Morgan Kelly's Back. End Game.

ixus

Damningly brilliant article that will send us over the top in the markets.

http://www.irishtimes.com/newspaper/opinion/2010/1108/1224282865400.html

If you thought the bank bailout was bad, wait until the mortgage defaults hit home
mortgage default, writes MORGAN KELLY
SAD NEWS just in from Our Lady of the Eurozone Hospital: After a sudden worsening in her condition, the Irish Patient, formerly known as the Irish Republic, has been moved into intensive care and put on artificial ventilation. While a hospital spokesman, Jean-Claude Trichet, tried to sound upbeat, there is no prospect that the Patient will recover.
It will be remembered that, after a lengthy period of poverty following her acrimonious divorce from her English partner, in the 1990s Ireland succeeded in turning her life around, educating herself, and holding down a steady job. Although her increasingly riotous lifestyle over the last decade had raised some concerns, the Irish Patient’s fate was sealed by a botched emergency intervention on September 29th, 2008 followed by repeated misdiagnoses of the ensuing complications.
With the Irish Patient now clinically dead, her grieving European relatives face the melancholy task of deciding when to remove her from life support, and how to deal with the extraordinary debts she ran up in the last months of her life . . .
WHEN I wrote in The Irish Times last May showing how the bank guarantee would lead to national insolvency, I did not expect the financial collapse to be anywhere near as swift or as deep as has now occurred. During September, the Irish Republic quietly ceased to exist as an autonomous fiscal entity, and became a ward of the European Central Bank.
It is a testament to the cool and resolute handling of the crisis over the last six months by the Government and Central Bank that markets now put Irish sovereign debt in the same risk group as Ukraine and Pakistan, two notches above the junk level of Argentina, Greece and Venezuela.
September marked Ireland’s point of no return in the banking crisis. During that month, €55 billion of bank bonds (held mainly by UK, German, and French banks) matured and were repaid, mostly by borrowing from the European Central Bank.
Until September, Ireland had the legal option of terminating the bank guarantee on the grounds that three of the guaranteed banks had withheld material information about their solvency, in direct breach of the 1971 Central Bank Act. The way would then have been open to pass legislation along the lines of the UK’s Bank Resolution Regime, to turn the roughly €75 billion of outstanding bank debt into shares in those banks, and so end the banking crisis at a stroke.
With the €55 billion repaid, the possibility of resolving the bank crisis by sharing costs with the bondholders is now water under the bridge. Instead of the unpleasant showdown with the European Central Bank that a bank resolution would have entailed, everyone is a winner. Or everyone who matters, at least.
The German and French banks whose solvency is the overriding concern of the ECB get their money back. Senior Irish policymakers get to roll over and have their tummies tickled by their European overlords and be told what good sports they have been. And best of all, apart from some token departures of executives too old and rich to care less, the senior management of the banks that caused this crisis continue to enjoy their richly earned rewards. The only difficulty is that the Government’s open-ended commitment to cover the bank losses far exceeds the fiscal capacity of the Irish State.
The Government has admitted that Anglo is going to cost the taxpayer €29 to €34 billion. It has also invested €16 billion in the other banks, but expects to get some or all of that investment back eventually.
So, the taxpayer cost of the bailout is about €30 billion for Anglo and some fraction of €16 billion for the rest. Unfortunately, these numbers are not consistent with each other, and it only takes a second to see why.
Between them, AIB and Bank of Ireland had the same exposure to developers as Anglo and, to the extent that they were scrambling to catch up with Anglo, probably lent to even worse turkeys than it did. AIB and Bank of Ireland did start with more capital to absorb losses than Anglo, but also face substantial mortgage losses, which it does not. It follows that AIB and Bank of Ireland together will cost the taxpayer at least as much as Anglo.
Once we accept, as the Government does, that Anglo will cost the taxpayer about €30 billion, we must accept that AIB and Bank of Ireland will cost at least €30 billion extra.
In my article of last May, when I published my optimistic estimate of a €50 billion bailout bill, I posted a spreadsheet on the irisheconomy.ie website, giving my realistic estimates of taxpayer losses. My realistic estimate for Anglo was €34 billion, the same as the Government’s current estimate.
When you apply the same assumptions about lending losses to the other banks, you end up with a likely taxpayer bill of €16 billion for Bank of Ireland (deducting the €3 billion they have since received from investors) and €26 billion for AIB: nearly as bad as Anglo.
Indeed, the true scandal in Irish banking is not what happened at Anglo and Nationwide (which, as specialised development lenders, would have suffered horrific losses even had they not been run by crooks or morons) but the breakdown of governance at AIB that allowed it to pursue the same suicidal path.
Once again we are having to sit through the same dreary and mendacious charade with AIB that we endured with Anglo: “AIB only needs €3.5 billion, sorry we meant to say €6.5 billion, sorry . . .” and so on until it is fully nationalised next year, and the true extent of its folly revealed.
