same principles on which they stabilized the East, and on which they built the Federal Republic in the first place. And if they don’t want it, well, it will go away.
[…]

So, I admit defeat in my belief that ‘European policy-makers would come to grips with fundamental economics’. They seem incapable of that. All those ideas which aim at solving the Eurozone’s problems through generating aggregate demand or through a Modest Proposal (which otherwise sounds very interesting) are pipe dreams. They might work in the United States of America with a strong federal government but they are pipe dreams in a Europe of administrators, technicians and bureaucrats focusing on national interests, all speaking in different languages and different directions.

RIP Eurozone!

Read more at http://www.nakedcapitalism.com/2013/08/european-pundits-starting-to-give-up-on-the-eurozone.html#Yl9TAMAAO226UETA.99

Well worth a carefuil reading, inc. the link to James Galbraith

@PR Guy

As an addendum to that – “…some Irish people are acting dishonestly in their own self-interest against the interests of society.”

Oct 24th 2008:

Eugene Sheehy, the chief executive of Allied Irish Banks, all but ruled out going cap in hand to raise cash from shareholders or asking for State investment — even as the lender’s bad loan losses soar over the coming years.

“We’d rather die than raise equity,” Mr Sheehy said in a presentation to about 450 well-heeled private clients of Goodbody Stockbrokers in Dublin yesterday.

The banking boss said that AIB has a number of “options for self help”, which will not require the raising of fresh equity.

http://www.independent.ie/business/irish/wed-rather-be-dead-than-raise-equity-says-sheehy-26487062.html

Thanks to AIB putting €1 billion of the €21 billion they subsequently needed Eug is now 100% publicly funded in his retirement.

If we’re going to start chasing people for “acting dishonestly in their own self-interest against the interests of society” – I know where we can start!

@ Robert Browne

The BIS document is a ‘working paper’ by a staff member who points out in a cover note; “Views expressed are my own, not necessarily those of
the BIS.”

It would be nice to think that creditors and debtors could deal with one another on an equal basis but that is not the way the financial system works, as far as I can judge, either now or in past centuries. Not that I think that this undermines the argument advanced but seeing it rather as a question of coming to terms with a fact of life which cannot be changed short of radical reform of the current system.

@ All

I would submit that confidence cannot be restored in the Irish financial system without restoration of confidence in both government and economy and that process under the bailout will prove to be the decisive consideration.

This table from Colm McCarthy’s article in the Sindo shows the hill to be climbed even on the present budgetary consolidation trajectory.

http://cdn3.independent.ie/incoming/article29471363.ece/binary/table-600.png

“So the Irish Exchequer will not have regained its fiscal freedom of action next January just because reliance on the EU/IMF financing has come to an end. Only when the debt ratio has been reduced substantially, after a period of surplus budgets and sustained economic growth, will the government have regained some freedom of action in fiscal policy.

This could take a decade even if things go well. If things go badly, it may not be feasible to exit from reliance on official lenders for the foreseeable future, and there may have to be a successor rescue programme with further conditional emergency finance, or default. The scale of market borrowing required over the next decade is shown in the table above.”

This is an unpalatable dish for politicians to serve up to the Irish electorate and they are doing their level best to muddy the waters to avoid doing so and present themselves individually in the best light possible. That’s politics!

The current budgetary “system” in Ireland – as illustrated by members of the parties in government firing pot shots at one another through the pages of the newspaper of record – is not fit for purpose. Some compromise will, no doubt, be found regarding Budget 2013 but the need to change to a prior open detailed consideration of budgetary options is obvious, and not just by a Dáil committee as has been suggested (although this would be an essential element).

With or without a Seanad, the future of the country depends on a clearer public understanding of the financial road ahead. This seems to be emerging despite the approach of the current crop of politicians; which is identical to that of its predecessors. Debate centred solely on the actions of one institutional player or another seems to me to hamper rather than advance this development.

@ John Gallaher

Fingers crossed!

As Michael Hennigan pointed out recently, German trade in 2013 with the other countries of the Euro Area is now in balance.

@DOCM some good numbers from UK too,perhaps I’m just blessed with a sunny outlook on life or naive,but the yanks/new yorkers consider the worst off the euro crisis to be over…for now!
Political stability in Italy too,gonna have wear sunglasses indoors today the future is so bright…
http://www.telegraph.co.uk/finance/economics/10222036/Manufacturers-raise-UK-growth-forecasts.html

@Tull,the Greek economy is one and half times the size off Detroit’s,Cypress wheres that again…..as even PK admits!
“Sometimes the losers from economic change are individuals whose skills have become redundant; sometimes they’re companies, serving a market niche that no longer exists; and sometimes they’re whole cities that lose their place in the economic ecosystem. Decline happens”
http://www.nytimes.com/2013/07/22/opinion/krugman-detroit-the-new-greece.html

@Robert Browne,hi Robert,SD is a US term referring to a borrower who finds themselves in negative equity.
They take a cold hard look at the numbers,puke the keys up to the lender and walk away….but not always-check out the link to the FICO paper above.
It refers to borrowers who intentionally or strategically don’t pay their way in society and increase the costs for those off us who do,some off us have made poor or bad investment decisions,awful ones even,manned up paid the price.
Others hit the road…notwithstanding their resources or future earning potential to pay for their mistakes,the US has quite a few off them !

“Where the key driver for the behavior of traditional defaulters is affordability, the key driver for strategic defaulters is incentive. Strategic defaulters can afford to continue making mortgage payments, but they believe that it is not in their financial best interest, generally because they are “underwater,” owing more on their mortgage than their house is currently worth.”link above.

JG,
You cannot keep half the population of The EZ in a debtors prison indefinitely. Even the Germans know that 4 years is about the run rate.

@Tull the chances of Ireland defaulting on its debts and exiting are about the same as me winning the 400 million powerball on Wensday.It does not mean I’m not going to buy a ticket,but the window to default/exit has closed.
Is it possible that yields will blow out,of course it is but as off right now and for the foreseeable future it’s just not happening,you can still dream though!
DOCM linked a great piece from Sindo,unfortunately and sadly that’s the reality you do NOT control your own destity,happens when you can’t balance your books…

@Tull in fairness France scares the s**t out off me….h/t Fiat.
Off buy my lottery tickets 400 million and rising gotta love the yanks,lines outside gas stations,scuffles in 7/11 they still buying into the dream….

On the subject of “Money Bills” NAMA was piloted through the Dail as a non Money Bill even though it was dealing with 76bn of loans. It was then engineered that it be an SPV and impervious to scrutiny and not answerable to FOI and we are all supposed to believe it is for “the common good” if you don’t mind.

Why is it that I am convinced, it was for the benefit, is for the benefit of a select few and has noting whatsoever to do with the common good.

@ Tull Mcadoo

The euro will likely muddle through for up to a decade.
Italy’s public debt servicing cost is about half the level it was in the early 1990s.

For most if the big countries, growth has been falling every decade since the 1960s and there is a huge challenge to engineer sufficient growth to cover debt.

http://www.finfacts.ie/irishfinancenews/article_1025984.shtml

Lower standard of livings are inevitable in several countries.

Spain, Portugal and Greece all have had recent rises in exports and depending on emerging markets, 2013 could be the first year since 2004 that we see a full-year trade surplus for the euro area when you exclude Germany.

The fall in the German surplus with the EA 16 is partly due to austerity but From 2008 to 2013, German imports from the currency area are up 14% since 2008.

Apparently the Dutch have some problems…
http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_05/08/2013_512802

However, it must be worrying for them that they had to pay 0% (yes, Zero) for thirty day money…up from -0.01% previously.

Has the world gone mad or wha…………

Sorry, that was 90 day money they got for zero.

