July 26, 2010

Why the ESRI has got it wrong

Posted in Irish Economy · 67 comments ·

Should governments cut spending rapidly this year and next if the economy is still on its knees?

This debate is raging, not just in Ireland, but around the world. Broadly speaking, the EU and the European Central Bank (ECB) want to cut back government spending quickly, while the Americans are more cautious, wishing to make sure that the economy is strong enough before they start cutting.

All this comes against a background of the world economy turning out to be more fragile than expected and a real worry in the US that there will be a double dip recession.

The data from the US is not reassuring right now – particularly from the housing market, which has been a good leading indicator of how strong any recovery is likely to be.

The latest in a long stream of increasingly powerful signs that the US housing market is plunging headlong into a double dip came in data published last Tuesday. It showed that housing starts in June fell to a seasonally adjusted annual rate of 549,000 units, including both single-family homes (the great majority) and multiunit buildings.

This was 5 per cent below the level for May, of 578,000 starts – which itself had originally been reported as 593,000, but was revised down with the publication of the June data.

The all-time record low in this series – which stretches all the way back to 1959 – was in April 2009,when 477,000 units were started. So, although there has been a recovery from the trough, it has been a very minor one when you consider that the peak, in January 2006,was 2.3million units.

After a ‘dead-cat bounce’ last spring and summer, the direction has been sideways for the last year.

Now, housing starts are clearly heading downwards again. This renewed slump led Ben Bernanke, chairman of the US Federal Reserve, to admit candidly this week that the outlook for the future was ‘‘unusually uncertain’’. That is banker-speak for ‘‘what we have done so far to solve the problem does not seem to be working’’.

It is refreshing to hear a man in power admit he is not sure which way things are going.

This honesty is not a weakness; it is a strength. It also informs the US position when they question whether it is prudent to cut back state spending right away.

Contrast this humility from the Americans with what was on display in Ireland this week.

Here, where practically every mainstream economist got this boom/ bust cycle totally wrong, many, completely unabashed, are still confidently doling out advice and long-range economic forecasts, despite the fact that the future is extremely uncertain.

In Ireland, the Economic and Social Research Institute (ESRI) has a pretty patchy forecasting record, particularly in recent years.

Yet last week, based on its long-range forecasts, the ESRI was telling the government to ‘‘front-load’’ expenditure cuts.

In a week when the Department of Finance took a hammering for its competence in economics, let’s look at the ESRI, another public sector institution.

In December 2005 (less than five years ago) it produced a long-range forecast similar to the one it produced this week – which was supposed to tell us where we would be now, in 2010.According to its ‘‘worst case scenario’’, Irish GDP would be €196,876 million; in fact, it is €166,345 million.

At worst, our debt-to-GDP ratio would be 16 per cent; it is now66 per cent.

It forecast that the 2010 budget deficit would be, at worst, 0.3 per cent GDP; it is, in fact,14.3 per cent of GDP.

So, to use the vernacular, the ESRI, writing in December 2005 hadn’t a rashers what they were taking about.

Remember, I’ve used their worst case scenario here.

The ‘‘high growth scenario’’ in 2005 said that GDP would be at €208,718 million, the debt/GDP ratio would be 15 per cent and unemployment in 2010 would be 123,000.

The point here is not to have a go at the ESRI – we all make mistakes – but to show that trusting an institution like that, which hasn’t exactly covered itself in glory, might not be the cleverest thing to do.

So when the policy advice from the ESRI is to ‘‘front-load’’ expenditure cuts in December in order to impress the financial market, I am a bit sceptical – particularly as the ESRI itself said the reason its forecasts were so wrong was it that it didn’t have any expertise in credit, banking and financial markets. If it has no expertise, how can it make pronouncements on the likely reaction of the financial markets to anything?

It would seem more logical to adopt the US approach: throw our hands up and say we don’t really know what is going to happen next.

What we do know is that if the government can invest now in productive assets such as people or infrastructure, which will generate a return on investment greater than the rate of interest, this is likely to put us in a stronger position to emerge from even a double-dip slump.

As a response to the Irish people deciding to save more (which is what is happening), privatising the state assets that make most money and cutting back on social services seem a little odd.

It is made all the odder by the fact that we are a tiny part of a monetary union, and the only real benefit of our membership is that we can borrow to invest in productive assets. (By all means, sell state assets, but do so towards the top of the cycle when the state can get a good price for them, rather than now when it will definitely be a fire sale benefiting buyers, not sellers.)

The downside of the monetary union is that it makes the recovery much harder, because you can’t devalue to regain competitiveness. In political terms, it also biases economic policy towards evolutionary progress, when something revolutionary might be necessary.

The upside is that it allows you more time to transform the place.

This is what the Americans are doing: playing for time.

This is what Paul Krugman, a Nobel prize winner for economics, was getting at when he took the ESRI to task this week, writing that the institute was doling out policy advice based on assertion, rather than persuasive analysis. It seems that in Ireland, some of the strongest supporters of the euro are advocating policies more appropriate for a country with an independent currency.

Small countries with independent currencies always run the risk that the markets will close down on them, so they must react quickly. In the EMU, the opposite applies because the small country is simply the weakest link in a chain.

It looks like the ERSI – because it doesn’t have (as it admits itself) the expertise in financial markets – doesn’t understand that the euro gives us time.

This is the real lesson from Greece’s bailout.

There are many good reasons to reform the public sector; an immediate threat from the bond market isn’t one of them.

The front-loaded cuts idea seems based on a strange ideology, whereby one very well-paid public sector institute contends that we must close down other public sector institutes. Pots and kettles come to mind.

  1. Seems we are doomed to repeat Hoover’s mistakes, austerity will do what this government does best, make a bad situation worse. ESRI and similar public organisations should be required to show a performance graph on their websites showing their predictions over time against actual economic data that transpired http://bit.ly/a8dyJ5 As other posters noted we are going the way of African/Latin American debtor currencies, current suicides at 3/day being the Frontline of the dying middle class, their children forced to emigrate, a society of the super rich and the poor buggers who hadn’t the wit or means to emigrate or the diehards who stay as detroitification begins. Pity because of the enormous talent in this country, kudos to those who organised the terrific air display in Bray yesterday. Thx again,D, great thought provoking article, keep hitting them over the stands. The more they sneer/complain against you, the better your whack at the ball has been:) Instead of MacGill, we need a symposium of economists against the politicians, but I’d have Gene Kerrigan, who does great work also, along as well. Think of the ‘property man’ Fahey speaking to Paul Krugman.

    • Forgot to say, agree public utilities such as ESB and CIE should not be sold. But Pravda/RTE and DAA I’d sell straight away. We really need a Public Broadcasting Service such as http://www.pbs.org/ to enlighten young and old more on matters of public interest instead of brainless consumer/government propaganda usual fare.

