Reputations are earned, not bequeathed, and a crisis tends to bring that to the fore. In sport, teams gain a name for a certain style or temperament, not because they want to be thought of that way, but because they have proved themselves. Similarly, in a financial crisis, the reputations of individuals companies and countries are tested. The Irish banks and the state have failed miserably on both scores.
But it doesn’t stop there. The Irish Central Bank did not give the faintest inkling that this meltdown would occur; nor did the Department of Finance. We can overlook the financial sector economists who continued to cheerlead, because that is part of their job.
But in the economics and finance game, there are still some outfits that have failed miserably, and are still being taken seriously. This takes some chutzpah on their part.
For example, a few weeks ago, there was consternation about the downgrading of Ireland by Standard & Poor’s, the rating agency. There were headlines about the great tragedy of being regarded badly by such a famed international institution as S&P.
Were not these the same guys who gave AAA rating to sub-prime products? If they were happy to rate toxic debt as ‘‘AAA’’, what in God’s name do they know about anything? Why does anyone take S&P – or indeed any of the ratings agencies – seriously?
And what of our own Economic and Social Research Institute? This week, the ESRI came out with a dramatic forecast of 17 per cent unemployment and a prediction that Ireland would experience the worst recession in the western world. The Institute went on to opine that Ireland would have mass emigration and something akin to a collapse in the economy.
Its predictions were listened to as if it had some great insight. The papers led with this story, as did the RTE News at 6 and 9, plus the radio shows. Editorials were based on its content.
Why? I am not saying that it is wrong – I am just pointing out the fact that, like the S&P, the ESRI has got little right so far on this boom/bust cycle. Its own spin is that it has been on top on the situation, but the reality is quite different.
Less than a year ago – just think about that: a mere 12 months ago – the ESRI released a forecast for the Irish economy, predicting that for the next seven years, Ireland would ‘‘grow by 3.75 per cent on average per annum’’. It went on to say that, after a blip in 2009, ‘‘the economy would continue to outperform its EU neighbours’’. Consistently since 2005, it said that a ‘‘soft landing’’ in the property market was the most likely outcome, with a collapse a ‘‘possibility’’ . . .but just that.
The august ESRI with dozens of economists on its payroll, devoted much time to discussing the importance of demographics underpinning the economy. Who remembers that argument?
This partly government-funded independent research institute also went on to ally itself with the lender TSB to give monthly updates on the housing market.
Again, as late as last year, this particular ESRI publication was talking about a ‘‘soft landing’’. In its worst-case scenario for the Irish economy, the Institute forecast that the economy would ‘‘under perform by an average of 0.7 per cent per year’’!
How’s that for a volte-face? According to the ESRI, this time last year there was a possibility of a modest underperformance and now we face the worst downturn since the Great Depression. What are we to think?
To put this week’s dismal forecast in context, let’s see more of what the experts in their new building in the docklands said last year: ‘‘Even if current difficulties prove more severe than anticipated, the economy is resilient.” Really?
‘‘The prospect of continuing medium term growth above the EU average is underpinned by favourable trends in labour supply and in productivity. While unemployment is currently rising, with a flexible labour market there should be a return to full employment. Despite current difficulties in building and construction, the economy needs continuing substantial investment in housing over the coming decade.”
Yet their latest report is regarded as gospel. This time last year, following the demise of Bear Stearns, when it was known that the Irish banks had borrowed enormously abroad to finance the boom, when the credit crunch had been ongoing for at least eight months, and when the price of houses was regarded by many punters as a joke, the ERSI claimed that the Irish economy needed more houses!
Perhaps the reason the ESRI is so revered unquestioningly is because we in Ireland still have some misguided idea that the ‘‘expert’’ knows more than the average man. Maybe the lesson of the great Irish bust is that reputations have to be earned: don’t accept anything just because it is presented in a traditional form (which, by the way, includes this column). The problem with putting too much store in the forecasts of those who have been lamentably off-target is that we will learn nothing from this experience. In the new Irish world, which emerges from this crisis, unearned reputations should count for nothing. We need to change our mindset completely.
