Martha Jemimah Rafferty O'Rourke

This lady was one of my great-grandmothers. I am told by my cousin Judith that the hairstyle, clothing and accoutrements suggest that the photograph was taken in about 1905.

She seems to have been born in 1856. She claimed to have been born in Dublin, but I doubt it. Official registration of births began only in 1866. Nearly every child was baptised, though, and fairly full baptism records survive for 19th century Dublin. She is absent from those, as is her older sister, Mary Anne Josephine.

On her marriage certificate in August 1877, she is described merely as "full age".

This was not unusual. It means that she was 21 or older, and implies that she was born before August 1856.

On April 1 1901, she signed the household census forms declaring that she was born in Dublin and was aged 44, which is consistent with her marriage certificate, and implies a date of birth between April and July 1856. (Ten years later, at the 1911 Census, she declared that she was 52 ! This understatement of age was not uncommon, especially among females.)

Her father was James Rafferty. On the marriage certificate, his occupation is given as "commercial clerk", the same as that of the groom. This suggests that he may also, like the groom, have been an accountant. I have so far been unable to find anything whatsoever about him. The surname originates in Louth/South Armagh, but there were a few in Dublin by 1850.

Her mother was also Martha (I have no clue yet as to her mother's maiden name; she is of course also an ancestor, so I want to know it.) Martha (senior) seems to have lived (per Thom's Directory) at 34 Richmond Place (North) Dublin for a few years until 1877. In 1876, one F P O'Rourke became a lodger. There had been a previous lodger by the name of Tobin. (Most households in that era had lodgers). Was Martha junior still living there then ? I have no evidence confirming it, but one would have to suspect so.

Richmond Place is an address which no longer exists in the location. It is that part of North Circular Road from St Margaret's Avenue to Summerhill, just before it becomes Portland Row.

We can only speculate why FPO'R, then only 24, took lodgings on the north-eastern side of the city when his parents and sisters were living in Harolds Cross, on the south-western side, but several likely explanations are obvious.

Anyway, Mary Anne Rafferty married Horace W. Snow in January 1876 at Dublin's (RC) Pro-Cathedral. Snow was a Londoner, and I think that the poor man got a "3-fer": not just Mary Anne, but, possibly after an interval of about a year, her mother and sister, went back to London with him.

How Snow got involved with Ms Rafferty is an interesting question, but to answer it, I have as yet no clue. Did FPO'R & HWS meet first, perhaps as accountancy trainees in London ? Or perhaps Snow, like FPO'R, was involved in political activities. Maybe one or both Rafferty sisters were employed at the Palace of Westminster.

In any event, from some time in 1876 (per Thom's Directory) FPOR seems to have used Richmond Place as a combined home & office, and in August 1877 re-installed Martha Jemimah, having married her in London (St Mary's Chapel, Pancras), with Horace Snow as his best man. As you can see, the marriage certificate says that the bride was living at 17 Lady Margaret Road, Kentish Town, which is in the same general area as all of the addresses that the Snows had in the 1880s and 1890s. (Unfortunately, the information on addresses was not available in 1877).

Her first two children, Anne and Horace, were born at Richmond Place. Frank, Alphonsus and Aubrey were born at St Mary's Villas, Drumcondra Road. Catherine and Eileen were born at 34 43 Lower Drumcondra Road. I haven't yet established whether the latter two addresses were in fact the same house. [UPDATE: I have so established.} The family later moved to Clontarf.

Then comes the death/disappearance of my great-grandfather. He is reported in "Freemans Journal" as chairing a political meeting in October 1890, and several times earlier that year in similar activities as well. The Parnell Split occurs in the following month. FPOR is never mentioned in the press again until Martha dies, 35 years later - with the exception of a notice in the London Gazette placed by Horace Snow in May 1892. The notice recorded HWS's application to administer the estate on behalf of Martha, with FPO'R stated to have died at New York on 19 January 1892. I cannot verify either date or place of death.

Whatever happened, Martha had to live the rest of her life as a widowed mother of seven.

It must have been very hard, but you couldn't say that the results were unimpressive: two architects, an accountant, and a quantity surveyor is what the boys became. Anne married Coughlan Briscoe, a very interesting character, about whom I hope to educate you in due course. I know less about Patrick Sherlock, whom Eileen married, but the National Gallery received a bequest from him, which is suggestive of substance.

I know nothing of what happened to Catherine, the second-youngest child, except that she died in childhood, and before 1901.

Martha died in March 1927. All but one of her ten grandchildren had been born by then. I will not identify them here, but they included my father and his two brothers, a Briscoe, and women who married into the Barden, Tonge, Moore, Cleary and Royston families.

I think that Martha is the old lady pictured here not long before her death with my father and others.

Prior to her death, Eileen, still single, lived with her (I suspect strongly that she is the young-ish woman - not the girl - beside Martha in the above photograph). She probably got to keep all of her mother's stuff, such as it may have been. In any event, I can trace no application for probate or to administer her estate. There's nothing sinister about that.

Unfortunately, even though she was my father's godmother, Eileen's fate is unknown. She married in 1930, was widowed in 1940, and the last reference to her gives an address in London.

"The Irish Times" obituary for MJRO'R is here.

It is remarkable for its lack of any reference to her origins, or to her surviving sister, Mary Anne Snow.The statements about the circumstances of my great-grandfather's demise are not implausible but neither I nor anyone else has yet been able to verify them.

Update on Friday, May 23, 2014 at 12:49PM by Fergus O'Rourke

Note that the correct address at Lower Drumcondra Road was in fact 43, not 34 - the original transposition of digits was performed in the recording of Catherine's baptism. By means of Thom's Directory, I have now established that number 43 was one of a small group of houses known in the 1880s as St Mary's Villas.

In Praise of Name-calling

The context of this post is discernible from this news-story in "The Journal". Notably, the website has disabled the "comments" feature for this page which is a very, very, unusual occurrence.

No, I cannot think of anything satisfactory to write in praise of name-calling in this situation.

How about you ?

No Blogroll

Unlike (most ?) other bloggers, I do not publish a "Blogroll". Despite this, regular readers and Twitter followers will have a shrewd idea of which blogs I follow, as I am scrupulous about attributing citations and quotations (and I do a lot of both). When Google Reader of blessed memory was still with us, I did link pro-actively to other blogs through pages like this one. I haven't worked out how to do the same with Feedly, and I am not sure that I want to do so (because I now manage this website in a different manner).

Still, it was to my own surprise that, when someone asked me on Twitter recently to nominate some "great bloggers", I found that I wanted to answer the question. I listed the following, pretty much "off the top of my head":

Damien Mulley	Scott Greenfield	Tyler Cowen	Simon McGarr
Rossa McMahon	Steve Sailer	Seamus Coffey	Cormac Lucey
Claire Santry

Those are all "great bloggers", but since I did this, I have (naturally) been somewhat mortified as I recall other great ones, a few of whom indeed would surpass in quality some of those above listed. So, in no particular order, I give you a further list:

Jason O'Mahony	James Altucher	Gerard O'Neill	Ronan Lyons
Seth Godin	Mark Bennett	Arnold Kling	Gerard Cunningham
John Cochrane	Carl Gardner	Dan Hull	Constantin Gurdgiev
Charon Q.C.	Tim Taylor	David Henderson	Stephen Kinsella
Michael Hyatt	Michael Taft	Penelope Trunk

Not all great blogs are individual efforts, mind you. Some examples of great group blogs would be Irish Economy, Come Here To Me and Credit Slips.

Banking Scandalz

Do you know what popped into my head as I read the latest blog-post by Philip Boucher-Hayes ("PBH")?