@Brian — That is an unusual definition of strategic default is that from a particular paper? It is precise but less useful than the usual definition — not paying the mortgage when able to do so, in order to gain a short-term or permanent financial advantage.

fyi … galloperin Inflation (for forlorn hopers)

The ECB has a single mandate, price stability, which is tragic because price stability is killing Europe. Europe needs sustained 4-5% inflation if it is to recover from its five-year depression and reverse its rising debt ratios. But the ECB has defined price stability as inflation of less than 2%. And in addition, the ECB has ruled that a program of quantitative easing (QE) would violate the prohibition of “monetary financing”, i.e., deficit monetization. This suggests that the central bank should only buy the bonds of governments when they are running budget surpluses!

Achieving 4-5% inflation would require the ECB to buy something (the policy instrument). The normal policy instrument is government debt. Unfortunately, Brussels issues no debt for the ECB to buy. So the ECB is forced to use the bonds of eurozone governments as its policy instrument. But the ECB has defined the purchase of government bonds by the ECB as “monetary financing”. If buying eurozone government bonds is verboten, then the ECB has no policy instrument, as Hetzel points out.

The fact of the matter is that “monetary financing” is a legitimate monetary policy instrument in the pursuit of economic growth and full employment–even if the government in question is running a deficit, indeed, especially if the government is running a deficit, because inadequate growth causes deficits (and rising debt ratios).

So Europe has thrown up two roadblocks to European recovery: (1) zero inflation; and (2) no QE. Europe lacks a coherent monetary strategy, as Hetzel says.

Read more at http://www.project-syndicate.org/blog/price-stability-is-killing-europe-by-christopher-t–mahoney#essGUs2A6PdDJoh3.99

@ johng

‘@Tull the chances of Ireland defaulting on its debts and exiting are about the same as me winning the 400 million powerball on Wednesday.It does not mean I’m not going to buy a ticket, but the window to default/exit has closed.
Is it possible that yields will blow out, of course it is but as off right now and for the foreseeable future it’s just not happening, you can still dream though!
DOCM linked a great piece from Sindo, unfortunately and sadly that’s the reality you do NOT control your own destiny, happens when you can’t balance your books…’

Not controlling our destiny is the historic norm in Ireland, doesn’t mean a nation can safely be disregarded. You make it sound like default is an option, as opposed to an inevitable consequence of mis-governance. Property deals might happen, but that is only froth. Where is the engine of growth ?

@Paul,lost me a little the reference to property deals was a dig at comrade Gilmore,do you believe in coincidences,black cats crossing your path,don’t walk under a ladder types,..what a “stroke” of luck just as he was in China too..

“The Fota Island Resort in Cork Harbour, built by Irish developer John Fleming at cost of over €90 million, has been sold on behalf of Nama to a Chinese hotelier family for an estimated €20 million.”

A 70mil hit not a peep or a murmur…well done NAMA,way to go.

http://www.irishtimes.com/business/sectors/transport-and-tourism/chinese-
hoteliers-pay-20m-for-cork-s-fota-island-resort-1.1483466

FYI breaking news here,Amazon/Bezos just bought the Washington Post,wow.

Hi John G,

a somewhat late big thank you for the FICO link about strategic defaulters. Very valuable!

I smiled somewhat about “… identifying customers who may be considering such action and communicating with them as early as possible” . Show them the instruments, I would translate that.

@ D O D
just in case you missed it, the Fed adopted the 2.0 % PCE inflation target
http://federalreserve.gov/newsevents/press/monetary/20120125c.htm

And the Bank of Japan got that with Abenomics in last fall as well.

http://www.centralbanknews.info/p/inflation-targets.html

John,

with respect to the powerball,

I calculated that last time in 2002.

http://www.huffingtonpost.com/ronald-l-wasserstein/chances-of-winning-powerball-lottery_b_3288129.html

1/175 m chance, increase the payout by about 1.3 – 1.7 with a system taking into account the behavior of other players,

but subtract now a 54% tax ratio in NYC (39 % fed, 12% state, 3% city) makes for a breakeven of about 254 million?

Your comment?

@francis,laughing way too much too comment,lotteries are just another way to rip off the poor.
More a blackjack man myself,but partial to the odd game off poker,and I do actually have a blackjack system,it involves always playing two hands.A unit system is utilized could be a dollar or a thousand chip,maintain the same unit win or loose..if I tell you any more I may have too 🙂
Does it work of course not,but it extends your playing time installs some disciple in how you play and is fun.

@ All

On the subject of “international confidence boosters” as adverted to in the initial post, the views of S & P would suggest that the biggest one would be simply to follow the instructions on the package.

Arthur Beesley in the IT.

http://www.irishtimes.com/business/economy/ireland/s-p-says-deviation-from-3-1bn-target-could-damage-fiscal-deficit-1.1485414

@ DOCM: I think that PR Guy should be asked to ‘translate’ that suggestion into ordinary speak. As for our government. I believe that they have little credibility left. They are neutered Tomcats spraying neutral p*ss on any available corner. Feels great for them. For us it just smells of p*ss.

Confidence, whatever that means or however you might want to define it or to whomever it applies, departed as soon as the controlling executives of the financial entities decided that chicanery, fraud and the public socialization of private debt was to be their new Business-as-Usual mode. The rest of us had better take better care of ourselves from now on.

Debt is a call on our future incomes, and these are not in jeopardy? No harm in spreading the slim around, though. 😎

Also, why would one subject oneself to the punishment of the personal insolvency standard of living without the reward of debt relief and sustainability at the end?

BTW, how many of those who abhor strategic mortgage default defended Sean Kavanagh against Joe Brolly’s tirade on the basis that Sean Kavanagh played based on the rules of the game created by others and according to the norms which those rules engender?

It seems that not everyone believes…..

http://www.irishtimes.com/business/economy/irish-debt-still-vulnerable-to-greek-style-restructuring-1.1486070

@Brian L,apols not being annoying but genuinely the link does not work over here,most the NAMA chaps were dragged into NAMA kicking and screaming,some even resisted !
They didn’t ask to have their loans socialized,most would have preferred to have taken their chances with the originator.
I don’t think anyone is cheering about the possibility off a few repos and evictions,but the numbers in default/arrears have simply gotten way to big to ignore any more.
The playing field needs to be level or leveled,utilizing the car analogy if the borrower is not paying a lease on it should they keep driving the car indefinitely ?
Or does the lender have the legal right to repo it…

@Gregory well worth a..makes the NAMA chaps look like dumb paddies !
“The people [on Wall Street] most responsible have suffered little or not at all,” said Dean Baker, co-director at the Center for Economic and Policy Research, “You would like to see that they paid some consequence, but they really haven’t.”
http://www.publicintegrity.org/2013/07/31/13077/bear-stearns-mortgage-executives-have-plum-jobs-wall-street?utm_source=email&utm_campaign=watchdog&utm_medium=publici-email

@Zhou

It may be worth contextualising the politics of all this a bit…before we get set to hang and flog every politician within reach.

First off, inference that the previous government might have ‘deliberately’ distorted mortgage contract law in the Land and Conveyancing Law Reform Act, 2009 is questionable. This highly complex modernisation of Irish land law, which included dealing with the remnants of statutes as far back as the seventeenth century and overhauling dozens of others from the eighteenth and nineteenth centuries, was initiated as a major Law Reform Commission project in 2003. The project was overseen by the Chairman of the LRC, then Judge Catherine McGuinness, and relied for its execution on the expertise of Professor John Wylie of Cardiff University, a well known authority on Irish land law. The LRC Report and template for the legislation, which also sets out in some detail the entire process involved, was published in 2005. http://www.lawreform.ie/_fileupload/Reports/rReformandModernisationofLandLaw.pdf

The Government Bill was introduced to the Oireachtas in 2006. As it commanded ‘all party support’, it was hardly contentious and attracted very little by way of media attention or scrutiny at any stage up to its passage in 2009. Some legal observers at the time suggested that, inevitably, certain sections of the Act would be open to interpretation by the courts and that, in the normal way of things, flaws might be identified. In his press release at end-March this year, announcing the proposed legislative amendment to address the ‘lacuna’ identified in the Dunne judgement, which he described as an ‘unintended consequence’ of the 2009 Act, Alan Shatter states that, in this aspect, his reform Bill “does nothing more than restore the position intended by the Oireachtas when enacting the 2009 Act.” On the face of it, it would appear that the politicians (for once) are blameless.

