28/9/18: 10th Anniversary of the Irish Banking Crisis

Yahoo Finance's Edmund Heaphy on 10th Anniversary of the Irish Bank Guarantee: https://uk.finance.yahoo.com/news/destructive-goal-decade-irish-bank-guarantee-090447485.html with extensive quotes from myself.

13/5/2014: No, Johnny the Foreigner didn't do it... our own Government did...

Ah and so it rolls, Irish national media obsession with who (from abroad) pushed (presumably unwilling) Irish Government (so deeply concerned with national wellbeing) to guarantee bondholders (presumably the elderly investors from pension funds and teachers, nurses and fire(wo)men) back in September 2008 (because, you know, the Government did not beat the 'Great Irish banks Inviolable drum for the good part of 2008).

The latests instalment is on the role of Timothy Geihtner (based on his book) and it is available here: http://www.irishtimes.com/business/economy/timothy-geithner-keeps-it-short-when-it-comes-to-haircuts-1.1792498.

So we know the drill:

1. IMF called for haircuts. Well, I am not so sure. IMF does include haircuts in some of its 'rescues' and it is a part of the tool kit. But IMF never played an active part in Ireland or for that matter in the euro area. Just compare and contrast the Fund manhandling of Hungary against its waffling on in Greece. My internal IMF sources told me that staff was surprised Ireland did not burn the bondholders the way Iceland did. But then again, one's dismay is not Fund's advice, and Fund's advice is not Fund's order (oh, and IMF does issue 'orders').
2. ECB barked at the idea of haircuts. Again I am not so sure. We do know ECB opposed them, but that is not a reason not to try them, is it? The argument goes that if Ireland were to go against ECB's will, the skye would fall onto us and the moon will no longer exert its tidal push and pull force on the Irish sea, making the entire island uninhabitable. Truth is, we have no idea what ECB would/could have done. Stop funding of Irish banks? Lots of good that funding did to us, I'd say - apparently even with ECB lending we had to bankrupt the nation to mummify the zombies (you wouldn't call this a rescue operation, since our banks are still zombies five and a half years into the mess).
3. EU balked at the idea. Which means what? Olli Rehn had hiccups for breakfast? Both EU and ECB were, allegedly, powerless midgets incapable of stopping the spread of contagion from the inter-galactically important Irish banks (if they were just simple banks, why all the huff about their systemic importance) and thus needed Irish people to bite the missile (you would hardly call a guarantee the size of 2.5 times the nation's GDP a bullet) for them. So who exactly held the trump cards? 
4. US and UK went apoplectic (although as we now know, Geithner did not oppose haircuts in principle, though he was against their timing). I must confess, I noticed no such reaction from Treasury and BofE officials I encountered in briefings around the time of the Guarantee and there after.
5. Irish Government reluctantly, tragically, with tears in their eyes, was forced to introduce a guarantee of all liabilities. 

Now, just for nanosecond give this a thought: the Irish Government, that spent a good part of 9 months prior to the Guarantee staunchly defending the banks and since around July of 2008 - covering up their repeated violations of regulatory requirements (liquidity ratios etc), the same Government that apparently had no desire to know what was going on in the banks shares support schemes and didn't give a damn about abuse of derivative instruments to prop up the banks valuations, the said Government that had lost no sleep over the silencing of whistleblowers pointing to systemic problems in the banks… that Government today is being painted as having been 'bounced' into the Guarantee and subsequently the Troika bailout?..

Are we serious? Let's take a hard look into the mirror. The Guarantee was an act of the Irish Government to protect and secure Irish banks connected to the Irish elite's interests. Full stop. That it rescued a bunch of unsavoury bond holders and investment funds was a cherry on the proverbial cake, not the main spoiler of the 'benevolent Government' intentions.

