Morgan Kelly and his proposal to default

Sent the following to the Irish Times. Didn't get published. Ho hum...

Madam,

The Irish State was founded by a group of individuals who believed in demonstrating the reality of Independence by throwing the new nation into a ruinous trade war with Britain and its empire. A happy willingness to antagonize its neighbours and harm its own interests simply to prove the fact of Irish independence continued for more than half a century, with mixed results for people who lived here.

Ireland now appears to have gone to the other extreme and is busy sacrificing the nation to avoid upsetting anyone in Europe. Let us not make the mistake of assuming that our selflessness will be reciprocated by France or Germany, both of whom promoted the concept of the Euro, insisted that their nationals had critical positions in the running of it and are now blaming the users of their currency for the for the terminal problems it now faces.

The government needs to make a conscious shift back towards the self-centred politics of the thirties and forties. At an absolute minimum the it should start publicly making contingency plans to implement the "Kelly Option" and other equally radical scenarios such as approaching the United States and asking to join if a catastrophic loss of sovereignty becomes inevitable. Such plans do not have to be put into action to provide benefits. Their mere existence will strengthen our position and turn us from supplicants into participants in the current process.

David Rolfe

Morgan Kelly on the Irish Credit Bubble..

Anyone who wants to understand what's going on here in Ireland should read this paper by Economist Morgan Kelly. A Quote:

Since the seventeenth century, financial innovation has consisted in banks finding new ways to lose money. However, while US, UK and European banks lost money in exotic derivatives, Irish banks lost money the old fashioned way, by making bad property loans.

An alternative to "PIGS"...

Down at the IT today a Mr. O'Connor is unhappy with the use of the term PIGS to described troubled eurozone countries:

Madam, – Why does the Irish media insist on using the ridiculous and insulting “P-I-G-S” acronym in its financial reports, when referring to Portugal, Ireland, Greece and Spain? The term has been actively denounced by the Portuguese and Spanish press, and perhaps we should follow suit.

It seems the acronym is more aptly suited to the British and American bond and currency traders who coined the term. – Yours, etc,

JOSEPH O’CONNOR,

Ashtown,

Dublin 15.

So here's my suggested alternative:

Madam,

People who think the term "PIGS" shouldn't be used clearly haven't considered that any alternative could be much worse. If Britain's finances deteriorate to the point where it qualifies for membership of "PIGS" we might see a new acronym coined - "Fringe Europeans who Can't Keep their Economies Running Sustainably".

David Rolfe

Did joining the Euro cause the crash?

We appear to be seeing something of a pro-Lisbon propaganda campaign being launched. Today's IT reports that David O'Suillivan, the EU Commission's Director General For Trade made the bizarre claim that:

IF THIS country had remained outside the euro zone, the Irish punt would have “crashed through the floor” creating a far worse crisis than the present one, the European Commission’s top trade official has said

...

“The recent financial crisis and the recession it has provoked only further reinforce this argument. Without membership of the euro zone, the former Irish punt would have crashed through the floor, creating a major crisis for the economy well beyond this crisis we are currently experiencing.”

There's a slight problem with this reasoning - If we hadn't been in the Euro the retail banks wouldn't have been able to get their hands on Other Countries Euros to back their insane hundred Billion Euro lending spree. The recent property bubble couldn't have happened. In fact if we still had the Punt it might well have dropped like a stone, but it would have restored our competitiveness as it did so...

Lenihan rattled by McWilliams...

In today's Indo our Minister for Finance attempts to reply to David McWilliam's opinion piece from yesterday. It's fairly clear that Lenihan doesn't want to hear any criticism, constructive or otherwise of his (mis)handling of the banks:

Informed and reasoned contributions to the debate about all the options available to Government are very welcome. Unfortunately, yesterday's contribution from Mr McWilliams fails on both scores.

He then totally fails to address David's point which is that NAMA and a blanket guarantee of bank liabilities can't co-exist without creating a huge moral hazard - If NAMA makes their previous sins go away and the guarantee gives them the financial credability of Ireland when borrowing money what incentive is there for them to act rationally? Bear in mind that nobody us suggesting that the protection for retail investors be dropped - just that once NAMA is up and running the bank should be on a viable footing and aren't supposed to need government backing.