Of course you do: it was the argument that is always made when the pay and conditions of teachers comes up on talk-radio

They are all underworked and overpaid because I know a teacher who just reads the paper all day/can't control the class/never corrects homework/comes in drunk etc etc

Fire those teachers, I say ! And then discuss what teachers worthy of employment should be paid.

So, up rocks PBH - I am out on a linguistic limb here; it means "PBH comes along", I think - to suggest that all bankers are evil because ... well, he has a list of credible accusations against a number of banks and bankers around the world. He and I had a little back-and-forth about this on Twitter, in which I wondered if any of the stories came to more than a hill of beans. He answered that many actually involved regulators extorting extracting large amounts of money in penalties from banks.

Parenthetically, I often marvel at the respect that court decisions or regulatory actions attract when the results line up with the zeitgeist. Out-of-touch judges and clueless regulators magically, when criticising popular targets and/or imposing penalties upon them, become not just excellent but infallible.

The catalogue of scandalous conduct laid out by PBH is impressive, so much so that in several cases it seems to me that it would merit the loss of banking licences. Why hasn't it ?

I am much too modest to suggest that I know the answer, but it seems to me that there several fairly plausible possibilities.

1. The conduct alleged never took place, or was less serious than alleged
2. It may have indeed taken place, but the proof is unavailable
3. Credible scapegoats were found and dismissed e.g. Bob Diamond of Barclays. (Note that they may or may not have been the true culprits)
4. It may still happen

"Wait", you say. "Are you not forgetting that many banks have already been fined huge amounts ? This proves that the allegations are no mere flights of fancy; they have in fact been proved beyond reasonable doubt, as you lawyers say".

Well, I am not familiar with all the cases involved, but of course it is not my intention to suggest that no bank ever grossly misbehaves. The manipulation of LIBOR, even if the effect on any customer, when there has been any at all, has been exaggerated, was appalling, for example. But I do not accept that all of these allegations have been proven beyond reasonable doubt, or even to the less demanding standard of proof viz. on the balance of probabilities.

Notes on a Vonnegut Review

I recently spent a day in Dresden. The former "Florenz an der Elbe", while still a wonderful city, is a little sad looking these days, reflecting no doubt its dreary recent history as part of the DDR ("East Germany", as we knew it in the West) but also the horrific consequences of that night in February 1945.

By pure happenstance, on the same week that I returned from Dresden, in the incomparable Paris Review, I came upon an interview with Kurt Vonnegut which was hilarious more or less throughout.

You'll need to read it yourself to fully appreciate its humour, but as necessary background it is important to know in relation to Vonnegut that

• As his name suggests, he was ethnically German, and the language was often used in his family home as he was growing up
• he fought Germany as a U.S. soldier in World War II without misgivings
• he was captured during the "Battle of the Bulge" and sent to a P.O.W. camp near Dresden in early 1945
• he participated in the recovery of corpses after the infamous Allied raid
• the experience was an important influence behind probably his most famous book Slaughterhouse Five

Incidentally, I am not sure what to make of Vonnegut's use of a much higher number for deaths than seems to have been the case.

Vot Fraud ?

It's 31 July. You are a managing director. Your company has no cash on hand, but in your confident opinion that is a temporary situation. In October, €5m will definitely come in.

The company owes a lot of money, including

€300k to Revenue for VAT collected. Due today.
€100k to employees for wages. Due today.
€400k to suppliers. €200k overdue (60 days+)
€1.7m to Bank A (current account overdraft)
€40m to Bank B. (€2 m overdue)

So, what do you do ? Why, you pay €300k to the Revenue with a cheque using the last €300k of your overdraft facility from Bank A, of course. What else ? After all, it was never your money.

When your employees come to you for their pay, and hear about your choice of how to use your last €300k, they call you a thief. You took their services for the month, but used the money which could have been paid to them to pay some-one else.

The suppliers of goods to you say the same and try to seize your stocks.

Bank B says: that was our money, never yours. You had the use of it on strict condition that you would repay in accordance with a schedule. You didn't. You are a thief.

How do you answer them ?

Models

(This is not a post about the fashion business. Nor, despite deriving inspiration from discussions of an economic character, is it directed at such discussions exclusively).

We use models all the time. We have no choice: it is the principal way we humans have of putting order on, making sense of, the world of experience. No-one decides to do it, and it is pretty much impossible to decide not to do it. In the current jargon, we are "hard-wired" to be modellers.

Some of the models that we use were designed by others, but when a perfectly suitable one is not to hand, we will design our own. This is very rarely done entirely "from scratch": we usually adapt models we receive from others. (In this latter way, we can all be slaves to the ideas of some long-dead philosopher in Keynes' memorable phrase, especially if we fail to notice).

Models are not always so-called. Another word for the same thing, albeit not usually as formalised, is "narrative", or even less formally as in Tyler Cowen's talk in this TED presentation, which I strongly commend to you, as "stories". "Framing" is a cognate activity. "Paradigm" is yet another word for a model of this type.

Less benign or neutral words are "stereotyping" and "stigmatising", "labelling" - all of these are also consequences of a modelling process.

Whatever name is used, the process is similar. I am going to call it modelling.

The point that I want to make about modelling is that it is both inevitable, and yet inevitably is just as fallible as all human cognitive activity is. Only the simplest models remain useful for long; one that lasts even one normal human life-span is unusual. It is prudent to be sceptical of all models, not in a negative or destructive way (because all models have some useful function for someone at some time) but to avoid falling into error through over-attachment to them.

Why ? Because a model incorporates beliefs about how things are. Many of these beliefs will turn out to be incorrect. (In some formal models, the truth of the beliefs is explicitly a mere assumption.In less formal models, mere assumptions are unfortunately rife, and, worse, unacknowledged. Worse again, this is fairly common even in formal models).

Dangerously, a model may continue to work well for a long period even though it incorporates assumptions which no longer correspond as closely to reality as they may once have done.

Of course, this is a counsel of perfection: no-one can avoid this trap entirely. Even Socrates, who, as far I know, first formulated the radical scepticism which I am advocating, was, after a fashion, killed by his refusal to abandon a fatally flawed model.

So-called "scientific method" is a powerful tool in the service of this Socratic endeavour. It is not fashionable or popular in certain quarters to say so, but science, as we now understand the word, is not primarily a constructive activity: most of the time of scientists is spent discovering flaws in the models, sometimes their own, used to describe reality.

Inequality

The left orthodoxy has it that inequality is bad for societies even in terms of "hard" economics. There is little doubt in my mind that they do have a good point to make, although it is unlikely to be as good as they make it seem.

However, I want to focus on that word "inequality".

I think that it is a more useful one than equality. This is somewhat counter-intuitive: my acculturation predisposes me to to like equality of opportunity, equal treatment and so on.

The problem is that everyone knows that equality is impossible. No-one at all thinks that everyone can be paid exactly the same, or can be made to be exactly the same, or to be at exactly the same level on every plane, or at the same point on every spectrum.

Not only do people value diversity, which is impossible without some forms of inequality, they also recognise that e.g. a 18 year old is not, and can never be, endowed equally with a 58 year old.

Even the most extreme levellers aspire only to reduce the disparities. They speak longingly of having the highest paid person receive 6 times the income of the lowest paid, instead of 1000 times or more.

I would note that even that kind of disparity (6 times) is really very, very far away from equality. Just imagine living next door (for ever) to someone earning, say, €3,000 a week, when you are getting €500 (or vice versa): it is difficult (no, not completely and utterly impossible) to find common ground between people with such different proximities to the bread line.

So, speaking of equality in this area of life (pay) is really a misuse of words. The real target is massive inequality, the reduction thereof. Not as easy on the tongue, but much more satisfying to the intellect.

