
Greg's talk is now available here - well worth a listen. A podcast of my response is available here.
Image - I couldn't resist it! - is from the wonderful Mental Floss.
An Irishman’s perspective on Ireland, the future, and other things from time-to-time …
Some of the strongest objections to addressing climate change have been that we will constrain markets, and hence our freedom, at too high a cost. People have feared that climate change was a cover for rolling back the market reforms of the last decades. But in our scenarios, liberal market-based solutions seem much less attractive as time goes on than statist responses. This puts a different light on how to defend freedoms from market reforms. Advocates of liberal markets should act as soon as possible, pushing for a global agreement with teeth, national measures that use financial incentives, and the removal of market distortions that encourage unsustainable and wasteful resource use. The result may be a more constrained market system than today, but the long-term alternative could be a desperate turn to big government and protectionism.We need more of this kind of thinking, and analyses like those of Forfás, if we are to fully exploit the energy window now opening. I just hope short term squabbles about the Budget don't derail the kind of measures we need to take and soon. The window will only be open for a short time.
7.—(1) This section applies to a merger or acquisition (within the meaning of section 16 of the Act of 2002) that involves a credit institution or subsidiary where the Minister—In other words: the Minister for Finance has the final say on bank mergers and acquistions - competition law has been suspended when it comes to financial institutions covered by the Act. There's more further on in the same Section 7:
(a) after such consultation with the Central Bank and the Regulatory Authority as the Minister considers necessary, is of the opinion that—
(i) the proposed merger or acquisition is necessary to maintain the stability of the financial system in the State, and
(ii) there would be a serious threat to the stability of that system if the merger or acquisition did not proceed, and
(b) certifies in writing to the parties to the merger or acquisition, the Competition Authority and the Governor that he or she is of that opinion.
(2) Notwithstanding anything in the Act of 2002, a notification of a merger or acquisition to which this section applies shall be given to the Minister and not to the Competition Authority.
(12) The Minister may approve a merger or acquisition to which this section applies even if he or she forms the opinion that the result of the merger or acquisition will be to substantially lessen competition in markets for goods or services in the State but that the merger or acquisition is necessary having regard to any or all of theIn other words: the consumer comes last (but gets to foot the bill as the taxpayer). This is wartime legislation for a peacetime crisis: like I said, quite extraordinary.
following:
(a) maintenance of the stability of the financial system in the State;
(b) the need to avoid a serious threat to the stability of credit institutions;
(c) the need to remedy a serious disturbance in the economy of the State.
Austria’s bank exposure to emerging markets is equal to 85pc of GDP – with a heavy concentration in Hungary, Ukraine, and Serbia – all now queuing up (with Belarus) for rescue packages from the International Monetary Fund.The result is a convulsion on the eurozone's borders: but one that is nevertheless affecting EU member countries. Hungary last week raised interest rates from 3.0% to 11.5% to stem capital outflows. Romania raised its overnight rate to 900%! With falling oil prices we may well see Russia repeat its infamous default (in 1998) as it struggles with growing dollar liabilities. Indeed we may be in for another round of co-ordinated actions by governments to head off the crisis - this time lead by China.Exposure is 50pc of GDP for Switzerland, 25pc for Sweden, 24pc for the UK, and 23pc for Spain. The US figure is just 4pc. America is the staid old lady in this drama.
Amazingly, Spanish banks alone have lent $316bn to Latin America, almost twice the lending by all US banks combined ($172bn) to what was once the US backyard. Hence the growing doubts about the health of Spain’s financial system – already under stress from its own property crash – as Argentina spirals towards another default, and Brazil’s currency, bonds and stocks all go into freefall.
Broadly speaking, the US and Japan sat out the emerging market credit boom. The lending spree has been a European play – often using dollar balance sheets, adding another ugly twist as global “deleveraging” causes the dollar to rocket. Nowhere has this been more extreme than in the ex-Soviet bloc.
The region has borrowed $1.6 trillion in dollars, euros, and Swiss francs. A few dare-devil homeowners in Hungary and Latvia took out mortgages in Japanese yen. They have just suffered a 40pc rise in their debt since July.
