Money Buys Happiness Only Up to a Point

By Jeanna Bryner, LiveScience Managing Editor

Money might give you a sense of overall satisfaction with life, but the extra dough won’t ensure days full of laughter and joy, a new survey analysis of income and happiness suggests. 

Results showed that as a person’s income increases so does their overall satisfaction with life, but the moment-to-moment enjoyment of those days depended more on social and physical factors, such as whether a person smoked or spent the day alone. 

These findings agree with a similar analysis of global happiness, in which the wealthiest nations, such as the United States, weren’t necessarily the happiest. For instance, the United States came in at No. 26 out of 132 nations on daily happiness. Another study on overall satisfaction showed those living in the wealthiest and most tolerant states were happiest by the measure used in the study. [Happiest States Revealed] 

Happiness surveys

 

In the new study, Daniel Kahneman and Angus Deaton of Princeton University took a stab at figuring out whether and how income affected each of the two well-being types: emotional well-being and overall life satisfaction. To do so, they analyzed more than 450,000 responses to the Gallup-Healthways Well-Being Index, a daily survey of 1,000 U.S. residents conducted by the Gallup Organization. 

They looked at percentage changes in income rather than absolute numbers. 

“In the context of income, a $100 raise does not have the same significance for a financial services executive as for an individual earning the minimum wage, but a doubling of their respective incomes might have a similar impact on both,” the researchers wrote this week in the journal Proceedings of the National Academy of Sciences. 

For life evaluation, participants indicated on a scale from zero to 10, from worst to best possible, how they would rate their lives. For emotional well-being, participants answered yes/no questions about whether they had experienced various positive and negative emotions a lot during the prior day. 

About 85 percent of respondents indicated they experienced a lot of positive emotions, including feelings of happiness, enjoyment and laughter/smiling on the previous day, while 24 percent felt a lot of sadness and worry. The average life-evaluation score was 6.76 (with 10 being the best possible life). 

Physical illness, headaches, loneliness, and caring for an adult were linked to lower emotional well-being. Being a college graduate was associated with high life evaluation, but that diploma didn’t do much for daily enjoyment. 

The limits of money 

 

Low income seemed to magnify the emotional pain of life’s misfortunes, including divorce, illness and loneliness. For instance, for those with a monthly income of at least $3,000, 38 percent who reported headaches also reported a lot of sadness and worry, compared with 19 percent without headaches. But headaches seemed to take a greater toll on those making less than $1,000 a month, who reported “blue feelings” at rates of 70 percent when they had headaches and 38 percent when they didn’t. 

Beyond an average of $75,000, annual income no longer played a role in boosting how happy a person felt daily. 

The researchers suggest that making anything more than $75,000 no longer improves a person’s ability to spend time with friends, avoid pain and disease and enjoy leisure time – all factors involved in emotional well-being. 

“It also is likely that when income rises beyond this value, the increased ability to purchase positive experiences is balanced, on average, by some negative effects,” they write. For instance, a past study revealed a link between high income and a reduced ability to savor small pleasures, the researchers noted.

• 7 Thoughts That Are Bad For You
• 5 Things That Will Make You Happier
• Market Madness: 5 Tastes that Change with the Economy 

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Net surfing ‘freedom’ too costly

By RACHAEL KAM
rachael@thestar.com.my

PETALING JAYA: Employees surfing the Internet or chatting on social networking sites during office hours are costing companies of millions of ringgit annually in lost productivity.

This has caused some employers to ban Internet access at the workplace as they find the “freedom” given to staff members too costly.

Fashion retailer Voir Holdings Bhd recently banned employees from going online after 5% of its employees were caught using office computers to access Facebook and other networking sites. This did not include those tweeting on their mobile phones.

Its managing director Ham Hon Kit said in an interview that his company might risk losing up to RM2.4mil a year if employees spent two work hours a day on such sites.

“Any delay in work, even by one employee, can affect the performance of the rest. The company may also lose business deals,” he said, adding that employees whose work required them to go online did not come under the ban.

Cuepacs recently advised civil servants against accessing Facebook or similar sites during office hours following complaints that some were being distracted from their work.

