The kindness of strangers

Eventually we were found out on the banks. What looked like the cutest move 2 years ago to guarantee al the account holders in Irish banks and the bond holders who leant to them to a total value of €300 Billion has bounced on Fianna Fail, the Greens, Fine Gael and Sinn Fein. Tonight its clear that the EU and the IMF see the down side of this.
Bail Out 1 in 2008 was rolled out to restructure the banks leading to the line under the affair on Black Thursday in September. The problem is that the value of €50 Billion which FF told us would be the cheapest bail out ever and that would ensure Ireland would be the first out of recession has only made matters worse because the €50 B figure isn’t believed anymore by the money market.

So the advance party is on it’s way and will be here by the end of the week. The problem is that the Greens and Fianna Fail nationalised banking debt accumulated by bank rolling the FF developer buddy clique. The prospect of allowing Anglo or the Irish Nationwide to go to the wall was a step too far for FF and the greens. Thence the ultimatum that seems to have been given from EU member states as the prospect of dithering is destabilising the euro and pressurising Spain and Portugal. The big question is has the EU got enough to support the Spanish and Portuguese economies? So when they plane lands at Dublin Airport in the next few days and the officials from the EU or ECB or IMF or more likely all 3 arrive in Merrion St they should consider bringing a bottle of whiskey to break the atmosphere. As the old Irish proverb says “There’s no strangers here only friends who haven’t yet met”

Black Thursday was supposed to draw a line under the past however the markets don’t believe the government’s figure of €50 Billion. Indeed the markets have made their mind up on the government. The humiliation of a nation will follow as Fianna Fail will dress the bail out as a bank bail 2!
They’ll continue with the line that there is no bail out but there is additional support for the bank industry. What they won’t point out is that the bank guarantee scheme backs private debt with the states resources! In 2008 the fiscal difficulties that our government adjusted spending to cope with were caused by a reduction in tax income not by a spending requirement to sustain the unsustainable. Throw in the national fault lines within the eurozone and the internal need to support each states own economy and it’s a short hop and a skip and a jump from the Galway Tent to Anglo Irish to Merrion St and before you know it you’ve the Euro on the slide and the internal economies of 5 states in the melting pot.

As a guide to how we’ve fallen Russia Today has some guy comparing Ireland to a 3rd world dictatorship where the general has made off with the money. In such countries at least a coup usually followed. So how close are we to social strife now? Where will this end for Cowen, Ahern, Harney, McCreevy and the banking elite? The kindness strangers is seemingly more attractive to our society than the greed of old friends.

Lenihan “At The Races” as NAMA staggers to the starting post

So now we know how NAMA is proposed to work. A very telling error appeared on RTE’s Six One this evening as Brian Lenihan explained how NAMA would work. For about 45 seconds of the vital interview with Bryan Dobson in the top corner the term “At The Races” appeared when the picture cut to the Minister at Government Buildings. Very apt for the gamble of the century which Fianna Fail and The Greens are about to undertake on behalf of the banks.
The following figures are frightening and are the money behind the FF & Green gamble;


Potential total book value for transfer to NAMA 77bn
Interest Roll up Estimate 9bn
Balance excluding roll up 68bn
Approximate average Loan To Value ratio 77%
Assets value at origination 88bn
Potential decline in property prices approximate estimate 47%
Estimated current market value of underlying asset 47bn

The bung for the dubious honour of doing the business with FF’s banker and builder friends is €7Billion. That’s almost doubling spending at a stroke on the HSE without any plan how to spend. Long term economic value? Sounds like playing for short term political survival. Of course the seeds for this were sown in the bank guarantee scheme of almost a year ago. The bankers have won once more at the expense of those who need social welfare, an education or medical attention. Developers have now morphed into Borrowers,

Finance Minister Brian Lenihan’s attempt to soothe the anger ignores many worries behind the scene. Justice Frank Clarke decided last week that Zoe’s chances of survival were slim and that the economic recovery plan was unlikely to succeed. What are the chances of the empty houses in the market (overhang) being sold in the likely context of growing unemployment and increased interest rates in 2010? If rents are falling and the number of vacant houses rising, who’d buy a new house if repossessions climb? Who’ll have the money to buy a repossessed house? I don’t know where the bottom of the Irish market is although I accept that the minister may be right and that values may increase by 10% over 10 years don’t forget that about 20% of the NAMA land is outside the state and that some of these countries may already be out of recession so the increase in property prices will not be evenly spread but the rising foreign tide may give a false impression of the domestic Irish boat. A recent survey in Mullingar showed about 20% of Main St property vacant. There’s nothing to suggest that this observation is unique to Mullingar. Surely that should drive the rental cost of commercial space down? Then why is NAMA banking on an increase in rental? The great unknown is what happens to demand for housing if emigration takes off when European economies come out of recovery in terms of employment. Profitability often precedes an upturn in employment, if France, UK or Germany are out of recession, workers here will be attracted to those economies. I disagree with Brian Lenihan, I think we’ve yet to see where the bottom of the market is because we don’t know hat price houses will start to sell again at. Certainly some of the advertised prices in local papers in Wexford are still well beyond of what people can afford because of pay cuts, unemployment etc. I believe that the state will soon be left holding the baby while the bankers who Brian Lenihan tells us should be grateful to us will once again smile smugly into their G&T as they get away with the money.

