Saturday, July 4, 2009

Dissolving the Dail -- The rare prerogative

The power to dissolve the Dail is the fulcrum of political power under our Constitution but it is little understood or discussed.

Every FF Taoiseach in the past 40 years has ultimately been removed without a general election - Lynch, Haughey, Reynolds, Ahern. In the case of Albert Reynolds this lead to an entirely new Government. Is this good for democracy? Can the President exercise real control over the process? These are important questions that are rarely considered.

I know of no comprehensive study of this power and there is a widespread misunderstanding of the process. In the past, with one major exception, the issue has not created controversy but I believe there are reasons to expect much greater challenges in future. Without accepted constitutional traditions, there is a real risk that this prerogative will not be exercised in the public interest.

In normal circumstances, this power rests with the Taoiseach although formally exercised by the President.

Article 13.2. 1 makes this clear:
"Dáil Éireann shall be summoned and dissolved by the President on the advice of the Taoiseach."

While the legal position is clear, the political realities have changed dramatically. Not so long ago, Taoisigh of various hues brandished their prerogative and did not disguise the political calculations behind it. De Valera pulled a couple of surprise elections which caught the opposition off-guard, most notably in 1948 when he stymied the growth of Clann na Poblachta. As President, de Valera was never going to refuse a dissolution to Sean Lemass or Jack Lynch while Childers and O Dalaigh never faced the choice.

CJ Haughey called three general elections in pursuit of his overall majority only to become the first Taoiseach pushed out by his own party after umpteen internal challenges (Lynch jumped before he was pushed in the expectation that Colley would succeed him).

Overall, my impression is that those who exercised the option of an early general election rarely benefitted.

Bertie Ahern seems to have drawn this conclusion from his experiences under CJH. I think Bertie also understood that the nature of coalition governments obliges the Taoiseach to "decommission" his most powerful weapon. Coalition partners can hardly be expected to accept that the leader of the largest party gets to press the nuclear button. Bertie was the first to make a public virtue of this restraint by signalling in advance that he would allow the last two Dails to run practically their full 5-year terms.

As no politcal party can expect to win an overall majority in the forseeable future, we are in an era of coalition governments where the Taoiseach's prerogative will become more a "dignified" than "efficient" element of our constitutional arrangements.

If the clear legal authority of a Taoiseach has been rendered inoperative by coalition politics, there is one situation in which that prerogative becomes the the President's. Where the Taoiseach "has ceased to retain the support of a majority in Dáil Éireann", the President has an absolute discretion to decide whether to grant the Taoiseach's request for a dissolution.

Art. 13.2.2° The President may in his absolute discretion refuse to dissolve Dáil Éireann on the advice of a Taoiseach who has ceased to retain the support of a majority in Dáil

I think I'm right in saying that, largely due to Fianna Fail party discipline, no President faced this option until the night of 27/28 January 1982. The events of that night have entered Irish political folklore because of Brian Lenihan's "mature recollections" when seeking election as Patrick Hillery's successor. There was renewed comment recently when the last edition of Questions and Answers re-broadcast Lenihan's denial that he had tried to contact the Aras on that night.

There is a widespread view that it was constitutionally improper for Lenihan to have attempted to contact the Aras that night. Why?

There is nothing in the Constitution expressly limiting whom the President may consult. Hillery's Wikipedia entry claims that, on that historic night, Hillery "might also have been motivated by the Irish version of the Constitution, which states that the President uses his discretionary powers as a chomhairle féin, which usually translates to "under his own counsel"--meaning that no contact whatsoever could take place with the opposition."

It's a bizarre stretch to interpret "as a chomhairle féin" as forbidding contact with the opposition. A somewhat more plausible, and more widely-held view, would be that "as a chomhairle féin" prevents the President from seeking advice from any quarter but this also seems to me untenable.

An interpretation which prevented the Taoiseach from seeking or receiving other views or advice would leave the President in the dark while exercising his most important prerogative.
Could s/he turn on the TV? Should s/he start a thread on to get the collective wisdom of Ireland's most opinionated?

What is clear is that the President is not obliged to seek anyone's advice before exercising this prerogative. But there is nothing constitutionally improper in someone offering to give advice. In many countries, Italy and Denmark come to mind, there is a tradition of the Head of State inviting political leaders to discussions on the formation of a new government and, only if these fail, will elections be called.

We are unlikely to get a definitive legal interpretation because the courts would, rightly, be most reluctant to intervene in the President's exercise of this prerogative.

The starting point for a legal interpretation would be to put the phrase in its proper context. The terms of Article 13 distinguish between the normal situation where the President must grant a dissolution "ar chomhairle an Taoisigh" and the situation where the Taoiseach has lost the support of the Dail, in which case the President acts "as a chomhairle féin". The general rule, except where otherwise stated, is that the President cannot exercise any power or function save only "ar chomhairle an Rialtais" i.e. on the advice of the Government. acts.

From this it is clear that in the normal case, it is the Taoiseach and not the Government which advises the President i.e. the President must act accordingly. Where the Taoiseach has lost the support of the Dail, there is an exception (the most important exception) to the general rule. The President is not bound by the Taoiseach's advice but is entirely free to act s/he can act "as a chomhairle féin" i.e. on his own judgement.

This interpretation is consistent with the English version "at his absolute discretion". Nothing suggests that the President is limited in the sources of advice that he may consult. In other situations, notably Article 26 in referring a Bill to the Supreme Court, the President must seek the advice of the Council of State. The arrangements for a dissolution are clearly distinct and it might even be improper for the President to formally consult the Council of State.

Brian Lenihan's difficulties in 1990 arose not because he tried to contact the Aras in 1982. His problem was that he wanted people to believe that he would act independently if elected President and the events of that night served to highlight his total subservience to CJH. This was compounded by his comments on Q&A when he talked about his "loyalty" over many decades.

Garret Fitzgerald, a key witness to the events of January 1982 who had been cleverly substituted onto the Q&A panel by FG, pointed out that a President must show independence, which is the opposite of loyalty. At that moment, Lenihan was sunk because it was clear he would not fulfill the role independently of CJH. The lies and obfuscation only exacerbated his problems.

It may not be clearcut whether a Taoiseach has actually "ceased to retain the support of a majority in Dáil". I don't believe this is limited to a Taoiseach who has lost a vote of no confidence. It was clearly accepted by all sides in 1982 that President Hillery could have refused a dissolution because Garret Fitzgerald had lost a budget vote.

In 1987 when President Hillery granted a dissolution to Garret Fitzgerald, Garret no longer had a Dail majority because Labour had withdrawn from coalition. But this was a moot point because the Dail was almost at the end of its 5-year term.

