More on the Troika and Bonds

My last post was found unconvincing, even - shockingly ! - by some lawyers . So, I need to elaborate further on my case.

Before I start, I should again attempt to make it clear what I am, and am not, saying.

I am not arguing that there is a term in the Troika documents which explicitly (or even implicitly) provides that any particular debt of any bank must be paid in full. To the contrary, there are a number of references to the option of not doing so.

What I am contending is that, under the Troika agreements, the decision on whether to pay is not for the Irish Government alone, and that the consent of the Troika fairly clearly was not forthcoming for anything less than a full payment of Anglo's "billion-dollar bond" last week.This news story from last June would appear to bear that out. Note in particular the last paragraph

On the issue of plans affecting senior bondholders at Anglo Irish Bank, Mr Van Rompuy said he 'took note of it' but this could happen only with consultation and negotiation

See also this story, also from June 2011, featuring a rather significant comment

The European Central Bank has opposed any moves to force losses onto senior bank bondholders and Ireland won’t act unilaterally, Deputy Prime Minister Eamon Gilmore said today.

In that sense - and that one only, I think - the payment is required by the "bail-out". Without the "bail-out", the Irish Government would have had a freer hand, although the fear of causing difficulties for the continuation of ECB liquidity support for the banking system would have been a significant constraint on that freedom.

I propose to elaborate further by way of some "big picture" points, followed by some detailed citation of the publicly available documentation.

Big Picture

1. If the "bail-out" deal does not give the Troika a veto over significant financial/economic decisions, just why were we all so upset at having to accept it ?
2. Specifically, why did the late Brian Lenihan express his disappointment with the deal vis-a-vis "burning the bondholders" ?
3. Although it is not a view universally shared, the deal explicitly names the banking crisis as the root problem of the economy. That being so, is it plausible that the Troika would not require a say in the detail of its resolution, and for this "say" to be written-in ?
4. The Troika is composed of the IMF, the ECB and the EFSF. While it is of course conceivable that the Troika could split, there is no sign that it has done, and there is reason (see my earlier post link) to believe that there is less disagreement on this issue than assumed by many
5. The ECB's view on the issue of "burning bondholders" hardly needs further discussion: to put it mildly, it is agin it. Is it conceivable that it would not write-in a veto (or something resembling it) ?
6. It has been suggested that the issue of bonds was, at best, peripheral to the "bail-out" negotiations. Au contraire, it was, I believe, the "elephant in the room", though perhaps not the only one. How else to explain Brian Lenihan's comment ?
7. Above all, the main obstacle to believing that the "bail-out" and the bond payment are unrelated is the lack of any credible alternative explanation for the failure to impose a "hair-cut" on the bondholders.

Deal Provisions

The version of the "bail-out agreement" from which I will be quoting is this one (PDF) from the Department of Finance website.

Please note these provisions

• The Irish authorities ... will stay in close contact and consult with...the ECB... on the adoption of these measures and in advance of revisions (page 4, paragraph 10)
• To this end, by end-January 2011, we will submit to the European Commission a revised proposal developed in collaboration with IMF, to resolve Anglo and INBS (page 11 paragraph 10)
• The quarterly disbursement of financial assistance from the European Financial Stabilisation Mechanism (EFSM) will be subject to quarterly reviews of conditionality for the duration of the programme.(page 22, second paragraph)
• In the context of the above strategy, a specific plan for the resolution of Anglo Irish Bank and Irish Nationwide Building Society will be established and submitted to the European Commission ... This plan will seek to minimise capital losses arising from the working out of these non-viable credit institutions.(Page 25)

I think that the cumulative effect of these provisions is clear enough. Yes, I agree that the language is not very strong, or particularly "tight", but it is the same tone throughout the documents, on all areas of policy. The Troika can speak quietly because it carries a big stick.

Footnote

An interesting consequence of the repayment of this unguaranteed bond issue is to undermine the importance of the infamous "Bank Guarantee" of September 2008 in the evolution of the Irish bank crisis. One is prompted by recent events to doubt whether the ECB would have permitted bank defaults, even without the Guarantee.

A Gimlet Eye on the Troika Agreements

(Don't shoot this messenger again, please ! I am describing, not defending, the "bail-out deal")

This post is written in response to the continued suggestions from members of the Irish media, political class and economists (e.g. Namawinelake, Professor Brian Lucey, Stephen Donnelly T.D.) that the redemption at par of the senior bonds - neither secured nor guaranteed, be it noted - issued by Anglo-Irish Bank was not required by the terms of the so-called "IMF bail-out".

Before showing (as I hope)that this view is grievously mistaken, I must observe that I find the prevalence of this view, and the vehemence with which it is held, rather surprising. It seemed to me - even before I read the documents - that nothing could explain the Government's persistence with the payment, other than external compulsion. It also was my impression that submission to the bail-out terms was widely accepted, and indeed lamented, in the same quarters, as removing our freedom of decision in such matters.

The Agreement

Ireland's agreement with the Troika - commonly mis-described as "our IMF bail-out" - gives the latter, of which the ECB is one member, a veto over any plans to "burn bondholders".

