Preventing / Reducing the next mess

mm_surf

I know the current focus is on sorting out our current quagmire, but time is ticking.

The next recession (yeah, I know, the "R" word) will be coming at some point in the future. In all likelihood, before we've entirely sorted out this mess that we're in right now. Casual observation would say busts come along roughly every 20-40 years, give or take.

So how can we give ourselves some insulation against the worst effects of the next one? Learn from our mistakes in some way?

(1) I think the obvious one is that there needs to be a tighter control from the ECB / EU financial setup that we're locked into. There's trouble enough with only Greece looking likely to default (or at least use default as a bargaining tool). I'd imagine that our more financially senior partners in the EU are going to be a touch more vigilant about EU countries that look like getting into financial trouble. Nothing really for us to get worried about there -we can't really say it isn't in Irish interests for there to be a stable EU fiscal structure.

(2) Government funding needs closer control. A small country like ours is at risk of greater variance in terms of money in Vs. money out. Perhaps it might be an idea to explore ringfencing in government dpeartment spending for "core" requirements, using budget surpluses for "discretionary" spending. This might hopefully reign in some of the "bloat" that is currently present in departments. I think one of our biggest mistakes during the boom times was the locking in of expanded spending.

(3) Clear guidelines as to what we, as a sovereign nation will cover as government guarantees. Things getting out of hand. It started with guaranteeing deposits, then senior bondholder investments, then essentially buying out loans (NAMA), buying banks themselves. Now we're covering losses from Quinn through other people's insurance policies for an investment for a third party? I know hindsights great, but surely it would be criminal not to put brakes on this before the next set of fiscal balls-ups comes down the line at us in 10-20-30 years's time?

(4) Improving how we manage our country's administration. Some government departments run very effeciently, others much less so. How come there aren't centralised payroll systems, etc? Surely this is a no-brainer? And at the very least, either commit to decentralisation or kill it off, not run both in parallel.

(5) Forward planning. Everything seems to need crisis funding. Surely we can use a bit of cop-on and plan for things that will be needed in the future? The national pension fund was a great idea (I know, that money's gone now), but there are other things that will be needed. Like updating sewage/water/power infrastructure.

(6) And the contentious issue - "entitlements". Whether social welfare or other. There are lots of calls for "cut the dole if you're on it for 2 years" or whatever. Whatever your viewpoint on this (and I think there is a need for action to ensure that only people who deserve the payment should get it), the problem arises when you deny a person their "entitlement".

I'll expand on this.
Johnny is a workshy whatever who has found life on the dole good enough, no job hunting for him! So his dole gets cut/removed (depending on your views). Now what do we do? Let him fend for himself? What about his children (if applicable)? Does Johnny find nicking car stereos pay enough? No guards to investigate these, nor jails to lock Johnny in? Open the workhouses again?

(I am aware that there's no easy answer to that one)

(7) Better value for our tax. Not talking about efficiency here, just good service. In a lot of ways, you don't mind paying higher prices, if you're getting good service / value for money. €10 for a steak dinner is a lot more palatable than a €10 bag of chips. Both satisfy hunger, but I'd feel a lot happier with steak.
For example, look at the current funding of the Gardai. €60M a year on 45 "safety" camera vans. €20M dropped from the serious crimes budget. I'd rather we kept the serious crimes money and only had 15 "safety" vans, thanks. We could do a lot better in how we spend our money, I think.

Others' thoughts? I know we have to drag ourselves out of our current financial hole, but I'd hate for us to fall straight into another one because we were not looking ahead.

M.

Sponge Bob

The next mess is imminent! After that then next mess again. Thankfully I sold out my precious metals at a profit in March ....and now I am waiting patiently!!

mm_surf

Sponge Bob wrote: »

The next mess is imminent! After that then next mess again. Thankfully I sold out my precious metals at a profit in March ....and now I am waiting patiently!!

I don't think precious metals are going to help soften the blow of the next downturn

Any ideas as to what we do before then?

Sleepy

I'd look at this more tactically...