      • coldblow

        I sympathize with you about selling off RTE, but I’d be worried it might only make things worse:


        Mind you, they ain’t no BBC.

      • Deco


        I agree with you concerning RTE.

        RTE is answerable to the political system, and the political system is answerable to IBEC. So you may as well have IBEC running RTE. It would be a lot cheaper if it was privatized and in the age of the internet, television is becomming increasingly irrelevant.

        It would be better for democracy if RTE were sold, because then we could be honest and upfront about the media being anything but objective. Having a public sector broadcaster that did so much to drive the lemmings into debt, give us lectures on public sector remits is a bit much. Privatizing RTE will force people to formulate their own opinions and do some critical thinking.

        TG4/RnG can be transferred to Udaras na Gealtachta and can provide cultural input.

        Concerning the existing private sector media, there is a dangerous concentration of ownership in the hands of a multimillionaire who was the centre of attention of a tribunal of inquiry, along with his pal Michael Lowry. The Competition Authority are doing nothing about this. As usual.

  2. ocallaghanr

    So what do you make of the governments’ announcement to spend €39 billion over the next 6 years. Too little, too late? Or will it suffice to keep us ticking over until the uncertainty has passed?

    • It’s I believe a reduction on earlier plans to spend €40 bn. Spending money on Metro North with its low population hinterland already serviced with good transport infrastructure is a waste of public money. Moving DIT to Grange Gorman is another horrendous waste of money we can’t afford. Replacing these projects with tourist related development that would improve recreational facilities for local populations might help

      • Deco

        I agree the Metro North is a sop to the Ditherer. He obviously never got a train set when he was a kid, and now he is trying to compensate. And besides the taxpayer is a kind of a Santy Clause when you are a politician – you keep demanding and eventually you get something for nothing.

        In don’t understand the economics of mothballing buses in Dublin Bus, and rationalizing bus routes, to save at most 10 million, and then spending 5 Billion on a Metro. Can somebody please explain the intelligence behind these decisions ? To me it looks as if there is a dreadful lack of intelligence….

        We still have not learned the value of humility in this country. Why not just stick to the simple way of making things happen ?

        • Colin

          The people living along the route want it, so their property will rise in value and they’ll be the envy of Ireland, boasting about how they can get to the Airport or the city centre in the time it takes to drink a cup of tea.

          If it is to be built, it should be built above ground on stilts because its much cheaper and faster, like much of the New York metro is outside Manhattan. If the residents don’t like the look of it, they can move!

          Also, not sure if an Irish Contractor has the expertise to construct the tunnels, so money will be thrown down the drain by bringing in a foreign Contractor with jobs for foreigners.

          • Tunnelling only makes sense when you’ve skyscrapers above.You mean something like a metro version of this http://bit.ly/aNgbNm
            Metro North will head out to meet the wasteful Terminal 2 white elephant like a giant underground slug over budget and under used like many of the ‘inter city’ toll roads. Think of the maintenance costs, but all may subside over time. False promises have been made before. If it is built, it will be a short journey to the airport for the students of DCU.

        • Eamon Ryan on Pravda propagandising with this: ‘Metro north will serve a 100,000 people in Swords and will serve Mater Hospital and DCU’. Similar arguments for airport connection? Swords has public transport infrastructure, also how many will still use their cars. Likewise, the relatively small number that use the Mater at any given time, cars again. How many will use the Metro? Compare the needs served to costs? DCU is close enough to city centre, do we need this?

          I’d really like to see the study upon which above is based and not have to endure the green propaganda rubbish. We’re being ‘governed’ by the Greens and the banks and Gombeen FF:-(


          “The total route length will be 17 km of which half will be deep bore through two separate tunnels. Metro North will have a final design capacity of roughly 20,000 passengers per hour, based on one 90m train every 2 minutes. The RPA have stated that it is possible to improve the timings to one train every 90 seconds in the future.”

          Great project for a city if Dublin were built like Manhattan? But with the amount of emigration and debt servicing, perhaps an overground donkey service, or even better a decent jarvey service to carry people’s possessions as they emigrate out!

          Of course OT all this meltdown goes back to the time they stuck the big needle into O’Connell St:)

          • Deco

            Ah yes…it is called the Binge Syringe…appropriately enough considering the history of the last yen years..

  3. DavidIreland

    Hi David,
    I thought it was just me; I thought I was missing something.
    I just couldn’t understand how people whose ability to foretell the future had been so manifestly wrong in the past could get back on their soapboxes and start spoofing and waffling again. Even worse, our woeful government continues to treat this spoofing – when it suits them – as something we should all bow down to. The snake oil salesmen at least moved from town to town and had the advantage of fooling people once before disappearing to hoodwink the next group of suckers. The modern guys don’t seem to have understood yet that all of their past utterances, their pathetic misreading of the signs and their bad advice are available for everyone to see at the click of a few buttons. Or are they actually really that stupid to think we are that stupid? Maybe it’s just unbelieveable arrogance on their part. Whatever it is, it would be funny if the entire future of our society wasn’t at stake here.

    Thank you and keep up the good work.

  4. Gege Le Beau

    @ David McWilliams – a much needed article but I would have gone harder on the ESRI (its make-up, who’s who etc) and harder on the shameless well paid economists, working both sides of the deal, who Professor Noam Chomsky said generally, were a class who played a major role (like the high priests of the Mayan civilisation) in bringing this economic storm on our heads.

    A look back at ESRI forecasting, Dept. of Finance forecasting, the role of the regulator, the Dail (TD’s with property and banking shares portfolios), economists who predicted ‘modest growth’, to ‘soft landings’ and here we are again with what seem like reports intended to back up the political paymasters, they are not based on fact.

    Houses are still selling, I see the forsale signs around my home city, there is some movment but estate agents still cling to inflated prices, some of which are quite ludicrous, meanwhile tens of thousands remain on the affordable housing lists and the government has refused to intervene for these citizens, but instead has done everything in its power to reinflate the property market.

    While you mention the importance of house sales in the US, the other major figure is unemployment, September is going to be a huge month as we will see a spike in unemployment due to layoff of temporary government workers (700,000 census workers alone) plus the seasonal adjustment. I have no doubt a double dip is on its way and I think 2011 (with banks not lending and our debts catching up with us, as well as crippling unemployment which the government has done NOTHING about) is going to be a big year.

    @cbweb – agree with you, think utility prices should fall and monoplies like the ESB are not good, but I don’t believe in privatisation but then the government is not thinking logically, it is thinking ‘neoliberalism’ and the US is never far from considerations, I am now beginning to come to the conclusion that US involvement in the Northern peace process and in the South economically has come with a major price tag, privatisation/commodification of all aspects of life, education, health, state enterprise and eventually social services and anything else that can turn a buck. People say Ireland is 20 years behind the US, well I hope to God we don’t catch up with them because as the excellent book: The Spirit Level – How more equal socieites do better, illustrates the US is off the charts on virtually all measurements (inequality, incareration, fear of crime etc), not a pretty place to be.