In moments of rhetorical enthusiasm, freedom lovers often declare that the love of liberty cannot be stamped out. They are wrong. It can be, and it has been. For most people, however, no stamping is required. All that is necessary is that people, whether they approve or not, be made subject to extraordinary government powers, which are always justified by the supposed dangers of the moment. Keep people in this condition for a few years, and most of them will accommodate themselves to it, first in their actions and eventually in their thinking, as well. After a while, they will have lost not only their old liberties, but also their yearning to be free.We live in extraordinary times - we need to be extraordinarily vigilant for liberty's sake.
In particular the Regulatory Authority in consultation with the Minister shall monitor and review the expansion of the activities of covered institutions benefiting from the guarantee in order to ensure that their aggregate growth in balance sheet volume is not excessive and does not in any event exceed:Sounds like a lot of micro-management to me: and worse, a possible constraint on bank lending capacities as the economy starts to pick up towards the end of the two year period of the scheme. I'm no monetary economist but I worry about the ability of regulators to determine the lending capacity of financial institutions - they haven't done a great job so far.
36.1 the annual rate of growth of Irish nominal GDP in the preceding year; or
36.2 the average annual historical growth in their balance sheets of Irish credit institutions during the period 1987-2007; or
36.3 the average growth rate of the balance sheet volumes in the credit institution
sector in the EU in the preceding six months,
whichever is the higher. In case of any breach of this obligation, the Regulatory Authority shall adopt, within four weeks, appropriate measures to restore the situation and inform the European Commission thereof.
In our society, scientists set the rules. They work out what levels of consumption and emission are sustainable - and if they're not sure they work out a cautious estimate ...They kindly spare us the details of what will happen to those who object to this state of affairs: sustainable concentration camps perhaps? Still, I do admire their willingness to publish this stuff, and I don't doubt the genuiness of their intentions. Which is the scary bit really. As science fiction-type images of the future go, the New Scientist version is not much different to that brilliantly portrayed in Ira Levin's novel This Perfect Day. Think of it as a sort of kinder, gentler fascism.
We are gradually redistributing resources by setting upper limits for income inequality. It was tricky deciding what the permitted range of incomes should be - one that rewards real differences and contributions rather than just multiplying privilege. ... As a first step, we are aiming to lower the overall range to a factor of 100 ... Eventually, we may try to bring this down to a factor of 30.
We are gradually raising the percentage of money deposited that banks are required to keep in reserve. As a result, commercial lending is declining - banks get their income by financial intermediation and service charges instead - and we are moving to a culture in which you have to save money before you can lend or invest it.
Without as much economic growth as before, we can't maintain full employment - but then, our old growth economy wasn't so good at doing that either. Instead, people work part time, generally as a co-owner of a business rather than as an employee. The whole pace of life is more relaxed. Incomes are lower but we are rich in something that many of us had never experienced before: time.
Completely free trade isn't feasible any more, of course, because we have to count many costs to the environment and the future that foreign firms in growth economies are allowed to ignore.
One of the toughest issues, politically, has been population. We know that we will have to stabilise our population - and that includes immigration rates as well as birth rate.
One reason why sections of the cultural elite (Jenkins labels them ‘Guardian writers and Labour politicians’) can take pleasure in the credit crunch is because this is a ‘safe’ capitalist crisis: there’s no organised or revolutionary working class seeking to overthrow the capitalist system and replace it with something else, only the disorientation of the capitalist elite itself. You can bet a banker’s bonus that these observers would not be chortling into their cappuccinos if there were a serious challenge to capitalism. Indeed, the ‘Marxism’ that some of these bloody pinko liberals have embraced in response to the credit crunch is one entirely denuded of its subjective, ideas-based, history-making element, and transformed instead into a deterministic creed in which things inevitably collapse as the besuited, benighted opinion-forming classes look on and laugh.Which captures in a nutshell my problem with a lot of what passes for an Irish socialist critique of the current crisis: it's usually written by people employed by media organisations (e.g.: Irish Times, RTE) that are crucially dependent on the advertising spending of the capitalists they derided to pay the same commentators' salaries. Hand-bite-feed. As O'Neill puts it: theirs is a form of 'droolism' rather than anything deeper.
