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.

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.

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.

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 ?

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.

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.

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.

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.)

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