There is a strange lack of discussion about the next time President Hillery was faced with a request for a dissolution by a Taoiseach who never actually had the support of a majority in the Dail (he was elected on the casting vote of the Ceann Comhairle - there's one for the pub quiz). Haughey actually went to the country because the Dail dared to support a private members' motion which called for some tiny amount of financial aid to the victims of one of our worst scandals: the haemophiliacs infected by the BTSB.

The opposition will always claim to welcome a general election but in 1989 they truly relished Haughey's formal announcement that he was going to the Park.

So the difference between 1982 and 1989 may simply be that the Opposition were not in a position to put together a government without an election. There is nothing to indicate that President Hillery reserved his judgement on the matter; he seemed to accede to Haughey's request without further ado. Did Hillery have any contact with advisors or with the Opposition, even informally?

After the 1989 election, Ireland faced a moment of great constitutional confusion. The newly-elected Dáil failed to elect a Taoiseach when it first met (and at a number of meetings afterwards). Haughey, the incumbent Taoiseach, was constitutionally obliged to resign but it was only under intense pressure, especially from Dick Spring, that he eventually tendered his resignation to President Hillery.
At the conclusion of the inaugural session of the new Dail, when neither Haughey nor any other candidate won election as Taoiseach, Haughey tried to pull a fast one. He proposed to remain on in office, with his Ministers, pending the next sitting of the Dail (a week later). At first, Alan Dukes seemed to accept this but Spring pointed out that Article 28 obliges a Taoiseach to resign if he loses the support the Dail unless, after an election, he gains support of the new Dail.

The Taoiseach shall resign from office upon his ceasing
to retain the support of a majority in Dáil Éireann unless on
his advice the President dissolves Dáil Éireann and on the
reassembly of Dáil Éireann after the dissolution the Taoiseach
secures the support of a majority in Dáil Éireann.

There seems to be no scope for maneuver here but Haughey argued he was
advised that time is not of the essence and that it is open to me to take a reasonable amount of time to reflect and consider. That I intend to do... The only alternative is for me to go to the president and seek a dissolution of the Dáil. That is not in the best interests.

Haughey then tried to get an adjournment until the following Monday but that proposal was defeated and, after a short adjournment, he went to the Park and conveyed his resignation, and those of his Ministers, to the President. He did not seek a dissolution and he continued to insist that he had the constitutional right to take time, up to a week, to consider the position before resigning.

Haughey was then Taoiseach in an acting capacity only. At the next Dail session, Dick Spring again attacked his view of the Constitution
esterday we heard the acting Taoiseach trying to tie the hands of the highest constitutional officer in the country — the President — and using the national radio station to do so. Article 13.2.2º of the Constitution states quite clearly that the President of Ireland has absolute discretion in dealing with the advice of a Taoiseach who has lost the confidence of this House in the matter of a dissolution. For Deputy Haughey to attempt to subvert the discretion the President has, by alluding to an entirely fictitious accepted wisdom on radio, can only serve to undermine confidence further in Deputy Haughey. There is no such thing as accepted wisdom in this matter, there is only the absolute discretion of our President. For Deputy Haughey the term “accepted wisdom” appears to mean that the President should exercise his discretion in whatever way Deputy Haughey wishes him to.

Haughey gave an intriguing response which suggests that he had long reflected on the President's prerogative:

The Taoiseach: What I said yesterday was a very simple statement of the truth as I saw it, and I have some experience in this matter. I have discussed these matters with Presidents since Seán T. O'Kelly's time. I know the views of many distinguished Presidents in the past on that issue, and there is nothing sinister about it. It is simply a question of looking at what the Constitution provides and where the exercise of this or that power might lead us. All I was saying was that I knew the views of a number of Presidents. I also made it clear that I had not discussed, or had no intention of discussing, that matter with the present President. I have nothing to apologise for to anybody in this House in that regard.

At the fourth attempt, on 12 July 1989, the Dáil eventually re-elected Haughey when he agreed to a coalition deal with the PDs - one of the great ironies of Irish electoral history.

It is interesting to speculate on Hillery's response if Haughey had requested a dissolution at an earlier stage after the 1989 election. On the whole, I think Hillery would probably have granted it, despite rather than because of Haughey's request, as it was clear the Dáil could not form a Government other than with FF (the left were too wary of FG)

I think 1992 is the last time a Government lost a vote of confidence. In practice, of course, Mary Robinson had no alternative but to grant Albert Reynolds a dissolution on that occasion but she is reported as saying that she would not have granted Albert Reynolds a dissolution in 1994 if he had gone to the Park when the FF/Lab coalition broke down.

Mary McAleese has never had to face this issue due to Bertie Ahern's philosophy although even he could not resist some gamesmanship by disguising the exact timing of the election. His furtiveness almost backfired in 2007 when he had a Sunday morning dash to the park before the President left for the States.

It's anyone's guess when in the next three years a Taoiseach will next seek a dissolution of the Dail and whether President McAleese will have discretion in the matter. Her successor would have little option but to grant a dissolution of the thirty-first Dail as there would be less than a year left in its full term.

In the longer term, I think our next President is likely to have a real opportunity to refuse a Taoiseach's request for a dissolution. In other words, in the coming decade there is quite likely to be an occasion where a coalition government collapses in circumstances where a new coalition might be formed which could provide effective government for a substantial period before the Dail's 5-year term expires.

Should a President refuse a dissolution in those circumstances or should the people go to the polls again? The choice will be the President's alone but we need some principles which could guide that decision.

In my view, some basic principles could be settled. For example, the Dail should be dissolved unless there is a realistic prospect of forming an alternative Government which would be effective and seen as legitimate. There should be at least 2 years remaining in the full term of the Dail. The alternative government should have a reasonable prospect of lasting for the remainder of that term. There should be some basis for a coherent Government programme. The alternative Government should have the capacity to gain broad acceptance i.e. be seen as expressing the democratic will reflected in the last election (not some alliance of the losing parties with disaffected elements of the winners).

In the absence of some such principles, the President's prerogative will be seen as "dignified", not efficient, and we are doomed to a frequency of general elections which is bound to undermine the country's capacity to make the strategic measures that the current crisis demands.

There is a helpul international comparison here

Tuesday, June 30, 2009


I'm sitting in the back garden listening to birdsong this evening. I can hear at least four birds singing near the river and their music fills the evening as the clouds pass slowly overhead.

How empty the sky would be without their songs. Are they singing to each other? It seems to late for mating - do nesting birds sing to their chicks?

It makes human communications seem so harsh and disconnected. At moments like this I wonder how technology can possibly improve our communications. The problems are not technological. Imagine some futuristic system where our thoughts could be shared directly with others. It could be a nightmare! It would certainly not lead to harmony .

