The Three Great TV Series

Civilisation (1969) by Kenneth Clarke. 13 episodes.
http://en.wikipedia.org/wiki/Civilisation_(TV_series)
http://www.youtube.com/watch?v=PNGzoJFj9g8

The Ascent of Man (1973) by Jacob Bronowski. 13 episodes.
http://en.wikipedia.org/wiki/The_Ascent_of_Man
http://www.youtube.com/watch?v=-QetE6WvBFY

The Age of Uncertainty (1977) by John Kenneth Galbraith. 15 episodes.
http://en.wikipedia.org/wiki/The_Age_of_Uncertainty
http://www.youtube.com/watch?v=KGSID_Uyw7w

The IMF: another institution we can no longer trust

Linked post: The IMF: another institution we can no longer trust

Asset Forefeiture vs Jailtime

This is something I wrote for facebook about the controversy over the death of US Ambassador Stevens in Benghazi. Copy and paste for archival.

America is strange when it comes to casualties. You can't run a global empire without losing a few people, the British lost several every day back when they ruled the world.

I understand losing Ambassadors is a big deal, and this one was a senior member of the shadowy intelligence world, but you just gotta take your losses and move on.

British Ambassadors were a target of the IRA for a while, they potted the Dutch ambassador in 1976, and the Irish one in 1979. When it became clear that the Brits didn't care, the IRA switched emphasis to aristocrats, bombing Mountbatten's boat later on in 1979, but again the British didn't care. Not even blowing up the Tory party conference made any difference.

It was only in the 90s that IRA switched targets to destroying stuff, for instance the Financial District of London, with lots of telephone warnings to minimise casualties. That's the only way to get through to people, destroy their stuff, they care way more about their stuff than they do about themselves.

Some people may be skeptical about the last point, but its worth noting that no amount of jail time could break up the Italian Mafia in the United States, it was only when the RICO statutes of c. 1970 introduced civil asset forefeiture that the Mob decided to legitimise itself, somewhat.

Also it was only when the United States began to make a move on the property and lands of the Mormon church in Utah, seizing them in accordance with the 1887 Edmunds-Tucker Act, that the Church banned polygamy (the 1890 Manifesto).

People get romantic when they think of jailtime, they get pragmatic when they think of losing their houses and cars. Its better to go for the stuff.

As a footnote, longer jail sentences are sometimes unsuccessful in preventing crime, as Rockefeller found out after introducing incredibly draconian minimum sentences for various drug crimes while Governor of New York (the 1973 Rockefeller Drug Laws). Drug crime just grew and grew, and the jails filled up.

I just read this report by the Irish public sector pension fund. This was once a big deal, worth nearly €30 billion, and steering well clear of Irish property related investments, which it regarded as "over-valued".

Since then the NPRF has been looted to pay for the bailout of two banks, Allied Irish Bank and Bank of Ireland. The other banks, like Anglo, were recapitalised by other means.

The Pension always was one of the best managed funds in the world, with a well diversified portfolio and solid, steady growth. The reckless "investments" in these two Irish banks, directed by politicians, has reduced the capital of the fund by more than half. The boffins there must by crying over their Excel spreadsheets:

http://www.nprf.ie/Publications/2012/Q2_2012_Performance_and_Portfolio_update.pdf

Highlights (with annotations):
The Discretionary (normal, non-banking) Portfolio delivered a return of +2.1% in 2011...
In 2011 the Directed (AIB and BoI) Portfolio returned -58.1%...

Since 2009 the Fund has invested €20.7 billion in preference shares and ordinary shares in the two banks, comprising €4.7 billion in Bank of Ireland (where the Fund’s shareholding is 15.1 per cent) and €16.0 billion in Allied Irish Banks (where the Fund’s shareholding is 99.8 per cent).

The Directed Portfolio (public policy investments in Allied Irish Banks and Bank of Ireland made at the direction of the Minister for Finance) was valued, following the completion of an independent valuation review, at €8.1 billion at 30 June 2012.