Something more was at work in the present crisis, a crisis of unprecedented scope. Why didn’t profit-minded loan companies run thorough credit checks? Why did they keep pumping out low interest loans to high risk borrowers, ignoring the risks? It’s as if somebody spiked the financial system’s punch bowl with stupid juice, driving normally prudent financiers to dash, en masse, over the cliff. It seems that way because it is that way. The brewers of the stupid juice were largely (if not exclusively) politicians in Washington who sought to redistribute wealth from the rich and middle class to poor people with bad credit. These politicians fostered various laws and institutions that directed, cajoled and legally bullied mortgage companies to extend big loans to people with little credit.Or take this analysis from the Wall Street Journal which asks why the regulators encouraged investment banks to take on far greater risks than was wise in hindsight (remember - regulators are the state):
One fair question is how such regulation could have allowed Wall Street to employ so much more debt than the commercial banks. Part of the answer is that, instead of a fixed capital ratio standard, Basel II uses mathematical models crunching historical data to determine how risky an institution's assets are and therefore how much capital it needs. For this reason, when the investment banks switched to Basel II in the middle of a housing boom, AAA-rated mortgage-backed securities appeared almost as safe as cash. Oops. The models allowed Wall Street to add too much leverage. By the same token, because risk models will now look back and see several awful years of default rates, they may force banks to be overly cautious.Nevertheless, it seems clear that the momentum behind even greater state intervention in the economy looks likely to gather pace rather than reverse. The 1980s saw the de-politicisation of economics throughout the Western World - the consensus was that governments should regulate not manipulate the markets. But now we are seeing the re-politicisation of economics (witness the reaction here in Ireland to the Budget last week). While this will be welcome by some, the consequences are, sadly, inevitable in terms of worse outcomes. As Frank Ferudi notes:
The most important consequence of the economic crisis is likely to be the re-politicisation of the economy. This could lead to more demands for extending and deepening the system of financial regulation, and for the state to adopt a greater role in economic affairs. In one sense, such a re-politicisation of the economy would not be a negative development. It may well encourage a more serious public debate about issues that are fundamentally important to people’s lives. However, the downside of the re-politicisation of the economy is likely to outweigh the benefits. After the rescue of the banking system, the state will be under pressure to adopt a more active role in the economy – and the current pragmatic approach of the state may well give way to a more statist tendency towards micro-management and the bureaucratisation of economic affairs.That way lies madness. Just ask your bank manager.
In the next year, close to €2 billion in tax revenue must be raised to keep within the fiscal targets set out earlier. If the current economic circumstances deteriorate, it may be necessary to make some equally difficult tax choices next year.€2 billion is a very substantial amount of money to seek in any one year, but circumstances are such that there is no option. In raising this sum, the Government has been guided by three essential principles:
first, the imposition must be fair and equitable and at a higher rate for those on higher incomes;
second, the levies involved must be straightforward and readily collectible and
third, we must seek to protect sustainable production, employment and the economy in order to keep Ireland competitive in the global marketplace.
The Government is concerned that some of the more expensive tax reliefs, especially for the better off, should be scaled back and the resources used, as appropriate, to protect those taxpayers who are most vulnerable in these times. It is fair and reasonable that those who profited most from the recent good economic times should shoulder a commensurate burden as conditions worsen.
You understand, I'm sure, that 'those who profited most from the recent economic good times' is you and me. Not, of course, those civil servants who have enjoyed extraordinary rises in their pay and conditions, as well as the most generous public sector retirement packages in the world. Whilst private sector workers have seen their pension entitlements reduced to ash in the recent financial fire storm, public sector workers had theirs increase by 2.5% only last month (on top of all the previous increases).
Which is where I have a problem with all this guff about 'burden sharing' in the Minister's speech, and the smash and grab on people's salaries through the tax levy of 1-2% that he announced. The public sector's 'share' of the burden comes in the form of deferred pay rises; the private sector's comes in the form of unemployment. In the public sector, reality is optional. In effect the Minister has decided to outsource the recession - because he can. When a business gets into trouble the people who pay are the directors, employees and shareholders. When a government gets into trouble then everybody else pays.