See paragraph 10 et seq. of the first attachment to this letter (it's on page 5 of the PDF) sent by Lenihan & Honohan on December 3,2010. It is a crucial part of the "bail-out deal" architecture. By it, Ireland has committed to agreeing its plans in the relevant respects, including "burden-sharing" with bank creditors, with the Troika.

The word "veto" is not used. It does not have to be. Failure to approve has the same effect.

Now, there are those who are suggesting that our government has not tried, and that if they only tried hard enough, the ECB would "cave-in" and agree to "burden-sharing" a.k.a "burning the bond-holders".

I have no personal knowledge of whether such suggestions have any basis in reality, but I have noticed that Messrs Kenny, Gilmore and Noonan have claimed to have discussed the question with M. Trichet. I have also noticed a lot of abuse directed at Trichet because of his alleged obdurate refusal to countenance any suggestions that the ECB should relax its opposition to bond "haircuts".

I also note that, contrary to views expressed in many quarters, the IMF is none too keen, either. See p.23 of this PDF at paragraph 34, third bullet point (and especially the last sentence).

It does not look to me as if the necessary approval is available from the Troika just now, whatever the future may bring. What leverage do we have to persuade them to a change of mind ? As long as our borrowing requirement is circa €15 billion, not a lot, in my view.

But what do I know ?

Update on Monday, November 7, 2011 at 06:11PM by Fergus O'Rourke

I repeat that I am not defending the "bail-out" terms. I share the views of Martin Wolf.(Gavyn Davies says the same thing in a different way).

Update on Sunday, November 13, 2011 at 12:04PM by Fergus O'Rourke

I have elaborated further later post here

Carswell in 60 seconds

Simon will probably be able to digest this in a minute "flat", but no-one else should be upset if it takes them longer than that ! The title originally referred to how long my first draft took to sketch, but to finish it consumed much longer than 60 seconds.

Here is my reaction - it's not really a review - to Simon Carswell's Anglo Republic.

• The crux: Anglo directors were agreed in 2004 that the exposure to development property needed to be reduced sharply, but because the bank lending staff were "deal junkies", they ...just...couldn't
• Another explanation: Chairman Gerry Murphy said in 1995 that the aim was 30% p.a. growth. New C.E.O. David Drumm repeated this target in 2004! Large property deals were the most, um, effective route to this goal...and took the bank over the precipice
• Something that might surprise you #1: Seán FitzPatrick did not like 100% (LTV ratio) loans
• Quotation from FitzPatrick: "We never employed people to tell us why we shouldn't lend" - a bit of an exaggeration, but only a bit
• More crimes were committed during the final slide over the precipice than have previously been revealed
• As the growth "snow-balled", anything, including prudential procedures, that slowed loan approvals was characterised as "inefficient" and was dismantled, wholly or partially. Not a thought seems to have been given to macro issues of sensible lending - all "turnover vanity", little "profit sanity", so to speak. In time, no-one was left who was likely to shout "stop !" or even to hesitate to lend more
• Something that might surprise you #2: Anglo's expense ratio was only one-third of the industry average
• It is tempting to see Seán Quinn as the "real villain", but Anglo was "going down" even without his astonishing shenanigans
• Anglo - other Irish banks too - was full of people with business degrees who had trained as accountants (as opposed to bankers or economists) and who saw banking as "just selling money"
• In early 1990s, 90% of Anglo lending staff were ex-AIB
• Something that might surprise you #3: there was really no "special relationship" with Brian Cowen, or even with Fianna Fáil in general
• At least after the departure in 2005 of Tiarnan O'Mahoney, the funding discipline, such as it had been, disappeared
• The biggest omission from the book: there is no detail on how the loans to Mr FitzPatrick were actually approved e.g. who did the due diligence (if any) ?
• I was surprised at the description of personal guarantees as an "Anglo trademark". During my banking days, which ended in the mid-1980s, they were more associated with my employer, Industrial Credit Company (as it then was named). There was constant pressure on us to abandon the requirement, not just in individual cases but in principle, and by 1985 seeking them was much less prevalent as a practice. How did Anglo get away with it so easily ?
• Something that might surprise you #4: The Financial Regulator was not completely useless: at several points, he obliged Anglo to modify its behaviour

The reasons for Anglo's specific route to disaster viz.

1. the lenders' addiction to deals
2. the ludicrous growth ambitions
3. the weakness of the funding function
4. and (my own gloss) the overall shallowness of the corporate culture

prompt the (for me) obvious question to those directing the other banks, and especially AIB Group

What's your excuse ?

Boston vs. Berlin: "Blame-Game" Episode

Mary Harney, for good or ill one of the most influential figures in Ireland's political life over the last 30 years, said in a 2001 speech which is still debated

As Irish people our relationships with the United States and the European Union are complex. Geographically we are closer to Berlin than Boston. Spiritually we are probably a lot closer to Boston than Berlin.

Now, I offer you more grist to that particular mill.

"It's The Economy, Dummkopf"

In the latest entertaining (but, um, scatological) article by Michael Lewis for Vanity Fair entitled as above, our old friend gives us much interesting detail on cultural differences. Read the whole thing; there is more in it than I can possibly précis for you. However, partly but not entirely because of my current series of posts on a related theme, I found this observation especially interesting:

The American bond traders may have sunk their firms by turning a blind eye to the risks in the subprime-bond market, but they made a fortune for themselves in the bargain and have for the most part never been called to account. They were paid to put their firms in jeopardy, and so it is hard to know whether they did it intentionally or not. The German bond traders, on the other hand, had been paid roughly $100,000 a year, with, at most, another $50,000 bonus. In general, German bankers were paid peanuts to run the risk that sank their banks—which suggests they really didn’t know what they were doing.

