Independent nonsense: balance of payments

Am I missing something or is this article contradicting itself in the space of a single paragraph?

Our export-led growth has given us a positive balance of payments position on current account. Depressed consumer demand has helped keep our spending down on imports. So we don't owe as much as we might. The real problem impeding a fuller economic recovery is that consumer confidence and domestic demand have not bounced back. The positive balance of payments will be short-lived if domestic demand does not improve.

So on the one hand depressed consumer demand has kept our imports low and so our balance of payments is positive. Yet somehow, our balance of payments will become negative unless consumer demand increases.

While I agree with some of what he says, the whole article has the feel of a random collection of assertions and opinions about the crisis cogged from others.

Some thoughts on Ireland's financial woes.

This letter was a bit surprising. The guy complains that the govt didn't have a plan to prevent overbuilding of hotels. What he seems not to realise is that the hotels were built as a direct result of govt tax breaks. Not only was there no plan to prevent overbuild, they actively encouraged it. It's odd that someone who can put together a letter to the paper wouldn't know that.

One of the worst things about Ireland's problems is that it's not just public debt. Some countries have bad governments that run up massive public debts but not only do we now have the massive NAMA debt and massive yearly deficit, our government created a massive private debt through tax incentives and planning for developments of hotels, leisure centres and housing estates that are now lying empty and even those that are occupied (many privates houses) are depreciating rapidly. It didn't just bankrupt the state, it bankrupted the citizens too.

The EU puts borrowing limits on member states, the idea is to prevent governments borrowing massively and unwisely. It puts no such restrictions on private debt. By encouraging massive private borrowing and then taking a cut via VAT, stamp duty and other taxes, this government was able to get its hands on far more borrowed money than EU borrowing limits allowed. At the same this money cost far more as the govt only took a small cut of what was borrowed. We'd have been better off as a country if the govt had borrowed it up-front while the people stayed solvent.

I really doubt that anyone in govt thought of it as a way of circumventing EU rules. They found a button they could press that made money come in and they kept pressing it without any regard for the consequences. Just like the rats that pressed the "pleasure" button to the exclusion of everything else, eventually dieing of exhaustion. We should probably be thankful we didn't get an extinction burst!. That said, the car scrappage scheme is just another way to encourage Irish people to borrow so that the govt can take a cut. Again, it'd be a whole lot cheaper if the govt just borrowed the money itself without Irish consumers borrowing it at commercial rates and lining the pockets of foreign car manufacturers. Not quite an extinction burst, more like the rat finding a new button it can push.

So why did it happen? Never attribute to malice what can be adequately explained by stupidity. Given that some of the architects of our current woes bought property at peak prices - Mr Cowen at Leeds University, Mr McCreevy at the K Club (now worth almost one million euro less than he paid) and presumably lots of others who got fast track loads from Fingers Fingleton it seems that while there was an element of malice - well avarice I suppose - stupidity was the overriding factor. Unless these property losses are just a smokescreen, these guys had no idea that this was a bubble that obviously had to burst, right up to the end.

Which brings me to the sad conclusion that we are still boned. The people leading us out are those who led us in. They had no clue what they were doing then, they don't even seem to get what the problems were - Pat Gallagher still thinks cheap credit from the ECB was a great thing. There is no evidence that they suddenly have a clue now.

If the whole disastrous boom had been a clever scheme to line their own pockets, then, at least, I'd have to have some respect for their ability, if not their character. I might believe they could cook up a scheme to help the country recover, although I might not trust them to implement it. Instead, whatever pocket lining they managed to do was purely due to being in the right place at the right time and of course some political cleverness. I'm not sure whether we'd be better off with an honest idiot or a clever gangster.

Pat, "the cope" Gallagher: dishonest or just an idiot?

In his letter to the Indo calling for a "yes" to Lisbon, Pat defends our membership of the Euro. I think there are upsides and downsides to it but for Pat even the downsides are upsides. He happily points out that

The eurozone has ensured that billions of euro have been made available to Irish banks via the operation of the European Central Bank.

and that

As a member of the eurozone, Ireland has benefited from very low interest rates, notwithstanding the very difficult economic situation that faces us.

