IT’S not all bad news. Sometimes, it’s like the country is on a downward spiral into permanent stagnation. But, occasionally there’s some really good news. For instance, have you heard that Goldman Sachs, the controversial cabal of international bankers, is pulling out of the International Financial Services Centre? Reliable sources say Goldman Sachs doesn’t want to do business in this country anymore. Whoopee!
Why are they leaving? Well, that’s something we should be shouting from the rooftops.
And they’re not the only bankers buggering off, I’m pleased to report. Several others are “handing back their licences”, according to Michael Somers, deputy chairman of AIB. And, he says, some of them have told him privately that it’s because of heavier regulation of their activities.
Not surprisingly, for a banker, Somers is dismayed. “I’m dismayed,” he told RTE’s business programme.
And this was reported sympathetically throughout the media, as though it’s a bad thing that various senior bankers, including the Goldman gobshites, are leaving. Sometimes, I wonder about this country.
The fighting Irish. The raging anger when the bankers crashed capitalism in 2008. The demands that bankers be fired, shamed, jailed – or worse. The anger at the light-touch regulation that allowed all sorts of cowboys to prosper, running their own banks into the ground. The insistence that there must be banking reform – this, we were told, Must Never Happen Again.
Well, folks, the notion that the banks should be kept on a tight rein is going out of fashion. Effective regulation is now dismissed as short-sighted. Support for regulation is caricatured as mere anti-banker rhetoric.
During the Celtic Bubble, bankers had a free hand. They acted with disregard for anything except their own interests. That’s not because they’re bad people – though some of them had the morals of jackals and the brains of peat briquettes. It’s because people who are paid massively, lauded as geniuses and given the run of the country will act accordingly.
Now, the pleas are mounting for lighter regulation and bigger salaries for bankers. And there’s no sign that this Government strongly disagrees.
An outsider was appointed Financial Regulator – Matthew Elderfield. Saviour of capitalism, a stickler for the rulebook, we were told. Best of all, he had no connection to the usual cronies.
And when Elderfield quit recently, after just three years on the job, to take a position with a UK bank, many were surprised.
Is his move just personal ambition or is there something more going on? Has Elderfield seen straws in the wind and did this make him decide to move to more solid ground?
Last week, Elderfield made a speech warning that the cost of lax supervision was many, many times the cost of proper regulation. Bizarrely, the media reported this as just another view – balanced against the view of the bankers, that regulation has gone too far.
I’ve had goldfish with better memories than some media folk.
Goldman Sachs, throughout this global crisis, epitomised the morals of the banking business. In Matt Taibbi’s memorable phrase, the bank is like “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money”.
According to The New York Times, Goldman helped that government manoeuvre and the deal was “hidden from public view because it was treated as a currency trade, rather than a loan”.
Why would Goldman do that? Because the Greek politicians “paid the bank about $300m (€230m) in fees for arranging the 2001 transaction, according to several bankers familiar with the deal”.
When Greece imploded, Goldman had moved on to other things, its executives fattened on their notorious bonuses.
The fact that Goldman Sachs and others are leaving the IFSC – well, an active, concerned government would have ministers fanning out across the globe, gleefully welcoming this news. Yell it from the pages of the Financial Times and the Wall Street Journal.
Take a bunch of Reuters and AP reporters to dinner, send Michael Noonan into the Bloomberg TV studios with a big grin on his face.
“We’re glad to see the back of those bastards,” he would say.
And it would ask the question: what are Goldman Sachs hiding? What are they up to that can’t stand the light of effective regulation?
An active, concerned government would use the flight of such people to advertise a financial-services system that won’t be allowed do the kind of things that destroyed economies.
The departure of such types would be a platform from which to promise a financial-services set-up that you can trust.
The framework of regulation – including Elderfield’s position – remains in place. The bankers find this restrictive – so, the pressure is on.
Yesterday, John Bruton, a former Taoiseach, now a hired mouthpiece for the banking business, rebuked President Higgins’s call for an end to the policy of austerity (pushed by banker-friendly types, such as Mario Draghi, a Goldman Sachs old boy). Attack unemployment, Higgins suggested.