Reference to $150k p.a. as "peanuts" may be offensive to some, but in this context, is not hyperbolic: some American traders were paid millions, to sell what turned out to be "toxic" products, and for which in Lewis' telling, the less well-paid German fund-managers were actually the "ultimate patsies". He goes on:

But—and here is the strange thing—unlike their American counterparts, they are being treated by the German public as crooks. The former C.E.O. of IKB, Stefan Ortseifen*, received a 10-month suspended sentence and has been asked by the bank to return his salary: eight hundred and five thousand euros.

The emphasis is the author's, who thereby reminds us of American financial entrepreneurs who have made more than $805 million from similar activities.

Ironic or .. ?

In summary, in "Boston" people made millions by selling toxic stuff to relatively underpaid, naive, people in "Berlin". The latter, arguably victims of a kind, are the ones threatened with jail. In Ireland, my impression is that those doing most of the similar threatening tend to be those on the "Boston" side of the debate.

*Mr Ortseifen was charged and convicted, not of "losing billions" (though his firm, Lewis says, did lose more than $15bn under his leadership), but for allegedly making a false statement to the market. The conviction looks rather unsafe to me (for whatever that is worth), and I understand that it is under appeal.

MOPE: "Most Oppressed Profession Ever" ?

In Ireland, the grievances of Northern nationalists have occasionally been exaggerated, leading to the derisive label of MOPE ("most oppressed people ever") being applied by some of the more cynical among us.

I am often reminded of this when reading the complaints of some independent financial advisers ("IFAs") in the United Kingdom. A current example is this article by Alan Lakey of Highclere Financial in Hemel Hempstead. Mr Lakey has been a vociferous critic of financial regulation for quite a while (at least 5 years, if I recall correctly), and there is much to criticise. As with the Northern Irish nationalists, the "hype" about the precarious position of IFAs reflects real grievances, not imaginary or invented ones.

However, in the recent article, Mr Lakey parades two "hoary old chestnuts" beloved of the "IFA community".

Expanding the Complaint

A big bone of contention is that

Unlike a court, the FOS is able to depart from the specific allegation being levelled and pick through the advice process looking for some aspect it does not like. This inquisitorial process often results in the original allegation being rejected but another, often disassociated matter, being used to uphold the complaint...Some of these are clearly vexatious or devoid of logic yet the FOS invariably accepts jurisdiction causing the adviser hours of unnecessary work, interaction with his PI insurer and, potentially, payment of a £500 case fee.

(Emphasis added by me)

This is based on a misconception of how judges - at least the better ones - deal with cases. Particularly with litigants-in-person, a judge will seek to be sure that s/he understands the real source of what has given rise to the proceedings. If that means permitting the claim to be amended, that will be done.

I would doubt that Mr Lakey could sustain his charge that vexatious, illogical claims are invariably added to original complaints, but I accept that when it does happen, as it probably does, it is not a nice experience, for the reasons mentioned by him, and others.

Limitation Rules -A Human Right

Another area causing outrage is ...[that the] FOS totally ignores the 15-year long stop.The lack of a long stop is the most emotive as it singles out our industry for a removal of human rights. No rationale is used for this confiscation of rights apart from some mumbling about the long-term nature of financial advice.

This is where Mr Lakey really "loses it" and loses me, too.

The idea that benefitting from the English (or any other) statutory rules on limitation could be regarded as a "human right" is - I cannot think of a more polite word - ridiculous. All limitation rules are inherently arbitrary and work a lot of injustice in themselves. (Sadly, that does not mean that we can do without them, but that's a story for another day). For that reason. presumably, they are restricted to "legal proceedings", and complaints to the FOS are not legal proceedings.

To put it another way, it is said that the limitation rules do not extinguish the right but merely remove the remedy of being able to sue (in court) to enforce the right.To my mind, it is entirely reasonable that the FOS, not least because of the very long-term nature of some financial-services contracts, should leave open the possibility of examining complaints about events older than the 15-year long-stop.

Naturally, to do that raises difficulties of evidence on all sides, and one would expect that the FOS would not neglect this. Nor should it fail to have regard to the normal legal approaches to protests by defendants that there has been unconscionable delay in making or pursuing a claim, and similar protests.

On the evidence point - which is normally the main difficulty - it is relevant to wonder, nearly a quarter-century after the 1988 Financial Services Act, whether it should not be severely embarrassing for the industry to be be still worried that its paperwork might not vindicate its position.

Emigration #4

The previous blogposts in this series have now been kindly re-published as a single article here by TheJournal.ie.

The article has generated a satisfying number of comments, some of quality, and there has also been vigorous reaction on Twitter.

The discussion will continue here and elsewhere.

One for the IMF ?

In Ireland, female employees who are pregnant are entitled to 42 weeks maternity leave (26 weeks of which are compulsory). The timing is at the employee's option, but at least two weeks must be before the birth, and four weeks after. This applies to all categories of employees, whether permanent or temporary, up to and including the chief executive officer.

