To chose austerity is to bet it all on the confidence fairy
The mystical belief is that a smaller deficit will lead to an investment boom. What Britain really needs now is another stimulus
Joseph Stiglitz
guardian.co.uk, Tuesday 19 October 2010 22.00 BST
The Keynesian policies in the aftermath of the Lehman brothers bankruptcy were a triumph of economic theory. In Europe, the US and Asia, the stimulus packages worked. Those countries that had the largest (relative to the size of their economy) and best-designed packages did best. China, for instance, maintained growth at a rate in excess of 8%, despite a massive decline in exports. In the US the stimulus was both too small and poorly designed – 40% of it went on household tax cuts, which were known not to provide much bang for the buck – and yet unemployment was reduced from what it otherwise would have been – over 12% – to 10%.
The stimulus was always thought of as a stopgap measure until the private sector could recover. In some countries, such as the US, politics rather than economics drove the size and design, with the result that they were too small and less effective than they might have been. Still, they worked. Now, financial markets – the same shortsighted markets that created the crisis – are focusing on soaring deficits and debts.
We should be clear. Most of the increase is not due to the stimulus but to the downturns and the bank bailouts. Those in the financial market are egging on politicians to ask whether we can afford another stimulus. I argue that Britain, and the world, cannot afford not to have another stimulus. We cannot afford austerity. In a better world, we might rightfully debate the size of the public sector. Even now there should be a debate about how government spends its money. But today cutbacks in spending will weaken Britain, and even worsen its long-term fiscal position relative to well-designed government spending.
There is a shortage of aggregate demand – the demand for goods and services that generates jobs. Cutbacks in government spending will mean lower output and higher unemployment, unless something else fills the gap. Monetary policy won’t. Short-term interest rates can’t go any lower, and quantitative easing is not likely to substantially reduce the long-term interest rates government pays – and is even less likely to lead to substantial increases either in consumption or investment. If only one country does it, it might hope to gain an advantage through the weakening of its currency; but if anything the US is more likely to succeed in weakening its currency against sterling through its aggressive quantitative easing, worsening Britain’s trade position.
Of course if Britain succeeds in getting the world to believe that its economic policies are among the worst – an admittedly fierce contest at the moment – its currency may decline, but this is hardly the road to a recovery. Besides, in the malaise into which the global economy is sinking, the challenge will be to maintain exports; they can’t be relied on as a substitute for domestic demand. The few instances where small countries managed to grow in the face of austerity were those where their trading partners were experiencing a boom.
Lower aggregate demand will mean lower tax revenues. But cutbacks in investments in education, technology and infrastructure will be even more costly in future. For they will spell lower growth – and lower revenues. Indeed, higher unemployment itself, especially if it is persistent, will result in a deterioration of skills, in effect the destruction of human capital, a phenomena which Europe experienced in the eighties and which is called hysteresis. Lower tax revenues now and in the future combined with lower growth imply a higher national debt, and an even higher debt-to-GDP ratio.
Matters may be even worse if consumers and investors realise this. Advocates of austerity believe that mystically, as the deficits come down, confidence in the economy will be restored and investment will boom. For 75 years there has been a contest between this theory and Keynesian theory, which argued that spending more now, especially on public investments (or tax cuts designed to encourage private investment) was more likely to restore growth, even though it increased the deficit.
The two prescriptions could not have been more different. Thanks to the IMF, multiple experiments have been conducted – for instance, in east Asia in 1997-98 and a little later in Argentina – and almost all come to the same conclusion: the Keynesian prescription works. Austerity converts downturns into recessions, recessions into depressions. The confidence fairy that the austerity advocates claim will appear never does, partly perhaps because the downturns mean that the deficit reductions are always smaller than was hoped.
Consumers and investors, knowing this and seeing the deteriorating competitive position, the depreciation of human capital and infrastructure, the country’s worsening balance sheet, increasing social tensions, and recognising the inevitability of future tax increases to make up for losses as the economy stagnates, may even cut back on their consumption and investment, worsening the downward spiral.
No business with a potential for making investments yielding high returns would pass up the opportunity to make these investments if it could get access to capital at very low interest rates. But this is what austerity means for the UK.
Critics say government won’t spend the money well. To be sure, there will be waste – though not on the scale that the private sector in the US and Europe wasted money in the years before 2008. But even if money is not spent perfectly, if experience of the past is a guide to the future, the returns on government investments in education, technology and infrastructure are far higher than the government’s cost of capital. Besides, the choices facing the country are bleak. If the government doesn’t spend this money there will be massive waste of resources as its capital and human resources are under-utilised.
Britain is embarking on a highly risky experiment. More likely than not, it will add one more data point to the well- established result that austerity in the midst of a downturn lowers GDP and increases unemployment, and excessive austerity can have long-lasting effects.
If Britain were wealthier, or if the prospects of success were greater, it might be a risk worth taking. But it is a gamble with almost no potential upside. Austerity is a gamble which Britain can ill afford.
http://www.guardian.co.uk/commentisfree/cifamerica/2010/oct/19/no-confidence-fairy-for-austerity-britain?utm_source=twitterfeed&utm_medium=twitter
What’s Next – Minor Correction or Major Meltdown?
What’s Next – Minor Correction or Major Meltdown?