That we did not exercise a sovereign right to, in a national emergency, impose losses on whoever we wish to impose them is not a corollary - it is a direct evidence of intent to rescue the banks at any cost to the nation. This is further collaborated by the fact that following the guarantee, the Irish Government (not the ECB or US Treasury or the EU Commission) sat back and did absolutely nothing to impose any terms and conditions onto the banks. It is evidence by the fact when our Government at the time was forced to start doing something about reforming the banks, it went about it in the following order:

• First, losses were imposed on borrowers. Borrowers who are still (after numerous 'powder over the gaping wound' reforms of insolvency and bankruptcy codes) being milked by the banks to the loud approval from the Central Bank for every penny they might have or will have in the future.
• Second, banks were given token targets on governance reforms (changes of boards, senior executive ranks, salaries caps etc). The banks blew past these like a boy racer blows past the '30 km/h' speed sign.
• Third, the State created Nama which underpaid for the banks assets in order to secure brighter future for itself and its consultants and vulture funds (the latter now expect returns of 20% per annum and more on the assets they are buying from Nama, which Nama claims to be selling at a profit).
• Fourth, more cash was injected into the banks to cover the hole blown in them by Nama. Cash was taken off the same taxpayers, many of who are the said borrowers being pursued by the banks with the blessing of the State.
• Fifth, the banks were subsidised and protected from any competition - and still remain such: we have a massive penned up demand for credit (allegedly from top-quality SMEs and corporates and households with healthy balancesheets that everyone - from IBEC to myhome.ie claims exist all over Ireland) and we have rising lending margins, and yet we have not a single foreign bank coming into the country or expanding its operations (beyond PR releases) here. Why?

Do tell me that anything in the above suggests that the past Government shed a single non-crocodile tear in guaranteeing the banks? I simply can't believe that. It does not correspond to the facts at hand.

So to tidy things up: let's continue digging for the evidence that some Johnny the Foreigner 'bounced' Ireland into the Guarantee and the bailout and the rest of the mess we are in. Let's even keep digging for the evidence that the Martians are responsible for the original mishap of two Luas lines not being connected to each other.

But let's also remember - as a sovereign State, Irish State had choices. It made them. It made them to suit all of the objectives of supporting the banks that were consistently and persistently pursued by the State prior to the Guarantee. Subsequent to the Guarantee, Irish Government officially and repeatedly stated that it will provide all and any support needed by the banks, unconditionally, unreservedly and unceremoniously. Whatever Johnny the Foreigner did or did not do in such circumstances is secondary - interesting, important, intriguing, but still secondary. Primary is the fact that we were flushed down the proverbial banks sewer by our own.

24/6/2013: Anglo 2008 Annual Report is out. Call your broker, presto!

All going swimmingly... nothing to look at here... move on folks...

http://www.ibrc.ie/About_us/Financial_information/Archived_reports/Annual_Report_2008.pdf
H/T to @KarlWhelan

Oh, yes, do fill your boots with them shares...

A pearl:
"Following the introduction of the Government guarantee on 30 September 2008 the Bank experienced growth in retail deposits and access to other funding markets gradually improved. However, the reputational damage to the Bank resulting from a number of recent disclosures together with  adverse ratings actions have significantly weakened the Bank’s competitive funding position at a time when global markets continue to deteriorate and overall sentiment is negative."

Thus, clearly, barring some bad publicity and bad-bad-bad-n-worse Ratings Agencies intransigence, the bank would have been just fine, thank you...

And as per future, a gem:
"We are determined as part of our long term strategy to rebuild trust and confidence. A key priority of the new Board is to ensure we regain our position in the corporate, wholesale and debt capital markets and over time enhance the quality of funding, building on our diversified international platforms. ...The Bank’s ambition is to expand its retail franchise by targeting new and existing markets with competitively priced transparent products."

The Happy Times, they are coming back...

Obviously, there is no one to blame, but bad PR and bad-bad-bad-n-worse Ratings Agencies:
"I continue to be impressed by the tremendously loyal and professional staff in all areas of the Bank who deserve great credit for their dedication and commitment. Like all stakeholders, staff members across the Group have been deeply impacted and disappointed by recent events. They share the Board’s determination to restore confidence and trust in the Bank. The Board has great faith in the ability and strength of our people and they will play a critical role in ensuring the future viability of the Bank."

In other words, neither the staff, nor the Board had any idea of these bad things that have happened... it is, therefore, 'carry on across all decks' moment... But just in case you don't get this tingling sensation of excitement for the future from above, here it is in full glory:
"...a comprehensive business plan is being developed which will ensure the Bank’s long term viability.

...We will look at evolving from our existing structure to a broader more diversified business bank. The Bank’s customer service ethos and ability to provide effective and efficient service will help us meet the needs of sole traders, SMEs and larger businesses.