Malaysian Employers Federation executive director Shamsuddin Bardan said employers should learn from the experience overseas and ban their staff members from visiting social networking sites during office hours.

He said it was wrong for employees to use company facilities or their own gadgets to go onto Facebook or Twitter during office hours, adding that some even went to the extent of badmouthing their employers in their postings.

According to British employment website MyJobGroup.co.uk, company staff who spent an hour daily on social networking sites during work cost British businesses £14bil (RM67.2bil) a year.

Its poll also revealed that 6% or two million of Britain’s 34 million workers spent an hour each day on social media sites.

A study by IT staffing agency Robert Half Technology showed that 54% of companies in the United States had banned their workers from using sites like Twitter, Facebook, Linkedln and MySpace during working hours.

Another 19% allowed social networking strictly for business purposes while a further 16% had “limited personal use”.

However, not all local businesses are against the use of social networking sites.

Retailer SenHeng Electric (KL) Sdn Bhd managing director Lim Kim Heng said there was no ban for its 1,250 employees because it had yet to pose a threat.

“About 25% of my staff have Facebook accounts. Social networking is the lifestyle of the new generation, particularly those below 30 years old.”

Banks debate RMB internationalization

Editor's note: Several bank leaders met to discuss regional currency cooperation and RMB settlement at the recent Dianchi financial forum. Their speeches are featured here.

Wei Benhua, former deputy director, State Administration of Foreign Exchange

The most important reason Asia saw much less loss than America and Europe during the global economic crisis is that it has a good financial system. It is under strict supervision and has sufficient capital and good operating practices.

The huge amount of foreign reserves of Asian countries and regions also helped them weather the crisis. In 2009, Asia's economic entities' foreign reserves topped $5.2 trillion.

During the 1998 Asia financial crisis, we learned we need to establish a lender of last resort .

Several currency swap agreements were signed in 2000 between Asian countries to enhance their cooperation in lowering financial risks, but that is far from enough to combat the shock of a crisis from the outside.

In 2007, financial ministers of the Association of Southeast Asian Nations (ASEAN), China, Japan and South Korea, decided to build the bilateral currency cooperation into a multi-lateral mechanism.

They called for a regional foreign reserve pool that requires member countries to provide a certain amount of capital to a country in need.

However, the capital in the pool is managed separately by each country. A unified supervision and management mechanism is not available. Whether the country in need can get financial aid in a timely manner is therefore in doubt.

Cheng Zhijun, deputy director-general, Ministry of Finance

The internationalization of a country's currency can increase its say in global economic affairs and lower the exchange rate risk. It can also promote the country's economic and trade development.

But we have to notice that currency internationalization is in line with the country's economic power.

Although China's economic volume is as huge as the US, Britain and Japan, China's per capita GDP is still at the mid and low-income levels.

In recent years, RMB has become a de facto currency of settlement and payment in the neighboring countries of Russia, Vietnam, Thailand, Myanmar and the Democratic People's Republic of Korea.

The ministry has been supporting RMB's regionalization. Cross-border trade in RMB has enjoyed a tax rebate or exemption since 2010.

The ministry also issued 6 billion RMB treasury bonds in Hong Kong last year to promote RMB settlement.

In 1998, the ministry initiated a dialogue between ASEAN countries, China, Japan and South Korea. This has laid a foundation for RMB's regionalization.

The expansion of RMB cross-border settlement will be beneficial for China's border provinces like Yunnan, and neighboring countries.

Md. Ahsan Ullah, executive director, Bangladesh Bank

There is no doubt that globalization is occuring due to the tremendous development of communication networks.

It is also a fact that regional financial and monetary cooperation is occuring. ASEAN, SAARC, and BIMSTEC are becoming more consolidated. And the Kunming initiative is a great step forward.

In addition to regional cooperation in trade & finance, bilateral cooperation is on the rise. Many countries are implementing free trade policies.

It is worthwhile to mention that while the ASEAN has been considerably successful, SAARC has not - despite its birth more than 25 years back.

There is an Asian Clearing Union System that exists in India, Bangladesh, Sri Lanka, Nepal, and Iran. In order to establish an RMB cross border payment system, we have to develop a modus operandi like that. I believe that it may take a little bit of time, but it's not impossible.

