The following very strong, very revealing letter was published in the Irish Examiner last Saturday.
Beware third party rules on mortgage transfers
“In our view, the code could potentially slow the increase in mortgage arrears in Ireland, and may allow lenders to start repossession proceedings sooner.
“We view this as a credit positive for the senior notes in outstanding residential mortgage backed securities.”
The important line is the second one. Your mortgage was sold to third parties by your bank. These third parties are hedge funds, insurance companies, etc.
These are the senior note holders. Your bank was paid in full for your mortgage by these institutions. Your bank now acts as a debt collector for these third parties. Basically, they bought your promise to pay from the banks.
The Irish Central Bank rules clearly state that a debt cannot be sold on to third party investors without your consent. If it was then the debt is null and void.
The next question to ask yourself is was your mortgage sold on to investors? The answer to this question is the same as the one about the bear, the woods and toilet facilities he used.
So unless you received a letter stating your mortgage was no longer owned by your bank then your mortgage is null and void.
This is just another example of the multi-layered fraud that continues daily in this country, all perpetrated by the suited and booted ones.
It will continue until you no longer give your consent.
The Central Bank headquarters in Dublin (File photo)
NEITHER THE DEPARTMENT of Finance nor the Central Bank will release the so-called ‘Black Book’, a crisis management manual intended to assist officials during financial crises, which was never used during the bank crisis five years ago.
The ‘Black Book’ is referred to in the Nyberg report into the causes of the banking crisis which led to the fateful guarantee of Irish banks in September 2008. The report notes: “In the actual crisis no use was made of the Black Book procedures.”
The manual lays out procedures for emergency funding from a Central Bank or emergency liquidity assistance (ELA), guidance on legal issues related to insolvency processes and providing state aid to industry, and information on how to contact the responsible persons in a crisis.
It has been in existence since 2001 when it was prepared by the Central Bank of Ireland to provide for a set of processes and procedures to refer to during the management of financial crises.
But it was never used when Ireland’s banks were plunged into crisis at the back end of the last decade resulting in the eventual guarantee of all liabilities of Irish banks at an eventual cost of €64 billion, a move which later resulted in Ireland needing an international bailout.
The manual was referenced in a parliamentary question from independent TD Stephen Donnelly this week.
Donnelly asked the Minister for Finance Michael Noonan if he would release a copy of the ‘Black Book’ as it existed at the end of 2006 or as it was redrafted in the crucial period leading up to the banking crisis between August 2007 and September 2008.
Noonan said the manual was passed to the Department of Finance “on the understanding it would be treated in strictest confidence given the nature of the matters treated in the document”.
He described the ‘Black Book’ as a document which lays out a “set of processes and procedures to assist it in the management of a financial crisis situation”.
“I do not therefore propose to provide a copy of the document,” Noonan said.
Contacted this week, the Central Bank declined to answer a series of questions about the document including the content in it, how many times it has been updated and when it was last updated.
A spokesperson said that the document laid out “the principles under which the Central Bank would operate during a crisis; operational procedures and terms and conditions for ELA; legal issues relating to insolvency laws and state aid to industry; and information and logistic issues such as arrangements for contacting the responsible persons in a crisis.”
The spokesperson declined to comment any further.
With laws that make foreclosures almost impossible and a financial sector stuffed full of bad loans, the Emerald Isle’s problems might only just be getting started
Among the many nasty side-effects of the European debt crisis, bigotry’s return to pleasant conversation may be the least-commented upon, and the nastiest.
Granted, few actually say Germans are power-hungry, anal-obsessed skinflints. And it’s only usually hinted broadly that Spaniards are hot-blooded, undisciplined spendthrifts; and Greeks shiftless tax-dodgers. Those people, you know?
Likewise, Ireland’s debt-fueled housing boom and banking bust–which eventually dragged the entire country under–is often dressed in ethnic livery. The Irish went on a bender and they’re dealing with the hangover. They’re guilty, have confessed their sins and willing to years of painful austerity budgets as penance.
