The Cedar Lounge Revolution

Financial Regulator’s Consumer Consultative Panel strongly criticises Irish banks over interest rates. That’s okay though. The Consumer Consultative Panel will soon be history… September 23, 2010

One might think that ears would be burning in certain financial circles on foot of the following:

Irish consumers are being “mercilessly fleeced” through paying higher interest rates in order to rebuild the balance sheets of the banks, according to the Financial Regulator’s consumer panel.

And what of this?

Householders who do not have tracker mortgages are being treated as “second-class citizens”, forced to pick up a disproportionate share of bank rescue costs, says a report by the Government-appointed watchdog.


There’s also this:


It says the “unacceptable” pace of investigation into how the financial system in Ireland came close to collapse “leaves a lot to be desired”.


And last but not least, harsh words for the…er… Regulator:

There is a welcome for the extension of the deposit guarantee scheme to December, but concern is expressed about what will happen afterwards. The report accuses the regulator of passivity on the issue and of failing to properly understand its role in protecting the consumer.

An Irish regulator that doesn’t understand its role – never!

Still, those ears are probably cooling rapidly:

The panel, which is chaired by lawyer Raymond O’Rourke, is facing abolition under legislation currently before the Oireachtas, although a new group is to be set up to advise the Central Bank on consumer issues.

Hooray! Or as Private Eye likes to say, doubles all round.
………………….

Interesting composition of the CCP. It includes the ever excellent Kathleen Barrington of the Sunday Business Post, former Senator Prof Noel Mulcahy, Chairman for Financial Services Innovation Sean O’Sullivan and accountant John Maher and is chaired by Raymond O’Rourke.

And some of it’s other recommendations are pretty good too, even if they are positioned within the structures of the currently prevailing economic system (here’s an article by O’Rourke in the Irish Times).

The latest report looks at developments within the financial services sector in the past year. It welcomes many of the changes made over the year, including the appointment of a regulator from overseas and the setting up of investigations into the financial crisis.

However, the panel says it is still concerned about where the consumer fits into the new framework. With less competition in the banking market, the consumer could be subjected to a plethora of additional charges of “dubious legality”.

It says remuneration policies in the banks must not allow or encourage excessive risk-taking in the future. If financial institutions are to offer staff any bonuses, these should take the form of shares that cannot be sold for at least five years.

Leadership… redux… September 23, 2010

Dr. Eoin O’Malley of the School of Law and Government in DCU is musing in the Sunday Business Post about ‘leadership’ on foot of the Cowen interview last week. Consider the following:

To go by Liveline and the capital’s taxi drivers, people in the country crave ‘leadership’ and obviously feel that Cowen is not delivering.

Do they though? There’s a counter-argument that it’s not so much leadership as a sense that the policies being pursued by the government are wrong – even if on the details that latter sentiment is a bit vague. Away from the media although I’ve heard some thoughts about Cowen’s leadership qualities, it’s not those so much as the actual policies, NAMA, CDPs, mortgages and so on, which exercise people.

And it’s difficult to see how a well crafted or well delivered speech could fundamentally overturn that. It’s possible that early in the crisis if, rather than depending upon proxies and attacks on various sectors there had been a genuine effort to ask people to pull together that might have been a feasible tactic. But now? Too much water under the bridge, too many astounding numbers, too much time has passed.

O’Malley notes that the traditional view of the leader as the Great Man (intriguing how he doesn’t think to mention the Great Woman – Margaret Thatcher came to power a third of a century ago if we’re looking for examples – or contextualise the potential for leadership outside of a male role. Irritating too actually now I think about it).

This treatment of leaders is associated with what we often think of as the Great Man. In this view of leadership, some people with certain traits will inevitably rise to the top.

These people are intelligent, articulate, brave and even physically powerful.

These heroes emerge to lead a nation or organisation.

With Great Men, followers should be thankful for having such a leader and will readily forgive him any faults, such as an excessive taste for drink, money or women.

And he notes that that is not a viable route in the 21st century.

The Great Man idea is problematic because it sees leaders detached from the needs of followers. In any case, Cowen lives in the 21st century where even Great Men don’t get the deference they might think they deserve.

And yet O’Malley still seems to hanker after such ‘leadership’. Consider the following:

He’s infused with civil service-speak.

Top civil servants are generally bright and hardworking, but they’re hardly known for innovative thinking.

This is not where new ideas or leaders are going to come from. But Ireland’s political system isn’t particularly suited to producing radical or new political leaders.

