Monthly Archives: January 2013

An Interest only Economy

Back in my time as an undergraduate one of the things I learned about was “sinking funds”.

These were repayment schedules for the national debt, structured in the same way as a mortgage, such that not just the debt interest but the debt principle was repaid. The debt was extenguished. Sometime in the 1980s we seemed to stop this and instead now of retiring the debt when it matures we simply roll it over. This was the conversion, if you want to think of it, of the economy mortgage from a regular to an interest only affair.

Slate blogger Matt Yglesias has taken this one step further and suggests that the US issue perpetuities – these are bonds that pay a rate of interest but never actually expire. The argument he makes is that right now the USA can borrow at extremely low rates of interest. So also can Germany by the way…Therefore the argument runs that they should take advantage of these low rates, and convert a large chunk of debt to consols, perpetuities. This would reduce the interest rate bill and allow more borrowing for stimuli

Ireland couldnt issue perpetuities at the low rates of the USA and UK. We cant issue any bonds at present. But we should resolve to do two things when we do go back into the markets. First, we should issue long dated bonds at any opportunity when the long bond yield is below the maturity adjusted rate on the debt.  There were period recently when this might have been feasible. Second, we should reintroduce the good old fashioned approach of establishing sinking funds, setting aside not just interest but repayment of principle costs also.


culture crimes

Morrocan style biography manuscript of the prophet MahomaSo apparently the priceless manuscript heritage of the Sahel, preserved over the best part of a millenium in Timbuktu has been incinerated by the Malian rebels. This is both a tragedy for the region, another example of the wild intolerance of the Salifis towards , well, anything that reeks of “other”, and a crime against culture. While not torching the past the flowers of islam destroyed the tombs of Sufi saints, some also cultural treasures. It is one of the greatest ways to sow despair amongst your enemies, to destroy their heritage and make them rootless in the present by destroying the past. Of course this isnt new. The destruction of the Buddhas of Bamiam made headlines, and as we speak the Saudi government is engaging in monumental building works right in the heart of historic mecca.

000215293But, its not just maniacal jihadists with unkempt facial hair in far away regions that do this sort of thing. Europeans and Americans are pretty good at it also. A hundred years ago the German army burned the library of the university of Louvain, with a loss of incalculable proportions to europes medieval heriatage. The german bibliopyranic tendencies came again in WW2 when among other the library of the university of naples and Metz. A list of libraries and archives lost in the 20th century is here and it makes heartbreaking reading.


Monte CassinoThe Americans cheerfully bombed the hell out of Pisa, damaging the Campo Dei Miracoli including the destruction of the frescos of the Campo Santo. They followed that up with the destruction of Monte Cassino; the grandsons of the pilots probably were some of the people who watched slack jawed as “stuff happens” and the priceless collections of the Iraqi museum were looted (while making sure that the oil and gas charts in the museum of petroleum were preserved). the destruction of the built and intellectual heritage of Bosnia was a war crime no less than the mass rapes and starvations.

800px-Four_Courts_ConflagrationAnd of course then we have our own fair land – anyone wanting to weep should read the two magnificent books Abandoned Mansions of Ireland (2 vols) and Lost Houses of Ireland and read how many were torched, usually for local petty unmilitary generational revenge reasons, by the IRA in the 1920s. To cap it all we saw the birth of the state on the pyre of history as the four courts burned. Mined by one side, shelled by another, the loss of documents all but obliterated the medieval and early modern records. Well done.

So, lets pursue and punish the gibbering fanatics who torched the libraries in Mali. But lets not be too proud – our grandads did the same and guess what? Our grandkids will do likewise.

What options now on Anglo Debt?

To recap..A Reuters report yesterday, still unmodified, notes that the ECB has rejected the proposal made by the government on dealing with the Anglo Promissory notes. Ireland's national broadcaster NASA report which says that the ECB have denied this. However that latter states that baldly and gives no detail.

The proposal was that the government would issue a long term (term unclear but presumably more than 10years) bond

Irish Finance Minister Michael Noonan had proposed converting the note into long-term government bonds that would be taken up by the Irish Central Bank with the intention of keeping the bonds in its portfolio for a long period.

This was unsurprisingly rejected by the ECB as tantamount to monetary financing. They don't, can't, do. That.

