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Economic Crisis Part 2 - The Sucker Punch (Morgan Kelly predicts a run on the banks)

  • 22-05-2010 09:18AM
    #1
    Closed Accounts Posts: 9,364 ✭✭✭


    writes Morgan Kelly...
    Even under the most optimistic assumptions about government spending cuts and bank losses, by 2012 Ireland will have a worse ratio of debt to national income than the one that is sinking Greece.
    It is hard to think of any institution since the League of Nations that has become so irrelevant so fast as Nama. Instead of the resurrection of the Irish banking system we were promised, we now have one semi-State body (Nama) buying assets from other semi-states (Anglo) and soon-to-be semi-States (AIB and Bank of Ireland), while funnelling €60 million a year in fees to lawyers, valuers and associated parasites.

    some more doom and gloom on this beautiful and sunny day today :P

    2clvs7.gif


«134

Comments

  • Posts: 5,079 ✭✭✭ [Deleted User]


    http://www.irishtimes.com/newspaper/opinion/2010/0522/1224270888132.html

    READ IT!! ^^^^
    IT IS no longer a question of whether Ireland will go bust, but when. Unlike Greece, our woes do not stem from government debt, but instead from the government’s open-ended guarantee to cover the losses of the banking system out of its citizens’ wallets.

    Even under the most optimistic assumptions about government spending cuts and bank losses, by 2012 Ireland will have a worse ratio of debt to national income than the one that is sinking Greece

    There will be a second banking crisis here/an invoking of the guarantee which will put an end to our shennannigans. It will be caused by a backlog of defaulters.
    More than 53,000 borrowers took out interest-only mortgages from 2004 to 2008, according to figures from the Department of the Environment.

    The numbers peaked in 2007,when 13,605 people took out interest-only mortgages, representing more than 15 per cent of mortgages sold that year.

    The numbers taking out interest only mortgages fell to 8,308 in 2008, representing less than 15 per cent of new home loans that year. The large number of interest-only loans sold at the peak of the boom compares with just 3.3 per cent a decade earlier in 1997.

    Most interest only-loans are believed to have been sold to buy-to-let investors, though mortgage brokers report that some borrowers also bought their private residences on an interest-only basis, particularly if the mortgage was greater than €500,000.

    http://archives.tcm.ie/businesspost/2009/11/08/story45450.asp
    In some cases, nonperforming loans are built up slowly over time and financial sector problems arise gradually rather than suddenly. Japan in the 1990’s is a case in point. While nonperforming loans had been increasing since the early 1990’s, they reached crisis proportions only in 1997”.

    Systemic banking crises: A new database
    http://www.imf.org/external/pubs/ft/wp/2008/wp08224.pdf

    http://www.thepropertypin.com/viewtopic.php?f=19&t=2281

    You have been warned!


  • Registered Users, Registered Users 2 Posts: 26,458 ✭✭✭✭gandalf


    Discussing on that article already started here.


  • Posts: 5,079 ✭✭✭ [Deleted User]


    http://www.independent.ie/business/personal-finance/property-mortgages/concern-as-38pc-of-home-loans-are-90-days-in-arrears-2188451.html
    Irish mortgage arrears rose in March and the rate of loans being paid off remained stubbornly low as homeowners struggle with rising unemployment, according to international rating agency Moody's.

    just remember this crap the govt is saying about turning a corner is rubbish, liars and thieves. We are nowhere near getting back up on our feet - businesses are failing

    http://www.irishtimes.com/newspaper/breaking/2010/0405/breaking22.html
    34 per cent increase in the number of companies placed in liquidation, receivership or examinership in the first three months of the year when compared with the same period last year.
    ^^ Nothing is improving :mad:


  • Moderators, Entertainment Moderators, Politics Moderators Posts: 14,568 Mod ✭✭✭✭johnnyskeleton


    However, in contrast to its inept handling of the banking crisis, the Government has taken reasonable steps to bring the deficit under control. If all goes to plan we should be looking at a debt of 85 to 90 per cent of GDP by the end of 2012.

    That doesn't sound much like Morgan Kelly.

    3.5bn out of a deficit of c. 20bn is perhaps a good start, but it's what the government should have done in budget 2007/8. They should also be looking to even greater cuts next year, rather than what they have promised which is pretty much minimal change on the hope that the tax take magically rises.
    lawyers, valuers and associated parasites.