Charles Kickham on Debt Defaulters

Writing to a friend in 1881, Kickham, Chairman of the Irish Republican Brotherhood (better known as "the Fenians"):

Apropos of the banks - the Irish World wants to abolish credit - no power to recover debts, no interest, no gold or silver currency, merely green-backs issued by the State.

Some may think that this reform may be helped in Ireland by the refusal to pay debts. But people who refuse to pay lawful debts next take what they want. The law that is prevailing in the case of debts will be equally so a case of robbery.

'Tis no joke to appeal to the lower instincts of an enslaved people. That's what these Land agitators have been doing all along.

Disclosure: Kickham was a cousin of one of my great-great-grandfathers.

Residential Mortgage Arrears Strategy Issues

The estimable Constantin Gurdgiev comments here on this speech earlier this week by Governor Honohan.(Hat-tip to the Ballyhea Bondholder bailout protest page on FaceBook.)

It may surprise some readers, but I pretty much agree with his comments.

"Strategic" is very rarely a term properly applicable to defaulters in Ireland. "Tactical" might be a better one, but,for me, whichever term is used, it is not appropriate to regard it as always a derogatory one. Such defaulters are not all trying to "game" the system or escape scot-free from their obligations. In a significant number of instances, lenders are still unable or unwilling to engage realistically or at all with their troubled clients.

Faced with unresponsive or unrealistic creditors, some debtors are "defaulting" as a negotiation move.

However, this is a dangerous course for many, whose circumstances are often too precarious to enable the requisite discipline and clear-sightedness to be maintained. They may start with a lump-sum in a separate account, and adding monthly payments to it, but may not be able to resist drawing from that account for other more immediately pressing needs, for example.

And of course many - not all, or even most - debtors continue to pretend that hard decisions can be put off for ever, that the mistakes of others excuse all of their own, and generally that "the world owes them a living". When one reads suggestions that someone who isn't paying for the roof over his head "deserves" a foreign holiday, one has to wonder how farther we still need to go to approach collective sanity.

Still, I repeat that we won't get there by pretending that taking every debtor case-by-case through a fantasy attempt to get blood out of stones is doing anything but indulging an alternative - and, really, less forgiveable - fantasy. I am disappointed that the Governor appears to be flirting with this.

[UPDATE: The full text of Prof. Honohan's speech is now available here. As usual with utterances from that source, the speech repays close reading, and is full of useful information and comment.]

As For Moral Issues ...

Note that I have not mentioned moral issues yet. If we "go there", though, again the position is that both extremes, and many who do not accept that they are extremists, are propagating positions which, in my view, do not stand up to moral scrutiny.

The notion that you can take other peoples' money, agreeing that, if necessary, you will have to lose your home to pay them back, and then use violence to obstruct execution of that agreement, is hard to justify in moral terms.

But it is even harder to so justify the "meme" that says "I paid all my loans back, so must everyone else, whatever it takes" or "I didn't borrow at all" or "I didn't borrow foolishly", "so why is it my problem ?"

Nor does the call that "it's not our debt" stand up to moral scrutiny, except with many qualifications and reservations.

Finally, the idea that all bondholders deserve to be "burned", whether on the nonsense basis that they were only gamblers, or on any other basis, while other creditors suffer no loss at all, is devoid of moral reasoning.

Kickham statistics

There were 51 Kickhams recorded in the Irish Census of 1911. The figure was more correctly 52, as there was also a Cathal Cuiceam, who had been recorded in 1901 as Charles J. Kickham.

I am having difficulties with the corresponding statistics for other countries, but the orders of magnitude would appear to be as follows:

Great Britain	...	...	.80
Canada	...	...	.15
United States	...	...	110
Australia	...	...	150

In Canada and Australia, the Kickhams were, to my eye, clearly either from Tipperary, or descended from the same stock. The position in the United States was similar, but not as clearly so.

In Great Britain, most Kickhams in 1911 were indigenous, with only a couple having been born in Ireland, as far as I can see. One must not neglect the likelihood of earlier migrants from Ireland, but this statistic appears to confirm what one might expect i.e. that the corruption from "Kirkham" to "Kickham" - which is regarded by most as the probable origin of the name - was not confined to Ireland. Mind you, the uncorrupted form is much less scarce in Britain (about 6,000 in 1911).

In Ireland, in 1911, there were also 55 Kirkhams. Of these, only one was Roman Catholic, whereas the Kickhams were R.C. without a single exception. This suggests that the Kirkhams, whose distribution was heavily concentrated (39/55, with a further 10 in Waterford) on the East coast, were not closely related to the Irish Kickhams. Quite a few of the male Kirkham heads of household were born in England, which "puts the tin hat on it".

As with all such data, it must be remembered that some of the 1911 Irish Kickhams are not "real" Kickhams, in the sense that they were not born with the name but adopted it on marriage. There were 11 of those in 1911, leaving 40, or 41 including Cathal. (Of course, there were also invisible female Kickhams who had married into other families).

First,observe the smallness of the number. (For the little that it is, so far, worth, my impression is that the 2013 number of Irish Kickhams would be similar). By contrast there were

• 146 Hefferons
• 494 Carrigans
• 1,486 McFarlands
• 2,410 Raffertys
• 2,422 O'Rourkes
• 3,819 Tobins
• 4,419 Costellos
• 4,550 Fergusons
• 5,010 Walkers
• 6,297 Dwyers (not counting 1600 O'Dwyers, incidentally)
• 7,051 Egans
• 13,561 Flynns
• 18,326 Murrays

Unsurprisingly (because all apparently descend from a Lancashire farrier called Kirkham who came to the area of Cashel, County Tipperary circa 1650), of the 41 "real" (as defined above) Kickhams in 1911, just over half (21) were in Tipperary. Of these, thirteen were in Mullinahone village & nearby Kilvemnon. My grandmother, her father and siblings accounted for eight of these. The other Tipperary Kickhams were in Ballingarry (1), Crohane (2), Kilmurry (1), Newtown (3) and Garrangibbon (1). As yet, I am not able to definitely establish a relationship between my grandmother's immediate family and the other Kickhams in Tipperary at that time.

After Tipperary, the county with the greatest number of Kickhams in 1911 was Cork, with 11. One of these was a young man in Youghal, born in Tipperary. The others were two families in Cork city, at Cove Street and at Grattan Street.

In Dublin, there were four, all children of Alexander J. Kickham (1830-95), a brother of the renowned Charles J. Kickham, Fenian and author. It remains unclear, but the father, John (1804-61), of the latter was probably either a brother or a first cousin of my grandmother's great-grandfather Michael (1795-1850).

Kilkenny had three Kickhams, all part of a household at Killamery, Knockroe, due east of Carrick-on-Suir, County Tipperary, and not far outside the county boundary.

Finally, the remaining two lived at Kilmacthomas, County Waterford, due south of Mullinahone.

Update on Saturday, October 26, 2013 at 12:27PM by Fergus O'Rourke

Although I would treat the data with some care (I suspect double-counting, and confusion with Kirkhams and Wickhams etc), the data visible on this page is of interest and will be investigated by me before long.

Genealogy

On my O'Rourke side, I am also descended from Fergusons, Raffertys, Hefferons, McFarlands and Murrays.

My mother was born Dwyer. On her side, my ancestors include Walkers, Kickhams, Tobins, Flynns, Egans, Carrigans, Graces, and Costellos.

I married a McSwiney.