Why so many teacher-politicians in Ireland

http://www.independent.ie/business/personal-finance/pensions/revealed-the-senior-ministers-in-teacher-pensions-outrage-2971157.html

"THREE cabinet ministers responsible for introducing savage cuts in the Budget are holding on to their right to a teacher's pension when they leave office.
...
(Prime Minister/Taoiseach) Mr Kenny completely gave up his entitlement to an estimated €30,000-a-year teaching pension and a retirement lump sum worth as much as €100,000 during the general election."

In Ireland teachers can take a "leave of absence" to run for public office, and return to teaching at any time. Job security is assured, and the pensions are just gravy. Once again we see, people respond to incentives, and that's what explains the number of teacher-politician hyphenates in this country.

Mortgage interest relief

Brian Hayes went to the media to promote the governments increased mortgage interest relief for first time buyers, which ends at the end of this year (but might be renewed). Mortgage interest relief is nothing to scoff at, and can change the decision of whether to buy or rent (especially since rent in Ireland is often done with unfavourable conditions)

http://www.independent.ie/business/personal-finance/property-mortgages/firsttime-home-buyers-told-to-take-5000-deal-of-a-lifetime-3258938.html

"This is an offer of a lifetime, it won't come again," said Mr Hayes. "All our futures are based on getting the property market going again. People need to act fast to avail of it."

There have been calls to extend the scheme as the property market stabilises, but this is being firmly ruled out. The offer made little difference in the first half of the year, with only 2,858 properties sold to first-time buyers -- almost the exact same amount as the same period last year.

This just makes me cry. Not that this is a bad scheme, or that its necessarily the wrong time to buy a house, if you need one, but the way that the entire country has tied itself to high property prices is just insane.

People realise this now, and that's why they're not buying. The property market will continue downwards for a while longer, until we have to cut the rope of debt that is strangling us. It'll happen, but knowing Ireland it'll only be when we have no other choice.

So when this guy, who is a school teacher, says "All our futures are based on getting the property market going again." you can be sure he's not lying. That has been the extent of the plan so far, keep things going till the property market comes back.

Its a bit like these insane Islanders in the Pacific, who kept making runways and control towers for a long while after World War 2. Why? They assumed that the planes that kept the Japanese and American troops were gods, and noticed that they always brought lots of goodies. And they figured that if the Japanese and Americans could summon up planes, why couldn't they?
http://en.wikipedia.org/wiki/Cargo_cult
Mister Hayes Sir, the school teacher, would feel right at home amongst the cargo cults.

Why the Rich Get Richer (youtube)

A pretty accurate overview. When you reap the harvest in good times, and get bailed out in the bad, its not that hard to maintain your wealth. Those who have been wiped out in financial stocks notwithstanding.

http://www.youtube.com/watch?feature=player_embedded&v=xA_glFb0oWs

I heard a story about a wealthy farmer who sold his farm at the height of the Irish bull market, circa 2006, and on the advice of his accountant put the cash into Bank of Ireland shares.


18 year graph, 1994 -2012, courtesy of Irish Stock Exchange

The lesson Ireland should have learned from Iceland is that protesting for your economic rights is worth your time. I reckon the Irish will be left at least 20,000 Euro worse off per capita as a result of saving the banks and not letting capitalism take its course. I'm assuming €13,000 of this relates to direct banking debt, and the remainder to inefficiencies and the government squandering the public sector pension fund (NPRF) on investments in worthless Irish banks.

It didn't have to be like this. In 2009 Ireland and Iceland were in roughly comparable positions, with Iceland's banks were probably slightly worse off. Iceland's government wanted to move to save the banks with public funds. So did Ireland's. In all financial crises, its a pretty good bet that the government will try to save financial powers using taxpayer money, if they can.

Iceland's population kicked up a fuss, and stopped the plans. Ireland's didn't, and the plans went ahead. Iceland immediately entered crisis, with sharp currency devaluations and threats of retaliation from the Europeans, especially the UK and Dutch, who lost a lot of money in Icelandic banks.

