Irish people still mad as hell over fat cats

A worker removes the Anglo Irish Bank sign from a location in Dublin last week. Anglo Irish was the worst offender in the Irish property crash

There was a very minor, very brief, but also very interesting court case here last week.  It involved a journalist I happen to know, a work colleague of mine for many years. 

My friend, the former Irish Press reporter Des Nix, had been caught by the Gardai (police) in Dublin driving at a little above the speed limit, and he had been issued with the usual €80 automatic fine. 

Dozens of these fines are issued every month for parking violations and minor speeding offenses.  You get the penalty notice in the post and if you pay on time you don't have to go to court.  That's what most people do. 

But Des, a law abiding, solid citizen in every way like the vast majority of people here, decided that he was not paying.  Instead he wrote back to the Garda office and said that he was returning the speeding ticket and that he was refusing to pay the fine.  

He was refusing to pay, he explained, not because he was denying that he had unintentionally exceeded the speed limit, but because money going to the state was now being used as "a slush fund to pay gangster bankers."  

He said in his letter to the fines office that his refusal to pay was "an act of civil disobedience."
Having failed to pay the fine on time, he was summoned to court. He appeared before the judge last week, but the prosecuting Garda (police officer) failed to turn up in court on the day so the case was dropped. 

After his court appearance Des told reporters that he thought it was unacceptable that the government should act as the "bag men" for the bankers and bondholders who are taking money from "people who never had any dealings with them."  

Which is precisely how the vast majority of people here feel. They deeply resent the fact that ordinary taxpayers here are now being saddled with the vast bill for the IMF-EU bailout, and that most of the money is being used to pay back the foreign banks and bondholders who gambled on the Irish property market and lost.  

A huge chunk of the money that is raised in taxes here -- and in all other sources of state revenue like my friend's speeding ticket -- will in the future be going to pay back the massive bailout from the IMF-EU.  Even paying the interest on the bailout money each year is going to take a significant amount of state revenue.  

As we have pointed out here before, the primary reason for the €85 billion euro bailout is to prevent an Irish default and to enable our now state guaranteed banks to repay all the money that was pumped in here by the German and French banks and the bondholders who all wanted a piece of the action in the Irish boom. 

Most ordinary people here feel that this is unjust and unfair.  They deeply resent the fact that so much of their tax money in the years ahead will be used in this way instead of being spent on schools, hospitals and all the other services provided by the state which are in need of improvement. 

They deeply resent the fact that so much money is going to be sucked out of the Irish economy every year at a time when we desperately need it at home to get things moving again.  

In fact resentment is far too mild a word to describe the feelings of the majority of people here about what is happening.  A better description would be seething with anger. 

People here mistakenly believed that the new government would be able to offer an alternative solution to the deal negotiated by the previous administration.  Now they have woken up to the truth.

Now they realize that the new government is not able to offer any alternative to the economic crucifixion of the country.  And they are boiling with rage as a result.

Talk to anyone here right now and that fury comes pouring out.  Some people talk about leaving the country rather than staying and seeing their taxes being used to pay off the billions the banks owe. 

But others -- a small but growing minority -- talk about staying and refusing to pay into an economic system they now see as unjust.  What they are really talking about is civil disobedience. 

The stand taken by my friend Des Nix is probably one of the first examples of the kind of action that a lot of people here might decide to take in the future.  Which is why what happened in court last week is potentially revolutionary. 

Suppose people decided to stop paying not just speeding tickets, but car tax, waste collection charges ... even income tax? 

This might seem far fetched now.  But those of you who are old enough may remember the tax marches that brought the center of Dublin to a standstill back in 1979.   That was over what was perceived as an unbalanced tax system at the time, an internal matter.

But the situation facing taxpayers here now -- all taxpayers -- is a far greater injustice, with everyone being forced by external forces to carry a heavy tax burden for at least the next four or five years (and possibly much longer), not to improve life here but to repay the billions our banks owe to foreign banks and bondholders.  

There is no sign of widespread civil disobedience here yet.  But mark my words, give it time. 

Des Nix may have been the first.  But he won't be the last.  Unless there is significant debt restructuring and burden sharing with our EU partners and the IMF -- unless the foreign banks and bondholders accept that they have lost a lot of the money they lent into Ireland -- there is going to be trouble. 

Unless this is done the ordinary Irish taxpayer will have to carry the entire enormous debt burden, and that will cause public outrage because it is seen as totally unfair.  Not much has happened yet because although the recession is deep and unemployment is high, the real impact of what is happening has yet to hit us.