1. All Senior PS and politician pensions to be re-configured. Only one pension payable per individual, it only being payable at normal retirement age and the value of that pension being determined by the previous year's GNP.

2. Any director remuneration beyond twice average salary to be payable in the form of 10 year share options or a similar long-term company performance measure.

In order to smooth the worst of the cyclical peaks and troughs of our current capitalist system, we need, imho, to do everything we can to ensure long-term strategies for governance (both public and corporate) and discourage the short-term profit/vote grabbing that's at the root of our current problems.

Nijmegen

You can never prevent, only mitigate, economic slowdowns and downturns. For Ireland, the biggest way to mitigate would be if we had better government. I mean, far, far, far better government.

A government that understands that inflating one, transactional, part of the economy to such huge proportions, stoking the fires with big tax incentives and giving public statements to drive it on, is going to end in a disaster.

The entire developed world took a knock in 2008. But ours was the single biggest collapse in real terms not just for this recession, but ever recorded in modern times among any economy, anywhere.

We have very poor government. It needs to become transparent, accountable, and less prone to being so f'ing retarded.

dissed doc

mm_surf wrote: »

I know the current focus is on sorting out our current quagmire, but time is ticking.
....
Others' thoughts? I know we have to drag ourselves out of our current financial hole, but I'd hate for us to fall straight into another one because we were not looking ahead.

M.

I think an area to start with is the simply decide what sort of society and services we need, to begin with; after we have that decided and agreed, then work on how to get there. At the moment, we see arbitrary cuts here and there, mostly for political reasons.

For example, health care. We need to simply agree what services, where and at what cost and stick with it, or else things will continue to go to hell. This needs to be planned over a decade or more, not based on Jimmy McBobs' aunt and uncle having pints with the Minister in a pub in Ballygobbshyte. It requires and entire cultural shift in Ireland, and I don't think it will happen. Forward planning that far in advance doesn't happen from Dublin Castle.

mm_surf

Nijmegen wrote: »

You can never prevent, only mitigate, economic slowdowns and downturns. For Ireland, the biggest way to mitigate would be if we had better government. I mean, far, far, far better government.

A government that understands that inflating one, transactional, part of the economy to such huge proportions, stoking the fires with big tax incentives and giving public statements to drive it on, is going to end in a disaster.

The entire developed world took a knock in 2008. But ours was the single biggest collapse in real terms not just for this recession, but ever recorded in modern times among any economy, anywhere.

We have very poor government. It needs to become transparent, accountable, and less prone to being so f'ing retarded.

Oh, I agree fully. Can't see an improvement in any the calibre of polititians anytime soon.

Moving into the fiscal controls of the eurozone took away some of our means to control (housing) inflation, but surely we had others. We could have jacked up stamp duty, for example. Unpopular yes, but would have done the trick.

Were there any means that the financial regulator could have used to ease the pressure? The volume of lending versus our ability to pay should have been a warning sign surely? So we need to tighten / improve the muscle of our financial regulator.

M.

mm_surf

dissed doc wrote: »

I think an area to start with is the simply decide what sort of society and services we need, to begin with; after we have that decided and agreed, then work on how to get there. At the moment, we see arbitrary cuts here and there, mostly for political reasons.

For example, health care. We need to simply agree what services, where and at what cost and stick with it, or else things will continue to go to hell. This needs to be planned over a decade or more, not based on Jimmy McBobs' aunt and uncle having pints with the Minister in a pub in Ballygobbshyte. It requires and entire cultural shift in Ireland, and I don't think it will happen. Forward planning that far in advance doesn't happen from Dublin Castle.

Like in point (2) in my original post - "ringfence" spending as per plan. Any surplus over that can be used accordingly.

I.E. we decide that the health service needs to have X doctors, Y nurses and so on. Normal, "ringfenced" budget applied. Any surplus money in the coffers (when available) can then be used to reduce waiting times for priority services (or other usch projects)

I agree that forward planning is woeful in this country. For example, one problem I see lumbering towards us is the need to upgrade our water infrastructure. More so with the water charges coming. News today already has flagged probable water restrictions for dublin. Wonder what % is leaking out through the crap piping systems?