This €70 billion bill for the banks dwarfs the €15 billion in spending cuts now agonised over, and reduces the necessary cuts in Government spending to an exercise in futility. What is the point of rearranging the spending deckchairs, when the iceberg of bank losses is going to sink us anyway?
What is driving our bond yields to record levels is not the Government deficit, but the bank bailout. Without the banks, our national debt could be stabilised in four years at a level not much worse than where France, with its triple A rating in the bond markets, is now.
As a taxpayer, what does a bailout bill of €70 billion mean? It means that every cent of income tax that you pay for the next two to three years will go to repay Anglo’s losses, every cent for the following two years will go on AIB, and every cent for the next year and a half on the others. In other words, the Irish State is insolvent: its liabilities far exceed any realistic means of repaying them.
For a country or company, insolvency is the equivalent of death for a person, and is usually swiftly followed by the legal process of bankruptcy, the equivalent of a funeral.
Two things have delayed Ireland’s funeral. First, in anticipation of being booted out of bond markets, the Government built up a large pile of cash a few months ago, so that it can keep going until the New Year before it runs out of money. Although insolvent, Ireland is still liquid, for now.
Secondly, not wanting another Greek-style mess, the ECB has intervened to fund the Irish banks. Not only have Irish banks had to repay their maturing bonds, but they have been haemorrhaging funds in the inter-bank market, and the ECB has quietly stepped in with emergency funding to keep them going until it can make up its mind what to do.
Since September, a permanent team of ECB “observers” has taken up residence in the Department of Finance. Although of many nationalities, they are known there, dismayingly but inevitably, as “The Germans”.
So, thanks to the discreet intervention of the ECB, the first stage of the crisis has closed with a whimper rather than a bang. Developer loans sank the banks which, thanks to the bank guarantee, sank the Irish State, leaving it as a ward of the ECB.
The next act of the crisis will rehearse the same themes of bad loans and foreign debt, only this time as tragedy rather than farce. This time the bad loans will be mortgages, and the foreign creditor who cannot be repaid is the ECB. In consequence, the second act promises to be a good deal more traumatic than the first.
Where the first round of the banking crisis centred on a few dozen large developers, the next round will involve hundreds of thousands of families with mortgages. Between negotiated repayment reductions and defaults, at least 100,000 mortgages (one in eight) are already under water, and things have barely started.
Banks have been relying on two dams to block the torrent of defaults – house prices and social stigma – but both have started to crumble alarmingly.
People are going to extraordinary lengths – not paying other bills and borrowing heavily from their parents – to meet mortgage repayments, both out of fear of losing their homes and to avoid the stigma of admitting that they are broke. In a society like ours, where a person’s moral worth is judged – by themselves as much as by others – by the car they drive and the house they own, the idea of admitting that you cannot afford your mortgage is unspeakably shameful.
That will change. The perception growing among borrowers is that while they played by the rules, the banks certainly did not, cynically persuading them into mortgages that they had no hope of affording. Facing a choice between obligations to the banks and to their families – mortgage or food – growing numbers are choosing the latter.
In the last year, America has seen a rising number of “strategic defaults”. People choose to stop repaying their mortgages, realising they can live rent-free in their house for several years before eviction, and then rent a better house for less than the interest on their current mortgage. The prospect of being sued by banks is not credible – the State of Florida allows banks full recourse to the assets of delinquent borrowers just like here, but it has the highest default rate in the US – because there is no point pursuing someone who has no assets.
If one family defaults on its mortgage, they are pariahs: if 200,000 default they are a powerful political constituency. There is no shame in admitting that you too were mauled by the Celtic Tiger after being conned into taking out an unaffordable mortgage, when everyone around you is admitting the same.
The gathering mortgage crisis puts Ireland on the cusp of a social conflict on the scale of the Land War, but with one crucial difference. Whereas the Land War faced tenant farmers against a relative handful of mostly foreign landlords, the looming Mortgage War will pit recent house buyers against the majority of families who feel they worked hard and made sacrifices to pay off their mortgages, or else decided not to buy during the bubble, and who think those with mortgages should be made to pay them off. Any relief to struggling mortgage-holders will come not out of bank profits – there is no longer any such thing – but from the pockets of other taxpayers.