Hmmm… well, there’s that troubling little thing called democracy. But that too is a problem…

The last three Taoisigh -Cowen, Ahern and Bruton – were all first elected to the Dáil in their 20s. Perhaps only Albert Reynolds and Garret FitzGerald could claim to have had careers outside politics. It is virtually impossible for someone with a successful career outside politics to move into politics in a senior position in the way that many US presidents have.

But the obvious response to that is whether FitzGerald or Reynolds were any much better at leading the country than their successors? Hard to argue that they were. And the same caveat is applicable to US presidents. Does a business background or not, as in the cases of the more recent George Bush and Bill Clinton, respectively, guarantee anything very much at all? Indeed what careers outside politics are best suited towards optimising political/policy outcomes? And he continues…

If the public craves leadership in times of change, it is unlikely to get it when we can only choose from a small number of people who have served long apprenticeships in the Dáil.

This might seem a bit contradictory, given that he accepts traditional leadership doesn’t function in the way it did. But yet he’s given to aligning with the ‘leadership’ trope as if that would assist us.

But it wasn’t leadership that was the problem in the 1990s or 2000s. It was almost the opposite, an inability to deal with fairly simple processes that required a strong regulatory framework and a more rational tax system. That’s in some ways dull stuff, but the sort of thing that Cowen, and Ahern, and indeed McCreevy were all well suited to. But what happened instead was that they agreed with a prevailing consensus that regulation should be feather light, that taxation could be cut in a virtuous cycle that would continue to replenish public coffers in all and every event.

But now, now after everything that has come before – massive systemic policy failures – we’re all meant to believe that some ineffable quality of ‘leadership’ will convince us that despite the closing of community services, or cutting welfare or seeing the public sphere eviscerated to serve the needs of the private everything is okay really and all will someday be fine.

The condescension of that view (and in fairness to O’Malley he articulates at least some of the contradictions and doesn’t wander down some of the byways others have taken in this sort of discussion) is remarkable.

No wonder the public isn’t convinced by any of the options on display. It’s not the people, Cowen seems like a nice enough person, Kenny likewise… it’s the bloody policies and beyond them the system they’re structured within.

A depressing thought or two on the economic situation… September 22, 2010

David McWilliams in the Sunday Business Post this last weekend made a point about the current problems with bond yields.

We simply do not have enough cash to pay for the banks and keep the welfare state going at the same time

It’s to his credit that he sees the latter as more important than the former. He continues:

This is because our revenue take has practically halved in three years. Investors also realise that there is a limit to which the government can tax the people before the people say ‘‘enough’’. Equally, the markets know that, the more you tax the people, the more the economy contracts.

Typically, when foreign investors give up on a government and refuse to buy the bonds of a country, the government turns to the local savers for frantic final funds.

The government is faced with the choice of going bust and not being able to pay the teacher or squeezing a final few hundred million out of the saving middle classes.

And McWilliams argues that then we start to see capital flight, not just large scale operators, but much more ordinary people.

Up until this point, the average working person – with a job – had reacted to the crisis by increasing his or her savings.

As the crisis became more severe and taxes and unemployment rose, people with jobs saved more.

This had the effect of contracting demand and, in the process, contracting the tax take.

And…

Now the average person with savings is worried that the state – which refuses to tax other wealth – will tax savings.

Equally, they are starting to realise that, if the government doesn’t have the cash to plug the hole in the banks, then the small depositors will be the last to find out what is going on.

As we have said earlier, depositors will surely be protected. But some may start to move cash out of the country, just in case.

Note his point about the state not taxing other wealth. That’s quite a thought, isn’t it? And so is this…

On the liability side of the national balance sheet is debt.

Unlike property values, the debts have not fallen. In fact, the cost of the debt is rising because the rate of interest on the debt is rising at a rate of at least 6.4 per cent per year.

So at both national and individual level we see a situation played out where debts increase, potentially far beyond the ability of either the nation or the individual to service them. As McWilliams puts it, ‘capital punishment for all’.

Let’s dovetail that with an editorial from last weekend in the SBP. It’s pretty depressing too.

However, handling the deeper public unease about the mess we find ourselves in is a challenge of an entirely different scale.

What appears missing, above all, is a sense of an appropriately urgent or comprehensive response to this situation.

And it continues:

Two years after the crisis broke, we are still fire-fighting, hoping that something will turn up to save us and not, it appears to the public, facing up to the extent of the crisis we are in.

