Bolitics The New Condem Government

[peterms]

In the face of that, playing along with the notion that there's a massive problem about government budget deficit and we must sacrifice our long-held rights, is stupid in the extreme.

Unless we have a ready made system to replace global capitalism that can be parachuted in and universally agreed to on the day we tell 'the man' to go and swivel, I'm not sure what other option we have to paying our debts.

Unless we want to bin free trade and globalisation, we will have to compete with countries whose 'austere' social systems and wage structure would give your average European (steeped in the entitlement culture) a heart attack. How we achieve that is anyones guess and may be too painful politically to even attempt. Which leaves option one..

I'm not advocating defaulting on debts. However, neither do I think we should just do as we're told by the people who hold the debt. Who are they anyway? A mixture of bond traders, pension funds, banks; in many cases, our own citizens - so much for "selling our soul"; in many case, we own the debt, not owe it; it's part of our private wealth. And yet the loudest voice among these is the bond traders, the speculators, the short-term asset-strippers with the least interest in or commitment to the country where their cash is deposited today. It's like taking financial advice from a burglar.

It's true that there is an important point about "confidence", and this mystery ingredient can cause a disastrous run on a currency which governments struggle to cope with, or as in Black Wednesday, fail. I don't think though that this means we must simply do as we're told by some spotty 25-year-old trader and their expat, non-dom, non-tax-paying bosses.

We need a plan which is credible, even if it's not the standard IMF/bond traders "crap on the poor" idea.

For me, that means government intervention to reduce unemployment, tackle tax evasion, and invest in longer-term assets like education, sustainable energy, and the kind of manufacturing which will be exportable.

The current approach, cutting the legs away from long-term investment while making spiteful and counterproductive short-term cuts, just looks clueless. A bit like Osborne visiting Ireland and concluding that their approach, and that of Ben Bernanke, were the future. Arse.

[LondonLax]

A comment from a contributer to the Guardian comments section about the missmanangement by the Irish government.

Some prespective from the epicentre here in Dublin.

This is NOT about a failure of the euro or a one-size-fits-all interest policy. It isn't even about a systemic failure of the 'European project'. What it is - put plainly - is a history of grotesque mismanagement by the previous Fianna Fail/PD government aided and abetted by the staggeringly greedy and corrupt triumvirate of bankers, developers and estate agents.

At the height of the boom, Ireland was raking in vast shed loads of cash through the temporary and - most importantly – one off taxes such as stamp duty, VAT and various taxes on labour. These temporary revenue streams were then used to fund a current account but PERMANENT spending spree by vastly expanding the size and the payroll of the Irish Public Sector. When these temporary income streams then evaporated around the time of the crash, the permanent outgoings remained and caused our deficit this year to reach a worrying 12%. Interestingly, there are no recurring property taxes or council taxes for private property in Ireland – this as a result of a political ruse in 1977 by the omnipresent Fianna Fail to abolish domestic rates (council tax) as a populist means of assuring their re-election. 33 years on and Ireland remains the only country in the EU to have no recurring property taxes and the failure to do so has had a terrible impact on the already suffering local government sector here.

This above scenario was then coupled with the advent of the euro and the ability of Irish banks to borrow mind boggling amounts of cheap cash typically from French and German banks who were quite happy to fund our hubristic folly. Not one politician in power had the guts or the wisdom to shout stop. Regulation and prudence were thrown out the window while we wallowed in our new sense of self importance. Like the emperor with no clothes, we delighted in hearing of how our per capita GDP was the highest in the world and how Dublin had more Mercedes Benz cars per capita than California, or anywhere else for that matter.

….and then we got found out. When the cost of the banking bailout is added to the enormous public sector overspend we hit a new statistical low – an eye watering 32% deficit – the biggest recorded deficit anywhere since the War.