So why did the Irish givernment, two years into the negotiations, propose that? Was it naivety? Stupidity? cunning? We're they proposing something so impossible that the ECB would reject it?

As things stand we pay 3.06b each march 31 through 2023, 2.2b in 2024, 0.9b 2025 to 2030 and a final 0.1b in 2031. That is 23 years, a generation, after Anglo imploded and the FF government pushed the taxpayer into the black hole after it.

There are only three things that can be done with a debt to reduce its impact; reduce the amount, the interest rate or the time. For complex reasons better explained by Karl Whelan here the interest rate issue doesn't matter. So we deal with the time (stretching it out longer means less, in today's terms, of a burden) or the amount. The deal proposed seems to have been a too clever by half attempt to deal with the time issue. A bond of say 50 years would be “cheaper”. Exactly how much would depend on the time span and the interest rate but it could be a few billion.

My view is that we cut this at the core. Pay nothing. The promissory notes were another too smart by half attempt to fool the markets by the bright boys in the FF government, by a structure that both locked the state into keeping Anglo alive and tried to keep the cost of same off the national books. Nobody treats the debt a not real debt so one argument is why not simply convert to actual NTMA debt, and be honest and open.

To my mind there is no downside to the government stating now that it will not pay the note due now or ever. Three arguments are advanced.

First, the ECB will “cut us off”. Gov Honohan, who sits on the ECB board, alluded to this or something else by saying that th ECB would not look kindly on such a move. The ECB could, in theory do a number of things if we defaulted on the Anglo payment. It could invoke the risk control framework and deny Irish NTMA issued bonds as being eligible for collateral at the discount window. That would cut Irish banks , good bad and indifferent, and indeed any holders of Irish bonds, off from liquidity. The result would be that to keep the ATMs fed and money flowing in the economy we would have to issue own liquidity. we would in effect be expelled from the euro. Think of this : the only succes of the troika, doing something to ensure its long term fiscal stability, being subjected by a troika member to exemplary punishment. What would the effect of same be on her other peripheral nations? Would they calculate that there was literally nothing that would satisfy the fetishistic desires of the ECBundesHawks and contemplate leaving? Would the IMF like to see massive currency instability in an already fragile currency environment? Maybe the mooted IMF “it's a standby not a bailout” trailed last week is evidence of some forward planning here… My view is that the ECB would be extremely miffed and would like to but would balk at this. They are not a suicide squad.

Other issues suggested were we to walk are that MNCs will depart, that we will lose credibility and that…errr…that's it.

why an MNC would leave a country making itself more stable, not less, is beyond me. I haven't seem or heard a single MNC executive address this. I haven't heard the IDA say walking from the Anglo deal would make their job more difficult. Maybe I missed them. As for reputation, to whom does it matter? Again, as this is not government debt it's not a default. The bond markets, truth be told, care less about what we do with Anglo. It only enters into the mix in so far as it gives an indication of whether we are more or less credit worthy on real NTMA issued debt, Removing the rotting albatross that is Anglo makes the state more, not less, creditworthy, more liable to repay and in full on time, not less. Patrick Honohan in 2009 stated

mature reflection by the financial markets would recognize that a country honouring its debts and guarantees to the letter–and not beyond–was more creditworthy than one which handed over money lightly to unguaranteed risk investors

What went, but was ignored, for Anglo and bondholders in 2009 goes double for handing over money to a central bank to destroy it. It's morally, economically, politically and in every way wrong.

So now what, as ECB give two fingers to Ireland?

Well, I hate to say it but I told you so, many times.
The ECB have basically told the Irish government to PFO, in it’s desire to seek a reduction in the cost of the wretched Anglo prom notes.

It’s a straightforward no. No reduction in terms, no reduction in interest rates.

A smart government would respond with a statement that they were NOT going to pay, and defy the ECB. Instead a spokesperson for the dept declined to comment.
Although I think it’s dangerous perhaps s referendum
That asks if we should leave the euro in the absence of a deal might sharpen the debate

Whats so hard about saying “Dear Mr Draghi, NO”

Are MOOCs the future for the Irish Higher Education Sector?