I'm all for 'commensurate burden sharing' when the times require it, but after years of binge government I find it a bit rich to be told that we the nation's taxpayers are expected to hand over more of our increasingly hard earned incomes to the people who, more than most, got us into this mess in the first place.
What we need, as a sovereign people willing to share the burden, is to renegotiate the contract with the public sector, to end the insane tax-funded pension scheme they enjoy, and adopt the same hire and fire flexibility that is taken for granted in the private sector. In the words of Minister Lenihan, 'It is fair and reasonable that those who profited most from the recent good economic times should shoulder a commensurate burden as conditions worsen'. I entirely agree - let's start the negotiations.
No doubt he wants the banks to operate as commercially as possible, but this is not how state industries work, and especially not when they are run by such a micro-managerial government of the sort we have today. The fact is that billions of pounds of taxpayers' money are now tied up in these ventures, as was the case in British Leyland and Rolls Royce many years ago; suddenly, decisions that were once for a board of directors to make become political. Seemingly trivial business matters are raised in the House of Commons. MPs are approached by constituents worried about their deposits or businesses wanting refinancing. Soon, ministers are accused of favouring firms in Labour constituencies over those in Tory-held seats. There is little point in Mr Darling saying ''it's nothing to do with me, guv". As far as the taxpayer is concerned, it is.The pressure is now on the Irish Government to follow suit: at least as far as the markets are concerned which lopped more value of AIB and Bank of Ireland yesterday. Indeed, the value of all Irish banking and financial institutions combined stood at less than €8.5 billion yesterday - my how the mighty have fallen!
There is other evidence that a good attitude sometimes is bad for business. A University of Alberta psychology team studied multiple groups of workers assembling printed circuits and deemed the crankier employees superior to their upbeat counterparts. The grimacing workers threw themselves into their work -- and did it better: Unhappy workers made half as many mistakes as their cheerful counterparts. Studies also suggest that optimists are less vigilant about taking care of their health, less fastidious about safety protocols and less inclined to save money.Likewise the benefits of happyism as a focus of national policy have been well and truly challenged by economists such as Paul Ormerod. That said, the area of economics and happiness is a burgeoning one, as indicated in this guide to the field from the Geary Behaviour Centre.
To be against happiness is to embrace ecstasy. Incompleteness is a call to life. Fragmentation is freedom. The exhilaration of never knowing anything fully is that you can perpetually imagine sublimities beyond reason. On the margins of the known is the agile edge of existence. This is the rapture, burning slow, of finishing a book that can never be completed, a flawed and conflicted text, vexed as twilight.Or as he puts it elsewhere in his essay, the driving force behind happyism is fear: fear of life's contingency and uncertainty, its terrible beauty. A healthier outlook is to embrace the uncertainty, and the occasional melancholy that goes with it, for that way lies wisdom ... and the delight of unbidden happiness when it does come.
The proportion of buy-to-let mortgages in total residential mortgages has been increasing over time, reaching 26% in 2007 and accounting for almost half of all new homes bought in the last two years. The rental market has expanded from 16% of total housing units in 2000 to 21% in 2006. The growth in the number of second or vacant dwellings has added to the boom in the housing sector. The share of vacant dwellings in total housing increased from 10.5% in 1996 to 16.7% in 2006. The biggest class of vacant habitable dwellings in the "other" category are dwellings held for investment purposes.So should the homeowners and private investors who bought at the peak be bailed out? Whether sub-prime in the US or buy-to-let in Ireland? If they're bailing out the banks then why not bail the borrowers? Of course this raises serious moral issues. After all, where does personal responsibility begin and end in relation to people's financial decisions? It isn't an easy one, as this debate over at the brilliant In Character journal illustrates. And will our methadone housing policies only make matters worse?
In short, we're learning the hard way that virtues like prudence, temperance, thrift, promise-keeping, honesty, and humility - not to mention a willingness not to do to others what we wouldn't want them to do to us - can't be optional-extras in communities that value economic freedom. If markets are going to work and appropriate limits on government power maintained, then society requires substantial reserves of moral capital.We have to be honest with others, but we also have to be honest with ourselves. As Charles Haughey once put it during an earlier economic crisis - quoting Walt Kelly - 'we have met the enemy, and the enemy is us'.
