Tag Archives: Ireland

St Patrick’s Day – Eco Jokes

As it is St Patrick’s Day today (17th March) I thought it might be appropriate to look at the lighter side of economics. Here are a couple of good ones that I have come across:

The new Irish credit rating agency – Moody & Poor (mentioned in a previous posting)


Irish government’s latest policy response to the banking, economic and financial crisis – “Quantitative Cheesing”.

We’ve been downgraded from AAA+ to AA-. What does that even mean? Before, we were a battery for the remote control; now we’re only good for a Walkman?

What is the difference between Ireland and Iceland? One letter and six months

Here is an amusing clip from Russell Howard’s Good News – Irish Economy

“Financial Crisis is not over” – Michael Lewis

Michael Lewis is the author of an excellent book on the financial crisis entitled “The Big Short”. Here he was interviewed by Bloomberg last week and suggests that there is still concerns over the robustness of financial markets and adds his thoughts on the Irish economy. Stories of Bank of Ireland employees chasing Polish workers back to their homeland to collect parking fines – the Poles had left their cars at the airport carpark when they returned to Poland. Some useful economic jargon in the interview also.

In finance, short selling (also known as shorting or going short) is the practice of selling assets, usually securities, that have been borrowed from a third party (usually a broker). The short seller borrows shares and immediately sells them. He then waits, hoping for the stock price to decrease, when the seller can profit by purchasing the shares to return to the lender.

The Big Short: Inside the Doomsday Machine
The Big Short is a 2010 non-fiction book by Michael Lewis about the build-up of the housing and credit bubble during the 2000s. It describes several of the key players in the creation of the credit default swap market that sought to bet against the bubble and thus ended up profiting from the financial crisis of 2007–2010. The book also highlights the eccentric nature of the type of person who bets against the market or goes against the grain. The work follows people who believed the bubble was going to burst, like Meredith Whitney, who predicted the demise of Citigroup and Bear Stearns; Steve Eisman, an anti-social hedge fund manager; Greg Lippmann, a Deutsche Bank trader that created the first CDS market by matching buyers and sellers; the founders of Cornwall Capital, who started a hedge fund in their garage with $100,000 and built it into $120 million when the market crashed; and Dr. Michael Burry, an ex-neurologist who created Scion Capital despite suffering from blindness in one eye and Asperger syndrome. Wikipedia

The Euro can rise again

It seems that the Euro countries are living in denial. Surely some of them – Portugal, Ireland, Greece, Spain (PIGS) are going to have to give up the Euro within the next couple of years. Politicians insist that there is no legal mechanism to exit the Euro but according to Charles Calomiris – a Professor at Columbia Business School – the collapse of the Euro is simple arithmetic. When a country has a debt-to-GDP ratio high enough, it becomes impossible for it to generate enough future taxes to repay its existing debt and interest costs. The only alternative for countries in the above condition is to default on their euro-denominated debt and exit the Euro. Then they can finance their fiscal deficits by printing their own currency.

Long-term planning
The challenge today is to plan for a sustainable currency union in the future, once exiting countries reform themselves enough to rejoin. It is imperative that the Eurozone countries agree on measures to prevent massive deficits. One of the reasons that Italy and Greece spent so much is that their interest rates fell dramatically when they joined the Eurozone, making deficit finance more attractive. The too-big-too-fail problem is both dangerous and avoidable – better to let the banks fail. Politicians today are frightened of transparency in the recognition of bank losses and are often unwilling to close insolvent banks losses

2011 Black Swans

A few days have past since my last post – had another spell at the beach with family before heading back to Auckland. Anyway Bernard Hickey wrote a nice piece on the NZ Herald website today with regard to Black Swans.

No doubt you would have come across the book entitled “The Black Swan” (2007) by Nassim Nicholas Taleb. He describes a black swan as highly improbable event with three principal characteristics:
1. its unpredictability;
2. its massive impact; and
3. after it has happened, our desire to make appear less random and more predictable than it was.

Nassim Nicholas Taleb could see the banking crisis being realized, and this quote from “The Black Swan” explains partly the rationale for the current environment. Remember it was written when the world was awash with cheap credit and leaders were content with what was happening.