This is an extended version of an opinion piece published in the Irish Examiner

Over the last decade or more the language of management has permeated more and more into higher education. For some this is the trump of doom, as they see the accompanying managerialism as being the death knell of the university. Others, myself included, take this with a grain of salt. Universities, indeed all higher education, consists of large complex organizations dealing with tens of thousands of individuals and hundreds of millions of euro. The principles of good management are pretty much universal. Whether one is the abbot of a trappist monastery, the provost of Trinity College, the CEO of a coffee chain, work needs to be organized, finances managed, and the needs and aspirations of those who hold (or perceive that they hold) a stake in the continued success of the organization need to be managed. The differences emerge primarily from the different objectives of the organizations that in turn shape the structure of how the organization works. In universities the stakeholders are the staff the students and the society. These have different time horizons over which they see their needs as to be met, and aren’t always able to differentiate the short and long term.

Without getting too managerial we can then think of higher education as an industry. It consists of lots of units, some big some small, all of whom compete and cooperate with each other as the task at hand requires. We can and should then look at this industry with cool eyes. That is not to say that a managerial or economic perspective must dominate. Higher education, universities in particular, generate both public and private returns to investment. The public good is hard to quantify, and thus the standard market pricing mechanisms are not fully suited to resource allocation. In other words, the public must, if they wish  the public good to be coproduced with the private good, pay for this. The challenge for universities is not to be efficient – that is simply good management and should be automatic. It is to justify to the public who pay for the public good that the usage of the public resources are as efficient as possible. Alas, in the present state of discourse there seems a needed step is to convince the government and the public that there is such a public good produced.

Part of the change I and others see in public attitudes is the emergence of what are called MOOCs : massive online open courses. These in essence are online courses into which pretty much anyone can enroll. I myself am enrolled on one on Asrobiology and the Search for Extraterrestrial Life, which is on the Coursera platform run out of Edinburgh. The distinguishing feature of the Coursera  and EdX programs are that they are populated by high-profile highly respected research led faculty from leading universities. Courses are available not just in “fun” subjects such as above but in a  wide variety of computer science, mathematics, biology and humanites subjects.  These courses require registration, online attendance etc and run quizzes and so forth, to allow people to say, at least to their own satisfaction, that they have taken the course Also wildly popular is the Khan Academy, where a bewildering variety of courses in almost anything. And in Ireland we see the success of Hibernia, which operates a blended approach with mostly online lectures and some on the ground practical instruction in required areas

So far so meh some may say – this represents no threat, as universities control the certification process, via rigorous checks on the identity and integrity of students and their work.  the emergence recently of two initiatives should cause significant concern for Irish higher education.

First, we see the emergence at the lower middle end of universities of a refined blended model. A number of US universities are experimenting with allowing students to enroll on MOOCs, to take the courses and pass examinations (under exam conditions) and to carry that credit as part of courses in the same way as a regular student. Crucially, they see the MOOC not as a substitute or an apocalyptic threat but as a marketing tool. They find that students who take a MOOC tend to be enthused to take other non-online courses. The MOOC is a marketing tool. Second, at the top end we see certification emerging – Coursera for examples allows students to achieve certification in courses using a combination of IT and other security features, while EdX allows for students to take an old fashioned examination with certification if desired. Thus the strategic moat that was certification is crumbling: a student can in theory take a self designed structured set of courses from a set of world leading universities and present evidence to employers that they have, for example , reached the MIT level in computer programming or cybernetics or the Harvard level in biology.

Where then stands the Irish third level? Employing 23,000 staff (9400 academic….) and reaching 13,000 students it’s a large industry. As of 2011 for all HEA funded institutions, university and IT, only 4000 students, 2%, were engaged in what it terms flexible learning, which includes distance and in service education. Compare this with the USA where 30% of all students take at least one course online. Ireland has a long way to go. Credit based courses where students can take their degrees in their own time at their own pace are a rarity ; most HE institutions are barely visible online; not a single Irish university has or seems to have plans to have a MOOC (although TCD is contemplating one and is hosting a major international symposium on online education in February) ; UCC is developing a major online presence in postgraduate education across a number of areas ; the HEA is understood to be supportive of moves to create a greater online presence while preserving the on campus experience. Thus some movement might reasonably be expected in the near future. While the obvious MOOC , if we want it to act as a shop window for Irish universities, would be one on Irish studies, we should not stop there. Despite the doom that is poured out that we have no university in the top 100, every single Irish university is in the top 5% of the THES rankings. Every one is world class. We have a world-class industry here. Within disciplines we have world-class researchers and teachers, in pretty much ever-single discipline. A MOOC or ten would demonstrate that, to the public and to the wider world. Every international student is an export – lets place ourselves in the world shop window.

