In Billy Wilder’s classic movie “One, Two, Three” James Cagney plays a hard-charging marketing executive coaching his clueless son-in-law on the correct answers to give during an important job interview. The son-in-law is told to describe the current international situation as “serious, but not hopeless,” but during the job interview he mangles this and describes it as “hopeless, but not serious.” The interviewer is impressed with his originality and insight. The same mangled answer might apply to the current Irish economic situation: hopeless, but not serious. The corner has been turned. The Irish economy will now experience a slow, steady recovery as the IMF-guided programme unwinds the deep structural flaws that developed in the Irish economy during the credit-fueled bubble of 2002-2007.
Author: Gregory Connor
Was it a mistake for the Irish government to use a clever ploy to “park” Nama bonds at the ECB? Was it the non-standard use of the ECB’s temporary liquidity facility as a source of long-term bank sector funding that led the ECB this week to demand an Irish debt restructuring? Or should the ECB have accepted that they needed to provide long-term risk capital to the Irish banking sector in this non-standard way, as part of their role as euro-area lender of last resort?
A research colleague, Brian O’Kelly, and I have been looking at the impact of poor bank regulation in Ireland during 2003-2008, and the Irish credit bubble that this poor regulation fostered, on Irish GDP and other economic measures. I am scheduled to talk about this research down in Kenmare this weekend. I want to make some informal remarks in this blog, based on some simple calculations that are easy to follow.
Here is a simple question: what is the effect on cumulative GDP of the massive distortions in bank lending described in the Honohan report? The good news is that the net cumulative effect, even after accounting for the €50 billion bank bailout costs, is not too far from zero. The bad news is that the GDP benefits were all received during the 2003-2007 period when GDP was artificially increased by these extremely poor bank regulation policies, whereas the GDP costs are in the 2008-and-beyond period.
Next May 20th, the Financial Mathematics and Computation Cluster (FMCC) will again hold a conference on financial risk modeling of European investable assets (see below). Once again the conference will be held in Dublin, Ireland, poster child for the flaws in Eurozone financial risk architecture. As was the case last year, we hope to attract papers covering the full span of Eurozone risk modeling and analysis. In addition to the Call for Papers, the FMCC is actively seeking industry partners for this conference and our other research-practitioner outreach programmes. For more details contact gregory.connor@nuim.ie or irene.moore@ucd.ie.
A collection of researchers at the National Institute of Regional and Spatial Analysis (NIRSA), R. Kitchen, J. Gleeson, K. Keaveney, and C. O’ Callaghan, have written a powerful new report on Irish property market policy and land development planning policy, critically examining both policy errors during the 1993-2007 period, during the post-crash period post 2007 (including a critique of NAMA) and making suggestions for the future. The link is here.
The report has a modern geographers’ perspective and is strongest when discussing zoning policy, development policy, and property-related tax policies, but there is still plenty of things for mainstream economics comments/discussion in the report.
The report makes clear to what a large extent post-1993 property-related government policy, right up until today, is driven by the interests of the property development industry. Coincidentally (or not) this industry is one of the biggest funders of the dominant party in government during this long period.
I am not sure if I am the correct person to paste up this link, but perhaps others can provide useful comments and replies to comments. (I do not claim to be a property researcher but to the extent that property is a risky portfolio asset it touches a little bit on my own research area.)