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  • irishtimes.com - Posted: October 14, 2008 @ 10:43 pm

    Do you feel our pain?

    Harry McGee

    Where do we begin? Do we begin today and make a call on if Brian Lenihan’s Budget debut was good or bad? Do we ask if he went far enough? Or if he went too far?

    Or do we begin in July when somebody down in the hull discovered that the boat was leaking? Cap’n Cowen and First Mate Lenihan went down and investigated the damage, decided that they would have to throw some of the valubale ballast overboard to keep the ship afloat? Or in the months since then when leaks have sprung all over the place making the ship of State list to almost the horizontal?

    Or last year when all the political parties out-bid each other with crazy stamp duty incentives to puff more dangerous air into a hyper-inflated property bubble?

    Or anytime over the past five, six, seven years when the Government, the banks nor the population did zilch to cool an over-heating property market. Or to question the Grand Canyon size gaps between budgetary projections and actual out-turn (taxes were billions more than predicted)? Or to think deeply about the manner in which the windfall taxes were being spent and invested and how the elite of Irish society – politicians, barristers, consultants, public servants, the construction industry, corporations, grasping banks – rewarded themselves so disproportionately?

    Enough questions. Though deeper cogitatin will have to be made than spewing out the cliche from the Northern peace process the Government wants us to buy into: “We are where we are”.

    Yes indeed we are where we are. And where is that exactly? Deep dans le merde. But the good news is, folks, we are not alone.

    A couple of weeks ago, I was more or less like the guy on the double decker bus who stands up and says: “I don’t know what a tracker mortgage is”.

    But since then, I’ve learned. And become a bit of a compulsive reader of the financial pages, newspapers, magazines as I waded into the murky and polluted waters of so-called high finance.

    There follows a long (but hopefully chunky) paragraph with some of the idiot guide fruits of that knowledge, for what it’s worth.  My sense of what  has happened – in its simplest terms – is a Michael Lynn caper on a global scale. Everything possible was done to facilitate borrowing. And when people are in that bubble, there is an air of unreality about it. They begin to believe that the bubble will go on forever, that property and shares and stock will continue to rise in value into perpetuity. And if a security looked a teensy weensy bit dodgy – an unemployed person in eastern California with no fixed income getting a mortage for $200,000 – you could always hedge with derivatives and credit swaps. And just in case those derivatives didn’t work out, you could take out a derivative on that derivative.  And when that tightly-knotted system is finally unpicked and unknotted it emerges that the collateral is not only dodgy some of the debt – God knows how many billions or trillions of dollars globally – has zero collateral at all.  But we all bought into it. Those of us with houses actually believed that the value that was placed on them had some relationship with reality, would last forever. And that would give us a permanent cushion about all the bad decisions we made when going into debt.

    Anyway, the Government have used the global crisis as a cover for some of the awful decisions that were made in the past couple of years (in which – if truth be told – a lot of us were complicit).

    And today’s savage Budget must be seen in that context. I have a long analysis piece up on the website on the specifics of this year’s Budget (if you feel in a martyr frame of mind, access it HERE)

    How did we end up in this mess? The figures that scared me most was the General Government Deficit for €12 billion or 6.5 per cent of GDP. Our debt to GDP ratio has risen to 43 per cent. That compares with a ration of under 25 per cent only two years ago in Budget 2007 when Finance was predicting a surpluse of 1.2 per cent.

    Lenihan has looked authoritative after a shaky start.  He’s stuck the ‘under new management’ sign up. The problem is that the rusty old vessel is still the same.

    • America says:

      For the past eight years your newspapers and political commentators have unceasingly criticized my country. Let’s look at some of the stats when it comes to what the US has done for Ireland shall we??? Protected you from the majority of England’s wrath during WWI. Had it not been for America the English would have laid waste to your country out of revenge for Michael Collins’ shenanigans. Protected you from the Nazis during WW2. Protected you from the Russians during the Cold War. Gave you the polio vaccine, invented in America by the way. Brokered a truce between the IRA and England under the Clinton Administration in the 1990′s. And lastly, became your country’s largest foreign investor thus creating your current economic boom that your nation was experiencing. What have you done for America? Spread lies, deceit, and hatred towards us. We have only been benevolent towards you. Who needs friendship with such a race of people? Ireland, for all of our faults and indeed they are many, your country will never be as great as America. I propose that we break off all diplomatic ties and take back all of our foreign investments. You hate and despise us? We will simply honor your choice and NEVER have anything to do with you people again. P.S. I sincerely hope that your country survive the economic crisis that is about to befall you. However, for the love of decency please do not ask us for aid ever again. We in America are content to part ways forever with you.

    • Mike Harmon says:

      Hello. I was reading someone elses blog and saw you on their blogroll. Would you be interested in exchanging blog roll links? If so, feel free to email me.

      Thanks.

    • Dan Sullivan says:

      Harry, I have to ask why do the media take the new projections for growth (only-1.0)/unemployment(7.3)/ etc at face value when the old projections have proved to be nonsense? Seriously, any proper reporting should, given the Minister’s department’s tendency to get things incredibly wrong, take his figures as the optimistic side and reporting that side the very down side and a mid point which should be the focus of any articles. Where is the media commentary on the very, very off figures from the budget from last year?

    • David says:

      That’s about the right analysis Harry.