    We are in the clutches of the neoliberal beast and boy are we paying the piper with ESRI and other cheer leaders marching the band off the cliff (remember Prof. Fitzgerald, son of Garrett Fitzgerald calling for a 10% cut in the minimum wage on Vincent Browne’s show but refusing to give the combined income for himself and his wife when pushed by Vincent). I wonder could be live on less than €15,300 per annum or less, I doubt it very much but yet he advocates such a thing, instead of arguing more forefully for us to get the costs in our economy down (especially in property, food, clothing, utilities, GP and drug bills, hospital visits etc the daily essentials that make life such a struggle for so many people) and capping wages at the top, seeing a greater distribution of resources especially to those who need it most.

    The government announced a €39 billion capital programme, investment in infrastructure is good but the government has an appalling record on overspend (€13 billion on the roads alone), this has to be checked/monitored, I would have preferred to see a lower capital project spend say by 5 billion and stick that into getting the unemployed back to work or upskilled).

    • Gege Le Beau

      But as one American commentator pointed out on the Max Keiser show, unemployment is deliberately not being tackled, it is instead being a used as a stick to beat people with, to drive down wages, make people feel insecure/afraid for their livelihoods and roll back worker’s benefits and working entitlements, power of Trade Unions etc which grew especially in Europe over the last decade (despite Union numbers being low enough), nevertheless it represents a threat to the ‘business community’.

      So the stimulus v austerity debate is a bit deceptive in that there may be a debate among a certain community of people but policy is very much one of austerity or in keeping with Naomi Klein’s ‘Disaster Capitalism’ in that in times of crisis (economic/political) you ram through unfavourable policies under the guise of ‘there is no other way’, so cut wages, cut social welfare/unemployment benefit and a 101 other benefits, cut the old age pension as Dan O’Brien over at the Irish Times was writing about recently, you roll back the ‘benefits’ of an economic democracy while at the same time refusing to touch the corporate tax rate, corporate and banking profits, capping of banking salaries and bonuses, refuse to hold economic terrorists to account in the Special Criminal Court etc…….it is all a form of social engineering, that keeps people on the brink, worried, concerned and away from direct action……..you have to get the balance right as you don’t want people to storm Dublin Castle, so while berating the media for negativity, you talk up the economy either directly or via ‘independent think tanks’ which RTE-PRAVDA repeat parrot like, placating the confused masses………you fill the rest of the news with white noise about sex abuse/the paedophile living next door, shootings, medical negligence cases and then the sport…..manufacturing consent/obedience.

      We live in truly Orwellian times where economic miracle becomes economic nightmare, where decline is growth, cutting blind people’s pensions is ‘doing your patriotic duty’, where banks are ‘too big to fail’ but 455,000 citizens are left languish on the dole and where those who caused the crisis are either paid off with lotto size golden parachutes or giving speeches around the world about what geniuses they are and how Harry Potter like they came across the magic economic formula for never ending growth.

  5. dermo

    Helicopter Ben and the FED have ran out of bullets on with the printing press again,they may have deflation now ,but just wait until the mula filters and inflation takes hold ,the same goes for that bunch in the ECB.
    As for for that lula Krugman ,anything that big government,big spending ,print money Keynesian socialist advocates I would run a mile.
    We in this country have to get back to basics and start producing real stuff with real value and be competitive.The welfare state is killing us ,as it will all other socialist welfare states in Europe.
    Just read the history of Uruguay the first real welfare state and the mess it was in after 50 odd years.We are in the same spot as they were in the late 50s early 60s

    • Did ye ever hear of the phrase ‘government of the people, for the people’. Medicare is now on the agenda even for the USA? Would you advocate abandoning health care for the old, the poor etc as bad as it has been in certain areas of the HSE? What about Sweden? 57% taxation of super salaries is accepted because of the benefits it distributes across society. Perhaps you’d like to do away with humankind and have the super rich build human worker clones and have them out of site, out of mind, in mines underground building the ‘real stuff’ of value you mention, whatever that is? By the way, we now have the ultimate state welfare system, with the welfare of the banks at heart, socialism of the banks? Lol.

      • dermo

        I love ye statists .Who create the problems but governments CBs ,bank .
        As for your Nordic Swedish nanny state it will fall like the rest.
        I do not advocate neo-thug liberalism.I advocate for less centralized government and more localized,less regulation on sme,s ,consumption taxation,not labour taxation,scrapping the ECB ,backing money by gold and silver,getting rid of Factional reserve banking system.

      • Deco

        The problem as I see it is that the Welfare state has become the Orwellian state. Some are more equal than others. Lobbyists/Activists/vested interests have created it thus. And this crisis has showed us the level of inequality of influence.

    • ThomasFergus

      What utter idiocy. Neoliberalism has destroyed, and you’re calling for more of the same. You don’t work for the ESRI do you?

    • Deco

      Krugman criticised the Bush regime for borrowing too much, and is now criticising the Obama regime for borrowing too little.

      There is a massive inconsistency in Krugman’s analysis. Of course the purpose of the borrowing is important. But the scale is also a very serious issue which Krugman is dodging.

      • I’m no Krugman clone or Krugman expert, he’s a nobel laureate and has taken an interest in Ireland and so far I’ve always been impressed with his views e.g here http://nyti.ms/bLlfJa .In hindsight he was right to criticise Bush disaster making neo liberal policies.

        • Deco

          Correct. He is correct to criticise Bush/Paulson. But I am concerned that he might be advocating a policy that turns the US economy into another Spain, or even worse, another Greece. He seems to be opening himself to the argument that the bond market is his blindside.

      • ThomasFergus

        Krugman believes, as did Keynes, that state borrwing and increased expenditure when in recession will kick start the economy, but as a corrolary, such debt should be paid down and taxes raised when the economy is booming. He was right to criticse bush for introducing tax cuts when the US housing market and economy were inflated, and he is right to criticise obama for not borrowing and spending enough when the US economy is now in the tank as a result of the crash. There are two sides to the keynesian coin; it’s a pity the right monetarist nutters don’t/won’t get that.

        • Deco

          The US economy is not in the tank yet. That has yet to happen. Follow Krugman’s advice, and the bond market will disintegrate. Then we will all be in the tank as you say. In economic markets, everything, depends on the bond markets. China has massive control.

          Last year, Treasury Secretary Geithner went to Beijing and was promised a class of undergraduates that China’s holdings of US Treasury Bonds were a safe investment for the Chinese authorities. And the whole place broke into a fit of laughter. If that is what the average Chinese citizen thinks of US government bonds, then Paul Krugman is making pronouncements concerning US debt that is failing to understand the bond market. And I fight it alarming that such assumptions are influential in the policy framework of the US Administration.

