Monday, May 25, 2009

Paper never refused ink - again!

Writing in today's Irish Times on the pursuit of developer Paddy Kelly by ACC bank, Business Editor John McManus welcomes it as the start of the process which, he predicts, will result in the liquidation of the portfolios of the beleaguered developers.

This process, he believes, will also inevitably bankrupt AIB & BOI as entire property portfolios are dumped on the market. He describes this outcome as “a truly awful mess” but concludes his article thus: “If it takes the precipitous collapse of Paddy Kelly to force everybody to jump into the unknown and get on with cleaning up the mess, then it is to be welcomed.”

At a recent seminar in Galway, economist Dr Alan Ahearne suggested that there are two types of economist – “those who know they don’t know, and those who don’t know they don’t know”. This might be applied with equal validity to journalists and media commentators.

On 26th January 2009, the same John McManus concluded an article on the banks with the following suggestion: “The solution may well be to split the difference – to nationalise Bank of Ireland and recapitalise AIB.” Recent events suggest that, were he writing that article today, he might reverse the prescription.

Academics and journalists enjoy the great luxury of having no authority to implement their proposed solutions nor any responsibility if they turn out be disastrously mistaken in their analysis.

A massive fire-sale of extensive property portfolios, in a lifeless marketplace and with little bank funding available for potential purchasers, seems like the least intelligent proposal for sorting out the mess I’ve heard in a while.

However, Mr McManus or the Irish Times won’t have to pick up the pieces and the ensuing financial chaos should provide him with copy for years to come.

Footnote: I emailed the above to John McManus and got the following response:
Thanks for your mail

With regard to Bank of Ireland and AIB, the point I was making is that the arguments between nationalisation and recapitalisation are quite finely balanced, but if you taker the view that trying to limit the costs to the Exchequer is a reasonable basis for policy, then doing a bit of both makes some sense. And it still looks like the possible outcome. The piece was not an analysis of the merits of one versus the other. Perhaps I should have said “recapitalise one and nationalise the other”. Several people have raised it with me.

As for today’s article, again perhaps I did not explain myself to well. The point I was making is that the system is paralysed by fear and something like the collapse into insolvency of one of the big developers could prove to be the catalysts to make the banks, Government and everyone else get on with trying to implement the proposed solution (the creation of Nama) because it suddenly starts to look a lot more attractive than the scenario you outline in your email

John McManus
Business Editor
The Irish Times

So he didn't really mean to say what he said in the article. He actually meant to say that they better get on with NAMA before the whole house of cards collapses. Incidentally, "the scenario" I outlined in my email was precisely the scenario he outlined and welcomed in his article.

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