NAMA = Need Another Major Allocation

Slowly the grenade lobbed in at the end of the budget is going off. NAMA was created to get the Galway Tent brigade off the hook. Lets tease the mess out a little; Banker loans speculator money to buy a site. The higher the loan, the higher commission paid to banker. Site fails to progress, speculator is due to meet payments so bank hits the wall as he’s got no cash. In steps the state to set up NAMA. NAMA will use tax payers cash. The less they pay the speculator for the devalued asset, the more the bank loses on its loan and the more the pressure on the banks! The more NAMA pays the speculator the more the tax payer is hit up to €80 Billion according to Brian Lenihan.
So impaired loans or structural deficit are two sides of the one coin. I don’t hold with the view that every other country has the same problem. They don’t. The problems are significantly less in France, Belgium, Sweden, Denmark, interestingly countries that spend a lot on social infrastructure.
Which brings me back to something that many people are starting to ask me; why are Fianna Fail attached at the hip to speculators and bankers? It seems a case of buy one Fianna Fail councillor and get a commercial development free! They used to say the sun doesn’t set on the British Empire, it seems as of yesterday that the sun has just come up on an Irish tax payer sponsored property empire. This empire stretches further than the British Empire ever stretched, from Dubai to Dungannon, from Florida to Finaghy, we’ve bought the lot, but for how much extra? €30 Billion of what we’ve taken on is outside the jurisdiction.
Why are we propping up developers elsewhere? What is stopping a developer with a limited liability or indeed a number of them acting together, disposing of an asset to NAMA, then effectively choreographing the bidding to avoid competition and re-secure the same asset at a price less than that originally paid by NAMA? If crony capitalism was an Olympic sport, Ireland would win the team medal every time!
Emperor Lenihan like his boss as portrayed by Conor Casby has no clothes. The international banks have downgraded the credit rating of Irish banks who let the cowboys loose in the first place. David McWilliams predicted a number of months ago that the state would have to nationalise all the banks. I’ve concluded it’s got to go that way simply to protect what else is left of our economy against collapse. Nationalise the lot, take the speculators land both here and abroad. There’s a hit on the way anyway for the likes of me in the PAYE sector who’ve always been stuck with shouldering the cost of this state at every turn, would it make me feel better if manners was put by the market on the slump coalition of Fianna Fail, Speculators and bankers? Figure that one out yourself!

Nationalisation the Irish solution to the Anglo Irish problem

Some time ago I got a contribution on a post on Anglo Irish from a pensioner who invested a significant sum in Anglo Irish and now it was almost gone. Tonight’s nationalisation effectively ends that investment and its people like him who I have most sympathy for tonight, his money is gone and he will have to accept whatever the government proposes as compensation and to add insult to injury he’ll now see his taxes go to fund the bank into the future.
According to George Lee the government u-turn occurred as significant investors had withdrawn money during the week and there was a fear of a run on the bank. Interestingly the move occurred just hours ahead of the EGM when shareholders were set to ask hard questions of the directors and executives not just in relation to the loans to the former CEO and Chairman Sean Fitzpatrick and as to who in the bank knew what and at what stage but also in relation to the role of the auditors and the Irish Financial Services Regulatory Authority. The defence by IFSRA at the Dail committee this week that officials knew in Autumn 2007 about the activities of Sean Fitzpatrick yet did nothing as they were “too busy” raised many eyebrows among investors. No other issue has publicly brought so much attention to IFSRA so one wonders as to the extent of the matter that officials considered more important than the mere borrowing of in excess of €78M by an official from his own bank that had kept IFSRA busy at this time!
Based on the share price about 35% of the banks present capitalisation is presently tied up in a loan to Mr Fitzpatrick. I hope that Mr Fitzpatrick will be able to meet his obligations to his new shareholder and it would be interesting to have heard from the EGM where the money was invested by Mr Fitzpatrick and as to how he proposed to repay. The reason for the EGM has now disappeared but it goes ahead without a motion on recapitalisation.