Gong Fangxiong, general manager, JP Morgan Asian-Pacific branch

It is just the right time to propose to pilot RMB's cross-border trade settlement while China's trade in Asia has made the currency a basis for Asia's trade settlement.

China's foreign trade is good in terms of exports. But the RMB lacks influence and purchasing power and is not a freely convertible currency.

The country needs to step up efforts to make the RMB convertible and to promote goods which can be invested and priced by the currency.

RMB settlement can be carried out first in the border areas and then seek regionalization and internationalization. But this is not the sole road, and the demand for RMB settlement should be increased.

Zhou Jiangong, editor-in-chief, Chinese-language edition of Forbes magazine

The first step for the RMB's internationalization should be its regionalization among neighboring economic entities which have close trade and investment ties with China.

Yunnan, as a border province in Southwest China, is crucial for the Chinese currency's regionalization.

In 2004, China's central government made tax rebate policies to encourage Yunnan's enterprises to use the RMB in cross-border trade. Now, more than 95 percent of the province's cross-border trade is settled with RMB.

RMB reserves in Vietnam, Myanmar and Laos are estimated to have topped 20 billion yuan, and annual RMB settlement volume is expected to reach 10 billion yuan after the RMB cross-border settlement is formally launched.

Cross-border trade in Yunnan will be further speeded up as the pilot program of RMB cross-border settlement expands.

China's growing investment in ASEAN countries will promote the RMB's importance in the free trade area.

Yi Huiman, vice president, Industrial & Commercial Bank of China

In an age of global economic restructuring, deepening financial and monetary cooperation in Pan-Asia serves the common interests of the parties concerned.

Cross-border RMB settlement, in particular, brings huge social and economic benefits.

It meets the growing needs of the enterprises for easier transaction and boosts regional trade. It helps enterprises avoid risks as foreign exchange rates of major currencies continue to fluctuate. It also sets the stage for other creative financial products and services.

Therefore, Industrial & Commercial Bank of China (ICBC) looks to it as a key growth area. ICBC is an important player in the global financial sector. As the most powerful bank dealing with the RMB settlement, ICBC takes the lead in risk management and service networks.

Pan-Asia is mainly composed of rising economies and developing countries. It is one of ICBC's target markets. Since its first foreign branch appeared in Singapore in 1992, ICBC has embarked on an ambitious venture to compete in the global arena.

Over the past years, it has been operating in more than 20 countries and has gained acceptance by local businesses.

Looking forward, ICBC is ready to strengthen cooperation with other Asian countries in cross-border RMB settlement by expanding its service network and providing more innovative financial services.

Yang Liping, Banking Supervision Department III director, China Banking Regulatory Commission

As the major watchdog of China's financial sector, China Banking Regulatory Commission (CBRC) has opened the domestic market and allowed China's banks to compete on the global arena.

The efforts have born ample fruit. The total assets possessed by China-based foreign banks stood at 1.5 trillion this June, up from 300 billion in 2003.

CBRC helps the localization of banks while supporting their healthy development. It is attracting more foreign banks to operate in western and southeastern parts of China, which are in bad need of capital.

At the same time, CBRC encourages banks to invest in rural areas, medium and small enterprises and similar capital-strapped fields.

CBRC also encourages foreign banks to share experience in risk management and accelerate the internationalization of RMB.

Since Yunnan is an important communication hub in Asia, it has become a critical front in China's commitment to building the China- ASEAN Free Trade Zone.

Guan Jianzhong, president, Dagong Global Credit Rating Co Ltd

Cross-border financial and monetary cooperation is something of credit cooperation, or internationalization of credit, by nature.

Two problems that may arise in this process are credit risks and information imbalance. Information imbalance, in particular, is an urgent issue.

China's credit has enormous impact on the value of RMB and the confidence of its holders in other countries. A credit rating platform is badly needed. With such a mechanism in place, investors can reduce possible risks. It is more than a financial system; it is also a system that has to bear social responsibility.

Rapid development of cross-border RMB settlement surely will encourage more Chinese enterprises to invest overseas. Supported by a scientific credit system and rating system, China and its neighboring countries will be on a fast track towards closer cooperation.

