With the benefit of hindsight ...

Fergalino

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Knowing what we know now, what could we have done to avoid the crisis.

The easy one is: we should have ensured that the banks were properly regulated. We should also have ensured that the capital reserves of the Irish banks were sufficient (we are now imposing a requirement of 12%).

If we had run a fiscal surplus from 2002 to 2007 we would have sucked money out of the economy, thus deflating the bubble. This would have meant higher taxes and lower public spending. Public and private sector wages should have been measured against wages in other EU countries. Instead we got into a spiral of increased wages, increased costs, increased wagess. We should have measured spending on infrastructure to match our ability to supply ourselves with building services so as not to drive up prices in that area. We should have taxed heavily all high income earners.

The end result would have been modest to good sustainable growth, along with a massive sovereign waelth fund to increase domestic demand through spending (on infrastructure , education and health) when the world crisis hit. We would have rose out the global storm easily.

Why did'nt we do the above. Because the idea of running a surplus is anathema to our politicians ("If I have it, I'll spend it" (btw the following was written in 2006, which shows that some didn't need hindsight to see where we were going (Budget Ireland 2006, Irish Budget News)).

All very very sad. We could have rode the wave and come out smiling. It didn't have to happen like this. It was not inevitable. It was, in fact, very evitable.
 


ruamruam

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Nov 11, 2010
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580
Knowing what we know now, what could we have done to avoid the crisis.

The easy one is: we should have ensured that the banks were properly regulated. We should also have ensured that the capital reserves of the Irish banks were sufficient (we are now imposing a requirement of 12%).

If we had run a fiscal surplus from 2002 to 2007 we would have sucked money out of the economy, thus deflating the bubble. This would have meant higher taxes and lower public spending. Public and private sector wages should have been measured against wages in other EU countries. Instead we got into a spiral of increased wages, increased costs, increased wagess. We should have measured spending on infrastructure to match our ability to supply ourselves with building services so as not to drive up prices in that area. We should have taxed heavily all high income earners.

The end result would have been modest to good sustainable growth, along with a massive sovereign waelth fund to increase domestic demand through spending (on infrastructure , education and health) when the world crisis hit. We would have rose out the global storm easily.

Why did'nt we do the above. Because the idea of running a surplus is anathema to our politicians ("If I have it, I'll spend it" (btw the following was written in 2006, which shows that some didn't need hindsight to see where we were going (Budget Ireland 2006, Irish Budget News)).

All very very sad. We could have rode the wave and come out smiling. It didn't have to happen like this. It was not inevitable. It was, in fact, very evitable.
Shouldn't have consistently voted for FF, PDs or Greens
 

Fergalino

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108
Shouldn't have consistently voted for FF, PDs or Greens
Unfortunately, I fear that FG and Labour would not have run a fiscal surplus either. Can you imagine Labour saying, we will limit public spending and advocate national wage contraints, at a time when the sate cofffers were brim full. . 'Fraid not. Would FG have done any different??? I doubt it. I do not recall them advocating a fiscal suplus in the last 10 years.

No, I am afraid our political system, as a whole, with its inability to think long term, would have not allowed for the fiscal surplus we needed to save ourselves from the bubble and the loss of competivity Our political system, in fact, promotes short term thinking. The Irish voted and revoted in FF BECAUSE they were spending the money of the boom.


(Having said all that, I doubt very much that FG and Labour would have torn the arze out of it completely like Charlie did).
 

Old Thady

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If we had had even vaguely competent management of the banks we'd be OK now. Yes, we'd be struggling to tame a big budget deficit, but we could cope with that. It's the colossal losses of the banks that has sunk us.
 

Right is right

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Unfortunately, I fear that FG and Labour would not have run a fiscal surplus either. Can you imagine Labour saying, we will limit public spending and advocate national wage contraints, at a time when the sate cofffers were brim full. . 'Fraid not. Would FG have done any different??? I doubt it. I do not recall them advocating a fiscal suplus in the last 10 years.

No, I am afraid our political system, as a whole, with its inability to think long term, would have not allowed for the fiscal surplus we needed to save ourselves from the bubble and the loss of competivity Our political system, in fact, promotes short term thinking. The Irish voted and revoted in FF BECAUSE they were spending the money of the boom.


(Having said all that, I doubt very much that FG and Labour would have torn the arze out of it completely like Charlie did).
Did you not see FG running an effective economy with Labour in 97 and not throwing money around in the electoral campaign??

Did you not see FG opposing benchmarking, complaining about Govt waste, economy being run on property etc etc???

Simple solution to the problem would to have had someone with a brain realise that making long term current spending promises based on short term capital income streams would have avoided nearly all our problems....

We should have used the large income streams from Stamp Duty to use in Capital Spending and made sure we had proper schools/hospitals, proper roads, proper public transport etc etc rather than pushing through benchmarking etc
 

Fergalino

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Did you not see FG running an effective economy with Labour in 97 and not throwing money around in the electoral campaign??