Basic or Applied Science?

Is this applied or basic science? Theres a growing perception, at least from some quarters, that the SFI focus now is almost entirely on applied science. The best route to scientific success now would, I suggest, be to hire a PR company and somehow persuade the funders that this was worthy of prioritization. Its government is chasing winners….good luck there

The overwhelming desire of government seems to be to somehow stumble across a new <insert techy MNC here> and get loads of jobs.

Aint. gonna. happen.

Meanwhile here is the list of funded projects for this year. To my mildly scientific eye they all seem quite applied. Although the word novel appears a lot in the titles of the project this comes in almost  each case in conjunction with therapeutic or applied. There seems to me to be little of what one might call basic science

A further point – If someone is given 200k of taxpayers money to do something, I would have hoped that the funder would require a short paragraph in laymans terms outlining what the project is  and why it is good science. Transparency is always a good idea.


How accurate are stock analysts

Not very it seems

Irish Business Blog

Theres an interesting paper which I linked to here . The paper looks, over the 2002-11 period, at the accuracy of equity analysts target prices. Irish analysts are included.

Among other things it shows on a country by country basis the accuracy.

Heres the chart. The data are TPMET for those interested. I It measures if the target price was hit at any stage in the following 12 months. So 0.5 would be that 50% of price forecasts , up or down , were hit at any stage in the next year.

Higher values indicate lower accuracy. Oops.


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State argues in High Court that a citizen has no right to challenge Parliament

The David Hall v Ireland (thats you)  case in the High Court, where the founder of LifeLine Ambulances and campaigner for mortgage relief is challenging the legality of the Anglo Promissory Notes, took what seems to me to be a surreal twist today. The basis of his argument is as far as I understand that the Oireachtas didnt vote these wretched scraps into existence they were created by the Minister as an executive act, and as that involves the expenditure of money thats a power reserved to the legislature not the executive.

Coming towards the end of a long day of argument which saw Anne Nolan of the Department of Finance sprung into the witness box as a surprise additional extra, the argument from Michael McDowell ran as follows….The Promissory Notes are a creation of Dail Eireann. David Hall is a citizen. As a mere citizen the state claims that he has no right to in effect act on behalf of the Oireachtas against the Executive. A citizen qua citizen has no role or right to ensure that the two parts act properly. Mmmkaaaay

Mr McDowell further suggested (remember folks, he is acting, legally speaking, for you and me…) that apart from a mere citizen not having any rights to get between the Oireachtas and the Executive, the only people who did were TD’s. The President of the High Court then noted that no TD had stepped up to date.

Now, I Am Not A Lawyer but it seems to me that as a citizen I have not just the right but the duty to hold to account the executive and the legislature if they are acting unconstitutionally. The debate noted the Crotty case, and McDowell (arguing for you people, its for you own good) noted that Crotty was a citizen and the case affected the constitution and thus all citizens. He noted that while the wretched notes had a  “far reaching” impact, it didnt matter whether the executive did the deed or the oireachtas, as the effect would have been the same. In effect this second guesses the Oireachtas saying that it would have created the wretched notes. And hes probably right. But we will never know. It would be sweet to see the government trying to get a vote on these through now….

MOOC and me

So, starting a MOOC next week, on astrobiology and the search for extra terrestrial life. Hosted by coursera, it's out of Edinburgh. I'm interested to see how it works, and in particular the way it works as a student. MOOCs aren't going to replace the traditional way of doing higher education, but they are a massively important complement.

I do worry that no Irish university has taken an initiative on this. I suspect that the internal bureaucracy plus the perception that this would cost a lot in a time of scarce resources and a small intersecting set of interesting academics/tech open academics/interesting areas is the cause. Maybe a start might be for the HEA to ask each uni to do one, and to pick up the tab? Given we want to encourage more students from foreign parts to come to Ireland it might be a very cheap way to get a few tens of thousands of potential students to have a gander?