Fang Xinghai, Shanghai Financial Services Office director, Shanghai municipal government

More efforts should be taken if we are to transform Kunming into a financial center in cross-border RMB settlement.

To begin with, we should expand the service network. Banks in China and other Pan-Asian countries have to expand their service networks in each other's markets.

Yunnan, however, still has to improve local banking services, and concentrates on market expansion in neighboring countries.

On the other hand, Yunnan has to cooperate with other parts of China. It must fight for a bigger share in the growing domestic market.

Zheng Yang, Shanghai Bureau deputy director, State Administration of Foreign Exchange

In 2009, Shanghai began the pilot project of cross-border RMB settlement. It has grown rapidly. Last July, its total volume reached 20.3 billion yuan in Shanghai.

The success is attributed to many factors. Shanghai government officials check on its progress. They hear the complaints of local banks and enterprises on a regular basis.

In addition, new laws and regulations were enacted to steer the project towards healthier development.

The banking industry informs local enterprises of settlement procedures and policy changes to ensure smooth transactions. They also provide many creative financial products to meet changing needs.

RMB Cross Border Payment & Receipt Management Information System has a crucial role to play. Some 40 domestic and foreign commercial banks participate in the system, constituting an influential financial mechanism.

We are optimistic about long-term prospects, but we have to remain cautious in the immediate future.

The task is to expand the settlement service network and explore every possible avenue of RMB settlement. Also, we have to learn how to manage risks as we continue to extend our business overseas.

Source:China Daily

Acting Selfish? Blame Your Mother!

ScienceDaily (Sep. 5, 2010) — The fact that our female ancestors dispersed more than our male ancestors can lead to conflicts within the brain that influence our social behaviour, new research reveals.

---

Scientists from Oxford University and the University of Tennessee, Knoxville, examined the impact that genes 'knowing' which parent they come from -- a process called 'genomic imprinting' -- has on how selfish or altruistic they want their carriers to be.

A report of their research is published in the journal Evolution.

They found that because, historically, women moved about more than men, and so are less related to their neighbours, our paternal and maternal genes are in conflict over how we should behave -- with our paternal genes encouraging us to be altruistic whilst our maternal genes encourage us to be selfish.

'When women disperse more during their lifetime than men, as seems to be the case for ancestral humans, this leads to you being more related to your neighbours through your father than through your mother,' said Dr Andy Gardner of Oxford University's Department of Zoology, an author of the report.

'This leads to conflicts over social behaviour: the genes you receive from your father are telling you to be kind to your neighbours, whereas the genes you receive from your mother, like a demon sat on your shoulder, try to make you act selfishly.'

Mutations in imprinted genes have previously been linked to growth disorders in infants and, more recently, it has been suggested that they could underpin neurological disorders such as autism and psychosis. This study reveals how such disorders of the social brain can evolve by mutations favouring the expression of paternal genes (favouring altruism) or maternal genes (favouring selfishness).

Dr Gardner said: 'What our research reveals is that the popular idea of someone battling their psychological 'demons', that are telling them to behave in a selfish way, has some basis in our genetic makeup -- we are all coalitions of conflicting genes.'

Story Source: The above story is reprinted (with editorial adaptations by ScienceDaily staff) from materials provided by University of Oxford.

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See Also:

Mind & Brain

• Psychology
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• Social Psychology

Fossils & Ruins

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Reference

• Maternal bond
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Tear down the wall of silence, stand up, we cannot tolerate racism! Political Management Vital!

ON THE BEAT:By WONG CHUN WAI

We must be brave enough to confront the racist bullies in our midst. If we remain silent, we will unwittingly allow them to hijack our national goals.

"We need to stand up at some point and say that we cannot tolerate racism!"

THE message has been made loud and clear – there will be zero tolerance for racism. No rational and reasonable Malaysia would argue against this in the wake of racist remarks made by bigoted Malaysians.

We are used to bankrupt politicians uttering hurtful words about other communities in the belief that they can win votes by projecting themselves as racist supremacists and, by extension, as protectors of their race.

But this sickening action seems to have grown, with more racial champions being given bigger space in the media, which would only encourage them further.