By Simon Maierhofer
On 12:33 pm EDT, Tuesday October 27, 2009
Companies: Spdr Gold SharesIshares Dow Jones Us Basic MaterialsIshares Dow Jones Transportation Average
It was after midnight on April 15th, 1912 when the unsinkable did the unthinkable. Built and labeled as unsinkable, the Titanic was the most advanced and largest passenger steamship of its time.
Even though the Titanic’s crew was aware of the fact that the waters were iceberg-infested, the ship was heading full-steam for a destination it would never reach.
Being aware of danger is one thing; acting prudently for protection is another.
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QQQQ 43.62 +0.11
Today, investors find themselves in an environment that is infested with symbolic icebergs. For savvy investors willing to pay attention and heed warnings, this doesn’t necessarily translate into a financial shipwreck, while others might soon be reminded of the Titanic when they look at their account balance.
Iceberg cluster #1: Lack of leadership
Throughout the financial meltdown financials, real estate, and homebuilders fell harder and faster than broad market indexes a la S&P 500 (SNP: ^GSPC) and Dow Jones (DJI: ^DJI). Beginning with the miraculous March revival (more about that in a moment), the broad market rose while financials, real estate, and homebuilders soared.
Those three sectors led the decline and led the subsequent (mock) recovery. Since it is reasonable to assume that those sectors will continue to lead the market throughout this economic cycle, it behooves investors to watch such leading sectors closely.
The S&P 500 (NYSEArca: SPY – News) recorded a closing high on October 19th at 1,097. The Financial Select Sector SPDRs (NYSEArca: XLF – News) reached their closing high a few days earlier on October 15th. Since their respective closing highs, the S&P 500 has dropped 2.82%, while XLF has already shed 5.64%.
A more pronounced performance slump is visible in the home builders sector. The SPDR S&P Homebuilders ETF (NYSEArca: XHB – News) peaked on September 16th and has fallen 9.97% since. Keep in mind that XHB’s lackluster performance comes on the heels of the biggest monthly increase in total home sales in ten years.
Even though the inventory of existing homes fell 7.5% month-over month in September (to 3.6 million units), the shadow inventory of 3.5 million foreclosed homes is probably weighing heavily on home builders. Shadow inventory represents foreclosed homes that are vacant, still included on bank’s balance sheets, but have not hit the market yet. 3.5 million homes equal about 1 – 2 years worth of supply.
Iceberg cluster #2: Non-confirmation in the technology sector
Apple, Wall Street’s new darling, reported block buster earnings and rallied over 10% to new all-time highs. Microsoft reported better than expected numbers and spiked 7.4%. Investors loved Amazon’s outlook so much that they bid up the stock by over 33%. Combined, the three companies account for nearly 24% of the Nasdaq (Nasdaq: ^IXIC), yet the Nasdaq is traded lower today than before earnings season on October 14th. The same is true for the Technology Select Sector SPDRs (NYSEArca: XLK – News).
If 24% of the Nasdaq’s components rallied between 7 and 33%, without lifting the index, a lot of tech companies must be hurting. In fact, the Nasdaq’s (Nasdaq: QQQQ – News) performance is masking the decline IBM, Intel, and many other once high-flying tech companies have seen over the past 1-2 weeks.
Iceberg cluster #3: Earnings are a lagging – not leading – indicator
Even though expectations were low to begin with (beating earnings forecasts was likened to an A student asked to achieve only a C), there is no arguing that this quarter’s reports were much better than last quarters.
Many view this as a sign that the economy had hit rock-bottom back in March. In fact, 80% of economists now believe that the recession is over (probably the same 80% that didn’t see the recession coming in 2007). However, as the chart below shows, earnings per share (EPS) are directly linked to the stock market’s performance at best and a lagging indicator at worst.
Alcoa, one of the biggest components of the hottest sector – materials (NYSEArca: XLB – News), surprised investors with a positive third quarter. Year-to-date, however, Alcoa lost $0.75 per share. This compares to a profit of $2.95 per share in 2007. At this point, Alcoa does not even have a P/E ratio, since Alcoa has no ‘E’ – earnings.
Considering the relationship between stocks and earnings, it would be interesting to know what caused the March bottom.
Throughout February and March, Wall Street was covered by a veil of uncertainty and worry that the country would slip into another depression. Ever since the Great Depression, there’ve never been as many articles referring to the Great Depression as in March.
It is exactly that kind of pessimism that foreshadows market bottoms of some significance. Such pessimism rids the market of weak stock holders and opens the door for buyers to bid up prices. That’s exactly what the ETF Profit Strategy Newsletter predicted via the March 2nd Trend Change Alert.
Below is a brief excerpt taken from the Trend Change Alert: ‘A multi-month rally, the biggest rally since the October 2007 all-time highs, should lift the indexes by some 30-40%. Tuesday’s (2-23-09) 4% spike may be an indication of the initial intensity of the rally. Beaten down sectors like financials (NYSEArca: VFH – News), industrials (NYSEArca: XLI – News), materials (NYSEArca: IYM – News) and consumer discretionaries (NYSEArca: XLY – News) are likely to see the biggest percentage gains over the next few months.’ Many of the recommended ETFs gained triple digits in the upcoming months.
This rise in stock prices and consumer sentiment, along with serious cost-cutting by publicly held corporations, shrank corporate losses and even created profits for some corporations. But once again, it was rising stock prices that resulted in better than expected profits, not vice verse.