    Well! Who got out of the bed on the wrong side this morning?


  • Posts: 5,079 ✭✭✭ [Deleted User]


    We should have let the banks fail, created new ones and made all the deficit cuts in one go. We would have turned the corner by now


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  • Moderators, Entertainment Moderators, Politics Moderators Posts: 14,568 Mod ✭✭✭✭johnnyskeleton


    We should have let the banks fail, created new ones and made all the deficit cuts in one go. We would have turned the corner by now

    My attitude then as now is that we simply have not been given sufficient information to be able to make that decision. The government has that information but won't release it. MK's analysis is based on speculation and is probably correct (if anything very much on the conservative side) but it's easy for the government to dismiss because he doesn't have the actual information.

    Also, letting them fail has the advantage that if it doesn't work out it can be reversed pretty easily by simply pumping them back up. The same cannot be said for the prop up the banks at all costs approach, which has us trussed up like a christmas turkey.

    I think the biggest crime committed in Ireland over the last few years is concealment. They might justify it on the basis that it would spook international markets, but on the other hand, it is their excuse for doing dodgy deals to the detriment of the people.


  • Registered Users, Registered Users 2 Posts: 19,607 ✭✭✭✭sceptre


    Thread title amended for clarity (parenthesised bit added)


  • Registered Users, Registered Users 2 Posts: 7,476 ✭✭✭ardmacha


    That doesn't sound much like Morgan Kelly.

    3.5bn out of a deficit of c. 20bn is perhaps a good start, but it's what the government should have done in budget 2007/8. They should also be looking to even greater cuts next year, rather than what they have promised which is pretty much minimal change on the hope that the tax take magically rises.

    every one bashes on here about cutting this and that, cuts which aggravate the deficit as well as curing it. In fact cutting has been at a broadly appropriate level, which some people are unwilling to accept no matter who says it.

    but the banking crisis distinguishes Ireland from Greece and if we f**k u there then all of cuts will be in vain. The banks should be allowed default rather than the State.


  • Registered Users, Registered Users 2 Posts: 1,582 ✭✭✭WalterMitty


    FF are just managing the situation till the next group get into government,they are solving very little. If everything gets much worse when they are out of power they can claim FG/LAB made things worse.


  • Registered Users, Registered Users 2 Posts: 18,853 ✭✭✭✭silverharp


    A belief in gender identity involves a level of faith as there is nothing tangible to prove its existence which, as something divorced from the physical body, is similar to the idea of a soul. - Colette Colfer



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  • Registered Users, Registered Users 2 Posts: 2,458 ✭✭✭OMD


    Morgan Kellys figures assume all losses by banks are to be covered by the government and make no account of funds raised by banks or bank profits in other sectors.

    Why does he feel losses on property development loans will cost the government €33 billion in the next 2 years? (as distinct from 10 years). Doesn't NAMA at least put off the losses into the future.


  • Registered Users, Registered Users 2 Posts: 13,011 ✭✭✭✭Sand


    @blindjustice
    We should have let the banks fail, created new ones and made all the deficit cuts in one go. We would have turned the corner by now

    We would certainly have moved past worrying about the banks and on to worrying about growth and employment. Instead, all our efforts have been diverted to a pointless diversion which is doomed to fail. Our banks are too big to save when weighed against the States own serious fiscal problems.

    The banks arrived up in September 2008 threatening doom, terror, plague, famine and biblical judgement upon the people of Ireland should the stakeholders in the banks face up to their losses. We were represented by Cowen, who was and remains shellshocked, and Lenihan who was a green rookie with no experience trying to learn on the job, who had more knowledge of legalities than economic necessities. So they blinked first.

    And now, to quote the great and the good, we are where we are. The banks and their interests have taken priority over everything else.

    There is still a possibility to extricate our selves from this slow motion car crash: introduce banking resolution legislation as a matter of urgency, repeal the bank guarantee or allow it to expire, and offer the banks either a reversal of NAMA or a default on the "NAMA" bonds. The German private banks take a hit, Germany bails them out (or doesnt) directly with a lot less political difficulty than they have bailing them out indirectly via Greece.

    The above might seem extreme or difficult to do, but the priorities of the state have to come before the priorities of the German bankers that lent money to morons like Seanie. NAMA was difficult to do, but they got it through every possible constitutional, political, moral, ethical barrier. No reason the same cant be done for better purposes.