Other questions need to be answered about the purchase of shares in Anglo by Sean Quinn and as to how this purchase was financed. As with the Fitzpatrick loan the purchase was less than transparent. I actually expected the government to move much faster at Anglo and I posted about a month ago that it could well happen over the Christmas when most markets are closed. It is certainly very unusual for a nationalisation to happen over a working night and not a week-end. Is it any wonder that the NY Times described Ireland as the wild west of European finance? The state will find it cheaper to buy the bank using the NTMA rather than re-capitalise. Trading in shares will be suspended. But what now for the country’s newest civil servants, what will happen the bank?
It seems to me that the bank is finished. Fianna Fail, the builders and the bankers may look on the nationalisation as the end of an era. However with the right management I hope something could be saved and it could be the start of a new epoch. But this move is a reluctant move and the government statement shows no sense fo being committed for the long haul or bing prepaed to resell in the medium term. There is a certain irony of Fianna Fail and the Green Party complete with Trevor Sargent who famously produced cheques sent to members of Dublin County Council from developers now stepping in to save developers from collapse by shoring up the bank that lent them money in the first place. The golden circle of Fianna Fail, money and speculators continues to thrive despite fiscal adversity using as cover an excuse that if one bank fails they’re all in trouble. Lets see the state taking as supportive a role with pension schemes many as insolvent as Anglo Irish Bank. I think an inspector should be appointed to look forensically at the bank’s activity in the past and deal with historic issues and that a management team be appointed to work through the bank’s commercial debts/loans and see what can be retrieved from that for the benefit of the new shareholder, the citizen.

Buddy can you spare €100K?

This morning as I slept I possibly lost the house. How could you do that when you’re in deep slumber, you may ask? Well when I woke up I found out that my mortgage provider had been fireproofed against the creditcrunch by our government to the tune of €100K per citizen. Given that I’m 11 years into a 20 year mortgage the chance of me welching on our agreement are pretty slim so it was a shock to find out that not only am I liable for my own loans but potentially liable for dodgy loans that were given to customers who could not maintain their payments and should not have been given these loans in the first place by the banks. So needless to say I’m shocked. I've used figure like 400 B before but in the context of explaining Avogadro to Chemistry students

However, I’m more than shocked to find out that senior fat cat managers in all our banks have now embraced the state intervention so much. Lets mix metaphors and lay off the fat cats but it all sounds like something from the movies where Lassie finally makes it home through the gate, wagging its tail at its faithful master, leaner in the absence of nourishment but back where he belongs. Poor Lassie couldn’t hack it in the real world so back to mother’s apron strings it goes. Lassie doesn’t get to tell the tale and the master is never the wiser, it’s a real happy ending to a tug at the hear strings story.

Except this is the real world and its not the movies, or if it is its Gordon Gecko from Wall St. Gecko double crossed every one he dealt with. In business and politics, information and timing is everything. What the government don’t know is how much bad debt the Irish banks hold. What the government can’t do is protect Ulster Bank, Rabobank or National Irish Bank customers and what happens to those jobs if there’s a run on those banks into banks like TSB, AIB, BOI or Anglo Irish? Is this a ploy to attract cash to these banks at a time of international uncertainty and lack of confidence? Irish banks now look like a relatively safe port in a storm, but what storm? If this goes pear shaped how much will bank customers have to fork out to keep the fat cats in clover? How much is the state going to charge the financial institutions for the country's good name? All that has happened is that the good name of the country can be used to back Irish banks.

The decision to guarantee bank lending without a returning share issue is an enormous risk. Tax payers exposed, national credibility given to financial institutions, nothing in return. What is there to prevent an Irish bank being taken over and the states guarantee being used to protect a third party institution outside the jurisdiction? Not a lot. Those who live by the market die by the market. Markets are not there to preserve but to predate. Sentimentality, sense of community and protectionism are vane and poor reasons to protect those who behaved so greedily in the past. Ironically the building society that lampooned the banks with its “back of you bankers” ads now is itself a bank!

The legislation is being rushed through the Oireacthas as I type. There’s no word yet about guaranteeing those who’re in danger of losing homes because they can’t afford mortgage payments. These people usually don’t turn up in a FF race course tent unless of course they’re working there. Rather than wake us up to the reality of the market place this action by the government will lull us in to a false sense of security. Perhaps a case of buddy can you spare a pig in a poke?