Sitting here, listening to birdsong, I feel a strong urge to communicate in some different way. Technology was supposed to improve human communications but the mass media are filled with misrepresentations of the human condition (This week, I'm thinking of Farrah Fawcett and Michael Jackson)

I certainly don't want to hear the contradictions and distortions that are commonplace on blogs and chatboards. I was looking at earlier this evening and came across a classic example. There was a posting about the Lisbon Treaty. Don't ask me what brought me into that cesspit but it was clear that
the opening post had totally misrepresented the facts and the thread was a series of misguided interventions in which point-scoring was the guiding principle. The blogs about crime and immigration are even worse (please, not Shell to Sea!!!).

Can humanity communicate honestly or is there always an ulterior motive distorting our messages? We can twitter but where is the joy of birdsong?

I'm not being superior - we all have our motives - but listening to birdsong in the evening is a lesson in communication. When you open your mouth, there must be honesty and a desire to be as one.

Monday, June 8, 2009

Local and European

Like many elections, the outcome of these elections will change everything and nothing.

In terms of party politics, it is a revolution: Fianna Fail are deeply wounded but not slain. Fine Gael are calling a historic transformation of Irish politics even though FG under Garret held a larger share of the vote. The historic difference, of course, is that FG is more popular than FF but that only serves to underline the nature of Irish politics. Contrary to Pat Rabbitte, it was never a two and a half party system. We have had a single party system with a possible alternative if the voters tired of FF and FG could assemble all the other parties. Too often FG showed a lack of finesse in dealing with their coalition partners and with independent TDs.

In the real world, nothing has changed, The only reality that elections can change is the holders of office which may also mean a change in real power. These elections do not not change much because neither local nor EP representatives wield real power. Local government has been emasculated and discredited, the European Parliament is powerful but our MEPs answer to the domestic political leadership on the votes that matter.

The great danger now is paralysis. The Government have been punished severely, not just for past failures but for current policies (indeed, the Greens were penalised more than FF even though they could claim to have opposed more strongly than any other party the failed economic policies of the past

Ireland's economic straits are so dire that there is little room for manoever. In good times, Governments have a vast menu of expenditure choices to prioritise and the past decade has been marked by a rnge of vanity projects. Only the presence of the Pds spared us the ultimate white elephant when the 2002 elections prompted Michael McDowell to block Berties Ceauscesu project in Abbotstown.

In difficult times, Governments face tough choices and Ireland cannot postpone these choices because we are currently borrowing €20Bn. a year to support Government expenditure. The cutbacks that have made the Government parties so unpopular are only the beginning of a four year process which envisages even greater levels of expenditure reductions merely to bring Government finances into an acceptable level of deficit.

A great difficulty for FF is that their response to the crisis is coloured by the need to justify their prior failure to avoid or mitigate the crisis. Blaming international factors irritates voters because FF were all too ready to claim credit during the boom times.

Paul Krugman made an interesting comment during his lecture in Dublin last Friday. He said it was unrealistic to imagine that the Government would not cheer on the bubble I.e. that politicians by their nature are incapable of restraining growth, even if it is unsustainable and even dangerous. Who then could control a bubble? Above all, the Central Bank but we are now being told that the Central Bank did not have power to act, and the Financial Regulator is blamed for inaction.

The Government is about to be presented with a new scheme for the Central Bank and financial regulation. It sounds suspiciously like the existing system. The main difference highlighted by the Sunday Tribune today is that the Head of Supervision will be on the Board.

FF and the Greens will hang together to avoid an early general election. Not merely would they be out of office - I suspect many in FF are resigned to that – it would would fix their current unpopularity through the term of the next Dail.

By the end of the year there will be a General Election, Fianna Fail councilors and Green councilors who lost their seats will cause this. Many grassroots Fianna Failers aren't happy. I personally don't want a General Election now, why should Fine Gael and Labour sort out Fianna Fail's mess?

For most of its history, FF espoused single-party government as a core principle. We know now why CJH was so committed to this principle and Albert was so uncomfortable with coalition he rubbed Dick Spring's nose in the Beef Tribunal Report. Bertie learned from their mistakes and when an overall majority was in sight in 2002, he went into denial.

At moments of crisis, existential questions need to be asked. Why does FF exist? The Good Friday Agreement has settled the national question for the foreseeable future. Will there be a space between FG on the right and Labour and others on the right?

Tuesday, May 26, 2009


I was concerned that the dioxin pork scandal was being brushed under the carpet so I was encouraged to hear the Oireachtas Committee's report had issued today. This scandal is a perfect example of a scandal which cannot be buried because the public/consumers need reassurance.

A quick read is not reassuring.

Firstly, the Chairman's preface is as limp as a sausage. Here is an opportunity for the Oireachtas to assert itself and lash who have failed in their statutory responsibility. Above all, the Committee should demonstrate its determination to protect consumers.

Instead, the Chairman blandly repeats that
Consumers were
reassured that there was no immediate risk to health.
and the Committee's concern was the serious difficulties facing the agri-food industry following the contamination incident
Of course, this is the "Joint Committee on Agriculture, Fisheries and Food", not a consumer protection group.

We've come to accept the reality that Oireachtas Committee's cannot investigate individuals so I was not expecting any determination on the feed plant that produced the poison (the report simply notes that there is a Garda investigation).

That leaves a number of major questions which the Committee could answer:

I. How did the licencing / supervisory system not prevent this disaster?
2. Why did all the pigs in Ireland have to be slaughtered when maybe 10% had been fed this poison?

On 1, the main failure is [QUOTE]the food recycling plant at the centre of
the contamination incident had not been inspected at all in 2008 by the Department of Agriculture inspectors and, while holding a permit from Carlow County Council, was not inspected by the Council at all since being issued with its permit in 2006[/QUOTE]

Not inspected at all, at all :eek:

But at least our labs. caught the problem, right? Well, that's what the Committee wants us to believe. Its chronology begins, not with the production of the poisoned feed but with the lab tests.

On Tuesday 19 November 2008, an officer of the Department of Agriculture, Fisheries and Food (the Department) took routine samples, under the national residue monitoring programme, of pork fat from pigs slaughtered at a plant in County Longford, and submitted them for analysis at the Department’s pesticides control laboratory in County Kildare. On Friday 28 November, the analysis results indicated the presence of marker polychlorinated byphenols, more commonly referred to as PCBs. In accordance with standing procedures under the service contract between the Food Safety Authority of Ireland (FSAI) and the Department, the FSAI was advised of these findings at the time.

Hmm... but if the problem was detected in sample from mid-November, why did they go back to 1 September with the destruction of pork?

The 1 September date was chosen on the basis of the information provided by the Dutch authorities.