  • Moderators, Entertainment Moderators, Politics Moderators Posts: 14,568 Mod ✭✭✭✭johnnyskeleton


    ardmacha wrote: »
    every one bashes on here about cutting this and that, cuts which aggravate the deficit as well as curing it. In fact cutting has been at a broadly appropriate level, which some people are unwilling to accept no matter who says it.

    I say it based on the committment/requirement that the deficit be brought back to within 3% by 2012. That gives us only one more budget to reduce the deficit from c. 13% to 3%.

    Even if it is extended to 2014, it seems equally unlikely we will be back to 3% by then.


  • Closed Accounts Posts: 9,364 ✭✭✭ei.sdraob


    im gone for few hours and someone changes my title :D

    i preferred "IT IS no longer a question of whether Ireland will go bust, but when" ...


  • Moderators, Entertainment Moderators, Politics Moderators Posts: 14,568 Mod ✭✭✭✭johnnyskeleton


    ei.sdraob wrote: »
    im gone for few hours and someone changes my title :D

    i preferred "IT IS no longer a question of whether Ireland will go bust, but when" ...

    Although you're quicker off the mark, you must admit bjb has a better way with thread titles!


  • Registered Users, Registered Users 2 Posts: 4,121 ✭✭✭RichardAnd


    Morgan Kelly most likely didn't just pull this article out of his back side, it is probably a well thought out and honest assessment based upon his own opinions and experience. But I can guarantee that another economist with PHDs and MAs coming out his ears could form an opinion utterly opposite of this. Yet another seasoned by decades of experience might find a third.

    It was an interesting read all right but as I've always said, one must take the opinions of academics with a pinch of salt. Morgan Kelly and those like him, though many of them are clever guys, are sitting up in the ivory tower looking down at the rest of us. They have a wonderful lofty view but a view is just a view.

    No one should accept this article as solid, irrefutable truth because an economy is not a machine missing a few cogs, it is a vast and complex collection of a multitude of entities much like cells making up a plant. Like a plant, we can look at its sickly leaves, apply fertilizers and spread compost but no one can say precisely what shape it will take when it begins to grow once more.

    My 2 cents.


  • Closed Accounts Posts: 3,591 ✭✭✭RATM


    RichardAnd wrote: »

    It was an interesting read all right but as I've always said, one must take the opinions of academics with a pinch of salt. Morgan Kelly and those like him, though many of them are clever guys, are sitting up in the ivory tower looking down at the rest of us. They have a wonderful lofty view but a view is just a view.

    .

    Ah c'mon, did it matter that he was sitting in an ivory tower when he called the property maket as over heated and doomed and was proven correct?

    I think some people are missing the point of this thread- Morgan Kelly said there would probably be a run on the banks .

    He was referring to interbank loans but a bank not being able to borrow means there are much deeper effects. If a run happens in the interbank loan market you can be assured the public will panic and attempt to withdraw all their funds, they don't trust much thats coming out of the governments mouth ('We've turned a corner') and people may see the bank guarantee scheme as not worth the paper its written on.

    If there's a run on the banks then you can expect mass scale panic- in the markets and in the streets. He seems to be me be predicting a forthcoming Black Friday and I hope for all our sakes he is wrong. But I find it frightening that now we have 2 economists who have predicted another collapse of the financial system- McWilliams did so in the SBP 3 weeks ago. Read into that what you will but both have been broadly correct in their analysis up until now.


  • Registered Users, Registered Users 2 Posts: 13,011 ✭✭✭✭Sand


    Morgan Kelly most likely didn't just pull this article out of his back side, it is probably a well thought out and honest assessment based upon his own opinions and experience. But I can guarantee that another economist with PHDs and MAs coming out his ears could form an opinion utterly opposite of this. Yet another seasoned by decades of experience might find a third.

    It was an interesting read all right but as I've always said, one must take the opinions of academics with a pinch of salt. Morgan Kelly and those like him, though many of them are clever guys, are sitting up in the ivory tower looking down at the rest of us. They have a wonderful lofty view but a view is just a view.

    No one should accept this article as solid, irrefutable truth because an economy is not a machine missing a few cogs, it is a vast and complex collection of a multitude of entities much like cells making up a plant. Like a plant, we can look at its sickly leaves, apply fertilizers and spread compost but no one can say precisely what shape it will take when it begins to grow once more.