Iceberg cluster #4: No demand for products
It seems like companies have boosted their production. The key question is whether this uptick is merely due to an effort to restock inventories, or actual demand by the consumer. Fortunately for investors, there’s an easy way to find out.
If there is real demand by consumers, it will be reflected by shipping and transport companies. Products in demand need to be shipped from the manufacturer to the consumer or wholesaler. A look at the transportation/shipping sector providers, therefore, an easy and logical answer.
UPS shipments fell for the sevenths consecutive quarter. UPS’ profits fell 43% year over year due to lower demand for packaged deliveries. Burlington Northern, the biggest component of the Dow Jones Transportation Average (NYSEArca: IYT – News), reported that its freight revenue dropped 27% year over year.
This is exactly the opposite of what you’d expect to happen in a new, sound bull market.
Iceberg cluster #5: (Over) valuation
Would you buy the Dow Jones at 10,000? It probably depends on where you see the Dow trade a week, a month, or a year from today. Many investors and Wall Street gurus are advocating to buy the Dow at current levels.
Let me ask you this: Did you buy the Dow at 7,000? If you didn’t buy the Dow a few months ago at 7,000, why would you buy it today at 10,000? Today’s Dow is 50% more expensive than it was seven months ago, yet more people are willing to buy now than in March. Aside from the stock market, there is no other ’salesman’ able to sell a product for a 50% premium.
Bait-and switch at its finest
How can the stock market get away with this? The only difference between March 2009 and today is perception. Even though it defies logic, stocks are perceived to be a better deal today than in March.
Imagine what will happen when the perception changes. Once investors start believing that they can buy stocks later at a lower price they will wait, buyers will dry up, and stocks will plummet.
It’s no stretch to expect lower prices. Even though prices have come off multi-decade lows, earnings are lower than any other time since the Great Depression. The S&P 500’s P/E ratio (stock price divided by annual earnings), based on actual reported earnings have sky-rocketed to all-time highs.
Anybody buying the S&P 500 at current prices is paying 138 times as much as reported earnings. In other words, based on this year’s earnings, it would take 138 years of profits to repay your investment.
Would you buy a Subway franchise at 138 times its annual profit if you knew that 15 – 20 is the historical average? 15 – 20 is the average P/E ratio over the past 100 years. Anybody buying now will have to be prepared for significantly lower prices.
Some things never change
History teaches us that overvalued markets can’t last forever. History also teaches us how far the market will have to drop to reach fair values. The bear markets of the 1930s, 1940s, 1950s, 1970s and 1980s have provided us with a valuation reset template.
Every bear market bottom has seen P/E ratios drop to historically low levels. Investors, however, don’t have to rely on P/E ratios alone. Dividend yields, mutual fund cash levels, and the Dow measured in the only true currency – gold (NYSEArca: GLD – News) provide another window into the future – a nearly fail-proof composite indictor.
The October issue of the ETF Profit Strategy Newsletter plots the historic performance of the stock market against P/E ratios, dividend yields, mutual fund cash reserves, and the Dow measured in gold, along with target levels for the ultimate market bottom. A picture paints a thousand words and those charts speak volumes about the market’s future.
Did you know that the Titanic received an iceberg warning less than two hours before an iceberg brushed the ship’s starboard side, buckling the hull in several places? An angry communications officer responded: ‘Shut up, shut up, I am busy; I am working.’ There are plenty of indicators warning investors today. Will you heed the warning and avoid financial shipwreck?
http://finance.yahoo.com/news/Whats-Next-Minor-Correction-etfguide-1855824735.html?x=0&.v=1
Drowning in a Financial Storm
Sunday Business Post (Full Text) 18th October 2009
A Chara,
Like a ship in stormy seas our banking system almost capsized. Now the government wants to hoist the sails once again regardless of the prevailing conditions. Even garbage can grow green shoots.
It appears that stating the obvious that NAMA is cash for trash or the socialization of losses and the privatization of gains is criminal or even that NAMA is unconstitutional, has little effect on a government that daily fills the airwaves with creative nonsense & poetic license to confuse the public in response to every serious criticism of its plans.
It is clear from the lowering of the amount of debt to be transferred to NAMA, due to fear of public outrage no doubt, the banks have a lot more hanging in the balance. They will not restructure loans as to do so means to acknowledge the full extent of their losses and lessen their claim in the unlikely event of an upswing. Given that the government is there to bail them out what incentive do they have to create a healthy banking sheet? The problem is left to fester with exposed highly leveraged loans and an oncoming wind of negative equity and mortgage defaults waiting for a second NAMA. The government is content to leave a sick and irresponsible banking system at the heart of Irish business while pretending NAMA will make a profit, rather than admit the billions tax payers will more than likely have to pay. How appallingly unrepresented we are. The mentality that created the problem worsens it.
The recent boom was fueled by access to easy credit from economies such as China which led to an explosion in lending and an inflated house price bubble fueling a false economy which benefited large developers and bankers. Since the crash Irish savings rates have jumped from 3% in 2007 to 10% in 2009. Combine this with a drop off in easy credit, a doubling of personal debt in the last 5 years, a serious decline in house prices and rising unemployment, the reality is property prices will decline even closer to their true value and the economy will stay in recession. In a 13th September 2009 interview Joseph Stiglitz, two times Nobel prizewinner for economics said: “In the U.S. and many other countries, the too-big-to-fail banks have become even bigger,” “The problems are worse than they were in 2007 before the crisis.”
