lack of foresight or willful ignorance?

A friend of mine suggested that my comments about the government’s bungling of the banking sector clean were hindsight and that foresight was rare. Well, while I agree that foresight was rare, we saw a mass mobilisation of academic economists against the government’s plan while it was happening. Therefore I don’t believe it’s in any way fair to say that the criticism was hindsight.

It wasn’t just hindsight. People suggested it
Even stuff like this
suggesting that Roubini and Buiter disagree on NAMA is nonsense. Roubini’s version of NAMA crystalises losses for bond-holders in the banks. That plan was never put into effect as the ECB bullied us into paying almost all the speculators back. NAMA as implemented is totally dumb. Krugman thinks it’s dumb aswell.
And the fundamental flaws of NAMA (as impelmented) were pointed out by the infamous “20 economists” letter
But because the government and a decent portion of the electorate are anti-intellectual and therefore distrustful of advice coming from academics or journalists imho they decided to ignore it. Instead we opted to listen to eurocrats with the most horribly vested interests in Eurozone currency stability at the cost of the Irish taxpayer. It was dumb at the time, it’s still dumb.
We setup a bad bank and left the existing banks to “wither and die” as confidence in their ability to hold deposits withered. We could have setup a good bank but we implemented half a plan.
I think I’ve been pretty damn consistent over the past few years and there was no special insight beyond doing some calculations based on publicly available data AND reading the opinions of non-Irish bankers discussing their fundamental problem with both ECB and Irish mgt of the banking crisis.
We needed to draw a line under the debts and give them a good bank to invest in. We could have swapped out debt in the old banks for equity in the new one. People like McWilliams aren’t fortune tellers and they’re not cranks. All they do is do some simple sums and pay attention to what the people who count are saying. That’s not the ECB, it’s the investment bankers who would have taken losses on the chin if they’d been given a credible plan to move the economy forward, giving them a share in the profits. All we gave them, and Irish deposit holders, was more risk. Hence, people took their money out en masse.

The good bank scenario was suggested by many economists. It ties in with the nationalised banking sector proposal whereby an intermediate stage would be a semi-public good bank where depositors could leave their money with some confidence they would suffer from a “Computer says no” shock at the ATM machine.


Worst decision in the history of the state

I’m going to stick my neck out and make a prediction. I believe that if you ask this question in 5 years time the answer will be NAMA as a catch-all term for the taxpayer support of dysfunctional banks. NAMA fuels the nightmares of the public’s imagination. The amounts are staggering. Effectively Anglo has already cost over 12Bn and could cost another 10Bn. These are just estimates remember. NAMA requires a recovery in the property market to avoid the “fire-sale” losses Lenihan fears in an immediate wind-down.

To say that we could need another 10Bn is like saying that it might be a fine day on March 30th next year. The variables are arguably too complex to give a good prediction. This is partially why Lenihan is so vague about the period in which the promisory note backing the recapitalisation is payable. He just doesn’t know. It assumes a solidity to the rest of the loan book and the Irish economy which appears difficult to justify given what’s transpired over the past 18 months. Ireland Inc’s actual exposure is only limited by the size of the loan book and depositor base. We cannot legally compel depositors to stay with the bank, no matter how tempting the lock-in interest rates are.


Rabbite-ing on

Harry McGee crafts a reasonable article in today’s Irish Times about G.Lee’s double resignation from Irish politics this week. It’s pretty easy to imagine that Lee was shut out in a petty squabble with Bruton over who was the economics top dog. Stupid and embarrassing if you consider the state of the country’s finances. However, if there’s one quote from the article that really got my goat it was this from Pat Rabbitte.

“The calling of intelligently interpreting economic data and relaying it successfully to the average citizen is a different one from writing a prescription for where we are going wrong and what we are doing about it,”

Pass me a sick bag. What a load of patronising toss to suggest Lee wasn’t up to the job but, amazingly, seasoned politicians like himself are. If Rabbitte actually believes that he, his Labour party, or anyone else in the Dail is engaged in writing “a prescription for where we are going wrong and what we are doing about it” then he’s delusional.

Someone should buy him a copy of Anthony Sweeney’s Banana Republic for christmas.

Banana Republic
Banana Republic

Unfortunately, at least one generation of Irish children will understand how delusional he is and how they are being failed, not just by the government, but by the Dail itself. Lee seemed to be the only person in the Dail vocally suggesting that cuts would only worsen the economic situation without stimulus. This didn’t fit entirely with FG orthodoxy so they didn’t take the policy on board. What a burden it is to have 2 economists in the one party when in the midst of an economic crisis. What a sorry lot FG are. The hardest thing about Irish politics seems to be the back-stabbing, character assassinations, petty jealousies, side-deals and keeping track of all of the above. Little time left to serve the people.

Still, George Lee _was_ a bit naive. He could have prepared for political life by referring to the online Merriam Websters dictionary.

Main Entry: pol·i·tics
Pronunciation: \?pä-l?-?tiks\
Function: noun plural but singular or plural in construction
Etymology: Greek politika, from neuter plural of politikos political
Date: circa 1529
1 a : the art or science of government b : the art or science concerned with guiding or influencing governmental policy c : the art or science concerned with winning and holding control over a government
2 : political actions, practices, or policies
3 a : political affairs or business; especially : competition between competing interest groups or individuals for power and leadership (as in a government) b : political life especially as a principal activity or profession c : political activities characterized by artful and often dishonest practices
4 : the political opinions or sympathies of a person
5 a : the total complex of relations between people living in society b : relations or conduct in a particular area of experience especially as seen or dealt with from a political point of view <office politics> &lt:ethnic politics>

He may have noticed 3b and realised what he was in for…