As for the delay between the 2011 Dunne judgement and specific proposals to remove the legal uncertainty, it’s difficult to assess the extent to which political motivation to avoid dealing with a thorny issue of accelerating property repossessions may have been a factor. An obvious reason for delay may have been the Minister’s intent to tack on a personal insolvency aspect to the reforming Bill and the requirement to secure the approval of his Cabinet colleagues for this, which all takes up time; and in our system, as we all know, if it ain’t an emergency, it can take a long time.

As the Minister put it himself: ”In the course of preparing this Bill, I sought and obtained Government approval to include in the Bill a provision which will allow a court to adjourn repossession proceedings in such cases to see whether a Personal Insolvency Arrangement (PIA) under the Personal Insolvency Act 2012 would be a more appropriate course of action. The court may, in such cases, adjourn the proceedings to facilitate the drawing up of such an Arrangement as an alternative to repossession.” http://www.justice.ie/en/JELR/Pages/PR13000120

As for the opposition’s voting against the reform legislation; well, a lot of things have changed since the modernisation of Irish land law project was first conceived and the non-contentious 2009 Act was winding its way through the Houses of the Oireachtas.

@Veronica

“First off, inference that the previous government might have ‘deliberately’ distorted mortgage contract law in the Land and Conveyancing Law Reform Act, 2009 is questionable.”

I did not make any such inference. The idea that any government would have intentionally rendered charges real property ineffective is wholly ridiculous to my mind.

“As for the delay between the 2011 Dunne judgement and specific proposals to remove the legal uncertainty, it’s difficult to assess the extent to which political motivation to avoid dealing with a thorny issue of accelerating property repossessions may have been a factor.”

I did not suggest that there was any political motivation for the delay in fixing the law. I would not give even give them credit for being that smart. The fact of the matter is that the CBI were useless in not insisting on this in public and the Dept of Justice and Minister for Justice were useless in taking years to fix it. It should have been fixed in three weeks.

“As for the opposition’s voting against the reform legislation; well, a lot of things have changed since the modernisation of Irish land law project was first conceived and the non-contentious 2009 Act was winding its way through the Houses of the Oireachtas.”

No offence but that is a pretty watery excuse for the opposition’s position on this. I appreciate that the opposition were right to oppose the rinky-dink (or whatever word Mattie McGrath used for it) personal insolvency legislation which provided an wholly unjustifiable veto for the banks. However, that did not justify opposing the correction of the error which rendered charges of registered land ineffective.

@ Zhou,

Apologies for any offence caused. Entirely unintentional!

What I was getting at was the inference in Gregory Connor’s original post : “The previous government (perhaps deliberately) slashed a gaping hole in Irish financial contract law when it passed the flawed 2009 Land Reform Act…” and the argument that followed from that, which, on the facts, does not appear to be soundly based.

I agree with you that if they had a mind to it, the lacuna could have been legislatively fixed in three weeks. Even within three days, if it was considered a priority to fix the immediate problem. A simple two line reform Bill would have gone through the Oireachtas on the nod.

I’m suggesting that delay complicated things politically, as did attaching the element from the personal insolvency legislation to the reforming Bill which appears to have inflamed the perspective of the opposition that there was more to the Minister’s proposed legislation than a technical remedy to an exposed flaw in the 2009 Act. The current level of mistrust within the Oireachtas generally about the intentions behind any proposals of this government isn’t helping things either.

I meant to say that I agreed with all of Micheal Martin’s criticisms of the current Government’s failure to propose any proper reform of the Oireachtas.

@Zhou and DOCM

Further to your respective arguments, you might find this paper on the ‘economic voter’, UK-style, of interest:

http://ms.cc.sunysb.edu/~mlebo/Carey%20and%20Lebo%20PRQ.pdf

As for our lot, they’re entering mid-point of the electoral cycle. So according to the theory, at any rate, the electorate begins to judge them in respect of their record/performance and achievements to date. References to appalling legacies left by the other crowd or ‘ the troika made us do it’ don’t cut it any more.

Although there are a lot of other factors contributing to the current political malaise, I think the risk of making the ‘wrong’ call on the forthcoming budget is a key issue? In the game of sums, those who favour the ‘percentage’ option will, if they get their way, pay a huge political price in terms of political credibility if external factors and lack of growth and so on, derail ‘recovery’ of national economic sovereignty etc. It’s not much of a winning ticket for those who prefer to stick with the 3.1bn number either.

@ john g

‘One could argue that Sean Muly. or Joe O’Reil. on 200,000 is a terrific deal for the state, wish there were a few more off them at that price. In quite a few situations NAMA requires that skill set and is paying below market for it….as unpalatable as that is’

It is unpalatable. Billions have been mal-invested on the advice of these supposed geniuses. Notwithstanding the increased consumption which was associate with the works, the entire ‘development’ exercise was mostly money down a hole. As Michael H points out, there are other holes too, but the salaries these folk are being paid is part of a necessary attempt to limit the eventual costs to the state. We need new ideas.

@ veronica

The UK experience, I would suggest, is not relevant as the country is solvent, a fact not unrelated to its capacity to print its own currency (which is held in such esteem that it has a role, if diminished, as an international reserve currency).

Irish politicians – and the commentariat general – still imagine that they are the intermediaries between the citizen and the latter’s everyday experience of economic life. My basic point is that the fundamental requirement that the state balance its books removes this role. Politicians may huff and puff as much as they like but the average citizen can no longer believe in the charade.

The aggregate numbers are the decisive consideration. Constantin Gurdgiev had them in his Sunday Times weekly contribution. Three departments – education, health and social protection – are gobbling up 95% of the current tax take. The funding of the others is borrowed. As CMc notes, how this situation can be described as “austerity” is beyond comprehension.

On another topic, what constitutes a “strategic defaulter” may be a fascinating issue in its own right, but a “new beginning” for the country does not, unfortunately, involve some fairy godmother wiping the slate clean for everyone.

@ john g

‘The above mentioned business men would have no problem raising a fund or finding JV partners, just because off a liquidity/solvency crisis their skill sets do not evaporate, their contacts and market knowledge is intact.
One the issues/problems was too many from a ‘trades’ background became developers, every chippie, sparks, brickie and leaky was a RE expert….’

I wouldn’t want to personalise anything unnecessarily, and Namawinlelake unfortunately expired. The reason that so many tradespersons, and other amateurs became involved in development is that they were attracted by the feeding frenzy. Obscene returns. Some of the skills you seem to admire are ones that our society could, IMHO, better do without. We need an economy, not a casino or a bordello.

@DOCM-enjoy a bit rough….all reports are linked.
http://www.imf.org/external/pubs/ft/survey/so/2013/CAR080113A.htm

@paul quigley,enjoyed the exchange as always,I was a little “innocent” in my first job this was the unofficial code..
Having navigated one or two cycles it’s always “different” the next time…oh they will be back….

“There are strange things done ‘neath the midnight sun
By the men who moil for gold.
The arctic trails have their secret tales
That would make your blood run cold.”
Robert W. Service

All best Paul,catch up on another one,many many thanks Gregory terrific post,as always.

@ veronica

I should add, as an afterthought, that the situation of insolvency is not that unique in the history of Greece as an independent state. It is for this reason it is an outlier and will continue to be such.

@beb

I believe your wrong on that one.

