Sunday, November 28, 2010

Ireland, reform and the IMF

The empty Dáil Éireann chamber of the Lower House of the part-time Oireachtas (Irish Parliament). The members are amongst the best-paid in the world - - typical pay before last December's Budget was equivalent to that of a United States Senator's $169,000 plus tax-free expenses, which can amount to more than 100% of pay - - but the Parliament only holds about 90 plenary sessions annually and the shutters are pulled down each year for a 3-month summer break in common with teachers and the highest earners at the State broadcaster RTÉ.
Two members of the current Government - - who remain on the payroll of the Department of Education - - are building up credits for 3 public sector pensions while the majority of private sector workers do not have one occupational pension.

In 1940, Deputy James Dillon said in the Dáil in reference to the three year sentence to an industrial school, that was given to a child who had stolen some grapes: “Can you imagine the son or the daughter of a resident of Fitzwilliam Square being brought down to Morgan Place and sent from there to an industrial school because he stole 5/- (32 euro cent) worth of grapes?”

How times have changed! Or maybe not.

The IMF is possibly our best hope for a fairer society.

From the early 1950s, when the Catholic Church opposed ’socialised’ medicine and found common cause with devotees of the God Mammon in medicine, the protected professions have comfortably handled the schizophrenic existence of being both socialists and capitalists.

Even the free market side operates via what is effectively a tax (health insurance) as a dual system is the main plank of public policy. The ‘cartel’ charges at consultant level are simply obscene.

On independence, the English inspired legal system continued; why would any of the big wigs have changed it?

Payments to barristers by the DPP rose 11% to €15.2m in 2009 despite an 8% cut; the Irish Times reported last April that its own columnist Noel Whelan was the 5th highest earner at €234,766 (inclusive of VAT).

Lawyers become multimillionaires on the public payroll investigating corruption which should be confusing or ironic and besides reform of the underlying cause of one aspect of corruption, land rezoning, is a taboo issue.

“If you’re not inside, you are outside, OK?" the Gordan Gekko character says in Oliver Stone’s recently released ‘Wall Street.’

Robert Frank of Cornell University has written of “winner-take-all markets.”

These are markets in which small differences in performance (or even small differences in the credentials used to predict performance) translate into extremely large differences in reward.

While these markets have been evident in entertainment and sport for many years, when applied to professional cartels, it’s not just a pioneering surgeon like the late Maurice Neligan who gets big rewards but everyone who manages to get inside the circle.

Then there is a cascade ripple effect beyond.

American CEOs, for example, earned 419 times as much as the average worker last year, up from only 42 times as much in 1980. The top one percent of US earners have seen their real incomes more than double since 1979, a period during which the median income has remained essentially unchanged.

Over time, some of these CEOs will be shown to be duds.

As for the ‘independent figure’ proposed in the four-year plan, just three years ago, an ‘independent’ panel containing at least two multimillionaires proposed lavish hikes in the salaries of politicians and senior public officials.

The Dublin City Manger, just 18 months in his job, got a hike of 36% as did his retired predecessors and so it went.

In the legal world, to take silk should be more like taking nylon.

The Competition Authority (CA) says the legal profession in Ireland is organised into a highly rigid business model: access to barristers for legal advice is limited to a few approved clients, barristers cannot form partnerships or chambers or represent their employers in court.

There is no profession of “conveyancers” in Ireland, as in other common-law countries, and this limits competition in conveyancing services; the title of senior counsel is inclined to distort rather than facilitate competition; junior counsel generally charge a fee equal to two-thirds of the senior counsel’s fee, regardless of the work done by each barrister, despite the fact that this practice was identified as anti-competitive in an independent report on the legal profession 16 years previously; establish objective criteria for awarding the title of senior counsel.

The level of solicitors’ fees in the High Court increased by 4.2% above general inflation annually over the period 1984 to 2003 while the level of senior counsel fees in the High Court increased by 3.3% above general inflation annually over the same period.

The public sector is the biggest customer of the legal profession as with other professional services.

If not now, when will it change?

Transparency and political will to clear the dust from several CA reports is all that’s needed.

Meanwhile a report by the Comptroller and AuditorGeneral says sick leave has jumped since the 1980’s in the Irish  civil service  with the absence rate rising from 3.3% to almost 5%  of available working time, which was lost to sickness absence in  2007.

On average, 59% of all staff employed availed of sick leave in  that year.

The average employee was absent for just over 11 days.

Irish Economy Blog: More on the Four Year Recovery Plan

Finfacts article: Four Year Budget Plan: Ireland's first steps in long march; Real reform dependent on IMF

Sunday, November 21, 2010

Irish State Bank Guarantee and the arrival of the IMF in Ireland

Office of the Taoiseach, Dublin - - In this building on Monday, Sept 29, 2008, Taoiseach Brian Cowen made the most cataclysmic economic decision in the history of the State.

The Financial Times said the State bank guarantee turned the State and the banks into one entity from the viewpoint of financial markets and there is a direct link between the issue of a blanket guarantee on Sept, 30, 2008 and the arrival of IMF officials in Dublin m on Nov 18, 2010.