We have seen that institutions like AIB or Bank Of Ireland have failed their shareholders drastically. We have seen how S&P has given toxic waste AAA ratings, thus enticing people into investing. And we have seen how the ESRI has feet of clay like everyone else. Maybe a little bit of humililty might be in order from the professors of the Docklands Poly?
The bankers and politicians are taking a hammering for their mistakes and their hubris; maybe the same could be doled out to all those who, when it is easy to do so, like now, are merely confirming people’s worst suspicions but, when it was hard and unpopular, kept their mouths shut.
In the ESRI’s case, like the Central Bank and the Department of Finance, whether this failure was because they couldn’t see it coming or because they wouldn’t see it coming, we can never know.
Quotation from ESRI report: “The institute said it expects the average number of jobs in the economy to fall by 187,300 this year as against last year. It expects to see the number of people unemployed averaging 292,200 this year, making for an average unemployment rate of 13.2 per cent. It also believes a further 102,800 jobs will be lost next year pushing the unemployment rate to 16.8 per cent.” Any time you read a forecast quoted to four significant figures or even three significant figures, you can be absolutely certain that the forecasters are complete bluffers, who haven’t a… Read more »
Interesting article David, you are beginning to punch a little harder. All these jokers with titles and comfortable salaries have destroyed the Irish Republic and yet many remain in the shadows. Every one knows economists aren’t worth a dam, the line about Roosevelt looking for a one armed economist because he tired of those who said ‘well Mr President, on the one hand…………’ – those guys and dolls are like the old shaman’s, convinced of their opinions, which are built on sand (or clay)’, anyone with half a brain knows never to take their forecasts seriously (they take themselves very… Read more »
I agree with Malcolm and G here. Ah, yes! The “experts”! Every time I hear or read that word, I cringe. Apart from teaching, I work in the IT sector; there are many “experts” in this game: WARNING: if someone in the IT sector refers to themselves as an “expert”, do NOT let them touch your computers. Always apply Jurgen Habermas’ “hermeneutic of suspiscion” to everything you are told, but especially in IT. The self-proclaimed “expert” is a cowboy. I think it was Aristotle that said “The wisest man is he who, first, admits his own ignorance”. We saw Peter… Read more »
The point about the lunacy of the rating agencies, like S&P, is that they were paid by the debt issuers to rate the debt issues.
No hard to see why that process went loop-the-loop.
The same point does not apply to their rating of gubmint debt. Mind you, they are licensed by Obama’s gubmint …
Lots of interesting points in the article, but I’m straining to see the consistency.
I’d like DMcW to post his “thesis” in a side bar, or a principled outlook – some yardstick by which to measure the coherence of his views.
At the end of the day David it all boils down to stakeholders and what their losses will be as a result of making wrong calls.None of the people you mention will loose their jobs or suffer any loss ,at least for now….I read where the Dept.of Finance has something like 40 people with degrees in Economics,1 Ph.D,God knows how many Accountants etc(staff of 614).and yet the level of accurate information is awfull.There must be something fundamentally wrong with its structures when that many Educated people cannot produce the type of information that the Economy depends on.Apart from accurate information,it… Read more »
Zombie Banker Blues : More Than Ever
http://vimeo.com/4292136
Scientists, troops and auditors arrive from abroad to investigate the total collapse of a small Republic.
They’re looking for ‘Fingers’. His actions had hastened the spiral of the country into a bottomless liquidity trap. They want to interrogate him.
Meanwhile an anonymous auditor, hiding out in one of the few sanctuaries which remain, spills the beans on the inhuman practices which led to the collapse.
The Chinese say a fish rots from the head down and issues of accountability and reform all point to the political system. If there is no change in the status quo at the top, then it will remain business as usual elsewhere. It’s interesting in the Oireachtas, that today’s public holiday is a recent one but the politicians follow the “tradition” of taking Tuesday off as well. It’s easy to see how revolutions are triggered and sadly, it may well take rioting in the streets to get change. As to alternative parties, the problem is that you can get someone… Read more »
Here’s an article with a very relevant theme. It highlights that many people will need to reinvent themselves during the recession, in order to be employable. They will have to find something productive to do, in order to survive.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aOhkusQ9LifQ&refer=home
This has huge implications for people all over Ireland, who are finding out that their career prospects were built on a foundation of hot air.