The other crumbling dam against mass mortgage default is house prices. House prices are driven by the size of mortgages that banks give out. That is why, even though Irish banks face long-run funding costs of at least 8 per cent (if they could find anyone to lend to them), they are still giving out mortgages at 5 per cent, to maintain an artificial floor on house prices. Without this trickle of new mortgages, prices would collapse and mass defaults ensue.
However, once Irish banks pass under direct ECB control next year, they will be forced to stop lending in order to shrink their balance sheets back to a level that can be funded from customer deposits. With no new mortgage lending, the housing market will be driven by cash transactions, and prices will collapse accordingly.
While the current priority of Irish banks is to conceal their mortgage losses, which requires them to go easy on borrowers, their new priority will be to get the ECB’s money back by whatever means necessary. The resulting wave of foreclosures will cause prices to collapse further.
Along with mass mortgage defaults, sorting out our bill with the ECB will define the second stage of the banking crisis. For now it is easier for the ECB to drip feed funding to the Irish State and banks rather than admit publicly that we are bankrupt, and trigger a crisis that could engulf other euro-zone states. Our economy is tiny, and it is easiest, for now, to kick the can up the road and see how things work out.
By next year Ireland will have run out of cash, and the terms of a formal bailout will have to be agreed. Our bill will be totted up and presented to us, along with terms for repayment. On these terms hangs our future as a nation. We can only hope that, in return for being such good sports about the whole bondholder business and repaying European banks whose idea of a sound investment was lending billions to Gleeson, Fitzpatrick and Fingleton, the Government can negotiate a low rate of interest.
With a sufficiently low interest rate on what we owe to Europe, a combination of economic growth and inflation will eventually erode away the debt, just as it did in the 1980s: we get to survive.
How low is sufficiently low? Economists have a simple rule to calculate this. If the interest rate on a country’s debt is lower than the sum of its growth rate and inflation rate, the ratio of debt to national income will shrink through time. After a massive credit bubble and with a shaky international economy, our growth prospects for the next decade are poor, and prices are likely to be static or falling. An interest rate beyond 2 per cent is likely to sink us.
This means that if we are forced to repay the ECB at the 5 per cent interest rate imposed on Greece, our debt will rise faster than our means of servicing it, and we will inevitably face a State bankruptcy that will destroy what few shreds of our international reputation still remain.
Why would the ECB impose such a punitive interest rate on us? The answer is that we are too small to matter: the ECB’s real concerns lie with Spain and Italy. Making an example of Ireland is an easy way to show that bailouts are not a soft option, and so frighten them into keeping their deficits under control.
Given the risk of national bankruptcy it entailed, what led the Government into this abject and unconditional surrender to the bank bondholders? I have been told that the Government’s reasoning runs as follows: “Europe will bail us out, just like they bailed out the Greeks. And does anyone expect the Greeks to repay?”
The fallacy of this reasoning is obvious. Despite a decade of Anglo-Fáil rule, with its mantra that there are no such things as duties, only entitlements, few Irish institutions have collapsed to the third-world levels of their Greek counterparts, least of all our tax system.
And unlike the Greeks, we lacked the tact and common sense to keep our grubby dealing to ourselves. Europeans had to endure a decade of Irish politicians strutting around and telling them how they needed to emulate our crony capitalism if they wanted to be as rich as we are. As far as other Europeans are concerned, the Irish Government is aiming to add injury to insult by getting their taxpayers to help the “Richest Nation in Europe” continue to enjoy its lavish lifestyle.
My stating the simple fact that the Government has driven Ireland over the brink of insolvency should not be taken as a tacit endorsement of the Opposition. The stark lesson of the last 30 years is that, while Fianna Fáil’s record of economic management has been decidedly mixed, that of the various Fine Gael coalitions has been uniformly dismal.
As ordinary people start to realise that this thing is not only happening, it is happening to them, we can see anxiety giving way to the first upwellings of an inchoate rage and despair that will transform Irish politics along the lines of the Tea Party in America. Within five years, both Civil War parties are likely to have been brushed aside by a hard right, anti-Europe, anti-Traveller party that, inconceivable as it now seems, will leave us nostalgic for the, usually, harmless buffoonery of Biffo, Inda, and their chums.
You have read enough articles by economists by now to know that it is customary at this stage for me to propose, in 30 words or fewer, a simple policy that will solve all our problems. Unfortunately, this is where I have to hold up my hands and confess that I have no solutions, simple or otherwise.
Ireland faced a painful choice between imposing a resolution on banks that were too big to save or becoming insolvent, and, for whatever reason, chose the latter. Sovereign nations get to make policy choices, and we are no longer a sovereign nation in any meaningful sense of that term.
From here on, for better or worse, we can only rely on the kindness of strangers.