The Board is resolute in its determination to ensure that the Bank emerges from its current situation as a strong and viable institution and one that stakeholders feel proud of."

QED.

NB: Judging by objectives set out above, the Board and the senior management of the bank have by now failed in achieving the goals set out by themselves for themselves back in 2008-2009. Anyone to be held responsible?.. other than bad PR and bad-bad-bad-n-worse Ratings Agencies?..

NB2: Karl's reaction - and I am in agreement with him on it:

23/6/2013: Sindo & Indo: "'Bondholders are f***ing us up the arse' – Anglo"

With slow drip of a freshly leaking faucet, we are getting more and more granularity on the events surrounding Anglo collapse and the events leading up to the Guarantee. Here's the latest instalment:
http://www.independent.ie/irish-news/bondholders-are-fing-us-up-the-arse-anglo-29365626.html

It is impossible to assume that this information, in pretty much the same words, was not conveyed to the Taoiseach and the Minister for Finance before the issuance of the Guarantee. Which, of confirmed, would imply wilful act on their behalf in securing the payouts to the bondholders against all information available.

It is also virtually impossible to imagine, given this information, that the IL&P did not know well in advance of the fated 'deposits'-'loans' swap of late September 2008 that its funding arrangements with Anglo were high risk and not exactly kosher. Which implies that the Irish Fin Reg also knew the same. If the Fin Reg did not know this, its lack of awareness would signify an absolute level of incompetence that would be staggering even by the pretty high bars for incompetence set during Bertie Era.

In short, the two material bits in the article linked above are... well... staggering in their importance.

Updated: more on the same from 
http://www.independent.ie/business/irish/inside-anglo-the-secret-recordings-29366837.html 
now down on tapes and making the case for accusing Anglo senior staff of knowingly manipulating the bank relationship with the CBofI/FinReg!


So while Bondholders were 'f***ing up Anglo', Anglo was f***ing up the entire financial system of Ireland with Ireland's financial system cheerful approval. The only ones who got f***ed up in the end were... Irish taxpayers. Happy times!


Updated: ZeroHedge on the same: http://www.zerohedge.com/news/2013-06-24/anglo-irish-picked-bailout-number-out-my-arse-force-shared-taxpayer-sacrifice

And Anglo 2008 accounts have been released: http://trueeconomics.blogspot.ie/2013/06/2462013-anglo-2008-annual-report-is-out.html

04/07/2011: Banking Guarantee & Cross-Border Deposits Protection Co-operation

My comment for the Central Banking on the Irish example of importance of cross-borders cooperation in deposit insurance. Apologies for pdf copies, as the site is subscription only.

02/07/2011: Was banks Guarantee 2008 a subsidy to foreign lenders?

Please note: the figures below are estimates, based on Table A.4.2 data from the Central Bank of Ireland for 6 covered banking institutions liabilities as of September 2008. These charts illustrate the comment I provided to the Quarterly Journal of Central Banking - forthcoming issue for Q3 2011.
First, straight forward composition of liabilities as shown in the chart above.

Next, the same expressed as percentages of total liabilities:
Finally, assumptions and calculations of total implicit subsidy from the Irish taxpayers/Exchequer to foreign liabilities holders:
Click on the chart to enlarge and see assumptions and calculations. Euro area residents accounted for €39.572 billion of our banks' liabilities or 6.42%, while non-Euro area residents accounted for €218.836 billion or 35.5% of total Ireland-6 liabilities at the time the Guarantee was issued. Thus, Euro area residents received an implicit subsidy from the Irish taxpayers to the tune of €5.5-6.7 billion over the time of the Guarantee - well in excess of the life-time cost of 1% reduction in the interest rate on our EU loans.

Of course, this is a crude estimate based on official provided and expected default rates on assets held by the Irish banks - excluding Anglo and INBS. Which means it is likely to be an under-estimate. Expected losses at INBS and Anglo are multiples of those assumed for the Ireland-4 covered in the main PCARs. With Anglo & INBS thrown into the mix, subsidy to Euro area residents rises to ca €8 billion.

Another issue here is that I am using estimates through 2013 only. This means that, like the CBofI I am assuming (ad hoc) that post-2013 IRL-6 will be able to cover their own losses without resorting to taxpayers capital injections. This assumption, in my view, is absolutely unrealistic.