What is the best way to help people re-invent themselves? The Ireland of 2006 is gone, and is never coming back.
How would the ESRI boys re-invent themselves, if their bluff is called?
Paddy.
How many clowns from the ESRI,Central Bank etc have been fired?.Their forecasts were hopeless (as bad as dopey Dan Mc Laughlin)-anybody who observed the Lawson boom and bust could surely see the parallels between the two booms were very similar.Without exiting the Euro, how will the economy start to grow?.It is an impossibility, that nobody ,apart from Damien Kiberd has addressed.The Swedes and Finns used devaluation as a tool in sorting out their mess-Ireland can’t.
“In the ESRI’s case, like the Central Bank and the Department of Finance, whether this failure was because they couldn’t see it coming or because they wouldn’t see it coming, we can never know.” I think it is a case of “they wouldn’t see it coming” or didn’t want to be the bearers of bad news in case the ‘messenger was shot’. David Doyle, the Secretary General of the Department of Finance been since 2001 said publically this week “he has reputation as a dog that does ‘bark and bite”, sounds like his department need some guide dogs to help… Read more »
David: B U L L S E Y E The poltical economy is presently geared to been a ‘POnzi money making machine’. Certain quarter’s are buying into the ‘get-rich-quick’ mutation. Underlying the POnzi mutation one will find real economy professionalism fighting the good fight trying to keep the real economy alive against the POnzi mutation kicking out to try and stay alive. Those that rendered over their services and labours to the POnzi mutation are fighting for their survival. Their logic is, law of the jungle, every man for himself. Hence, the realtiy we are all faced with detailed in… Read more »
Many people would agree that lack of ethics was a fundamental factor in the implosion of banking services in Western economies. Investment commitments imply the need for trust that a desired outcome will be attained. Collateral holdings and access to various KPI’s of progress are a good adjunct but not an adequate substitute for trust, as we now see. Discarding arrogance and selfishness whilst embracing honesty, justice, transparency, a service mentality and respect for others is a matter of self-interest in military life, as it profoundly affects peoples decisions about whom to trust in combat. Other highly-ordered organisations have historically… Read more »
My understanding of the unemployment situation is that we have around 400,000 on the live register, with about 200,000 of these losing their jobs i the past 12 months (official 96% increase). We’ve lost an additional 50,000 immigrants (at least) over the past 12 months due to the down turn. http://www.upi.com/Business_News/2009/04/25/Migrant-workers-leaving-Western-Europe/UPI-66991240667053/ Effectively we’ve seen a quarter of a million jobs lost. Our workforce is around 2,000,000. In real terms we’re heading towards around 25% unemployment. If the trend of 2008 continues we’ll see a further 250k on the live register. In real terms, 1/3 of the potential work force would… Read more »
POnzi Rep. is emptying out it’s young blood due to the threat it poses.
Hi David, I wouldnt throw out the baby with the bathwater. Yes, S&P, Moody’s, Fitch’s and other ratings agencies got things badly wrong when it came to grading the risk of sub-prime products, CDO’s, CMO’s, and other MBS’s. However, they werent totally to blame as the products in many cases were masked, obfuscated and not all the details were present. In this case the analogy is that the auditor got it wrong, and repeatedly so. The model that the product packagers exploited was a weakness in several risk assessment mathematical models which erroneously assumed that proprty values would always increase.… Read more »
Subscribe. Sorry, that link that Tim gave me to subscribe without posting didn’t work. I will keep trying.
Bloggers: Just to take up on JDunnes point on the evidence coming in that the gov in their mis-placed loyalties are sacrificing employment for quik fix solutions.,,
An old POnzi truism comes to mind, ‘ catastrophe for workers is a catastrophe averted for bankers and corporations and elites.’