Morgan Kelly is Professor of Economics at University College Dublin

flanzer

He eloquently writes what we all know. Does he have any ideas on how to get out of the mess though?

Anonymous1987

flanzer wrote: »

He eloquently writes what we all know. Does he have any ideas on how to get out of the mess though?

He gave a sensible suggestion, the equity for bond swap but the government did not act on it:

This debt would probably be manageable, had the Irish government not casually committed itself to absorb all the gambling losses of its banking system. If we assume – optimistically, I believe – that Irish banks eventually lose one third of what they lent to property developers, and one tenth of business loans and mortgages, the net cost to the Irish taxpayer will be nearly one third of GDP.
Adding these bank losses to its national debt will leave Ireland in 2012 with a debt-GDP ratio of 115%. But if we look at the ratio in terms of GNP, which gives a more realistic picture of the Ireland’s discretionary tax base, this is a debt-GNP ratio of 140% – above the ratio that is currently sinking Greece. Even if bank losses are only half as large as we expect, Ireland is still facing a debt-GNP ratio of 125%.
Ireland is like a patient bleeding from two gunshot wounds. The Irish government has moved quickly to stanch the smaller, fiscal hole, while insisting that the litres of blood pouring unchecked through the banking hole are “manageable”. Capital markets may not continue to agree for long, triggering a borrowing crisis which will start, most probably, with a run on Irish banks in inter-bank markets.
Ireland may therefore present an early test of the EU bailout fund. However, in contrast to Greece, Ireland’s woes stem almost entirely from its banking system, and could be swiftly and permanently cured by a resolution which shares the losses of Irish banks with the holders of their €115 billion of bonds through a partial debt for equity swap.

http://www.voxeu.org/index.php?q=node/5040

cavedave

The Irish standard of living reset will go back how many years? Ten? What is non-wartime precedent for wealthy country?