Frankly, some of these figures, who now also include obscure academics, have been created by the media. Without this platform, they would otherwise be just nobodies. In fact, most Malaysians would prefer for them to stay that way as their actions have created ill feelings and polarisation.

Their racially warped writings and statements, which may seem supportive of the government, have not helped the ruling party.

They may like to think that they are doing the national leaders a service, but the truth is they are held in disgust and contempt by most Malaysians. They have, in fact, inflicted serious damage to the government.

The media, both mainstream and alternative, should downplay their racist statements: better still, spike it – or delete it, as the modern journalist would say.

After 53 years of independence, Malaysian politicians and community leaders, by right, should be more confident, outward looking and politically mature but the perception is that we have gone downhill.

The ugly side, or more aptly the darker side, of some politicians seems to have emerged, which must be one of the dampeners to the National Day celebrations.

How can we remain indifferent when politicians, people we used to hold with high regard, suddenly start to beat the racial drum instead of passing the pipe of peace around?

What has shaken many Malaysians is that the appalling actions of some of these racists seem to have garnered a following.

Otherwise, how does one explain reports of Perkasa expressing support for the headmistress from Johor who purportedly made racist remarks or the outpouring of support for her in her Facebook page?

Most of us have been brought up by our parents to believe that there can be only be right or wrong. They also taught us that there are only good and bad people.

But there are also the ugly people now. Racism in whatever form is sickening. We have all experienced it in one form or another.

None of these experiences were pleasant, even if they seemed minor and were not worth getting upset about.
But we need to stand up at some point and say that we cannot tolerate racism and will not allow politicians to get away with statements which cause unhappiness.

Neither should the government be seen to be dragging its feet when taking action against people such as the headmistress. Why in the world do we need a task force to investigate the simple case of a headmistress? It’s either she did it or she didn’t.

If she didn’t, and that the issue has been hyped up unnecessarily, let her enjoy her holidays in peace. If she is guilty, then act against her. Let’s get this case over and done with so the nation can move on.

The Education Ministry must also issue notices to all schools to stress that racist statements cannot be accepted nor tolerated and that action, including expulsion of students, would be carried out if anyone is found violating these rules.

This is a normal practice in many British schools and we should adopt this disciplinary code if we are committed to zero tolerance. It will be a mockery to have the 1Malaysian slogan painted on the school walls if the teachers or students within do not practise it.

We must be brave enough to confront racist bullies. We must be ready to tell those who claim to champion the cause of our community that their myopic line will not benefit Malaysia.

It is when some of us remain silent that we unwittingly allow these self-appointed community leaders to hijack our national goals. We must realise that by choosing to close an eye, we may well give the impression that we are silent racists.

The coming weeks will be a time when Malaysians come together to celebrate Hari Raya. It will be a time for sharing and, more importantly, for forgiving. Let politics take a back seat and use the opportunity to turn down the political decibel.

Malaysians cannot afford to be bogged down by inconsequential debates which put the country in a bad light. If Malaysia is seen to be divisive, racial, unsure and insecure, how can we expect investors to come here?

Just think.

Racism Malaysia NAH!!! ...

Political management vital for race relations, says Najib

By MAZWIN NIK ANIS
mazwin@thestar.com.my

PUTRAJAYA: Being mindful of one’s words and actions and not questioning issues agreed upon by the nation’s founding fathers and spelt out in the Constitution are critical matters in race relations, says Datuk Seri Najib Tun Razak.

The Prime Minister said it was important to regard the two points as “political management” because it was critical and equally important as managing the country’s economic and social affairs.

“Political management doesn’t necessarily mean politics based on parties and ideologies, and this (gathering) is not the right forum for me to touch on it,” Najib said at the Prime Minister’s Department monthly gathering here yesterday.

“Political management includes race relations. If one can refrain from uttering words or committing acts which can offend other races, then ‘temperature-raising incidents’ can be avoided.

“We also must not question what has been agreed to by our founding fathers, especially what is stated in the Constitution, which is based on the social contract among the different races.

“If we take heed of these two critical points, I believe we can further strengthen the country’s two pillars, which is national unity and political stability,” he said.

Also present at the gathering were Deputy Prime Minister Tan Sri Muhyiddin Yassin and Chief Secretary to the Government Tan Sri Sidek Hassan.

