Every once in a while, we get one of those page-one stories in The Wall Street Journal that remind you of the pre-Murdoch paper. It’s like bumping into an old friend or something.
Today’s Ireland leder is a good example of that. Its high-quality explanatory journalism that gives the American reader a very well written, sober examination of how Ireland’s crisis spiraled out of control to the point where it now faces what the paper calls an “existential threat.” You can hop into this story with no prior knowledge and come out with a good handle on what’s gone wrong in Ireland and why it matters.
Interviews with dozens of bank and government officials, and an examination of documents released by the Irish parliament, reveal that Ireland misjudged its crisis early on. Desperate to preserve the homegrown banking system, the government—blind to just how sour Irish loans had gone—yoked the fate of the nation to the fate of its banks.
Along the way, the government was hobbled by faulty information from outside advisers, from a trust-and-don’t-verify regulatory culture and from the troubled banks themselves.
The result has been calamitous: Bad loans at five once-sleepy banks have snowballed into an existential threat. The crisis has hammered Ireland’s economy and left taxpayers with a bill that will take a generation to pay. Irate Dubliners burned one big bank’s ex-boss in effigy and blocked the gates of parliament with a cement truck in protest. Bankers face criminal probes and a parliamentary inquiry.
Interviews with dozens of bank and government officials? Must have had the gestation of a llama. That’s one reason it’s so good. Enjoy.
— In warily noting the ascendance of DealBook at The New York Times the other day, I said that it was a good sign that they had hired ProPublica’s Jesse Eisinger to write a column. And indeed, he says this in his first piece, which is about how the Fed is treading dangerously by trying to reinflate the bubble:
In this column, I’ll be monitoring the financial markets to hold companies, executives and government officials accountable for their actions.
A main focus will be the spectacle of returning speculation. It’s commonplace to lament Wall Street’s lack of a historical memory. But there is something different at work. Professional investors have learned the lessons of the financial markets’ serial bubbles and learned them well.
The lesson is: When the next one comes, I’m going to get mine. I’ll just get out early this time.
Sounds good to me! And Eisinger gives us some example of the return of speculation:
Then there are something called B notes, bonds backed by commercial real estate loans. B-note holders are on the hook for the early losses if the loans go bad. They are as hot a commodity as everything else. Never mind that there’s a huge oversupply of commercial real estate in this country. Or that Wall Street just went through a disastrous episode for complex structured financial products of exactly this sort.
Without knowing a thing about finance, here’s how to tell it won’t work out well. Wall Street is the great master of the euphemism. The Street doesn’t call them junk bonds; they are “high yield.” Here, something isn’t just Triple A. It’s “Super Senior Triple A.” So when the best investment bankers can do is to dress something up with a lowly “B,” you know it’s trash.
— Steve Randy Waldman has a very interesting piece up at Interfluidity on “The Tragedy of the technocrats.”
But the thing is, human affairs are a morality play, and economics, if it is to be useful at all, must be an account of human affairs. I have my share of disagreements with both Krugman and DeLong, but on balance I view them as smart, well-meaning people who would do more good than harm if they had greater influence over policy. But they won’t, and they can’t, and they shouldn’t, if they exempt themselves from the moral fray…
It should be no surprise that human collectives choose policies destructive of GDP or employment growth when they deem those policies to be wrong or unjust. Individual human beings act against their material interests all the time…
Our deference both to market outcomes and central bank management did not derive from some overwhelming scientific consensus to which the common man wisely deferred. They were the result of an immensely successful ideological campaign that conflated markets with liberty and democracy, and claimed central banks would deliver fair outcomes by virtue of predictably valued money.
And here he is on Robert Rubin:
We are in a period of Reformation now, with all the turmoil that suggests, and the outcome is not predetermined. Simply assuming the parishioners will remain faithful, or lamenting that they ought to remain faithful, is no way to win the argument. There is something poignant, but also a little blind, in the fact that DeLong’s agitation was aroused by Robert Rubin, who, when elevated to speak ex cathedra from the pages of the Financial Times, had nothing worthwhile to say. To DeLong, Robert Rubin remains a pontiff of the “bipartisan technocrats”. To the rest of us, Rubin has become an icon of self-delusion, corruption, and arrogance. Rubin was arguably the most influential member of a technocracy whose conduct now seems deeply unwise. He accepted handsome compensation to cheerlead risktaking at a bank that then held taxpayers for ransom when those risks went sour. Despite all this, he retains his wealth and influence, and has never much apologized. Heretics of all stripes chafe that his protégés are overepresented in the halls of power. Rubin is undoubtedly a compelling figure in person. People who have worked with him are bedazzled; they enthuse about his brilliance and public-spiritedness. The rest of us never met him. We just saw the smartest guy in the room walk away, rich and smug, and then the room exploded.
Read the whole thing.