Other families to whom I am connected less directly include:

Adams	Dolan	Jacus	Miller	Rutter
Armstrong	Donnelly	Jobin	Minihane	Ryan
Bacus	Dowling	Jones*	Moloney	Sample
Barden	Downing	Keeffe	Molloy	Scott
Bardoe	Doyle*	Kendrick	Moore	Seaman
Barton	Duggan	Kennedy	Moran	Shanley
Bergin	Egan*	Kenny	Mullally	Sherlock
Blennerhassett	Ellard	King*	Murphy*	Skinner
Braun	Elliot	Kirby	Newlands	Smith
Brady	Fahy	Landy	Ney	Snow
Briscoe	Farlow	Larkin	O'Brien	Spinola
Bucknall	Fisher	Lavelle	O'Connor	Starling
Bushkovskii	Fitzpatrick	Leonard	O'Donovan	Swaine
Byrne*	Fleck	Likely	O Dubháin	Templeton
Caffrey	Fox	Lockhart	O'Hanlon	Thomas
Carroll*	Gaffney	Londei	O'Keeffe	Thornley
Cashel	Garn	Lucey	Oldis	Thurston
Casselberry	Gatford	Lynch	Olgin	Tonge
Clancy	Gieysztor	Lyons	O'Mahoney	Treacy
Clapperton	Goggin	McCarthy	O'Mara	Tunney
Cleary*	Graham	McGuinness	O'Reilly	Turpin
Coffey	Griffin	McKiernan	Parry	Twomey
Cormican	Guttridge	McNeil	Payne	Urquhart
Corswarem	Hammond	Madill	Pearson	Vetter
Coyle	Hardcastle	Maher	Phelan	Whelan
Cruess-Callaghan	Hill	Mandeville	Randall	White
Dalton	Horan	Mansfield	Renaud	Wood
De Courcey	Hodson	Martin	Rogers	Woodlock
Delehanty	Hughes	Mathers	Roozrok	Youseman
Dobbyn	Humphries	Meyler	Royston

Those connections to other family names span 300 years, and the number of them - 160 or so (there will be occasional additions and removals as my knowledge improves) is mind-boggling at first sight. However, it is not so much so on reflection, and I suspect that the number of these connections is about average, for Irish people of my vintage anyway. (Family sizes are shrinking fast).

A Genealogy section will shortly be added to this website, and I will be sharing some stories from my research as ordinary blog-posts as well. I promise you that some of them (at least) will be interesting.

*More than one branch

No "Free Lunch" in Banking Regulation

The Bankers' New Clothes:
What's Wrong with Banking and What to Do about It

by Anat Admati & Martin Hellwig.

Publisher: Princeton University Press

MY REVIEW

The ability of financial intermediaries, normally banks, to create money via the device called fractional reserve banking ("FRB") is capable of being both a boon and a bane.

When it works well, savings are mobilised, economic activity is facilitated, incomes increase, wealth accumulates and occasional set-backs are accommodated. It is a magical device without which the modern world could not exist.

In this, it resembles fire. Fire is essential to civilisation but is also extremely destructive when control of it is lost, Similarly,when money creation goes "bad", the consequences can be cataclysmic.

Some say that this is basically unavoidable, and that humanity is condemned to endure such disasters from time to time, just as we must expect another Ice Age sometime, no matter how well we restrain our pollutive natures. That may or may not be so, but I agree with the authors of this book that lessons can be learned and things can be done.

Admati & Hellwig are enthusiasts for the idea that Society can be spared future pain by a more conservative approach to one of the key fractions in FRB, the leverage ratio (often also called the capital ratio). "Whatever else we do, imposing significant restrictions on banks’ borrowing is a simple and highly cost-effective way to reduce risks to the economy without imposing any significant cost on society" is the message of this book, which also gives much space to rebuttal of many contrary arguments. It is a good book, and overall, I think that it makes its case well.

I really wasn't aware, before the book came to my notice, that the issue was so controversial, and I am still a little bemused at the pretty unanimous enthusiasm with which the book has been greeted by some. You can read The Grumpy Economist (No, John Cochrane - and he claims that he is "not really grumpy") and Patrick Honohan - who does admit to some "chafing", mind you - to get the full enthusiastic flavour, or just look at the reviews (including one by Ken Rogoff) summarised by the publishers here. Based on what I have seen myself, the selection appears, unusually for a publisher, to be quite representative. The Amazon ones are here.

My reason for buying the book, though, was because I was astonished by the authors' vehemence (visible in interviews and the Internet) on a point that I (still) think to be incorrect.

I agree that lower bank leverage will bring probably all the benefits that the authors say that it will. Furthermore, I note that they have wisely avoided pinning their colours to the mast of a specific figure, though it's clear that they have roughly 30% in mind (the current average figure is 3%, they say; others put it at nearer 11%). I also tend to side with them in the rebuttals of objections.

My problem is with their insistence that their plan is cost-free for the economy as a whole. I find it odd that there has been so little discussion or challenge of the view that higher bank capital requirements will not actually reduce the flow of loan finance out of the banks. Their approach to this in the book, in interviews and their website is not only wrong, in my view, but perverse.

It is perverse because it requires us to accept that banks' funding structure will have NO effect on banks' activities, whereas Admati & Hellwig spend quite a lot of space describing how the need to attract equity will improve lending standards. Better lending ceteris paribus pretty inevitably means less lending. Admati and Hellwig at different points appear to accept and also to deny this.

While one of the points well made in the book is that (non-bank) users of capital have become too fond of credit and too equity-averse, the authors appear to believe that this preference will frictionlessly pivot on both sides of the balance sheet i.e. depositors will voluntarily become more inclined to take an equity position in the institution where they keep their liquid savings, and borrowers will become more willing to pay in the form of a profit-share to lenders. If anyone doubted that before the Cyprus "bail-in", their fears will not have been assuaged by that fiasco.

I share Arnold Kling's view,

The non-financial sector wants to issue risky, long-term liabilities and to hold riskless, short-term assets. The financial sector accommodates this by doing the reverse.

.

Finally, though, I am dismayed by this book, and nearly all of its reviewers, because I see no appreciation of the multiplier effects of capital, and other ratios, on the dynamism of FRB. (Indeed, the words "multiplier", "fractional" and the phrases "fractional reserve banking" and "money-creation" are entirely absent from the text.) Central Banks wishing to dramatically slow down over-heating economies or sectoral markets always could (but very rarely did) increase the minimum ratios.

Raising the capital ratio, which is another way of saying "reducing the leverage ratio" even from 11% to 25% will drastically cut the money supply, even if the appetite for bank equity increases a lot. Raising equity capital may not be as difficult as it once was, but it is still and will always be slower than borrowing from money markets. For Klingian reasons, I doubt that bank balance sheets will, following such a change, end up as big as they were. This will have effects in the real economy.

But, even if this is, improbably, insufficiently optimistic, consider what the position will be going forward with a ratio of 25 instead of 11. Where before the multiplier was 9, now it is 4. For every extra million in deposits, 4 million can be injected as new credit, instead of 9 million. That is a formidably less dynamic monetary environment.

Of course, there will be positive aspects to this: less inflationary pressure and less reckless lending, to name but two benefits well worth having. And as we have painfully re-discovered, excessive dynamism is undesirable. However, as the authors say in another context, "it is impossible to discuss coherently the need for anything without considering its cost". The flow of credit will be reduced, and money creation will be suppressed considerably if we do, as we probably should, adopt Admati & Hellwig's proposal either in whole or in part. Those are significant costs. We should not pretend that they do not arise, even if we think that they are exceeded by the benefits.

Update on Friday, July 12, 2013 at 11:15AM by Fergus O'Rourke

Whoops ! Nearly forgot to mention this by Arnold Kling on the book, in which he adopts, unsurprisingly, a Klingian perspective. My own review was drafted before I discovered this article.

