Ireland : Why Morgan Kelly is wrong

On Newstalk Radio this morning Professor John Fitzgerald of the ESRI explains why he thinks Morgan Kelly’s analysis of the banking crisis is overly pessimistic and replies to David McWilliams assertion that his growth estimates are ‘horseshit’.

John Fitzgerald on Newstalk Radio – his interview starts about 40-41 minutes in.

The reasons why he feels Kelly is overly bearish –

1. Fitzgerald argues that there are insolvency issues at Anglo Irish Bank and Irish Nationwide, but that AIB and Bank Of Ireland are solvent but struggling with liquidity problems. I.e. AIB and BofI have more assets than liabilities, but their assets are longer term and less liquid and thus they need cash injections to meet their near-term responsibilities. Fitzgerald says summing both sets of cash injections is wrong as the state will recover money from the solvent banks and there will be no net losses to impose on creditors there.

2. Fitzgerald also feels it is incorrect to look at the Irish banking system as a whole because that includes banks (such as Ulsterbank) for which the Irish government has no responsibility.

P.S. If any of the bloggers know how to embed non-standard media players – such as Newstalk’s, do let me know!

No bio, some books worth reading – The Rational Optimist: How Prosperity Evolves – Matt Ridley .

Crisis Economics: A Crash Course in the Future of Finance -Nouriel Roubini, Stephen Mihm