Draw Breath

I’ve just read on the excellent Stephen Kinsella’s blog that he and others have set up Irish Recovery.ie, which is “a portal for people with specific ideas that will improve people’s lives and aid the process of recovery in the irish economy.” Good stuff I say.

One thing, however. The site welcomes “specific well-argued projects that are properly costed, based on good practice and have definable and measurable outcomes are the solution to many structural weaknesses in the Irish Economy.” I don’t think anyone can argue with the general point here: make sense and be realistic. So this is not the forum for “national strike…world revolution” style arguments.

Still, I wonder how the ‘properly’ in properly costed is to work itself out. Would Stephen think, for instance, that the Bank of England’s quantitative easing experiment is properly costed? How? Over what timescale? Assuming what outcomes? I’m not sniping here: without at all denying the serious intentions here, some guidance as to what it is to ‘properly’ cost structural reforms to an economy would be welcome. Indeed, once we get beyond Dragon’s Den level ideas,  I’m not convinced that structural reforms/adjustments/what have you have ever been properly costed anywhere. They’ve been tried and then people have been either hailed as heroes, villains, or both.

On a macro note, I don’t think that the Irish actually have an important role to play in determining how their economy is to be shaped over the next decade or more. The two of the three Irish national business models have depended entirely on the structures of global capitalism for two decades. We have exploited our location in Europe to act as a magnet for American FDI and we have maintained, at best, a quasi-offshore status to facilitate the movement of global financial capital through the IFSC etc  (the third involves the exporting of Irish national resources in the form of food production and tourism).

As such, Irish prosperity relies to some extent on the decisions that Barack Obama makes about the functioning of American global and domestic capitalism. To an even greater extent, the global financial crisis provides a major opportunity for the Europeanisation of corporate governance and capitalism – an opportunity for harmonisation of standards that the McCreevy’s DG in the European Commission is grasping. Have a look at the De Larosière Report for a sense of where things might move on some issues. The Commission also has an interest in the audit, tranparency and a rake of other issues. I touch on this in my chapter for O’Neill’s and Keane’s Corporate Governance: An Irish Perspective.

Anyway, all that’s for drawing out in another post. The main point is that the Irish just have to ride the storm and then choose whether they want to compete in whatever climate the find on the other side. Sad but true.

Am I dreaming or something: without at all denying that Ireland has a pensions crisis (with about 1/3 to be added to the pensions bill in the next 25 years, as opposed to the UK’s ±10%), why is it that the financial meltdown has focused people’s attention on public sector pensions? More particularly, people are absolutely right that it is unfair that workers in the public sector have good pensions while those in the private sector have ones where the individual takes on all the risk associated with posting their savings in the casino door in the hope that, when they retire, the markets will be on a good run. It is very unfair.

But since when is it a good solution to insist that, if I have a shit pension and you have a good one, we should both have shit pensions?

Surely people would be better served to ask why it is that a return to a decent state pension, paid for out of taxes, is not an option. Why are they forced to bet their savings on the markets? And added to that, why are the people who manage those savings doing such a bad job?

I rather like this comment at the end of Matthew Engels’s article on Ireland in Friday’s FT:

Has Ireland been more corrupt than anywhere else? “I think we’re a bit more obvious and less practised.”

Indeed.

h/t Crooked Timber.

My mood about Ireland is not good today. I more or less have the same feeling about the place as I did, just before I high-tailed it to England, when Dublin Bus added 20% to the length of my route home and then charged me 20% more for the privilege of being cooped up for longer in their sodding fume wagons.

So, here’s my gripe:

1. We market tourism on ‘Ireland of the welcomes’ and then gouge tourists for every penny/cent they have in return for warm chips and cafetieres filled with instant coffee.
2. We take money from the EU but, once we become net contributors, we tell them to piss right off.
3. We re-elect a venal government that talked down to us about supply and demand when their mates were gouging us but has switched to lecturing us about our patriotic duties now that we’ve been high-tailing it to shop in foreign parts (you know, Newry).
4. And now, oh now, having marketed Irish farm produce as somehow more natural than that from your average swamp, we reveal that we’ve been adding industrial oil to the livestock’s swill. Which really undermines the brochure.

