I think you’ll find that’s my line, Seamus

Further thoughts on “Ship of Fools” by Fintan O’Toole …

In so far as these things matter, I totes claim bragging rights over calling the end of the bubble in Ireland, in writing in October 2006 and my only regret is that I changed jobs and started doing something else before I had time to milk it[1]. My basic point at the time was that the rental yield on Irish property at the time was estimated at 3.25% (Daft.ie had begun to calculate a rental yield index, tragically too late – I believe unless someone knows different that at the time I was in possession of the only even acceptably accurate time series of data on Irish rental yields), and that with the most recent ECB rate rise to 3.75%, the logic of the myopic-expectations buy-or-rent model[2] was about to start working in reverse. As it did. I’ve mentioned on a number of occasions that in actual fact, this was a policy-caused bubble, and that’s true in Ireland as well. But of course, the actual mechanisms by which a bubble is inflated, since they are based on a combination of the winner’s curse and limited liability, tend to involve the sorts of tales of sharp elbows, social capital and low risk aversion which can be made to look absolutely awful with the benefit of hindsight and/or in a court of law. So let the games begin …

Of course, there’s a world of difference between “Ship of Fools” and Dean Baker’s “False Profits”. For one thing, although at a very high level the Irish boom was a product of the ECB’s need to keep the rust belts of France and Italy out of depression, there is not much mileage in an Irish commentator calling for the ECB governor to be sacked. And so it is that Fintan O’Toole’s “Ship of Fools” concentrates less on the high-level policy failures and more on the nuts-and-bolts of the shady deals and unwise decisions that let the Irish boom get so big and so much more destructive than, say, the Spanish one. Henry has written on this in detail, so I’ll hand over that to him, both because I don’t have the detailed knowledge, but more importantly for the reason that I think any British person writing about the Irish economic situation at the moment really needs to check his motives.

Which is to say that, hey Irish people, shall I tell you a secret? That economic miracle of yours – it just killed us inside. The Gore Vidal proverb[4] doesn’t capture the half of it. My God. Even me, commenting on this site of all sites, couldn’t occasionally resist the occasional outburst of sheer green-eyed jealousy at any signs of the Irish contributors mentioning that the place seemed to be doing all right these days. I can’t find the bit where I literally started going “look it’s all housing and construction you know, it’ll end in tears” to Kieran, but I vividly remember it happened. And this was not an untypical attitude among Brits during the period.

Part of the reason of course was that during the boom years, Ireland did take the advantage to export some incredible, complete, total and utter pricks to the rest of the world in the hope that they’d stay gone. I mean, it hardly behoves a London stockbroker to make a comment of this sort, but even by that benchmark the newly enriched Irish business/political class turned up some world-beaters. And, like the Icelanders they floated a fair couple of companies on the London market that turned out to be not quite as great as they’d appeared, and like the Icelanders, they were given to occasionally, usually when drink had been taken on, providing us with lectures about the secret of their economic success which gave the strong impression of having been cribbed from Thomas Friedman books.

Unlike the Icelanders, of course, there was always a certain amount of edge to the relationship between us and the Irish Raiders though. For one thing, of course, there was the legacy of empire[5]; it really was not so long ago that Irish people in London were treated as somewhere between an oppressed minority and a public health problem[6].

For another, though, there was never any real threat to us from the Vikings. Broadly speaking, the financial community knew what they were up to. They were a bunch of foreigners with seemingly no clue what they were doing, more or less unlimited amounts of money borrowed from their local banks, a burning ambition to pick up iconic and prestigious business assets, and seemingly no concept at all of a fair or even reasonable valuation. People like that, one finds, are generally well liked in Throgmorton Street; you might have to put up with the odd economics lecture, but usually they’ll make it worth your while to hang on. Generations of such ambitious foreigners have breezed through the City, usually leaving with armfuls of previously unshiftable dogs and sans wallet. Come one come all, as long as you pay cash etc.

The Irish, on the other hand … well, what was their big idea? From the late 90s onward, it was clear that Ireland was determined to become the entrepot and offshore haven between Europe and America, sitting in the North Atlantic with a low tax rate, a population of intelligent and creative people with somewhat lax morality, a loose system of financial regulation with slap-on-the-wrist enforcement, in general a place where you went in order to do things that you were slightly ashamed of and didn’t want to do back home. And well … isn’t that, kind of, our job? I think this was the real source of English ressentiment of the Irish miracle – after all, even the most ancient of enemies can reconcile and make up, but competitors are opposed to each other by definition.

And that, I think, shows us what the underlying social reality is behind the corpus delicti set out in “Ship of Fools”. The difference between the two places, and the reason why the City abides, bruised and humiliated but still here, while the Financial Centre in Dublin currently looks really rather past-tense, is that the sort of brinkmanship that is required to play the regulatory arbitrage game, and to make sure that the get-er-done mentality of the best dealmaking lawyers and bankers doesn’t get totally out of hand, is one of the ultimate ‘thick’ social institutions. The kind of culture under which the most dreaded punishment is the “cold shoulder” of the Takeover Panel is not something you can throw up overnight.

So anyway, it turns out that this review was more in the LRB style of a semi-attached essay but what can you do? Go read Henry’s post, he’ll tell you what the book was about.

[1] The publication of that report gave me one of the only moments in my career which would make a good anecdote for a Michael Lewis book. I was, unsurprisingly, not popular with Irish investors and ended up doing a tour of Dublin to explain myself. At the end of a long day, I found myself in front of a character who started his speech by saying “well, you know, of course I’m not an economist like yourself, I’m just a thick Paddy me …”. Having basically lost both all patience and all hope of getting any business, I launched into a short speech, the gist of which was[3] “excuse me mate, when I was a teenager I worked on the Holyhead-Dun Laoghire ferry, and during that period I met enough colourful Irish characters to last me a lifetime. The other thing I learned was that when you hear an Irish person talking to an English person and describing themselves as “just a thick Paddy”, you should check your wallet”.

[2] “Myopic expectations” – in my model, agents assumed that the current level of interest rates would prevail forever. “Buy versus rent model” – just what it sounds like, based on my assessment of the typical financing structure. It wasn’t quite as simple as that, but it wasn’t much more complicated.

[3] Of course, as is traditional for a mass-market business thriller, it didn’t happen exactly like that. Also I was lying at the time – my brother had worked on the ferry, not me.

[4] “Whenever a friend succeeds, a little something in me dies”

[5] During the Celtic Tiger years, and after reading excerpts from Liam Kennedy’s essay, I used to find it a useful technique when in the presence of an Irish person (or, frankly, an Englishman or American with any hint of Irish heritage) who I believed to be whining, to theatrically exclaim “400 years of oppression and now this!”[8]. I’m not saying it was big or clever, or even completely free of bigotry. I’m just saying it worked. Probably still does.

[6] I actually live in a rather chichi leafy avenue in North London, and there are still people in my street who remember when my attractive Georgian townhouse was occupied by three large Irish families. There are one of two aging Irish tramps hanging round the area who appear on the occasions I’ve spoken to them to be utterly confused about what happened to what had previously been a quite well-defined social role.

[7] Actually, eight hundred years, as Henry reminded me.