Surely he must know that these 2 things are the root cause of our massive bubble. The IMF and even Brian Lenihan have said as much. So if he knows this, then to list them as upsides of eurozone membership is basically swearing that black is white and up is down. There is of course that odd "notwithstanding the very difficult economic situation that faces us" which seems to be an attempt to cover all angles - as if to say "yes I know this is what fucked up the country but still it was great craic at the time."

Of course maybe he truly disagrees with me and thinks that the oversupply of cheap credit was an entirely positive thing and we should be thankful for it. This would certainly be compatible with FF's policy over the last decade, right up the point where the shit hit the fan.

The real reason for bailing out Anglo Irish bank.

I like Gene Kerrigan's articles in the Sunday Indo. He had 2 recently: "Servile surrender sowed seed of doom" and "Saving economy while people go down" which deal with our governments obsession with saving Anglo Irish Bank and the others at the expense of absolutely everything else. Why this is happening is a really important question. He makes a lot of sense but he seems to think that the govt are simply mesmerised by the bankers, "deferential and submissive" just as they were in the past to the church. He makes it sound like the govt is just in awe of these guys and willing to do whatever they request - the same way some politicians seem to be in awe of the "free market" and espousers free market ideology. I actually don't think it's that simple (I doubt Gene Kerrigan does either).

Mr Kerrigan says that we should let Anglo go to the wall and let the bond holders take the hit. The argument is that they gambled, they knew the risks and they lost - there is no reason for the Irish government to cover their bet. The problem here is that when they placed their bet, they were ostensibly betting on regulated a bank in a modern, Western, open democracy. As such, on paper, their risk was low and their rates of returns would have been low too (I haven't checked the rates...). On paper, such a bank, regulated by a well run EU member, should never go bust. The problem is that there was no such regulation, worse still there may even have been collusion between the bank and the regulator. For the government to then say "sorry boys you lost, thanks for playing" raises some problems. These bond holders would certainly not be happy with that and would presumably draw even more attention to the misdeeds of the bank and the regulator, possibly even taking legal actions (I have no clue what recourse they would have) and at the very least making it very hard for AIB, BOI and the other to raise capital as they were and still are under the same crappy regulatory system.

The whole thing is a bit like cheating at poker in a gentleman's casino. Ireland sat at the poker table and won hand after hand. It won because it was cheating - it didn't regulate its banks properly. Come the end of the and by now everyone knows Ireland was cheating and Ireland realises that they know. Of course "gentlemen" don't like to bring up this sort of thing in public, it's impolite. Ireland has 2 choices:

1. it can pretend it didn't cheat, leave the casino with its winnings - in this case it will be black-balled and no one will ever play poker with Ireland again. The genetlemen might then abandon their usual decorum, call out the cheating directly and look for their money back.
2. it can say "what a splendid evening we've all had" and leave its winnings on deposit in the casino's safe, then come back and play a losing game every night until it has lost enough to repay it's cheating debt plus interest.

Gene Kerrigan is calling for #1, this government is doing for #2.

The good news is that finance is not the same as poker. There is a third option. We can do #1 and also avoid being black-balled and banned from every table if we can convincingly promise never to cheat again. We must acknowledge the wrong doing, punish the wrong doers and put in place legislation and regulators with real powers. They must not be mates of the politicians or the bankers and they must be willing to remain adversarial. No more jobs for the boys. Without this step, #1 would be extremely dangerous for all Irish banks. That still leaves us open to attempts to recoup our ill gotten gains but the worst that can happen is we end up paying them all back, just as in #2 except.

The bad news is that Fianna Fáil certainly don't have the balls to do this. They are much happier to take #2 whereby everybody remains gentlemanly, nobody loses face and the tax payer picks up the bill (to a large extent it was the tax payer who benefited but it will not be those who benefited most who end up paying back the most). I don't believe that any of the other parties have the balls to try it either or to even contemplate it, they don't want to rock the boat and they have all shown that jobs for the is what its all about.

Incidentally, I don't believe the bond holders were dummies either. I imagine they knew how poorly regulated the bank was. However knowing that the government would feel forced to save them, they could make their bets based on the imaginary state of regulation, not the real state of it.