So that is something that *should* be planned for. But is it?

Godge

Sleepy wrote: »

I'd look at this more tactically...

1. All Senior PS and politician pensions to be re-configured. Only one pension payable per individual, it only being payable at normal retirement age and the value of that pension being determined by the previous year's GNP.

2. Any director remuneration beyond twice average salary to be payable in the form of 10 year share options or a similar long-term company performance measure.

In order to smooth the worst of the cyclical peaks and troughs of our current capitalist system, we need, imho, to do everything we can to ensure long-term strategies for governance (both public and corporate) and discourage the short-term profit/vote grabbing that's at the root of our current problems.

And how does this prevent future problems???

1. Further pension and pay cuts mean that talented people no longer join public service so mistakes get bigger and public service gets worse. Bad for the future.

2. Directors no longer incorporate companies in Ireland as restrictions on entrepeneurs are too great. Those with ideas move abroad and make their fortune there. Tax revenues and jobs just fade away in Ireland leaving us dancing at the crossroads.

Nijmegen

mm_surf wrote: »

Oh, I agree fully. Can't see an improvement in any the calibre of polititians anytime soon.

Moving into the fiscal controls of the eurozone took away some of our means to control (housing) inflation, but surely we had others. We could have jacked up stamp duty, for example. Unpopular yes, but would have done the trick.

Were there any means that the financial regulator could have used to ease the pressure? The volume of lending versus our ability to pay should have been a warning sign surely? So we need to tighten / improve the muscle of our financial regulator.

M.

There are many steps government can make to take the heat out of a property, or any other, bubble.

Increasing stamp duty might be one, though one might argue that a more sustainable form of property tax would be one levied year on year. Stamp duty collapse was a major factor in our deficit ballooning to the levels it has, and it would be better not to ever collect a tax based on one off transactions such as houses represent. (Other transactional taxes like VAT work because, well, we're not likely to stop buying food or clothes.)

The financial regular could indeed have squeezed banks to maintain better capital ratios (IE, for every 100 euro they lend, have X-XX euro in the bank), which would slow lending. They could mandate pretty much whatever rules you like, in fact, to slow bad lending growth. The government could, if it wished, have banned no-deposit mortgages and loans, or limited the way investors could use properties they already owed the bank loans on as collateral for further loans (sounds stupid, doesn't it?)

This idea that only the ECB could take the heat off our property bubble is absurd.

I agree that forward planning is woeful in this country. For example, one problem I see lumbering towards us is the need to upgrade our water infrastructure. More so with the water charges coming. News today already has flagged probable water restrictions for dublin. Wonder what % is leaking out through the crap piping systems?

About half, I believe.

And how does this prevent future problems???

1. Further pension and pay cuts mean that talented people no longer join public service so mistakes get bigger and public service gets worse. Bad for the future.

2. Directors no longer incorporate companies in Ireland as restrictions on entrepeneurs are too great. Those with ideas move abroad and make their fortune there. Tax revenues and jobs just fade away in Ireland leaving us dancing at the crossroads.

I agree that government interfering in private remuneration is, largely, wrong. Perhaps in systemic areas like banking they should look to impose some conditions, such as long term performance conditions in pay (heck, we own the banks anyway, might as well, not like they are private business anymore anyway ), as long term incentive plans are becoming acknowledged as sound business practice anyway.

The pay of the directors of retail firms didn't have much to do with our economic collapse, on the other hand.

Re: public sector attracting the best and the brightest, in an economy with unemployment at levels today it is not the employees market. With the good wages on offer today and the promise of a steady job I don't see the public sector having difficulty attracting talent, unless pay levels fall substantially below the private sector and we are heading back towards full employment.

I think the argument around executive pay in the PS needs to be more nuanced, but in general I think we've got good pay rates to attract the talent (if only we were hiring.)

mm_surf

Godge wrote: »

And how does this prevent future problems???

