A Procrastination Once Again

Hemingway had it right on bankruptcy, that it happens slowly then all at once. So too it seems are changes in how the world sees finance. For the best part of a decade now the (final?) flowering of Financialisation has been rampant. In the Eurozone we have seen the coupling of private financial sector debts to the state. In the USA we have seen the obsessing by the Republicans on inflation (though to be fair their store of things to be obsessed about is deep and wide). In the markets we have seen case after case of alleged manipulation, if not downright rigging, of key features. We have seen the growth of “dark pools” which have the effect of making organized markets such as the NYSE or the LSE less and less relevant with trading happening “offsite” And yet all these have been addressed. 

Finally the EU agrees that the death spiral of banking-state debts being (one way) coupled must be broken; dark pool trading is under severe scrutiny; market manipulation in LIBOR has been detected, prosecuted and penalised. An area with which I am familiar is the precious metal markets. These are (at least in perception) amongst the most archaic and traditional of all markets. Even there however we have seen astounding change.

The traditional benchmarks prices for these metals were set with what is (rather unfortunately) called the “fix”. This was in essence a straight forward auction process, whereby large dealers in physical gold and silver met twice a day to settle on a price. The gold fix dated back to 1919, silver to the 1890s in their present form, and the main chance had been from physical meetings to telephone based meetings. The operations of the fix have been well described, and the process outlined in some detail over the years. What was clear was that first, the system was somewhat archaic in that the “members” of the fix were by this year representing only a smaller and smaller part of the physical metal market, and that second the lack of transparency as to the prices and quantities demanded and accepted within the fix meeting meant that there were (in my view unjustified) suspicions of the integrity of the price setting process. Coming hard on the heels of the LIBOR rigging scandal and at the same time as the concersn about dark pool trading and foreign exchange rate manipulation, the pressure was on the operators to respond. They have, and in the case of the Silver fix (and likely to be followed in essentially the same manner by gold) we will now have a more transparent, more representative way of setting benchmark prices for physical gold and silver.  This fundamental change in process has taken place in about 2 years.

By contrast, there is Ireland. The proposed timeline into the banking collapse, suggested by the expert group, will see public hearing start on 15 April 2015. That is over 7 years since the “St Patricks day massacre” of Anglo, when its share price fell by 15% , the start of its slide to oblivion.  It is simply scandalous that we will have had to wait that long to even begin to hear the reasoning behind what people were thinking as the crisis loomed, broke and deepened. Justice delayed for both the persons who will give evidence and for the society which had to pick up the pieces as a consequence, is justice denied. We see in so many areas – Hep C, banking,  Magdalene laundries, mortgage arrears, SME debt, the structural deficit, mother and baby homes, tax structures,  a myriad of issues around the actions of the police, that as a polity we are incapable of facing up to mistakes and malfeasance in anything like a timely manner. We are even now seeing the direct provision scandal beginning to emerge, but it would be a brave person who would bet that it will not be a decade or more before we see full disclosure.  In the economic field we have time and again delayed hard decisions, kicked the can, hoped something will turn up, played for time. After being warned for 18m  the government is only now beginning to wake to the prospect of a reignited property bubble.  We have ignored the Buchanan report on regional development for 46 years while playing (politicised) lip service to it all along. We have been urged for decades to fix our legal system, our pension system, our health system, all to little avail. We are a procrastination, not a effective nation.

We shirk the hard decisions, electing people who promise pabulum rather than hard medicine. Running a massive deficit we have now got the unedifying spectacle of a looming (relatively speaking) giveaway budget and the promise from all of soft-pedalling and delay. What is it in the Irish governance systems that make us so – we see even the systems around  the most conservative financial assets can respond to pressure in a timely manner, while we remain immune to the real immediate problems, content to drift along in a soothing fug of half believed promises half heard.

 

This is a version of my Irish Examiner column of 26 July 2014