The only other mention of the Dutch is a statement that on
Friday 5 December, the Dutch authorities, following sight of the Department’s press release, contacted the Department and the FSAI about an independent investigation into the presence of PCBs in pork fat samples originating in Ireland from mid-September.

This is interesting. Did the Dutch only only tell us about the PCBs U]after[/U] we had recalled all pork? Did they leave pork with PCB on their market until we recalled our pork?

So many questions but the Committee ask any Dutch witness. They talked to someone from the European Food Safety Authority but she was not in the loop before we made the recall.

evidence available to the Committee indicated that PCB dioxins had been identified in pork by up to three Member States during September and October, although the country of origin of the contaminated product could not be identified. EFSA was not notified of the test results and no there was no EU-wide recall of product. The Irish decision to institute an immediate and total recall appeared somewhat contradictory, particularly when beef was not subjected to such a recall.
Very confusing and the Committee didn't seem to anxious to dig further.

Here's an appalling vista: not only did the licencing / supervisory authorities fail but

The Committee does make a sensible finding:
Given that the feed chain was identified in the Belgian dioxin scandal as the
source of contamination, the Committee is perplexed by the assessment of feed
production as a low risk enterprise. The feed chain is critical to consumer safety and the
survival of the food industry in Ireland. The Belgian scandal, the BSE crisis and the foot
and mouth outbreak all resulted from inappropriate material being included in animal
feed. For this reason, the Committee considers feed production must be ascribed a higher
level of risk, and a protocol must be established whereby the feed itself is tested

Is it coincidental that this report is published the day after the feed supplier, Millstream, was in court defending an action by a Northern Ireland farmer whose herd was destroyed when they were found to have unacceptable levels of dioxin? Of course, farmers in the Republic needn't bother suing anyone because the taxpayers will, as always, come to their rescue. The Committee did not feel the need to mention insurance. Even if Millstream has insurance, it would be limited to damage directly caused by its feed and would hardly cover the destruction of the national herd.

Saturday, May 23, 2009

NAMA - more scary stories

Watching the unfolding NAMA sage reminds me of that drunk-driving ad a few years back where a small boy is playing football in his back garden when the car comes over the hedge in slow-motion. I can't bear to watch but I can't turn away.

Drunk at the wheel might be a good analogy for our bankers behaviour in recent years. The Indo has what looks like a well-sourced story about NAMA. It leads with the claim that
developers deceived their banks by using the same assets to secure multiple loans from different lenders
. Michael Lynn on a vast scale. Whether the banks were deceived or not, I have a sinking feeling that the NAMA process has exposed a very dark secret: the security on those vast loans is even worse than we imagined.

Despite Michael Somers protestations of ignorance at the Oireachtas committee, NAMA seems to be gearing up rapidly: the banks are working overtime this weekend because they
have been asked to submit a detailed questionnaire on the make-up of development loan books by Monday

B. Lenihan said NAMA would begin operations on a non-statutory basis but how far will NAMA go before it is given a proper legal basis?

The Indo's story is wide-ranging and seems to be well-sourced. One quote in particular leaves me breathless with its arrogance:
Analysts expect the six lenders will have to write down the value of the loans by between 15pc and 20pc before the transfer, resulting in the NAMA loan book being as low as €72bn when it is up and running.

It defies belief that, having admitted that the security on many of these loans is illusory, this analyst is predicting that the taxpayer will pay the banks 80 - 85% of the book value of these loans.

To top it all, the banks are hoping to get paid to sort out their own mess:
Sources confirmed yesterday that a plan under consideration for NAMA includes paying lenders an incentive fee of up to 10pc of the value of loans the agency can recover over the next decade or so.

A stockbroker is quoted as saying that it made
“commercial sense” for the banks to receive an incentive fee. “They have the most knowledge of their own customers and should ultimately be able to extract most value from the toxic loans.”

It also makes commercial sense to pay a ransom to the kidnappers!

We are no longer dealing with law or ethics here; we are dealing with the exercise of power. The banks have us over a barrel but we can fight back:

The developers are Zed and Maynard but the banks want to be Mr. Wolf.

Monday, May 18, 2009

The Department of Finance has a fascinating FAQ document about NAMA.

It asks the right questions but the ambiguities in the answers might explain why Michael Somers told the Public Accounts Committee that he didn't know how this would work.

A fundamental claim is that NAMA will "operate on a commercial basis". What commercial operation would buy these assets, even at a discount, and hold them for years without any guarantee that the borrowers will repay the loans? Another fundamental requirement is to act in line with European Commission guidance.

Here is my summary of the answers.

1.1 What loans will be transferred?
The eligible land and development loans of each bank, but "eligible" will mean whatever they decide.

1.2 Will land and development loans outside of Ireland be transferred to NAMA?

1.3 Will there be transparency in relation to loans transferred to NAMA?
Yes meaning No. Only overall numbers will be published.

1.4 What will happen if individuals or companies who have performing loans do not want their
loans to be transferred?
Don't know - wait for the legislation

1.5 Will some borrowers just stop repaying their loans?
If so, NAMA will chase them.

2.1 What write-down will be applied to loans?
"appropriate write-down", meaning "Don't know"

2.2 Will there be a fair discount or will the banks get off lightly?
Don't know yet.

2.3 Who will be footing the bill for the loans – the banks, the developers or the taxpayer?
NAMA will get a discount (but the buck will stop with NAMA)

3.1 NAMA isn’t a toxic bank – why not?
NAMA will not be taking deposits from the public and will not have a banking licence. NAMA will manage a mix of performing and non-performing loans’

3.2 Do the banks have to give up loans that they don’t want to?

Don't know - wait for the legislation

3.3 Will Anglo-Irish Bank be used as a ‘bad bank’?
No but Anglo will remain as a going concern

3.4 Will Anglo be able to participate in this scheme?
Depends on the Anglo business plan

3.5 How will the write off impact on the banks’ capital ratios?
Yes, replacing loans with Government bonds will help.

3.6 Will the Government be prepared to put more capital into banks, and on what conditions?
To be decided on a case-by-case basis but equity may be taken in return.

3.7 Will the loss of profits not further inhibit the capital position of the banks?
Hopefully, the banks will be left stronger and make profits.

3.8 Will the terms and conditions of a loan transferred to NAMA change?
Not initially.

4.1 Is the Government just bailing out the Developers?
No, just a change of counterparty with NAMA replacing the banks. (But no explanation about how to pursue the developers)

4.2 Will the taxpayers have to pay for the banks’ mistakes?
Depends on level of discount and long-term value of the properties

4.3 How much will this cost the tax payers?
Don't know. €80-90Bn. is the book value of loans. If there is a loss, there will be a levy (but how do we stop the banks passing the levy on to their customers?)