When the cumulative effects of the cutbacks and tax hikes really start to hit home in the years ahead, there is likely to be a mass reaction with street protests and possible widespread civil disobedience.   

It may only take a single issue -- something like the means testing of the old age pension, for example -- to set it off.  But once it starts I believe it will be difficult to contain, and the authority of the government and the cohesion of Irish society will then be at risk.  

This may seem alarmist at this stage, but there is a serious underestimation at EU and IMF level of the anger and bitterness that is now festering among ordinary people here at the situation we face. 

The bottom line is that the boom was not driven by ordinary people here, yet they are being forced to pick up the tab for its collapse, a tab so big that it has bankrupted the nation, stolen our economic sovereignty and will swallow a huge part of the taxes we pay for years to come. 

Over the past week we have seen several developments which have added fuel to the flames of fury here.  First up was the revelation that the former head of Ireland's biggest bank AIB, the black hole which has been taken over by the state, got a €3 million severance package when he was removed last year. 

He was part of the senior management team throughout the period of the boom when AIB went completely off the rails.  Yet he has walked away with a personal fortune at a time when thousands of ordinary people are struggling to keep their heads above water. 

That is just one example.  Details of the departing pay and pension packages given to many senior managers who were key figures during the boom were published last week and added to the outrage of everyone else. 

Also last week, two important reports were published. The first was the one on the collapse in Irish banking which was commissioned by the last government and produced by the respected Finnish banking expert Patrick Nyberg. 

Finland came through a banking crisis over a decade ago which is why he got the job.  
But his report was disappointing.  It told us what we knew already, that the crisis was caused by poor regulation, flawed lending policy and what amounted to a "mania" in the banks which replaced normal risk management. 

What Nyberg did not do was name names.  He did not identify all the people who had been in the key positions in the various banks when the mania was in full flow.  Instead he spread the blame across all of Irish society. 

The following sentence from his report was run as a headline across the front page of The Irish Times: "The extent to which parts of Irish society were willing to let the good times roll on until the very last minute, a feature of the financial mania, may have been exceptional."

This enraged ordinary people even more. Was Nyberg saying that we were all to blame for what went on in the banks? 

Were we all to blame for the tens of billions that were lost in property speculation?  Were we all to blame for the failure by politicians, regulators and banks to calm the market? 

The other report which emerged last week was the one recommending the sale of state assets (like the electricity and gas utility companies) to pay back some of our debt.  This may well result in higher prices and even poorer service for ordinary people. 

And the bottom line is that it is unlikely to raise more than €5 billion when our total debt is now heading for €250 billion.  So we would be selling the family silver to give the money to the foreign banks and in the end it would not make much difference, except that ordinary people would eventually lose out.

Much more of this and my friend Des Nix will not be the only one making a stand.

Bargain hunters feast on bust property in Ireland

Bargain hunters line up for the property auction at the Shelbourne Hotel in Dublin last week

So is the Irish property crash over?  Have property prices here hit bottom at last? 

All eyes in the country last Friday were on the first mass auction of distressed properties since the bubble burst.   The sale of a mixture of over 80 apartments, houses and commercial properties had been widely publicized in recent weeks, with reserves (minimum prices) for the auction pitched at about one-third what the properties had been worth at the peak of the boom.

It was going to be the biggest test of just how far the market had collapsed, the experts said.  It would reveal just how far prices had fallen and put a floor under the property market for the future. 

The properties were mostly in Dublin but some were down the country, and the main thing they had in common was that almost all of them were being sold by receivers (court appointed administrators) of bust developers or on behalf of broke bank clients, or else they had been repossessed.

The mass auction was held in the biggest function room in one of Dublin's poshest hotels, the Shelbourne on St. Stephens Green.

So many people turned up in search of a bargain that the crowd spilled out onto the pavement and the Gardai (police) arrived to maintain order. 

Inside in the auction room there was seating for 350, with standing room for an additional 500.  And even with that amount of space people were not able to get in. 

All but two of the 82 properties on offer were sold in a few hours, amid frenetic scenes the likes of which have not been witnessed since the height of the property madness here four or five years ago.   

The real estate agents involved -- a U.K. company that specializes in handling fire sales of this kind -- said it was so successful they are going to have another one, much bigger, with more properties, in a couple of months.  