That last bit, the submission to painful remedies demanded by foreign authorities, has earned Ireland something of a starring role in the ongoing European morality play: that of “the good debtor.” (“Greece has a role model and the role model is Ireland,” Jean-Claude Trichet, former chief of the European Central Bank, famously said back in March 2010.)
But this overlooks a few uncomfortable details. Ireland’s homeowners are the European and perhaps the world champions in not repaying mortgages. The country’s national debt has increased fourfold in about as many years. Its banking system is being kept afloat by borrowing from Europe. And while a change in the law may soon force the banks to start cleaning up their balance sheets, nobody is quite sure how bad a mess they will find there when they do.
Welcome to Ireland, where the hangover is in fact just beginning.
In the last few years, a staggering number of Irish homeowners have simply stopped making mortgage payments. The Irish central bank says that at the end of December 2012, 11.9% of Ireland’s mortgages were late by more than 90 days, up from September’s 11.5%.
And the truth is probably even worse. The chart above, which was produced by Deutsche Bank using Moody’s data, pegs the percentage of Irish mortgages that are three months late somewhere closer to 16% in September. S&P analysts argue that 25% of Ireland’s home loans are in some kind of trouble, either behind on payments, or in foreclosure, or in forbearance, which is when the bank just isn’t collecting payments. (We’ll get to why later.)
Why? To be sure, things are tough in Ireland. The recession has driven unemployment from less than 5% at the end of 2007 to more than 14%. Incomes have crumbled.
But Greece is in an even worse economic crunch. Unemployment is at 27%. The economy has shrunk by 25% since the end of 2007. Newly impoverished people are turning to firewood because they can’t afford heating oil. And even so, the amount of Greek mortgages in late-stage arrears was only 5.1% in November, according to Fitch Ratings.
What’s going on here?
Safe at Home
The simple answer is that Ireland is one of the hardest places in the world to drive a family from its home. Though thousands aren’t paying, repossessions of Irish homes remain “negligible relative to the level of arrears,” according to a recent report by Moody’s analysts.
The most recent update on repossessions from the Irish central bank shows that during the entire fourth quarter of 2012 only 38 houses were repossessed by court order. At a pace like that, it would take more than 620 years to get through the backlog of nearly 95,000 mortgage accounts that are at least 90 days behind on payments.
The chart to the right is a look at the levels of problematic loans–that is, loans in arrears–in Ireland and neighboring Britain. In Ireland, repossessions are effectively non-existent.
In fact, Moody’s analysts note that the number of Irish delinquent on their mortgages shot higher in 2012, just as political discussions centered on the possibility of a large-scale debt forgiveness plan. (It never materialized.) Moody’s suggested that the increase was driven–at least in part–by some who are gaming the system. “The current dearth of repossessions and the recently proposed personal insolvency legislation is starting to result in higher defaults due to moral hazard,” the analysts wrote.
That’s financial-speak for “people think they can get away without paying their mortgage because they know they’re not going to lose their house.” Gregory Connor, a professor of finance at the National University of Ireland in Maynooth, estimates that about 35% of those who have fallen into arrears on their mortgages have done so “strategically.” That is, they can afford to pay, but just aren’t.
Birthplace of the Boycott
There are any number of explanations for the dearth of Irish foreclosure. For one thing, Irish courts ruled in July 2011 that Ireland’s recently revamped foreclosure law contains a massive loophole. Long story short, the judge found that the law allows lenders to foreclose only on mortgage loans made after Dec. 1, 2009, when the new law went into effect. After the judgement, arrears shot higher.
The legislature could fix the the problem by passing a new law. But it hasn’t (although one is expected soon). And that’s likely because any Irish politician introducing such a bill would be brave indeed, given long-standing antipathy towards foreclosure and evictions among the Irish public.