Professor Tyler Cowen

someday2010

The Irish standard of living reset will go back how many years? Ten? What is non-wartime precedent for wealthy country?

Id say about 154 years.

This is the 21st century equivalent of the famine

topper75

What did that word "equivalent" ever do to you?

who what when

If that guy was as great as some of you say then he'd be able to tell us what the future holds for us. Not just the immediate future but the next 5, 10 and even 20 years.
At the moment though he just seems like an economist version of Eamonn Dunphy!

Capt'n Midnight

Is it true that we could have done a surrender and regrant to the banks back in September ?

So that we'd have left the banks the way they were on condition that we could still pull the plug at any time if certain ongoing conditions wern't met. Exactly like the way it was done to the Irish Chieftans so long ago.

How would that have looked in Europe, us getting a get out of jail card but with clearly defined exit clauses.

At the moment I feel a little sick, it smacks of yet more treason by people who should have known better.

But I'm sure someone will explain why we couldn't have done this / shouldn't have have done it.



http://www.irishtimes.com/newspaper/opinion/2010/1108/1224282865400.html

September marked Ireland’s point of no return in the banking crisis. During that month, €55 billion of bank bonds (held mainly by UK, German, and French banks) matured and were repaid, mostly by borrowing from the European Central Bank.

Until September, Ireland had the legal option of terminating the bank guarantee on the grounds that three of the guaranteed banks had withheld material information about their solvency, in direct breach of the 1971 Central Bank Act. The way would then have been open to pass legislation along the lines of the UK’s Bank Resolution Regime, to turn the roughly €75 billion of outstanding bank debt into shares in those banks, and so end the banking crisis at a stroke.

With the €55 billion repaid, the possibility of resolving the bank crisis by sharing costs with the bondholders is now water under the bridge. Instead of the unpleasant showdown with the European Central Bank that a bank resolution would have entailed, everyone is a winner. Or everyone who matters, at least.

Finnbar01

who what when wrote: »

If that guy was as great as some of you say then he'd be able to tell us what the future holds for us. Not just the immediate future but the next 5, 10 and even 20 years.
At the moment though he just seems like an economist version of Eamonn Dunphy!

I don't think he has a crystal ball.

andrew

someday2010 wrote: »

The Irish standard of living reset will go back how many years? Ten? What is non-wartime precedent for wealthy country?

Id say about 154 years.

This is the 21st century equivalent of the famine

Steady on there, no one has died.

Wait, you're being sarcastic. Right? I wish there was a symbol for sarcasm....

Économiste Monétaire

Capt'n Midnight wrote: »

[...]

Keep all discussion relating to Morgan's IT article in one thread, please.

Capt'n Midnight

Économiste Monétaire wrote: »

Keep all discussion relating to Morgan's IT article in one thread, please.

Ta

My question was not about the article but, if the article was true what the effect of our action could have been.

Also if the banks lied, how best should those involved be treated such that no one will consider repeating that.

Hasschu

Things would have to get a lot worse for an Irish gov't to mete out punishment that would match the crime. A Pol Pot solution would be the worst possible scenario. That is summary execution or banishment to internment camps where they would be worked to death doing manual labour. Something along the lines of the "hard labour" sentences that were popular during the British occupation. Don't worry it will not happen.

Goodluck2me

We have to remember here though that Ireland is running as a going concern, and it's all well and good shouting rhetoric like "screw the bondholders" etc, but these are the very institutions we will need to go cap in hand to in a couple of years time to fuel our economy, if things get better or not.
The alternative is to be more self-fulfilling and to have our payments match our income, well guys that means finding 15bn or whatever the deficit at the moment, THIS year, not spread over 4.

noodler

The issue as I saee it here is whether he is right or wrong about the scale of the Mortgage default.

BOI said on Thursday that in July-Sept it looked like the numbers in arrears were stabilizing.