The event illustrated a few things clearly.  One was that, in spite of everything the country has gone through, a lot of Irish people still have not lost their fascination with property as an investment.  

Another is that there are still a lot of people here with plenty of cash at their disposal. And their fascination with property borders on the obsessional. 

They don't like shares and they don't trust the banks.  So if they think prices are low enough they still fall over each other in a rush to buy property.  

So were there real bargains to be had?

Well, yes, there were some properties that seemed cheap.  One pub, which sold for €3 million in 2005, had a reserve price of just €260,000 and there was a lot of interest as a result.  It went for €400,000 in the auction, which seems like a bargain. 

But the pub is in Arklow, a town in Wicklow which has lost most of its jobs.  And we all know the pub trade in Ireland, especially in small towns like Arklow, has been struggling badly in recent years.

So a bargain? I'm not so sure.  If it can't make a profit it's not going to be cheap at  €400,000, even if it once sold for €3 million.

Another property that attracted media attention was a studio apartment in Temple Bar, the trendy "Left Bank" area of old Dublin beloved of tourists. It sold for €126,000 (nearly 60% over its reserve price) and during the boom here it would have made more than twice that. 

A bargain?  Well, maybe.  Temple Bar is also a favorite weekend destination for stag parties and younger tourists who want to get the Irish pub experience, listen to diddle d-i music and drink plenty of Guinness. 

Which means it's not necessarily the best place to live, and a lot of local apartment dwellers have learned that the hard way.  Add in the fact that there are thousands of unsold apartments around Dublin in areas where you don't have to step over the vomit in the morning, and the studio in Temple Bar seems like less of a bargain.

So maybe not all the properties sold last Friday were as much of a bargain as the media suggested.  Even so, the mega auction was certainly a ray of hope, however faint, for the property market here.
Real estate agents had tried a similar bumper property auction here in April of last year and only six of the 70 properties being sold that day found buyers. So last Friday did show that confidence is starting to return. 

Because of the variety of properties being sold and the fact that they were a mix of commercial and domestic, of houses and apartments, it's hard to be definitive about what it told us about the market.   Looking across the auction results, I think it would be fair to say that it suggests that prices in general are now just under half what they were at the peak.  

For example, a few properties last Friday were houses in Dublin 14, around the mature Churchtown area.
This area was never as expensive as Dublin 4 or the costal strip on the south side of the city. But it's a solid middle-class family area with good facilities and was always a desirable place to live.  

Last Friday four houses in the area sold at the mega auction for prices in the €400,000 to €500,000 range, or just under half what they were making during the boom.  

Local real estate agents say that these prices are very close to what similar houses in the Dublin 14 area have been making in recent months.  So it seems, for the moment, that is where the floor is in the market. 

Using the established Churchtown suburb as a guide, we're down between 50% and 60% from the top of the market about four years ago.  That's what the real estate agents want to think. And that's what the few people who have been buying property want to believe. 

They want to believe we have now reached the floor and that things won't get any worse.  But I'm not so sure.  

And the reason I'm not so sure has to do with a few rather bemused people who walked past the crowd outside the Shelbourne last Friday.

They were none other than the now famous Ajai Chopra and his mates from the International Monetary Fund and the EU who were in town last week for the first inspection of the Irish government's books to monitor our progress in cutting state spending to meet the targets that were agreed when we got the bailout money. 

The Shelbourne happens to be close both to Government Buildings and to the luxury hotel our IMF/EU masters stay in.  So it was not that surprising that Ajai and his chums happened to stroll past. 

What they thought of the renewed outbreak of property fever can only be guessed.  Their expressions caught on camera are of mild embarrassment, as though they had stumbled across something they would rather not have seen.

Whatever they thought of the shenanigans in the Shelbourne, they seem to have been less than impressed with the Irish government.  They issued a bland statement saying they were pleased that Ireland had met all conditions for the loan in the first three months since we got the bailout cash.  

But this did not fool anyone.  The fact is that last year the bill for the state payroll here was €18.8 billion, which was 60% of our total €31 billion euro tax revenues.  This was up from 37% of tax revenues in 2007. 

What’s happened is that tax revenue has collapsed since then but state pay has continued to increase. Now you don’t have to be an economist to see that this can’t go on, particularly now that we have huge interest bills to pay on the bailout and bank rescue.

Little or no progress has been made in reducing this state worker pay bill beyond the small adjustments that happened a year ago.  Instead the government has been sticking with the ludicrous Croke Park agreement under which the unions were guaranteed a year ago there would be no further cuts in pay for state workers until 2014, on the basis of increased productivity.