After all, modern Irish patriotism first coalesced as a revolt against unfair evictions during the so-called land wars of the late 1800s. The period gave Ireland some of its earliest and most enduring political heroes–Charles Stuart Parnell, Michael Davitt–and villains, such as Charles Boycott, an unpopular, English-born magistrate and collector of rents from Irish tenant farmers. He gave his name, or rather he had it given for him, to the method of organized, non-violent shunning of which he was the subject until he was ultimately driven from the island.
Ancient history? Perhaps. But the notion of the sanctity of the family home still carries considerable weight in Ireland. In fact, the inviolability of a citizen’s dwelling is laid out starkly in article 40, sub-paragraph 5 (pdf, p. 158) of the constitution. So present is Ireland’s unpleasant history with eviction that Irish prime minister Enda Kenny felt compelled to give it a nod when he introduced a new personal insolvency bill last year. “There is probably no time, since the Land War, when the Irish people have felt so stressed, so anxious about their home and their family’s future security,” Kenny said. Given such historical and political backdrops, it shouldn’t be a surprise that Ireland’s legal and regulatory system is, as Moody’s put it in a euphemistic moment, “borrower friendly.”
You Really Owe It to Yourself
But historical roots or not, Ireland’s arrears mess is a real problem. It means somebody lent money and is at increasing risk of not getting it back. So who might not get paid back if Irish homeowners continue on their current path of flaky repayment? Here, things get a little bit circular.
You see, during the boom years Irish banks made the bulk of house loans that are now going bad. But the Irish government–that is, the taxpayers–now owns a large share of those banks, thanks to the roughly €64 billion ($82 billion, or 40% of GDP) it has poured into them since 2008, according to S&P analysts. So in a sense, Irish homeowners owe this money to Irish taxpayers, who are one and the same.
But wait, there’s more.
You see, Ireland itself didn’t just happen to have €64 billion lying around. It had to borrow it. Here’s what that did to Ireland’s debt-to-GDP ratio, which has surged since Ireland issued a blanket guarantee on bank deposits and debt in 2008:
High Irish debt levels spooked the markets, as investors lost faith Ireland would ever be able to manage under the burden. Ireland ultimately had to itself be bailed out by a €67.5 billion line of credit from the “troika” (the ECB, the IMF, and the EU) on Nov. 28, 2010. And in a sense, that means that some of the risk of Ireland’s derelict homeowners is being born by its European neighbors.
Nor did Ireland’s bailout mean its financial system was magically returned to the good graces of the markets. Its partially nationalized financial institutions still depend largely on borrowing from central banks to keep the lights on. The banks post some of their assets as collateral and get cash in exchange. Here is a chart of ECB lending to Irish banks, and you can see it surging as Ireland’s financial crisis worsened. It has fallen quite a bit over the last couple of years. But there were still €61.88 billion in ECB loans out to banks in Ireland at the end of February.
The Europeans Have Noticed
Ireland’s European lenders–the EU, the IMF and the ECB–know that the surge of bad mortgages is exposing them to increasing amounts of risk. And they don’t like it. In fact, in their latest report card on Ireland’s bailout program, they laid out steps the Irish government had to take to update the loophole in the 2009 foreclosure law, the one blamed for holding up foreclosures and repossessions. Those changes to the law are to be made “so as to remove unintended constraints on banks to realize the value of loan collateral.” In other words, the troika is telling Ireland to make it easier for banks to repossess and sell properties. Irish legislators are expected to pass a revamped law removing the loophole this summer.
So What’s the Real Risk Here?
Nobody really knows.
Despite the fact that the Irish government yanked a ton of toxic assets out of Irish banks and put them into a “bad bank” known as the National Asset Management Agency (NAMA), and despite the fact that the Irish government has stuffed about €64 billion into the bank’s cash cushion, “the Irish banking system has not yet fully stabilized,” wrote Moody’s analysts in a January report. Short version: Irish banks own a ton of bad mortgage assets. (See the chart to the right.) But these are just the bad loans that we know of. Some think the true position of Irish banks may be even worse.