Must bear one thing in mind here, the problem with operating a giant global ponzi scheme (to which POnzi Rep. bought into hook line n sinker), is that the ponzis at the bottom of the pyramid need to earn something eventually to keep bubble going.
There is only one way for Ireland’s economy to recover is export led job creation as the private sector do not have the flexibility to borrow more and in many cases the will not try due to uncertainty about the future demand for business and the overall economy. http://www.rte.ie/business/2009/0430/credit.html “Central Bank officials described the March lending increase as “historically low”. Mortgage lending in Ireland grew by €20m in March, according to figures released by the Central Bank. The bank said home buyer business accounted for €428m during the first quarter of 2009. This is a fraction of the €2.6bn lent… Read more »
I agree MH this will be very dificult in the short term as we have lost about 300 MNCs since early 200’s down to less than 1,000 and falling. My proposal would be to have an ‘aggressive’ marketing campaign focuisng on ‘poaching’ high grwoth oriented compnaies from other countries, getting them to locate in Ireland with low income tax etc They then could book there already established revenue from ireland and develop new business opportunities as they would retain morew profit (lower tax) in this tough business environment. While we still have young and experienced talent in irealnd the ‘window’… Read more »
Just had FF canvassers at the door maintaining that the HSE is secretly run by an FG cabal.
How’s that for Denial of the Week?
sound’s like an accidental ‘backwards’ admission…!!!!!
wills: thanks, but why do you write it POnzi?
All very depressing. Bank Holiday weekend over, and this week marks the start of the emergency budget changes. The only upside is i am getting very good value when I go out to eat in my favourite local restaurant. But at the prices they need to offer to get people in the door, how long can they survive. I fear the level of drop-off’s within the food & retail sector over coming months will be significant. I really don’t want to go to China. How can we turn this around. I like the comments in this blog, but how can… Read more »
The EU is hardly being objective either. http://www.irishtimes.com/newspaper/breaking/2009/0504/breaking28.htm There is lot of concern in the EU over the state of Spain. Sorry to disappoint any Irish people whose concept of pride requires that we get to exaggerate our significance. We are simply too small. 40 Million people. Nobody knows how many hundred billion of bad debts. Neither the Spanish banks nor the Spanish government will tell the truth. Unemploment of 18%, even after the government massages the figures. The EU Commision is really in a qandry about who to describe the Spanish situation. If revealed it would be much worse… Read more »
David:
Gov and Gov linked agencies are working their socks off to get going again the re-inflation of the property bubble which they perceive as a way out of the POnzi property bubble bursting cost to gov revenue’s.
This may explain the lack of sense emanating from their prognostications. Covering the tracks as they try to put the POnzi property bubble money making machine back on the bubble inflating tracks.
{ Less than a year ago – just think about that: a mere 12 months ago – the ESRI released a forecast for the Irish economy, predicting that for the next seven years, Ireland would ‘‘grow by 3.75 per cent on average per annum’’. It went on to say that, after a blip in 2009, ‘‘the economy would continue to outperform its EU neighbours’’. Consistently since 2005, it said that a ‘‘soft landing’’ in the property market was the most likely outcome, with a collapse a ‘‘possibility’’ . . .but just that. } David you have presented the evidence. The… Read more »
Deco, Here it is again, from previous thread: Just in case anyone here might like to ask IFRSA about its progress in that investigation by simply banging off a little email or fax that will greet the nice people there on Tuesday morning, here are the contact details for the legal and enforcement department: Administrative Sanctions Contact Details Legal and Enforcement Department Financial Regulator PO Box 9138 College Green Dublin 2 Tel: +353 1 410 4833 Fax: +353 1 410 4060 Email: led@financialregulator.ie To be honest, they will probably appreciate the enquiry, as it appears that, until recently at least,… Read more »
Folks, I am with Naomi Klein on this: “I’m appalled at news that there’s a 17-year-old girl who is facing jail time for having a few beers and breaking a window at the RBS Bank during the G-20 protests, when not a single banker is going to jail for burning down the global economy. What kind of a system is that? I think we should rally to this young woman’s defense.” As Vincent Brown said last Tuesday evening, while launching the election campaign for “People Before Profit” in Dublin: “If the Left does not emerge from this crisis all-the-stronger, the… Read more »
Folks, we need to look beyond the June elections; they mean very little. Those of you who believe that the ire of the electorate that WILL be expressed in June will make a difference Nationally are misguided. The local and European elections will alter nothing at national level. And national politicians are perfectly willing to sacrifice their local candidates for now. I might as well have a cow-pat hanging around my neck as a FF sticker while I knock on anyone’s door for this election in June. Does the Parliamentary party care? Nope. Does FF HQ care? Nope. (They have,… Read more »
Folks, no-one has responded to my post on the IFSRA contact info.
