Irish economy

The Dig Out

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:

 

Spreading Risk or Cashing In?

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>

Credit Unions and Northern Rock

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.

celtic twilight zone

I have to say I was more confused at the end of David McWilliams's Generation Game on RTE last night than at the beginning of it. McWilliams is an Irish economist who amongst other things was the first to predict the advent of the Celtic Tiger and is now heralding its demise.

The crux of his argument was that the Irish diaspora are key to turning the situation in Ireland around. A second generation Irish American family in New York is shown as an example of Irish culture flourishing far away from home. Direct descendants of 1890s emigrants to Argentina speak of their affinity to Ireland and their desire to return to the homeland.

Key to the Argentinians' situation is the fact that they have been denied Irish passports and are thus unable to spend long in Ireland. Conversely, it is shown that other nationalities with less of a traditional affinity with Ireland, such as the Lithuanians, have been not only allowed to live in Ireland permanently but are also careful to maintain their own individual culture within Ireland. McWilliams is not averse to this; indeed he uses the Lithuanian example as an example of how the Irish fared and prospered when they initially left for places like New York or Liverpool. Wayne Rooney's grandmother is also featured, explaining the strong links today between Liverpool and Ireland.

So, Irishness and an increased sense of what is means to be Irish has been beneficial and will be beneficial in the future. This mentality has served us well in the past. Indeed, the continued success of such Irish exports as Riverdance proves the marketability of the Irish product. Another Irish product such as Guinness is making huge inroads into heretofore unlikely target markets such as Nigeria.

Product is the key to the resurgence of the Irish marketplace and McWilliams suggests that the most successful business ideas going forward will be products built on concepts; virtual rather than real.

The issue becomes clouded when the question of who ultimately buys and sells this product is raised. Argentina, The US and Britain hold so many millions of the Irish diaspora and can be relied on to be supportive of their roots. However, the one country with no historic links to Ireland, no emotional interest in the success or failure of the Irish economy is also mentioned as key, China. Irish companies are increasingly seeing the benefit of hiring young Chinese migrants who have beome knowledgeable about Irish culture and taste and are keen to forge business links between Ireland and China.

Young professionals in China may have a strong affinity with Ireland. However, they may simply be trying to make the best sale. Does this not suggest that, increasingly, profit could be predicated more on innovation than culture? Equally, should the culture of a host country assume a huge importance to newcomers whose main concern is building a better financial future for themselves? If they do not wish to embrace the culture of the host country instead of their own, surely they are still contributing to the growth of the country in their own way. In short, is culture all that important when it comes to creating and selling ideas in the information age?

Perhaps the Argentinians should be given passports regardless.

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