Some suspect it’s not just legal haziness keeping foreclosures low. Irish banks may also dragging their feet on restructuring or foreclosing. That’s because if they dealt with those problem loans by foreclosing or restructuring them it would, through the magic of accounting, transform hazy “problem” loans into real losses. In fact, there’s a well-documented history of banks procrastinating on recognizing bad loans in the aftermath of financial crises. Such widespread “evergreening” of bad loans was an insidious side effect of Japan’s financial collapse in the early 1990s.
And even if Irish banks do start dealing en masse with problem loans, it’s unclear how it could play out. On the one hand, it could mean more people in Ireland start to pay their mortgages, for fear of losing their homes. But a large wave of bank foreclosures could also “throw up evidence of under-reserving by banks as they start to close out some nonperforming mortgages,” according to a January report from Standard & Poor’s banking analysts.
In other words, it could reveal banks to be in worse financial shape than everyone thought. By extension, Irish taxpayers, the Irish government and its European rescuers would have to admit they face more risk than they knew. That would be a major embarrassment for both the Irish government, as well as its euro-zone sponsors, which have built up Ireland’s reputation as a debtor nation doing everything right.
The Bottom Line
But the growing pile of defaulting home loans holds other risks for Ireland. For one, it’s choking off the flow of capital to the economy.
Let’s remember why we even bother putting up with banks. They’re supposed to be good at doling out capital efficiently. They take the unused savings of society and channel it toward productive uses–at least in theory. But if banks coming out of a financial crisis start practicing widespread forbearance and evergreening of loans, they become less and less efficient at their job, because so much of their capital is tied up in bad loans instead of getting put to good use.
That’s part of what’s happening in Ireland right now. You can see, mortgage lending has pretty much collapsed.
Now, lending would logically fall after a financial crisis triggered by too much debt. But it will have to stop falling before the domestic economy starts growing.
That’s why Ireland must overcome its anti-eviction tendencies and clear the backlog of bad loans. And it’s not just the homeowners that will feel the pain through necessary foreclosures and repossessions. Banks must fess up to their losses and restructure bad debts.
It won’t be pretty or easy. But for the Irish government–so often dominated by the European powers that bailed the country out–it’s one of the few areas where it can still act. As for the European officials who have built Ireland’s painful austerity push into the “model” response for troubled European countries? They’re going to have to admit even supposedly virtuous Ireland is having serious difficulties making austerity work.
10 ways for Ireland to benefit from chaos in Cyprus
From NAMA WINE LAKE
We’ve seen over the past fortnight how the Cypriots are a deeply stupid people that have allowed their economy to collapse, and consigned their society to immiseration and decline for a long period ahead. Well, too bad for Cyprus, how can Ireland benefit from their self-inflicted fiasco?
(1) Cyprus’s corporate tax brand is destroyed. The original Cyprus bailout plan included a term compelling Cyprus to raise its headline corporate tax rate from 10% to 12.5%, there is no mention of that term being dropped in the latest version of the bailout, so it seems the change still stands. Now a 25% increase is still just an additional 2.5% but it has destroyed the Cypriot brand. Businesses now considering basing themselves in Cyprus might appreciate the 12.5% corporate tax rate as relatively low, but they know that it has been changed, and apparently without much resistance from the Cypriots. On the other hand, businesses know that Ireland fought tooth and nail to protect our 12.5% corporate tax rate. We endured the humiliation of a Gallic spat with the French president, quietly supported by the Germans, and we saw Greece get a reduction in its bailout interest rate in March 2011, but because we would not yield on our tax rate, we had to wait until July 2011, and even then we had to give a commitment to constructively engage in discussions on the Common Consolidated Corporate Tax Base. But in July 2011, domestic politicians wrote that commitment off as fundamentally meaningless, and the message is loud and clear – Ireland has a 12.5% corporate tax rate and it will stay at 12.5%. So, even though Cyprus and Ireland might have the same corporate tax rate, businesses know that ours is more likely to remain at 12.5%.