@ Veronica: “The question is whether the financial facts will trump the capacity of politicians to continue to hoodwink voters into allowing their support to be bought with their own (taxpayer’s) money.”

Correct question. My op would be that heroic PR efforts will be employed to continue the ‘hoodwinking’ – especially “THE SKY WILL FALL!” or, “THERE IS NO ALTERNATIVE” sort of guff. Chop off any avenue of discussion before it gets traction. Your average citizen (who actually does not exist!) is basically poorly informed or most likely mis-informed, so it will require a brave and heroic individual to breaks ranks – but they need the resources to persist. Think Hamburger Hill!

I do not know the time-line on this one. But revenue income is directly correlated with taxable incomes. If these latter falter, and there is every chance they will, the game will be up. Borrowing for day-to-day spending merely makes the matter worse.

But I am sure you do not underestimate the capacity of our domestic politicians to attempt to finesse this scenario.

@ Yields or Bust

It did strike me as wishful thinking that claims in respect of Anglo could be easily negated.

Richard Bruton at that time had defended his pension and that of former bankers as a property rights – a brass neck of course in relation to the experience of many citizens.

It’s an interesting scenario that not only could the Anglo cases collapse, the taxpayer again would be called on.

@ who_shot_the_tiger

There is a danger in coming years that the potential of the construction sector will be second fiddle to small overseas web companies that add little local value added.

Over the past 3 years as I have observed the rise of a 45 floor residential tower in Kuala Lumpur, I have often thought about the diverse economic activities that are impacted. In China, apartments are generally handed over as just shells, even without flooring (tiles/wood) but in KL, there is just a need do have internal decor done. However, still in terms of local impact, there is a big impact in terms of the business for many small firms.

Given the limited local linkages of exports from many FDI firms and the large number of SMEs that do not export, why have public agencies just for exports?

@ BW Snr,

That was DOCM in response to my previous remarks! But it is a good question; though the answer is perhaps not so simple as one might think. What we have are the two parties of government engaged in a high profile, noisy, public argument over what, in the overall scheme of things and cumulative cuts over the past five years, appears as a relatively paltry sum of money of a few hundred million euro. The problem is that everyone knows where this money is supposed to come from – the social welfare budget – and the Minister for that Department won’t have it.

To do so would be the last straw, possibly, in that party’s political credibility with its own electoral base. That the government itself is at the mid term point in the political cycle, with all which that implies, is a further important factor that affects both parties of government in separate ways. But there is another side to it – nobody really knows what taking the slash hook to a raft of SW programmes would do. There’s no ‘representative consumer’ model of SW programmes at this point in time and, so far as I know, there is precious little data either on how these programmes operate within the economy. Alternatively, the argument is that coming in below the percentage target and thus accelerating closing the deficit is the right policy option for all sorts of excellent reasons, including reputation with prospective lenders, boosting investment and so on; and in any case, the whole business is being financed by borrowing which is unsustainable.

From the ordinary citizen’s point of view, there is validity to both sides of the argument. Most people have more to do with their time than be concerned with the minutiae of such political disputes. However, voters are not blind to the individual suffering and hardship that goes on within their own communities. The lack of imagination that characterised last year’s Budget offering was less than inspiring to behold. The government could blame that one on the Troika. Not this time, though; and no amount of spin, or posturing or invented distraction will cover for it.

@JG, Hi John. I’ve missed your NY insight since NWL went digital. The property and development industry in Ireland is now in the hands of NAMA. Some developers (Chris Bennett and Sean Mulryan) have been favoured with partnership status, the majority will be allowed to survive pro tem to service NAMA’s E1.2 billion per annum income portfolio (costing it E300 million p.a. in interest). A no brainer for NAMA to keep milking for as long as possible. We’ll know when it’s all over because NAMA will then move to scrape the bottom of the barrel and soak up any personal assets that may remain with the debtors. That’s the final act. Until then, deception and lulling the suckers into a false sense of security will do nicely. Real resistance will come not from the NAMA “debtors” but from underwater homeowners when the banks move to repossess. Then, at last, we may see some of the passion for which the Irish are famed. Up to now we have demonstrated all the courage of subservient pussies.

fwiw VinBrowne is having a debate on strategic or tactical or opportune or whatever default this evening….

@ GC

Keep working at it! It simply involves closing both eyes simultaneously.

@Greg,it was 10 tranches today in six pools-link here not sure if the links work,you may have to have an AC,or be a registered user or something but.

“Fitch Ratings-London-07 August 2012: Fitch Ratings has downgraded 10 tranches from six Irish RMBS transactions and affirmed a further 29 tranches of the remaining nine transactions. The downgrades only affect Celtic 11, Emerald 4, Kildare, Pirus, Lansdowne 1 and 2, as many of the more recent transactions benefit from higher levels of credit enhancement.”
http://www.fitchratings.com/creditdesk/press_releases/detail.cfm?pr_id=757497

This was yesterday-assumptions linked above-worth a..

“The growing difficulties associated with repossessing properties have also assisted in increasing the percentage of loans in a very late stage of arrears. With the exception of the two non-conforming transactions, cumulative repossessions are yet to exceed 0.4% of the initial collateral balance in any transaction, whereas the proportion of loans in arrears by 12 months or more often exceeds 4%.”
http://www.fitchratings.com/creditdesk/press_releases/detail.cfm?pr_id=798803

@WSTT-watching the Anglo/IRBC resolution,should be fun assume the debtors there are lining up some PE funds to bid for their assets,the preclusion off NAMA’d developers from bidding/buying makes no sense,they often will know the asset best and pay the highest price…

fyi – shur it couldn’t happen here …

Free Man: Court Releases Whistleblower from Psychiatric Ward

Was it a conspiracy or a miscarriage of justice? Either way, politicians and legal experts alike are welcoming the release of Gustl Mollath from a psychiatric institution. The 56-year-old had revealed illicit practices at a Bavarian bank.

http://www.spiegel.de/international/germany/court-releases-whistleblower-gustl-mollath-from-psychiatric-ward-a-915240.html#ref=nl-international

Picture This: Where’s Angie? [or the remake of Hitchcock’s The Lady Vanishes, 1938]

http://www.spiegel.de/international/a-915239.html#ref=nl-international

.. not long now to the infamous ‘After the German Elections’ … and the next Irish budget from the neuBundestag!

@Who Shot The Tiger Says;
on February 17, 2011 at 2:30 am who_shot_the_tiger

One paragraph says it all. He states that we will become Zimbabwe (without sun, of course) if we legislate retrospectively for short term political gain. He is correct. Our credibility, gravely damaged as it is, would be completely gone with international investors and funds. Just when we need all the investment from outside that we can get.

If it happens, there will be nobody left in employment in the country to turn out the lights – no matter what the retailers say.

We have no money. We need inward investment. That investment will bring liquidity. The liquidity encourages credit. With liquidity and credit we get growth and that brings jobs.

The politicians, once again, are showing their financial naiveté and ignorance and are playing with fire.

Goodnight NAMA and the Banks – not to mention IPUT (the Irish trade union pension funds), life policies and economic recovery.

Well when things get worse still, then you tear up contracts with both and rebuild, starting with caring for society, instilling democracy and earning sovereignty.
Not quite the approach we are witnessing.

on February 18, 2011 at 2:19 am who_shot_the_tiger

Very well put, sf ca writer. It is so true. The issue is much bigger than money, banks or the economy. Our pygmy politicians just don’t understand that. I doubt if they ever will.

on February 18, 2011 at 1:25 pm NamaJew

Sf Ca

You may have won post of the year on Nama Wine Lake!

The blog on the rent review question and the excellent comments by all may be the most important issue that
has ever been addressed on the site.
We are where we are, but now we are discussing a new government policy which could lead to the total collapse of the Irish economy and Irish society.
We all need to make contact with senior figures in the Fine Gael party and try to explain the consequences of the proposed rent review legislation.

