Sunday 25 August 2019

The prophet of doom, but Morgan has the last laugh

The top economist who emerges in surprise cameo in the Anglo Tapes

Morgan Kelly argues that recovery is masking problems in the SME sector
Morgan Kelly argues that recovery is masking problems in the SME sector


FOR a mild-mannered academic who shuns the public eye, economist Morgan Kelly has a knack of getting under the skin of his detractors.

He has been ridiculed, dismissed as a loony and his prescient predictions on the property crash were widely credited with provoking former Taoiseach Bertie Ahern's bewilderment in 2007 at why people on the sidelines "cribbing and moaning . . . don't commit suicide . . ."

When the professor of economics gets around to reading in today's Sunday Independent what a senior official at the former Anglo Irish Bank and his stockbroker pal had to say about him, he is more likely to chortle into, rather than choke on, his cornflakes.

Six years have passed since he wrote a column for the Irish Times warning that the government's plan to invest in the ailing former Anglo was throwing good money after bad.

The fact that he was right will no doubt help him laugh off the venom. Like much of Mr Kelly's output, his column that morning not only captured the mood that was forming around the toxic bank, but correctly predicted its future.

He published it on December 23, 2008.

David Drumm quit as chief executive and relocated to the United States, conveniently out of reach of future investigations.

But unbeknownst to Mr Kelly, the bank was nine days away from being nationalised, and the biggest garda fraud investigation in the history of the State lurked around the corner.

Anglo was on its way over the cliff but, publicly, the government was still talking about pumping in €1.5bn to keep it going. Morgan Kelly predicted that - based on the €80bn it had lent to developers - Anglo Irish Bank's losses would not be €15bn but could be twice that. The government's €1.5bn investment would "vaporise in months": "For all it will achieve, the money might as well be piled up in St Stephen's Green and incinerated," Mr Kelly wrote.

Over at Anglo's Stephen's Green headquarters, at least some of the remaining executives who had not jumped or been thrown overboard, were outraged.

One thrusting banker raged on the phone to his strockbroker friend, presumably oblivious to the fact that their phone conversation was being recorded on the bank's internal system. Their macho, chest-thumbing hubris as they stewed with indignation over the article will be familiar to followers of the Anglo Tapes.

"Incinerate Morgan Kelly," said the stockbroker.

"In France now, y'know, basically you'd have cars speeding up as he crossed the road . . ." said the banker.

Their rage was akin to the sting of a dying wasp.

Mr Kelly is well used to dodging slings and arrows.

He had plenty of practice way back in the day, as a lonely, maverick economist heralding the last gasp of the Celtic Tiger. In 2007, he wrote the iconic Irish Times column predicting that house prices would fall by 60pc. He was rubbished in many quarters, most notably by stakeholders in the property market.

Jim Power, also a prominent economist during the boom, told the Sunday Independent a few years ago that "one of the biggest embarrassments of his life" was to be negative about Mr Kelly's property predictions on Prime Time.

It wasn't until after the property crash that Kelly became a guru, a sort of lesser spotted celebrity economist with a cult following who eagerly devoured his irregular pronouncements.

Mr Kelly has described the Irish as a "hard, pessimistic people": "We don't look on the bright side."

To many that sums up Mr Kelly too. He was regarded as such a purveyor of misery that his nickname was Dr Doom. And so he remains. House prices are recovering, lending has grown and employment is inching upwards.

In his latest column for the Irish Times in March this year, he dismissed this as a "boomlet". He portrayed Ireland as a credit junkie, hooked on foreign money.

"Instead of our frenzied borrowing binge ending in prolonged cold turkey, as a fortuitous result of the wider eurozone crisis, the ECB has kept pumping that sweet, sweet credit into our veins. Should it stop suddenly, most likely through a final clean-up of bad loans at banks, our real economic crisis will begin."

Mr Kelly hasn't played up his celebrity economist status. He is an academic who studied at Trinity College and Yale University in the US, was an assistant professor at Cornell University, a lecturer at University College Dublin and is currently professor of economics there.

He doesn't blog or tweet and appeared on television once. He delivers his thoughts on the Irish economy in his academic papers and to the nation generally via the Irish Times. He doesn't usually do interviews either, except to Vanity Fair. He was depicted as one of the heroes in its epic analysis of Ireland's bust by the writer, Michael Lewis, in 2011.

Michael Lewis found Mr Kelly "not exactly self-effacing" but "puckish, unrehearsed and apparently - though in Ireland one wants to be careful about using this word - sane."

Mr Kelly told Mr Lewis that he wasn't interested in the Irish economy. It was "tiny and boring".

He was working on medieval population theory when he noticed what was happening to the housing market. Prices were soaring. He told Mr Lewis that former students were turning up on television as bank economists predicting a "soft landing".

After that, Morgan Kelly started looking for an outlet for his articles, first on the property crash and later in 2007, predicting the collapse of the Irish banking sector. He told Mr Lewis how Matt Moran, a senior Anglo executive, phoned him afterwards to complain. "I wanted to argue but we ended up having lunch. This is Ireland, after all," he told Mr Lewis.

When Kelly dined with Matt Moran in 2007, it was presumably a civilised affair. Kelly clearly felt no obligation to be kind to the dying bank when within a year of breaking bread with it, he wrote the excoriating column that Mr Moran's senior banking colleague found so irritating.

In the article, Mr Kelly nailed Anglo as the epitome of what he called the "Irish bubble economy". Demand for houses caused bankers to lend more money, which caused house prices to soar which meant more lending: "And the more loans that bankers made, the bigger the bonuses they could award themselves."

Morgan Kelly has had the last laugh.

Sunday Independent

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