5.1 What effect will this have on Government debt?
Financed by either a Government or NAMA bond.(no further information)

5.2 How will this effect the country’s credit rating?
The bond will increase the Debt/GDP ratio. The ratings agency will decide.

5.3 Can the country afford this?
Ireland has more scope than other countries to increase the level of debt
Give it a few years of double-digit deficits.

Sunday, May 17, 2009

It's too Late Late for RTE

I'm allergic to media hype so I avoided the coverage of the Kenny/Tubridy switch as much as humanly possible short of abandoning the mass media.

Now that the fanfare has died down, I have a few questions:

Why is RTE feeding its own fantasies?

Managing Director of Television Noel Curran said today: "Taking on the mantle of presenting the longest-running chat show in the world and a key entertainment brand for RTÉ is no easy task. We have thought long and hard about who the right presenter is to bring The Late Late Show into its 48th year and its next incarnation: We're delighted to announce that broadcaster is Ryan Tubridy

The Late Late is not" the longest-running chat show in the world". There is an interesting list of long-running US TV series. Many have been going since the 1950's. The Tonight Show, the classic late night chat show, has been running since September 27, 1954 and is still going strong with Jay Leno. (How I wish we had a current affairs programme to match "Meet the Press" under Tim Russert!)

I suppose this hype is partly to generate advertising revenue and, as a licence fee payer, I can't fault RTE there. But stick to the facts boys.

My second question is more significant: what did the Late Late achieve under Pat Kenny? There is no doubt that the Late Late under Gay Byrne was the most important TV programme of its era, hosting many seminal debates on issues of social and political importance and providing a stage for many aspiring talents. Late Late debates had dramatic effect on how we thought about divorce and contraception, taxation and public services, gay rights etc.

What was the most important debate in the Kenny era?

Gay Byrne had a genius for mixing light entertainment with serious discussion. This sugar-coating was a necessary device to introduce topics that traditionally Irish society refused to contemplate. I found the Kenny-era Late Late to be an incongrous mix, jumping from musical interludes, to phone-in competitions, to awkward chats with audience members, and then to a serious discussion. Worst of all were the attempts at comedy.

Final question: did Pat jump or was he pushed?

His announcement seem to come out of the blue, even the Late Late staff didn't hear until the last minute. Did RTE management offer him Monday nights as the price of shifting him or did he want something more serious than the Late Late? Did management believe his court battle with his neighbour had damaged his image? If so, they forget Gaybo's reputation for "parsimony".

Since I first wrote this blog, the Kennys have given an interview to the RTE Guide saying Kathy gave Pat an ultimatum. Maybe, but that doesn't say much for his planned Monday night show.

I also came across a very bitchy comment by a former researcher. It looks like Pat's Late Late will be remembered for low-lights, not highlights.

The mystery is why Pat Kenny, who is an excellent radio presenter and one of the best radio current affairs interviewers, fails so miserably with the Late Late. This article says that, unlike Gaybo who was obsessive, Kenny did not have editorial control of the Late Late. That would explain a lot. I don't imagine Ryan Tubridy will be given any control.

Fiona McCann has a revealing piece in today's IT. The "memorable moments" she recalls were almost all embarrassments for PK. The one exception was Brendan Gleeson's anger at our "health service" and McCann rightly says PK "allowed him space to talk". That was Gaybo's secret: it certainly worked with Pee Flynn and Terry Keane.

The Seinfeld episode was probably PK's low-point because it was so unprofessional. He was lucky that Jerry was in good humour. Look what he did when Larry King was ill-prepared for an interview:

Monday, May 4, 2009

This map from Eurostat shows yields for Government Bonds in respect of EU member States. In this case, being green is not a good thing for us. Look at the company we're keeping! The difference will cost us billions at a time when the State's borrowings are set to mushroom. The countries in beige are benefitting from bonds yielding under 3% - let's see what the NTMA has to offer in the coming months.

Developers' Loans

The scale of the problem facing NAMA is neatly illustrated by this graph, based on figures by Joe Brennan of the Indo.
with indicate that developers' loans account for 58Bn. AIB is clearer the biggest lender but, relative to its scale of operation, Anglo is in a league of its own. Why we are pouring money into Anglo is beyond me. By what measure is Anglo systemic?

Exchequer Returns

The latest Exchequer returns are grim but the tax returns correspond with the Government's projections in the supplementary Budget. No prizes there less than a month after the projections were made. The real test will come next month when the Government is expecting to bring total revenue to €13,494M. i.e. additional €3,400M which is almost twice the revenue raised in March.

The published "Cumulative Profile for Voted Expenditure, Tax Revenue and Debt Service Expenditure" details the Government current expectations (very different from those which provided the basis for the Budget last October). This document assumed tax revenue of €10,124M for the year to end-April, which is very close to the actual outturn of €10,098M.

This document projected culmulative expenditure of €15,633M for the same period. This seems to correspond to the amount of Voted Expenditure in the April returns.

Saturday, May 2, 2009

Criminal "Justice"

I was horrified to read of another travesty of justice by a sentencing judge this week. I started a thread on but I did not expect to hear from the victim's family who gave shocking details of this terrible crime. The information they provide paints a grim picture of their father's brutal murder at the hands of a callous and vicious young man.

The most outrageous aspect of the case, in my view, is the apparent failure of the judge to acknowledge the profoundly unnatural act of parricide. There is more than a hint of J.M. Synge in this story. Is there a Pegeen Mike who would slip a noose around this thug and say
"A strange man is a marvel, with his mighty talk; but what's a squabble in your back-yard, and the blow of a loy, have taught me that there's a great gap between a gallous story and a dirty deed."

A dirty deed is what Thomas Cunningham did when he kicked his father unconscious and left him to die in the garden of their home in Roscommon. He was just 18 at the time of the killing. He was born in England but returned to Ireland two years earlier to life with his father and grandparents in Roscommon.

The jury failed to convict this thug of murder even though he clearly intended to cause serious injury to his father. (Despite the clear evidence that the accused lay in wait for his father, defence counsel is quoted as telling the jury that his client "didn't mean to kill his father")

Judge Paul Butler gave him six years suspended with a €100 bond so this young killer is on his way back to England, free as a bird.

His father's siblings are naturally disgusted. They probably expected something like justice for their brother and now they wonder whether alcoholic fathers are fair game?
His first cousin is Cllr. John Kelly who was Mayor of Roscommon at the time of the "murder". Political connections cannot bring justice for the victims, but they are invaluable to the guilty.

The jury heard that the deceased had been drinking on the day leading up to his death and came home drunk. The defendant was annoyed with his father who had been sent out earlier to buy food.He grabbed his father and punched him outside the house. The deceased fell to the ground where the accused said he punched him twice more and kicked him.The deceased was helped up but fell down again and was left in the garden overnight with a duvet and pillow. He was found dead the following morning.