Around 70,000 are in arrears for 30 days or more (or was it 90 days or more) according to Q2 figures from the Financial Regulator. Not sure when the next batch for Q3 are out but they will make for interesting reading.

However, as is widely published in the media, these figures don't include people who have fallen into arrears but have come to an arrangement with their lender i.e. if you are currently only paying the interest part of your mortgage (assuming your lender has agreed) as you are having finanical difficulty then you aren't classed as being in arrears in the FR.

The worry is that the problem is far bigger than they are letting on and they had incentives to hold off on evictions or strong-arm tactics whilst they were seeking recapitalisation but may have no other choice soon. Banks obviously have a perverse incentive to minimise the numbers in arrears they report to keep down the amount of capital they require.

Hasschu

Whether he is right or wrong the man must be given credit for having an enormous amount of courage. As I and others see it, the Irish gov't is engaged in a futile attempt to prop up property values. The results are obvious and markets are responding as they should. These are sad times for Ireland when we have a gov't engaging in fantasy and honest men are looked upon as being courageous when they make public what the gov't has a duty and responsibility to announce.

redarmyblues

Seamus Martin in The IT today.

THERE’S no surer sign of extreme crisis than when an economist feels free to try his hand at satire. In the “funny peculiar” bit printed in italics at the start of his recent controversial Irish Times article, Morgan Kelly told us the game is up for this Republic and recovery is impossible. But economists don’t do satire well. Some, not Prof Kelly of course, don’t even do economics well. One thing very few of them do at all is modern history, so here are a couple of lessons.

The German author Hans Fallada set the scene for his epic novel Wolf Unter Wölfen (Wolf Among Wolves) in the following words: “This is Berlin, Georgenkirchstrasse, third courtyard, fourth floor, July 1923, at six o’clock in the morning. The dollar stands for the moment at 414,000 Marks.” It can be seen from the exchange rate that Germany’s economy was in trouble. If this State had stayed out of the euro, would the currency speculators have ensured a similar conversion rate for the Irish Pound? The Germany of those days was in a terrible state and worse was to come: the rise of Nazism, defeat in war and the destruction of the country’s entire infrastructure. But Germany has survived to become Europe’s largest and strongest economy.

In 1991, I found myself in Moscow as the Irish Times correspondent, reporting on the fall of the Soviet Union and the rise, if that’s the proper term, of the New Russia. When the Red Flag was lowered from the Kremlin, the young market-reformer economists, mainly from families of the old Communist establishment, launched a programme of shock therapy with the Bolshevik ruthlessness of their daddies. The immediate result was inflation of 2,500 per cent but there were no riots, or disturbances or lootings, for the Russians are a fatalistic people. Their historic experience has seen to that.

The Tsarist autocracy in which peasants starved had been followed by the first World War in which more than three million Russian citizens died, a civil war in which nine million died, Stalin’s terror in which more millions lost their lives and more peasants starved and a second World War in which 26 million Soviet citizens were killed.

Inflation of 2,500 per cent was chickenfeed compared to those tragedies and Russians knew in their hearts that because they had survived worse in the past they would survive this too. They did not lose their confidence.

One Russian friend put it in the clearest terms: “Capitalism is a terrible system, it is cruel, it has no compassion. But it is there. It is real. It exists.

“Communism is a wonderful system in which everyone is cared for and everyone has opportunities to develop. But it was never there. It was never real. It never existed. We have lived in a dream world. Now we must live in reality. There is no other choice.” Does the bit about living in a dream world ring a bell with those who rode on the back of the Tiger? In 1992 Russia’s dream world was replaced by a nightmare. The elderly and the poor were forced on to the streets to sell their belongings in order to survive. To this day certain pictures of deprivation remain vivid in my mind: an entire family, their previous prosperity shown in their good winter clothes, now standing destitute in the snow of downtown Moscow singing the haunting hymns of the Russian Orthodox Church in search of alms; an elderly grandmother in a metro station forced to sell pornography to survive, street underpasses choc-a-bloc with beggars.