It’s absurd to suggest the market has bottomed and prices are going to recover when the conditions for such a recovery are fundamentally flawed. “The stimulus that we have still got to give the world economy is greater than the stimulus we have already had,” Brown told reporters in London before his departure for the Group of 20 meeting in Pittsburgh in September. “What we want to do is safeguard a recovery from a recession we feared would develop into a depression.” Yet pressure is on governments to restrain spending due to rising national debt. The same phenomena occurred during the great depression leading to a double dip. We are by no means out of the woods. The present financial shock may just be a splash in the oncoming tsunami that may hit this economy. With the loosening of banking practices in recent years more and more U.S. banks are in a sick state and likely to fail. Lehman’s only represented a fraction of the debt risk in the financial markets. However, instead of preparing by becoming airtight, we are recreating the perfect storm. Our banking sector will be as open as a raft on the high seas. We may very well find ourselves under the stewardship of the IMF as ECB borrowing will be exhausted.
Whatever solution we employ we must ensure that we do not make the problem worse. The banks must be cleaned up, start lending and be transparent to prevent a repeat situation and to restore confidence in the financial markets which are forward looking. Nama achieves none of these objectives. Our post-Nama banks will be fighting for survival while struggling to contain significant losses arising as a consequence of Ireland’s ongoing economic deterioration. Lending to SME’s will decline as they represent a higher risk during a recession. Given the ECB’s base rate is currently 1% while its 10 year projected average is 3.8% repossessions are clearly set to rise.
The credit agency Moody’s has stated NAMA will not improve the credit ratings of Irish banks to borrow. How can it, when it effectively props up a sick banking sector hiding the true extent of their dysfunction with the help of the government? At the same time doubling national debt in an economically illiterate way sends a message to the financial markets that Ireland is unable to manage its debt.
Contrary to the governments assertions neither the ECB nor the IMF support NAMA. The ECB has stated: the government should not pay more than the actual value of the assets and has warned against the danger of banks using the monies they are paid to rebuild their equity rather than lend to new and existing customers. The IMF on the other hand have stated: insolvent institutions (with insufficient cash flows) should be closed, merged, or temporarily placed in public ownership until private sector solutions can be developed.
We need to look at further risks to the banking sector given the fragile state of the global economy and recognize that the financial crisis is not yet over. Yet Nama encourages the banks to return to their old ways and leaves the problem festering while passing on the losses to the taxpayers whom the banks will have no choice but to evict from their homes once it is politically able to do so. The government by that stage will be in the life boats while the rest of us are in the water drowning.
Is mise le meas,
Albert Byrne
Ardee, Co. Louth
http://www.thepost.ie
Now is the Time for the Government to Step Down
5 October ‘09
A Chara,
We live in a sea of misinformation, political corruption and very low standards in public office. Our politicians prostitute their integrity and self respect in order to cling to power. Nobody stands down when it is the decent thing to do.
Whatever ones opinion on the governments handling of Anglo Irish and Brian Cowan’s response to some bankers suggestions on the night of the 29th September, 2008 that Anglo be nationalised, “We are not f****** nationalising Anglo”, along with the subsequent billions that have and will be spent on this zombie bank, there can be no doubt, as pointed out by David Curran (SBP), the lack of an Oireachtas committee probe into the banking crisis has spared politicians and arms of the state from being investigated. He also points out that a High Court Inspectorship, which is effective, efficient, speedy, transparent and objective has also not been carried out. What are we to make of this?
Despite the government’s protests that NAMA is supported by the ECB, the truth is the ECB has stated that the government should not pay more than the actual value of the assets and has warned against the danger of banks using the monies they are paid to rebuild their equity rather than lend to new and existing customers. The credit agency Moody’s has stated NAMA will not improve the credit ratings of Irish banks to borrow. In addition the banks are bracing themselves for significant post-Nama losses arising as a consequence of Ireland’s ongoing economic deterioration. Given that Irish banks are under intense pressure by overseas investors to repay loans, lending into the economy is a long way off. History also shows that lending to SME’s during a recession declines as they represent a higher risk. Yet the government has made no arrangements whatsoever to ensure lending takes place. In light of this it is difficult to understand why Irish society & culture should be decimated & divided through stringent cuts at a fraction of the potential losses NAMA very likely will incur.
Now is not the time to sack workers from the public sector. Nor is it the time to set it at loggerheads with the private sector, creating divisions in our society for years to come. Now is not the time to undermine the farming community & its essential role in rural life, nor withdraw essential services which support the backbone of our society.
Now is the time to plan an orderly transition over the coming years of personnel from the public to the private sector as the economy improves in lieu of agreement on a major overhaul of the public sector with the public sector unions. Now is the time to nurture our society and to seek effective cost reductions in the way government does business. Now is the time to put an end to the abuse of the welfare system. This is where tax payer’s money should be going.
The McCarthy report suggests ruthless savings while Anglo Irish, a zombie bank, has received and will continue to receive billions of tax payer’s money. The gross negligence of duty to the citizens of this state & self interest of this government during its tenure has extended to its demise. The time has come for a national protest organized by the public & private sector to send a clear message to this government & the elites they represent to step down. The time has come for the citizens of Ireland to stand together and reaffirm article 45.1 of the constitution which clearly states: “justice and charity shall inform all the institutions of the national life.”