Finally, no allowance is made here for the Irish Government underwriting of the funding debts incurred by the banks vis-a-vis ECB and CBofI - the debts which, at least in the case of Anglo & INBS, should be treated as largely reckless lending to insolvent institutions and which should not be a liability of the taxpayers.

In the end, in my opinion, Irish Government had no business underwriting a Guarantee for any of the liabilities in excess of €130.2 billion of domestic deposits and €2.813 billion of its own deposits with the IRL-6.

Note - another issue not addressed in these estimates, but also likely to increase the implicit subsidy extended to Euro area residents is that Monetary & Financial Institutions deposits figures cover IRL-20 banks regulated here, which include a large number of deposits from Euro area banks that are within IRL-20.

Economics 16/9/10: Analysis of global banks rescue packages disputes Irish policy case

A very interesting paper that a year ago should have alerted this Government to the fallacy of its preferred path to interventions in the banking crisis. Alas, it did not.

Michael King Time to buy or just buying time? The market reaction to bank rescue packages, BIS Working Paper Number 288, September 2009 (linked here).

The paper suggests and tests the following three hypotheses concerning banks rescue packages put in place at the beginning of the crisis (January 2008):

• H1: The announcement of government rescue packages will be associated with a narrowing of bank CDS spreads relative to the market.
• H2: Capital injections will be associated with a rise in bank stock prices relative to the market if the benefits of lower leverage and a lower probability of financial distress outweigh the potential dilution of existing shareholders or restrictions on payment of common dividends.
• H3: Asset purchases and asset insurance will be associated with a narrowing of bank CDS spreads and a rise in the stock price relative to the market.

What the study found is that rescue packages confirm H2. But there was significant difference in the effectiveness of interventions.

• In the US, “bank stock prices outperformed reflecting the decline in the probability of financial distress and the favourable terms of the capital injections. The risk of US bank failures was high following the failure of Lehman Brothers and IndyMac, and the government take-over of AIG, Fannie Mae, and Freddie Mac. While the US Treasury’s preferred shares included warrants with the potential to dilute shareholders, the favourable terms of the capital allowed the average US bank share to outperform the market following the announcement of government support.”
• In contrast in Europe, “the risks of financial distress were also high as seen in the capital injections for Fortis and Dexia and the nationalisation of Bradford & Bingley. While banks were recapitalised, the cost and conditions of European rescue plans were punitive for existing common shareholders leading to an underperformance of bank stocks in most countries.” In other words, Europeans, predictably soaked equity holders but didn’t touch bondholders.
• “The UK package appears to have been the most costly for existing shareholders, which explains the fall in stock prices when the terms were disclosed. Given that only three out of six banks accepted the capital, the fall for banks receiving capital was offset by the positive response of banks that did not.”
• “Swiss banks were the exception as the average Swiss bank was relatively unaffected.”

Turning to the cases of asset purchases or asset insurance schemes, “market reaction provides only partial support for the third hypothesis (H3) that creditors took comfort from the reduction in potential losses and the decline in risk-weighted assets”. Oops, I’d say for the Leni/Nama plans. And this was known as of September 2009, despite which our Government has charged ahead with Nama.

“Overall, globally, asset purchases or insurance were used in only four cases with mixed results.”

Bingo – only in 4 cases: “the Dutch, Swiss, and US governments supported specific financial institutions by purchasing impaired assets or providing insurance against losses on specific portfolios. In an asset purchase, the government buys impaired securities or loans from the bank, reducing the bank’s risk-weighted assets and lowering the amount of capital it must hold against potential losses. While the government bears the risk of losses, it also retains the profits if the assets recover. While the US and Germany announced asset purchase plans, only the Swiss had taken action by the end of January 2009, buying $39.1 billion of illiquid assets from UBS on 16 October. The assets were removed from UBS’s balance sheet and placed in a special purpose vehicle, significantly reducing UBS’s risk.”

So in the end in the duration of 2008, no country has undertaken a significant Nama-like operation with exception of Switzerland in relation to UBS alone. Clearly the claim that Minister Lenihan was acting consistently with other countries in setting up a Nama vehicle is not true.

