Category — General

Following on from this article, as I argued on The Last Word last night, the question is not if, but when, the big banks are bailed out by the State. The operative question is where the money comes from, how long it is lent for, what conditions are attached to the money, and what practices the banks currently operate will change in response to this bailout. 

Will anyone’s head roll? I highly doubt it. Will the government appoint a soft form of oversight to represent taxpayers’ interest on the board? Most likely, in the form of retired or senior civil servants. Will the government purchase equity in the banks, diluting the shares already held by shareholders, or will there be a straight transfer of funds? And where is this money coming from? The National Pension Reserve?

These details matter. The devil is in the dynamic though. We are talking about the partial nationalisation of the State’s major banks, which implies the State will have to take over some of the toxic debt on the banks’ balance sheets. The taxpayer is exposed to further risk. What will be the return on this investment? 

All of these questions and more must be answered by the banks, and their new owners, before moving forward in a coherent and credible manner. 

The world’s financial governance structures are in need of a comprehensive overhaul. The G20 ministers met over the weekend, and produced this document, which says, in effect, we’ll try really, really hard to do something, m’kay? You find steaming phrases like this:

We will: Continue our vigorous efforts and take whatever further actions are necessary to stabilize the financial system

The short term todo list is vague, vanilla stuff, sadly, with no real changes mooted other than inclusiveness with developing nations, but that was a given (remember, this used to be the G7. How long before it’s the G168?). The core recommendations are to do whatever we are doing right now, but harder, faster, and, eh, harder. And faster, ’cause, like, this is important, yeah?

Watch for the next G20 meeting at the end of April—will the language have changed? Will the tone be substantially altered? Will there be the sweeping reforms people like Robert Shiller, Paul Krugman, and others have called for? 

Or will we just wait for Obama to save us?

Related articles

• G-20 Drafts Blueprint for Repair
• G-20 declaration on financial crisis
• Need for more fiscal stimulus
• IMF Meets In Washington
• EU Billion Update
• Update on the EU Food Facility: Chasing the €1 Billion
• Bailout Plan, Redux

What’s the answer? Huge fiscal stimulus, to fill the hole. More aggressive GSE lending. Maybe a “pre-commitment” by the Fed to keep rates low for an extended period — that’s a more genteel version of my “credibly promise to be irresponsible.” And maybe large-scale purchases of risky assets.

Macro policy in a liquidity trap (wonkish) - Paul Krugman Blog - NYTimes.com

n

“

Link

I’m not the world’s biggest rap fan, but this is brilliant.

Image of Gerard O'Neill

Gerard thinks there will be another budget in early-to-mid 2009 to cope with the worsening economic downturn. I’ve got to agree with him, and I’ve got to say he’s mostly right. Essentially the pension provisions for public sector workers are very high and represent a significant premium over those benefits enjoyed by workers in the private sector. Gerard makes three recommendations for the Minister:

Freeze the pensions of all public sector retirees so that we no longer have the insane situation of pensioners getting ‘productivity’ rises because they’ve been paid to those now doing the jobs they used to do.

For those public sector workers over 50 announce that their pension will be tied to their income upon retirement, but not rise thereafter (still a form of defined benefit pension).

For all public sector workers under 50 announce that their pensions will be defined contribution pensions, tied to the performance of the national pensions reserve fund.

Ensure that the pension contributions of all public sector workers are adequate to meet projected requirements.

I have to agree with the first two suggestions, nod slightly for the third, and disagree with the fourth—the contributions are already adequate from individual workers. What is not adequate is the provision from the government. 

I think Gerard is getting the cart before the horse here a little bit.

First, the `Public Sector’ doesn’t exist: you can’t say a clerical worker in the Department of Transport faces the same economic choices or incentives as a Consultant Pediatrician, and you can’t say either of them faces the same economic reality. Both will retire on nice pensions, yes, but really, we’re talking chalk and cheese. ‘The Public Sector’ is a rhetorical device to slam workers with state-protected jobs on relatively fixed incomes with good pension entitlements. But we never disaggregate just who the ‘Sector’ actually encompasses, and who might deserve those provisions and who might not (academics probably do deserve this tenure, academic administrators don’t. Hospital administrators do, hospital consultants don’t. I might explain that in a later post). Gerard is right that stripping some of these workers of their permanency would result in a riot, as it would take away the main benefit the job has—the guarantee of its existence in ten years’ time. No private sector worker can have that assurance. There are many workers in the Public Sector whose productivity is abysmally low. There are also workers whose productivity dwarfs that of their private sector counterparts, with no corresponding increase in salary as compensation. So we must be careful when attempting to make a distinction. 

Second, why shouldn’t every worker in the State automatically have a defined pension provision the moment they begin work at 22? The pension could be managed in any number of ways, some of which Gerard suggest, but the point would be these workers would save for their future selves in retirements. Set the benefits according to the market conditions, and work off the assumption that every worker will retire at 70 or 75 rather than 65. Why endure a `race to the bottom’ between stripping the public sector of their pension entitlements and disabusing the private sector of taking more out? In a time of increasing personal and governmental fiscal austerity, surely we should be saving more, not less, and surely we should be providing for the old ages of both the private and public sector worker equally? 