    • Deco

      Fed Chairmen tend to have a reputation for not knowing what is going on, not knowing how to handle it, and not being able to explain it in any coherent manner. Therefore Helicopter Ben fits the bill.

      There has been a lot of deflation, because you get deflation when an asset bubble bursts. Basically, when an asset bubble burst the virtual money gets vapourized, and the real money is what is left.

      Printing is a way of re-engineering the asset boom. But money never does as it is expected. The money goes into economic bottlenecks, and at different times the bottleneck changes. Therefore the asset booms move around a bit. There will be no asset bottleneck in residential property as long as the jobs market is in the doldrums.

      We are told that deflation is the problem. But deflation is the rebalancing of the inflation. The original inflation was the problem. Cheap ECB interest rates enabled people to make really stupid decisions (like the all the commercial property overbuild). The fact that other people made money from selling assets in a low interest environment providing massive profits, resulted in a massive incentive to get in on the action.

      There was a crack up binge of borrowing, and it cracked up. We know this because of the malinvestment. The ghost estates, and other oversupply issues. This is exactly what you get in an asset boom brought upon by cheap interest rates.

      And we have NAMA – NAMA is fighting deflation in the property market, by preventing the property to come on the market.

    • TotalMayhem

      We’ve generated too many future claims on wealth that does not exist and has poor prospects of ever being generated. That’s what unpayable debt is. We have such a mighty mountain of it that the Federal Reserve can “create” new digital dollars until the cows come home (and learn how to play chamber music), but they will never create enough new money to outpace the disappearance of existing notional money in the form of welshed-on loans.

      The most confused of any putative authorities are the academic economists, lost in the wilderness of their models and equations and their quaint expectations of the way things ought to go if you can tweak numbers. These are the people who believe with the faith of little children that if you can measure anything you can control it. They will go down in history as the greatest convocation of clowns ever assembled, surpassing all the collected alchemists, priests, and vizeers employed in the 1500 years following the fall of Rome.


  6. Deco

    Can we dismantle the ESRI ? Just disband as a useless quango. The further you go from Merrion Square the less seriously it’s opinions are taken. Increasingly people regard it as expensive entertainment. It is a bit like Pravda/RTE – a mouth piece for government policy/agendas.

    I am looking forward to the ESRI telling us that the PAYE sector is saving too much. Well, it looks like as is the ‘manufacturing of consent’ is not working like it used to in the past.

  7. Deco

    Sell the ESRI. Let them exist on the private sector. As a taxpayer I am fed up paying for outlandish salaries for a bunch of clowns, many of whom are related the politicians, to tell me bullshit that is so of the mark that I am tempted to laugh in derision.

    Basically, the ESRI has failed in it’s ‘responsibility’. The reports are so biased in favour of IBEC, that you may as well have IBEC commission a bunch of private sector cronies to produce a ‘yes-man report’.

    Privatize the ESRI. It is owned by the private sector via IBEC anyway. So, just cut out the pretence and let it exist in the private sector and stop being a waste of taxpayers money.

    • ThomasFergus

      For once I agree with you deco. It’s a useless quango, essentially going out to bat for the government and dressing up it’s failed policies in high priest mantra. But it won’t be privatised and sold off to insiders at a knock down price because unlike the ESB, CIE, Aer Rianta et al, it has no significant infrastructure that can be sweated and striped to boost the shareholings of venture capitalists and currently worthless pension funds.

  8. adamabyss


  9. coldblow

    David, I managed to get hold of Hudson’s “Super Imperialism” and have read the preface and most of the intro (!) – it’s dense but excellent and needs to be taken slowly if at all. It was revised in 2003 but is essentially the same book he published in 1971.

    The big insights (for me), as identified by him nearly 40 years ago, are the extent to which the US’s own economic interests predominate and that all foreign policy, aid and diplomatic activity is subservient to this end. And, secondly, the reason why the US has become the first country in history to turn economic laws on their head. If you have a trade deficit, like Britain after the world wars, you have to cut your cloth etc and lose world influence. You pay a price. When the US left the gold standard as they couldn’t honour convertibility because of the cost of their foreign policy (itself a manifestation, as I said above, of preeminent economic goals) they found that they could spend even more and run bigger and bigger deficits. Other countries had the choice of either breaking away from the US dominated global system or being obliged to recycle their massive dollar surpluses (which they couldn’t do by acquiring strategic US assets) by buying US debt securities, thereby keeping the whole show on the road. They have to recycle these dollars as otherwise their currencies rise and they lose export competitiveness to the Americans. This is a free lunch and allows them to sustain their massive trade deficit, defence forces etc while US individuals and corporations enrich themselves massively (not sure where or even if that last bit fits into the argument but it surely does somewhere). So they have considerably more latitude than others, to say the least, when it comes to affording stimulus packages or anything else that suits them. Neat trick, huh?

  10. Haveaniceday

    Thought this was interesting. In the comments section of Paul Krugman’s article – that David refers to – was a posting by someone registered as Ray MacSharry, Galway – 5th post down.

    “Paul, With no ability to control currency, with a rising debt to gdp ratio..with a very high unit labour cost, and with the crystalisation of proportionally massive banking losses and a crashed property market, the policy levers open to Ireland are few and far between.

    There is little this country can do other then to trim spending,try and engineer an economy wide deflationary effect on wages and costs…and hope for a spill over of international stimulus to stimulate the recovery. Ireland only has a smal pool of consumers,.

    Within the context of the Eurozone etc, Ireland has to get her fiscal position in order, reduce the cost of doing business and look for innovative ways to trade with the world. The recovery for Ireland will be export led and will only happen when our trading partners recover. We just have to put up with that situation,

    There is nothing the irish government could spend money on that will boost the economy, so far the hammer has come down mostly on the spending side..hopefully the tax side will be spared and private economic activity might grow.”


    • Re McSharry “There is little this country can do other then to trim spending,try and engineer an economy wide deflationary effect on wages and costs…and hope for a spill over of international stimulus to stimulate the recovery.” Krugman is warning that trimming jobs will have the opposite effect to what is intended and make problems worse as happened under Hoover and in countless other debt spirals downward in Latin America/Africa. The remarks crystallize the truth for me that present Government policy is to bleed the country with emigration, tax cuts and other austerity measures, hold onto their croney power base and pick up any bargains that may arise, until the international business world does business with their purge of taxpayers and ‘trimmed down economy’. And to help things along and feed their minions, pour billions of taxpayers money into useless NAMA and even more useless Anglo, a fact McSharry delicately avoids mentioning.

  11. Ireland’s still more or less the world’s most open economy, rendering stimulus/austerity arguments here moot. Substituting Ireland for (America) in the ongoing debate about stimulus makes little sense.

