Open Dissent (21 page)
Authors: Mike Soden
Extraordinarily, today, the majority of Russians would acknowledge that almost all in their community are better off under the present system than they could remember being under the old Soviet system.
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A once proud socialist state now competes at the highest levels of capitalism with its own model of private ownership and open markets. The local observer would comment that it might not have been the easiest of transitions but no major structural reform to a society comes easily. Are we as a nation evolving in the opposite direction to the Russians in our search for a fairer society? Before dismissing capitalism out of hand, perhaps those supporting socialism should take time out to experience
a country where it is practised, or where it had been practised.
Any Irish political party would be tested today to come up with a political doctrine to reflect the values of the country and the mood that currently prevails. However, I believe that we need go no further than France to find a set of principles that would be, broadly speaking, acceptable to the Irish electorate: Liberté, Egalité, Fraternité. These principles had their origins in the French Revolution and were more formally adopted into French society at the end of the nineteenth century. But what does this motto represent that our Constitution doesn't?
Liberté
â in France the general interpretation of Liberté consists of being able to do anything that does not harm others. Thus, the exercise of the natural rights of every man and woman has no bounds other than those that guarantee all other members of society the enjoyment of these same rights.
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Egalité
â the law must be the same for all, whether it protects or punishes. All citizens should be equally eligible for high offices, public positions and employment according to their ability, virtues or talents, without other distinction.
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This definition faces cronyism head-on and looks to a meritocracy as a preferred right.
Fraternité
or brotherhood refers to moral obligations rather than rights, links rather than statutes, harmony rather than
contract and community rather than individuality.
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As time passes and we begin to see an end to the crisis, we should reflect on what benefits we have taken out of this conundrum. If we simply address each problem as it arises without looking for positive outcomes for our society as a whole then we will do an injustice to ourselves through wasting an opportunity for change and progress.
Ireland needs a socio-political facelift that reflects a society that changed greatly in the face of economic blessings and has since experienced the jolt of an economic crisis. The Government has given to the electorate with one hand and are now forced to take back with the other, which is destroying trust and confidence, essential for a united approach to our recovery. Whatever risks need to be taken and managed, perhaps it would be opportune for all of us â Government, bankers, developers, public servants and private sector workers â to take on board the principles of Liberté, Egalité and Fraternité.
PPENDIX
Figure 1
: Lending to the Private Sector and Deposits of Irish
Banks as a Percentage of GNP, 1992 to 2009
Source: Morgan Kelly, âThe Irish Credit Bubble', p. 7.
Figure 2
: Average Irish Economy-Wide Wage
Source: <
http://www.rte.ie/business
>; Economic and Social Research Institute (ESRI).
Table 1
: Overview of Exposures to Portugal, Italy, Greece and Spain (âthe PIGS'), December 2009
| Adjusted Exposure (USD'bn) | Total EU Banks | Austria | Belgium | France | Germany | Ireland | Italy | Nether lands | Portugal | Spain | Sweden | Switzer land | UK |
| Greece | 152.6 | 6.1 | 7.3 | 22.7 | 41.7 | 8.3 | 8.2 | 11.5 | 1.2 | 1.2 | 1.0 | 62.6 | 12.0 |
| Portugal | 144.2 | 2.6 | 8.6 | 33.7 | 42.6 | 5.6 | 6.7 | 11.8 | 0.0 | 0.4 | 0.5 | 3.6 | 24.5 |
| Spain | 582.4 | 6.5 | 30.2 | 155.9 | 102.6 | 29.2 | 28.4 | 116.7 | 15.6 | 0.0 | 5.6 | 13.2 | 60.8 |
| Italy | 582.6 | 13.4 | 45.4 | 152.7 | 103.2 | 45.4 | 0.0 | 75.4 | 5.3 | 35.1 | 3.5 | 20.7 | 73.5 |
| Total | 1461.7 | 30.6 | 100.7 | 305.1 | 440.0 | 86.5 | 43.4 | 214.5 | 22.3 | 39.8 | 10.5 | 100.1 | 170.9 |
Figures from the Bank for International Settlements (BIS), adjusted by Morgan Stanley International Research to include such claims as subsidiaries and other corporate loans.