@PQ. Thanks for the comment.

Developers develop – that’s what they do. Irish NAMAed developers are precluded by law from purchasing assets in Ireland and elsewhere from NAMA, which has a dominant and uncompetitive position in the Irish market.

I am not sufficiently naive to seek sympathy for developers. They don’t expect it, nor do they need it. Property development is not about building financial or political clout, it is about building commercial assets as infrastructure to facilitate job creation in the economy as well as being a considerable job producer itself. Property development created the Hermitage, Beacon and Blackrock Clinics as well as the new Conference Centre. It is not all about building 3 times the number of annual residential units that the economy needed. That was stupidity – encouraged by the media and politicians and facilitated by local councillors by way of the proverbial “brown bags”.

I am not saying that the Irish have failed the developers. Many of the developers are big boys and are fit to look after themselves – although the majority have no cojones at all and are utterly servile and obsequious in the presence of NAMA. I am saying that the Constitution has been thrown out of the window and those that are debtors of NAMA have been excluded from purchasing assets from NAMA, a discriminatory action and a blatant infringement of their rights as citizens.

Any developer worth his salt does not need assets sequestered abroad to provide capital. All he needs is a skillset and the ability to raise capital. To complete a development it takes knowledge and capital. The capital is always available if the deal is right.

No need to re-write history… its all in the the Honohan and Nyberg Reports:

Patrick Honohan wrote a 177 page report: The Irish Banking Crisis; Regulatory and Financial Stability Policy 2003-2008.

http://www.rte.ie/news/2010/0609/honohan.pdf

Nyberg:
http://www.bankinginquiry.gov.ie/Documents/Misjuding%20Risk%20-%20Causes%20of%20the%20Systemic%20Banking%20Crisis%20in%20Ireland.pdf

Like “Find the Lady” – Find the blame on the developers in either?

Let’s start with the Honohan report:

Page 7: “….the major responsibility lies with the directors and senior managements of the banks that got into trouble.”

When the Irish government issued a guarantee in September 2008 it was done to calm the market. The hope was that this was enough to save the banks. As the Honohan report points out it is ‘conceivable that, had international financial markets remained calm, the two main banks (AIB and Bank of Ireland) might have been able to manage their emerging loan-loss problems without Government assistance … But, given what has now been revealed about the quality of their loan portfolio … it seems clear that at that point Anglo Irish Bank and Irish Nationwide Building Society (INBS) were well on the road towards insolvency.’

The root of the Irish crisis lies within the banks. Yes, regulators failed and politicians were naive but the banks were the instigators and the actors.

As the Honohan report points out the Irish crisis wasn’t the fault of anyone except the respective banks. ‘Mortgage brokers and similar intermediaries, incentivised to generate mortgage business, probably played a part at the retail level. It may also be the case that auditors and accountants should have been more alert to weaknesses in the banks‘ lending and financial position. While these aspects have not been independently researched for this Report, they merit further investigation.’

Yes, indeed.

As a sign of the banks’ sound standing and that no one could have known what was coming the Honohan report points out: “… during the first nine months of 2008, Anglo paid out €0.14 billion in dividends, Bank of Ireland €0.39 billion, and AIB €0.72 billion – of which €0.27 billion was paid out as late as 26 September 2008, four days before the guarantee.”

Does that tell us that these banks were in a sound state – or that their accounts were done in a clever way?

To be fair there are missing answers – even questions – in the report. What about the contacts between politics and business in Ireland and the importance of these relations in creating a property bubble?

And as to the Irish banks saved that were saved at the time by the Irish taxpayer. The Honohan report points out (prior to the release of the Anglo tapes, of course) that “Even executive directors of Anglo Irish Bank seem to have had no inkling of the problems to come if we are to judge from the fact that three of them acquired and held sizeable blocks of shares in the Bank close to the peak of its share price in 2007.” … Hmmmm, we know a bit more about that now! Market manipulation?

Was the Anglo Irish “loan” to the “golden circle” of ten businessmen to buy shares from a shareholder who obviously couldn’t find a buyer on the market a singular event? I doubt it. And I wonder if this really is the only such arrangement – or is this just the only loan that has surfaced?

The managers of the banks that the Irish state had to bail out end of January 2009 will have known for some time what was coming. Whose interests were they acting in and in whose interest did they use this information?

€65 billion is a lot of money to lose. The government wrongly in my opinion decided that it was going to save these w*nkers at the expense of the Irish taxpayer. Having had no choice in the matter, the Irish taxpayer should at least be adamant that this money is used to get the banks up and running to serve society, not to bury their past sins.

Then came the Nyberg report – and to my mind, he missed the fact of fraud in the Irish banks. Fraud in the Irish banks hasn’t been tackled at all yet – but it’s coming down the pike – in New York to be exact. However, at this point in time, it’s a disgrace to the Garda Bureau of Fraud Investigation (even Judge Kelly pointed this out). In the end, the initiative will come from a private source- not from the Keystone Kops and is likely to cost the Irish taxpayer another billion euro or more.

Anyway, back to Nyberg. The title of the Nyberg report indicates the major flaw, the misjudging of risks, to be at the centre of the Irish banking crisis. Indeed, a headline for the failings of international banks in judging risk related to individual lenders and whole countries like Ireland, Iceland and Greece.

The Nyberg report, makes it glaringly obvious that German banks lent recklessly all over Europe, wrecking havoc from Iceland to Greece.

Quoting from it (in the main):
The Report explores what the Commission considers to be the most important policies, practices and linkages that contributed to the financial crisis in Ireland. A very large amount of documentation was analysed and many relevant people were interviewed. In explaining the simultaneity of the failures in Irish institutions, the Commission frequently found behaviour exhibiting bandwagon effects both between institutions (“herding”) and within them (“groupthink”), reinforced by a widespread international belief in the efficiency of financial markets. Based on this, the Report finally offers some lessons that could help avoid future similar occurrences in Ireland and elsewhere.

Contagion

The willingness of banks to accept higher risks by providing more and shockingly larger loans primarily for commercial property deals was an important reason for the gradual increase in financial fragility in Ireland. This willingness occurred because of the emergence of strong foreign and domestic competitors within both the residential and commercial property lending markets.

Consensus

One of the striking features of the banks, the political class, regulator and public authorities in Ireland in the years up to the crisis was the consensus that the banks could do no wrong, that there was nothing to question.

A minority of people indicated that contrarian views were both difficult to maintain during the long boom and unhealthy to present to boards or superiors. A number of people stated that had they implemented or consistently supported contrarian policies they may ultimately have lost their jobs, positions, or reputations. Other signs were also noted pointing to sanctioning of diverging or contrarian opinions as well as self-censorship because of this. The apparent strength of these expected sanctions is difficult to judge, but the absence of opposition, barring only a handful of identified vociferous contrarians, may have made it easier for institutions to accept toning down the application of vital, tried and traditional prudential practices.

The Commission suspects that this conformity of views and self-limitation of responsibility would have tended to reduce the perceived need for monitoring, checking and thinking about what was really going on. There would have been little appreciation – both domestically and abroad – of the fact that Irish economic growth and welfare increasingly depended on construction and property development for domestic customers, funded by a growing foreign debt.

Flawed lending: Anglo and INBS

Anglo and INBS are important for the wider crisis because they were both seen as highly profitable institutions to which other Irish banks should aspire. As other banks tried to match the profitability of Anglo in particular, their behaviour gradually, and even at times unintentionally, became similar. Accordingly, when the crisis broke, large losses were realised not only in Anglo and INBS but in other banks as well.