Did you not see FG opposing benchmarking, complaining about Govt waste, economy being run on property etc etc???

Simple solution to the problem would to have had someone with a brain realise that making long term current spending promises based on short term capital income streams would have avoided nearly all our problems....

We should have used the large income streams from Stamp Duty to use in Capital Spending and made sure we had proper schools/hospitals, proper roads, proper public transport etc etc rather than pushing through benchmarking etc

You seem to be saying is that FG would have spent the money differently (on capital expenditure), but, nevertheless, woudl have spent the money. This would not have avoided the bubble. It would not have solved the problem of an overheating economy.


Look, the bubble was caused by excessive consumer demand (stoked by a sudden and significant increase in personal wealth), along with an increased supply of money (due to the ability of our banks to get financing outside Ireland). So, with all this extra money floating around, we had enormous inflation, mainly concentrated in the one good that could not be imported (property).

There are only two ways of reducing demand in an economy - either increase interest rates or run a fiscal suplus. The first option was not there. So we should have run a surplus. True, we should have spent money on infrastructure (roads, schools, hospitals ...) rather than benchmarking. But, we should only have spent on infrastructure what the supply capcity of this country could have taken without pushing up prices in those sectors that supplied that infrastructure. Once that amount was spent, we should simply have invested the money outside Ireland (through an NTMA for all citizens). I doubt that we could have spent more on infrastructure than we were spending without driving up costs in those areas. We were already importing thousands of contruction workers to try to meet deamnd in those areas.

No, the real answer would have been a fiscal surplus, which I saw no party advocating. We should have been taking 10 Billion or so OUT of the economy per year. Instread of having a national pension fund of +/- 15 billion to fund retirement pensions of civil servants, you would have had a national fund of 100 billion. Which woudl be very handy just now to increase demand.

The above, combined with proper regulation of the banks, would have priked the bubble at source. But, hoestly, would the Irish electorate have elected a party that proposed such measures at the time...
 
Last edited:

CptSternn

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The above, combined with proper regulation of the banks, would have priked the bubble at source. But, hoestly, would the Irish electorate have elected a party that proposed such measures at the time...
+1

People don't like to change horses in mid-race. No one wanted to change the government as long as they were raking in the dosh sure.
 

Padraigin

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Some things are part of the normal ebb and flow of economies.

The overbult commercial properties that burst the real estate bubble is a normal thing. The fact that Ireland was going to be negatively affected by a global economic downturn in 2008 was unavoidable. Having the Irish economy is an economic downturn as a result fo these normal economic pressures is to be expected.

However, several things turned a normal economic downturn is a flaming economic catastrophe.

1. Banks who failed to act like real banks. Real banks do not make crazy loans that are not supported by solid colateral. Real banks pursue those who default on big loans to the ends of the earth. They get judgments and foreclose on personal assets. Senior bank managers look carefully at big loans and the minute one goes bad, no more loans get made until the banks balance sheets are healthy again. Bank auditors scrutinize lending practices, accounting practices, and look hard at value of the collateral supporting the loans. No banks get into the deep financial trouble that Ireland's banks did without a whole lot of people not doing their jobs properly.

2. Anglo was the one that toppled the whole banking sector, however. Its problems were systemic and its debts are almost impossible to explain under any normal business model. Something really, really crazy was going on at Anglo. That bank should be investigated throroughly. Anticipate criminal charges.

3. The bank guarantee to investing bond holders was not the straw that broke the camel's back but simply the battering ram that broke the Irish monetary system. That kind of blank check lunacy would have turned Saudi Arabia into a bankrupt nation. It encouraged investors to throw money down a rat hole, knowing that the idiot Irish government (the Irish taxpayers) would pay them no matter how ridiculous the investment. As more and more investments became risky due to the global economic crisis, throwing money down the rat hole of Irish mismangaged banks became "safe" due to the idiotic 'guarantee" of the Irish government. How and why that guarantee was made is something else to be investigated. Links between the Irish govenrment and Anglo should be anticipated.

4. The failure of the so-called opposition parties and the Irish news media to expose any of these issues or to investigate exactly what was going on was another contributing factor. Whatever happened to investigative journalism in Ireland? Whatever happened to asking really hard questions of government ministers and following up to see if what was said could be substantiated or verified? Willful ignorance in those who are supposed to be watch dogs of the public interest amounts to culpability.
 

Mitsui2

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Nov 13, 2009
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32,380
Some things are part of the normal ebb and flow of economies.

The overbult commercial properties that burst the real estate bubble is a normal thing. The fact that Ireland was going to be negatively affected by a global economic downturn in 2008 was unavoidable. Having the Irish economy is an economic downturn as a result fo these normal economic pressures is to be expected.

However, several things turned a normal economic downturn is a flaming economic catastrophe.