Here’s an interesting bit: see if you can spot where Mr Lenihan has gone the path differing from everyone else back in 2008. “Under asset insurance, the government assumes a share of the potential losses on a specified portfolio after a first loss amount (or deductible) is absorbed by the bank. In return, the bank pays the government an insurance premium based on the riskiness of the portfolio. By limiting the bank’s potential losses, asset insurance also reduces a bank’s risk-weighted assets and lowers the capital it must hold. The government, however, is left with a large potential liability if the assets fall substantially in value. The US and the Netherlands offered asset insurance to three banks. The US provided protection to Citigroup and Bank of America against the possibility of unusually large losses on asset pools of $301 billion and $118 billion, respectively. In both cases, the US government bears 80% of the losses after the deduction of a first loss tranche paid by the bank but does not share in any profits. The Dutch authorities created an illiquid asset backup facility to insure most of the risk from $35.1 billion of Alt-A securities owned by ING. The Dutch government shares in 80% of the downside and the upside. Asset purchases or asset insurance should be positive for both the stock price and the CDS spread, as both interventions lower the potential losses faced by common shareholders and reduce the risk of default. As a result, the share price should rise and CDS spreads should narrow. In three out of four cases the government’s actions coincided with the injection of capital.”

To conclude: “the October [2008] rescue packages provided governments with time to assess the situation and formulate their policy responses. At the same time, these policy interventions did not represent a buying opportunity as seen in the underperformance of bank stocks in most countries studied.”

Predictably, our stockbrokerages analysts, Nama, Department of Finance, Government and the usual crowd of suspects claimed that:

• Nama will lead to significant improvement in the banking sector health;
• Irish Government interventions were value additive for shareholders - all stockbrokers in Dublin and majority of them outside had 'Buy' recommendations on banks based on Government rescue package;
  
• Banks guarantee scheme is structurally important to the resolution of the crisis (not a delay, but a resolution),
• The rest of the world was doing the same.

International evidence on the matter suggests that banks supports are only as good as the measures to reform banks taken after the supports enactment. Of course, in the case of Irish banks, no such reforms took place since September 2008.

All I need to add here is that this paper was available to Minister Lenihan's advisers, to Nama and to DofF and Central Bank handlers. The latter, alongside their Financial Regulator counterparts are linked to BIS.

Economics 1/8/10: Merrill Lynch & Minister Lenihan's Banks Guarantee

Those who follow my tweeter contributions (@GTCost) would have probably seen the following quotes from the 3 documents relating to Merrill Lynch advice given to the Irish Government regarding the banks guarantee of September 2008. Nonetheless, I've been asked by a couple of readers to provide their summary in a single place so here it is.

In relation to Minister Lenihan letter to the Irish Times (here) which stated amongst other things that: "In the papers on the bank guarantee recently released by my Department and published by the Public Accounts Committee, the Government’s financial advisers Merrill Lynch strongly endorsed the principle that no Irish bank should be allowed to fail against the backdrop of what the Governor describes in his report as “the hysterical state of global financial markets”. Merrill Lynch also recommended a blanket guarantee of Anglo Irish Bank, including, incidentally, subordinated debt."

The Minister was referring to 4 documents available on the Oireachtas site (here) and numbers 3, 4, 5 and 6. Document 6 contains no information on the actual position of the Merrill Lynch.

Transcript of the meeting Merrill Lynch & DoF 26/09/2008: page 1 "On a blanket guarantee for all banks: Merrill Lynch felt could be a mistake and hit national ratings and allow poorer banks to continue" Link: http://www.oireachtas.ie/viewdoc.asp?fn=/documents/Committees30thDail/PAC/Reports/DocumentsReGruarantee/document5.pdf

Same source, page 2: "More generally, institutions should be encouraged to sell assets & get equity." So Merrill referred to equity capital injections (either in the style of Swedish recapitalizations by the state or private equity sales, with the latter being an unlikely outcome. At no time does the document references the need for a blanket bailout! Minister Lenihan was present at the meeting (see last paragraph of the document to prove this, although the official list of attendees at the top of the document does not include his name).

Merrill's presentation on 26/09 does state (p2) that a guarantee, covering subordinated debt holders as well is: "Best/Most decisive/Most impactfull from market perspective" option of considered. It does not state this to be the case from the taxpayers perspective. Minister Lenihan does not represent the markets interests. He represents taxpayers interests. Thus, if he indeed take the advice from the above statement, he thus knowingly or unknowingly altered the terms of his core responsibilities.