Following the strong example, this was the unavoidable consequence:

The Herd: Other Banks

Bank management and boards in some of the other covered banks feared that, if they did not yield to the pressure to be as profitable as Anglo, in particular, they would face loss of long-standing customers, declining bank value, potential takeover and a loss of professional respect. The few that admitted to feeling any degree of concern at the change of strategy often added that consistent opposition would probably have meant formal or informal sanctioning.

The Silent Observers: External Auditors

The auditors clearly fulfilled this narrow function according to existing rules and regulations. They did not, however, generally report excesses over prudential sector lending limits to the FR. Even if they had, it appears unlikely that anything would have been done about it as in general the FR was already aware of such limit excesses.

The Enablers: Public Authorities

The CB was not powerless; it had the right to direct the activities of the FR and it could advise the Government. There are, however, no records of such direction or advice or even efforts at such. These institutions worked separately and their respective independence was repeatedly stressed; however, this was counteracted by their partly common board members. Until the crisis, many of the staff of the CB and the FR apparently did not cooperate in a sufficiently meaningful way in assessing financial stability.

Policy with Insufficient Information: the Guarantee

The logical but catastrophic consequence of all of this was that when the Irish Government gave the blanket guarantee to all the Irish banks on September 29 2008 the Government didn’t have the proper information, knowledge and understanding to give this guarantee.

The lack of suspicion and the absence of sufficient information on the underlying quality of the banks’ balance sheets is likely to have had a significant impact on the alternatives that were considered reasonable on September 29, 2008. Proper information is a precondition for any crisis management based on reality. As it turned out, decisions were made on the erroneous assumption that all banks were and would remain solvent. Only on that assumption could the decision to simply provide a broad guarantee be understood.

If accurate information on banks’ exposures had been available at the time it seems quite likely to the Commission that a more limited guarantee combined with a state take-over of at least one bank might have been more seriously contemplated. Indeed, on the basis that such information had been available, banks could have been directed to raise substantially more private capital well before end-September 2008. As it turned out, however, the Government was advised that banks’ insolvency risks were small relative to liquidity risks and it was eventually decided not to consider nationalisation. This proved to be only a temporary reprieve, however. After a series of insufficient government actions and initiatives, Anglo was nationalised on January 19, 2009 following the disclosure of significant governance failings. Shortly afterwards, the solvency implications of several banks’ excessive property exposures started to emerge.

Some Lessons

The lessons that Nyberg draws refer, not surprisingly, to the regulator but also to the governance of the banks, the level of vigilance and scrutiny and the need for a robust discussion of policies and directions, both in public and private institutions. Last but not least: the incentive structure:

Finally, it appears to the Commission that little seems to argue against policies to markedly limit (even properly structured) bonus and pay for management in both banks and authorities, in Ireland and internationally. A consistent message of the bankers interviewed by the Commission has been that money is only part of their work incentive. For people serious about professional public service, money should be even less of an incentive.

BTW, in my humble opinion, the taxpayers were not obliged to bail out the banks. The money should have been used to set up a new clean bank and the insolvent ones should have been liquidated. Just as is happening now with IBRC, and will inevitably happen to NAMA when it is forced by the government and market forces to auction its loan portfolio.

I also acknowledge that the reports produced so far are far from telling the whole story.

But to blame the developers for the guarantee and the destruction of the national finances? …… Naw, there were bigger and greedier catalysts. The developers are just a convenient scapegoat for the masses. Find the blame on them in the reports and I’ll buy you a pint!

@ wstt

I am not going to dissent from your pungent views on what went on in our banks, or on the state of banking more generally. As it stands, the sector is a hazard to the global public. It stinks. I recommend Hellwig and Adnati’s ‘Bankers New Clothers’ for a succinct, impeccably researched guide to what needs to be done. Many millions of our money is still mis-spent on denying the truths therein.

I further agree that a whole slew of individual and corporate professional bodes have failed to self-regulate. In a similar manner to the institutional sex abuse, key stakeholders, both private and public sector, wrestled with their consciences and won. For every professional who threw away their integrity, and their standards, there were another dozen who knew about it and kept silent. The dozen are still keeping mum, but respect for the professions is not going to recover until some of the truth is aired. Given that the global cartellisation of accountancy, the discovery process is not going to be easy.

I accept that property development is not a political exercise per se. It belongs to the sphere of business. What I am saying is that it was, and is, essential to acquire some political clout in order to be able to progress one’s business ambitions. We spent a fortune on tribunals, but we scarcely scratched the surface of corrupt payments to politicians and political parties around planning decisions. Not many holds are barred in the lobbying game, and the Galway Tent has become a catchphrase for crooked politics and crooked development.
Business is business remains true, but so does the principle that the polluter pays.

I doubt that the building of private medical clinics is a always, or even usually, a productive investment. The US leads the world in such developments, with a profoundly negative impact on healthcare costs and insurance systems, associated with perverse incentivisations for clinical practice.

Healthcare is no ordinary good. Less is sometimes more, but the sector is largely provider driven, and the public is, in many respects, a sitting duck. Medicare, and its associated entitlements, will sink the US state finances as surely as foreign wars.

Any private hospital development which facilitates fast-track access to Irish public beds or other clinical resources must damage an already creaking public system. Insofar as the developments in Ireland open channels for ‘special’ access to public hospital facilities, or redirect resources form the public healthcare system, that can only put additional pressure on an already creaking infrastructure.

@PQ and WSTT

Below is the link to Martin Wolf’s of the FT review of the above book headed ” Why banks are intellectually naked”
http://www.ft.com/intl/cms/s/2/39c38b74-715d-11e2-9b5c-00144feab49a.html#axzz2bBc6OdEx

@PQ, Thank you for the response. “Pungent”?….. You’ve got me there – I’m not sure that it’s complimentary 🙂

In many decades in the construction industry, I have given politicians a wide berth. So have most sensible participants in the property industry. Many years ago, during the Haughey era (Come back Charlie, all is forgiven) I watched written petitions being passed to handlers – one still maintains a virile profile today :-). They stuck them in their pockets with the promise that they would receive full consideration and attention from “the Boss” later. The reality was that they were opened as a source of entertainment, read out to the inner cabinet to laughter, torn up and binned. That was how much influence the great unwasheds’ lobbying had. I have retained a healthy cynicism for the political class ever since.

As bad as many claim Haughey was, he would have seen the European bankers and bondholders coming a mile off and would have known how to treat them. Who has replaced him? …… a secondary school teacher, a primary schoolteacher and a trade union official. Jesus wept! My cynicism has proved to be well founded.

In relation to the development of private healthcare hospitals; they have all become Ryanairs. Anyone with any private insurance at all can access them. The Blackrock Clinic, the Hermitage and the Galway Clinic are all profitable. That is down to competitive and streamlined management. The Hermitage has just provided the only stereotactic radiotherapy Cyberknife in the country at a cost of over €4 million. It is the cutting edge (forgive the pun) of technology in neurosurgery and cancer treatment in the world. The Beacon loses money because it is too top heavy with management. Think HSE. It is a disgrace that our public health service does not provide the best – that it is left to the private sector to do it.

The truth is that the HSE is top heavy, inefficient and the service is rationed in order to save money. They even brought forward €400 million of the 2013 charge for private beds in public hospitals to 2012 in order to balance the budget last year. What will they do this year?

All our citizens are entitled to access public medicine – we have all paid for it through our contributions. And I agree that the public hospitals should not be facilitating privileged “fast-track” access to the public system – that is warped policy thinking.

Private medicine exists here because because the public version is inadequate. If the public system worked as it should, we should not need a private sector. But it doesn’t and we do. There would be no Cyberknife or state of the art medical infrastructure at all in this country without it.

In the USA, Medicare and Medicaid already cover US citizens. And “Yes” the hospitals and the doctors abuse the system. That is a combination of seeing the infrastructure as a profit centre and fear of the negligence claims from the patients if every test that could possible be relevant has not been carried out on the patient. Obamacare will not help in this regard. Many doctors are already opting out because, like our property sector, the medical service in the USA is about to be nationalised. Like Ireland, it can only lead to second rate healthcare.