Recently, leading Dublin solicitors William Fry tell me, an employer sought to engage someone on a temporary contract basis in order to do the work of an employee taking such leave. A candidate was selected, who, like all candidates, had been informed of the reason for the employment, and had explicitly confirmed that she envisaged no difficulty in working for the required period of 42 weeks.

On being offered the position, however, she disclosed that she was herself 18 weeks' pregnant. Note that she was already within the period that could form part of her maternity leave, so that after one day's work she could legally demand to be given leave.

The job offer was withdrawn. The offeree complained to The Equality Tribunal, following which an Equality Officer, determined that she had been the victim of illegal discrimination on the grounds of sex was entitled to compensation of €12,697, the equivalent of approximately 18 weeks' pay at the Average Industrial Wage.

A fuller account is here. A hat-tip for informing me via Twitter of this story goes to Rossa McMahon.

Update on Wednesday, May 11, 2011 at 07:40AM by Fergus O'Rourke

Amended to delete reference to The Equality Authority

On Emigration #3

Unemployment is, in absolute terms, at an all-time high just now in the Republic of Ireland. While we have experienced higher rates of unemployment in the 1980s, the current number of nearly half a million is a new record.

I am confident that it will come down again, but the descent will be slower than the upward surge was.

Does anyone think that even 300,000 jobs will be "created" within, say, 5 years ? There is no sign that even the most optimistic left-wing politician believes that this can be achieved.

This means that an awful lot of people are facing a long period of unemployment if they restrict themselves to the opportunities afforded by the Irish labour market. It is a sobering thought. It is not less sobering to note that the opportunities in the traditional English-speaking destinations for Irish job-seekers are perhaps not going to be as good as in the past. And, as noted above, our current temporary labour surplus has never been higher.

On the brighter side, the richer countries are pretty short of the kind of people of whom we now have a surplus, and also, over the last quarter-century it has been noticeable that Irish people have found opportunities all over the world, and not just in the traditional comfort-zones.

The traditional cultural inclination, however, has been for Irish workers to wait and wait and .... Emigration was slow to resume in the 1980s and only really got going after 1986. This was bad for the individuals, and for society in general.It would be tragic if we let the same thing happen again.

I am not suggesting that everyone should, like our forbears, "take the boat" and join the Cricklewood navvy gangs, (even if there are any left), but we should, I suggest, shake off at least a little of our instinctive emigration-averse acculturation and treat the world Global Village as our oyster (which it is). It does not provide an easy option for any but a lucky few, but for many others opportunities will present themselves if they decide, starting right now, to be open to them.

The rest of us, I would urge, should stop bewailing "the return of the spectre of emigration".

And remember: VOIP is a great thing, and medium/long-distance travel has never been quicker, easier or cheaper.

Update on Monday, June 6, 2011 at 10:24AM by Fergus O'Rourke

This entry and the preceding two on Emigration have now been published as an article here, where there has been some interesting reaction.

Emigration #2

My view on emigration is, understandably, shaped by my experience.

I was born in Canada, as was my eldest brother (we have joint citizenship).Of the nine children produced by my four grandparents, not one spent their entire working life in the State, and three are permanently resident abroad.Of my seven siblings, only one has not lived and worked abroad, and two still do.

I have 34 first cousins living, of whom 25 were born in Ireland. Nineteen now live in Ireland, of whom three have returned after being located elsewhere.

I have three children. One lives in Dublin (at least three hours travelling time away). The other two live abroad.

I have nine nephews/nieces: four live abroad.

To sum all this up: Emigration has always been part of the story of my family as I have known it.

It's not exactly that "it's no big deal", as it were; it is more a case that this is Life - if your desires, plans, ambitions, relationships need you to live a long way away from where you grew up, you do it. You do not wring your hands, and wish that it could be otherwise, and neither do those whom you are leaving behind. There is some pain in separation, but it's not "the end of the world."

Of course, it is very important to this mind-set that separation, albeit it may be prolonged over years, is not seen as permanent. For many Irish families, though not mine, the experience of emigration meant the departure of family members who were never seen or heard from again.

Next, I hope to address the topic of emigration in the context of Ireland's current circumstances in 2011.

Update on Monday, June 6, 2011 at 10:22AM by Fergus O'Rourke

This entry and the other two on Emigration (i.e. "On Emigration #1" and "On Emigration #3" have now been published as an article here, where there has been some interesting reaction.

On Emigration #1

In Ireland, "emigration" is pretty universally regarded as A Bad Thing. (Attitudes to immigration are more ambivalent).

This attitude is generally explained in terms of the 19th century experience. Following the catastrophic "Great Famine" in the mid-1840s, during which a million died - the pre-Famine population was about 8 million - millions left the country. At its lowest point, the island's inhabitants numbered about 4 million, and the population remains below 6 million.

To put some context on this, the population of the neighbouring island of Great Britain increased from 19 million to nearly 60 million over the same period, despite wars and not insignificant emigration of its own to "the Colonies"(yes - net immigration played a part too). Europe, despite The Holocaust and similar horrors, also trebled in population.