1. Further pension and pay cuts mean that talented people no longer join public service so mistakes get bigger and public service gets worse. Bad for the future.

2. Directors no longer incorporate companies in Ireland as restrictions on entrepeneurs are too great. Those with ideas move abroad and make their fortune there. Tax revenues and jobs just fade away in Ireland leaving us dancing at the crossroads.

Not sure I'd entirely agree with you on point 1. (I think Sleepy's gripe was mainly with teh multiple pensions that Ministers can end up getting) Unless there is a huge difference in payscales, I see different government departments perfoming very differently. Just from personal experience, revenue seems to be like a well oiled clock. I recently had to process a tax rabate. One call, 9 minutes later, all done. In general I've always been impressed with the efficiency in revenue. Refreshing lack of bollocks. Similarly, An Post, with all its other services bundled in together performs well. Bit expensive compared to the UK, but with economies of scale, etc. I'd say pretty good.
Compare these to the health service. Always been somewhat of a headless zombie - no-one seemed to be able to do joined up thinking. The first time I *really* needed the health service was for A&E about 25 years ago on a friday evening at about 8pm. It was shut. And this was in a town of over 20,000 people.
And ever since, I've gotten used to being on a waiting list.
So I don't think that improving pay would help - I think that as one of the other posters said - we need much better polititians.

Agree with you on point 2. There would be little point in restricting directors salary. 2X average salary inn any organisation with a lot of "footsoldiers", like retail, catering, hospitality etc. would only be a smidgin above double the minimum wage - about €40K.
Even for banks. I know some people get upset at "large bonuses for fat cat bankers" - but in a lot of these cases it's the investment arm of the bank, and entirely justified. Without investment departments, bank profits would be significantly lower. Large bonuses for the idiots who decided to increase profitability by simply lending more, on the other hand.......:(

M.

mm_surf

Nijmegen wrote: »

There are many steps government can make to take the heat out of a property, or any other, bubble.

Increasing stamp duty might be one, though one might argue that a more sustainable form of property tax would be one levied year on year. Stamp duty collapse was a major factor in our deficit ballooning to the levels it has, and it would be better not to ever collect a tax based on one off transactions such as houses represent. (Other transactional taxes like VAT work because, well, we're not likely to stop buying food or clothes.)

The financial regular could indeed have squeezed banks to maintain better capital ratios (IE, for every 100 euro they lend, have X-XX euro in the bank), which would slow lending. They could mandate pretty much whatever rules you like, in fact, to slow bad lending growth. The government could, if it wished, have banned no-deposit mortgages and loans, or limited the way investors could use properties they already owed the bank loans on as collateral for further loans (sounds stupid, doesn't it?)

This idea that only the ECB could take the heat off our property bubble is absurd.

Good to know that we have options. Things got out of hand very quickly for us -over what, 2-4 years? Personally, I believe a lot of the upward pressure on house prices was simply that banks were lending more (to compensate for low interest rates).
So we need a financial regulator with teeth, but not with breath so bad that the nice suits don't vacate the IFSC too quickly?

I think that the ECB in theory could have helped by raising interest rates. But I'd imagine that wouldn't have gone down to well elsewhere. Next time around it'll be interesting to see the response from Eurozone members in relation to this. I don't think they'll be quite as selfish the next time around - now that they see that the problems of any individual members of the Eurozone affect all members of the Eurozone.

M.

RichardAnd

mm_surf wrote: »

Good to know that we have options. Things got out of hand very quickly for us -over what, 2-4 years? Personally, I believe a lot of the upward pressure on house prices was simply that banks were lending more (to compensate for low interest rates).
So we need a financial regulator with teeth, but not with breath so bad that the nice suits don't vacate the IFSC too quickly?

I think that the ECB in theory could have helped by raising interest rates. But I'd imagine that wouldn't have gone down to well elsewhere. Next time around it'll be interesting to see the response from Eurozone members in relation to this. I don't think they'll be quite as selfish the next time around - now that they see that the problems of any individual members of the Eurozone affect all members of the Eurozone.