    My 2 cents.

    What part of his argument do you base your refutation on?

    Or is the logic:

    1 - Morgan Kelly is an economist.
    2 - Economists can be wrong.
    3 - Ergo, Morgan Kelly is wrong.

    Morgan Kelly is not going to pick the winning lotto numbers next week, but hes a proven ability to analyse the available information and highlight the inconvenient truth. Remember the "soft landing" that was peddled a few years back? Now the line is that we have "turned the corner". Saying this wont make it so. Ignoring contrary conclusions drawn in an objective rational manner wont stop them from playing out.

    And why should the opinion of academics be taken with a pinch of salt? That ivory tower you are referring to is objectivity. Brian Lucey was talking Eamonn Ryan on Newstalk this morning, and made a very telling point regarding the independant advice the Greens received from their economic advisors. The exchange went something along the lines of:

    Lucey: Were your independant advisors Irish or foreign, and were they employed in "the market" or outside of it?
    Ryan: They were Irish, they were independant, they were "in the market"
    Lucey: And when you asked them if you should bail them out, what answer did you expect to get?

    Academic economists can say what they like, which is why they are valuable. If Morgan Kelly was employed by AIB or Bank of Ireland he would have been fired years ago. All of the economists "in the market" are bought and paid to dress up positive spin for their employers. Thats their job. And if they forget that they are essentially PR spin, then they get fired. One of the primary issues with the media analysis of economic and financial matters over the past decade is that they have given biased market actors platforms for press release spin dressed up as some sort of independant commentary.


  • Registered Users, Registered Users 2 Posts: 4,121 ✭✭✭RichardAnd


    Sand wrote: »
    What part of his argument do you base your refutation on?

    Or is the logic:

    1 - Morgan Kelly is an economist.
    2 - Economists can be wrong.
    3 - Ergo, Morgan Kelly is wrong.

    Morgan Kelly is not going to pick the winning lotto numbers next week, but hes a proven ability to analyse the available information and highlight the inconvenient truth. Remember the "soft landing" that was peddled a few years back? Now the line is that we have "turned the corner". Saying this wont make it so. Ignoring contrary conclusions drawn in an objective rational manner wont stop them from playing out.

    And why should the opinion of academics be taken with a pinch of salt? That ivory tower you are referring to is objectivity. Brian Lucey was talking Eamonn Ryan on Newstalk this morning, and made a very telling point regarding the independant advice the Greens received from their economic advisors. The exchange went something along the lines of:

    Lucey: Were your independant advisors Irish or foreign, and were they employed in "the market" or outside of it?
    Ryan: They were Irish, they were independant, they were "in the market"
    Lucey: And when you asked them if you should bail them out, what answer did you expect to get?

    Academic economists can say what they like, which is why they are valuable. If Morgan Kelly was employed by AIB or Bank of Ireland he would have been fired years ago. All of the economists "in the market" are bought and paid to dress up positive spin for their employers. Thats their job. And if they forget that they are essentially PR spin, then they get fired. One of the primary issues with the media analysis of economic and financial matters over the past decade is that they have given biased market actors platforms for press release spin dressed up as some sort of independant commentary.


    I base my opinion on my own views on the world. What Kelly has said may be true I didn't say it wasn't, I merely said that we should not take it as the word of God because it isn't. It is the opinion, and well informed opinion yes, but still just that.

    Put it like this. A record producer who has been in the business for years can work on an album and make something that he is sure will sell. He could hire the best composers, the finest session players and fill the CD with the catchiest hooks and memorable lyrics and spend millions recording it. But, and this has happened many times in reality, the album could be a flop.

    Why? Because sometimes things do not pan out as we envisage. Dozens of economists of Morgan Kelly's level did not see the recession coming despite all their skills. Many did and they were right, well done to them but no one alive can know for sure what will happen in the future.

    Maybe Morgan Kelly is right but maybe he is wrong. Perhaps what happens will not be as bad as he predicts and perhaps it will be worse. Time will tell.

    Your opinion seems to be different to mine and that's perfectly fine, I'm not going to attempt to change your mind because perhaps you are a more intelligent person than me and perhaps you are better informed than me. I just want to state my own view on this.


  • Closed Accounts Posts: 6,609 ✭✭✭Flamed Diving


    Morgan Kelly is always right.