The English writer William Somerset Maugham (1874-1965) said: “It's no good crying over spilt milk, because all the forces of the universe were bent on spilling it.” Nevertheless, it's important to recognise the enormous consequences of the guarantee of existing bank debt in the State guarantee that was issued on Sept 30, 2008.

Ireland and Denmark were the only countries during the global financial crisis to guarantee existing bank debt and on the first day of the Irish guarantee, Minister for Finance Brian Lenihan said: “We are not in the business here of bailing-out banks.”

Advisers Merrill Lynch had warned that an extensive guarantee of liabilities at the State’s main banks could “hit the national rating” and allow poorer banks to continue in operation. However, they advised the minister against a policy of liquidation or letting a bank become insolvent, saying “this was the worst thing that could be done” as it would accelerate trouble for all other institutions. Merrill Lynch proposed an alternative to the guarantee scheme in the form of a “secured lending scheme” for banks whereby commercial property could be exchanged for Government bonds or cash.

There were exactly four months between the collapse of US investment bank Lehman Brothers and the announcement in mid-January 2009 that Anglo Irish Bank would be nationalised.

Strauss-Kahn referred to "one big bank" but there was also the recklessly run Irish Nationwide Building Society (INBS) and the bail-out of the two institutions will cost at least €40bn -- more than 25% of annual gross domestic product. INBS had become a commercial property lender with almost half its commercial loan book for property in the London region.

Minister Lenihan had declared the bank guarantee “the cheapest bailout in the world so far,” but it prevented a restructuring or orderly closure of two insolvent institutions and left taxpayers with the huge bill.

The period post-Lehman period was marked by the collapse of Icelandic banks and several rescues across Europe. Ireland would not have been an outlier in restructuring its banks and imposing losses on bondholders at that time.

Some months later, the Obama administration restructured General Motors in that manner.

Prof. Morgan Kelly of University College Dublin and Brendan Keenan, Group Business Editor of Independent Newspapers on Sept 30, 2008, the day the guarantee took effect. Kelly in a stunning tour de force, accurately presents the enfeebled state of Irish banking:

On October 02, 2008, Patrick Neary, the chief executive of the Financial Regulator appeared on RTÉ's Prime Time television programme, and in possibly the most bizarre performance by a public official on Irish television, since its launch in 1961, said that bad lending by Irish banks had nothing to do with the then international crisis which was all about liquidity. He said the banks had plenty of capital to absorb any losses on property loans and he did not believe that over-exposure to the property market was a weakness of the Irish banking sector.

Sunday, November 07, 2010

US Federal Reserve returns to Jekyll Island

President Barack Obama stands with Ben Bernanke before making a statement on his reappointment as chairman of the Federal Reserve during the President’s vacation on Martha’s Vineyard, Massachusetts, Aug. 25, 2009.

US Federal Reserve chairman Ben Bernanke spoke on Nov 06, 2010, at a conference held by the Federal Reserve Bank of Atlanta to commemorate the centennial of the Fed's birth, which was shrouded in secrecy on Jekyll Island in Georgia.

The conference took place at the Jekyll Island Club Hotel on Jekyll Island, Georgia - -  the same building where the 1910 meeting occurred.

In the 1830s, the US Congress with the support of President Andrew Jackson, refused to renew the charter of the then central bank, the Second Bank of the United States.

The secrecy of the 1910 Jekyll Island  meeting, has fed many conspiracy theories about the birth of the central bank, which Finfacts outlined last year:

The Federal Reserve and the paranoid style in American Politics

The following is a summary on the birth of the Fed from the Federal Reserve Bank of Atlanta:

Meetings can have lasting meaning, and a meeting on Jekyll Island, Georgia, 100 years ago this month was an important moment in the evolution of U.S. central banking. That meeting is also the reason for the gathering being held here today. An important outcome of the 1910 meeting was a proposal for an institution with multiple branches, which became the model for the Federal Reserve System.

The Aldrich-Vreeland Act of 1908: After a series of financial panics culminating in the Panic of 1907, Congress passed the Aldrich-Vreeland Act in 1908. This act established an eighteen-member National Monetary Commission chaired by Senator Nelson Aldrich of Rhode Island. The commission was charged with finding a way to reform the nation's monetary system. Progress toward that proposal began with the commission taking trips to major European banking centers and holding hearings in the United States. But by 1910 the commission could not agree on a plan.

The Jekyll Island Meeting of 1910: Aldrich then took matters into his own hands, meeting secretly with a group of bankers on Jekyll to formulate a plan. The group included Henry Davison, Frank Vanderlip, and Paul Warburg; also present were Aldrich's secretary, Arthur Shelton, and A. Piatt Andrew, a Treasury official. Warburg's attendance was critical because of his knowledge of European banking practices. Aldrich was well aware that his meeting with bankers outside of the commission proceedings would generate controversy; for this reason, the group met in private at a remote location.

Over the years, the clandestine nature of the meeting has been criticized as allowing undue Wall Street influence over the founding of the U.S. central bank. However, the meeting itself was just one step in the process that led to the creation of the Federal Reserve.

