Thursday, 14 May 2009

'There was no supervision, no regulation and wild excess'

Slí Eile: There was no supervision, no regulation and wild excess. Ireland saw the biggest building boom since the pyramids and this is going to be a painful adjustment,” said Prof Buiter, a former member of the Bank of England monetary policy committee and professor of European political economy at the London School of Economics while addressing the sixth Mercer European Investment Forum.

'It is only because of the implicit guarantee of euro zone partners, particularly Germany, that Irish banks and the State itself were likely to emerge from the present crisis.' he is also reported by the Irish Times as saying 'Recovery, in part through recapitalisation and new lending, would only be possible when banks disclosed fully the scale of their bad debts. He was hopeful that, “by the end of the year, we will truly know who has been swimming without trunks”.'


Donagh said...

Funny, the article doesn't mentioned that Buiter has been highly critical of the Irish government's bank guarantee and of the 'bad bank' model in general.

"The US, the UK and several other continental European countries are at risk of emulating Ireland, where the government first guaranteed all the liabilities of the banks (other than equity) and only after that began to nationalise the banks. This leaves the Irish government today in the not too enviable position of having to choose between sovereign default and bleeding the tax payer and the beneficiaries of normal public spending to make whole all the creditors of the banks.

Bailing out the holders of existing bank debt and other bank creditors would be outrageously unfair: they did the lending and made the investments, they should eat the losses. In addition, many of the creditors are likely to be much better off, even after they write down/off their claims on the banks, than most of the tax payers and public expenditure beneficiaries that pay for the bail out. Bailing out the existing creditors would also create dreadful incentives for excessive future risk-taking by banks."

Meanwhile Michael Somer of the NTMA is saying that the bad debts should remain with the banks and that NAMA should only supervise the management of the debt:

“If it falls to me, certainly the preference would be to have a small core staff and leave this function with the banking sector who have been dealing with these loans,” he said.

“They would either set up a subsidiary or we would enter into some sort of deal with them under which they would continue to manage the loans.”

Pat Donnelly said...

Buiter's analysis is accurate enough. But as Paul Sweeney says it will soon be business as usual. You will all eat the results of your collective greed, trusting the morally defective to enrich the entire country. And you believed it!
There has been an interesting experiement underway, involving the postponement and aggravation of a depression. It had some chance to succeed, until Al Gore sold out. After that, it became a vehicle for wealth creation for a few years, but now there is a rectification and soon the opportunity to spend all that wealth on the fabulous bargains presented by the gullible who did not see what was happening. Annoying, eh? Perhaps some of the fortress Ireland approach will ward off the carpet baggers? Some original thinking is to be required?