M.

The current powers that be in Europe might be more cautious in furture but remember, in 30 years or so, a whole new generation of politicians will be at the helm and the lessons of today might not be so well known to them.

You see, one of the reasons that busts tend to take 25-30 years to cycle is that 25-30 years is just about the right amount of time for a whole new bunch of suckers to arrive on the scene with the conviction that their bubble isn't a bubble. If the same men who lived through the great depression were in power over the last decade then it's likely we wouldn't be in the second great depression now but they're not.

In fact, many of the precautionary measure introduced after the depression were removed in the 90s and look where we are. The lesson here is that we should look back before moving forwards.

mm_surf

RichardAnd wrote: »

The current powers that be in Europe might be more cautious in furture but remember, in 30 years or so, a whole new generation of politicians will be at the helm and the lessons of today might not be so well known to them.

You see, one of the reasons that busts tend to take 25-30 years to cycle is that 25-30 years is just about the right amount of time for a whole new bunch of suckers to arrive on the scene with the conviction that their bubble isn't a bubble. If the same men who lived through the great depression were in power over the last decade then it's likely we wouldn't be in the second great depression now but they're not.

In fact, many of the precautionary measure introduced after the depression were removed in the 90s and look where we are. The lesson here is that we should look back before moving forwards.

That's my concern - if we don't learn from the current mistakes, we run the risk of not being able to recover at all from the next downturn. The reserves (of everything) will be depleted - and as bad as things seem now, we won't have squat left after the next one (unless we learn, that is)

The bubble bursting was like a slow motion car crash for me. "property can't fail" was the mantra, yet all I could think of was "didn't it fail in the UK, our closest neighbour, about 10 years ago?". We sure as hell didn't learn anything from that - and we're now paying the price.

I'd hope that the Eurozone learns from this - I don't think its entirely clear that it'll survive *this* crisis. I can't see it surviving another without learning from the current state. One mindset that has to change is the "them and us" attitude of Eurozone members. The "pigs" problems are the Eurozone's problems.

In Ireland today there seems to be a lot of talk on how the horse has bolted, and where we're going to get a new horse. Hopefully someone will remember to bolt the door this time.

M.

Nijmegen

mm_surf wrote: »

Good to know that we have options. Things got out of hand very quickly for us -over what, 2-4 years? Personally, I believe a lot of the upward pressure on house prices was simply that banks were lending more (to compensate for low interest rates).
So we need a financial regulator with teeth, but not with breath so bad that the nice suits don't vacate the IFSC too quickly?

I think that the ECB in theory could have helped by raising interest rates. But I'd imagine that wouldn't have gone down to well elsewhere. Next time around it'll be interesting to see the response from Eurozone members in relation to this. I don't think they'll be quite as selfish the next time around - now that they see that the problems of any individual members of the Eurozone affect all members of the Eurozone.

M.

Well, the financial services boys in the IFSC had as much to do with the bubble as those in London or Frankfurt or anywhere else, in that they may have helped make available the liquidity (crack) our banks were being lent, but the Irish market is small and the Irish government slowing down domestic lending to prevent a bubble would be a tiny percentage of all the activity in the IFSC.

Cheese and chalk, really.

The financial regulator and the government had no interest in controlling the market. They stoked the fires onward. Our real economic wunder growth ended around 2001 - 2003.

The ECB could have helped. But the Irish government should have.

mm_surf

Nijmegen wrote: »

Well, the financial services boys in the IFSC had as much to do with the bubble as those in London or Frankfurt or anywhere else, in that they may have helped make available the liquidity (crack) our banks were being lent, but the Irish market is small and the Irish government slowing down domestic lending to prevent a bubble would be a tiny percentage of all the activity in the IFSC.

Cheese and chalk, really.

The financial regulator and the government had no interest in controlling the market. They stoked the fires onward. Our real economic wunder growth ended around 2001 - 2003.

The ECB could have helped. But the Irish government should have.