For me, someone who has lived in Ireland for over half a century, and thought that he was historically aware, just recalling these bare facts has taken me considerably aback. It is probably fair to say that for anyone attempting to understand the Irish, ignoring the Famine is as crass as ignoring the Holocaust when considering the Israelis.

Behind the Irish statistics lie a multitude of family separations, destruction of communities, economic stagnation and, generally, a "world of hurt".

Insofar as there is a collectively shared narrative of what emigration means, it is still stuck in that historical recollection.

I trust that it is clear that I have considerable sympathy for that on a sentimental level. However, although there is still some reality in it, I dissent from the national consensus which accepts it as a rational approach to the present. I will be elaborating here on this view of mine over the next while.

Update on Monday, June 6, 2011 at 10:19AM by Fergus O'Rourke

This entry and the succeeding two on Emigration have now been published as an article here, where there has been some interesting reaction.

Er, That "Nonsense" About 800 Years...

...may not be so nonsensical after all*.

Via "The Browser", I learn of an amazing historical study entitled "Persecution Perpetuated: Medieval Origins of Anti-Semitic Violence in Nazi Germany" by Nico Voigtländer and Hans-Joachim Voth (Economists are everywhere).

The abstract reads (paragraphing and emphasis added by me):

How persistent are cultural traits ?

This paper uses data on anti-Semitism in Germany and finds continuity at the local level over more than half a millennium. When the Black Death hit Europe in 1348-50, killing between one third and one half of the population, its cause was unknown. Many contemporaries blamed the Jews. Cities all over Germany witnessed mass killings of their Jewish population. At the same time, numerous Jewish communities were spared these horrors.

We use plague pogroms as an indicator for medieval anti-Semitism. Pogroms during the Black Death are a strong and robust predictor of violence against Jews in the 1920s, and of votes for the Nazi Party.

In addition, cities that saw medieval anti-Semitic violence also had higher deportation rates for Jews after 1933, were more likely to see synagogues damaged or destroyed in the Night of Broken Glass in 1938, and their inhabitants wrote more anti-Jewish letters to the editor of the Nazi newspaper Der Stürmer.

Wow !

*The reference will need no explanation for most Irish, but I have a few readers who are not so blessed. Next Sunday, it will in fact be 842 years since The Invasion led by Richard de Clare - better known as "Strongbow" - began our history as the Most Oppressed People Ever ("MOPE"). Allegedly.

The Cards We Were Dealt & How We Played Our Hand

Cormac Lucey, if I do not misunderstand this article of his, thinks that the EMU project is the ultimate culprit for our current economic mess. He is not alone in holding that view.

I do not agree: in my opinion, it is the lack of an appropriate Irish fiscal/regulatory policy response to the implications of our circumstances that is the proper culprit in that context. My recollection is that flaws in the Eurozone architecture were competently identified and policy prescriptions recommended by the "economist community".

Very unfortunately, those recommendations were not followed, and that is why "we are where we are". I don't claim to have been prescient about the extent of the financial "meltdown", but do claim that my opposition to the Lisbon Treaty was partially due to a revulsion from the failure - a failure of the EU elites, not just the Irish - to face the fact that the EU governance arrangements were neither one thing nor the other, and not fit for purpose, especially for a monetary union.

See these statements, for examples:

Having to play by the EMU rules is an acceptable long term price to pay for EMU’s economic benefits

I remain concerned by the robustness of the arrangements for the Euro. The Stability Pact is not the only one of its foundation pillars that is looking shaky

They are extracts from a 2008 post of mine.

La Trahison du...peuple?

I am prompted to write this by a recent post by Professor Eoin O'Dell, for whom I have considerable respect.

Notwithstanding that respect, we have many disagreements. For our latest, see the comment I made to the said recent post.

The issue is linked to the on-going discussion about how we in Ireland got ourselves into our current economic mess. Many commentators believe that a)there are identifiable culprits (many of whom are criminally liable), and b)all are members of the property developer, political, higher civil servant, financial regulator, banker or estate agent classes. (I propose to restrict myself in this post to the domestic targets - I may discuss the foreign scapegoats another time). I have even heard bankers, property developers and estate agents express the view that their own excesses should have been prevented by one or more of the other groups.

The link I see is this: both narratives posit that Irish adults cannot discover value or its absence without top-down guidance.

Supposedly, property buyers cannot divine, unassisted, that properties selling at 30 times annual rental value - the multiple reached much crazier levels in the supposedly more sophisticated areas - are over-priced and/or that there are times in every market when the market price is a signal not to buy. Similarly, clients of lawyers are allegedly incapable of understanding that a charge of €300 per hour to handle a straightforward probate matter is an offer which should be refused.

It is not that I don't see a real problem. There is a thorough-going failure of society here. Even property investors with millions at stake and bankers with billions at risk, to my personal knowledge, still resist the notion, ignorance of which has cost all of us so dear, that capital values of property relate to other variables such as market rent levels and trends.

And, though it is sometimes exaggerated, there is considerable reluctance among end-users of legal services - even ones who are otherwise sophisticated - to adopt a rational approach to selecting and paying their lawyers.