The Irish. Sometimes we lack a touch of class.

I’m not sure I agree with all that he has to say, but Michael Taft’s outline of an alternative to the government’s lunacy is certainly worth a read, if only to highlight that there are alternatives to the government’s lunacy.

I don’t have time to go through it at all today, but I suppose the one criticism I would have is that I’m not sure whether this would provide Ireland with the dig-out it needs. Specifically, while it may help alleviate the repercussions of the countries property orgy, Ireland alone can never attend to the major problem: the death of the wholesale banking market (and death it seems to be) will require either banks entirely reshaping their business models along the much more restricted Captain Mannering model, which will take a massive adjustment in the global economy or it will require states coming together to underpin the wholesale markets themselves.

Of course, the Irish government prefers free-riding to international cooperation so they will most likely not even be involved in any international action. And meanwhile, Irish banks are still likely to go to their predictable hell in an only partly self-made handbasket.

I think the think or swim blog has got Phelim McAleer and Ann McElhinney down just right. So how depressing to see Harry McGee (who, or whose editor, ought to know better) giving them a puff piece in today’s Irish Times. Now, I’m not going to weigh in on ‘inaccuracies in An Inconvenient Truth’ = ‘climate change is a sham’ claims or on the idea that there’s a scientific debate over anthropogenic climate change. The climate change debate is over: there is no reasonable disagreement remaining even if we have to listen to bullshit generated by special interests and their ideological shills.
But what really makes my blood boil is that McGee lets them get away with the old canard about DDT. It seems McElhinney and McAleer’s film begins by covering “the widespread ban on the use of the anti-malaria pesticide DDT.” McGee tells us that “the ban was highly controversial because there was evidence that its absence actually increased the incidence of malaria in poor countries.”
But there is no ban on DDT use against malaria. McGee would have known this if he had even searched Wikipedia.

The last ten years has seen the rise of a wonder wingnut distraction over DDT: that environmentalists had it banned and that this led to lots of malaria deaths. It just isn’t true. The Stockholm Convention on Persistent Organic Pollutants did ban DDT for agricultural use but it continues to be used in some places against malaria. Thing is though, DDT is less effective than it used to be. Why? Because those pesky environmentalists were right: overuse breeds resistance. Also, it’s logistically very difficult to use properly in the areas where malaria is rife. But let’s be clear: this is not a matter of interpretation or nuance: there is no ban on anti-malarial use of DDT.
So why is DDT included in the denialist distraction arsenal? John Quiggin suggest one startling reason (also here). One Earth points to another in an interesting overview piece.
Denialist arguments are often like postmodern zombies: no amount of evidence will stop them coming back. The DDT story is worse: it started off not true and stayed that way. How sad to see the Irish newspaper of record and a generally intelligent and interesting journalist allowing this sort of manure into print.

My guess is that this is the start of the next wave in Ireland’s recession. While our woes are partly down to American sub-prime and the new style of global crisis, we also have the classic bust to come. Make no mistake: the demise of construction firms hurts banks.

So a (promise of a) big dig out came, and our neighbours are not happy. I’ve no idea whether it will work, but this report from Channel 4 highlights the trouble we’re in. Listen for Mary Coughlan hinting that this had to happen to prevent an imminent catastrophe. And Howard Davies, director of the LSE tells us (about 5 minutes in) that the move was a sign of a complete lack of confidence in the Irish banks. Very scary:

Was it just me who was turned off by the following sentence about developer Donal Caulfield in Frank McDonald and Kathy Sheridan’s obituary for the Irish housing market:

He has tried to spread his risk, with developments in Poland, the Canaries, London, Madrid and Ibiza.