    • Deco

      I am just wondering how other open economies – specifically those with a better track record – are responding to the crisis..
      Specifically, I would like to know how Singapore, a high tech very open economy with a similar population size to Ireland, is responding to the crisis. Is Singapore trying to spend it’s way to prosperity with a 20 Billion Euro per annum borrowing binge ?

      The fact is that there is something inherently imbalanced with the Irish economy. We have responded to the crisis by replacing private sector borrowing with public sector borrowing.

      Binge-Baby-Binge. The Irish economy is structurally based on borrowing and therefore it is a binge economy. Basically, we are living in a lifestyle disconnect. Colectively, we have a lifestyle that cannot be supported by our economic activity level. We are the living example of James Howard Kunstler’s society of junkies hooked on lifestyle, cheap oil and easy credit.

      And nobody seems to get this. The greatest success of IBEC has been to make sure that this never changed even though the GNP statistic has fallen by 25% from peak.

  12. Tim

    Folks, here is an interesting collection of quotes, from various sources, about why the EU stress-tests on banks have not fooled anyone:


    • from your link: “It is too early to judge whether the ploy worked. But from the informed reaction on Friday night, I suspect not. ”

      Well the euro is 1.294 against the dollar. So, I guess the writer is wrong as the markets have been fooled. Or have the markets been fooled and the writer along with all the other analysts who do not believe in these stress test results, been fooled as well?

      Not only have the tests been designed to allow The Magnificent Seven to fail, but the markets have been rafted by schenanigans to give the 1.294 result. Guaranteed markets fixed to create this figure as well.

      China manipulates its currency, the Fed also, http://bit.ly/dkCjTF
      on the charade of currency manipulation, plus the austerity mistake Trichet is leading that we’re about to fall into.

      • investors flooding into the dollar as a ”safe haven’ is crazy… whatever the euro”s problems the dollar has issues that are even more serious. The US administration doesn’t care at all about the value of the dollar – it has been trashed and will continue to be trashed by those of a keynesian slant believing you can print your way out of any crisis..
        and as for the US complaining about the Chinese manipulating their currency.. come on – what is the US doing but manipulating the value of the dollar as low as they can by printing like maniacs – increase supply without a corresponding increase in demand and there can be only one result – so how Obama complain about the Chinese?

  13. Deco

    And the good news is…Cowen has just signed the dotted line for another 39 Billion Euro of your money to be spent on infrastructure. I love the way they give the billas the good bit.

    We don’t have the money. And Cowen has already made promises. The Dublin Chamber of Commerce ( IBEC Junior) have given a guarded welcome. (Obviously they held out hopes for more).

    We have two large banks which were in the grey category in last weeks reports. We are borrowing 19-20 Billion per annum to meet the Irish lifestyle. Plus Anglo. Plus NAMA. Plus half a million unemployed. Plus all the quangoes that cannot be touched. Plus the HSE that cannot be reformed. Ad invinitum.

    And now Cowen goes completely over the top. Oh, but how sophisticated we will be with our plans and projections.

    I reckon the market for Irish government bonds will shortly collapse. We have a case of accumulating excessive commitments to be placed on the taxpayer. This from the Minister for Finance who did his sums in the binge period and did not see anything amiss.

    • Gege Le Beau

      Maybe I am missing something, and in danger of being branded ‘the constant cynic’, we have a bank bailout (€70-€90 billion), a professional bailout (€1.6 billion in fees for NAMA) and now we have a construction sector bailout (€39 billion).

      I presume the usual suspects will get the contracts, how ironic if it will be associates of those currently going through the NAMA quagmire, government can point to job creation just prior to an election, short stimulus which will come to end by 2016 or maybe before but not before the 2012 election (construction as we have painfully found out are only ever temporary jobs, not long term sustainable jobs), plus €39 billion of money from where? The country has €5 billion cut out of it, with €4 billion more in cuts ahead and yet they go ahead with a ‘Dublin Metro’? I would rather see the money in my pocket, which I would spend and help to maintain jobs.

      Meanwhile health and education services, items that maintain a people and provide the long term solutions are savaged, what kind of country will we have post ‘capital project spend’? RTE/PRAVDA provided little to no such analysis, but might have well brought trumpets to the fanfare they gave it on 6-1.

      It seems like we are going back into the woods we just emerged from, courtesy of El citizen. I hope the ghost estates highlighted in the graphic on RTE/PRAVDA aren’t the houses to come on the market (burnt out shells?), a subconcious portent for the future maybe.

      • Deco

        Never mind ‘analysis’…surely the announcement pressed your “pride” button and had you yelping like a young hare meeting the first rays spring sunshine.

        Expect somebody in authority to say they are proud of the plan. We don’t need analysis, or even thought. Feeling proud makes that feel like too much effort in comparison.

        It always works – it always manages to circumvent any sort of commen sense discussion. After all, “it is only money”.

        • Gege Le Beau

          Yes Deco, my heart missed a beat, not from pride, but from sheer disbelief, I think it could be the final nail in the coffin and almost ensures Ireland defaulting.

          Money we don’t have being thrown after money we once had.

  14. Tull McAdoo

    Some of ye might remember me mentioning this thing called the “echo bubble” last October if memory serves me right. Now it happens for various reasons after an original bubble has burst, the idea being to re-inflate the original bubble by as much as possible, which it is hoped, at least by the “inflaters”, to reduce their exposure and by extension their losses. That’s the theory anyway. Now at this point let me stress that all bubbles are not massive Economic “Armageddons” as we have in Irelands property case, but can be very insignificant events and go unnoticed by the public at large, as they may not impact on the general public in any significant way.

    I have noticed, in my own observations of bubbles and have read also of other people’s experience’s that certain behaviours come up time and again. Now, apart from the usual psychological things that appear among those involved in the bubble’s bursting, like for example, shock, denial, panic attacks etc. there is also the usual behaviours, like where people “chase their money” trying to recoup losses. People will resort to all types of deception, from barefaced lies, to creative accounting, to act’s of illegality, and to “echo bubble inflation” as I mentioned above.

    You could argue for example that the share price of Anglo Irish Bank was a bubble of sorts, given that their annual reports were not a true and fair reflection of the Banks well being, but were inflated to show the Bank in a good light and deceive its shareholders. We saw the deception employed by the Bank to artificially support its shares through the “golden ten”. We heard of the anger and shock by some of the vested interests in that Bank when they said “ nobody is going to fuck with our Bank, and short sell it”. And we heard David relate how Seanie Fitz had said that “ no fucking Protestant was going to get his Bank”. We saw the desperate attempts to re-inflate the share price, through various share purchase mechanisms, but as is always the case, it all ended in failure. The biggest lesson you need to learn and David will attest to this, when involved with the markets is to know when to “take your profit” and also as important is when to “stop chasing your losses”.