It has been a true bonfire of the vanities - the greedy developer who bought and ‘flipped’ several prestige hotels in London for outrageous profit for him and his greedy cronies is now skulking somewhere in Switzerland and afraid to face the consequences of his stupidity - the greedy banker who conspired to ignore all the known rules of prudent banking lent vast sums of other people’s money on extremely shaky property deals and is now living the life of a virtual fugitive somewhere in Cape Cod trying to avoid facing the music - the vile head of an utterly corrupt and crooked building society (S&L) took a eur1million bonus for himself while at the same time getting a 2 BILLION euro dig out from the Irish taxpayer.

Anyone Irish reading this knows exactly who these 3 princes are.

But everyone else should know who the real political princes are – Bertie Ahern (previous PM) and Charlie McCreevy (Previous Finance Minister) are the real architects of this disaster. They presided over the boom and got out just before the bust. They oversaw a vast and permanent expansion of the public sector here fuelled by temporary tax receipts. They were quite happy to let the banking sector let rip with lending on a scale never seen in history. They let the housing and property boom rip without doing an iota to adjust tax policies to try and take some of the heat out. At the height of the boom in 2006/7, Ireland built approximately 90,000 new dwelling units. The same year, the comparable figure for the UK was some 120,000. We are a population of 4 and a bit million – the UK some 62 million. Think about that one. In Leitrim, a beautiful but isolated county some 2 hours from Dublin, they have an ‘overhang’ of property of some 300 odd percent! I.E they have THREE TIMES the number of houses they actually need.

Not content with fueling public sector expansion, the dynamic duo of Messers Ahern and McCreevy then introduced an whole array of property based tax concessions which had but one effect – they put more petrol on the fire. They also oversaw a disastrous policy to try and ‘decentralise’ the public sector away from the capital which resulted in subverting land and property prices in many remote cities and towns in Ireland. In hindsight, it is quite easy to see now that this policy was driven by little more than party political considerations – a shiny new call centre in Kilkenny will clearly do wonders for our local man.

I’ll leave the last word to Charlie McCreevy, the policy er, ‘brains’ behind much of this madness. “If I have it, I’ll spend it”.

That you did Charlie.

[mjmooney]

Cameron rubbing his hands with glee at the royal wedding (could only be trumped by an England World Cup win). Expect a snap election just afterward (when he will be able to rid himself of his LibDem sycophants and condemn their party to the dustbin).

[Demitri_C]

mj if there is a snap election labour would win i reckon so wouldnt make sense to do one

[mjmooney]

mj if there is a snap election labour would win i reckon so wouldnt make sense to do one

Not after a royal wedding. It's a well-known rule.

[Bazdavies79]

Ive never heard of this rule?

[mjmooney]

Rule 42: "If there is a royal wedding, or England win the World Cup, the incumbent party will be re-elected by a landslide in the wake of the feel good factor" (See also: Falklands Factor)

[peterms]

Another interesting contribution from the Guardian's comment section:

Ireland is having relinquish its hard-fought sovereignty as a result of a complete breakdown of banking law enforcement and repeated attempts to cover-up the ineptitude of the government and the regulator.

I am the person referred to in Senator Norris' statement below. Norris is an independent senator with no party affiliation.

I resigned from my position as the risk manager of a foreign bank operating in Dublin in 2007. We breached minimum liquidity requirement by BILLIONS of Euro on a regular basis. I made sure the Regulator was notified at least on one such occasion.

In his statement to the Irish Seanad (Senate) in February this year, Senator Norris concluded:

"...I would like her [Deputy Brady] to take the message back to the Minister for Finance, Deputy Brian Lenihan, that there is ministerial responsibility in this matter.

This is a grossly serious matter which has been reported to the Financial Regulator. A man has lost his job as a result. He honourably resigned. The degree of breach was 40 times the accepted margin. This is a disaster. If we are not prepared to face the issue and investigate it when it has been laid before the House, there is absolutely no hope for the financial system or its reputation worldwide.