Update on Friday, July 12, 2013 at 11:19AM by Fergus O'Rourke

It's not explicit above, so let me make it so: the authors' repeated claim that they will show, and then that they have shown, that there is no cost to be paid for what they propose is, I say, not sustained in the book, or in the subsequent responses to its critics.

AN OPEN LETTER TO THE DIRECTOR OF CORPORATE ENFORCEMENT

Ian Drennan

Director

Office of the Director of Corporate Enforcement,

16 Parnell Square,

DUBLIN 1

Dear Mr Drennan

In June 2011 - as you will know, since it was on your Office's application - the High Court ordered the disqualification of a former CEO of National Irish Bank ("NIB") from acting as a company director for 9 years. Other NIB senior personnel have also been disqualified. The basic reason was the bank's misconduct when directed/managed by the individuals in question - mainly its role in sophisticated tax-evasion schemes.

The loss to the State from these schemes was shocking at the time, but would barely raise an eyebrow today.

Nearly 5 years after nearly all of the State's banks were exposed as insolvent, no legal action has been taken against the vast majority of those who steered their companies from great wealth to multi-billion euro deficits, in the process doing cataclysmic damage to the finances of the State and of its citizens, as well as impoverishing many shareholders.

It is said, with justice as far as we can tell, that no crimes were committed. More questionably, it's said that no individual broke any term of his or her employment contract. It is even claimed - or at least implied - that not one bank director was in breach of his/her duties as a director even as they all managed their banks into insolvency and ruin.

The new managers and shareholders of the banks either share these remarkably benign views of the stewardship exercised by their predecessors or (more likely) assign a low priority to what they consider a mere "blame game".

However, in our view, this is not good enough. We are surprised that you appear to think that it is. Your office is responsible for ensuring that company directors, auditors and senior managers meet minimum standards of behaviour and probity. It is extraordinary to the point of scandal that there has been no visible action taken in this regard, and there is no indication of any intent to do so. This point has already been made to your Office privately, but you have felt unable to respond meaningfully. Your office has been a model of prompt and courteous communication, but we remain dissatisfied that nothing of substance has been said.

Your lack of visible action makes it difficult to avoid the conclusion that you are not going to do anything beyond what you have already in train in regard to Anglo. Our view is that those proceedings address relatively trivial matters and/or events which represent consequences rather than the causative failures of governance.

This letter is to formally request you, as a matter of urgency, to seek disqualification of every auditor, senior manager, and director (of relevant subsidiary companies, as well as main board members, and including shadow directors) of all banks licensed in the State. Again, it will be as obvious to you as it is to us, but some individuals will have little difficulty in showing that disqualification would not be appropriate for them. We suggest that it would serve the public interest for this to be confirmed, after full consideration, by you or by the High Court. It would also, arguably, be of benefit to the individuals in question. It would only be fair to allow those who performed their duties to the required standard to show the world that they did so.

We understand that protocols have to be followed. For example, in the case of NIB, Inspectors were appointed and your Office based its applications largely on the findings made by the Inspectors. Whether the same needs to be done for - to name but one - AIB plc, given the comprehensive reports already in the public domain and others apparently available to current management, is questionable, but if it does need doing, it is long overdue.

Yours sincerely

Fergus O’Rourke, Lawyer & former banker

Karl Deeter, Irish Mortgage Brokers

Michael Hennigan, FinFacts

Seamus Carrick, F.C.C.A., Trinity Accountants

James Lee, solicitor

Eoghan O'Leary, company owner

Declan O'Toole, solicitor

Brian Lucey, TCD

Constantin Gurdgiev, TCD

Arthur Doohan, Consultant

Gerard Sheehy Financial Adviser

Kealan Flynn, Public Affairs Adviser

Deirdre de Burca, former Senator

Danny Keohane FRIDE, Brussels

Colm Fitzgerald, actuary

Dermot Conway, solicitor

David Hall, Irish Mortgage Holders Organisation

Brian Kelly,Independent I.T. Consultant

Michael Logan, Businessman

Brendan K. O'Rourke, Dublin Institute of Technology

Michael O'Neill Architectural Graduate

Cathal Malone, Barrister-at-law

Dermot Casey, Lecturer, UCD

Tom Baldwin,solicitor

Kate Bopp, Co-founder, N.G.O.

Declan Flynn, Kilternan

David O'Brien, Monkstown

Caitriona Warfield,Saggart

John Agger, Cobh

Dermot Kenny, Small business manager

Cathy Dalton Architect,researcher, lecturer

Joe Cunnane F.C.A. Accountant & Tax Advisor

Anne Hesnan, County Meath

Morgan C. Jones Actor

Nessa Childers, Member of the European Parliament

Andy Moore, Dalkey

T. J. Greene, Monkstown

Yvonne Sugrue County Kerry

David McCarthy, Clondalkin

Fiona Hanley, Art Director

Sarah Carey, Broadcaster & columnist

Denis Hinsley, County Clare

Ellie Hinsley, County Clare

( Your name will be added here if you so request in a comment below )

Copy sent to each T.D. and Senator

PDF version of the Open Letter here and of a legal background note here

Update on Sunday, April 7, 2013 at 08:37AM by Fergus O'Rourke

Note to commenters: Your name and brief description (together with a link to your information) will be added to the letter above, but only if you make it clear that this is what you want. Some identifying information, in addition to your name, is necessary.

Update on Sunday, April 7, 2013 at 07:47PM by Fergus O'Rourke

Brian Kelly has been added as a signatory

Update on Tuesday, April 9, 2013 at 11:04AM by Fergus O'Rourke

Michael O'Neill, Michael Logan and Brendan K. O'Rourke added as signatories

Update on Wednesday, April 10, 2013 at 03:26PM by Fergus O'Rourke

Cathal Malone has been added as a signatory

Update on Wednesday, April 10, 2013 at 09:14PM by Fergus O'Rourke

Dermot Casey has become a signatory

Update on Friday, April 19, 2013 at 10:01AM by Fergus O'Rourke

Tom Baldwin and Kate Bopp are now signatories

Update on Thursday, April 25, 2013 at 11:26AM by Fergus O'Rourke

Declan Flynn, Caitriona Warfield, and David O'Brien have been added as signatories

Update on Sunday, May 5, 2013 at 08:11AM by Fergus O'Rourke

John Agger has become a signatory

Update on Wednesday, May 8, 2013 at 11:16AM by Fergus O'Rourke

Dermot Kenny has become a signatory

Update on Tuesday, May 14, 2013 at 12:11PM by Fergus O'Rourke

Cathy Dalton and Joe Cunnane have become signatories

Update on Monday, June 10, 2013 at 01:36PM by Fergus O'Rourke

Anne Hesnan has signed

Update on Thursday, June 27, 2013 at 10:23AM by Fergus O'Rourke

Morgan C. Jones has added his name

Update on Tuesday, July 2, 2013 at 06:38AM by Fergus O'Rourke

Nessa Childers M.E.P. has added her signature

Update on Tuesday, July 2, 2013 at 08:00AM by Fergus O'Rourke

Andy Moore and T.J. Greene have now signed.

Update on Friday, July 5, 2013 at 10:36AM by Fergus O'Rourke

Yvonne Sugrue is now a signatory

Update on Tuesday, July 9, 2013 at 08:16AM by Fergus O'Rourke

David McCarthy and Fiona Hanley join the list of signatories

Update on Thursday, July 11, 2013 at 09:50AM by Fergus O'Rourke

Sarah Carey,Denis & Ellie Hinsley become signatories

Resumption of My Arrested Series

Readers will recall that the next, ninth, part of the series was to address the question

so, do they just get away with it, then ?