Of course, this farce would not be complete if the second act (arrest and charge) had not brought its own drama: the evidence of the State Pathologist wasn't ready so the accused was released by the District Court, re-arrested that day and then re-released by the court. No surprise, he skips off to England.

At first, I was inclined to give him credit for coming back to face charges but then I realised there may be a more sordid explanation. I wonder if it is connected with the death of his grandfather just after he fled to England (of course, the grandfather had to go into care when his son was killed and the grandfather died there 4 months later). The grandfather tried to help his son when he was lying unconscious but the thug of a grandson wouldn't help. Now that grandad was dead, there was no surviving witness so this thug could claim that his only gave his dad a couple of kicks and that his head had smashed off the floor when they were trying to lift him up.

Today's Independent gives coverage to the family's reactions.

Tuesday, April 28, 2009

Designs for our Future

The waste of public funds is the cause of intense resentment in the post-Tiger era. Examples abound of Government waste and poor value for money (HSE, e-voting, FAS). But in truth there was extreme wastefulness in private spending also and nowhere was this more evident than in domestic property. Not only did we spend extravagant sums on purchasing real estate, we also paid unreal prices for building work, for kitchen appliances and fitting, for all types of domestic luxuries.

The Designs for Life series on RTE is intended to show that architects can make houses better suited to the needs of their owners. Instead, it has unwittingly documented a wasteful era. The last programme was an extreme example which showed a couple spending over a million euro on a house in a rural part of East Clare.

I used to think that all those soul-less, ugly shoeboxes were the product of ignorant developers, short-sighted developers, greedy bankers etc. but I'm beginning to think that, in reality, they are what Irish people want. First-time buyers might have little choice (although I think the market would respond to some degree to their preferences) but when people can afford something more expensive than a bog-standard three-bed semi, they spend it on space and glitz, not on aesthetics and not on the environment (except for phony touches).

Most Irish people don't even understand that good design can make a house a better home i.e. the basic premise of this series. First-time buyers might be forced to accept bad design in the hope of "getting on the property ladder" but look at the McMansions strewn across our beautiful landscape. Not only are these houses eyesores but I now realise that they don't even function rationally for their owners, with dead spaces, inefficient designs, dysfunctional layouts etc.

If the problem was just aesthetic, I might put it down to a difference of taste but there are objective, practical objections which are really design failures. I'm beginning to think most Irish people don't grasp the importance of design i.e. working out what you want a house to do, how you want to live etc. and then seeking solutions based on the site, the budget etc. . They seem to believe that commonsense or tradition will provide the solutions.

In recessionary times, the case for good design is stronger than ever. The couple last night would have been much better served by a well-designed house at half the size (and price!). Nonetheless, there will be very little scope for Irish architecture in the coming years. The tragedy is that, apart from some notable public buildings, the standard of Irish architecture during recent years, which could have been a golden era, is now irredeemable The couple last night were being ripped-off by the builders not the architect but the coming years will see even more false economy as Irish people cut out the architects from the few projects going.

This is not just a problem of domestic architecture. It clearly has a profound impact on how Irish families live their lives. Even those fortunate enough to live in large expensive houses are all to often not living in a space that suits their lifestyles. That has a negative impact on family life.

There are also broad economic implications. Ireland will only emerge from the current crisis when it is again competitive in the world market. The sources of competitiveness for the Celtic Tiger (low wages, demographics) will probably not help us in future. That means being competitive through being efficient and thinking ahead of our competitors, in short: competitiveness will require good design.

Saturday, April 25, 2009

Economists and the Crisis

Today's article in the IT by economist Alan Ahearne offers a defence of the Government's plans for NAMA while opposing his colleagues' proposals on nationalising the banks. The reactions to his article raise broader issues about the role of economists in the present crisis and the nature of economics as an academic discipline.

On nationalisation, there is a developing consensus among academic economists who see nationalisation as a necessary evil which is part of an essential project: putting our banking system back on a sound footing. They would not share the enthusiasm of Sinn Fein and other left-wing commentators for nationalisation per se and they want the banks re-privatised at the earliest practicable moment. Of course, we have already nationalised a bank and it is not clear why this course of action was chosen for Anglo-Irish but not for others.

In my view, banks are the very last sector of the economy which should be nationalised because the opportunities for political interference (i.e. corruption) would be manifold and exceedingly difficult to control.

Nonetheless, I agree with those calling for nationalisation because I see it as the only way to ensure the taxpayer does not overpay for the assets which NAMA will acquire. Ahearne argues that "the taxpayer is protected from unforeseen losses through the Government’s commitment to levy the banks for any losses incurred." That depends on your view of the Government's handling of the ICI debacle. AIB and the Department of Finance like to say that rescue cost the taxpayer nothing. In reality, the 2% insurance levy was a charge on the general consumer, not on the financial institutions who were adept at passing on costs to their customers (with the result that our insurance costs became a serious impediment to our economy).

Ahearne also argues that that taxpayer would see some upside from the option to acquire 25% of ordinary which is attached to the re-capitalisation programme. This would be a very modest return for a huge investment in defunct businesses.

The sharp division of views between Ahearne and his colleagues raises questions about economists are a profession.

Is there a scientific basis on which this crucial issue can be decided? What relevant cases which could be studied? Are there agreed criteria to judge success or failure in this cases? There is much talk of the Swedish model but they did not completely nationalise their banking system. If not, are economists akin to sociologists - a large pool of expertise where experimental evidence is never conclusive because the variables are too complex? This crisis must be an opportunity for he "new economics" which challenge orthodox views. If traditional economics is not capable of offering a coherent response, it will have failed to meet a crucial test.

There is a related problem: where were the economists when we needed them? Why were they apparently silent when the banks lost the run of themselves? There were some honorable exceptions but they were so few and so subsidiary that it can fairly be said that the profession as a whole was culpable of non-feasance if not of malfeasance.

There were egregious examples of economists employed by banks and estate agents who were utterly devoid of objectivity and used the media to advance their employers' agenda under the guise of academic expertise. Beyond those sinners were the bulk of academic economists who may have cautioned against the housing bubble but made no concerted effort to expose the false basis of our credit boom. Alan Ahearne fell into this category and co-wrote a paper which claimed that the house price increases were due to changes in contraception laws but predicted that democgraphics would continue to underpin house price growth.

Journalism and the public service also have questions to answer. Were they sufficiently detached from our political masters? Some journalists have done outstanding work in documenting the crash and Simon Carswell wrote a book exposing the nefarious carry-on in our banks. His article today on NAMA is another example of his ability to see the shape of things to come, at least in the coming weeks.

I think it would be a serious misjudgement to give Peter Bacon a leading role in NAMA. His expertise as an economic consultant is not enough to prevent a serious conflict of interest given his history with Ballymore.