(2) Tourism. With the cold and wintry Irish weather at present, the 15 degree March climes of Cyprus might look tempting, but who wants to book a holiday to somewhere that is so unstable. What happens if they stop accepting credit and debt cards? What happens if they introduce capital controls on tourists? What happens if they revert to the Cypriot pound and force tourists to exchange their hard currency at an unattractive interest rate? And what about civil disturbances? They had a civil war in 1974, they will shortly have spiraling unemployment, who wants to go on holidays to a potential war zone? On the other hand, come to Ireland, you’ll get a great welcome, we have great scenery and this year, we have a special Gathering campaign when the families of Ireland are coming together from across the globe. Actor Gabriel Byrne might have originally written it off as a shake-down designed to relieve our Yankee cousins of their dollars, but it’s happening anyway, and you are guaranteed a better experience than that potentially on offer in Cyprus, regardless of the weather. Maybe we should get Tourism Ireland to run a negative campaign.
(3) Banking and financial services. Former Taoiseach John Bruton is the ambassador for our International Financial Services Centre in Dublin, and he will be only too happy to explain to you the tax and regulatory advantages of basing your bank or financial services operation in Ireland. Already we have over 400 of the world’s banks operating from a small spot in Dublin city. In previous years, we might have been written off as “Liechtenstein by the Liffey” or the “Wild West of Banking” but we have bolstered our financial regulation, we’ve even appointed a surly Brit to the post of Financial Regulator. But don’t fret, there is an influential industry group that meets with the Department of Finance and An Taoiseach on a regular basis, and the evidence points to the tail of international banks and financial services operations still wagging the dog of democratic politics.
(4) Foreign direct investment. The IDA’s job has become far easier. In addition to maintaining our gold-standard 12.5% corporate tax rate when those about us are losing theirs, Ireland can really stick the boot in during our investor road-shows to deter businesses who might have been considering Cyprus as a base. Does Google really want to open a base in a country with unstable currency, banking system, bailout when Ireland is brimming over with talent, technology and tax incentives.
(5) Hot Russian money more likely to come to Ireland. Let’s face it, do we really care all that much where deposits come from? All deposits support the banks in making more loans available to the economy, and more credit in the economy will drive economic growth and enable us to get a lead on our partners across Europe. So, maybe we should consider a few more Russian-language welcome signs in Dublin. Justice minister Alan Shatter will give them visas if they make some vague commitment to invest €75,000 in Ireland or maybe promise to buy an apartment from NAMA.
(6) Weaker euro helping exports to key US, UK and non-EU markets. The exchange rate between the euro and sterling has fallen from €0.88 to just over €0.84. That’s good news for Ireland given that the UK is our main practical export partner. In fact a weaker euro is altogether better for the exporting marvel that is Ireland. And we can thank the development of the fiasco for the recent decline in the value of the euro. Until a few weeks ago, sterling’s weakness as the UK struggles to generate growth together with the “mission accomplished” tenor from EuroZone leaders that the crisis was over, all pointed to the euro becoming stronger which is the last thing our exporting-economy-on-steroids needs. Thanks to the bungling over Cyprus, the euro is on a weaker trajectory which gives our economy a boost.
(7) No Irish exposure to recapitalizing Cypriot banks. The ESM, the fund that was set up last year, and to which Ireland has already contributed €509m will not be used to bailout insolvent Cypriot banks. And furthermore, it is understand that the exposure of Irish banks including the Central Bank of Ireland to Cypriot bank debt is minimal. So, Ireland faces practically no financial consequence in respect of Cypriot meltdown. If we were exposed to losses, then we might consider bilateral loans from Ireland to Cyprus. Like the British chancellor George Osborne in 2011, we might even be patronizing enough to say “Cyprus is a friend in need, and we are there to help” before providing a loan at market interest rates so that our banks, businesses and citizens might be repaid.