I was not very happy with the answers that I was getting to my own question, but patience has proved worthwhile, at least to me. While I was contemplating and researching the question, a number of things happened that affect things a little bit:

• Eugene Sheehy, CEO of AIB when "the ship hit the rocks", agreed to forgo part of his pension
• The rump of Anglo Irish Bank and Irish Nationwide Building Society, which had been consolidated as Irish Banking Resolution Corporation ("IBRC") was put into liquidation by the Government.
• The Liquidators quickly moved to sue Fingleton and others
• Seán Fitzpatrick and two of his former co-directors of Anglo have been formally charged with criminal offences. The charges relate to illegal concealment of loans to directors and to provision of loans by Anglo for the purchase of the Quinn stake in Anglo itself
• Ex-CEO Jim Lacey and some other former directors of NIB (now Danske Bank (Ireland)) were disqualified as directors

As I have previously observed, the crimes on which the Anglo Three will face jury verdicts are not of any real consequence as causes of the Collapse. It is matter of great regret as far as I am concerned that almost all of the time and other resources of the Office of the Director of Corporate Enforcement("ODCE") were diverted into the project of prosecuting these matters.

The other developments listed above are more significant, in my view. Together, they point the way to how, where the will is present, it is possible for the law to do something in recognition of relevant personal failures on the part of individuals even if, as it appears, no crimes of significance were committed and arrests are therefore ruled out.

Over the next few days, I will be sharing my conclusions in this regard.

Do remember, though: I am, I hope, not indulging in vindictiveness and my use of the phrase "getting away with it" must not be understood as suggesting that any crimes contributed to the Collapse, or that anyone guilty of a criminal offence connected to the Collapse is going unpunished. I cannot guarantee, of course, that the latter is not happening: all I can say is that I am aware of no evidence that it is, and everything that I have seen over the last five years suggests that such evidence is lacking.

Thoughts on an Arrested Series

In the old, originally French (I think), sense of "halted", my 10-part series (the first 8 parts are here) has itself been arrested for some time now.

I will explain why in due course, but some interim observations may be of interest

Yes, Irish bankers are just as liable to commit criminal offences as any other occupational group, and I have no reason to suppose that they are more virtuous than, say, journalists,lawyers, politicians, priests or academics. However, once again, I must emphasise that in this series I am looking only at the issue of crimes which may have been causative of the collapse of the Irish banking system.

Greed - which many see as the fundamental cause - is not in itself a crime, and I cannot see any workable manner in which it, simply as such, could be made one.

Fraud and insider trading are crimes, and their incidence increased in the period up to the Collapse, but they neither caused the Crash nor significantly contributed to the cost of it in Ireland (it may have been otherwise elsewhere e.g. in Iceland).

There is no evidence - that I have seen - of involvement in such nefarious activity by prominent individuals in the Irish financial institutions, civil service, regulatory establishment or politics, with the possible exception of the Anglo/Quinn debacle. (And in that sub-story, most of the credible allegations relate to what was effectively an increasingly desperate and always futile campaign to prevent the Collapse which had already become inevitable, probably from the beginning of 2007 or even earlier).

Journalists such as Matt Cooper (in many ways otherwise admirable) react by saying that if we cannot prosecute them, then "we" must excoriate them using "our" ability to "name and shame". What is meant is not even "trial by media" - trials have rules - but more or less ignorant demagoguery, which tells us more about the moral standards of those engaging in it than about the guilt of its targets.

More serious commentators, in particular Colm McCarthy, refer constantly to "lack of clear answers" and, while acknowledging the possible lack of criminal behaviour, persist in suggesting that there must have been an original "sin", committed by an individual or by a small number of people, which drove the banks "onto the rocks". They say that the Nyberg and its preliminaries dodged this question and point to the Bankruptcy Examiner's Report into Lehman Brothers in the U.S. as a model.

Let me (again) make a few additional pertinent points:

1. As the regular visits to Gárda stations by Mr FitzPatrick and a few others demonstrate, arresting is, among other things, in itself an idle recourse.
2. Charging and then bringing to trial are what matters.
3. I am not opposed to imprisoning bankers if they are convicted of serious crimes.
4. There is little reason to believe that the Irish banking disaster was caused by any Irish banker committing a serious crime known to Irish law.
5. Note that this does not equate to saying that no Irish banker has committed a crime known to Irish law. It also does not, of course, mean that Irish law may not have been lamentably lacking
6. As to whether breaches of the law were serious or otherwise, most were not, as far as I can see. The evidence on serious alleged crimes is not yet in the public domain (leaks do not count: they are usually inaccurate). My guess – not all that educated – is that at least one Irish banker is guilty of at least one of the serious alleged crimes. But the crimes in question did not contribute to the occurrence of the banking catastrophe for which we are all paying.
7. I believe that we need to legislate for more banking crimes, but we cannot in 2013 make something that happened in 2008 (or before it) into a crime now if it was not one at the time. The argument that the "common law" would have always regarded some relevant behaviour as criminal has proven impossible to sustain.
8. Furthermore, I am sympathetic - just a little - to Nassim Nicholas Taleb’s idea that we should perhaps reconsider the virtues of the death penalty, as in China, for disastrous errors of bank management.
9. There is no need for you - I am addressing the vocally impatient among us - to wait for the Director of Public Prosecutions, if you think – understandably – that she is too slow. The option of private prosecution, though of limited utility, is available if anyone thinks that there is enough available to proceed against anyone.(Read the recent English case of Gujra which includes a discussion of the merits of this procedure. The position in Irish law is very similar.)
10. But the truth, which those who shout loudest on this will not admit, is that you don’t have such a basis. Or else, you’re too lazy and prefer to shout than to do something useful, while complaining that others owe you a duty to do what you will not do yourself.
11. You are not alone. For years now, I have been offering to help anyone who wants to do something about it. Want to guess how many have even enquired about the possibility ?
12. The answer is: 1. No, not one hundred or one thousand. Yes, I mean the number between 0 and 2. I have had a single enquiry.
13. More correctly, the answer is still: zero, because that query – which only came in a few months ago – turned out to be from a bank shareholder who wanted to seek personal compensation from a former bank director.

On "Getting Away With It"

Any resemblance of any hypothetical characters mentioned hereinafter to real persons, living or dead, is purely coincidental.

Consider this scenario:

It is a "stark and dormy" night. (Who said Bulwer-Lytton is forgotten ?) On an unlit road, a tanker's valve somehow spontaneously opens - nobody ever provides a satisfactory explanation as to how or why - and the road surface is soon covered in a black-ish, smelly, viscous liquid. Some minutes later, a motor-car encounters the liquid, the driver - whom I shall call Mr Cooper - loses control and a very nasty accident happens, resulting in several deaths.

Cooper survives, however.

Is he jailed ? Prosecuted ? Arrested, even ?

No. Instead, he lives on, a free man "without a (legal) stain on his character". As Pat Rabbitte once asked, though, is he happy ?

Many people consider this to be outrageous. Four years later, some - and not just the predictably ignorant or intemperate - still mutter about how "the crook got away with it" (and believe it).

Now, unless you are new here, you will not be surprised to learn that my natural inclination is to resist such talk. I will ask to know which crime the unfortunate Cooper is supposed to have committed, why his broken tail-light or out-of-date driving licence had anything to do with the tragedy, even though they were criminal offences - albeit very minor - and so on.

My guess is that, even if you did not "buy" similar arguments already made by me in this series, you might see some value in them in the context of the hypothetical Mr Cooper.

It's an interesting exercise to discuss - as I have done with some people - why "the Coopers" are likely to get more sympathy (and, in my view, more justice) than "the bankers". Let us not detain ourselves with that discussion now. (We can return to it if there is a desire to do so).

However, in this article, I am going to explore the other side of that argument.

Let's go back to Cooper, and make the picture painted of him a little less straightforward, and thus, arguably, more realistic.