Similar issues arise in a global context and Yves Smith offers some sharp answers which I think also apply here. Her critique of Alan Greenspan and the Fed is riveting.
John Hurley gave the Oireachtas an extrordinary account of his stewardship of the Central Bank but it was left to politicians to criticise him. This goes to the core of our financial crisis yet the economists seem to shy away.

Thursday, April 23, 2009

Public Expenditure 2009

There has been little fanfare for the Government's Estimates of Public Expenditure which were published today. They are called "Revised Estimates" because in a normal year preliminary estimates are published in advance of the Budget showing how the Government intends to spend the money it will raise in the coming year. Revised Estimates are then published in February with refinements showing the final allocations to each Vote.

The revised Estimates published today are really the first opportunity to see what the supplementary Budget means for government spending. The headline figures show an 6% increase in current expenditure from €53.4Bn. to €56.6Bn. with an 19% decrease in capital expenditure, from €9.0Bn. to €7.3Bn..

Sadly, this was the pattern in the 1980s: cuts in current expenditure were resisted fiercely but capital expenditure i.e. investment in the future was slashed to the bone.

Guess what: our children can't vote (yet). For example, capital spending on Sport and Culture is cut by over 50% (so forget that swimming pool or youth centre) but current expenditure in this area is cut by just 6% so all the arts and sports organisers will continue to get paid.

This means the €20.35Bn. that the Exchequer is borrowing this year is largely for current spending. Indeed, can anyone say how much of the €7.3Bn allocated to capital expenditure will provide additional infrastructure future generations can enjoy while they are paying off the enormous debts which they will inherit from this era?

The cuts are anything but even-handed. Indeed, there are large increases are in the area of social welfare: the combined expenditure for Social and Family Affairs and the Social Insurance fund will increase from € 17.7Bn. to € 21.3Bn. - an increase of 20%. I think this can be explained in one word: unemployment.

Despite all the talk of cutbacks, the HSE will get an increase of 1.7% in their gross budget which will total €14.6Bn. . The total spend in the health area remains fairly static at € 16Bn. but the Office of the Minister for Children and Youth Affairs is slashed by 38%.

Table 6 of the Revise Estimates is particularly striking: it classifies current expenditure by function. Out of a total spend of €56.6Bn. , social expenditure (education, health, social welfare and housing) accounts for €46Bn. . Remember when the government was saying they would protect the needy from the cuts? Nonsense.

A much discussed figure is that for public service pay and pensions. According to Table 4, this total will be €17.8Bn.this year. A technical point is that a new item entitled "Receipts from Pension-related Deduction on Public Service Remuneration" is included under Appropriations in Aid for each Vote. This means that the savings on pay are balanced by an "income" which reduces the net total Vote.

Table 5 shows the numbers of staff that underlie that pay bill. Out of 370,000 staff (including pensioners), Health and Education account for 256,000. Add in 48,000 for Gardai and Defence, that leaves about 68,000 spread across some 36 Departments and Offices, most of which have less than 500 staff. Again, the scope for cuts is extremely limited if areas like health, education or security are regarded as sacrosanct.

Monday, April 13, 2009

Fathers and Sons

Deaglan de Breadun is blogging about the politics of fatherhood, reflecting on the Gate's production of All My Sons, the Arthur Miller classic about a family with a dark secret.

It is difficult to write about the "politics of fatherhood" without referring to the many tens of thousands of "biological" fathers in Ireland who play no role in their children's lives.

According to the last census, there wer almost 190,000 lone parent families, of which nearly 86 per cent were headed by females. The number of families headed lone mothers where all of the children were under 15 has increased by an astonishing 57.6% between 2002 and 2006.

It is not clear what percentage of Irish children are being raised without a father but it is certainly a large percentage and growing rapidly.

Does our system penalise those families with a father figure? It provides a cash incentive - however inadequate - to single parent families which would be lost if the parent begins to cohabit. What incentive is there for the father to fulfill his role?

For earlier generations, the father was the breadwinner and the "head of household".
Their sons especially had to come to terms with a father figure who had to reconcile the needs of his family with the pressures of the outside world. This is never easy but it provides a profound life lesson which children will not learn if they have no father figure and their sustenance, however meagre, derives from State provision instead of personal endeavour. Young men, in particular, must learn this lesson if they are to become fathers.

On a related point, how many childen of property developers will grow up with a sense that their father sabotaged this country, as surely as if they had supplied defective parts to an army fighting to defend us? In years to come, someone will adapt "All My Sons" to a post-Celtic Tiger Ireland in which the father's property speculation is the family's dark secret.

Saturday, April 4, 2009

It appears that the "bad bank" plan will be announced alongside the supplementary budget on Tuesday. This is likely to cost the taxpayer far more than the adjustments which will be announced in the Budget yet public attention has not focused on the consequences of a "bad bank"

The key to the"bad bank" plan is the relationship between the price the Government pays and the long-term value of the assets it receives in return. If the Government overpays, the taxpayer will be burdened with the failures which should properly rest with the bank shareholders and management.

If the Irish financial institutions transfer to the State nothing more than the real estate against which bad debts have been secured, the burden on the taxpayer will be enormous because
(a) the Government would pay a price sufficient to avoid nationalisation, but
(b) if we are to develop a sound economy, real estate must never again achieve valuations approaching those of recent years.

In Ireland, real estate lending normally involves personal recourse and the “bad bank” should have subrogated claims against the borrowers. Unfortunately, this will require (a) the political will to pursue speculators and developers and (b) effective means to extract money which, no doubt, they have already put beyond the reach of Irish courts.

Thursday, April 2, 2009

Budget Irony

I don't think anyone has remarked on the irony that we are back with an April budget. It was only in 2001 that we shifted the fiscal year to coincide with the calendar year - one of Charlie McCreevy's reforms. We abandoned most of these budget reforms to get the October budget (when John Bruton finally lost the title of Worst Budget!)

The Department of Finance today published a series of pre-budget documents which answer some of the questions the Opposition have been asking.

There are two tables showing pre-budget estimates of expenditure, one gross and one net. The gross figures include expenditure from the National Training Fund (Training Levy) and from the Social Insurance Fund (PRSI). Expenditure on Central Fund services is not included, regrettably, because this would show debt servicing costs.

There is a document called "Pre-Budget Outlook Aggregate Figures" which gives the broad parameters of the budget.
The deficit is projected at -12.75% of GDP before the supplementary budget. An appendix to that document shows Government expenditure broken down by Department (Vote). There is a marked increase in Social and Family Affairs: almost €4Bn. in current expenditure.