And so Iceland's banks were let fail, only to be reorganised by the bondholders. They scaled back their operations, but Iceland still has banks. That's how capitalism works!

In the case of depositors, small depositors were protected, as they were promised to be in the deposit protection. Larger depositors had to take a hit.

Some larger deposits were made whole by the UK and Dutch governments. Iceland was a favourite offshore banking location for Europeans, as it's banks paid a rate of interest above what European banks paid. The UK and Holland have since asked for the Icelandic government to pay them the money for saving the depositors, Iceland however has refused. Which is damn sensible of them.

So at the end of the day I figure each hours protest by the Icelandic people saved them somewhere between €10,000 and €40,000, maybe even more Which ain't bad for an hours work.

It pays to stand up for yourself.

Ireland and Bondholders

http://www.independent.ie/opinion/analysis/stephen-donnelly-heres-why-the-64bn-is-ours-for-the-asking-3251469.html

Independent TD (Irish Member of Parliament) Stephen Donnelly has written a superb piece for today's Irish Independent. Its not regularly recognised that the main reason Ireland as a whole is in financial trouble is because the Irish government, as a sovereign state, undertook to not only rescue the various large Irish banks, who were bankrupt as a result of bad loans, but to honour most of the debts of the banks, including repaying all senior and most junior bondholders in full.

Stephen Donnelly, it must be remembered, is a smart guy, UCD, MIT and Harvard, and worked as a management consultant with McKinsey & Co.

Meanwhile, Ireland's Taoiseach (PM, pronounced tea-shock) is a primary school teacher.

The question Donnelly asks is how do we get the ECB to forgive repayment of €64 billion Euros in promissory debt.

This debt is essentially loans, promissory notes, issued by the Central Bank of Ireland, using European Central Bank funds, which were given to the Irish government for the purposes of recapitalising the banks.

First of all, you might be surprised that Ireland still technically has a Central Bank. It is true, each Eurozone state retains a Central Bank, although most of its important functions, such as the right to issue new currency, have been outsourced to the European Central Bank in Frankfurt. So I guess we've got two Central Banks, because one can never have enough of a good thing.

The national central banks allegedly play a role in regulating the banks of the country, along with various financial regulator offices, and gather some statistics, with the aid of various statistical organisations.

If you're getting the impression that the European banking system is designed in an irrational way, you can be forgiven. I think so too.

And that irrationality extends all the way down the line too.

For instance, banks which take more risks with their money, usually earn more profit, in the short term, and thus can afford to pay more interest on deposits and on senior bonds. In the short term. Until they can't.

Then it's bailout time. The shareholders, at least are wiped out. When you buy your shares, nobody promises you that they are worth anything. So at least the shareholders have to eat their loss like good capitalists should.

Next, depositors are protected. If they aren't, they get antsy, and start queuing up outside the bank, waiting to take their money out in cash. That can get real akward, when the manager has to go and explain to a bunch of angry yokels that they can't all withdraw their cash cos the bank doesn't have it any more, the bank having either lent it out or gambled it away. The technicalities of banking finance usually go unappreciated by yokels, and several bankers have been killed while trying to get straight the details of fractional reserve banking.
"lets see now, the reserve ratio is proportional to the ... hey what are you doing with that dynamite"
Anyway, one of the dumbest lessons people took from the experience of bank runs, especially in the crises of 1929 and 1933 during the Great Depression, is that depositors must be protected at all costs. And there were a lot of hard luck stories, people worked hard all their lives, only to be left with nothing, zero, when the bank in which they had so assiduously put all their savings collapsed. Not even an apology.

But banks are supposed to pay interest on deposits, and reward without risk is alchemy, as Mervin King from the Bank of England has pointed out.

So, if people want to save, it would be more logical to let them do so directly in government securities or something. Depositor protection just encourages rate tarting, where people will deposit their money in whatever bank offers the best rate, or other incentives (which have included toasters, among other things).

