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:
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. read the rest of this post »
...would have been far preferable to taking the risk that the financial system would unravel entirely.
The Bush administration, sticking to its ideologue's guns, gets it dangerously wrong again.
Update: Ah: they were just saving up. Don't underestimate how catastrophic AIG's collapse would have been: not only do they insure most of the US's loans but they also have own most of America's commercial aircraft and have their fingers in many many pies. I think the state had to essentially nationalise the company not just in order to shore up the whole American (and global) economy but to shore up the financialised market system itself. Though it is worth pointing out that, approve of it or not, this sort of action puts to bed any talk of an adjustment: state intervention happens, as any student of regulation will say, when markets fail.
If ever people need an incentive to upgrade to firefox (3?) or to Internet Explorer 7, it's the British Banking Code. As LSN news points out (behind LexisNexis's paywall), section 12.11 of the code (here, pdf) tells you, regarding online banking. that "If you act without reasonable care, and this causes losses, you may be responsible for them. (This may apply, for example, if you do not follow section 12.5 or 12.9 or you do not keep to your account’s terms and conditions.)" Amongst other things, section 12.9 says "Keep your PC secure. Use up-to-date anti-virus and spyware software and a personal firewall" and "Treat e-mails you receive from senders claiming to be from your bank or building society with caution."
Apparently this policy has been in the code for a while, although it was updated in April just gone. While no bank seems to have invoked the clauses, you can pretty much bet that they will at some stage. Which will be bad news for the elderly and the ignorant when they discover that, having been pushed out of branches to save the banks money, they are also responsible for the security of the banks' alternative offerings.
While I of course recommend ditching dodgy Windows for altogether better operating systems, and while I find it perplexing that I still get hits from people using IE6 and IE5, I do think we ought to be sympathetic with people who simply don't know how the software on their machines works and who don't read the latest missives on internet security. If fraud does become sufficiently problematic as to make banks consider invoking the responsibility clause, there's an easy solution: publicly acknowledge that the internet, Windows-style, is not an appropriate venue for financial transactions and take steps to encourage people back into branches. In other words: the banks should just swallow whatever is the cheaper alternative.
The San Francisco Chronicle has a depressing piece on the proposed solution to the sub-prime crisis. It makes a gloomy companion piece to this article from the FT in August, outlining the various frauds (criminal and not) surrounding this shoddy saga.
Unlike the Enron debacle, if this one shakes out into a full-blown crisis (as it well might), there'll be no getting away from systematic failures of surveillance, governance and the like. Or to mix a couple of metaphors, when there are more bad apples than good, you start thinking that something's wrong with the basket (hat tip to Meditations71 for passing on the SF Chronicle article).
There's an interesting converstation developing over on politics.ie about the exposure of Credit Unions in Ireland to risk in the midst of the ongoing credit crunch.
I'm developing a small interest in corporate governance questions surrounding Irish Credit Unions, but I really don't know enough to verify anything that's being said in the politics.ie thread. Still, I'm not entirely a pessimist.
At a guess you'd probably be initially inclined to think that credit unions would not be as sophisticated as banks at filtering for risk. I imagine that that thought has probably gone the same way as America's subprime market (which is to say, while risk assessments in credit unions may or may not be particularly great, they are certainly not great in a number of banks, though perhaps for different reasons).
Second, I'd guess that CUs tend to have larger numbers of people from lower-income groups on their books, and are therefore slightly more exposed to risk than retail banks. If so, that may not look like good news. But there's risk and there's risk
The Irish banking sector is sure to be exposed to subprime in the same way that Northern Rock was: some of them are heavily dependent on the wholesale credit market (as opposed to funding mortgages from their own customers' deposits). And lord knows what may happen when repossessions increase in line with interest rates and property price declines.
In this context, given that CUs are more narrowly focused on a (hopefully) more robust version of the subprime market (as in, they haven't been playing the risk fire-sale game) and given that they lack other forms of exposure, they may ironically be in a more secure position than the commercial banks. Not that that would stop a run on the community banks...
Update: As we're beginning to discover, nobody involved in the credit markets will get away scot free.
Good post over on Brad deLong's blog that gives a parallel perspective to the one I gave here.
According to the people deLong quotes, we have to see the subprime crisis in the context of new modes of banking, rather than in the more traditional terms of banking that have held up until now. read the rest of this post »
I've spoken before about the evidence on how SUV drivers, having exported the risks to people outside their cars, tend to drive more recklessly. Not that this makes SUV drivers a particularly unique demographic: for instance this graph suggests that, if anything, the introduction of mandatory seatbelt-wearing led to a worse situation than would otherwise have been the case in terms of overall deaths: the reduction in driver deaths was more than matched by a the growth in pedestrian and other deaths. As the study from which the graph was taken says, "to compel a person to use protection from the consequences of hazardous driving, as seatbelt laws do, is to encourage hazardous driving."1
So. What has this got to do with the ongoing subprime crisis? Well, they're both stories about risk. read the rest of this post »
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