Agreed, the majority of IFSC work is investment (rather than lending). I did some bits & pieces for two of the bigger firms there between 2002-2007 (non-financial work. I quickly point out!)

As you mentioned earlier, we could restrict the level of lending (restrict the level of leverage, is that the right term/phraseology?) compared to the cash on hand (I think "assets on the books" might be part of the problem that we had previously - value of assts can go up as well as down).
Can we do that under existing powers though? e.g. through the financial regulator / other legislative powers?
How can we improve the quality of our financial regulator? Is it a government appointed position? Could we perhaps give it to an outside (i.e. mainland european financial bod), make it more objective?

I really think that the ECB / Eurozone controller will be a damn sight more proactive in the future. We made a fair mess of our situation ourselves, but I'm pretty sure we aren't the culprits for greece/portugal

M.

Nijmegen

mm_surf wrote: »

Agreed, the majority of IFSC work is investment (rather than lending). I did some bits & pieces for two of the bigger firms there between 2002-2007 (non-financial work. I quickly point out!)

As you mentioned earlier, we could restrict the level of lending (restrict the level of leverage, is that the right term/phraseology?) compared to the cash on hand (I think "assets on the books" might be part of the problem that we had previously - value of assts can go up as well as down).
Can we do that under existing powers though? e.g. through the financial regulator / other legislative powers?
How can we improve the quality of our financial regulator? Is it a government appointed position? Could we perhaps give it to an outside (i.e. mainland european financial bod), make it more objective?

I really think that the ECB / Eurozone controller will be a damn sight more proactive in the future. We made a fair mess of our situation ourselves, but I'm pretty sure we aren't the culprits for greece/portugal

M.

We can do what we like, is the short answer to that.

If we don't have a law to allow the financial regulator to limit lending, you call some international financial experts and ask them how you do it, send that over to the whiz kids in legislative affairs in the department of finance to turn it into a bill, and down to Leinster House to enact it.

The idea of having a financial regulator free of government is a good idea, but ultimately the government sets the tone and the legislative framework in which they work, short of us enacting constitutional reforms for everything... And there's no constitutional amendment you can introduce to say "The government must never act stupidly."

Politicians have to be big boys and girls and listen to good advice and take action on it.

Geuze

One simple way to prevent a future property lending bubble is to restrict the size and duration of mortgages.

Max 20-25 years.

Max 80-85% LTV.

mm_surf

Geuze wrote: »

One simple way to prevent a future property lending bubble is to restrict the size and duration of mortgages.

Max 20-25 years.

Max 80-85% LTV.

It'd be a start. Although the valuations could be a problem. I'd hate to think what some peoples' LTV would be right now.

How did we get to the crazy multiples of salary being lent though? Unless my memory is completely shot, I think that in '05-'06 the average house price was 14 time the average wage. Shome mishtake shurely?

Would an option be to introduce mandatory stress testing of indvidual mortgages? E.G. see what Joe Bloggs' ability to repay his mortgage is like is there is a downturn. Most of the boom mortgages were based on two incomes, or so it appeared to me. Surely this is double the risk one person losing their job? Also one salary (or its equivalent due to creche/babysitting fees) would be lost when JB Jr came along?

How about serious insurance for mortgage repayments? And let the actuaries loose on the premiums? i.e. reckless/risky mortgages would attract a higher premium. Cover repayments for say, 2 years? What would ballpark premiums for a product like that cost?

M.

shedweller

mm_surf wrote: »

I don't think precious metals are going to help soften the blow of the next downturn

Any ideas as to what we do before then?

Maybe not for the entire country but for the few individuals at the top with the funds to buy it and sell it when the time is right, it works very well indeed:http://www.dowgoldzoom.com/chart_dow_gold_zoom.shtml


As for the country as a whole, maybe paying off our national debt before the next recession might be a good idea! :pac::pac: I know it's a lot of money now but after inflation it won't be so bad.......

Maybe raise MRRT on the oil companies drilling in our waters?
They'll run away though, right? Riiiight!