The Aldrich Plan: What emerged from the Jekyll meeting was the so-called Aldrich Plan, which was presented to the National Monetary Commission as a legislative blueprint.

The Aldrich Plan was a catalyst for debate about the role of the government and banking in the central bank's governance. The plan, and the bill that followed in 1912, proposed that a National Reserve Association would function as the U.S. central bank. The association would consist of a federation of regional bank associations, each presided over by boards of directors elected by local banks. This diffuse governance represented a departure from the centralized governance of European central banks. Aldrich's proposed central bank would promote macroeconomic stability. The proposals that came out of the Jekyll meeting remained the core of the subsequent steps in the creation of the Federal Reserve.

Aldrich put forward his central banking bill to the U.S. Senate in January 1912. The Senate did not act on it.

The Glass-Owen Bill: After the election of Woodrow Wilson in 1912, Congressman Carter Glass of Virginia assumed leadership of monetary reform. Glass had served for ten years as a minority member of the House Banking and Currency Committee and had led an investigation into concentration of power on Wall Street. Also working on monetary reform was Oklahoma Senator Robert L. Owen.

The Glass-Owen Bill kept the key macroeconomic stabilization mechanisms of the Aldrich Plan, but it differed in terms of the proposed institution's structure and governance. The Glass-Owen Bill provided for eight to twelve districts, with a reserve bank in each district—a departure from the Aldrich Bill, which called for fifteen districts, with a central bank branch in each. However, the most salient difference was the governance of the central bank. The debate about a U.S. central bank had been mired in disagreements about who would control the system—bankers or appointed government officials. The Glass-Owen bill limited banking interest representation. Of the nine-member reserve bank board of directors, only three could be bankers. Three other directors engaged in commerce, industry, or agriculture were to be elected by bankers, and the remaining three directors were to be named by the Federal Reserve Board in Washington, D.C.

The bill also identified the Federal Reserve Board as the controlling agency. The Board was made up of two ex officio members—the Secretary of the Treasury and the Comptroller of the Currency—and five other members appointed by the president and confirmed by the Senate.

The Federal Reserve Act of 1913: The reconciled bill was passed as the Federal Reserve Act and signed into law by President Wilson in 1913, and the twelve Reserve Banks opened about a year later.

Monday, November 01, 2010

Jon Stewart - - the king of US satire

President Barack Obama waves to the audience after taping an interview for The Daily Show with Jon Stewart at the Harman Center for the Arts in Washington, DC, Oct. 27. 2010. The irreverent 'news' show is one of America's most popular TV programs.

On Saturday, Oct 30th, three days before midterm elections, tens of thousands of people packed the National Mall in Washington DC at a rally organised by Comedy Central satirists Jon Stewart and Stephen Colbert, looking for a laugh and the opportunity to display their disenchantment with what the comedians said was a rally to restore sanity to America's political discourse.

It was a twin rally with Stewart leading a Rally to Restore Sanity while Colbert held his rally under the banner March to Keep Fear Alive and the comedians made clear their dismay with the angry mood of the nation.

Jon Stewart who presents a satirist's view of the news in his The Daily Show program, which is popular with liberal audiences, spoke on Saturday of 'fake news,' which he called, “the country’s 24-hour political pundit perpetual panic conflictinator,” that he added, “did not cause our problems, but its existence makes solving them that much harder.”

“The press can hold its magnifying glass up to our problems bringing them into focus, illuminating issues heretofore unseen or they can use that magnifying glass to light ants on fire and then perhaps host a week of shows on the sudden, unexpected dangerous, flaming ant epidemic,” he said, to roars of approval from the crowd.

Earlier in the week, President Obama appeared on The Daily Show to reach out to a young audience but he met some flak.

Clive Crook of The Atlantic magazine commented that the joke was on President Obama.

The president had come, on the eve of what will almost certainly be the loss of his governing majority, to plead his case before Jon Stewart, gatekeeper of the disillusioned left. But instead of displaying the sizzle that won him an army of youthful supporters two years ago, Obama had a Brownie moment.

The Daily Show host was giving Obama a tough time about hiring the conventional and Clintonian Larry Summers as his top economic advisor.

"In fairness," the president replied defensively, "Larry Summers did a heck of a job."

"You don't want to use that phrase, dude," Stewart recommended with a laugh, in a reference to President George W. Bush's infamous praise of his disaster agency head during the the Hurricane Katrina relief fiasco in 2005: "Brownie, you're doing a heck of a job."

Crook said the indignity of a comedy show host calling the commander in chief "dude" pretty well captured the moment for Obama.

There was worse.

"You wouldn't say you'd run this time as a pragmatist? It wouldn't be, 'Yes we can, given certain conditions?'"

"I think what I would say is yes we can, but..."

Stewart, and the audience, laughed at the "but."

Crook said actually they were laughing at Obama.

Bloomberg Game Changers: Jon Stewart; Bloomberg profiles Jonathan Stuart Leibowitz, now Jon Stewart.

Obama on The Daily show