LOSSARY
| AAA rating | The best-known scale for measuring debt quality is that used by Standard & Poor's which uses AAA for the highest rated debts and AA, A, BBB and so on for debt of descending credit quality. |
| Bank holding company | A company that controls one or more banks. |
| Basis point | A unit of measure used in finance to describe the percentage change in the value or rate of a financial instrument; it usually refers to changes in interest rates and bond yields. |
| Bond | A certificate of public or private debt that is bought and sold. |
| Bond rating | A rating company's evaluation of the probability that a particular bond issue will default. |
| Bull market | A financial market in which prices of securities are rising or expected to rise. |
| Capital ratio | The percentage of a bank's capital to its riskweighted assets. |
| Collateralized debt obligation (CDO) | A type of structured asset-backed security, the value and payments of which are derived from a portfolio of fixed-income underlying assets. |
| Credit default swap (CDS) | A swap designed to transfer the credit exposure of fixed-income products bet ween parties. |
| Debt-to-GDP ratio | This is commonly used to assess a government's finances by dividing government debt by GDP. Another way of using it is to divide total debt by GDP in order to establish a nation's finance as a whole. |
| Deleveraging | A process that is employed by financial institutions, businesses and governments to reduce the amount of financial leverage currently in place. |
| Derivatives | Financial products that derive their value from another commodity, security or other financial instrument. Also called âswaps'. |
| Due diligence | An investigation of a potential investment, involving reasonable care to ensure all matters are in order before entering into the transaction. |
| Equity | The value of a business or property above any mortgage or liability. |
| Forward contract | A non-standardised agreement bet ween two parties to buy or sell an asset at a cert ain future time at a price settled on today. |
| GDP | Gross domestic product: the total market values of goods and services produced within a nation's borders during a given period. |
| GNP | Gross national product: the total market values of goods and services produced by a nation within a given time period, plus income earned by its citizens abroad, minus income earned by foreigners in the country. |
| Hedge funds | Private investment partnerships open to institutions and individuals. These funds pursue returns through a number of alternative investment strategies, often not allowed in mutual funds or other funds. |
| Hedging | A strategy designed to reduce investment risk by buying or selling commodity futures as a protection against loss due to price fluctuation. |
| Investment bank | A financial institution that assists corporations and governments in raising capital by acting as the agent in the issuance of securities. |
| Leverage | The use of credit to enhance one's speculative capacity. |
| Liquidity | Assets that are easily convertible into cash. |
| Loan-to-deposit ratio | Ratio that assesses a bank's liquidity by dividing the bank's total loans by its total deposits. |
| Loan-to-value ratio | Assessment ratio that lenders use before approving a mortgage. The ratio considers the mortgage amount against the value of the property. |
| Market maker (jobber) | A broker-dealer company that accepts the risk of holding a certain num ber of shares of a particular security in order to facilitate trading in that security. |
| Marking to market | Settling or reconciling changes in the value of futures contracts (agreements to buy or sell assets) on a daily basis. |
| Private equity fund | A pooled investment vehicle used for making investments in various equity (and to a lesser extent debt) securities according to an investment strategy associated with private equity. |
| Retail bank | A financial institution that deals with consumers directly, rather than with corporations or other banks. |
| SME | Small and medium enterprise: business whose turnover and number of staff are below certain limits. |
| Structured investment vehicle (SIV) | A type of structured credit product, popular until the crash of 2008. |
| Subprime debt | Debt that results from a particularly risky category of consumer loans; typically sold in a separate market from prime loans. |
| Swaps | See âderivatives'. |
| TARP | Troubled Asset Relief Program: set up by the US Government to purchase assets and equity from financial institutions to strengthen its financial sector after the crisis of 2008. |
OTES
1.
    Morgan Kelly (2009), âThe Irish Credit Bubble', University College Dublin (UCD) Centre for Economic Research Working Paper Series, UCD School of Economics.
2.
    Construction Industry Federation (CIF), internal paper.
3.
    From a personal interview.
4.
    Kevin Cashman (2003), âAwakening Authenticity',
Executive Excellence
, May, available at <
http://www.leaderpresence.com
>, quoted in Gayle C. Avery (2006),
Leadership for Sustainable Futures: Achieving Success in a Competitive World
, Cheltenham: Edward Elgar Publishing Ltd.
5.
    Figures taken from <
http://en.wikipedia.org/wiki/Great_Depression
>.
6.
   Â
Ibid
.
7.
   Â
Ibid
.
8.
    Hank Paulson (2010),
On the Brink: Inside the Race to Stop the Collapse of the Global Financial System
, London: Headline Publishing Group.