Is mise le meas,
Albert Byrne
Madam President – Nama is Unconstitutional
26 September 2009
Madam President,
I would like to draw your attention to the NAMA legislation and why I believe it is repugnant to the constitution and as such, under article 15.4 of the constitution, should be referred to the Supreme Court to test its constitutionality.
According to a report by Davy Research (July 2009) net government debt stood at €41.8bn year ending 2008 (excluding €3bn to recapitalise Anglo Irish). It anticipates a total of €19bn will be required to recapitalise the banks. Of this €14.7bn is expected to come from the state with the remainder coming from the banks themselves. The minister of finance estimates NAMA will cost €54bn where the book loan value is €68bn + €9bn of unpaid interest, i.e., €77bn. Recapitalisation of the banks & NAMA will therefore add a further €68.7bn (which includes €2.7bn risk share) to government debt. Of the €77bn in loans, €28 billion are held by Anglo Irish Bank who classifies just 11% of its loan book as business banking (Fintan O’Toole, Irish Times).
Davy research argues that net debt will be less given NAMA’s asset values. However, if the real value of NAMA’s assets are closer to those assigned to the Zoe Group in the recent High Court action (approximately 25%), it is difficult to see how any developer would be able to continue making payments on property whose real value is significantly less than the outstanding debt – in some cases a 10th of the original valuation. A conservative estimate by Richard Curran, Sunday Business Post, places NAMA’s portfolio at 45% of its peak value based on worldwide property valuations, i.e., €39.2bn of an €88.3bn total using a LTV of 77%, making default &/or special discounts for borrowers a more likely prospect. The minister Brian Lenihan stated on the Pat Kenny Frontline show that the banks would be paid less if valuations were less. However this is incompatible with keeping the banks solvent without more costly state funding, which the government has stated it will do if necessary and all the signs are it will be necessary. In addition, the Construction Industry Federation chairman Tom Parlon has stated that the additional €5bn the government is to make available to complete projects is not nearly enough.
If the government does decide to hold onto these assets to recoup its losses, rather than subsidise developers by way of fire sale auctions or otherwise, an average interest payment of 4.2% will have to be paid to the ECB over the next 10 years, as pointed out by Richard Bruton, based on the projected average 10 year ECB base rate of 3.8% where the government is liable for 0.5% above this, i.e., a potential total of €32bn. In addition, Justice Frank Clarke in his judgement against Zoe Group stated there is considerable downside risk to property prices for the next 2 years. Given, for example, that Dundalk has sufficient zoned land to last until 2073 NAMA values will fall even further as land is rezoned to agricultural use. According to Morgan Kelly, economist UCD, Ireland’s property bubble is remarkably similar to Japan’s where, almost 20 years later, prices are still 50% below peak levels. The government’s assertion that the market is bottoming out and showing signs of recovery based on higher property yields is flawed as rents are being propped up by legislation and eventually those yields could fall to zero as businesses go bust (David Fitzsimons, CEO Retail Excellence Ireland). As stated by Ronan Lyons, Irish Times: “It is scarcely credible that Nama’s entire estimation of long-term value hinges on rents, despite evidence to the contrary, holding constant in a subset of the total loan book – a segment that accounts for perhaps 5 per cent of the loan book in total.” Chief economist Alan McQuaid in Bloxham’s third quarter Irish Economic Overview said the property market will only stabilise when the labour market does and warns of thousands of further job losses before the middle of next year. He believes the fall will continue for some time yet (The Post). Presumably, this will affect NAMA’s development project loan values aside from landbanks & associated loans (mainly commercial properties), the other 2 segments of NAMA’s loan book.
If the government does not make deals with developers we are left with Catch-22. Either the state sells off the assets at a huge loss to the tax payer or else they hang on to the properties in the hope, however speculative or unlikely, that values will recover whilst huge amounts of interest are paid. It seems inevitable further borrowing will be required even allowing for 40% of loans which are “performing.” Additionally, the so called risk share of €2.7bn to be paid if NAMA turns a profit is a double edged sword. If NAMA does not turn a profit this implies the banks will also be in trouble and may require further bailing out. In all of this no account is being made of the assets which have been used to secure the original loans, many of which are based on overvalued property and secondary bank loans. Neither does it take into account the enormous running costs which will be incurred by NAMA. The fact that NAMA is already beginning to resemble the tribunals in terms of consultancy costs (€2K+/day) does not bode well for its future (Daniel McConnell, Sunday Independent). Further, the proposed levy on banks (which may be a drop in the ocean) in the event of significant loses may be difficult to impose as banks could also be in trouble and will resist any attack on their funds pointing, for example, to any special arrangements made by NAMA as a cause of lost revenue and therefore not of their doing. Meanwhile the Supreme Court has expressed concern that the Zoe Groups’s continuous appeals, which now run into November when NAMA will be in place, are seriously affecting the courts resources and an appeal has been made against Zoe Group by ACC Group on the grounds that it is abusing the legal system (Irish Times).
The ECB has stated that the government should not pay more than the actual value of the assets and has warned against the danger of banks using the monies they are paid to rebuild their equity rather than lend to new and existing customers. At the same time the IMF has stated that secret entities (which NAMA is) have less chance of success. A lack of transparency is at the heart of Ireland’s political problems and could be costing the economy up to €3bn per annum in lost revenue and foreign investment due to political influence that stems from political funding that is unlawful (Transparency International Report 2009). Such influence, no doubt, is not unrelated to the non-transparency which contributed to the collapse of Anglo Irish.