I wonder why?
About Peter Bacon, his proposal for NAMA and his appearance on Prime Time: People say that he was ‘unpicked’ on that show. But one thing that I took out of it was that when tasked with the question of which route Ireland should take, NAMA or the Insurance route, his report analysed both and stated the case for a NAMA (financial skip). I’m not saying that I support what he said or indeed NAMA, just stating how his thinking may have worked in terms of himself justifying his own analysis and that NAMA was the lessor of two evils. There… Read more »
Peter Bacon is a FF appointed puppet.All His reports from before on Housing,and His proposals now on NAMA have been virtually all shadow written for Him by FF and people within the Dept.of Finance.He has set up His own little company for the job as I have already posted.Paid puppet property developer with no credibility just like His paymasters ZANU-FF and cowering puppets in Dept.of Finance.FF wont lance the boil,because its their own.The only one’s who can lance the boil is the Electorate.Gormless and His crew have been sucked into the Docklands just like the PD’s.Ita amazing how easily the… Read more »
Reputation or authority? In 1964, Professor Stanley Milgram conducted a series of experiment to test the level of obedience of subjects to an “authority” to show why how many Germans were instrumented by the Nazis. The experiment consisted of 3 people: the experimenter (the authority), the teacher (an actual participant unaware of the actual setup) and the learner (an actor). The teacher was meant to “teach” a list of word pairs to the learner. He would then read the first word of each pair and give the learner 4 different possibilities. The learner would then have to choose the correct… Read more »
Hi David (McW), A point I’d like you to raise in an article is the fact that the only way for banks to trade out of their difficulties is to extract extra monies from the Irish economy both in the ‘retail’ (consumer) and the commercial sectors. This is exemplfied by NIB’s financial results today ( http://www.rte.ie/business/2009/0505/nib.html ) which show that they have improved their operating profits by 90% to 21m in a quarter. One way or another, the only way for banks to recover (ie: pay for their bad debts/loans) is for Irish people to pay for it through other… Read more »
@MK1, this gets back to the idea that we need banks as a service to the economy just like any other old business knocking around out there. Retail banking was really a sideline business for the main banks. I remember years ago how I had an account manager who’d call me up every few months not so much to sell me a mortgage or loan but to advise me how to distribute funds and manage my affairs mlre efficiently (at a time when I had relative few funds to speak of!). The electronic banking and ATMs a) blew away the… Read more »
When you write from deep roots, you write well, and this article is as good as you get, and worth keeping.
So make your judgement on where this country is going to be in five years. It appears that only the opinion of outside investors, including banks, is of any significance to the politicians in control. We, the citizens, are of no consequence in their calculations.
If Shay Brennan stands for election and wins a seat in Dublin South the dumb electorate deserve what is coming to them.An Anglo employee (like so many FF offspring) would be persona non gratia in any self respecting society.It wasn’t just Drumm and Fitzie who screwed up!.The Luas green line cost 300 mill and may be a big enough bribe to persuade the doyens of Dundrum to create another political dynasty.
George Lee for Dublin South,even though I never voted for FG in my life,I hope He make’s it.Given up a well paid job in RTE to try an make a change,and help solve the present morass.That’s what Im talking about. P.S just cannot see Davy mac getting the Economics editor’s slot on RTE….I think He would scare the be-jasus out of all in Donnybrook.