“So the financial ecology is swelling into gigantic, incestuous, bureaucratic banks – when one fails, they all fall. The increased concentration among banks seems to have the effect of making financial crises less likely, but when they happen they are more global in scale and hit us very hard. We have moved from a diversified ecology of small banks, with varied lending policies, to a more homogeneous framework of firms that all resemble one another. True, we now have fewer failures, but when they occur I shiver at the thought.” Page 225-226

2011 – Black Swans

Hickey mentions the following in his piece:
* Irish Politics – with a likely change of government there is the probablity that holders of Irish bonds will suffer losses and subsequently put pressure on UK and German banks
* Chinese inflation – with pressure on prices there could be social unrest as lower income groups grapple with the cost of living
* Aussie house prices – already depressed in Queensland, Sydney and Perth this could mean lower volume of imports from NZ
* Higher oil prices – conflicts in the Middle East could lead to supply pressures
* Kiwis stop spending – still a lot of debt around and deleveraging.

A couple of my predictions for 2011

* US Fed goes for QE3 – Quantitative Easing No. 3 – as the banks once again get into trouble
* Gold hits US$1,700 an ounce as investors run for cover
* Reserve Bank of New Zealand maintain their expansionary stance and don’t increase interest rates until September
* Ireland win the Rugby World Cup

EU leaders need a geography lesson

Back into it after an enjoyable week at the beach. Satyajit Das has an interesting post on the blog Naked Capitalism concerning the crisis in Europe. He states that EU leaders have issues with their geography and before giving in to the unavoidable:

*Ireland told everyone that they were not Greece.
*Portugal is now telling everyone that it is not Greece or Ireland.
*Spain insists that it is not Greece, Ireland or Portugal.
*Italy says it is not in the “PIGS”.
*Belgium insists it was no “B” in “PIGS” or “PIIGS”.

Russian writer Leo Tolstoy wrote that: “All happy families resemble one another, every unhappy family is unhappy in its own way.” The same applies to beleaguered European countries.

Greece had a bloated public sector and an uncompetitive economy sustained by low Euro interest rates.
Ireland suffered from excessive dependence on the financial sector, poor lending, a property bubble and an increasingly generous welfare state.
Portugal has slow growth, anaemic productivity, large budget deficits and poor domestic savings.
Spain has low productivity, high unemployment, an inflexible labour market and a banking system with large exposures to property and European sovereigns.
Italy has low growth, poor productivity and a close association with the other peripheral European economies. Italy has recently started to rein in its budget deficit. The Italian banking system is relatively healthy but exposed to European sovereign debt.
Belgium is really two ethnic groups that share a king and high levels of debt (about Euro 470 billion, 100% of GDP).

Click here for the full posting.

Economics in 2010 – DRINKBONDS, ALKIBONDS and PUKEBONDS

Here is something I got which was doing the rounds on email – very amusing.
________________________________________________________________________________________________________

I was asked to explain the Economic crisis in Ireland here is an example
as I understand it….( passed on of course !!)

Mary is the proprietor of a bar in Dublin . She realises that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronise her bar. To solve this problem, she comes up with new marketing plan that allows her customers to drink now, but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans). Word gets around about Mary’s “drink now, pay later” marketing strategy and, as a result, increasing numbers of customers flood into Mary’s bar. Soon she has the largest sales volume for any bar in Dublin. By providing her customers’ freedom from immediate payment demands, Mary gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages. Consequently, Mary’s gross sales volume increases massively. A young and dynamic vice-president at the local bank recognises that these customer debts constitute valuable future assets and increases Mary’s borrowing limit. He sees no reason for any undue concern, since he has the debts of unemployed alcoholics as collateral.

At the bank’s corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into DRINKBONDS, ALKIBONDS and PUKEBONDS. These securities are then bundled and traded on international security markets. Naive investors don’t really understand that the securities being sold to them as AAA secured bonds are really the debts of unemployed alcoholics. Nevertheless, the bond prices continuously climb, and the securities soon become the hottest-selling items for some of the nation’s leading brokerage houses.

One day, even though the bond prices are still climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Mary’s bar. He so informs Mary. Mary then demands payment from her alcoholic patrons, but being unemployed alcoholics they cannot pay back their drinking debts. Since, Mary cannot fulfil her loan obligations she is forced into bankruptcy. The bar closes and the eleven employees lose their jobs.

Overnight, DRINKBONDS, ALKIBONDS and PUKEBONDS drop in price by 90%. The collapsed bond asset value destroys the banks liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community. The suppliers of Mary’s bar had granted her generous payment extensions and had invested their firms’ pension funds in the various BOND securities. They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds. Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.

Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multi-billion euro no-strings attached cash infusion from their cronies in Government. The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never been in Mary’s bar.

Now, do you understand economics in 2010?

