Tuesday, September 27, 2011

Ireland and views of 'austerity'

A recent thread on the Irish Economy blog has been prompted by a comment from Paul Krugman, New York Times columnist, on austerity in Ireland and the Baltic nations. It begs the question as to what is austerity as the many beggars on horseback who in the past decade have had a donnybrook plundering the public purse, would object to reform and an end to their gravy train.

The following is one of my contributions to the thread:

It’s foolish to argue that cuts in public spending against the backdrop of a faltering recovery in developed countries, would boost economic activity in the short-term.

However, what should a country that is dependent on foreigners for most of its borrowing do?

Irish professional economists appear to be as lost for credible answers as the general public, four years after the onset of the global credit crunch.

Is there any research being done in this area?

The ESRI will likely publish material on the issue in years to come but expect nothing in the short term.

The issue of austerity reminds me of Harry Truman’s answer to a question on the difference between a recession and depression.
"It's a recession when your neighbour loses his job; it's a depression when you lose yours."
- - Harry S Truman, in Observer, April 13, 1958; 33rd president of US (1884 - 1972)

Politicians, senior civil servants and academics face personal conflicts of interest on the issue and in this recession, for the first time, trade unions have effectively abandoned advocacy on behalf of individuals in the unprotected private sector who are experiencing most of the pain.

The issue of mortgage debt forgiveness did briefly provide a glimpse of the plight of people who are generally invisible. It was also interesting that BlackRock Solutions, an American fund manager, was seen as providing an ostensibly painless solution.

So what does austerity encompass?

Greece has apparently thousands more teachers than classrooms; the well-off who generally evade taxes pay more in private tuition than the combined primary and secondary school budgets?

Would it be austerity for Ireland, a bankrupt country, to clawback the big payouts for politicians and public sector staff?

Not alone is there an Irish state guarantee of employment in the public sector and surplus staff are today being paid for doing no work, almost four decades after equal pay for women became an issue, it’s planned to have new permanent staff in the civil service on worse conditions than existing staff doing the same work - - all because politicians are afraid of upsetting the existing applecart and there is silence from others who choose less risky topics du jour.

Anglo Bank plans to cut its payroll to 900 but who believes that the defunct bank has work for all of them?; the citizens of a failed entity that becomes a ward of the State have exalted status compared with compatriots who are dumped on the street every week.

So ESRI, time for you folks to get ahead of the curve and try a bit of radicalism.

Finally, when should failed systems be reformed? - - when an economy is showing signs of recovery or flat on its back?

My answer is the latter, if it can happen at all.

Japan, Italy, Greece, Ireland…

Tuesday, September 20, 2011

Ambulance chaser in search of heart attack victims

The American Tort Reform Association (ATRA) says Palm Beach, Florida-based personal injury lawyer Craig Goldenfarb has taken to trolling for new clients to an arresting new low - - cardiac arrest. His advertisement, appearing on some taxi cabs, suggests that people who have heart attacks in public places should sue others for liability.

ATRA says neither Goldenfarb's ad nor website offers any information about the personal choices that can lead to heart attacks, such as eating or drinking or smoking too much and not getting enough exercise. "Apparently he'd rather we blame someone else for our problems," and that mindset helps make Palm Beach and Miami-Dade counties the collective judicial hellhole they are (see ATRA's Judicial Hellholes® 2006 report which cited South Florida among the nation's worst, most unfair jurisdictions in which to be sued).

In a news release, ATRA director of communications Darren McKinney said he found the ad's "opportunistic, ambulance-chasing mentality" to be "truly sickening" and rhetorically asked: "So who can I sue?" He added that "ATRA intends to keep reminding consumers, taxpayers and voters in judicial hellholes that they ultimately bear the costs for the lawsuit abuse that the Craig Goldenfarbs of the world foment."

Tuesday, September 06, 2011

Doom and gloom news religiously motivated?

There is no doubt that some people revel in bad news while others thrive on the public attention that messages of gloom bring them. 

This summer there simply was no "silly season" in the media. That's not because so much happened but because of religiously-motivated reporting hysteria, Austria's  left-liberal weekly Der Falter writes: 
"Catastrophes, crises and wars are shown live, and we watch the attacks with bated breath. ... Our religious instinct, a desire for meaning which we all share, longs for clarity and justice, perhaps even punishment. ... It serves us right when the earth quakes - even when it conveniently does it somewhere else.

Catastrophe journalism uses the most modern technology to satisfy atavistic reflexes, because the patterns of thought that lie behind our voracity for doom and gloom news are religious. 

How does it go in the Book of Revelations, that apogee of apocalyptic theories? 'You say, "I am rich; I have acquired wealth and do not need a thing." But you do not realize that you are wretched, pitiful, poor, blind and naked.' Then come the Riders of the Apocalypse live on CNN."
Translation from Euro Topics.

Thursday, September 01, 2011

Irish Mortgage Arrears

The suggestion in the Irish Times that the Government may give additional powers to an agency such as MABS, the money and budgeting advice agency,  to handle the issue of ability to pay on a case-by-case basis, merits attention.

The issue of mortgage indebtedness is complex and it is clear that there is no “magic bullet” or “one-size –fits-all” solution, Michael Noonan, Finance minister, said today.

Noonan told the Oireachtas Committee on Finance, Public Expenditure and Reform that while there have been many contributions to the debate including suggestions for the granting of extensive debt forgiveness, "this simply is not a realistic option." He said solutions must be found on a case-by-case basis through open and meaningful engagement between the distressed borrower and the lender. The planned reform of the bankruptcy and debt settlement arrangements are also key elements in any consideration of potential policy options. 

On Monday, the Central Bank published the latest data on mortgage arrears and repossessions for the period ended June 2011. The figures show that 7.2% of private residential mortgage accounts are in arrears for more than 90 days.  At the end of June 2011 there were 777,321 private residential mortgage accounts held in the Republic of Ireland to a value of €115bn. Of these, 55,763 accounts, or 7.2%, were in arrears for more than 90 days. This compares with 49,609 accounts (6.3% of total) that were in arrears for more than 90 days at the end of March 2011. 95,158 accounts were either in arrears greater than 90 days or have been restructured.

Besides the restructured mortgages, there must be large numbers of people who are just about managing to keep up with their bills but the rational reaction to the expectation of some sort of blanket forgiveness would be to not keep up with payments.

I noted last week that we have one of the highest level of owner occupied housing in Western Europe without a mortgage and obviously some housing units were purchased by parents in their children’s names — I would think it’s a substantial number.

There are many other issues; it’s understandable that a person who lost their business or job may not be able to pay a €500,000 or €1m mortgage, absent downsizing, unless most of the balance is cleared. So shouldn’t an agency have power to set reasonable options for a borrower in distress? In some cases a mortgage could be cleared in full by downsizing.

These type of big schemes are ripe for abuse and the application of the law of unintended consequences.

Forty per cent of third level students are in receipt of a public grant; from the time the scheme was introduced fort years ago, it was common to find wealthy farmers, already in receipt of public handouts, having their children on grants motoring to college while struggling middle income families above the income threshold having to fund fees and maintenance.

Finally, it’s interesting how the BlackRock extreme scenario provision, produced by the US firm in the March 2011 Irish bank stress tests, appears to give the illusion of a cost-free solution, as the monies have been already set-aside. Contrast that with a situation where one issue in the debate would be the amount of a special mortgage income tax levy that should be introduced in Budget 2012, to cover the cost.

Irish Economy blog thread