I suppose that another variety of the same thing is the commonplace reaction to reports that petrol station A is charging 10 cents per litre less than petrol station B: "B is a price-gouger", it will be said. The next day, or sooner, the same people will say of a report that stations C and D charge exactly the same price that it is clear evidence of illegal collusion.

Along the same lines, one constantly encounters people who bitterly complain that Tesco will not reduce their prices - all of them - to the same level as Lidl or Aldi, but who will not actually switch their custom from the former to the latter. (Yes, I know that for some, it is not an available option. And, one must exclude those who will not patronise Aldi or Lidl because they are "full of immigrants".)

How to characterise this ? "Irrational" seems too mild. Is "juvenile" too harsh ?

Whatever, it seems to me that the answer cannot be for government to attempt to put "crutches" in place so that adults are protected from their refusal/failure to use their brains when buying legal or financial services. Apart from anything else, recent experience has confirmed that the people who will be implementing such measures are no better at using their brains than the rest of us.

(None of that means that I oppose all regulation of the financial or legal services markets, and I do not.)

Unanswered Questions ?

The single-reason explanation for Ireland's banking catastrophe was a drastic deterioration in the quality of the lending done by the major lenders.

An aspect of this constantly mentioned in popular discussion is that this resulted from "bankers' greed" otherwise known as the so-called "bonus culture". Anecdotally, one hears that lenders at relatively senior level were receiving weekly cash bonuses in return for boosting the volume of loans advanced.

If true - and there does seem to be some truth at least in the anecdotes - this was indeed incompetent management of a high order.

Just as incompetent, but less commonly criticised (probably because so many, including journalists, are beneficiaries), was the banks' collective decision to extend home mortgage loans almost exclusively on a "tracker" basis. What this meant was that the customer paid interest at a rate above "the ECB rate". Unfortunately, the banks could never actually borrow the funds from the ECB at that rate, and now are left with half of their home-loan portfolios guaranteed to lose money even if the borrowers pay up in full.

Before writing this post, I turned to the three major reports (Honohan, Regling & Watson and Nyberg - N.B.all are PDFs) on the disaster to see what they had to say about these two major blunders. From my quick searches (I have still not read the reports in full), I found nothing substantial said about either.

They do appear to confirm that there were inappropriate incentives in the remuneration systems, and that the tracker lending was as badly priced as it seemed from media reports. Significantly,however, they offer no explanations for how these practices developed, whether they were appreciated as such by top management or board directors or whether there was any controversy about them whether internally, or externally (with regulator or auditor).

For me, this is less forgiveable, or even understandable, than the more general failure by these reports to assign blame to individuals for the overall situation. Moreover, while there is an effort to explain the latter by reference to atmospheric issues such as "group-think", excess optimism and the like, the pure incompetence of bad pricing (of the trackers) and bad remuneration practice attracts no attempt at explanation.

Worse than that, I have seen no sign that anyone has been asking the questions.

I hope that some reader can show me that I am mistaken.

Yellow Horse Street

NOTE:The copyright in the pictures below belongs to Cork City Council, whose permission to reproduce them is, sincerely, gratefully acknowledged.

For most of my working life, I have used this street.

I occasionally wondered rather idly about the origin of the name, because it has a rather Native American sound, does it not ? One does not expect that on the eastern side of the Atlantic - even in the Rebel City of Europe's Wild West.

Those Corkonians who think only in the language of the Age-old Oppressor will have no idea as to the identity of the street of which I speak. Here's a hint for them: it's the one which now covers the channel running vertically down the middle here

Some people call it "The Grand Parade".

Then, a couple of days ago, with Frank Hannigan's help, I found this:

and all became clear.

For the full story of the picture, see here.

Perhaps the most remarkable thing about the photograph, taken in the 1850s, is the evidence which it provides of the advanced state of photographic technology in Cork at the time. Although only one colour breaks the monochrome of the picture, that is one more than was to be seen in photographs generally for nearly a century elsewhere ! :-)

Greed

Greed, Gordon Gekko's famous aphorism notwithstanding, is not popular.

I don't see this as a passing thing. It's one of the Seven Deadly Sins, after all. (The other six are gluttony, sloth, envy, wrath, pride and lust).

But some of us need to remember that being motivated by economic factors is not the same as greed. That is so, even when those so motivated are not "on the bread-line" or anywhere near it.

An obsessive revulsion from such motivation (misdescribed as "greed") may well inhibit economic progress of benefit to everyone.

Colm Doherty

Although as former colleagues at ICC Bank, we once knew each other, albeit very slightly, I "carry no torch for" Colm Doherty. Still, I am impelled by recent unfair comment to come at least partially to his defence. It is only a partial defence, if only because my knowledge of most relevant facts is confined to what has been published in the media.

He has been in the news because AIB Group have disclosed that he received €3m (which included pension contributions) on termination of his contract as group managing director. There are those who say that this was a perverse "reward" for having lost the bank billions. Even the Minister for Justice has seemed to give credence to this version of the position.

The truth of the matter is that Mr Doherty worked for AIB for about 20 years, almost all of that in a part of the bank that was always, and still is, profitable.("How come the bank is insolvent,then ?" you may ask. It was the lending, remember ? Colm Doherty was not a lender at AIB.). He took a pay cut to become Group MD. The payments made to him are not merely for his last year as an employee, in which a lot of bad things - done by others in previous years - came to light.