Hmmmm… is that genuinely the case or is it more accurate to say that the costs of the banking sector recapitalisation have expanded far beyond their original scope?

This won’t be easy. But whoever is in government now has little choice but to follow a particular path.

We are spending more than we are raising in revenue, so the promised budget cuts must be delivered.

The challenge is to do so in away which kick-starts a reform process in the public service. If the new flexibilities promised as part of the Croke Park deal are not delivered, then the cuts to come will have a severe impact on service levels.

Meanwhile, the tax system must be reformed, with an underlying philosophy of avoiding massive extra taxes on income and instead looking to other areas for revenue.

There is scope for much argument about how to correct the budget deficit, but no question that it needs to be done, or that it is time to lay out a two to three-year programme of the main measures that will be used.

This will give the public a clear idea of what lies ahead -and perhaps assuage some fears -and could start to build credibility with the markets.

The job of pushing on with the restructuring of the banks must also be completed.

The goal, remember, is to have banks which are well capitalised and able to raise funds on international markets. None of our banks can yet meet these two criteria, even if Bank of Ireland is some way down the road.

The thing is, why are they, the SBP editorial writer(s), so concerned that any or all of these won’t be implemented? Is there any serious pushback on ‘promised budget cuts’ from in Fianna Fáil or the opposition? Their scepticism about Croke Park seems unduly sceptical, almost enthusiastically sceptical. And surely they don’t think that ‘the cuts to come’ won’t have a severe impact on service levels Croke Park or not.

They’re not wrong about tax reform, although what one wonders constitutes ‘massive’ in their view. An extra three per cent on the top rate?

And underneath it all is a basic problem. The general thrust of government policy over the past year and a half was designed, or so we were told, precisely to ‘build credibility with the markets’. But we see if anything the opposite has happened. And that suggests that it was never the revenue/expenditure issue was the problem, that within the parameters established by the government those could be dealt with (and the arguments being how one would do so in such a way as to minimise societal damage) but the banks and NAMA.

So for the SBP to criticise the very policies that it has championed and to appear to be moving close to a point of arguing that they’re insufficient is profoundly odd.

And yet, it seems that the SBP wants us to do everything when in truth as an economy and a society we can only do certain things at certain times, that as McWilliams puts it we have the choice between a welfare state and the banks (something by the way that the more polite sections of the left should be shouting from the rooftops, but unaccountably aren’t).

The SBP won’t own up to that, that the attempt to continue the former and simultaneously recapitalise the latter is too great, that it will prove to be impossible. So, in its own way, it too isn’t ‘facing up to the crisis’ or rather the actual ability of this society to endure that which is asked of it.

Those Independent TDs and Brian Cowen… September 22, 2010

You know this really is very interesting indeed, and worth more than the brief mention I made of it the other day – also it points up the swift dynamic of Irish politics at the moment, at least on the cosmetic level. There I was last week with a carefully crafted post (!) on the Fianna Fáil dissidents, but here come the non-FF Independents.

Dr. X rightly pointed out in comments that the Cowen escapade last week is typical of a media that has next to no interest in the effects of cuts on CDPs or social provision but is obsessed by anything that intersects with its own domain. But this news, that the Independents still signed up to the Coalition have drawn a line in the sand, is of much greater importance than the hot air about Cowen’s condition.

Independent TD Michael Lowry tonight said he would not continue to support the Government if Brian Cowen was replaced as Taoiseach.

In a statement, Mr Lowry it would be unfair and undemocratic of the Fianna Fáil to expect the Dáil to change Taoiseach three times in the lifespan of one term of Government.
“There should only be a change of Taoiseach after the public have the opportunity to vote in a General Election,” he said.

Earlier, fellow Independent Jackie Healy Rae also said he would not support the Government if Mr Cowen was to be replaced. He said he would not support “the new fellow”.

That’s interesting, that he would express something akin to institutional loyalty to the man who arrived after the guy he did the deal with. Whatever works, I guess. Interesting too that Lowry would express it as ‘three times’ in the lifetime of a Dáil, because he was one of those when in FG happy to see the 1994 arrival of the Rainbow Coalition.

But why is this important? Because it neatly delineates the parameters within which FF can operate. It’s intriguing to see how individuals and parties beyond FF are now mapping out the electoral environment. The Green Party requires the byelections to be held early next year otherwise they walk. Even the most optimistic observer would tend to the view that the Government will find it difficult to survive long after losing those byelections.