This has turned out to be a joke, with no measurable increase in productivity over the past year even though the Croke Park deal was supposed to deliver real change in the public service fast. 

Instead we have had more revelations about long holidays, inefficiency, poor service and so on … and of course despite the small cuts a year ago state workers are still earning far more than their counterparts in the real economy, and have guaranteed jobs for life and generous pensions that private sector workers can only dream of. 

The fact is that NO progress on the state sector pay bill has been made in the three months since we got the bailout.  And you can be sure that Ajai and his hit-men pointed this out to the new government behind the closed doors of Government Buildings. 

Which may explain why there were three cabinet meetings in four days last week.  And why the minister in charge of the public service made a tough statement saying that the public service was “not fit for purpose” and that we needed a service that was “leaner, more efficient etc.”

No doubt all this was for the benefit of our IMF and EU masters to give the impression that the new government has got the message.   But talk is cheap. 

Getting real change is going to be very difficult, particularly now that Labor, which depends heavily on the public sector unions, is part of the government.

What's Another €24 Billion?

The sky here was dark last week with flocks of chickens coming home to roost. 

After all the promises in the election about a new approach to the economic crisis to protect Irish taxpayers, all the talk about standing up to Europe and making bondholders share the burden, all the guff about telling the European Central Bank (ECB) that we would do things our way, not Frankfurt's way, last week we found out that nothing is going to change. 

There is no real difference in policy between the new government and the last government.   The policy is still to pay up in full and let the Irish taxpayer take the pain.

We will be doing exactly as we are instructed to do by the ECB.  We won't be burning any senior bondholders, or any of the big European banks who lent our banks the money to fuel the property boom.
Instead of that, the Irish state and therefore the Irish taxpayer will be shouldering the full massive debt that is now sinking the country. 

That debt is set to grow even more enormous with the news last week, following the publication of the stress tests on the Irish banks, that our zombie banks need an extra €24 billion.  This will mean that in total we will be sinking an incredible €70 billion into them. 

And bear in mind the main reason they need the money is so they can go on meeting the repayments on all those bonds and on the massive loans they got from the German and French banks.  

In what was the most pathetic climbdown heard here for some time, the new Minister for Finance Michael Noonan last week admitted the truth and even tried to deny that Fine Gael had promised anything else during the election.

Noonan told journalists last Friday that the government had ended its efforts to force senior bank bondholders to accept write-downs because when he had raised this with the Frankfurt-based ECB, they had said "No."
But what about all the tough talk, all the threats Fine Gael and its coalition partners Labor made during the election? 

“We never said we would burn bondholders," Noonan insisted.  "We said we wanted burden sharing (with senior bondholders) but would not do it unilaterally.  We would only do it with Frankfurt’s agreement, and we didn’t get the agreement.”

And the Labor Party, with unbelievable brass neck, chimed in with the same line.   A few weeks ago their core election message was that they would get tough with Europe and the bondholders and demand burden sharing. 

On the campaign trail Labor leader Eamon Gilmore was almost frothing at the mouth at the injustice being perpetrated on the ordinary Irish taxpayer.   Now they are saying that, er, this is not what they meant at all.  Oh no.

It can only be done by agreement, you see, and Europe won't agree.  So we're stuck. 

Another humiliation last week was the news that the ECB would not be providing Irish banks with a proposed medium-term loan facility, to replace the present emergency funding they are on which has to be renewed every week or two. We had been given the impression that this was in the bag.  But again, the ECB said no.  And that is that.

So after all the bullish talk of facing down Europe, the new government has had a baptism of fire and a high speed lesson in who's the real boss. 

And the real boss these days is not sitting at the cabinet table in Dublin.  He and his colleagues are sitting in the ECB boardroom in Frankfurt.

Our problem is that without the money our banks are being  loaned by the ECB, they would collapse in the morning.   We may not like the deal, but we have no alternative because nobody in the money markets will lend to us.   It may not be pretty, but that's the reality.  

The scale of the problem we face grew dramatically last week with the news that the stress tests had shown that the Irish banks need another €24 billion to meet capital requirements.    It's almost inconceivable that they have got themselves into such a deep hole.

In total, as I said above, this means that it will take €70 billion to fill the hole -- an unbelievable amount in a country with four and a half million people.