What we have been predicting here for months has finally happened:
http://www.theregister.co.uk/2009/05/05/obama_tax/
Its the end of the end for Ireland
George Lee’s and FG’s move is an unusual one it has to be said. Whilst a lot of people had a lot of time for George and his reading, it was taken that he was an independent voice from the state media. If he harboured FG ambitions all along, it does taint hat he has said and pontificated about in the past when done with rigour. I am (was?) a fan of George but I think this is a wrong move. The jury (the electorate in this case!) is still out on celebrity politicians. Like a celebrity banisteoir, will Gerge… Read more »
George Lee – I have always likened him to Bono with his Princely Demure except no viewers have seen him in his shades – should he go into Politics will the viewers say ‘with or without you ‘ or are they going to miss him from the Box and just say he has gone to ‘where steets have no names ‘ . ~But then again if his chosen journey is canvassing will he be saying to himself ‘ I still haven’t found what I am looking for ‘ and be told to ‘Walk On’. Even on a ‘Beautiful day ‘… Read more »
http://www.businessworld.ie/bworld/livenews.htm?a=2409017
This whole situation is starting to remind me of another George. Clooney the Looney who headed out into the greatest storm ever despite good advice purely for greed.
Despite trying to look for the green shoots during the last week all I can see is knotweed choking every aspect of Irish economic activity.
Where’s the spaceship when you need it?
G, MK1 etc FG are the only game in town for people who are against what this government (FF) have done to our country because unfortunately there is no change right now of a new political movement emerging. Because George Lee has decided to run does not mean he was always a blueshirt while in RTE and was just waiting for his chance. I am from what might have been termed a FF family yet I haven’t voted FF for either of the past two elections because I could see what they were at. You can’t have your cake and… Read more »
I have no idea if George Lee was ever a member of FG or not… but I agree with mediator. If you believe that the current government (FF) havent done a good job over the past 12 years, kick them out. FG are the only alternative to FF at present. Labour might even go back into power with FF, they did it before. No matter what you think of FG, they are a moderate democratic party, a lot less corrupt than FF and would be a better choice than the current bunch of drunkards, crooks, gombeen men, fools and shysters… Read more »
With George moving into the political ring, does this mean a vacancy arises for post of RTE economics editor. David perhaps ?? But then, who would moderate this blog. However, I believe a strong voice is required to ensure our public broadcasting service does not falter in continuing to hold our govt accountable. The trade-off, whilst regettable, might be beneficial ‘going forward’.
Bloggers: I purport George Lee’s decision to enter into politics and see how fair a contribution he can provide in the governing of this country’s affairs is his democratic right and it is of no one’s right to second question his right to carry this brave step through in such a transparent fashion.,, we are entering into something different in the cultural atmosphere when one turns on the Radio at lunchtime to hear a citizen of this country been ‘bitched slapped’ over his decision to go into politics, by , in another bizarre sequence of events, ‘bitch slapped’ by his… Read more »
Bloggers: Ponzi Rep,, update, the vested interests are beavering away preventing the markets to return to function as they ‘pinky and the brain’ into reality solutions that will re-inflate the POnzi property bubble and rescue the dire situation appearing on the horizon of the gov running out of cash, idea’s and joe public’s patient understanding. Could not but help thinking back to ‘let them eat cake’ utterance from times past when it was announced to-day Tesco’s are restoring their prices to proper market equilibrium prices in the POnzi Rep, on;y at the border though, give it time,… but, here we… Read more »
Bloggers: HOW TO CUT THE COST OF RUNNING REP. OF IRELAND., (a few idea’s) 1: Let the banks go bankrupt. 2: Reduce the public service size. Get rid of the chaff. 2: Reduce the social welfare employment benefit to 130 euro. 3: End over sea aid. 4: Eliminate ‘expenses’ and secondary pensions to all public sector workers. 5: Cut child benefit to 130 euro and after second chlid, you get nothing. 6: Put electricity cost rates back to european average. 7: Refuse medical card to anyone who can afford medical care. 8: Put old age pension and retirement forward to… Read more »
wills – I always like your post .However after reading your last submissions I am beginning to think that when you sleep that you might be facing Albania every night .Could you move the bed around in the room and face Las Vegas .