    Everything that Cowen and Linehan and the rest of the vested interests are doing at the moment and indeed have been doing since the property bubble burst is, putting the various mechanisms in place with one objective and one objective only and that is to re-inflate the property bubble or as I pointed out some time back to launch the “echo bubble”. All the mad money into the Banks, All the lunacy that surrounded the setup of NAMA, which flew in the face of every independent economic commentator etc. All this recent setting out of 39 billion in capital expenditure, with its built in concentration in Dublin where the heaviest of the property losses took place, especially along the route of metro north where big clawbacks can take place. The “echo bubble” is the end game, and only game in town for Fianna Fail. Fianna Fail in its present format is only a property party and has been that way for some time. It has no other vision, it knows nothing else, it has no other policies, it cares nothing for anything else in life. That’s what it means when it says “the only show in town”. That whole Party is up to its collective tits in all things property related and all its TD’s are leading the charge and using all their training from their early days as County Councillors to deflect attention away from their absolute obsession with property.

    People in Ireland will just have to come to terms with the fact that Fianna Fail are totally in love with property, every day they get nearer to re-inflating their great love, every day will be like Valentines Day when the cranes start moving again over the Dublin Docklands.

    As a small tribute to Fianna Fails pursuit of its greatest love , I’ll leave the last word with Chaka Khan and that all time favourite…….. take it away girl………


    • Gege Le Beau

      I just find this sceanario totally astounding (but am open to correction if I am missing the big picture) but your comment seems to confirm my take, this is a one card trick economy.

      Why would you take from blind people’s allowances, attempt to cut medical cards for senior citizens, cut hospital staff and people on temporary contracts in the public service, along with salary decreases, policies which have increased the overall unemployment level and wait a full year and a half to announce this?!

      It has to be close to the final straw, no doubt those who get the contracts will in turn fill both FF and as we have seen, FG’s, election warchests, so they can keep their posts and carry on with the merry dance, this has to have pushed the bar of cynicism to new levels.

      • Gege Le Beau

        Maybe they are thinking New Deal, public projects, economic stimulus etc but I don’t think things have bottomed out economically especially with talk of double-dip recession in the US and as one poster mentioned, these projects seem to be Dublin centered and of questionable need, maybe the metro will make emigration speedier………….

    • Agree with you, Tull, your points echoed by Gege also, FF is the property speculator party, ‘echo bubble’ defines its policy through NAMA to take property assets out of circulation and await an upturn to coin it for property speculators once again. Its inability to accept reality and realise the bubble is over will cost us dearly. Anglo, the engine of the bubble for speculators is a bubble lynchpin they will save at all costs as part of the same echo bubble policy. Finally, the €1.5 billion for lawyers/financial consultants/estate agents is there to feed their financial arm while they wait for the ‘echo bubble’. The problem is, the bubble is gone and the FF party is over!!

      As you say: “The biggest lesson you need to learn and David will attest to this, when involved with the markets is to know when to “take your profit” and also as important is when to “stop chasing your losses”.

      The gombeen buggers are at property roulette through NAMA and LTEV and Anglo trying to save their losses. This makes our economic situation much worse.

      We need to cut our losses asap. Get out of NAMA and do the firesale over 2 years max. Drop Anglo into its own black hole and close it down immediately. We’ll need to reinitialise our economy paying back using a debt write down based on the principle of paying back what can be paid, and not what can’t, similar to precedents in other countries for this. Borrowing €20 bn per year to pay for such a stupid, purposeless ‘echo bubble’ project with its failure already signalled through broken goals and unachievable objectives e.g LTEV already is just another FF ‘make it worse’ disaster recipe!

      • Tull McAdoo

        Fianna Fail just cannot help themselves. Property junkies, handy money.

        We will have no political interference in the operation of NAMA they told us. The ink was’nt dry on the paper when the “Times ” carried this little gem from Mary Hanafin.

        When Minister for Tourism Mary Hanafin talks about meeting the National Asset Management Agency (Nama) to discuss the management and disposal of hotels that have been acquired by way of bad bank loans, alarms should blare. Any political interference in the management of these assets by Nama will destroy public confidence in the agency and fuel suspicion that political cronyism is at work. Ms Hanafin has a legitimate interest in promoting the health and future prospects of the industry. But the protection of well-established and family-owned hotels against cut-throat competition from speculative-driven challengers does not fall within that remit. When taxpayers were asked to fund Nama and recapitalise the banks, assurances were given that all of its property-based activities would be above politics. Taoiseach Brian Cowen should deliver on that commitment and ban his Cabinet colleagues from making representations or direct approaches to Nama.

        • Yeah, was listening to the radio when hapless hanafin made the announcement, couldn’t believe my ears, and blogged recently on it, arrogant, croney agenda, the ‘unbelievables’ at work showing their true colours openly like that, amazing!

  15. Gege Le Beau

    Came across while doing some research on the origins of the name “Wall Street”, thought it may be of interest, the bones of the Celtic Tiger economy are about to be built on by construction stimulus II…………

    “The Dutch intially ‘settled’ what is now Manhattan, they called it New Netherland, later New Amsterdam of course the Indians were chased off it, usual slaughter etc. The Dutch built a wall (timber/earth) from one side of the island of ‘Manhattan’ to the other to reinforce their settlement, some time later the British conquered the region and the settlement and christened it New York after the Duke of York and Albany, the original Dutch wall was reinforced by black slaves to protect the English settlers from Indian attacks and also used to keep black slaves in captivity, and the area in later years became known as ‘Wall Street’.

    Wall Street and much of this city’s renowned financial district were built on the burial ground of African slaves, and New York’s prosperity stems in large part from the grotesque profits of the African slave trade and African enslavement. The bones of the enslaved make up the foundation of the most wicked of financial systems. It is believed that there are as many as 20,000 slavery-era Africans in graves under the constellation of buildings in lower Manhattan. Manhattan Island had a population of enslaved Africans almost from the very beginning of settlement in 1624. The findings of scientists examining the graves show that enslaved Africans lived agonizing lives. They were overworked and underfed. Many died young. The average life expectancy of Africans of that era was 37 years These enslaved Africans worked for the Dutch West India Company. In addition to building the wall that gives Wall Street its name – a wall of timber and earthwork along the northern boundary of New Amsterdam – slaves cleared Manhattan’s forests, turned up the soil for farming, built roads and constructed buildings. Without slave labor New Amsterdam and later New York might not have survived/developed.”