I think that given the circumstances Mr. McWilliams has been pretty mild. Sooner or later Lenihan's going to have to answer questions like:

1. Why hasn't the managment of the banks been cleared out?
2. Why did the government voluntarily take non-voting preference equity which leaves them with *no authority* at the boardroom table?
3. How will NAMA value assets?
4. Why did he hack at the income of the middle class instead of confronting the unsustainable costs of the public sector?
5. Why isn't the government forcing the ESB and Bord Gais to reduce prices? Doing so would have a bigger practical effect than restoring the Xmas bonus.

If only optimism was worth money....

You have to admire the Independent's sense of humour. Every now and then the publish articles that are unintentionally hilarious.

Paddy Stronge, who might just have connections with the banking industry, was unleashed on the unsuspecting readers this weekend with the balanced headline:

Our economic 'big freeze' is already starting to thaw

It's line after line of hillarity:

We should realise, however, that we are actually very close to the bottom already, and then things will start to improve. Significant government investment, falling mortgage rates, bank recapitalisations, and a stabilising of house prices, all mean that the big freeze may actually soon begin to thaw.

Really? And there was I thinking the economy was in an uncontrolled graveyard spiral while our leaders dithered. But what does he base this optimism on?

Firstly, the Government is planning to borrow €18bn this year and pump it in to our economy. That is an investment of €4,500 for every person in Ireland. Much of this money has been allocated to improving school buildings and roads, so more people will be employed. Businesses will benefit from higher sales as those working on Government projects are tempted to spend.

The government is actually planning on borrowing 18 billion to fill a huge hole in tax revenues equivalent to around 20% of the budget. Yes, we're spending on existing capital projects but only because we've already signed the contracts. And as for 'tempted to spend'? The last builder I dealt with kept running out of credit for his prepaid phone.....

For the ailing property market, there is also a break in the clouds. According to recent reports, the decline in the asking price for houses in Dalkey, Dublin, is of the order of 40 per cent and real bargains are now available.

Many are beginning to realise that now is the time to plunge into purchases, while house prices and interest rates are at such low levels.

A 'real bargain'? In Dalkey? Given that the historical average house price is 3-4 times income 'real' prices in Dublin would be around €170,000. In Dalkey even now you'd be lucky to get anything for ten times that....

It's at this point we really start to wander off into fantasy land:

Ulster Bank recently announced a scheme where builders will pay up to 15 per cent off new mortgages if house prices are up to 15 per cent lower in five years. Under this arrangement, the purchaser of the property is protected from downward price movements, so the fear of overpaying is eliminated.

The builders will pay you if the price goes down. Ah! right. I can see that working. And will Ulster Bank guarantee that the builder will pay? No, didn't think so....

The stabilising house market will encourage builders to build again to meet demand. They will need employees, and so, the increase in those joining the unemployed should begin to slow down.

Once the building industry shows signs of life, there will be an improving, albeit slight, trend in government finances too.

"stabilising house market"? 1 in 6 houses were built in the last 6 years. One in six houses is vacant - allowing for holiday homes. So 'demand' to build new houses as opposed to shift the current inventory is a long way off, especically as the banks will sooner or later have to unload them for whatever they can get. And we're still clinging to this notion that construction drives the Irish economy.

Good news should also be around the corner for share investors. The recapitalisation of the banks involves the funding of preference share issues and not the issue of new ordinary shares

...which is actually catatophic for the taxpayers. How are the government going to explain to the electorate that we've given what is it 7 billion to the banks in exchange for non voting equity and have no practical power over the banks? And that nobody only planet earth except us was stupid enough to want preference shares in an Irish bank? You do realize they now play "Road To Nowhere" in the lifts at B of I? Actually the lifts may now be silent - Muzak corporation has gone bankrupt.

At some stage, the markets will realise that this course of action will support improving bank share values. Share investors should start to see the beginnings of an upward movement taking place in bank shares. Confidence will then begin to return to the financial markets.

Anybody who invests in bank shares for any reason other than they wanted to gamble wildly and couldn't be arsed to go to Vegas deserves to lose every penny. Sorry.

Ireland's contribution to racism in the US...