The same presentation voices a number of concerns, some of which are blacked out by DofF... What are these? Link: http://www.oireachtas.ie/viewdoc.asp?fn=/documents/Committees30thDail/PAC/Reports/DocumentsReGruarantee/document4.pdf)

Email from Merrill to K. Cardiff from 29.09/08 18:43(just a few hours before the guarantee was issued and containing final advice by the investment bank to the Government) does not contain any endorsements of the Guarantee (or of any other singular option), despite being based on 26/09 presentation cited in the earlier quote.

But the email does say (p2): "There is no right or wrong answer [to strategic options available to the Gov]... preserving flexibility is key & solution may be different for each institution"

Does this advice sound like a call for a blanket guarantee on all debt holders?
Link: http://www.oireachtas.ie/viewdoc.asp?fn=/documents/Committees30thDail/PAC/Reports/DocumentsReGruarantee/document3.pdf

There are even deeper issues involved in Minister Lenihan's statement. One of the most troubling ones is why has the Minister summoned the advice of an investment bank that two weeks before the advice was sought (on September 14th) was taken over by Bank of America in questionable condition?

Congressional testimony by Bank of American CEO Kenneth Lewis, as well as internal emails released by the House Oversight Committee, indicate that Bank of America was pushed into the purchase of Merrill Lynch by the US regulators. BofA executives and board were, allegedly, threatened with the firings and were warned of "damaging the relationship between the bank and federal regulators". Full three weeks before Minister Lenihan engaged Merrill Lynch, the company was severely downgraded by its peers in the market (September 5 downgrade by Goldman Sachs is indicative of this and was public at the time).

However, the main issue that arises from Minister Lenihan's letter is that of the purpose of its existence in the first place. Is Minister saying that the Guarantee decision was the correct one? If so, why does he need the defense of being given such an advice? If no, what does his statement about Merrill Lynch advice really tells us? To say that Guarantee was issued because Government advisers said that it was the best option is equivalent to saying that poor weather forecasts has caused Titanic to sink.

Economics 25/05/2010: Looking at the Financial sector

As of now, both BofI and AIB are trading below 52-weeks lows. The financials are continuing to experience pressures. But a look back at the overall sector is warranted. Here are some stats:
Let's start from a far: dramatic or not, but the current market conditions are in line with the long term time trend in Irish financials. If anything, per almost 11 years of data, we are currently above the long run trend line. Guess there's more room for downward pressures, should long run dynamics matter.

Zooming in:
Note the chart above - this shows the totality of value destruction since the beginning of the credit crunch back in July/August 2007.

To see some more dynamics, consider the snapshot from the peak to today:
The chart above shows the entire extent of the crisis, with the medium term (through crisis) trend pointing to consistent positioning of the current market valuations. In other words, per trend, nothing dramatic is happening in the markets right now. I also posted some key dates that mark our policy and opinion makers' ability to track markets and predict the future.

Lastly, chart above shows the dynamics in Irish financials over the span of the 'rebirth of optimism' - the last 12 months during which various Government officials and politicians have made a score of statements to the effect that:

• Ireland has turned the corner on recession
• Irish banks are now in a stronger position than before
• Irish Government has made right decisions and these are now evident in the markets' approval, etc.
  

Revealing, isn't it?

Economics 23/02/2010: IMF on some of the Irish crisis policies

So we keep hearing how the entire world is applauding the Irish Government for doing "the right thing" (as Minister Eamon Ryan asserted today on Prime Time). Hmmm... I guess IMF isn't amongst the 'entire world' set.

IMF paper released today, titled "Exiting from Crisis Intervention Policies" states:

"For most advanced economies, including the very largest ones, fiscal stimulus vis-à-vis 2008 levels will be broadly maintained in 2010.

Among G-20 advanced economies, only Canada and France are expected to start a significant adjustment—on the order of ½ and 1 percentage point of GDP in 2010, respectively, in terms of their structural balance.

Larger reversal of stimulus is expected in Spain, and especially in Iceland and Ireland, but from very high structural deficit levels in 2009."

This doesn't sound like an endorsement, just a clinical admission of the fact, but... notice the words 'reversal of stimulus'. This really implies that the IMF is treating our cuts imposed in the Budgets 2009, 2009-bis and 2010 as being largely cyclical (consistent with a reduction in a temporary stimulus).