The only other hefty increase on the current side is for Agriculture which get €135M Increases on the capital side include Energy, Comm, NR where there is an extra €52M (interconnector?) and in Education, particularly on capital (school buildings?), Almost everywhere else is being cut, especially on the capital side, where borrowing could be justified as investment but the vested interests are less vocal . Capital expenditure is down 12.6% over last year but current expenditure is up 7.5%

A note for the media says the rest of the information will only be available on Budget Day including the Revised Estimates i.e. the figures for expenditure after the Budget measures

Bad Bank - Bad idea

The idea of a "bad bank" to solve the Irish banking crisis is one of the biggest mistakes the Government has made.

This idea makes some sense where banks have complex assets (CDOs etc.) which the market cannot value at present. The Irish banks have a rather simple problem: they lent absurd sums to developers for real estate which is plummeting in value. The loans are secured on property which is not worth a fraction of the loans and the developers are removing their other assets outside the reach of the banks.

If the "bad bank" were to pay the banks a realistic rate for these bad loans, the banks would be left insolvent. So the State will pay well over the odds for these "assets" but there is a bigger issue. I can think of no better guarantee that the developers will not repay these loans than the transfer of these liabilities to to State agency.

One suggestion: call in the Criminal Assets Bureau for those who default on the loans.

We learn from Simon Carswell in the Irish Times today that Allied Irish Banks and Bank of Ireland have submitted preliminary responses to the Government’s "bad bank" proposals. naturally, both banks "are understood to have accepted" this idea. Well, of course! They'll be popping the champagne corks in Bank Centre when this deal goes through.

The two banks have loans worth almost €35 billion which would be transferred to the "bad bank" and altogether there are some €56 billion in such loans across the six state-guaranteed institutions (ultimately, it's all about that guarantee)

It will all be revealed on maxi-budget Day.

RedC have a peculiar methodology for dealing with "don't knows" which may account for the recent rise in the FF ratings. Those who tell RedC that they don't know who they will vote for (or who refuse to say), RedC will count 50% of them as voting for the party they supported in the last election.

My guess is that the number of "don't knows" has grown substantially in recent weeks (I'm one ). Many FF voters who turned away from the party late last year and early this year are now having second thoughts, particularly about Labour which is identified strongly with public sector workers and seems unwilling to face the need for cuts in public expenditure.

If I'm right, many disaffected FF voters who gave Labour such a boost recently (never vote for a Blueshirt!) are getting cold feet but don't want to reverse themselves so they are now telling RedC that they are "Don't Knows".
RedC is crediting half of them to FF.

In all the commentary on the RedC poll, this point seems to have been completely missed even though it would neatly explain the only salient message in that poll: a 5 point shift back from Labour to FF.

Whether RedC's methodology is valid will be tested in June. My instinct is that this methodology is reasonable where voting patterns are fairly static i.e. assume that party loyalty will re-emerge at an election. Where the nation is facing unprecedented political turmoil, the methodology probably understates the scale of the seismic shifts.

The RedC methodology would address an anti-FF bias i.e. people would actually vote FF but not admit it to pollsters (Sinn Fein had a similar pattern in the North). It was not unreasonable to attribute to FF 50% of the "don't knows" who had voted FF last time out.

Bertie changed that anti-FF factor - his key insight was that FF could never get an overall majority and Haughey had destroyed himself trying to achieve it (now we know why!). RedC were not misleading us in 2002 and 2007 because many "don't knows" went for FF in the final days of the campaign.

All this has changed in recent months. If the current anger is sustained, I think a lot of those who voted FF in 2007 will vote for anyone but FF next time out (i.e. in June). Allocating "don't knows" is a tricky business but it should be done transparently. I would back MRBI over RedC.

Tuesday, March 31, 2009

Greenspan's critics were bound to see his comments as self-serving and they will pin the blame on him for the current financial crisis. If he doesn't accept personal responsibility, how does he explain the crisis. His critics don't address my concern: why do market forces fail to curb excesses in the financial intermediation?

Friday, March 27, 2009

A Wizard of Oz?

Alan Greenspan, whose public esteem has suffered the most dramatic reversal of anyone in recent history (Dubya not excluded), has a reflective but unapologetic commentary in today's Financial Times (27 March 2009)

He is an unrepentant free-marketeer but he cannot explain the recent collapse. He says the market is good at calculating risk but it has failed to foresee the current crisis. He calls for better regulation of the financial intermediaries but he warns against over-regulation at a time when the goal must be to get credit flowing, so take your pick.

I think the problem for Greespan and other free-marketeers is that they think of financial services as being part of the service industry, like restaurants or dry-cleaners, i.e. they offer an economically useful service and the economy will tend to benefit from an expansion of the financial services.

Greenspan is forced to accept now that some regulation is required (he was a very reluctant bailiff at the Fed), but he thinks the problems are on the margins i.e. that free market forces will normally keep banks etc. from behaving irresponsibly.

I think that the system of credit is inherently volatile and, left to their own devices, banks etc. will always tend to behave irresponsibly. This tendency was exacerbated in recent years by factors such as (a) distorted incentive systems, (b) US trade imbalance creating vast pools of dollars abroad (c) almost zero returns on T-bills leaving investment funds seeking any home that offered a decent return, (d) unregulated hedge funds, (e) .

These and other factors increased the opportunities for bad debts developing to catastrophic levels but, absent all exacerbating factors, a credit crisis would still develop over time. Those who are trying to restore the system of credit should realise that it is not just a matter of clearing out bad debts (and bad management), there needs to be a fundamental change which would restore our faith in the financial system.

Greenspan's spiritual home, the Ayn Rand Center, is blaming it all on government and especially on the Fed!


After six months of posting to various chatboards about the Irish economy and the state of the nation, I want to bring these thoughts together in a single space and to give more depth and variety to these ideas.

I began blogging to alert people to the gravity of the economic crisis we face. Until this week i.e. the end of March 2009, it was clear that the Government did not have the full measure of the crisis. Most obviously, they were underestimating the calamity that has befallen the public finances. They also failed to grasp the nettle which is Irish banking.

More broadly, the Government have been unable to provide leadership which would give Irish people a sense of direction and hope. Fianna Fail is hopelessly compromised by its links with the construction and property boom which have exacerbated the damage that the global crisis was bound to inflict. There is an even more fundamental difficulty for the Government: FF and the Greens have no shared philosophy which is to say that FF have no philosophy other than hanging onto power and the Greens abandoned theirs as soon as it came into contact with reality.

I hate the notion of economic determinism but the economic crisis will drive politics for the foreseeable future and Irish society will be shaped for generations by the cataclysm which is now unfolding.

So this site is my answer to the age-old question: whither Ireland? It will look for answers outside this island and it will try to offer ideas to build a future where money and credit are not the dominant forces in our lives.