    The role of Western financial institutions in the slave trade and in the current financial exploitation of Africa ($25,000 dollars in capital flight from Sub-Saharan Africa per minute) is worth exploring, from Walter Rodney’s ‘How Europe Underdeveloped Africa’:

    “The connections between slavery and capitalism in the growth of England is adequately documented by Eric Williams in his well-known book Capitalism and Slavery. Williams gives a clear picture of the numerous benefits which England derived from trading and exploiting slaves, and he identified by name several of the personalities and capitalist firms who were the beneficiaries. Outstanding examples are provided in the persons of David and Alexander Barclay, who were engaging in slave trade in 1756 and who later used the loot to set up Barclays’ Bank. There was a similar progression in the case of Lloyds — from being a small London coffee house to being one of the world’s largest banking and insurance houses, after dipping into profits from the slave trade and slavery.”

  16. Malcolm McClure

    David McW says: “The downside of the monetary union is that it makes the recovery much harder, because you can’t devalue to regain competitiveness.”

    Remember that Ireland’s subscription to the ECB capital (presumably based on the reserves we contributed when we went into the Eurozone) was about 1% of its total capital.
    David understands bank balance sheets much better than any of us so I’d like to have his comments about the ECB balance sheet at

    It seems to me that ECB official reserve assets are €569.7 billions and its gross external debt is €10.78 trillions, a leverage ratio of about 19.
    Richard Bruton said last week that our gross external debt is about €300 Billions (ie 200% of GDP) of which the banks had borrowed €100 – 200 Billions. That total (I conclude) is about three times higher than what our proportionate share of ECB gross debt should be and three times OECD average debt.

    If Ireland declared itself bankrupt to regain competitiveness, even if we could reclaim €5.7 billions as our proportionate share of ECB assets, it wouldn’t do us much good. It costs about €60 billion per annum to run the country and tax income is only about half that amount, so we have an ongoing need to borrow on a grand scale. Annual interest alone on additional borrowing accumulates at about 1.5 billions per annum, whilst tax continues to contract.

    However, if the National Pension Fund can still raise about @20 Billions and our share of ECB is worth €5 billions, this total implies that our debt to asset ratio is about 12 which is actually better than the ECB’s 19.

    Incidentally it was mentioned that the top 10 of the golden circle all have debts in excess of €1 billion with the highest having debts above €4 billions. That’s an awful lotta lolly.

    Now that talk of the anti-Christ is being bandied about, it seems that Cowen has a just claim to be the anti-Croesus.

    • Tull McAdoo

      Very interesting observations Malcolm. My take on this is much simpler and it is this.
      1. It matters little what the Ecb debt ratio is , as it has the ability to print money and even inflate its debt away should it decide to use that old American trick.
      2.From Irelands position, the key figure and what David called “a general rule of thumb” was this. Ireland is borrowing at nearly 6% and its growth rate is negative or shrinking,which means you are gradually going Bankrupt…… which gets you back to mr. Macawber one of Dickens great creations and hs great speech before he headed for the poor house annual income …..annual expenditure…..result misery …..

    • Tull McAdoo

      P.S. I’m here in Frankfurt at the moment, flew up from Singapore few days ago. I can drop into the Ecb and ask them to tighten their belts on your behalf if you like.LOL. Anyway its 1:10 now so I’m off to my little leaba. Slan agus oiche mhaith. Eire.

  17. StephenKenny

    The problem with the airy assertion that government spending on infrastructure and productive assets is the way forward, is that all the evidence points towards the government being completely incapable of any such thing. For 40 years we’ve had these announcements by the US, UK and Irish governments (and others no doubt). They’re going to “put the country at the forefront of the white hot technologies of tomorrow”, or some such nonsense. All that’s happened over that time is that total debt has mounted. Every ‘boom’ has been based on a massive net loss being covered up by a huge increase in borrowing in one sector or another (consumer, government, corporate). Now we’re suggesting that we do it all over again? Another, new, huge debt be built up so that we can do what? Well, let’s think about how this is going to happen:

    Politician A says “we are going to invest in infrastructure and wealth generating industries to get us out of this recession”. Everyone cheers.
    Politician A says “Right, here’s a huge bucket of money, and Politician B who’s going to lead this great regenerative crusade”. Everyone cheers again.
    Everyone goes home, much buoyed by the approaching sunny uplands.
    Politician B sits in their office and says to their staff “OK, let’s get going”. The staff, who have no experience whatsoever of either infrastructure or businesses that actually create something, say “Right, let’s form a committee, get some big-shots in, who the minister approves of, and see where we go”.
    For the next month, Politicians C to Z find reason to call into see Politician B, and to salivate at the huge bucket of money in the corner of his office. The leaders in commerce and industry (best mates of Politicians A to Z) – the financial and property geniuses that we’ve come to know and love – suddenly start popping up all over the place, and especially all over the committee, and myriad sub-committees, that are at the forefront of this ‘New Deal 2.0′.
    Other than a few over enthusiastic nephews and nieces being hailed as being at the cutting edge the social media revolution, and having their sad little web design companies lavishly funded, every project will require some incredibly complicated financial engineering (whatever that really means) and a lot of property development.

    We’ve got all the Marxists, Maoists, and Trotskyists trumpeting the end of the neoliberal experiment, marching in lockstep with the capitalists trumpeting the the end of neoliberal experiment. And you know what? They’re both freaking right. I can feel the pounds of flesh being ripped off both sides of my not quite dead corpse, as I write.

    The Great Depression wasn’t fixed by the WW2, it was fixed by something that happened during WW2: A volume and intensity of bleeding edge technology training that can only be perceived by considering the need for the thousands of highest of high-tech weapons systems, and almost endless support equipment, and processes, necessary to fight a war that was as much about production and logistics, as it was battles.
    You can’t recreate that by trotting out a few slogans, and presenting a motley crew of property developers and bankers with a bucket of money.

  18. Capital Budget Declaration to The Nation : Yesterday was a Full Moon and was chosen as that special moment to make maximum impact to the Government flagging morale.
    The DOF has been accused of lack of economist on their staff but they certainly know their astrology.

  19. There was €76.2bn capital spending promised in the National Development Plan (NDP) for 2007 to 2013.
    The revised spending plan promises to invest €39 bn in infrastructure between now and 2016, a drop of 37.2 bn or roughly the cost of bailing out Anglo.

    At least we can see the damage now. More school prefabs, no roads outside Dublin and private pensions lose tax allowances to suppliment tax free senior public service golden parachutes.

    There will, however, be tax allowances for buying rowing boats in areas subject to flooding and for those who fly abroad for urgent medical treatment.

    Geobbels would be well pleased with this whitewash.