... I have made very clear requests that this matter should be examined. How can the Financial Regulator investigate himself? He was in breach of his responsibility. That is the first point.... It is not too much to ask in this Parliament that this should happen. I want the process to start tonight.... ."

I have brought the matter to the attention of several senior TDs (MPs) and Senators at all the major political parties; alas, silence prevails.

Whilst the catastrophic over-night breach that I had reported to the Regulator could have been theoretically remedied immediately, it is virtually impossible for it to have been a 'once-off' event, had we been abiding by the terms of our banking license. Chaos prevailed and by the time the Regulator's team arrived for a scheduled audit, they made sure that communication with the London consultancy whom I had brought-in to sort out the mess, was promptly cut-off. By then, I was no longer attending the office, but was on 'garden leave'.

Although my position had been confirmed by the bank's board of directors only shortly before my resignation, and my resignation clearly stated that it was due to integrity issues at the bank, the Regulator's team made no attempt to contact me then, or at any time since then.

The official protocol of Senator Norris' statement is available under 'Financial Regulation' (3rd from the end of the list) at:

http://debates.oireachtas.ie/DDebate.aspx?F=SEN20100223.xml&Page=1&Ex=743#N743

The workings of Ireland's Financial Regulator are best displayed in the following example from the actual regulation in relation to liquidity management. This is the link to the 2006 legislation that came into force in 2007, as seen in paragraph 9.4 Implementation (page 27 of pdf):

http://www.financialregulator.ie/industry-sectors/credit-institutions/supervisory-disclosures/Documents/Requirements%20for%20Management%20Liquidity%20Risk.pdf

Having failed completely at enforcing his own regulations, the Regulator then re-issued the above regulation in June 2009. Although the preamble refers to Banking Acts dating as far back as 1942, there is no reference to the fact that these liquidity requirements came into force in 2007. Here is the link to the 'new' regulation. The person who can find paragraph 9.4 in this document might also be able to find Ireland's missing billions (observe pages 28-29 of the pdf file):

http://www.financialregulator.ie/industry-sectors/credit-institutions/Documents/Requirements%20for%20management%20liquidity%20risk%20June%202009%20Final.pdf

Parag. 10 which stipulates possible imprisonment penalties for breach of liquidity regulations remains unchanged. Ireland is now on the verge of financial meltdown due the most severe liquidity crisis it has ever faced, yet not a single executive is in prison.

The only specific response by official Dublin to Norris' allegations appeared in Ireland's Business Post:

http://www.thepost.ie/story/eysncwauoj/

The Regulator told the Post that his records differ; quelle surprise?

PS to follow...

PS to my comment above:

1. In his reply to Senator Norris, Minister Lenihan referred to Ireland's reliance on ECB funding through-out the liquidity crisis, in return for which Ireland was offering full cooperation with Eurozone countries. However, although Minister Lenihan was provided by Senator Norris with the name of the offending bank, Minister Lenihan did not give any indication that the authorities in the central-European country in which the parent bank is domiciled were informed of this calamitous breach. Surely, had Minister Lenihan, or the Irish Regulator, informed their continental counterpart of this incident, they would have been eager to state that on record?

Sachsen Landesbank and Hypo Real-Estate (Depfa) Bank both neared collapse on account of their mismanaged and poorly regulated Irish operations. LBBW Bank and the German taxpayer, respectively, will be paying for these fiascos for years to come. Would it not have been proper order for Minister Lenihan to ensure that the failings of this yet-to-be-named Dublin-domiciled bank, which is part of one of the largest banking groups in central Europe, to have been brought to the attention of its regulating authorities? Perhaps that would just have been too embarrassing; it was bad enough that an ex-governor of the Central Bank of Ireland sat on Depfa's board of directors when it was allegedly about to go under:

http://www.irishtimes.com/newspaper/finance/2010/0102/1224261527333.html

Derek Scally, The Irish Times correspondent to Berlin, wrote last August:

"...as long as things weren’t broken, no one saw a need for a fix. An unholy trinity of events changed that, beginning in September 2007.