Kilkenomics

An economics festival called Kilkenomics took place with economists and stand-up comics informing and entertaining audiences in the city of Kilkenny. The festival had its own currency for the weekend, which people could use in some of Kilkenny’s numerous pubs, and a ratings agency called Moody & Poor. As Martin Lousteau, Argentina’s youngest-ever finance minister, told one audience: “It’s a very bad thing when economists start to be interesting.” Click here for the review from the FT.

Is Santa our saviour?

Here is a great piece from the BBC World Service programme “Business Daily”. Below is the transcript but if you would like to listen to the Irish brogue of Colm O’Regan click the link below.

Santa and Shale Gas – Friday 23th December 2010

Austerity and how Santa Claus maybe able to help out

by Colm O’Regan

Austerity – listen to the word. Even if you didn’t know what it meant the combination of consonants and vowels alone give you the feeling that there won’t be any biscuits with the tea.

This Christmas austerity is all the rage. Across Europe governments used to ‘sugar coat’ bad news but now delight in unveiling swingeing cuts. At EU summits Finance Ministers congratulate each other on their ability to take brave unpopular decisions and how much they are tightening their belts. Oh yes a word about belt tightening – national governments are warning us to adjust are waists size at the same time we are told that consumers need to have more confidence and spend to stimulate more growth so we need to buy need belts and tighten those – Oh and VAT is being raised and that belt will cost more. Of course this is not proper austerity not like the old days. My mother, born in 1935, didn’t see an orange until she was 11 years old– the war and rationing made for a very gray life – there is nothing as austere as that now. I didn’t eat asparagus until I was 27 years old but that was more due to an unsophisticated palate rather than an embargo enforced by U-boats lurking offshore. In future years it is unlikely that our children will be listening to our tales of economic hardship. To save money we cancelled our cable subscription and watched TV online. Smart phones – I was 35 before I got my first smart phone and look at you now with your microchip embedded in your neck. If you want to watch TV you just have to think about it, we had to press a button. But although we don’t plumb to the depths of previous lean times we have formed a grim relationship with financial prudence. Consumers are hoarding money for “a month of rainy Sundays”. Companies are delighted to take the opportunity to freeze or cut wages whether they have to or not – a wage rise now is seen as the height of hedonistic success like bringing one’s employees to a strip club. But we can’t cut and save and wait forever. How could we break free from this worthy cycle? We need a stimulus but from where? If there is one person who could encourage us to loosen the shackles its Santa Claus. Santa is better equipped that most to ride out the current economic storm. He has a committed, and by all accounts, free workforce. He maintains very high market share and because part of Lapland is outside the Euro he has a bit more flexibility when it comes to his fiscal policy. As the creator of millions of toys each year, which he just gives away, Santa is just the type of Keynesian thinker Europe needs. Unlike President Obama’s financial package which has been beset by allegations of waste and mismanagement – Santa is very careful about who benefits from his financial largesse. Each year he makes a list and checks it twice. So lets hope that Santa leads the way and shakes us out of our love affair with thrift so we can austerity for posterity.

Poland – “way to go!”

The New York Times ran an article on the Polish economy and how it can learn from the mistakes of the Irish. There are similarities between Ireland of the 1990’s and Poland with huge amounts of foreign investment being injected into the Polish economy. But Poland, with a population of 38.5 million people, seems to have learnt that countries should not adopt the euro until their economies and labour markets are flexible enough to compensate for the loss of control over exchange rates. During the financial crisis because the currency was still the zloty the Poles could use their currency to assist their economy – a weaker currency makes exports cheaper and imports more expensive. The zloty has fallen about 18% against the euro but this has made Polish products competitive on world markets and insulating Poland from the effects of the sovereign debt crisis. Poland was the only European Union to avoid a recession and none of its banks needed to assisted during the global credit crisis.

But Poland was lucky that, in contrast to Ireland, its banking industry was still small compared with the total size of the economy, with less potential to do damage. Household debt is relatively modest. Poland also benefited from the strong economy in neighbouring Germany, which accounts for a quarter of exports. One risk for Poland is that some of its growth is based on an influx of European Union aid and other one-time factors, like the construction of new stadiums and other projects related to the European soccer championship, which Poland and Ukraine will co-host in 2012. The country is practically one big construction site, with numerous road and bridge projects and public works, including a new subway line in Warsaw.

If those projects are done well and make the economy more productive, they will contribute to growth. If not, there could be a slowdown when the flow of money ebbs. Nor can Poland completely isolate itself from problems in the euro zone. It would be vulnerable to an unexpected slowdown in Germany.