There was some real satire too, not from an economist but from an inmate of a prison camp in Novosibirsk who wrote to President Yeltsin asking permission to send food parcels to his family on the outside.

Just six years later, in the autumn of 1998, it happened all over again. An example of the inflation in that year struck me forcefully in Sally O’Brien’s Irish Pub on Bolshaya Polyanka Street. I had arranged to meet a contact and bought a pint of Guinness while I awaited his arrival. It cost me 64 roubles. My contact arrived less than a minute later. I bought him a pint. It cost 76 roubles.

Rouble-denominated bond yields exceeded 200 per cent. The Moscow Stock Exchange index MICEX fell 65 per cent in 35 minutes. Banks collapsed more dramatically than in Ireland, but there were enough of them left over to keep the country going.

There were no daily forecasts of impending total ruin. There was no prognosis that the “patient” would never recover, for Russia had always survived and now it has. Its people may not now live in a liberal democracy but they are better off financially than at any time since the second World War.

Russia’s vast natural resources helped it overcome its difficulties and one of those resources was its resilient people. Ireland’s greatest natural resource is her people too, a people who in previous generations survived against all the odds. But has the daily dose of doom fatally eroded the Irish people’s confidence? There are some indications that this might be the case.

Some even want a return to the bosom of Mother England. Two small countries in horrific financial difficulties have adopted a more mature attitude. Icelanders don’t hark back to Danish colonial days and no Latvian would even countenance a return to rule from Moscow. Like the Irish they are justified in demanding that the culprits be punished. More than that, they have retained their confidence. Because they have done so they will survive.

Time Magazine

redarmyblues wrote: »

Ireland’s greatest natural resource is her people too, a people who in previous generations survived against all the odds. But has the daily dose of doom fatally eroded the Irish people’s confidence? There are some indications that this might be the case.

And many, many more that it was an optimism-binge that caused the problem in the first place. How much better the country would be had we listened to some of the "doses of doom" from economists from 2001-2007.

dixiefly

Time Magazine wrote: »

And many, many more that it was an optimism-binge that caused the problem in the first place. How much better the country would be had we listened to some of the "doses of doom" from economists from 2001-2007.

I am sure you mean had a certain 3 people listened, i.e. Bertie, Cowen and Charlie McCreevy.

Time Magazine

dixiefly wrote: »

I am sure you mean had a certain 3 people listened, i.e. Bertie, Cowen and Charlie McCreevy.

Of course, yes. IMHO the opposition are not squeaky clean on this either, as I think they too should have kicked up more of a fuss. But I also think it's unfair to presume they would not have, had they been privy to the advice available only to those in government.

And incidentally I think Joe Citizen who bought a house in the hope of selling it 18 months later at a €50,000 profit, should consider his conscience.

cavedave

Time Magazine

And many, many more that it was an optimism-binge that caused the problem in the first place. How much better the country would be had we listened to some of the "doses of doom" from economists from 2001-2007.

In a similar way that more irrational exuberance may not be the solution to problems caused by irrational exuberance is more borrowing the solution to problems caused by too much borrowing?

Time Magazine

cavedave wrote: »

In a similar way that more irrational exuberance may not be the solution to problems caused by irrational exuberance is more borrowing the solution to problems caused by too much borrowing?

Depends on your definition "solution". If you think defaulting and causing chaos in Europe should not be part of a solution, then we need another loan.

cavedave

Borrowing more money to fix problems caused by borrowing money is at best counter intuitive

Krugman's piece here makes a similar argument

But the bailout will only work if the vicious circle is at the heart of the story — as opposed to being a symptom of the fundamental unsustainability of the austerity-and-full-repayment strategy. That is, it will work only if Ireland is the fundamentally sound victim of a self-fulfilling panic. And that’s a hard claim to make.