But what about our precious bondholders?

Bondholders traditionally had to eat their loss just like everyone else, but have been a protected species of late, at least in the Anglosphere. The precedent was laid in 1984, when Chicago's Continental Illinois failed, and was saved, bondholders and all, by the US authorities.

You've got to realise that they are usually other banks, sometimes pension funds, usually politically powerful organisations. The Guido Fawkes Blog purportedly published a list of Anglo bondholders in 2010. Both the ECB and the US authorities have made it clear to the Irish government that senior bondholders are not to be touched.

The reason for that may be due to risk of contagion, because of high levels of leverage not enough capital is available to take the writedowns on Irish bank debt (which would be of the order of at least 50%). Of course, some of it is just down to money. Yes, money is real and it matters. Who would have thought it?

So what of our €64 billion Euro schuld? Well, apart from politicians, (who are pathological liars) very few of the people I have spoken to in Ireland, think we can pay back our current debt, and off them an awful lot don't think we should, even if we could. At the minute the Irish debt is well over 100% of GNP (since Ireland exports so much from marginally attached non-Irish multinationals, the GNP rather than the GDP is a better measure of our ability to repay).

Our government deficit is between 10 and 15% of GNP, and balancing the budget should lower GNP by at least this amount, more if Keynesian multiplier effects are considered (for general government expenditure in Ireland the Keynesian Multiplier is about 1.5).
There is also an additional €15 billion in NAMA debt with is still unaccounted for, NAMA being a so called "Special Purpose Vehicle", a SPV, financed by government bonds but which no one is allowed to peer inside.

But that's a post for another day.

Corrections welcome.

The Debt Crisis and possible mass default

Speaking at the Irish Funds Industry Association’s 2012 Annual Global Funds Conference 2012 in Dublin yesterday, Malmgren, who, among many other roles, has served as a financial markets adviser in the White House, explained that there were a number of ways in which governments are likely to default over the next decade.
“When I look around the world, the magnitude of the debt problem is so great that the vast majority of the debt will be defaulted upon,” said Malmgren

http://www.international-adviser.com/news/europe/irish-fa-president-predicts-worldwide-defaults

When one looks at the figures that's exactly what the maths would indicate. A mass default seems unthinkable, yet unthinkable things happen all the time in economics.

One thing I am sure of is that a lot of people don't feel morally bound by their debts any more. I don't think they ever did.

Borrowing money is something the wealthy will advocate in public, and warn against in private.

P.T. Barnum wrote in his “Art of Money Getting”

Young men starting in life should avoid running into debt. There is scarcely anything that drags a person down like debt. It is a slavish position to get in, yet we find many a young man, hardly out of his "teens," running in debt. He meets a chum and says, "Look at this: I have got trusted for a new suit of clothes." He seems to look upon the clothes as so much given to him; well, it frequently is so, but, if he succeeds in paying and then gets trusted again, he is adopting a habit which will keep him in poverty through life. Debt robs a man of his self-respect, and makes him almost despise himself. Grunting and groaning and working for what he has eaten up or worn out, and now when he is called upon to pay up, he has nothing to show for his money; this is properly termed "working for a dead horse. 

I underlined the phrase, “working for a dead horse”. I've come across this phrase a few times in 19th American writing. It means working for something you have already used, work for no reward. Maybe it was invented by someone who accidentally killed a horse and had to go to work to pay the owner for the lost chattel. I don't know. But I like the phrase.

If we are to pay back our debts, it means an awful lot of “working for a dead horse”.

Think that will fly at election time?

First post. A word on the name.

Chris, have you gone completely mad? Are you speaking in tongues? What are debere and credere?

Quite simply, on the accountants ledger, one side represents the Debit, and this is denoted, even today by convention, by dr, an abbreviation for debere, latin “to owe”.

The other side we put the Credits, and this is denoted by cr, credere, latin for “to believe”.