Of course, he was also a main board director for a number of years, and that does mean that he bears some share of the responsibility for the lending disaster, but there is no evidence of which I am aware that he committed any crime for which forfeiture of his pension entitlements would be merited.

Please note that I am neither criticising nor defending either the choice of Mr Doherty to be Group Managing Director, the level of his remuneration in that position or that in his previous one.

"Nice People Should not have to Defend Themselves"

Professor Eoin O'Dell informs us, approvingly, that the U.K's Deputy Prime Minister has declaimed

We believe [libel] claimants should not be able to threaten claims on what are essentially trivial grounds

This is the nub of the English libel reformers' campaign, as far as I can see. To my mind, it is ridiculous and indeed outrageous.

Just imagine if analogous demands were made in other areas of law

• "Police should not able to prosecute on what are essentially trivial grounds"
• "Drivers in RTA collisions should not be allowed to claim against each other on what are essentially trivial grounds"

Both Irish and English law provide mechanisms for the early dismissal of trivial, frivolous or vexatious claims of all kinds. There is an argument, I believe, for greater use of these mechanisms in civil matters (including defamation) and for a more sympathetic approach by judges to their use. An interesting recent example of the mechanism was Foy v AIB, where the Defence rather than the claim was, to be polite, legally unviable, leading to a summary (=very quick) result. Surreally, lawyers were found to pronounce the result an outrage because, supposedly, any lawyer "worth his salt" (sigh) could have delayed the inevitable. (Only by suborning perjury and/or engaging in professional misconduct by virtue of blatant abuse of process, in my humble opinion.)

(Criminal justice lawyers - no, I am not one - need no such encouragement: they will normally and reflexively employ every possible device to have a criminal charge thrown out from day 1 of every case. Thank God).

I just cannot see how statute law - i.e. that enacted by parliament - can perform such a filtering role, that is, deciding in advance of any actual case, that certain kinds of claim are "essentially trivial", without either abolishing the tort of defamation entirely (if you think that would be good, see this) or greatly diminishing citizens' entitlement to access to the courts to resolve grievances. (Yes, yes, I know that lawyers have a vested interest in this, and that the entitlement means a lot less in practice than in theory, but those are distinct issues). And for what ? Apparently, to protect some people - scientists are at the forefront of the campaign - from having to face vigorous dissent from those whom they criticise, which some of them appear to believe it is legitimate to express in quite trenchant terms.

Of course, not least because I am the son of a scientist, I understand that scientists are alarmed, to put it mildly, by some truly outrageous attempts to stifle research by abuse, or threatened abuse, of the law. I have less sympathy with those who insist that they should have legal immunity when they not only express a scientific judgement, but feel obliged to insult and smear those whom they consider (normally, to my mind, with good...er...reason) to be less than perfect followers of the One True God Scientific Method.

A rough-and-ready (that means it is not perfect: no need to point that out in the comments, thanks) guide for scientists might be: if someone is suing you on the basis that you defamed him or her in your brilliant scientific paper, book or article, you probably need to be more impersonal in your analysis. I know, it makes the writing less exciting but that kind of writing is for journalists, whose training, unlike yours, includes some education about defamation law.

Update on Friday, January 14, 2011 at 05:53PM by Fergus O'Rourke

Inforrm's Blog (London, England) has contributed usefully here on the same topic, on the Libel Reform Campaign here, and is consistently worth reading on media law issues.

It Was The Lending

What really caused the Irish banking crisis ?

Although some of them made a contribution

• It wasn't the PDs
• It wasn't Charlie McCreevy
• It wasn't Bertie Ahern
• It wasn't Brian Cowen
• It wasn't "the Government" or "the politicians"
• It wasn't the Central Bank
• It wasn't the Financial Regulator
• It wasn't the ECB
• It wasn't the builders or developers
• It wasn't Lehman Brothers
• It wasn't the bonuses, or high executive pay
• It wasn't the tax-breaks
• It wasn't the hidden directors' loans
• It wasn't the "Golden Circle"
• It wasn't interest rates
• It wasn't the "Partnership process"
• It wasn't benchmarking
• It wasn't the economists
• It wasn't the tribunals
• It wasn't the "wall of €100 billion euros"
• It wasn't the EU or the Euro
• It wasn't the Bondholders
• It wasn't the Media
• It wasn't fraud
• It wasn't the house-buyers or other borrowers
• It wasn't securitisation
• It wasn't exotic derivatives
• It wasn't over-charging customers
• It wasn't "pure greed"
• It wasn't NAMA
• It wasn't even property prices

No, it was the lending. The bad lending. The giving of mis-priced loans to unworthy borrowers, over-concentrated in one sector notorious for regular "bubbles", for uneconomically sound purposes backed by inadequate "collateral" incompetently assessed and often negligently secured, if at all.

Lending money carefully has always been regarded as the "key competence" of the banking industry. Even at single-digit interest rates, it can be profitable if done well. To lend well requires diligent application of standards throughout the process. The scope for error is minuscule. If "grip is lost" across the process, disaster is not merely courted but guaranteed.

That is what happened at Irish banks in the period up to 2007.

It was the lending.