(8) Although we’re still the dumbest people in Europe, the Cypriots make us look a lot better. In Cyprus, they actually have finally landed on a good design to solve their financial mess. But the problem for Cyprus is firstly, they originally came up with a plan which would undermine their deposit guarantee and secondly, their implementation has been horrible with banks closed for 12 days and capital flight now guaranteed. Of course the agreement to change the corporate tax rate was also not bright, but in principle, forcing the debtors of banks to shoulder losses in specific banks ring-fenced the problem to badly run banks, keeps smaller depositors safe and imposes losses on those best able to pay for them. Contrast that with Ireland where we have repaid €11bn to junior bondholders, 10s of billions to senior bondholders and all depositors, even those with millions have walked away with 100% of their deposits, whilst the burden for the banking collapse has been placed on the shoulders of citizens who have seen PRSI increases, public service cutbacks, cuts to childrens allowance, VAT hikes, pension levies and other assorted measures which have hit the most vulnerable in society. So, we were the dumbest in Europe by a country mile for our own bailout, but the implementation of the Cypriot bailout makes us look just a little smarter.
(9) If PTSB or AIB go bust, the additional impact on the taxpayer will be limited. We now seem to have a model for dealing with insolvent banks, and keeping in mind that both PTSB, AIB and even venerable Bank of Ireland are facing extreme challenges with their mortgage books, should the banks need more capital, we don’t have to stump any more in a national bailout. Depositors with more than €100,000 and bondholders will face losses, and the problem will be contained. Well done to Cyprus for path-finding this model for us.
(10) Scales are falling from our eyes. By studying developments in Cyprus and keeping the theme of this blogpost in mind, perhaps we can now place ourselves in the shoes of the French, Germans and British in November 2010 when Ireland was frog-marched into a bailout. Perhaps now, we can step in George Osborne’s shoes and understand why he advanced a €4bn bilateral loan to Ireland. Perhaps we can now understand why Nicolas Sarkozy sought to take advantage of our woes to press for an increase in our corporate tax rates to help the French economy. Perhaps we can now understand that EU politicians can behave like a bunch of bozos and that ultimately, we must rely on our own abilities to defend our interests, because no-one else will.
[The above is a deliberately provocative commentary on the Cypriot bailout, and apologies for any offence caused. But think on, in November 2010 when Ireland was frog-marched into a bailout, do you think it beyond the bounds of possibility for other nations to have viewed our woes in the same manner illustrated above?]
Remember the €1.1bn that AIB shoveled into its pension scheme to plug a deficit that prompted all those headlines two weeks ago? A simple question – when the banks were stress-tested in 2011, was this €1.1bn deficit identified in an exercise that cost us about €30m in consultancy fees? The short answer is no, this €1.1bn deficit wasn’t specifically identified in the final report for the stress testing but it remains unclear if a deficit of this magnitude was considered or included in either the base or adverse scenario.
But when asked* in the Dail yesterday, this is Minister Noonan’s response (I’ve read this carefully several times, and it’s still hilarious how it manages to avoid answering the question*):
Minister for Finance, Michael Noonan : The Central Bank has informed me that the Capital Requirements Directive and the Central Bank set the rules around the calculation of the applicable capital base for credit institutions. These rules include reference to defined benefit pension deficits as these can affect the capital base of regulated entities.
In a letter from the Financial Regulator to industry in 2005, banks were informed that those applying IAS 19/FRS 17 are allowed to add back to Tier 1 Capital the amount of the defined benefit pension liability that has accrued in relation to Irish pension schemes in their financial statements and to deduct an amount equal to the sum of (i) the Deficit under the Minimum Funding Requirement plus (ii) three years Supplementary Contributions. A subsequent letter issued by the Financial Regulator in 2009 amended the treatment of the Deficit under the Minimum Funding Requirement element such that credit institutions were required to include at least the Minimum Funding Requirement in its calculation of pension risk under Pillar 2 capital calculations.
The draft Capital Requirements Regulation (CRR) requires the removal of most prudential filters, including the Irish DB scheme pension filter detailed above. Article 461 of the draft CRR, relating to transitional provisions, provides for regulated entities to apply a phased approach to filters and deductions “required under national transposition measures for Articles 57, 61, 63, 63a and 66 of Directive 2006/48/EC” with a five year implementation period. The transitional provisions are the subject of on-going negotiation between the European Parliament (EP) and Council.
