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Good old Ireland seems to be figuring highly in my consciousness today, despite the 1.5% cut in the base rate to 3%. On the latter point, it's interesting to see Robert Peston repeating the point made here (most recently on October 8th, but also several times in the past year or so) that the Bank of England base rate is virtually irrelevant. As one wag put it, what difference does a cut in the base rate make to the interest rate you would want to charge Bluescouse on a loan of five grand?
Answer, not a lot. And, to the banks, we are all Bluescouses now.
But, back to Ireland. I've been waiting for some time for Allied Irish Banks to come out with some numbers, and they duly arrived yesterday, in suitably horrid form. In simple terms, the "worst-case scenario" of a few months ago is now the official prediction. Except that the markets now think that the old worst-case scenario isn't worst-case any more. They think (and I agree with them) that AIB is grossly underestimating the default likelihood on its personal mortgage book, presumably hoping and praying that this won't be as bad as the defaults on the commercial [property lending (including commercial builders of private homes).
There's no reason for AIB to be optimistic about the level of home loan defaults. Unemployment is on the rise and personal gearing in the country is high. If there's any compensation to our own predicament, it's that it looks like being a hell of a lot worse in Ireland.
The second instance that reminded me of Ireland was the reported plan by the US president-elect to introduce a health insurance system that entails risk-free pricing. Now, if Obama wants to see the perils of a community pricing health insurance scheme, he only needs to look at Ireland as a case study.
The problem with private insurance as a public service is that they are irreconcilably contradictory. If you want a public health service for all, then introduce it. If you want a private health system, then run that. But don't expect a private scheme to operate in a public way. Insurance premiums in the private sector need to be actuarially priced. You can, if you want, bring in some kind of compensation scheme for those who have to pay higher premiums (the sick, the elderly), which is a government-funded health scheme in all but name. But to tell insurers to charge all people the same amount is a recipe for disaster, as has been discovered in Ireland.
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Answer, not a lot. And, to the banks, we are all Bluescouses now.
But, back to Ireland. I've been waiting for some time for Allied Irish Banks to come out with some numbers, and they duly arrived yesterday, in suitably horrid form. In simple terms, the "worst-case scenario" of a few months ago is now the official prediction. Except that the markets now think that the old worst-case scenario isn't worst-case any more. They think (and I agree with them) that AIB is grossly underestimating the default likelihood on its personal mortgage book, presumably hoping and praying that this won't be as bad as the defaults on the commercial [property lending (including commercial builders of private homes).
There's no reason for AIB to be optimistic about the level of home loan defaults. Unemployment is on the rise and personal gearing in the country is high. If there's any compensation to our own predicament, it's that it looks like being a hell of a lot worse in Ireland.
The second instance that reminded me of Ireland was the reported plan by the US president-elect to introduce a health insurance system that entails risk-free pricing. Now, if Obama wants to see the perils of a community pricing health insurance scheme, he only needs to look at Ireland as a case study.
The problem with private insurance as a public service is that they are irreconcilably contradictory. If you want a public health service for all, then introduce it. If you want a private health system, then run that. But don't expect a private scheme to operate in a public way. Insurance premiums in the private sector need to be actuarially priced. You can, if you want, bring in some kind of compensation scheme for those who have to pay higher premiums (the sick, the elderly), which is a government-funded health scheme in all but name. But to tell insurers to charge all people the same amount is a recipe for disaster, as has been discovered in Ireland.
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