You have only to ask yourself “Why do the Canadians currently cross the border in droves when they need to access the best medicine?” Answer: “Because nationalised healthcare is bad healthcare.” It’s top heavy and inefficient. Too much money spent on old f*rts filling in forms instead of providing the state of the art technical equipment that’s needed to save lives. NAMA has already managed to give the kiss of death to a new paediatric clinic at the Hermitage because of its prevarication in responding to Form A requests. Disgraceful should have an expletive as an adjective to describe it.

@JC,
Hi John, The reason Ireland had these lease laws is because we inherited them from our English masters. Our leases came from the English, not from the central europeans.

@JC. Ah John, Charlie Haughey may have had a few faults, but he did not invent the Irish lease. And I’m not sure what you mean when you state that a “bagman” is a sovereign landlord. Other than being a cliche, what does that mean?

Many US leases have upward only reviews, only they are not described as such. They are just noted as increasing on the basis of “3% per annum” etc. They also include “turnover” percentages, so that when a tenant’s turnover reaches a certain level an excess rent kicks in. You must know this.

I am not justifying the Irish leases. Retrospectively, they are what they are – legal contracts. The only way out is the same as the way in – by mutual agreement…. Or, in the final analysis by bankruptcy.

@ wstt
‘In many decades in the construction industry, I have given politicians a wide berth. So have most sensible participants in the property industry’
That second sentence flies in the face of the historical record. The property sector successfully lobbied for a while range of tax incentives. This was massively profitable for the sector, but killed the Golden Goose. Both major parties were captured by property interests, leading to gross mal-investment. Haughey was personally corrupt, and set set the tone for subsequent administrations.

I agree that efficient management is important in any enterprise, and that private healthcare has a place, but the record shows that the focus on profit tends to lead away from, rather than towards, better health care. Much medical investment is mal-investment, and most of the cost is socialized, through escalating insurance and clinical cost inflation. Canada has a far better record than the US in containing these problems.

‘None of these studies have shown any general survival benefit over conventional treatment methods. By increasing the accuracy with which treatment is delivered there is a potential for dose escalation, and potentially a subsequent increase in effectiveness, particularly in local control rates. However the studies cited are so far limited in scope, and more extensive research will need to be completed in order to show any effects on survival’

http://en.wikipedia.org/wiki/Cyberknife

@WSTT

Ireland–A Democracy or a Propertyocracy?

In a democracy power comes from the ballot box. Politics is like war,there are three things you need to succeed. The first is money,the second is money and the third is money.
The people who provide the vast bulk of money which finances Irish politics are ,the cowboy builders,the cowboy developers and the constuction and property interests. They own almost all Irish politicians. The payback for this financing is — a corrupt planning system,no residential rates,mortgage tax relief,section 23/24 etc tax breaks, tax relief schemes for –urban renewal,multi-story car parks,students accomodation,buildings used for third level education,hotels and holiday camps,holiday cottages,rural and urban renewal,park-and-ride facilities,sports injury clinics and child-care facilities, and BES schemes. Feudal commercial property lease law i.e. upward-only rent reviews tied to long leases,which the sovereign signed up,on behalf of the taxpayers,were available to all the politicians friends.
Many of this group are alumni of The Galway Tent School of Economics. The politicians look after themselves first-then their property interests. The public interest is irrelevant to the politicians.
When Fine Gael and Labour did their u-turn on on their promise to grant all commercial tenants in existing upward-only rent review leases ,a rent review in 2011 –they were merely being consistent–looking after the interests of their bagmen. Follow the money it always leads to Leinster house.

Welcome to Europe’s only Propertyocracy,home of the greatest bank and property crash in the history of mankind

PAUL QUIGLEY

It is fitting that the University of Limerick should honour Paul Quigley, distinguished public servant, businessman and in a real and practical sense, patriot. In his career, in his public and in his personal life he has always pursued and has created development – at regional, national, and international levels. He has done this on the basis of personal service, commitment, and dedication from himself, and the motivation of idealism and commitment in others.

Paul Quigley was born in 1923 and qualified with an honours degree in Civil Engineering at University College Dublin in 1942 when he was 19. But even before that his sense of service to society and to the nation came to the fore. He interrupted his university studies and enlisted in the Irish Army in 1940. After basis training, he was released to continue his engineering studies; on qualification, he returned to the Army. He was commissioned, assigned to the Corps of Engineers, and posted to the School of Military Engineering.

During his years with the School, he developed a lasting interest in education, an interest which was to manifest itself in various forms throughout his distinguished career.

There followed a series of important appointments which spanned over 40 years and which saw him contribute to corporate, to regional, and to national development in many different ways.

Paul Quigley joined Irish Ropes in 1946 and during the next 7 years pioneered the first applications of both scientific management and work study in Ireland.

In 1953 he became the first Director of the newly formed Irish Management Institute and held this position until 1960. Under his management and direction, the IMI’s position in Irish business life was developed and consolidated. Its premises were acquired, changed, and enhanced; its operational style of annual management conferences and management development courses was created and took shape; its important Management journal was launched. In short, the foundations of the Irish Management Institute were firmly established and the operations of the Institute were launched soundly by his vision, his zeal, and his commitment.

From 1960 to 1985 Paul Quigley devoted his professional career to the Shannon Free Airport Development Company – first and early on as General Services Manager, and then as General Manager for over 24 years. His talents, sense of public service, and sheer professionalism knew no bounds in this role. Innovative development in the Shannon and Mid West Region; targeted developments in tourism and for small, medium, and large industry; the linking of aviation, tourism, and town building; cooperative endeavour for regional development; industrial and clustered industry linkages – all of these and many more were carefully orchestrated by the man, Paul Quigley, who could and did – with seeming consummate ease – operate at the regional, national, and international levels, but always to a clearly focused goal.

Paul Quigley was then, and is, a man of vision, of leadership, and of service. It is not surprising that a man with these qualities was asked to take on other public and international tasks. He served as Chairman of the National Institute for Higher Education, Limerick, as Chairman of AnCO (now FÁS), the Industrial Training Authority, as a member of the Public Service Advisory Council; and he undertook many consultancy assignments for agencies of the United Nations in fields as far apart as Iran, Sri Lanka, Egypt, and Costa Rica. One could give details of the important contribution made by Paul Quigley in each of these roles; suffice it to say that his contribution shaped, for the public good, the destiny of all those activities with which he was associated.

In honouring Paul Quigley today, we honour a man who has contributed much to our society, and to the economic and social well-being and welfare of our country. It is fitting that the University of Limerick should honour this man by awarding him an Honorary Doctorate of Economic Science

@JG, Thanks for the link, John. It makes entertaining reading. The next bubble in course of formation. I see that Blackstone wants to sell the commercial property in the USA that it has bought over the past seven years, because they now consider it overpriced. Interesting. My head not fully out of Ireland yet – but it’s on the way.

@jg. With cap rates at 4.5 to 6% and 30 year interest rates rising, that’s a very bullish position. They must be running out of options for the money. As Wilbur, Kennedy Wilson have “favorite son” status here, Blackrock must be feeling miffed. (Wilbur handed a billion by the Irish taxpayer, compliments of Minister Noonan) Hence the “Ireland’s overheated” remark – but it’s not as overheated as the US multi-family market. At least – not yet.

@ wstt

I’ll buy some of that post, but I’d spin it very differently.

Many of the same professional advisers who benefited from the bubble are also benefiting from the bust. A cosy cabal, feeding off the corpse of the Tiger. Business is business, after all, and the divil looks after his own. If the developers and lenders hadn’t torn the a55 out of it, of course, there would be no NAMA. The tax incentives were the result of hard lobbying.