The capital base and capital requirements of the PCAR banks were assessed under PCAR and included in this assessment was forecast deductions for defined benefit pension deficits and subsequent capital filters under base and stress scenarios. The FMP report did not disclose details of the assumed levels of deduction for pension deficits. The focus on the PCAR was the forecast income, capital requirements and losses (particularly loan losses) in the three-year period.
The Central Bank included in the PCAR the forecast deduction for defined benefit pension deficits and subsequent capital filters under base and stress scenarios. In addition the Central Bank considered the implications of Basel III (namely CRD IV/ CRR). The PCAR tolerance levels and capital basis were set in accordance with the Central Bank’s definition of Core Tier 1 under the prevailing Capital Requirements Directive rules as at end-March 2011.
It is important to note, that the quality of capital in the Irish banking system has increased significantly as a result of lower tier capital buy backs and Government equity contributions. Whilst it is clear that the Basel III rules impose more conservative deductions than is currently the case, following a recapitalisation to levels determined by the 2011 PCAR, the FMP report stated that all four banks should comfortably meet Basel III Common Equity Tier 1 ratio on a phase-in basis under both the base case and stress case scenarios. The combined surplus to the minimum phase-in Common Equity Tier 1 under the PCAR base case under PCAR was estimated at the time as circa 13.3bn and 3.7bn under the stress case. Three of the banks would also meet the full 2019 minimum standard in the 2013 base case scenario.
*Deputy Pearse Doherty: To ask the Minister for Finance in respect of the €1.1billion top-up made by Allied Irish Banks to the group pension scheme in August 2012, if he will identify in the stress testing undertaken by the Central Bank of Ireland with Barclays Capital, BlackRock and the Boston Consulting Group in early 2011 which resulted in the publication of the Financial Measures Programme on 31st March 2011, where, in this work was the €1.1billion shortfall in the AIB pension fund examined or identified.
via NAMA Wine Lake.
via NAMA Wine Lake.
On Dec. 13, 1862, they came through the morning fog, wave after wave, some of the finest fighting troops in the Union army. After earning distinctions at Seven Pines, Malvern Hill and Antietam, the Irish Brigade was asked to carry the green flag where others could not go, to secure Marye’s Heights over the Virginian town of Fredericksburg.
Though glorified by the London Times, it was a hopeless charge that never should have been asked of any soldiers. The myth of the “fighting Irish” was sealed. But the reality was that the Irish were destroyed, suffering over 80% casualties on a field that had grown crops to relieve the earlier Irish famine.
The myth of Irish pluck continues today, even amid the financial crisis. Prime Minister Enda Kenny recently graced the cover of Time magazine. But according to data from the International Monetary Fund, Ireland has displaced Japan as the world’s most indebted economy. Government, household and nonfinancial company debt add up to 524% of Irish GDP. (The Central Bank of Ireland uses a different basis for calculating the debt of nonfinancial firms; its estimate for total debt would be lower than the IMF’s.) Funding this gargantuan load at an average cost of 4.5% would swallow nearly 24% of GDP—in other words, Ireland’s entire industrial output.
Yet still a Celtic comeback is prophesied. There are three huge problems with this myth:
• Irish taxpayers are still paying for the mistakes of Irish banks. Having started the crisis with a sovereign debt-to-GDP ratio approaching 20%, Ireland will have added another 100% before it’s over. And in a perverse reversal of democracy, two-thirds of this load was foisted on the Irish under pressure from the unelected board of the European Central Bank to save German, French and British banks—together with a panoply of other bank bondholders—from the consequences of their investment decisions.
Nowhere in the euro zone have so few citizens been asked to carry so much to save the union. But even today, with Ireland having met all the targets its creditors have set, there remains stiff resistance, especially from the ECB, to restructuring this part of Ireland’s national debt.