Spreading risk by buying up property in a series of bubble housing markets? You spread risk by diversifying a portfolio, not by tyring to cash in on every property bubble going. Language appropriate to describe investment ought not to be used to dignify speculation.

Anyway, I know I’ve said that a dig out for banks is inevitable – or at least I think it is – because Irish banks, and everyone on this island as a consequence, will be in a whole load of bother as banking losses mount, but lets hope that the dig out doesn’t either shore up developers or speculative property owners. There is more than one group interested in the politics of housing and, as this guy points out also in yesterday’s Irish Times, there’s no reason for privileging the interests of owners over aspiring owners (or indeed over taxpayers).

</rant>

Cross-posted from the Irish Left Review, perhaps to be read in the light of this not entirely surprising news from P. O’Neill on Irish Election.

"If you owe us £1,000, it’s your problem; if you owe us £1 million, it’s our problem" was how Justice Moriarty described the AIB’s attitude towards lending when he was chairing the tribunal investigating Charlie Haughey’s adventures with AIB.

How right he was. While we read the good news about the American government’s using vast amounts of Chinese money to rescue the global capitalist system from total collapse, we shouldn’t think that takes us all out of the path of disaster.

The Irish are bound to go the same way in 2009 that Spain is going at the moment. Like us, the Spanish have been enjoying an enormous property boom for the last few years. And, as in Ireland, it has just come stuttering to a halt, prompting a massive rescue from the Spanish government as the sector struggles "with high debt, plunging prices and an overhang of unsold houses and flats."

This is where Ireland is headed, but we’re probably going to experience something much worse.

As I pointed out in a comment thread in April 2007 on Slugger (itself following a post from here), construction constituted 23% of the Irish economy at the height of the boom. That was twice the EU average (which was 12%). So property going belly-up is very bad news indeed for us. While we talked up the role of investment and industry in the Celtic Tiger, we forgot that a whole lot of what looked like wealth was actually us sticking increasing amounts of our money into private debt. And if we have £1000 problems, it’s also given the banks £1m-style concerns (for a serious of discussions, see UCD’s Morgan Kelly). 30% of their loans are to property developers who now find that they can’t sell houses.

Ireland’s property development business model has proven very dangerous for the banks. They’ve been caught short in two directions. First, they lent to the developer who was essentially selling off the plans (or as good as), in the certainty of a quick return. Second, they’ve been busily lending increasing amounts to mortgage payers in the knowledge that they could repackage the risks from those high-stakes several-multiples-of-income 100% mortgages and sell it on the credit default swaps (CDS) markets. But these have all gone down the hole. Banks can’t lend on wholesale markets so they can’t borrow to feed the mortgage frenzy. And they can’t offset their risky bets. AND the property developers have no customers so can’t repay their loans. AND the risky mortgage-payers are going to default.

On property developers, with the country strewn with half-finished developments, the banks have a series of unpalatable choices. They can shut indebted developers down and repossess more or less worthless (for now) unfinished properties. Or they can continue to send good money after bad to developers who have no revenue. Neither option is good for the banks but they seem to be letting the small boys go to the wall and are propping the big boys up. The question is: how long can that keep going?

On mortgage debt, the real hike in Irish unemployment is yet to hit. And also, we haven’t yet seen the shakedown from all those people who borrowed to the max when interest rates are low – unless their mortgages are fixed they’re at risk of losing their homes (even if they don’t lose their jobs). In other words, the banks are looking at inheriting a whole load of property that they can’t sell as their debtors go bust.

This was all predicated on a global trend towards treating debt as if it was money. The Irish problem is that we’ve just done it more than most both domestically through the property market and globally through hosting businesses in the IFSC. So our trouble is a hybrid of what we’re seeing from London and what’s going on in Spain. We’re in the worst of both worlds.

No wonder everyone is on the blower to Leinster House. The governmental failures have all happened already and the only option left is a huge dig out. That will be no easy thing, especially as Irish company and income tax revenues plummet in 2009. But it will be the best possible solution in the current circumstances.