There is a lot more to health care investment than buying the most expensive kit. The way to decide on investment is by objective analysis of patient outcomes. But that sensible and scientific approach wouldn’t be good for the health care business and the global monopolies which control it. Much better to show pretty pictures of big machines and serious looking men in white coats.

@PQ. There should never have been a NAMA. The banks should have been left to fend for themselves. Nor should there have been tax incentives. It was like throwing petrol on a fire. Every Tom, Dick and Harry wanted to be a property developer. The current pillage of the economy is on a scale that puts the “penny ante pocketing” of previous generations in the shade.

Frank Dunlop spoke of giving a couple of grand for rezoning votes. We are in a different league these days.

Short of time at the moment, but I will write more fully about the healthcare issue and patient outcomes. The point really is not the use of the most expensive equipment – but the use of the most effective and best. A Rolls Royce is not the best car. Our public hospitals have third world facilities. If you are ever in the USA, go see the new cancer center at Duke University in North Carolina. It’s an education in what cancer treatment should be. Ours is in the Victorian era. I will expand on it later. Got an 8,000 mile plane trip – nothing else to do :-).

@ nwst

My feet are still on the ground. I am sorry for anyone who has cancer themselves or in the family, but it is just one type of disease among many, and cancer treatment provides no basis for planning healthcare more generally. The links between the institutes/researchers and the industry are not always very healthy, and are often concealed.

Karl Deeter has an interesting interview with an (anonymous) strategic defaulter:

http://www.mortgagebrokers.ie/uncategorized/talking-with-a-strategic-defaulter/

@Gregory Connor,terrific link-came across this,strange “reporting”,the journo/hack must not be overly au fait with finance/banking.Its the book value/carrying amt. not amount loaned or owed as that often includes,penalty rates,legal expenses etc.
Anyway..fits his/the papers agenda better to report it like this….

http://www.independent.ie/business/personal-finance/property-mortgages/aib-lost-4m-on-the-sale-of-just-17-homes-29497320.html

@ YoB

‘Fix the prices, write down the debt and move on. Simples.’

Your perspective is sound, but insufficiently broad, from an economic and social point of view. The process which you recommend has serious consequences for the lenders and the state which has guaranteed their liabilities. Your recipe may be right, but it is not going to be simples, except in the sense that the guillotine is simple.

And while we are at it

http://www.golemxiv.co.uk/2013/08/when-people-do-what-their-goverment-wont/

@PQ, I selected cancer and the example of the Cyberknife because there is an unacceptable delay in the public healthcare service to receive radiation treatment for cancer cells. A few years back a friend was told to go home and enjoy Christmas, that there was no available treatment in Ireland. I sent him to Professor Paul Okunieff , the Radiation Oncologist at the University of Rochester Medical Center. He treated him successfully with Novalis radiosurgery which provided fast treatment delivery, more flexible treatment scheduling and a higher level of patient comfort. This was in total contrast to the third world service provided in Ireland. If he had waited for the HSE he would be dead before he could have received treatment.

I am happy to discuss the wider healthcare industry. An area that has been the graveyard of many an aspiring politician. None of whom managed to effectively face down and overcome the many conflicts of interests and protected positions therein. That merits a much lengthier post later.

@ YoB

Concur.

‘In many respects the die has been cast, the error was made both at the initial mortgage origination point and at the point where the Govt guaranteed the banks debts with outright ownership, or near as makes no difference following.’

Different kinds of folk made different sorts of errors. From a national governance perspective, the fundamental error was allowing private bankers to get de-facto control of the DoF and CB. That allowed them to neuter the regulator, collude with capital market players to loot their own institutions, and dump the inevitable losses on the taxpayer. Looting became so pervasive that it came to be seen as perfectly normal. That’s treason really.

Any way you run the numbers, the ‘working out’ is already painful, and going to be a lot more so, because the growth is not going to kick in. The state, the households and the SMEs are all going to be under increasing pressure, with ‘necessary’ debt reduction in one sector impacting the other two. A negative spiral, which is going to test our constitutional and civil order, IMHO.

@PQ “It’s the way you tell them” as Frank Carson might have said.first of all we are all entitled to use public hospital beds – whether insured or not. We have all paid taxes and PRSI that entitle us to do so. The double jobbing allegation could equally be directed at some public sector consultants. It is just the other side of the same coin. I don’t understand your reference to “externalities”. Could you define, please?

I don’t know where I argued that “private healthcare construction is a vehicle for economic development and recovery”. It isn’t. We have sufficient private hospitals. What I was arguing is that the Irish public healthcare system is inefficient, uncompetitive and of third world quality.

I am fully aware that “not for profit” does not mean what it says on the tin. It is merely a way of raising charitable donations from others who do not understand that the Directors and Officers line their pockets, rather than those of the shareholders. A rose by any other name…….l.

@ wstt

http://en.wikipedia.org/wiki/Externality

My point was about double jobbing by public sector consultants. Exactly as you say. Everyone is entitled to use public sector beds, just as everyone is entitled to sleep under bridges. The question is who gets to be first in the queue and what system of selection is in place.

If private medical consultation provides a fast track or lower cost access to public facilities, then what we have is an undisclosed de-facto subsidy to private care, at a cost to the public sector and its other users. The true costs, or relative efficiency, of private care, cannot be ascertained without reference to processes of that type. The current changes are intended to redress the problem at least partly, and in the interests of the Irish state and its citizens.

I can’t argue with your transplant figures from the SBP, but I don’t know enough to be able to address the background in any detail. What I do know is that management systems certainly need reform, but there is no place for contempt. It is much more useful to focus on the play of vested interests, both domestic and global, and their relationship with public sector management systems. As many commentators here have argued, the state gets a poor deal from private contractors, and this state of affairs is deeply embedded in the political party system, and the executive dominance in Dail Eireann.

I am sorry for anyone who needs a transplant, or has a close relative who needs one, and is stuck in queue. There will always be a much greater pool of potential candidates than slots available, because more previously fatal diseases are treatable, and people are living much longer, so more organs are wearing out. The intervention criteria include a great many obvious considerations, such as age, and others not so obvious.

Some clinicians, institutions and healthcare systems intervene more widely than others, and for a whole variety of reasons. As a general principle, interventions tend to follow resources, and money talks. Poor people sell their organs in many parts of the world, but I doubt if there is anything free about that particular market. Less said the better about what goes on in China.

@ wstt

I am not an economist either, just have an interest, and just like to know what they are talking about.
Last time I looked, the French were the heaviest consumers of pharmaceuticals in Europe. Not sure how healthy that is, or how it is connected to lowering death rates.

Interesting link from another thread (h/t Seafoid)

http://www.nybooks.com/articles/archives/2013/aug/15/obamacare-how-it-should-be-fixed/

Excellent article! what do you think Cyril Roux’s biggest challenge will be as a regulator? Also who do you contact to submit articles on here?

Those interested in this topic might be interested to hear Justin O’Brien speak on ‘Responding to Regulatory Change – Opportunities and challenges for Ireland’s financial services sector’ on 14th Nov 2013 – for more details please see http://www.ucd.ie/law/events/title,187039,en.html

Alan Greenspan’s doctrine held that bubbles cannot be prevented and that government’s task is merely to clean up afterward. Greenspan practice was to foster one bubble after another,until finally came along one so vast that it destroyed the financial system on the way.
At it’s source,the global crisis was an American housing crisis,and not one of too little housing but of too much.
The Irish financial crisis was a function of a plain vanilla property bubble, compounded by exceptional concentrations of lending to property-and notably commercial property. Below is the link to the elementary property valuation error that was the source of the global financial crisis and that bankrupted Ireland;
http://www.independent.ie/opinion/letters/bubble-values-26826609.html

How did Nyberg miss the elephant in the room:
Commercial lease lengths in Finland 3 years
Commercial lease lengths in Ireland 35 years