The Independents above now say that they won’t accept a change in leadership in Fianna Fáil, and in truth they’re absolutely correct. Two leaders accession without any democratic legitimation while entirely constitutional seems to cut against the grain of the Constitution. It’s fascinating to reflect how the media in all the excitement over the Lenihan leadership crawl have forgotten that small point. Or rather have ignored it. That’s part of the ‘try something, anything’ approach that the media have championed since the start of the economic crisis. And here we see it in all its tattered threadbare glory (although given that markets seem to run on sentiment as fact, why not? Problem is that it’s then impossible to argue that rational decisions, right or wrong, have much meaning in trying to assuage markets. Sometimes they do, sometimes – as we see now – they don’t. And taking the renewed enthusiasm for greater cuts at the next Budget how much would be enough, and how much must be lost?).

Healy-Rae’s intervention is telling because truth is like or loathe such Independents they rest on democratic legitimation at the local level and are acutely aware of same.

“The position is I’d prefer to have Cowen there. A slip up on radio is no very serious matter,” Mr Healy-Rae said when contacted this morning.

A former director of elections for Fianna Fail in Kerry South, Mr Healy-Rae also said he and Mr Lowry had made their deal with Bertie Ahern initially and Mr Cowen had honoured that.

“Forget about it (a change of leader) until there is a general election. .. I’d find it very difficult to deal with someone else,” Mr Healy-Rae said.

Or as Stephen Collins noted after Cowen and Lenihan had made their joint appearance to prove all was well between them:

Lowry’s intervention strengthened Cowen’s hand as it focused the minds of Fianna Fáil TDs on the near inevitability of a general election before Christmas if they decided to change leaders at this stage.

And what of this from Deputy Lowry, perhaps with more than half an eye to the situation six, twelve or twenty-four months down the line:

Mr Lowry also called for a national approach to the upcoming budget.

”The level of public confidence in political establishment is dangerously low,” he said.
“It is time to put country before party politics. We need to focus our attention and expertise on giving leadership, restoring confidence, chartering a way forward and giving hope to a disillusioned public.
“If we do not act in a co-coordinated and cohesive manner, outside agencies will dictate and impose a course of action on us.”

A ‘national approach’, ‘country before party politics’, ‘giving leadership’. Hmmm… what could that mean? [on a tangent, this 'outside' agencies stuff is entertaining. We're already having our economic policies dictated to, in a nice emollient fashion let it be admitted, by outside agencies] Hard to see any prospect at all of opposition input into the Budget. It’s not that on the big issues they diverge, but the small issues are the unique selling points that they seek to convince an electorate that they’re fit to govern. And they won’t hand away those any day soon. One wonders too if Fianna Fáíl would want to share that sort of responsibility, at least while there was even the slightest hint that the situation might come right, although given the way the markets are pounding us despite supposedly following the ‘correct’ course you’d wonder.

Actually, thinking about the Fianna Fáil dissidents again, isn’t it reasonable to suggest that the Coalition supporting Independents are in a not dissimilar place. There’s little in it for them in a government change now, and they will appeal strenuously – indeed, already are – to their ‘national’ outlook in supporting the government however cautiously. And both Lowry and Healy-Rae sit on strong, albeit not impervious in the latter case, local bases so their worries are not exactly existential.

From their point of view best to let the clock unwind as it will and see what happens. No wonder they’re not exactly embracing change (and they’re canny enough to know the risks of a newly emboldened FF, however unlikely that prospect, under a new leader).

But this is bad news for Fianna Fáíl, and perhaps more so the media, because in one fell swoop it cuts away all the musings on regime change that have occupied news columns over the past weekend. There’s few plaudits in caution, but as with the dissident FF TDs, it seems like the real dynamics are rather more prosaic than some would have us believe. For all the displacement activity that this represents, and surely in a political sense the stuff about Cowen being ousted plays a not disimilar role to the stuff about Cowen’s media appearances, in other words it distracts entirely from the real issues at hand, no change at the top for the lifetime of this government. And here’s another thought. It’s not FF that’s keeping things on the straight and narrow in terms of government survival, or rather continuity, but the GP and the Independents. That’s quite a turnaround.

Unless that is Fianna Fáíl has a collective nervous breakdown – perhaps on foot of the polls at the end of the month, and decides to cut and run under a new leader. It’s not implausible, but Brian Lenihan, whatever else he may seem, does not look to me like a man with an appetite to engage in that sort of a programme. Which leaves who else to run such a race?