How did the Irish banks do it?  A few hundred million to this big developer and the same to his buddies, and then a few tens of millions to this smaller developer and the same to his buddies and before you know it you're talking billions -- even €70 billion. 

And of course it wasn't just for projects in Ireland.  We're talking global development here.
All being run from this tiny island on the edge of Europe.  Is it any wonder everyone loves the Irish!   You couldn't make it up.     

On top of that is the amount of money shoveled out by the banks to tens of thousands of property buyers here who were given 100% mortgages at the top of the boom when prices were really crazy.  Now property prices have fallen by more than half, job losses have soared as the economy has shrunk,  and these people can't or won't pay back the banks.  

Even if we could once have followed the American example and done a Lehman’s on it by letting a bank or two go to the wall, that is no longer an option because of the state guarantee given by the last government. 
This means that the bank debt has been transformed into sovereign or state debt.   So if the banks go down, the country goes down with them. 

There is a growing awareness here of just how disastrous that decision two and a half years ago was for Ireland.  In the beginning there were just a few lone voices pointing this out, the odd maverick economist or politician. 

But those lone voices are now becoming a deafening chorus.   The realization that the enormous bank debts are on such a scale that they could bring down the country is beginning to sink in with people in general. 
Last week, in his statement to the Dail (Parliament) on the bank stress tests, Noonan gave the most blunt judgment yet on the state guarantee to the banks.

“Tuesday, 30th September, 2008, will go down in history as the blackest day in Ireland since the Civil War broke out," he said.  “The 30th September 2008 was the day on which the then government extended the infamous guarantee to the Irish banks ... "

On that fateful night in September 2008, the senior bankers covered up or did not understand the scale of the problem, nor did the few government ministers and officials involved in making the decision.  In the rush to stop the collapse of an Irish bank when the markets opened the next morning, the ministers, on behalf of the country, took on debts of such an incredible scale that no one in the room imagined their eventual size at the time. 

“The JCB and the swinging crane had become the logos of the banks, and Irish bankers were as likely to be funding apartment blocks on the Black Sea or dabbling in property schemes in Singapore, as they were to be investing in the Irish economy," Noonan told the Dail last week.

"The country has been left with an appalling legacy: a legacy of debt, of unemployment, of emigration..." 
There were two elements to the crisis back in 2008, and there are still two parts to the problem.   In 2008, we had a mushrooming budget deficit and  banks who were finding it difficult to get funds on the interbank market. 

Today we still have an enormous budget deficit, and thanks to the state guarantee we gave on all our bank borrowings neither the Irish state nor the Irish banks can borrow money on the international markets. 
So we're in a far more difficult position now. Instead of seeing light at the end of the tunnel, it's blacker than ever thanks to the huge amounts we have had to borrow since then to keep going. 

In spite of severe budget cutbacks, we still have a huge deficit because the savings we made are being eaten up by the increased interest payments on our bailout money from the EU and the IMF and on other debt we have. 

When you look objectively at this situation -- which is what the markets are doing -- it's pretty clear that we are in an unsustainable position.  That's why the interest on Irish debt being traded at the end of last week was over 10%.

The fact is that our debt burden and the interest payments on it are so huge that there is nothing left to revive the economy, and we are trapped in a downward spiral at the bottom of which is likely to be a staged sovereign default by Ireland over 2013 or 2014.  It's hard to see it going on any longer than that. 

Nor is it likely that the new government will last any longer than that, despite their huge majority at present.   Labor won't be able to take the pain and will peel off.  And after that it will be chaos.

The only alternative to this scenario is burden sharing, an acceptance by senior bondholders and by the German and French banks who poured money in here during the boom that they must take a heavy hit on the billions we owe them. 

And the EU and the IMF need to stop parroting drivel about having faith in the Irish economy to bear the heavy costs of the bailout.   We can't and we won't.  It's that simple. 

At the same time, the government here must take drastic action on spending cuts to reduce the budget deficit.  All that has happened so far is pussy-footing around that barely scratches the surface of the problem. 

The way we are going now, we are still spending over a third more than we raise in taxes, partly due to the increased interest burden.   Given the catastrophic situation we face that has to stop, and there is no time to do it gradually.  

If we make those extreme cuts in state spending quickly and also force through burden sharing, we have a chance.  If not, we are going to slide into default.  

Those of you who got out of here in the last five, 10 or 20 years because you could not find anything at home can stop feeling sorry for yourselves.  Instead you can start feeling sorry for those of us left behind.