Stay the course, Bruton says. He’s on a Dail and ministerial pension of €140,000, on top of his reported six-figure salary for bigging-up the bankers. And he says: “Austerity is always painful.”
The lesson of the banking crisis seemed for a while to be obvious to all. We need banks that serve the economy – not the bankers.
We need boring banks, banks that assess risk, support customers and serve the wider economy – not banks that are fixated on spectacular deals that feed the egos and the wallets of elite layers of hustlers.
Two distinct models of banking. An old one, that kept capitalism relatively stable for decades. And a casino model that emerged from Thatcherism, tied to bloated rewards for the few.
That cut-throat model, which placed the welfare of banks above that of the people, led to the crash. And to the ruinous bank guarantee.
And to the subsequent policies of forcing the debts of bankers and bondholders on to the people. And the costly, disastrous attempts to balance the books through austerity.
Remarkably, the cut-throat model has survived. We needed a clear-out of senior bankers, not as a punishment or as revenge, but to evict a type of specialist we don’t need, who subscribes to a model of banking, and a model of society, that has massively damaged us.
Many of the those who ran the banks into the ground have gone, but their values remain – and are lauded in the highest circles of government, business and the media.
Who replaces Elderfield, and the ground rules under which he or she works, will matter. There will be no sweeping disposal of regulation – we on the outside won’t even see the screws loosened.
Should those bankers now leaving in a huff return in a year or two, we’ll know then that we’re in even bigger trouble.
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?]
FEW PEOPLE question the need for the financial sector to pay a much higher price for the financial crisis – for the huge sums taxpayers worldwide spent in saving banks too big to fail. Irish taxpayers have paid €64 billion to recapitalise the major domestic banks, an effort that has crippled the economy, almost bankrupted the State and led to a EU-IMF bailout.
International efforts to introduce a global financial transaction tax (FTT) – a small levy on financial dealings that would generate a substantial revenue stream in part to atone for past mistakes – have been unsuccessful.
Last year, the US and the UK, which have large financial sectors with dominant roles in global markets, both rejected the idea. And European Commission (EC) plans for an FTT for the EU have fared little better. The commission failed to secure the unanimous backing needed from all member states for an EU-wide measure.
Instead 11 euro zone countries, using treaty provisions that allow for “enhanced co-operation” between them, have agreed to operate a common European FTT. Ireland, however, will not be a participant.
Minister for Finance Michael Noonan has made it clear the Government supports the principle, but only if the tax is either applied on a global basis, or operated with the agreement of all EU member states. It finds the proposed FTT unacceptable. Ireland does not favour the use of “enhanced co-operation” in tax matters, as it could undermine the Government’s ability to retain a national veto on changes to the 12.5 per cent corporate tax rate or to the idea of a common corporate tax base.
The Government’s position remains open to criticism. On moral and equity grounds, the case for a transaction tax remains compelling. It can be seen as combining two important features, while also raising substantial revenues. An FTT would represent part reparation to taxpayers for past failures by financial institutions, and offer part insurance protection for taxpayers against the financial sector’s likely future excesses.
And it could raise substantial revenues: a joint Central Bank-ESRI study – based on the EU Commission proposals – suggested a yield of between €490 million and €730 million. An EU-wide tax, the commission said, could raise €57 billion. And, by rejecting a proposal the majority of euro zone states accepted, we are seen as unsupportive to those on whom we are most dependent, both for existing loan support and for ensuring an adequate measure of debt relief. Germany and France could become less sympathetic to our claims.
That said it is unfair to attack the Government’s decision as merely one of favouring the rich, and refusing to tax the banks. Government involves risk judgment and risk management. Some 33,000 people now work in the International Financial Services Centre, which accounts for 10 per cent of national income. Britain’s unwillingness to support FTT left the Government with a tough choice to make. In a globalised world, where capital and labour in the financial sector are highly mobile, competition is intense, and the domestic economy remains weak, the Government may have little or no choice.