The question the people are asking is: why are we not following due process and implementing a strategy that protects the tax payer’s while managing government debt, instead of passing secret & complex legislation designed to use tax payer’s money to cover private investor’s losses? The reality is: billions of euros spent on NAMA & recapitalising the banks will go straight into the pockets of investors & borrowers who by due process are entitled to very little. Before NAMA officials were silenced they spoke of their concerns at its complexity and their lack of experience. Department of Finance officials have said that the NAMA scheme will be among the most complex plans ever introduced by government (Irish Times).
Sweden exited its banking crisis by following due process: shareholders paid first. As the former conservative Swedish finance minister Bo Lundgren pointed out on Good Morning Ireland, Sept. 3rd, the Irish economy is strong on the baseline and private investors will return once recovery begins. Many other strategies exist to protect the taxpayer which the government have resolutely rejected & ignored from day one insisting that NAMA was the only way forward. One solution put forward by Dermot Desmond suggests supporting the banks to resolve their own problems via guarantees. He states: “Nama as conceived will do untold long-term damage to Ireland Inc. It will result in paralysis for decades to come.”
There is the assumption that banks will start lending once bailed out. Anyone following the problems in the UK knows this is simply not true. Governments around the world have used public money to bail out banks only to see many of them quickly return to profit and resume setting aside billions for bonuses (Bloomberg). In relation to bonuses Lord Turner, head of the FSA (UK), said: in many cases the banking industry was socially useless (The Guardian Weekly). In addition, according to Jon Ihle, The Tribune, the banks are bracing themselves for significant post-Nama losses arising as a consequence of Ireland’s ongoing economic deterioration. Thus, the priority of banks will be their own survival and building up their balance sheets via careful investment. Given that Irish banks are also under intense pressure by overseas investors to repay loans, as their reputation is impaired, lending into the economy is a long way off. In addition, the credit agency Moody’s has stated that NAMA will not improve the credit ratings of Irish banks to borrow (Bloomberg). Yet the government has made no arrangements whatsoever to ensure lending takes place. It argues that it has directors on the boards. However, the recapitalisation package only gives it 25% of the voting rights and the government has also stated it does not intend to take control of AIB or BOI.
I firmly believe NAMA is a form of social & economic suicide and defies common sense. It is a continuance of the same economic mindset where it has not been uncommon for state run projects to have cost overruns of the order of 4 with all liability passed on to the tax payer (Dr Sean Barratt, TCD). It comes at a time when the McCarthy report suggests €1m can be saved by closing 350 Garda stations while the original estimate for NAMA & recapitalization is €68.7 thousand million, a large portion of which is going to a bank with very little connection to the real economy. It is myopic to say the least & symbolises all that has been wrong with Ireland’s economic & political system. It replaces natural economic transformation by costly, inefficient, entrenched stagnation where problems are postponed and not solved. Given the enormous impact this will have on the provision of social services for generations, at a time when government is implementing cuts on the most vulnerable in our society for a small fraction of the sums involved, the question has to be asked: who or what does NAMA serve?
Instead of promoting a healthy, accountable, banking system, NAMA props up the old irresponsible culture via the creation of complex and expensive quangos while maintaining an unaccountable banking system which is inherently sick and vulnerable to disaster at the heart of Irish business. Even ardent free marketeers recognize why the markets kill off such entities. Martin Wolf, chief economics commentator at The Financial Times, says regulation of major financial institutions will fail repeatedly as regulators are not well paid and not very motivated and that financial regulation should be similar to the regulation of utilities.
By mortgaging the state to the hilt, the country is also being placed in a perilous position. Should the economy deteriorate further we will be left financially naked having fired all our shots. We may be compelled to borrow vast sums of money for years to come and ultimately may not be able to borrow at all, forcing us to turn to the IMF for help. NAMA is therefore, apart from anything else, an avoidable but clear and present threat to our sovereignty and as such is repugnant to the constitution.
Madam President, 80% of the people have no confidence in this government nor the incoherent arguments being used to bedazzle them long enough to get NAMA enacted – an oasis the Zoe group are clinging to dear life to reach. Yet, the people are powerless to act. Article 45.2.iv of the constitution states: “That in what pertains to the control of credit the constant and predominant aim shall be the welfare of the people as a whole.” Yet NAMA will squander public funds on a small sector of society while a mortgage timebomb is in the making as interest rates rise, house prices fall, the economy worsens and the government’s 12 month mortgage guarantee comes to an end. After all the billions of untaxed earnings in the hands of a few while social problems grew, must the ordinary tax payer now pay a Celtic Tiger tax and deliver the final blow to the ideal of a just society? If we are to stand by article 45.1 that states: “justice and charity shall inform all the institutions of the national life,” then I humbly suggest Madam President this bill must be referred to the Supreme Court in order to test its constitutionality.
Is mise le meas,
Albert Byrne
www.albertbyrne.ie
LMFM Excludes Anti-Corruption Debate
LMFM Radio Exclude Anti-Corruption Candidate from Debate
29 May 2009
A Chara,
I am standing as a candidate for the Ardee Council and Louth County Council.
I wrote to LMFM outlining why political corruption and party politics is ruining this county. My website explains measures I would push at council level to introduce reforms of the council and transparency of the private business conducted by council members to reduce the causes of corruption, which many people mention to me as I go from door to door.