Najib said stability and unity would be threatened if race relations were not managed well.
He called on civil servants to embrace and understand the 1Malaysia concept so that the two pillars remained steadfast and strong.

“We will be celebrating Hari Raya Aidilfitri with the open house concept. Let us not just open our house to others. We should open our hearts and minds too. On behalf of the Deputy Prime Minister, the Government leadership, my wife (Datin Seri Rosmah Mansor) and I, we wish everyone Selamat Hari Raya Aidilfitri.”

How an economy grows and why it crashes

By ANDREW LEE
andrewlee@thestar.com.my

Author: Peter D. Schiff and Andrew J. Schiff

Publisher: John Wiley & Sons

WE never seem to run out of jargons whenever a recession is upon us. An economist marvels at the use of them – phrases such as capital control and fiscal stimulus are thrown around as though it were second nature to them (as it should be).

What of the common people though?

Many of us seem content with the validity of such terms and do not feel the need to question what they mean.
This leads to us assuming the meaning of certain phrases, without feeling the need to consult the great sage that is the world wide web.

My point is, few of us actually understand what we are talking about when we subtly slip in such jargons over coffee with our mates.

In fact, many of us assume that economics is a subject far detached from our everyday lives (a bit like nuclear physics) and that any analysis requiring knowledge on the subject should be left to the experts.

Indeed, piecing together how all the pieces of an economy fit together can be a daunting task – although, if anything, the imminent slow dip back into recession has proven that perhaps the experts themselves are having trouble as well!

It is a popular argument that it was the experts who got us into this mess in the first place.

The push toward Keynesian economics that began after the second world war was a time bomb waiting to explode – at the core of Keynesian’s ideas were that governments could smooth out the volatility of free markets by expanding the supply of money and running budget deficits when times were tough (there’s more jargon for you).

Common sense would suggest that such policy is not sustainable in the long run – all it does is create artificial bubbles in certain sectors of the economy that will come crashing down sooner or later.

How an Economy Grows and Why it Crashes by the Schiff brothers is an advocate of such common sense.
Inspired by How an Economy Grows and Why it Doesn’t by the Schiffs’ father Irwin, they have decided to write a more tongue-in-cheek book.

Using illustration, humour and storytelling, the authors attempt to take economics off its lofty shelf and place it back on the kitchen table where it belongs.

The book follows the lives of settlers living alone on a far away island, the actions they take to improve their standards of living and their eventual maturity into the strong, developed nation of Usonia.

Along the way, they face trials and tribulations not unlike those faced by the United States – in fact the reader will encounter many recognisable events and personalities in US economic history as the authors use this as an allegory throughout.

Certain names are changed for comic effect – Ben Bernanke is called “Ben Barnacle”, possibly to highlight his tendencies to inflate the economy, while Richard Nixon is referred to as “Slippery Dickson”, for obvious reasons.

The authors have done a fine job in explaining how economics is relevant to our daily lives.

It must seem taxing, forgive the pun, on us to attempt to understand how banks work, why self sacrifice contributes to society or why comparative advantages should be pursued – but the truth is that the answers to all these questions are much simpler than we think.

The book also does a good job of explaining how the global economic crisis came about.

Once mysterious jargon such as “credit crunch” and “sub-prime mortgages” become clear to the reader, as does the housing glut.

It is also interesting to note how politics seems to have begun to overlap with economics in Western countries, pushing the idea of civil liberties and the free market to the edge.

The converse might also be true, as governments in developing countries begin to realise the best way forward is by gradually relinquishing their control on their economies, thus allowing market forces to exert a greater degree of autonomy.

In hindsight, the best part about the book is that it is much more enjoyable to read than most daily financial papers or certain sites on the Internet offering dryer, more textbook style explanations (Wikipedia being the possible exception).

Somehow, the introduction of characters and events always seem to make any subject more appealing and accessible to readers, and that is certainly very true for a subject with a reputation for being boring like economics.

After going through the book, the reader will no doubt feel more secure over coffee table conversations, having picked up an understanding of economics like no other (as well as meanings to jargons one never attempted to find out).