The Minister may subscribe for, take an allotment of or purchase shares and any other securities in a credit institution or subsidiary to which financial support is provided under this section on such terms as the Minister sees fit.In other words, he has the option to take a share (up to 100%?) in the banks on his terms and at his discretion at any stage in the next 2 years. Boy the banks must have been in a bad place to agree to that ...
Familial relativism has parallels with cultural relativism. The drift towards low sibship as an expression of ‘fertility-correctness’ is perpetuated and augmented by fashion. The power of the norm is highly seductive for parents who want to experience parenting without enduring a decades long ‘parenting emergency’. Some developed countries now, arguably, have a one-child policy by example, not compulsion.As Brazier concludes, fertility correctness is really a war on the middle-classes:
There might even be similarities with multiculturalism. True egalitarianism is vexingly difficult to achieve; witness the current woes of the white working class. Equally, the pretence that no family size is more equal than another is precarious. Population politics are a zero-sum game: a dominant one-child philosophy is emerging, to the effective disadvantage of the old favourite.
Choice has become increasingly Hobsonian for middle-income earners. The only child—once pitiable—is now fashionable. A growing canon of work exists to justify the decision to restrict family size in the interests of the environment or career. Respectable authors sidestep a substantial body of evidence to argue that only children suffer no material disadvantage by dint of their solitary status. In place of the large family they cannot have or do not want, parents of singletons incorporate nephews, nieces, Godchildren, and the children of friends into the ‘analogue family’ unit. Those denying that children of low sibship are in any way disadvantaged are the intellectual midwives to a new demographic order: ‘A world never before inhabited: a world in which the only biological relatives for many people—perhaps mostWhich makes me wonder about targets for childcare for pre-school age children. We need to get serious about the wellbeing of our children, not least because half of all the variance in lifetime income between people is determined by age 18. But that doesn't necessarily mean increased participation in the workforce for mothers of pre-school age children. An alternative solution is to take the €2.5 billion spent this year alone on Child Benefit and focus it entirely on married couples with pre-school age children where either parent has had to give up employment.
people—will be ancestors.’
The Street has suffered a serious decline in trust. Yet trust is its most important asset. Financial markets trade in promises -- that assets have a certain value, that numbers on a balance sheet are accurate, that a loan carries a limited risk. If investors stop trusting those promises, Wall Street can't function.Irish bankers have presided over the loss of approximately 80% of the value of financial stocks since their peak on 21st February 2007. That's a lot of ground to make up before we're even back to square one. No wonder the Irish Association of Pension Funds is warning about a possible collapse in some defined benefit pension funds. I can't see us getting back to the peak for a decade or more (in real terms: runaway inflation might get us there sooner in nominal terms). In my more pessimistic moments I think it might take a generation.
But in the last few years, many Wall Street promises have not been worth the paper they're written on. That's because, when the securities market was roaring, many financial players had no idea what they were buying or selling, and worse, they didn't care. Derivatives on derivatives; so-called special investment vehicles to move assets off balance sheets; credit default swaps; and of course securities backed by risky home loans. There seemed no limit to the financial smoke and mirrors. That meant almost no limit to what was promised. And regulators looked the other way.It worked great as long as everyone kept trusting and the market kept roaring. But all it took was a few broken promises for the whole system to break down. What to do? Not to socialize capitalism, as is now being done. What's lacking isn't capital, it's trust. And the only way to rebuild trust is through regulations that require financial players to stand behind their promises and tell the truth, along with strict oversight to make sure they do.
... in high-trust environments it is easier to agree on (in the long run) welfare enhancing reforms. Among the theoretical arguments which lead to this conclusion are the reduction of information decits due to a higher level of information attained by individuals in high-trust societies, the moderation of conflicts regarding the wealth distribution in environments of high trust, and the possibility to make credible promises for compensation of reform losers.And as a recent DB Research report (from which the chart above) shows, there is a strong correlation between levels of trust in society and numerous other indices, including freedom, the health of democractic institutions, economic growth and innovation levels.