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  • Closed Accounts Posts: 566 ✭✭✭AARRRRGH


    RichardAnd wrote: »
    Why? Because sometimes things do not pan out as we envisage. Dozens of economists of Morgan Kelly's level did not see the recession coming despite all their skills. Many did and they were right, well done to them but no one alive can know for sure what will happen in the future.

    More true about economists than any other profession on the planet.


  • Closed Accounts Posts: 4,124 ✭✭✭Amhran Nua


    I had a look at the article there expecting to find a couple of fairly dubious assumptions that he based his thinking on, but to be honest he scores too many solid hits and has too much of an in-depth knowledge of the workings of the Irish government and its interactions with the Irish economy to be so easily dismissed.

    Very troubling stuff.

    I still wouldn't put money on a run on Irish banks in the markets, basically forcing our guarantee to pay up, but the possiblity is non trivial.


  • Closed Accounts Posts: 595 ✭✭✭George Orwell 1982


    The fact that he has been proven right time and time again means he has to be taken seriously.

    His prediction that the country will go bust is not based on worst case scenario assumptions, it is based on a fairly reasonable assessment of the available facts.

    No one can say Ireland will definitely go bust or what exactly will happen, but things are not looking good.


  • Registered Users, Registered Users 2 Posts: 725 ✭✭✭rightwingdub


    What will unemployment increase to if there is a second financial crisis will it be 650,000-700,000.

    If there is a second crisis then the government should let the banks collapse.


  • Registered Users, Registered Users 2 Posts: 2,073 ✭✭✭jamieh


    Hi all,

    I know this is probably a really stupid question but nonetheless....

    What would the consequences be for most people, if the country did go bust?

    Personally, I graduated from a masters last year and am lucky enough to have a job in one of the Big 4 accounting firms. I'm just wondering, how would it effect people like me who are just starting out?


  • Closed Accounts Posts: 254 ✭✭turly


    What would the consequences be for [people like me], if the country did go bust?
    In a feeble attempt to 'get down with the kids', I will answer your question in txt-speak:

    U WL B FCKD

    In fact, I would go further and say

    WE WL ALL B FCKD.


  • Registered Users, Registered Users 2 Posts: 290 ✭✭kuntboy


    How many predictions did he get wrong? They'll all be conveniently ignored of course.


  • Closed Accounts Posts: 6,609 ✭✭✭Flamed Diving


    I love this public perception of 'economist as witchdoctor', gazing into glass spheres.

    The reality is that 95% of economists have nothing to do with forecasting, and those that do, spend a very small proportion of their time doing it.

    But, I know people don't like to hear this, based on past experience.


  • Closed Accounts Posts: 5,733 ✭✭✭oppenheimer1


    We should have let the banks fail, created new ones and made all the deficit cuts in one go. We would have turned the corner by now

    Thats naive to think that. we would have been ruined had the banks went down. We could still end up ruined anyway, but at least we have given ourselves a fighting chance.


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  • Closed Accounts Posts: 5,733 ✭✭✭oppenheimer1


    Sand wrote: »
    What part of his argument do you base your refutation on?

    Or is the logic:

    1 - Morgan Kelly is an economist.
    2 - Economists can be wrong.
    3 - Ergo, Morgan Kelly is wrong.

    Morgan Kelly is not going to pick the winning lotto numbers next week, but hes a proven ability to analyse the available information and highlight the inconvenient truth. Remember the "soft landing" that was peddled a few years back? Now the line is that we have "turned the corner". Saying this wont make it so. Ignoring contrary conclusions drawn in an objective rational manner wont stop them from playing out.

    And why should the opinion of academics be taken with a pinch of salt? That ivory tower you are referring to is objectivity. Brian Lucey was talking Eamonn Ryan on Newstalk this morning, and made a very telling point regarding the independant advice the Greens received from their economic advisors. The exchange went something along the lines of:

    Lucey: Were your independant advisors Irish or foreign, and were they employed in "the market" or outside of it?
    Ryan: They were Irish, they were independant, they were "in the market"
    Lucey: And when you asked them if you should bail them out, what answer did you expect to get?
    Unemployment is stable and the economy is out of recession, sounds like corner turning to me. But like during the boom few dared to call the end. It seems this daft mindset has come full circle and no one wants to display a bit of hope that the economic storm is over.


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