It does make a person look less pretentious if he actually knows what he is talking about. I leave the last words on this book to a review I found on the Internet: ‘This is a phenomenal book that makes economics so easy a Congress could understand it. Very enlightening!’

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Banking Crisis Will Burden Future Generation

Oxford Analytica, 09.04.10, 06:00 AM EDT

Ireland's debt is accumulating

The Standard and Poor's (S&P) downgrade of Irish sovereign debt to AA- on Aug. 25 was consistent with the other rating agencies, yet it had a greater effect on market sentiment. This is largely a question of timing--in the weeks since the Moody's downgrade on July 19, the extent of Ireland's banking crisis has become better understood.

The Irish banking sector faces several problems:

--Asset write-downs. The scale of asset write-downs and debt defaults to which Irish banks, building societies and firms are subject has grown as assessments of the residential and commercial property and development portfolios of institutions have come to light.

--Banking crisis. Although no Irish bank failed the stress tests of 91 European banks, the European Commission approved 24.3 billion euros ($31.1 billion) to support the nationalized Anglo Irish Bank on Aug. 10. Three weeks later, on Aug. 31, Anglo Irish Bank reported the worst half-year results in Irish corporate history--a loss of 8.2 billion euros. The European Commission is expected to rule in the next few weeks on the Irish government's plan to split Anglo Irish into "good" and "bad" banks, though the weak capital base of any configuration of the former limits the relevance of such a scheme. In addition, Ireland's two main banks, Bank of Ireland and AIB, are now heavily subsidized and have also reported massive losses this year. AIB must raise 7.4 billion euros to meet new capital reserve rule requirements, or face state control.

--NAMA strategy. The prospects for a Swedish-style asset recovery under the National Asset Management Agency is rapidly decreasing. At the outset, it was expected that 80 billion euros of loans would be transferred from banks to NAMA, with a modest haircut of 20%. However, the write-downs are now well over 50%, averaging 38% for Anglo Irish Bank loans, while the Irish Nationwide BS loans were transferred at a 90% write-down. Due diligence has found that the banks misled NAMA about the real value of their loan books as well as the number of debts producing income streams.

--Public finances. The government's commitment to cut Ireland's deficit from 14.3% of GDP in 2009 to 3.0% by 2014 lacks credibility. Already, the state is borrowing 25 billion euros annually to finance public services despite harsh cuts in public sector spending. Rising unemployment and the associated uptake of social benefits are a further strain. Future hardship is likely, as the major domestic mortgage lenders have raised their non-fixed rates three times this year, despite the stability of the ECB rate. On Aug. 26 bond investors pushed 10-year Irish bonds to 344 basis points over German bonds.

Oxford Analytica

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Debt dynamics. The economic crisis in Ireland is about debt--individual, institutional and firm, and state. Peculiar to Ireland is the deep intertwining of the banking sector, state institutions and property developers, which produced convoluted, low-collateral loans, a porous regulatory culture and complacency about continuing property-based asset escalation. In a small state, gargantuan property loans take on similar-size debt.

Raising capital. Irish banks face debt repayments of about 30 billion government-guaranteed euros in September, with an equivalent amount of bank debt liabilities maturing in the rest of the year. Owing to the increased cost of Irish state borrowing, these banks will have to pay more than expected, which means they must raise fresh funds in the markets. Such banks' funding costs are normally based on government bond yields coupled with a premium. (The cost of Irish bank bond credit default swaps on senior debt has also risen.) If the banks have trouble raising capital to refinance, they will have to rely on the ECB, which further weakens sovereign debt spreads. The banks can use NAMA bonds (government-backed bonds which replace the real-estate loans deposited with NAMA, which are ultimately ECB-backed) to raise capital.

Outlook. Despite short-term success in raising capital in bond markets, debt is accumulating. Future Irish governments will have to pay back these bond-based borrowings. Taxpayers now face a generation of repayment. This debt, rather than the deficit, is the real fiscal challenge facing the Irish government and its partners within the euro-area.

To read an extended version of this article, log on to Oxford Analytica's website.

Oxford Analytica is an independent strategic-consulting firm drawing on a network of more than 1,000 scholar-experts at Oxford and other leading universities and research institutions around the world. For more information, please visit here.

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