Click here to download the papers and presentations from this month’s Swan Group conference, `Ireland’s Knowledge Economy in the 21st Century: Educational Perspectives’ on the 8th October 2008.

Greg Mankiw is a Harvard professor, textbook writer, and a good economist, though I don’t believe the New Keynesian approach he espouses, this is just really, really off.

Read the article in its entirety, it’s worth it.

We had thought that the nationalization of the banks would bring capitalism to its knees, but instead, the capitalists were craftily using it to privatize the government.

Barbara’s Blog: Report from the Socialist International Conspiracy

HT, Cosma Shalizi.

• @RobinBanks Have another go tomorrow. Bugs in the system dude. #
• Fields Medalist Terry Tao on why we should listen to polls when they are taken. Reading this will make you smarter.http://tinyurl.com/5hk9q8 #

Joan Didion cuts to the point of the US election: it is election by sound bite, election by media, and election by Saturday Night Live. Anyone who saw Palin on the show should by now know McCain will most likely be the next US president, trailing or not, simply because history repeats itself. I’d love to be wrong on this, but I don’t think so this time. Read Didion’s article to find out why.

Election by sound bite | Salon

The Limerick Technology Fair is on at Thomond Park soon, click the link below to find out more about it.

Limerick Technology Fair

• @gerardoneill Double Crap. Keynes doesn’t seem to be helping us out of this mess. Expectations should adjust but nope, still in meltdown. #
• Brouwers theorem and the non retraction theorem are the same thing for n=2. Fuckity fuck. Afternoon wasted. http://tinyurl.com/3s2ps2 #
• @RobinBanks #
• Steve’s 3 word review of goodbody report: Piece.Of.Shite. http://tinyurl.com/5jckef. (pwd reqd) #
• The report does makes sense suggesting the idea of a Mini Budget half way through the year if things get really bad. Not a new idea though. #
• Flying to UK at 4.30am. Dicking around with Linux at 10.30pm. Iz I a geek? #

• @gerardoneill Double Crap. Keynes doesn’t seem to be helping us out of this mess. Expectations should adjust but nope, still in meltdown. #
• Brouwers theorem and the non retraction theorem are the same thing for n=2. Fuckity fuck. Afternoon wasted. http://tinyurl.com/3s2ps2 #
• @RobinBanks #
• Steve’s 3 word review of goodbody report: Piece.Of.Shite. http://tinyurl.com/5jckef. (pwd reqd) #
• The report does makes sense suggesting the idea of a Mini Budget half way through the year if things get really bad. Not a new idea though. #
• Flying to UK at 4.30am. Dicking around with Linux at 10.30pm. Iz I a geek? #

• @gerardoneill Double Crap. Keynes doesn’t seem to be helping us out of this mess. Expectations should adjust but nope, still in meltdown. #
• Brouwers theorem and the non retraction theorem are the same thing for n=2. Fuckity fuck. Afternoon wasted. http://tinyurl.com/3s2ps2 #
• @RobinBanks #
• Steve’s 3 word review of goodbody report: Piece.Of.Shite. http://tinyurl.com/5jckef. (pwd reqd) #
• The report does makes sense suggesting the idea of a Mini Budget half way through the year if things get really bad. Not a new idea though. #
• Flying to UK at 4.30am. Dicking around with Linux at 10.30pm. Iz I a geek? #

• Central Bank funding programs not working. Crap. http://tinyurl.com/3wvk3s #

A Corbally man has been thrust into the media spotlight this week after he made the decision to raffle his house next month.Tony Browne intends to sell 800 tickets at €500 each to be in with a chance to win his Carrabullawn house. He purchased his house which cost €352,000 last year but lost his job recently and is now unable to make mortgage repayments.He told the Limerick Leader today, “I’ll definitely sell them all. I’d say I could be starting a trend; there’ll be more raffling houses after me as no one can sell them”Speaking on local radio Thursday morning Mr Brown said he plans to use some of the money raised to emigrate overseas.

link

• @gerardoneill You’re having a laugh! Next it’ll be those filthy shopping mommies spending their unpatriotic sponds in NYC! #
• Banks get government representation on their boards. How useful is this really? #
• Wait until the banks revalue their assets in December. Some of those assets were houses, worth <40% in December 2007. It’ll suck, bigtime. #
• Consumer spending down in the US, Europe, and Ireland. Dow down 7%. Pretty sure real shocks won’t outweigh financialones, but still. Scary. #
• @RobinBanks Starts end of this week, ends end of next week. Check out http://tinyurl.com/4w5rhx for details. #

• @gerardoneill You’re having a laugh! Next it’ll be those filthy shopping mommies spending their unpatriotic sponds in NYC! #
• Banks get government representation on their boards. How useful is this really? #
• Wait until the banks revalue their assets in December. Some of those assets were houses, worth <40% in December 2007. It’ll suck, bigtime. #
• Consumer spending down in the US, Europe, and Ireland. Dow down 7%. Pretty sure real shocks won’t outweigh financialones, but still. Scary. #
• @RobinBanks Starts end of this week, ends end of next week. Check out http://tinyurl.com/4w5rhx for details. #