    • I’ve a great respect for figures so advise caution with any figures that emanate from DofF and this Government. They are used by Lienehan et al as a moving target adjusted to suit any current political agenda. Mention already made of the ESRI false forecasts. They’ll get massaged later with ‘due to unforseen circumstances’ a ‘fall off’ in tax revenue. If worst comes to worst, they turn into downright lies with e.g the cost of saving Anglo hopping from €8 to €18 to €30bn and climbing, no questions asked, neither full closure or disclosure of the rascal cronies allowed, unlimited taxpayer croney funding the only agenda.
      There’s a policy out there of banks et al of institutional lying to the government and government wiping their hands of any R(esponsibility)A(ccountability)T(ransparency) while peddling more of their own lies to the public! OT, lets see the Metro North future use justification of their latest white elephant. I’m all for proper RAT test auditing, so we should have independant cyclical empirical evaluation scientifically of costings against projected targets the public have access to. Mr Lienehan, if you were thick and dumb enough to swallow the lies you swallowed from bankers, you’re unfit for purpose as a Government minister and should resign immediately!!!

  20. Philip

    Tolls on National Roads coming…we are saved!

  21. michaelcoughlan

    Hello everyone,

    The following link will explain much better than I can what I have been saying about various interests controlling us by controlling the money supply. I would think David that these various interests know you are telling the truth but have discounted you because the also know that the ordinary man on the street is too lazy, disinterested or busy watching dead enders or fair shitty (latter day Roman citizens fixated by bread and circuses)to do anything about it even when he himself is the human being stopping enemy bullets with his chest fired by other human beings as ignnorent and stupid as he is. Good reading.


    • mmitche1

      Totally agree, Michael.

      Fractional Banking = Fraud

      Govt Debt shouldn’t be debt as Govts should legally be able to print its own money and not have to pay interest to privately owned central banks.

      Did you know that the ECB is owned by all of the European Central Banks? Who owns the Central Banks as they are accumulating the interest on all national debt?

      This is truly the root cause of the current worldwide meltdown as Bankers have the godlike ability, through fractional banking, to create money from nothing, fuelling the false boom.

    • dav0

      Good Article Michael.

      Chris Masterjohn also makes good reading on diet related issues but that’s out of context here.

      I also found the following article from The Atlantic last May very interesting:


      • coldblow


        That Atlantic Mag. article has already been posted here twice (if not more), I’m sure I read it before here. But it’s well worth another look. In the light of David’s latest article, however, I think it keeps quiet about the IMF practice of demanding privatization. But interesting all the same.

        Here’s a couple of bits that caught my eye:

        No, the real concern of the fund’s senior staff, and the biggest obstacle to recovery, is almost invariably the politics of countries in crisis.

        Typically, these countries are in a desperate economic situation for one simple reason–the powerful elites within them overreached in good times and took too many risks. Emerging-market governments and their private-sector allies commonly form a tight-knit–and, most of the time, genteel–oligarchy, running the country rather like a profit-seeking company in which they are the controlling shareholders. When a country like Indonesia or South Korea or Russia grows, so do the ambitions of its captains of industry. As masters of their mini-universe, these people make some investments that clearly benefit the broader economy, but they also start making bigger and riskier bets. They reckon–correctly, in most cases–that their political connections will allow them to push onto the government any substantial problems that arise.
        In Russia,


        But inevitably, emerging-market oligarchs get carried away; they waste money and build massive business empires on a mountain of debt. Local banks, sometimes pressured by the government, become too willing to extend credit to the elite and to those who depend on them.


        The government, in its race to stop the bleeding, will typically need to wipe out some of the national champions–now hemorrhaging cash–and usually restructure a banking system that’s gone badly out of balance. It will, in other words, need to squeeze at least some of its oligarchs.
        Squeezing the oligarchs, though, is seldom the strategy of choice among emerging-market governments. Quite the contrary: at the outset of the crisis, the oligarchs are usually among the first to get extra help from the government, such as preferential access to foreign currency, or maybe a nice tax break, or–here’s a classic Kremlin bailout technique–the assumption of private debt obligations by the government. Under duress, generosity toward old friends takes many innovative forms. Meanwhile, needing to squeeze someone, most emerging-market governments look first to ordinary working folk–at least until the riots grow too large.

        Eventually, as the oligarchs in Putin’s Russia now realize, some within the elite have to lose out before recovery can begin. It’s a game of musical chairs: there just aren’t enough currency reserves to take care of everyone, and the government cannot afford to take over private-sector debt completely.


        Although lobbying and campaign contributions certainly play major roles in the American political system, old-fashioned corruption–envelopes stuffed with $100 bills–is probably a sideshow today, Jack Abramoff notwithstanding.

        Instead, the American financial industry gained political power by amassing a kind of cultural capital–a belief system.


        Regulators, legislators, and academics almost all assumed that the managers of these banks knew what they were doing. In retrospect, they didn’t.


        Wall Street’s seductive power extended even (or especially) to finance and economics professors, historically confined to the cramped offices of universities and the pursuit of Nobel Prizes. As mathematical finance became more and more essential to practical finance, professors increasingly took positions as consultants or partners at financial institutions. Myron Scholes and Robert Merton, Nobel laureates both, were perhaps the most famous; they took board seats at the hedge fund Long-Term Capital Management in 1994, before the fund famously flamed out at the end of the decade. But many others beat similar paths. This migration gave the stamp of academic legitimacy (and the intimidating aura of intellectual rigor) to the burgeoning world of high finance.

        • dav0

          Good points Coldblow. Apologies for re-posting, I hadn’t seen it here before. I’m just a blow in around here. In the light of David’s article it was the first thing that came into my mind and as it happened I still had the article bookmarked since last year.

          Despite certain shortcomings in IMF policy, there is one good aspect in regard to them being called in to bail out a country; it pours shame on the government in question that no amount of spin will get them out of. The Economist made a case for them being called into Greece on that very pretext a few months ago.

          Can you just imagine a picture of Biffo and Straus-Kahn on the main page of merrionst.ie?


  22. Fractional Banking and all those other complex linguistics invented to confuse people like me still can’t explain away simple crookery.


    There isn’t a Dicky Bird about this from the mainstream media. Given that the Nepotistic And Moribund Association was set up to wear external underpants in its quest to save Hay-Run(or Oir-Land as our Neo-Brits would have it), this craic is beyond a joke.
    These people are so myopic in the panic to save themselves, they’re the only ones that don’t get the reality of the situation.

    Is it a Ship of Fools or as TotalMayhem subtly states above “the greatest Convocation of Clowns ever assembled” (Or more succinctly; CoC.)

    CoC policies would seem to be the order of the day.
    CoC-ups a meritorious badge of distinction.
    CoC-a-doodle-doo the preferred means of communication.

    I’m losing the will to even entertain discussing this political rubiks cube of a place.

  23. stanb

    Dav0 is right trying to turn your attention towards other contents of Chris Masterjohn’s blog:


    It will point you to a different kind of conspiracy, a knowledge of which may be of more direct benefit to you than studying the shenanigans of your new Irish Landlords. Regards,
    Stan Bleszynski ( http://stan-heretic.blogspot.com )

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