Of course, the IMF - as well as any reasonably literate macroeconomist - would like to see Irish government (and other governments as well) cutting structural deficits, not cyclical. And the IMF makes this point by stating:

"Few G-20 advanced economies have so far developed full-fledged medium-term fiscal adjustment strategies, although some have announced medium-term targets or have extended the horizon of their fiscal projections.

A notable development is the adoption by Germany’s parliament, in June 2009, of a new constitutional fiscal rule for both federal and state governments that envisages a gradual move to (close to) structural balance from 2011. The rule requires the federal government’s structural deficit not to exceed 0.35 percent of GDP from 2016. States are required to run structurally balanced budgets from 2020."

Might it be the case the IMF views our cuts as being at risk of turning out to be short-lived? It might.

Another interesting feature of the report is the following statement (which comes right after the Fund saying that it expects the governments to start lifting banks guarantees since funding conditions have been easing):
"Deposit insurance schemes have not undergone any significant modifications since their expansion at the beginning of the crisis. The average duration of schemes is about three years. Since June 2009, New Zealand and the United States (for transaction accounts) adopted changes and extensions to their programs, including a rise in participation fees to better reflect market prices and risks."

Now, give it a thought: the Government has extended banks guarantee, but cut the deposits guarantee - exactly the opposite of what other governments are doing. Another uniquely Irish way of 'doing the right things' for the banks and taxpayers?

Doubting? Take IMF's data for the extent of support we have given the banks to date:
Do remember - the above figures for Ireland do not include the full exposure due to Nama and the latest stakes-taking exercises the Government is engaging in with BofI and will be engaging in with AIB in three months time. Notice just how massive is our exposure relative to GDP when compared to two other crisis-stricken countries - Denmark and the Netherlands. Also notice just how much more aggressive these countries are in writing down their banking systems' bad debts? In fact, not a single country comes close to us in terms of engaging in bad assets purchases from the banks. Why? They do not believe in the 'long term economic value' that Nama is based on?

Another interesting table from the paper:
This, of course, shows that majority of countries out there are completing their programmes for stabilisation of the banking sectors in 2010-2011 period. Ireland is not at the races here. Unlike majority of our counterparts, we are bent on dragging out Nama through some 15 years worth of the zombie banking, zombie development and zombie economy - Japan-style. Except, unlike Japan, we have young population.

Economics 20/01/2010: Banking Inquiry

I have three simple points to contribute to all the discussion concerning the Banking Inquiry proposals:

1. Any Inquiry must be fully public, to the point of live television broadcast of all proceedings. Imagine a case of not one, not two, but six largest hospitals in the nation recording serial acts of systemic malpractice that were to result in some Euro 70 billion worth of damages. Would Mr Cowen call for a closed-doors inquiry?
2. Any Inquiry must be swift and must lead to convictions and severe punishment of anyone found guilty of malpractice or non-fulfillment of duties (including public officials in charge of regulatory and supervisory functions, should they be found guilty). Imagine a total collapse of six largest bridges in the country at the peak traffic - would Mr Cowen sum up the situation as 'We are where we are, now is not the time to deal with the past'?
3. Any Inquiry that does not cover Nama and Banks Guarantee scheme will simply fail to deliver full account of the causes and the full extent of the damages caused by the current crisis. This is why I oppose an idea of the 'wise men'-drafted preliminary report to set terms of reference for the second stage inquiry. Given this Cabinet will be selecting the 'wise men', I have serious doubts as to the integrity of the process or the group put in charge of restricting any direction of the future inquiry.

Ireland needs its own Truth & Reconciliation Commission to deal with the systemic failures of our supervisory, regulatory and banking systems. If public operation of such a Commission results in irreparable damage inflicted on our banks - how can one tell? After all, with Anglo at the helm, these banks have already done enough to damage themselves. The price of keeping them alive on artificial respirator of paucity, opacity and public cash is the collapse of public trust in our institutions and in our financial system - a price that is much higher than the withdrawal of all international bond holders from Ireland Inc can ever be.

After all, am I the only person one noticing the complete and total ethical collapse of our social system that takes ordinary folks' money to pay the cost of the full and unlimited guarantee of the (largely) foreign bondholders in Irish banks, while their own deposits are now under the risk of being covered by a limited guarantee up to Euro100K?