I am being ignored by LMFM while FF councilors explain on its airwaves how the opposition is talking down the good work the government has achieved. This I see as a tactic by FF to hoodwink people away from present realities into the same state of mind that led the country into its present mess while ignoring the role played by corruption.
Political corruption is the single most important issue facing this country. Until it is tackled all policy is tainted and the needs of people will play second fiddle to the well being of party members who are in power to avail of its benefits and privileges. Obviously not all members are corrupt.
The people know this. So why is LMFM not tackling this issue while ignoring a candidate who is pushing to clean up local government?
Is mise le meas,
Albert Byrne
Independent Election Candidate Ardee Council & Louth County Council
Dishonesty, Political Corruption and Extremism
17 May 2009
A Chara,
Our country is governed by three complexes: dishonesty, political corruption and extremism.
A report just issued by Transparency International, based on 3 years comprehensive research, states: Ireland suffers from high levels of legal corruption (which is undue political influence that stems from political funding that is unlawful) and could be costing up to 3 billion euro per year in lost revenue and foreign investment.
The political system is badly served by current party politics which gives a dishonest portrayal of current events and allows petty political corruption due to a lack of transparency. The chamber of the Dail, where debate should take place, is little more than a clearing house for deals already made. Important ideas are often ignored by those in power. The sacredness of the party ensures that the tackling of controversial issues is easily side stepped. At the same time the most pressing of issues, the environment, is primarily left to market forces which have no moral compass.
Consequently we have extreme behaviour as the outlets of political change are squandered by governing politicians who take little heed when real people call for real change. Meanwhile important relationships with the EU are jeopardized as the Lisbon Treaty remains unsigned.
The political view that the more we pay our politicians the better representation we get does not stand up. The opposite is true as devious and corrupt people enter politics to benefit from its many advantages. The greater the reward, the greater the supply.
We threw off imperial subjugation and now have replaced it with economic slavery which takes advantage of ordinary decent people not accustomed to the ways of extreme capitalism. We are developing a culture where more and more people do not think of what they can do for you but what they can get from you. While our education system has produced very qualified people, many have little or no emotional intelligence. Cultural values no longer make up the shortfall.
Obviously we need change. The question is can our political parties be relied upon to make these changes? Changing the guard does not change the system and if the system does not change the problems do not go away.
We need to take temptation out of politics to better enable quality representation. We also need to set up an independent & accountable Judicial Council to oversee the workings of the judiciary and to review the manner in which judges are appointed. To implement these changes we must remove the sources of corruption, reform the system and implement a policy of transparency in government.
Reform starts from the ground up. I am asking you, the voter, for the opportunity to enter local government to begin these changes. I believe together we can make a difference.
Please vote independent.
Is mise le meas,
Albert Byrne (www.albertbyrne.ie), Candidate Mid-Louth County Council Elections
There Is More To Society Than Economy
6 March 2009
A Chara,
The Irish papers are filled with news on banking scandals & economic decline while the real fundamental issues are being overlooked and remain unaddressed:
1. Our political system is corrupt, compromised and lacks the courage for real change. Opposition politicians can be seen supporting contradictory positions in order to gain political advantage regardless of how it affects the country. Many politicians enter politics simply to further their own interests and are not competent for the positions they hold.
2. A report just issued by Transparency International, based on 3 years comprehensive research, states Ireland suffers from high levels of legal corruption, which is undue political influence that stems from political funding that is unlawful, and could be costing up to 3 billion euro per year in lost revenue and foreign investment. Its recommendations should be implemented as a matter of national urgency.
3. Now is not the time for a change of government. It is the time for a national consensus. A time to roll back the excess, not pass it on. Politicians need to sit down and pool ideas as nobody has all the answers and elections destabilize the country.
4. We need a political stimulus package to stimulate our lethargic political system. We have 4 times more representation than the UK, yet our politicians do less and cost more. We need competition in politics and more effectiveness in the Oireachtas where TD’s complain that good ideas do not get beyond the committee stage. The number of TD’s needs to be cut, salaries & benefits cut and expenses reduced including an end to government jets (a population of 4.5m cannot afford to spend 10k€/hr on private jets), as well as tighter rules on lobbying and standards in public life.
5. Ireland should withdraw from the European Defense Agency (EDA) which requires member states to improve their military capability. We cannot afford to be part of the military industrial complex. It’s a futile and costly exercise. Our neutrality must also remain intact.
6. Our politicians fly to Texas to meet with Dell on a private jet while Washington chides its own business leaders for the same practice. This sends a negative message to business leaders who properly understand the bottom line and is the kind of leadership that has made us so uncompetitive.
7. We are told that politicians are sharing our pain by taking 10% cuts in oversized salaries and expenses while the same politicians continue to run their own businesses as well as draw enormous benefits from being in office. Many are a waste of tax-payers money.
8. Our public sector is too expensive. If a levy is unacceptable then either jobs are cut or a 4 day week introduced. Many in the private sector either cannot find jobs; have lost jobs and/or have had their pensions seriously reduced and, according to the ESRI, are paid less for similar jobs. On the other hand, the €2.5 to €3.0 billion pension subsidies paid to the top 20% in the private sector could also be reduced by placing pension subsidies on a sliding scale. Any tax changes must protect the 300,000 people living in consistent poverty, the equivalent of living on an income of about €11,000 for a single person and being unable to afford essentials such as a proper meal or a winter coat.