Breathalysed at the scene, he tested positive and while the subsequent blood test showed the alcohol in his blood was well below illegal levels, it also showed traces of psychotropic substances. At the time, however, the law did not specifically make it a criminal offence to drive in this condition.

Police investigation also revealed that Cooper's vehicle had at least two tyres marginally "bald", and that he had almost certainly been both driving too fast for the conditions and, worse, had been doing so with a telephone clamped to an ear with one hand.

All that said, the police had no doubt that none of these circumstances contributed to the tragedy, in which Cooper lost not only his only two children but several close friends who happened to be on the road at the unfortunate time. Even if Cooper's vehicle had been in perfect condition, even if he had had no alcohol or other intoxicants in his blood, had had his licence up to date, and had been driving with perfect care and attention, the people would have all died anyway.

Despite these circumstances, should the police charge Cooper with DDCD ("dangerous driving causing death") or less serious offences under the Road Traffic Acts because, otherwise, he will "get away with it" ?

Am I alone in wondering how a man involved in such a horrific scenario will ever get over it ? To me, the question of him getting away with it is out of place.

I would like to hear from those with a contrary view.

(We are not going to detain ourselves at this point with exploration of the culpability of Lehman Brothers, the haulage firm which owned the oil-tanker - imagine that ! - or of any other dei ex this particular machina. But don't forget the disclaimer above.)

Why They Should Not Be Arrested - Pt 8

This post is one of a 10-part series of posts, the rest of which can be seen here.

In this post, I shall address some issues which have been raised by comments made (on this site, Twitter and elsewhere) querying my overall thesis.

Common-Law Crimes

A "common-law crime" is one which was not voted into existence by the legislature. Many things have been recognised to be criminal for thousands of years. For example, murder, rape and theft were all recognised by the police and by the courts as crimes, even before statute law (that is, laws enacted by our elected representatives) defined and refined the details.

It has been suggested by Fintan O'Toole of The Irish Times, for one, that what caused the insolvency of our banks was the commission of common-law crimes by bankers. He refers favourably to what happened in the case of The City of Glasgow Bank, implicitly suggesting that that case showed "just how it should be done" if our justice system would only work as well as did, notoriously, that of 19th century Scotland, oh yeah !

Well, I have seen no evidence that similar behaviour occurred in our own recent disaster, but if it had, the perpetrators could be charged, not with such common-law crimes, but with crimes which have now, like murder, been defined by the legislature.

In any case, the City of Glasgow situation was in hardly any way comparable: only the shareholders lost money.

Finally, I know of no (other) common-law crime which applies to the behaviour of those who are responsible for our banks' failures.

Unjust Enrichment

There is no crime of "unjust enrichment" known to Irish Law. I am not even aware of it being a crime in other jurisdictions.

There is a tort (meaning a civil wrong) of that name. It describes the situation where, for example, you give me a €50 note thinking it to be €20. I do not notice, but may have been "unjustly enriched" by €30. You may be able to sue me for the return of the €30 - good luck with that ! - but there is no question of my being punished for what happened.

It might just be possible that some of those responsible for the banking mess might need to be nervous about this. To be clear, though, they may worry about having to return money received, not about being arrested or imprisoned.

"General Criminality"

This is the most common objection to my thesis, if hardly the most compelling.

What is said is that our "top bankers" were all obviously up to their necks in "blatant criminality", by which it is meant that they disregarded all constraints of law to indulge their greed. I have even been assured, by intelligent people educated to third level, that said bankers knew what they were doing and were determined to ruin their banks and the Irish economy so that their own wealth would be maximised.

Challenged to justify this belief, they will cite the revelations about the behaviour inside Anglo-Irish Bank during 2008, but are unable to explain why, if both Seán FitzPatrick and David Drumm are now bankrupt, wealth maximisation was going on.

I see no evidence of this alleged "widespread criminality". Greed is not a crime.

What happened during 2008 was not a cause of the crash, but a desperate attempt to avoid it.

Recklessness

Almost as common as the last, this concept is mentioned often, and appropriately so, in my opinion.

There is no general crime of recklessness, or even of gross negligence, in Irish Law. (There are road traffic offences which amount to the same thing, but prosecuting for lending "carelessly" "without due care and attention" or "dangerously" under the Road Traffic Acts are not viable options).

Now, Irish law does recognise a crime of "reckless trading" (Companies Acts, section 297A). Prosecutions of this can only take place if the accused was a director of a failed company (meaning one in examinership, or liquidation).

Because of the way in which the failure of the Irish banks has been handled (even Anglo is not a "failed company" in the above sense), technically the crime does not apply. I will discuss this further in the next part of this series of articles. For now, I will say two things about it.

First, I do not believe that the authorities had that legal position in mind when they chose to proceed as they did, but anyone of another mind is welcome to try to change mine.

Secondly, I cannot resist reminding you that I asked for a mandate from the electorate last year to make "reckless lending" a crime in itself, but there was little interest from voters and none from commentators.

Coming Soon

Part 9, in which I (attempt to) answer the question

So, they just get away with it, do they ?

Book review: "Engineering The Financial Crisis" by Friedman & Kraus

"Engineering The Financial Crisis" by Jeffrey Friedman & Wladimir Kraus, University of Pennsylvania Press. Available from Marston Book Services, 160 Milton Park, Abingdon, Oxon, OX14 4SD, England / direct.orders@marston.co.uk. Price £29.50

This is a superb book, which deserves to be read by anyone who is serious about trying to understand how the Banking Crisis happened.

It has insights to offer on more general topics as well. These relate inter alia to the (alleged) delusions of the economics profession, the futility of some common expectations of democratic policy-making, and even to the limitations of human capacity to manage the complex systems that now dominate our lives. We think we understand these systems because it is we (or people like us) who constructed them, but even the most sophisticated of us are sometimes caught out.

A long time ago, the American wit H.L.Mencken observed

for every complex problem there is an answer that is clear, simple, and wrong.

The response of commentators, wherever located, to the Banking Crisis illustrate this quite well. The standard narrative (hereinafter "TSN"), not just in Ireland, is that what happened in 2008 followed years of reckless behaviour accompanied - indeed encouraged - by inflated salaries and ridiculous "bonus" payments to bankers. When the inevitable "feco-ventilatory intersection event" occurred, these same bankers then turned around and expected to be rescued from the consequences of their folly.

As Friedman & Kraus point out

... [these views have] immediate and important consequences. The informed public's impressions of the crisis are based in part on journalists' and scholars' hasty pronouncements. These impressions have now hardened into convictions. Political movements of the right and the left are already acting upon dogmas about the crisis that have little or no basis in fact, and policy changes have been made on the basis of these dogmas.

They go on to pick apart systematically the most popular U.S. explanations for the Crisis - which overlap with the most popular in Ireland, too - test them against the facts, and, one by one, discard them as unsatisfactory. (The authors might put it more strongly than that).

For example, they show that, as indeed in Ireland, the banks that failed most disastrously were also the ones led by men whose personal shareholdings were highest. This is counter-intuitive, as well as inconsistent with TSN.

They also show, in what they appear to regard as their most controversial finding, that the banks consistently chose security over high returns. This, too, is inconsistent with TSN, which takes it as axiomatic that "moral hazard" wreaked havoc by encouraging executives to take excessive risks, since it was (supposedly) a "tails I win, heads you lose" situation.

"The Right Kind of Regulation" ?

The book authors go on to propound their own explanation, which could be briefly summarised as

it was the Basel rules wot done it.

That is their précis, not mine. (The wording is not theirs, though).

And, more fundamentally,

the crisis was caused by ignorance on all sides.