One thing which never ceases to annoy me is the holier-than-thou attitude the Irish media has to all things American. This Saturday the Irish Times let Kevin Stevens write an Irishman's Diary (subscription required) article on the awfulness of American Racism. The first seven-eighths of the article reads like a Wikipedia entry on the dire predicament of African Americans prior to the civil rights movements. But rather than mention civil rights and the radical realignments of race relations that continues to this day Stevens jumps straight into a description of racially segregated neighborhoods:

As William Faulkner so acutely observed, the South suffered from a pathology of racism that left an indelible stain on its culture. But state-sponsored racism was not confined to the southern states. De jure segregation was in effect throughout the US not long before the tumultuous years of the 1950s. African-Americans were barred from many federal government jobs until the second World War. A California law, still in force in the 1940s, authorised the segregation in public schools of children of Japanese, Chinese and South-east Asian ancestry. And the American armed forces remained segregated until 1948.

Moreover, de facto segregation in the US continues to be a problem into the 21st century. Housing patterns, economic factors and "white flight" from urban areas have created segregated neighbourhoods and, consequently, segregated schools. And though poverty is now the critical factor, poverty and race are intertwined. Poor school districts, predominantly black and Hispanic, have poorer schools - which are still segregated, still separate, and still unequal.

And there the article ends. No kidding. Let's not mention civil rights. Let's not mention MLK. Let's not mention anything about the changes that have happened since the 60's. And since Mr. Stevens has apparently been hiding under a rock for the last two years let's not mention anything about the Duke University Lacrosse Team saga, which shows that Race Relations in the US is no longer the black and white matter (sorry!) he thinks it is.

This is a classic example of the Anti-American bias shown by the Irish Media, who are remarkably short sighted when it comes to racism. Do you know why the Irish don't have an open problem with Racism? The real reason, not the nonsense about us being the land of a hundred thousand welcomes? I'll tell you why:

Ireland doesn't have a problem with Racism because we haven't got round to it yet. The people on this miserable rain swept rock have only just finished sweating the last drops of innocent victim's blood out of the medieval intra-Christian religious hatred that's been the driving dynamic here since the time of Henry VIII. The Irish have been much too busy fighting each other to fight the immigrants, who weren't a factor until about three years ago in any case.

Real racism is alive and well today in Ireland. There are now at least two locations in Ireland where planning laws openly discriminate against outsiders on the basis of language or being related to one of the people who live there already. More importantly, nobody seems to find it strange or odd. But what really takes the biscuit and drives me to write this entry was a puff piece in today's Irish Independent. I've highlighted the interesting bit:

Irish investors get first pick in Chicago

Sunday October 07 2007

The best émigré story for some years must be that of Sean Conlon, the Chicago property developer who left Kildare some years ago to find fame and fortune in the windy city and did precisely that.

In fact he is now one of the the largest property developers in the Chicago region. It's all quite depressing for types like me, who are still celebrating the fact that we managed to get to university. While we were busy discussing critical theory and Marx, Mr Conlon and others were a little busier making money. I'm not bitter. Honest.

Well, here comes an money-making opportunity for the cerebral types out there -- those who know too much about Finnegan's Wake and not enough about overseas investment. Castlroc Estates, an Irish overseas company, is offering those of us who missed the property boat a chance to jump on board with PURE2o in uptown Chicago.

First the prices. With one- beds up to 95sqm (1,020sq ft) going from €160,000, this investment is likely to appeal across the board. There is a deposit of only 5pc to be putdown on the signing of the contract and with a two and a half years build time, completion is expected mid 2010.

Here's the bit I like. The project is not being released in the US until January 2008, so the Irish at home have the pick of units. You may think that's not so important now but you try renting an apartment that is 100 feet underground with no windows -- you know what I mean at the back of the class.

Once PURE2o is launched in January you can expect a price increase almost immediately and when you calculate where this development is in Chicago this will come as little surprise. The view from the units of the lake and park is spectacular and the developments are just a street off Lakeshore drive itself.

Let me get this straight. On Saturday I read yet another lecture on how racist the Americans are. On Sunday I see a full page puff piece on how an Irish property developer is building an development in Chicago which American Citizens (be they white, black or polka-dotted) can't buy on the same terms as Irish people and will end up paying more for apartments that are "100 feet underground".

Do the good citizens of Chicago know about this apparently racist business plan? I suspect not. Because if they did at least one Irishman would be rapidly developing an intricate knowledge of just how seriously the Yanks take racism......