9. The number of quangos has soared by more than 200 in the past decade and such agencies often overlap their work while some are no longer needed. It is claimed that €200m could be saved over four years by ending the duplication of things like office costs and separate websites. See Irish Examiner, Apr. 11, 2008.
10. A “costly,” ineffective and socially destructive war on drugs is being waged preventing the dissemination of proper information, regulation and medical help for drug related problems. It gives rise to criminal gangs, gun crime, petty theft, a growing prison population with associated transmission of HIV+ and drug use, criminalization of sick people, and the cheapening of life. In the Netherlands, where in 1972 a harm reduction policy was introduced, the number of young people using cannabis has gone down, and the number of people going on to hard drug use has also gone down. Prohibition hyper-inflates the value of illegal drugs which creates a fertile field of activity for ruthless people. The UK government in 2004 estimated it spent 20 billion pounds on drug prohibition. We need political courage to take this problem on.
11. We are suffering a worldwide addiction epidemic while a cure to interrupt addiction exists (ibogaine) which, unlike every other treatment, removes cravings and returns the addict to a pre-addictive state. Regulatory testing is not funded as there is no commercial advantage for pharmaceutical companies. It remains an underground treatment in unregulated surroundings – see www.ibogaine.org/www.myeboga.com.
12. Gun crime is increasing. We need a database with information on all firearms, bullets, cartridge cases and forensic evidence recovered from every new relevant offence. This database should allow us to track a ballistic item from its discovery to its eventual destruction.
13. Our concept of education is emaciated and overlooks the importance to society of personal development. The key to this is experience. We need summer camps and playschools. We have to work to eradicate impoverished mentalities in our society and to sow the seeds of emotional & creative well being in our children. If someone has not been educated by the time they go to college they will not be educated by the time they leave. Primary education is the most important sector of our society and special needs education must be protected to build a caring and enlightened society.
14. Our bankers guaranteed take home pay would make Obama blush while the New York Times describes Ireland as the wild west of banking. Banks are bailed out but they don’t lend to small business. Yet many are guilty of economic treason. We need to establish a People’s Bank which provides mortgages and loans for ordinary people and businesses as our banking system has failed us.
15. Currently there are 2 housing developments in my community. One is run by the Council. Both are staffed and managed by Northern Ireland contractors while local people are walking around unemployed. Why are southern firms so expensive they cannot compete?
16 . With the explosion in housing in our towns and countryside where are the social amenities that builder’s levies supposedly contribute towards?
17. In the not too distant future residents of Beijing will be swimming to work unless climate change is reversed. I believe we should borrow to fund green jobs and facilities such as the Gaelectric Larne 223m euro wind based power generator which will create 200 construction jobs and can generate enough power for 135k-200k homes (some energy input is required). In so doing we will improve our CO2 targets, gain exportable expertise in new future orientated industries and instead of importing nuclear energy via a newly funded European grid from Wales to Ireland, export green energy. Renewable energy sources should be recapitalized with billions, not rogue banks.
18. Our businesses are not exploiting the internet. Now is the time to migrate Irish businesses to the internet. Where is the public campaign?
19. The Tribunals show how lack of political leadership is costing the taxpayer a fortune. “The latest figures show that Healy and Coughlan are the top earning barristers across the three main tribunals. Each of the lawyers has been paid fees of more than €8 million over the past 11 years.” The Post, 15 Feb.
20. Our health system is an international disgrace with consultants vastly overpaid and the public vastly underserved. For example, many Irish hospitals are using artificial means to induce birth under 12 hours. Women are given drugs such as oxytocin or have their waters broken to speed up labour despite the increased risk that a rushed birth will result in an emergency caesarean. On the other hand the Dutch system is ranked number one in Europe compared to Ireland, which is ranked number 15. Holland spends almost exactly the same as Ireland for its health services, though it has over double our population. There are no waiting lists and free access to GPs.
21. Our elderly are our elders. Their presence is a reminder to the young of what we as a nation stand for. They should remain within the heart of the community via a transfer of investment from new nursing home funding to existing homes and changes to planning regulations to ensure a percentage of all new housing within the heart of the community is suitably designed with shared social amenities for the elderly. Advances in technology should be utilized to provide extra security and comfort allowing the elderly to remain in visual contact with loved ones and social services with ease and simplicity.
22. According to a Heritage Council survey, our national monuments are disappearing at an alarming rate. What does that say about modern Ireland?
Ireland is crying out for change. We need a new political landscape. One suited to the 21st century and not one saddled to the politics of the past, which are more suited to the history books and not the needs of modern Ireland. We need to plant new seeds.
I am calling on people of honesty and integrity, decency and common sense, to step forward and answer the call of patriotism and take back power from those unfit to govern and, to let go of allegiances that are inappropriate and not serving the needs of the people. Now is the time for change; a chance to forge a future that we can be proud of rather than passing on a poison chalice for future generations to choke on. Let decency and dignity go hand in hand; not power and corruption.
Without the will to serve honestly and selflessly this country will perish spiritually and materially. Our elders will live without dignity and our citizens will be destined to a life of wage slavery to meet the unjustifiable burdens of government and tax avoiding entrepreneurs. Our young will become disillusioned while crime, divorce, suicide, depression and loneliness will increase. Is this the future we wish to bequeath our children?
There is more to society than economy.
Is mise le meas,
Albert Byrne (www.albertbyrne.ie), Candidate Mid-Louth County Council Elections
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