Senior Lecturer in Economics at the University of Limerick.
Alan has a look at what might have been done to reduce the taxpayer’s exposure to Anglo’s losses in the indo here.
Alan’s point is pretty simple, but I think a lot more could be written on what else the government could (or should) have done in the wake of the 2008 crisis.
Colm’s Sindo wide ranging column this week takes NAMA and the disposal of its assets as its focus but also calls for an inquiry into several important matters. From the piece:
Viewed from behind the desk of an international investor with plenty of options around the world, this is not a pretty picture. The reputation of the country has been damaged and the perception created that Ireland is suffering from an acute outbreak of crony capitalism.
This may be unfair but perception is what matters and the perception needs to be altered decisively if foreign investors are to be re-assured. The sheer scale of the capital inflows required means that portfolio investors new to this country need to be involved on a massive scale. These people are perfectly entitled to be cautious about committing funds to a small country which must appear to them to tolerate a dodgy business and political culture.
In the circumstances the Government must focus on rebuilding reputation and has consciously made this a priority. There are other positives — the Irish commercial courts are seen as thoroughly independent and quite prepared to find against local interests, including the State, should the law and the facts point in that direction.
But progress has been slow under several headings. Four years after the emergence of the banking crisis, and given clear evidence of malpractice in some banks, there has been no definitive inquiry into their governance and behaviour, in particular no review of bank-by-bank lending policies in the years when the damage was done. Despite evidence in the public domain of insider lending, balance sheet window-dressing and share-support operations in some banks, no prosecutorial actions have been taken.
The referendum on restoring investigative powers to the Oireachtas was lost through a weak government campaign, but a parliamentary inquiry is nonetheless desirable. It should cover the Quinn Insurance affair as well as the banking collapse and should delve further into the failures of regulators and the mistakes made in the policy response. A well-resourced inquiry should be seen as helping to restore the country’s reputation.
Seamus has an introduction to this quarter’s DAFT report on asking prices for property across the country. This report is compiled by Ronan Lyons. The introduction is worth a read, with a key piece being:
A house in a particular estate may have sold for €350,000 because one bank was willing to lend one purchaser the money for such a transaction. The other banks provided similar mortgages to other buyers on the basis that the first transaction provided the “market value”.
The price reflects the amount of money that someone is willing to pay for a good. Value reflects the benefits that a good can offer. In most cases, these are the same but this does not have hold. Residential property provides accommodation service. As a result of the madness of the boom, we now have thousands of households paying a price for accommodation far in excess of the value they are receiving.
This reality must be addressed and the burden of the mortgage debt is largely a function of the actions
of the banks so they must offer what ever forbearance is necessary to assist households. The banks must also realise that there are thousands of homeowners who will never be able to repay the huge loans they issued to them. It is very difficult to gauge the number of unsustainable residential mortgages that need to be ended but it could be anywhere between 15,000 and 30,000. These are households who are in deep mortgage arrears and negative equity and have little prospects of recovery.The banks must face up to losses that exist on these loans. The homeowners must accept that they will never be in a position to repay the loan and that by surrendering the property they will be able to make a fresh start. Households with unsustainable mortgages must be allowed to do so.
Speaking at the European Parliament on March 24, 2010, former European Central Bank President Jean Claude Trichet held up Ireland as the poster child for fiscal austerity in 2010 and 2011. While trying to push through similar austerity measures in Greece and Portugal, Mr. Trichet endorsed Ireland’s approach to austerity, saying:
“Greece has a role model and that role model is Ireland”.
Some months later, Jurgen Stark agreed with him. We’re the bailout role models.
When the ratings agency Moody’s downgraded Ireland’s credit rating to junk status in July 2011, they explained what was need to change the ratings again:
“upward pressure on the rating could develop if the government’s continued success in achieving its fiscal consolidation targets, supported by a resumption of sustained economic growth, is able to reverse the current debt dynamics, thereby sustainably improving the Irish government’s financial strength”.
Ireland is repeatedly described as a perfect example of a housing boom and bust, a perfect example of a small open economy, a perfect example of how to implement austerity measures, and a perfect example of how a country can manage it’s way through a crisis.
In what other way are we an example?
We are on the road to recovery, we are told, and we are told that are European partners are helping us in this regard. This is certainly true–the European authorities have prevented large scale austerity by loaning us tons of cash, but their cash, like all loans, comes with a price. And that price seems to be that we are held up as both cautionary and salutary example.
Bundesbank Chair Jens Weidman recently said that:
“the impression cannot arise that the ban on monetary financing can be circumvented here…if this is a normal, reasonable market process, then I have no problem with it. Otherwise, it looks difficult to me.”
The impression. After the EU/IMF bailout the fear was the punitive interest rate that Ireland was paying for its loans was designed to scare other European nations considering entering bailout programmes. Loads of people brought this up at the time of the bailout, but here’s Morgan Kelly:
…the sole purpose of the Irish bailout was to frighten the Spanish into line with a vivid demonstration that EU rescues are not for the faint-hearted.
Now we are told the impression must not be given that monetary financing is a route out of funding difficulties. The ECB statement after Minister Noonan’s announcement of the promissory note deal Ireland’s ELA experience mustn’t be repeated across the Euro area is proof positive that no deal on the promissory note repayment schedule will be forthcoming from them:
It is very important that the Irish state will honour the 3.06 billion euro amortisation of the promissory notes. This will reduce the emergency liquidity assistance which IBRC receives from the central bank of Ireland and thus the Eurosystem.
We certainly expect that also in the future the promissory notes will be served according to the schedule to which the government has committed itself.
But at the same time the impression must still be given that Ireland is working its way through its problems. If it doesn’t then how can we be an example to others?
Edited by Kevin Denny, UCD’s latest Research Bulletin is up here.