After years of record returns, Saxony’s Sachsen LB state bank realised its Dublin-based subsidiaries had been gambling off the balance sheet and needed €17 billion overnight to save the entire group from collapse. A second pile of debts worth €600 million were subsequently uncovered.

A whip-around from Germany’s banks saved the day, and a fellow state bank eventually bought the Saxon operation. But the near-disaster meant years of gossip about the IFSC [irish Financial Services Centre, WhistleblowerIRL] in Germany turned into open speculation about the veracity of Dublin’s reputation as a serious financial marketplace.

Then in June 2008 the Irish rejected the Lisbon Treaty, a document the average German had never read or heard of. No matter: the No was perceived here as a slap in the face from Irish ingrates to generous Germans, a view which, when fixed, was impossible to shift.

Four months after Lisbon, Ireland was back in the German headlines after the IFSC-based Depfa bank, a subsidiary of Munich’s Hypo Real Estate (HRE) property lender, ran out of funding and required a package of emergency loans and guarantees that would eventually top €100 billion. Amid a huge political scandal in Germany, HRE was finally nationalised."

http://www.irishtimes.com/newspaper/finance/2010/0813/1224276713254.html

2. The Irish government has made sure that all of the so-called bank investigations, Regling & Honohan in the past, Nyberg in the present, will not go near the foreign banks operating in Dublin. These have been kept outside the remit of their mandates.

Regling & Honohan did as they were told by Minister Lenihan and did not mention names of specific executives who drove the Irish banks into the ground. So you see, its no one's fault really.

3. Minister Lenihan announced on RTE (the national tv station) that bankers were not being sent to prison because the Irish law does not provide for it. He rightfully counted on the fact that no one would remind him of paragraph 10 of the Liquidity Regulations (see my comment above). Where is the esteemed Law Society of Ireland? Why have the Law departments of Ireland's universities kept silent about this? could it be because they are all paid by the state?

4. The only people who are paying the price for the crimes committed by bankers and the Regulator, with the blessing of the government, are my fellow Irish citizens - the young who are forced to leave the country by the thousands, the families who can not afford the next mortgage payment, and the elderly and infirm who await their misfortune with horror.

5. A prominent member of one of the opposition parties recently said to me - "we can't afford the consequences of revealing this story, we already have enough to deal with if we come to power".

Prime Minister Cowen was Minister of Finance when I resigned in 2007.

Generations to come will judge our politicians harshly for allowing our country to be destroyed.

[Amsterdam_Neil_D]

I have always wondered about this, if a country is on it's knees such as Ireland why can't the UK buy loads of their companies for a cheap price. Let's say Electric or gas companies for example, we buy them (UK Government) using treasury money as an investment. We can then put up the prices in Ireland by 15 % and reduce the price of in the UK by a similar amount (not the exactly the same as the population of England is more than Ireland).

The UK is not in the € so it must be better to take advantage of the weak countries to make the lives of the English better.

I am not saying we should do it to Ireland, they are an example but France and Spain would definitely be an option.

I am sure that foreign countries own things in the UK so why can't we do it ?

Just a question...

[Gringo]

Why not just nationalise the uk energy companies, lower the prices and put more disposable income into the pockets instead of pumping up profits and dividends for offshore hedge fund shareholders.

[Meath_Villan]

Hummmm on its knees really ?

[Amsterdam_Neil_D]

Hummmm on its knees really ?

Ok, not on it's knees. How about leaning forward, that OK for you ? I forgot it was now a Global powerhouse again.

It was only an example as it was in the news today and i thought about on the way to work, OK, Portugal or Greece.

[Meath_Villan]

[peterms]

Hummmm on its knees really ?

Ok, not on it's knees. How about leaning forward, that OK for you ? I forgot it was now a Global powerhouse again.

On its knees might be an understatement. In a critical condition may be more appropriate.

The relatives are arriving to cast an eye over the furniture and valuables, and Dr Shipman's taxi is just pulling up outside.