1. Banks who failed to act like real banks. Real banks do not make crazy loans that are not supported by solid colateral. Real banks pursue those who default on big loans to the ends of the earth. They get judgments and foreclose on personal assets. Senior bank managers look carefully at big loans and the minute one goes bad, no more loans get made until the banks balance sheets are healthy again. Bank auditors scrutinize lending practices, accounting practices, and look hard at value of the collateral supporting the loans. No banks get into the deep financial trouble that Ireland's banks did without a whole lot of people not doing their jobs properly.

2. Anglo was the one that toppled the whole banking sector, however. Its problems were systemic and its debts are almost impossible to explain under any normal business model. Something really, really crazy was going on at Anglo. That bank should be investigated throroughly. Anticipate criminal charges.

3. The bank guarantee to investing bond holders was not the straw that broke the camel's back but simply the battering ram that broke the Irish monetary system. That kind of blank check lunacy would have turned Saudi Arabia into a bankrupt nation. It encouraged investors to throw money down a rat hole, knowing that the idiot Irish government (the Irish taxpayers) would pay them no matter how ridiculous the investment. As more and more investments became risky due to the global economic crisis, throwing money down the rat hole of Irish mismangaged banks became "safe" due to the idiotic 'guarantee" of the Irish government. How and why that guarantee was made is something else to be investigated. Links between the Irish govenrment and Anglo should be anticipated.

4. The failure of the so-called opposition parties and the Irish news media to expose any of these issues or to investigate exactly what was going on was another contributing factor. Whatever happened to investigative journalism in Ireland? Whatever happened to asking really hard questions of government ministers and following up to see if what was said could be substantiated or verified? Willful ignorance in those who are supposed to be watch dogs of the public interest amounts to culpability.
An eminently sensible post except, I'm afraid, for

Whatever happened to investigative journalism in Ireland?
The answer to that, I fear, is that investigative journalism in Ireland continued pretty much as it had done since the inception of the State.
 

jcdf

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Hindsight makes us all wise.

Foresight makes us wealthy.

A little less of the former and more of the later would do us good.
 

He3

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Messages
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Listening to both sides before deciding big stuff

Listening to those who suggested that joining the Euro might not be an unalloyed success, and who explained why, might have been useful.
 

Fergalino

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Joined
Jun 13, 2008
Messages
108
Some things are part of the normal ebb and flow of economies.

The overbult commercial properties that burst the real estate bubble is a normal thing. The fact that Ireland was going to be negatively affected by a global economic downturn in 2008 was unavoidable. Having the Irish economy is an economic downturn as a result fo these normal economic pressures is to be expected.

However, several things turned a normal economic downturn is a flaming economic catastrophe.

1. Banks who failed to act like real banks. Real banks do not make crazy loans that are not supported by solid colateral. Real banks pursue those who default on big loans to the ends of the earth. They get judgments and foreclose on personal assets. Senior bank managers look carefully at big loans and the minute one goes bad, no more loans get made until the banks balance sheets are healthy again. Bank auditors scrutinize lending practices, accounting practices, and look hard at value of the collateral supporting the loans. No banks get into the deep financial trouble that Ireland's banks did without a whole lot of people not doing their jobs properly.

2. Anglo was the one that toppled the whole banking sector, however. Its problems were systemic and its debts are almost impossible to explain under any normal business model. Something really, really crazy was going on at Anglo. That bank should be investigated throroughly. Anticipate criminal charges.

3. The bank guarantee to investing bond holders was not the straw that broke the camel's back but simply the battering ram that broke the Irish monetary system. That kind of blank check lunacy would have turned Saudi Arabia into a bankrupt nation. It encouraged investors to throw money down a rat hole, knowing that the idiot Irish government (the Irish taxpayers) would pay them no matter how ridiculous the investment. As more and more investments became risky due to the global economic crisis, throwing money down the rat hole of Irish mismangaged banks became "safe" due to the idiotic 'guarantee" of the Irish government. How and why that guarantee was made is something else to be investigated. Links between the Irish govenrment and Anglo should be anticipated.

4. The failure of the so-called opposition parties and the Irish news media to expose any of these issues or to investigate exactly what was going on was another contributing factor. Whatever happened to investigative journalism in Ireland? Whatever happened to asking really hard questions of government ministers and following up to see if what was said could be substantiated or verified? Willful ignorance in those who are supposed to be watch dogs of the public interest amounts to culpability.
Failing to regulate the banks properly was an important part in causing the bubble to grow quickly and grow big. But the bubble also needed strong internal demand to inflate it. That demand needed to be taken out of the economy if we were to avoid the bubble. The only ways to do that are 1) increase interest rates or 2) run a fiscal surplus (tax more/spend less). We couldn't do the former and none of our political parties wanted to do the latter (because they were not aware of the issue even though they should have been and, even if they were aware of the need to run a surplus, the electorate would have punished them if they had even tried to run a fiscal surplus).

I suppose the hard part of all of this (to accept) is that it is not only the bankers who are to blame, it is all our politicians and all who vote for them (i.e. us).
 


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