Update on Saturday, January 1, 2011 at 01:54PM by Fergus O'Rourke

Edited to add links and a reference to executive pay

Update on Saturday, January 1, 2011 at 04:03PM by Fergus O'Rourke

More links added

Extremist Political Speech

Fianna Fáil ("FF"), from 1932 until now Ireland's semi-permanent party of government, and the dominant partner in the current governing coalition, appears to be moribund.

The latest Red C opinion poll shows its support at 13%. In a real election last week in Donegal South-West, it secured a share closer to twice as high, but that was in a constituency in which it previously could safely rely on 50% or so.With a General Election coming in the Spring, this is ominous for the party.

I am not sorry to see this development, for which I have hoped most of my adult life. Unfortunately, it has taken a set of circumstances with truly appalling consequences for nearly all citizens to bring it about. However, one could not say that it has been undeserved: FF have been the authors of their own demise (and Brian Cowen has lived down to my worries about his suitability for the top job).

All that said, I have been taken aback by some of the extreme language used by some commentators to describe the party and those who vote for it. A certain "snootiness" about FF and its popular appeal has always been noticeable among the "chatterati" and Garret FitzGerald's reference (even though his intended meaning was something different) to "flawed pedigree" caused great offence precisely because it appeared to make explicit a theme whose expression was normally suppressed. At its most virulent, this "snootiness" was similar to the blind prejudice commonly expressed against all members of the Irish "travelling community".

The present crisis, and the fact that Fianna Fáil, the party (correctly, in my view) held responsible for it, not only still cling to office (partly by refusing to hold by-elections) but continue to attract *any support at all* has provoked the expression of some very strong sentiment.

Here's a sample:

If Ireland suffered a nuclear winter, two certain survivors would be: 1 Cockroaches, and 2 Fianna Fail.

FF are the cockroaches of politics.

...we’d be allowed to use a reasonable amount of violence to rid our property of political cockroaches.

people are listing their personal plans (move,study etc). Mine involves the FF cabinet & an angle grinder

Fianna Fail have once again, crippled this country.. Patriotism to the parish pump is all they understand... You are a cancer on this country

Fianna Fail are a cancer. Good analogy

[L]ying is in their genes

Fianna Fail Scum, FFS for short

Do you have a final solution for the FF problem?

How do we stop Fianna Fáil ever getting into power again and making sure the architects of this nations downfall face justice...To be 100% sure of success, we'd need to exterminate the 25% of our population that makes up Ireland's cretin belt, plus their numerous offspring (Irish cretins tend to breed like rabbits).

As for the rest of your wibbling gombeen bolloxology, I look forward to the day when all you FFers are rounded up and deported to Antarctica.

Yer a fool, a liar, a national traitor and a thief, like all your despicable kind. FFers are scum - boorish blustering lying arrogant-but-clueless scum.

The absolute dregs of humanity, subhuman untermensch, a poisonous cancer on the Irish nation

Of course, this is not a representative sample of the anti-FF sentiment being expressed in the national conversation. Most would be more moderate in tone, similar to that in my opening paragraphs above. However, extremist language has a potential to provoke extreme action, and many otherwise sensible people are now to be heard on the broadcast media, and to be read elsewhere, favouring what sounds like the overthrow of the Government through street protests. Some even seemed - and still seem - to believe that a street mob is a valid and reliable expression of true democratic will.

If that were so, much expense could be spared on those troublesome exercises known as elections. No, once power is achieved other than in the ballot-boxes, there is no longer democracy.

Attacks on democracy in the Irish media, however, are nothing new. Though never explicit, they were a daily occurrence during the Lisbon Treaty campaigns. Bryan Caplan notwithstanding, I am a passionate democrat. Unlike others, I do not dislike democracy simply because it delivers results that "experts" deem wrong.

What is more disturbing about the tenor of the stuff quoted above, as I am sure some readers will have noticed, is the resemblance to hate speech recorded in 1930s Germany ("untermenschen", "Final Solution") and pre-genocide Rwanda ("cockroaches"). Of course, the contexts are not at all comparable and I don't expect death-camps for Fianna Fáilers to spring up, anti-FF murder-gangs to wander the land, or anything of the kind.

Nevertheless, I found it remarkable enough to say on Twitter last week:

Some of the anti-Fianna Fáil sentiment being expressed here & on other media is reminiscent of the worst kind of anti-semitism

As most know, messages on Twitter are limited to 140 characters, and so "anti-semitism" had to do the work of a longer phrase such as "anti-semitic hate speech", but it seems to me that, to any bona fide reader, the meaning was clear from the context. I wasn't reminded of the gas chambers even by the nastiest of the messages hostile to Fianna Fail, and I wasn't equating one to the other. Furthermore, by starting with the phrase "some of", I thought that I was as clear as I could be that I was not of the ridiculous view that any criticism of Fianna Fáil was to be deprecated. Anyone who paid attention to where I stood on political issues, or who knew my political history, would know that to be absurd.

The reaction from many to my tweet was hostile. I learned of the true colours of some whose virtues I had previously held in higher esteem. No doubt, lessons were learned on both sides. Enough said on that.

I also learned other things, like the depths to which anti-semitic propaganda sinks in the Levant, even today. Nothing said in Irish arguments, I hope, will ever be redolent of such pure poison.