[Jon]

If The Irish Economy is on its knees, who is about to suck off?

:oops:

[Chindie]

If The Irish Economy is on its knees, who is about to suck off?

:oops:

The entire EU by the looks of things.

And thank it for the genorisity of giving it something to suck off.

[peterms]

If The Irish Economy is on its knees, who is about to suck off?

:oops:

German bondholders mainly, according to Guido Fawkes.

[snowychap]

A fool or a knave: Did Duncan-Smith mean to mislead parliament?

Mind the gap

The key statistical comparison that the government has been using to justify its cuts in the local housing allowance is now looking even shakier.

In last week’s parliamentary debate, ministers repeatedly cited the fact that LHA rates rose while private sector rents were falling between November 2008 and February 2010 as evidence that the market was distorted by housing benefit.

Work and pensions secretary Iain Duncan Smith told MPs: ‘We now know that, according to the Office for National Statistics, the private marketplace in housing - Labour Members are completely wrong about this - fell by around 5% last year. At the same time, LHA rates, which the previous Government had set and left to us, had risen by 3%. There is thus a 7% gap with what is going on in the marketplace.’

As I blogged last week, the same figures were used in a briefing to journalists ahead of the debate that ‘landlords from the private sector are taking advantage of the housing benefit regime’ and ‘cashing in by pushing up rents’.

‘What we want to do, by working with councils, is to drive those rents back down,’ Duncan Smith went on in parliament. ‘The purpose of these changes is to give a real impetus to getting the rents down to make affordable housing more available in some areas.’

His reference to the ONS puzzled many people as they were unaware that it produced any statistics on private sector rents. And the Department for Work and Pensions has now confirmed to me that the source of the 5% figure was in fact the rental index set up by find-a-property.co.uk (now findaproperty.com), a website owned by Daily Mail publisher Associated Newspapers.

However, the problem with the figures goes way beyond the issue of what I am sure was IDS inadvertently misleading parliament about their source.

First off, rents for advertised new lettings are not a guide to rents in the market as a whole and especially to the rents of tenants who remain in the same property.

Second, findaproperty records asking rents rather than actual rents in its quarterly survey. Although its methodology adjusts for weightings by region, property type and number of bedrooms, that needs to be borne in mind because asking rents (just like asking prices in the for sale market) tend to be more volatile go up more in booms and down more in busts.

Third, findaproperty appears to cover a different part of the market to the local housing allowance. The average findaproperty rent in March 2010 was £820 a month - almost double the average amount of LHA paid.

Fourth, the comparison fails to consider what’s happened since February 2010. Between March and September 2010, findaproperty’s index rose 3.8% from £820 a month to £851 a month. In June the website’s property analyst Nigel Lewis said: ‘Rents have gone from strength to strength during the first half of 2010. The resurgence of the sales market has left tenants short of options and the result has been increasing rental prices.’

And in September he said: ‘Average rental prices are back up to where they were two years ago and I can only see them going up even more.

‘Stock levels in both the home buyer and rental markets are dwindling, and would-be buyers are still having a hard time getting mortgages. This is all putting increased pressure on the available rental stock which pretty much makes it a landlord’s market at the moment as they can effectively name their price.’

However, if it’s a landlord’s market and landlords are taking advantage of housing benefit, why did the average weekly award for LHA tenants only rise by 0.05% (from £112.85 to £113.43) between February and July 2010?

Fifth, as I blogged on Friday, the DWP’s own stats do not seem to support the view that the LHA somehow distorted the market. LHA awards only rose by a little more than non-LHA private rents in the period quoted by ministers and awards paid to private regulated tenants and housing association tenants both rose by more.

[ender4]

housing benefit rates went UP between Feb & July 2010???

why the hell did happen during a recession?

[peterms]

housing benefit rates went UP between Feb & July 2010???

why the hell did happen during a recession?

Benefit rates change each April, based on inflation rates the preceding September.