      “They begin to believe that the bubble will go on forever, that property and shares and stock will continue to rise in value into perpetuity…. (in which – if truth be told – a lot of us were complicit).”

      Here’s a short article I wrote on the subject and sent to the Times’ Newsdesk, probably swiftly moved to the ‘spam box’…

      An unfulfilled social contract

      A guest on a recent edition of TV3′s ‘Nightly News with Vincent Browne’ commented on an ‘extraordinary juxtaposition’ gracing the front page of the next day’s Irish Times. An image of Minister for Finance Brian Lenihan, having just struck a deal to underwrite the bad debts of Ireland’s major financial institutions to the tune of €400 billion, looking somewhat ‘haunted’, while just beneath, an advertisement for an Irish-based bank displayed its current lending rates. Browne responded, “Well that’s the way things go.”

      These few words represent almost the entirety of the mainstream Irish media’s audit of their complicity in Ireland’s current banking crisis, by virtue of their promotion of over-valued property and irresponsible lending practices during the boom years. A testament to the absence of potential for reform within the corporate structure. That is, even where this reform is regularly demanded from others, it is not practised internally.

      The symbiotic relationship between the corporate media and big business, in this case the property business, is a relationship that put newspapers and media outlets at the virtual helm of the property boom titanic. In July 2006 The Irish Times bought the property website MyHome.ie for €50 million. Three months earlier Tony O’Reilly’s Independent News & Media acquired PropertyNews.com, the “largest internet property site on the island of Ireland.” Along with their competitors, the Irish Times and Irish Independent promoted the sale and purchase of vastly over-valued properties to consumers – invariably under the disingenuous presumption that property value is a function of time.

      For instance in May 2005 The Irish Times’ Edel Morgan speculated: “One can only surmise what the average millionaire will be able to buy in Dublin in another nine years. A pokey one-bed apartment in the outer suburbs? Or maybe a townhouse on a new development bought under the local authority’s affordable housing scheme? Will the semi-d become the preserve of the multimillionaire while only the super-rich will afford the luxury of living detached?” [Welcome to the €1 million standard semi-d]

      This fraudulent mythology of never-ending property value increase has been perpetuated by the media for over a decade, with few notable exceptions. It epitomises the inherent business bias which resonates through reporting of the property market and indeed the banking system, where discussion occurs strictly within a context prescribed by those in the banking and property business. Or as Greg Philo of the Glasgow University Media Group recently commented, it takes the form of a ‘procession of the powerful’. Media debate on the subject of the property boom, and now its predicted crash, is for the most part dominated by those with financial vested interests.

      For example, when the government was considering changes to stamp duty in late 2007 in order to artificially bolster property prices the Sunday Business Post “asked six experts for their views on whether now is the time for the government to reform the tax”. [Stamp duty: the debate rages on] The response was overwhelmingly in favour of what should now be considered a failed policy. Those experts were: Chief Economist with Friends First, President of the Irish Auctioneers and Valuers Institute, Economic research officer at the Economic and Social Research Institute, Economist with Douglas Newman Good, Chief Economist at the Sherry FitzGerald Group, Lecturer in economics at the Cairnes School of Business and Public Policy at NUI Galway.

      In November last year, when The Irish Times canvassed the views of property experts, or as they are more casually known, property dealers, developers and investors, “to find out what they expect will happen over the next 12 months.” They consulted: Managing director, CBRE, Investments director, Lisney, Managing director, Savills HOK, Managing director, Sherry FitzGerald, Managing director, Ballymore, Chief executive, IPUT, Director, Finnegan Menton. [Focus on prime locations and bargains] Predictably, these individuals were unanimously upbeat about the future of the already-deflating property bubble.

      The effect of this reliance on people who have a very specific and profit-orientated agenda is rarely if ever commented on. A lack of self regulation which underscores the vacuousness of assurances that ‘the overriding duty of [the media and] journalists is to readers’. And while this social contract remains unfulfilled, calls by journalists and editors for reforms within other corporate sectors remain nothing more than empty rhetoric.

    • An Fear Bolg says:

      I don’t mind the tax increases that hit me (as a “middle income earner”, I think) but I don’t think the levy should apply to people under, say, €25,000 a year or perhaps €35,000 when one earner is supporting a family.

      I also think these hikes would be more palatable if matched by seriour public sector spending reform. Where is it? Where was benchmarking? Tackle the unions please. A letter-writer in your paper today draws attention to the extraordinary jump in HSE funding over the past 10 years – FF ministers always herald this but the headline figure is actually something they should sweep under the carpet rather than shout about, as they’ve nothing to show for it. (Having said that, some of the projects the HSE is implementing are expensive but will pay off).

      Next year’s budget will be even worse if they don’t do something about the public sector.

    • Steve Rawson says:

      Good synopsis as usual Harry

      The rusty old vessel is still the same if, as Dan has rightly pointed out, anybody is naïve enough to rely on the totally unreliable predictions coming out of the Minister based on Department of Finance projections. The ESRI has already stated that it believes the predictions to be far too optimistic.

      At least one glaring myth broadcast through media channels on behalf of Government handlers that ‘the most vulnerable will be protected’ can be shot out of the water – the 1% tax hit on almost 200,000 minimum wage earners. This exercise in mean – spiritedness is only matched by various union leaders meek response to the measure, presumably relieved that the Government bottled out of public sector reform.

      And with reference to David’s considered piece its just more of the ‘who is saying what to whom with what effect’.


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