That ignorance was not necessarily attributable to incompetence or similar faults. Nor was it otherwise culpable: it was a consequence, possibly not completely avoidable, of the complexity of the systems which had to be understood, and managed. Friedman & Kraus describe it as "radical ignorance".

In doing so, they "take a pop" - one of several, mainly at him, but at the economics community generally - at Joe Stiglitz, the Nobel laureate:

Essentially, his solution to this problem is consistently to downplay the possibility of human error - that is, to deny that human beings (or at least uncorrupt human beings such as himself) are fallible. ...

Simply turning over all power to a Nobel laureate economist such as Stiglitz is no answer. There are many Nobel laureate economists, and they quite frequently disagree with one another. Which one of them should be the economist-king who will ensure that regulators do not make even worse mistakes next time ?

...If economists are our most important advisers, but their world-views have no place for genuine human error, we are in deep trouble

While the book is about only the U.S. dimension of the crisis - the authors say that all the data available there is not available for Europe or elsewhere - I believe that the basic analysis is accurate for Ireland as well.

What we have (or had) in common was an unquestioning belief that property values could never fall significantly. While I was previously aware of this fateful delusion, this book has brought home to me more than before the extent to which the Basel rules not only sanctified it, but incentivised banks to become more property-focussed.

In view of where we are now, the fact that the same conventions, in effect, also encouraged banks to over-lend to badly-run sovereign states is noteworthy as well.

Remembering that our own Nyberg report laid so much emphasis on the role of "group-think", the book’s observations on what it describes as "homogenisation" as a necessary effect of regulation are thought-provoking.

Another insight which merits attention, and helps to explain why "the bail-out keeps clocking up the billions", is the inappropriateness of the term "cushion" to describe minimum capital standards for banks. As the authors say, "hard-floor" would be a more accurate short-hand: as soon as a bank hits that level, those in control are in imminent peril of losing that control. They are naturally, and this is the intention, impelled to either raise fresh capital or to shrink loan-books.

That looks fine in theory, and may be considered to work well for a crisis confined to a single bank. As we have found, it does not work well in circumstances when there is a system-wide, and international, problem. In that situation, it is illusory to suggest that borrowers can repay quickly (or perhaps at all), and this will be so well-known that the normal suppliers of capital will not re-capitalise lenders.

In another finding which TSN ignores, Friedman & Kraus point out that

even the commercial banks that actually became insolvent had significantly higher regulatory capital levels than required by law

It is difficult to quarrel with their observation on that, viz.

This suggests that the chief cause of their insolvency was not (as a rule) deliberate risk taking but ... risk taking in which the bankers were ignorant of the true level of risk

I do not agree with every judgement of the authors. For example, contrary to their view, not every economist - and none of those who taught and still teach me - believes that any economist has precisely modelled reality. Also, while generally correct as to it having a major direct role in causation, their implicit view that remuneration models were of no relevance at all is one that I am not yet prepared to accept. As Steve Randy Waldman remarked recently on Twitter:

to the frustration of social scientists everywhere, a thing can be an important factor yet neither a necessary or sufficient cause...

Nevertheless I am grateful to them for their scholarship, and for their clear presentation of it, to which I cannot do adequate justice in a short review.

I heartily commend this book.

David Drumm's Interview with Niall O'Dowd

On the wonderful website The Irish Economy, I made a number of contributions in the Comments section following a post on the above subject. A commenter called Bklyn_rntr responded to me (and to others) on November 28th last and again early on the following day. As the comments to the post in question had already gone on for too long, I promised to respond here and I belatedly do so now.

I shall address his points in the order in which they were made.

...Anglo had only one reasonably effective system for managing risk and that was to insist that loans granted MUST be deposited with the bank. Indeed, a minimum deposit was required or the loan would become callable. In 2008, apparently, when Lenihan was presented with a series of choices surrounding the guarantee, he chose to guarantee everything AND to allow deposits to be withdrawn, including those subject to the minimum deposit requirement.

I don't believe that when considering, and deciding upon, the Guarantee, the then Minister or anyone involved would - even if they knew about them, which I also doubt - have had the position of such security deposits in mind. If the suggestion is that Anglo management later released such security without repayment of the loans, then I will await sight of the evidence that this happened before commenting.

...if you want to demonstrate your superior legal skills by offering a definition of treason, feel free. I don’t pretend to have training here. However a dictionary says it is acting to weaken or harm your state or sovereign or offering help or succor to your country’s enemies. Well, IMHO, foisting what were clearly private sector losses onto the sovereign in order to protect the banks of Germany and France, was an act that weakened Ireland.

Compliment acknowledged, but I don't think that it requires legal training to appreciate the fact that to speak of treason is out of place here. Indeed, working out what constitutes the offence in the modern world caused grave difficulty as far back as 1916, when Roger Casement ended up being "hanged by a comma".

If a country is at war with another, someone who aids the enemy might be reasonably described as a traitor. At a stretch, one might also so refer to someone who works to replace, by force, our democratic constitutional arrangements with rule by one man, or by a small group, accountable to no electorate.

In both cases, the intention of the traitor to actually bring about the bad results would have to be an essential ingredient of the offence. One is not validly called a murderer automatically just because one is the cause of someone's death. It can be an accident.

I might agree with the opinion that the actions of many people - from all walks of life, not merely politicians and bankers - have, with the benefit of hindsight, damaged our state. Unless it can be shown that they did so with that intention, it is not just inaccurate but ludicrous to speak of what they did as criminal in any sense, never mind treason. And we are not at war.

Of course, I realise that many serious people, not excluding better lawyers than I, will speak in those terms in informal social encounters, but they will not do so in a serious context such as the present one.

If anyone really believes that people like Seán FitzPatrick, David Drumm or Brian Cowen took the disastrous decisions that they did with the intention that they would damage Ireland and/or aid the country's enemies, then it is long past time for evidence of such intentions to be produced. I have seen nothing which has even tended to constitute such evidence, and those who keep muttering about it are, it seems to me, living in a fantasy.

...it is shocking to think that concealed management loans, back handers, irresponsible lending practices, nefarious share support schemes were, and I suppose are still, legal...

None of those things have ever been or are "legal". (It might be useful to know, though, whether we share the same understanding of the terms "irresponsible" and "back-handers"). I don't understand Sarah Carey to suggest that she disagrees. What I understand her to be saying is that, because so many of the crimes alleged happened with the apparent connivance of the authorities, the miscreants can't and won't be prosecuted.

The world still spins on its axis in the same way, and accordingly I disagree with Sarah, but she has a valid point. Just ask yourself if a jury would convict Willie McAteer if they believe - I am not sure that I do - that he was actively encouraged ("Fair play to you,Willie") by the Financial Regulator to "window-dress" Anglo's balance sheet. And would a jury convict Kevin Cardiff of conspiracy if he persuaded the jury members that he sincerely believed that the interests of the State required him to do what he did ?

And that those who ran the country into the ground (public and private sector) are ... given an opportunity to state their side of the story to an obviously sympathetic journalist is shocking to me.

Sigh.

How are we to judge whether these people are really responsible if we object to hearing their side of the story ? Even if some issues of their responsibility may be clear by now, there is still a lot that they can explain. I would like to hear them do so.

In this case, a provocative interview with one of the most spineless, grasping thieves, and I will say it again, a traitor to boot is really too much to bear

Contact me if you have the evidence for those accusations, and I will help you to bring a prosecution yourself, if it can be done. I will not be holding my breath while I wait.

And "what about" sentences won’t do to justify why NOBODY, including this traitor, has been called to account

There haven't been any "what about" arguments made against your position, as far as I can see.

(By the way, I also participated starting here in the discussion about the same interview on the rather good Namawinelake website).