Relying on soft diplomacy, the Irish government seeks to sell its shareholdings in the functioning banks it saved to the new bailout fund, and to ease the punishing burden of repayments on the emergency liquidity provided to Anglo Irish Bank by extending the loan term to 40 years. The total plowed into banks is €64 billion, about 40% of Irish GDP.
Irish household debt is still unsustainable. According to the IMF, household debt, which currently is as large as Ireland’s national debt, will stand at 185% of disposable income in 2017. The Irish are expected to arrive at this level from a peak of 210% by saving 14% of their income, nearly half of which would have to be redirected into debt repayments. So a decade after the crisis began, Irish household debt will arrive at a level well above the starting point of other crisis economies.
One in five Irish mortgages is in arrears. Yet four years into the crisis the Irish government has failed to introduce a modern, balanced and dignified insolvency regime, relying instead on a mishmash of laws, many of them Victorian and one of them, the Sheriffs Act, dating back to the 13th century.
Modern insolvency legislation would at the very least provide timelines to work through distressed debt. But such reform is being stiffly resisted behind the scenes by the banking lobby and the ECB. The result is a fiasco for Irish families, as the great game of “extend and pretend” continues. The urgent introduction of a standardized insolvency process matched to the scale of bad debts must also be supported by the European Stability Mechanism if fresh capital buffers are required.
• Irish labor costs—especially in the public sector—are still too high. Since 1987, the Irish Parliament has callowly transferred wage-setting power to labor unions via the “social partnership” process. But a 2010 deal with public-sector unions, signed amid a brutal period of layoffs and pay cuts in the private sector, goes farther still by fixing pay and pensions for government workers at extraordinarily high levels through 2014. The agreement was named after Ireland’s largest secular temple: Croke Park, headquarters of the Gaelic Athletic Association, where the deal was struck.
Its effect, hardly sporting, is to privatize job losses from the recession and crowd out essential public services. In Greece, Portugal, Spain and Ireland, government employees already enjoy among the EU’s highest pay premia over workers in the private economy. But pay within the Irish public sector is also well above EU levels.
Pay for hospital consultants, teachers and nurses is singled out as especially high by the IMF. Local Irish county managers are paid more than most European prime ministers. Brendan Howlin, the minister in charge of reforming the public sector, is himself a former teacher and trade union activist. The inner cabinet of the Irish government—which comprises the prime minister, the deputy PM, the minister for finance and the minister for public reform—brings the intellectual firepower of three secondary-school teachers and a trade unionist to bear on Ireland’s crisis. All support the public-sector cartel.
The Irish government points to a reduction in public-sector numbers due to a recruitment freeze—as if those who take early retirement are abducted by aliens to a planet beyond the galaxy, and not into Ireland’s Ponzi pension scheme, which quadrupled its liabilities to €120 billion over the past decade while losing most of its assets to the bank bailout.
So while Time magazine and others eulogize the plucky leader of the Irish people, the truth is that Enda Kenny leads a Vichy government—captive externally to creditors that still insist on loading bank debt onto the sovereign, and internally to a tribe of insiders led by union godfathers in a deal that protects the government’s own excessive pay and pensions while bankers lean over its shoulders to rewrite insolvency laws.
This isn’t just crony capitalism. It’s crony democracy.
The main advantage of issuing a long-term bond is that the State would not have to pay the €3 billion a year it gives to the Irish Bank Resolution Corp (the former Anglo) on the back of the promissory notes. At present, the bank takes that money and gives it to the Irish Central Bank, which is funding IBRC through emergency liquidity assistance.
A Government spokesman declined to comment last night beyond saying that “complex technical discussions are ongoing and the objective is to deliver the best deal possible for the Irish taxpayer”.
The following bank will remain closed due to on going criminal investigations. The police, the Government, bank officials and the establishment regret the inconvenience to members of the public. Many Billions of are reported to have been siphoned off to overseas accounts. The Gardai state it will take years to untangle the web deceit.
A spokesperson for Dáil Éireann said it was untrue that the entire government had left the country