A return to battle
PROFILE:Peter Bacon’s advice on the economy seems to have been falling on deaf ears for years – now that we’re all finally listening he’s back to battle the monster one more time
ON FEBRUARY 18th, a press release popped into the in-boxes of the country’s journalists. It was not the longest they got that day. It said, simply, that: “Dr Peter Bacon has been appointed Special Advisor at the NTMA reporting to the Minister for Finance. The appointment is for a period of three months.” That was it. Nothing to see here. Go about your business. Except that there was something to see; something quite seismic, in fact. The reason why Bacon was there? To find the ultimate solution and a specifically Irish solution to the Irish banking crisis.
From the beginning, it was clear that there would be a focus on the idea of what had popularly, if a little apprehensively, become known as the bad bank. The approach was expected to ring-fence the banks’ riskiest loans to developers and land speculators, but without actually creating a new bank in itself. Bacon was to be the architect of the solution – or what is hoped will be the solution – specifically charged with devising a plan to clean up the mess created by the bursting property bubble.
This week, the country finally got some detail. Not as much as many would have liked, and with enough wrinkles in it to make it the most discussed aspect to have emerged from Tuesday’s Budget. In short, though, the National Asset Management Agency (Nama) has been formed and, following negotiations, will take possession of one-fifth of the loans across the six banks and building societies guaranteed by the State.
At what price it actually buys the debt remains to be seen. If the price is too low, say the banks, they won’t be able to function and will need more cash from the Government. Too much, and the State will be nursing losses for a long time to come.
Whatever the result of the negotiations, though, it will mean that Bacon will have been chief in framing an agency that some believe will become perhaps the most powerful in the State. As the biggest landowner it will have the potential to affect property and land prices whenever there is economic recovery, by drip-feeding the market as it sees fit.
There is a certain irony in this. Over a decade ago, in 1997, Bacon was brought in by the government of the time to offer suggestions on how to take the heat out of the property market. The first report had a temporary impact but as he came back in 1999, and again in 2000, some commentators were asking just why the same economist was being brought back time and again to sort out a problem that he had yet to fix. Today, many feel that if the government had acted on his recommendations in 2000 then it might actually have prevented the nightmare that was to come.
Bacon, not surprisingly, is one of them. Only last week he told The Irish Timesthat if the government had continued to follow his advice then “the bubble would effectively have deflated in 2002 and 2003. We would have remained on a sustainable growth path. We wouldn’t have the banks broke.”
Back in 2002, he said that “aggressive lobbying may have panicked the government” into reversing its policy of not favouring investors. Too many people were making too much money. “They painted a desperate scenario and it worked.”
Now, the situation really is desperate. Although, if Bacon is back three reports from now and still seeking a solution to the banking crisis, then desperate will be an understatement.
Fifty-five years old, Bacon grew up in Drumcondra and attended Coláiste Mhuire in Parnell Square. However, he and his wife set up the family home in Wexford, where they raised a son and daughter. He is now a grandfather.
He entered the Dept of Finance in 1975, but a couple of years later moved on to a role in Paris with the OECD. He subsequently worked in the Economic and Social Research Institute, the National Planning Board, and the World Bank before in the mid-1980s joining Goodbody Stockbrokers as chief economist. By the early 1990s he had become managing director.
There was then a short stint as economic adviser in the Department of Finance when Bertie Ahern was the minister, only for that to be cut short by the collapse of the Fianna Fáil/Labour coalition. Nevertheless, he and Ahern remain friends.
He then went out on his own as Peter Bacon and Associates. In fact, the “associates” aspect is misleading, because he is a lone operator. In the sharkpool of economic consultancy, says one acquaintance, he knew it would be tough enough to earn a living for himself, never mind earning one for anyone else.
In the past decade or so he has been commissioned to write reports on a range of interests, including the marine sector, the M1 interchanges at Drogheda, the market for apartments in Dublin’s city centre, forestry, biotechnology, the Personal Injuries Assessment Board, a third-level college in Wexford and the meat industry. He calculated the heavy financial cost of road deaths. He was asked by the Moriarty Tribunal to examine the competition that led to the awarding of a mobile licence to Esat Digifone, the consortium found by Denis O’Brien.
HE IS CONSIDERED TO BEsomeone who “delivers”, and does so quickly; someone with energy and drive that is not always matched by others within his industry. It’s what has made his reputation and kept him in demand. It also proved quite useful that he had a deep knowledge of the property sector. It meant that he was brought in as chairman of the company that built a Luas extension from Sandyford to Cherrywood; the developers who owned the land along the route were some of the heavy hitters of the boom, including Liam Carroll and Treasury Holdings.
He also made other more curious moves during the boom, such as his role in developer Seán Mulryan’s Ballymore Properties. His knowledge of the markets in eastern Europe led him to the role of director of Europe with that company and a somewhat surreal occasion when he launched a development in Bratislava, Slovakia with the help of a full choir, the national orchestra and corps de ballet, a drum roll and a fleet of trucks that rolled out at his say so. He no longer works for Mulryan.
ONE DOES NOT HAVE TOsearch far for less than complimentary observations of his personality. Some who know him say that he can come across as pompous, brusque, that he’s the kind of person who “always thinks he’s the smartest person in the room”. He is definitely not someone who could be described as a “team player”.
“He would have a conviction about his own worth and would wear that on his sleeve to some extent,” says one acquaintance. “But he has become a brand name. How many people are there out there with that number of reports named after them? It’s given him a kind of guru status.”
Friends believe that his personality has sometimes been targeted by his critics at the expense of appreciation for his work. However, even among those who are not won over by his personality there is a recognition that he made sound suggestions about the economy at the time of the property reports and that he has an ability to see the broader picture, to “join the dots”.
He has long been noted for his tendency towards deep pessimism, although that no longer seems as out of place as it did only a couple of years ago.
Having finally let the country in on the bank plan, Peter Bacon broke cover this week, appearing on radio and television, where he proved quite resistant to leaking any detail he didn’t want to, but unable to disguise his frustrations with interviewers. Prime Time’s Mark Little attracted particular irritation, bordering on truculence.
Although his report on the bank plan mentions the “dubious practices” of banks and brushes on the problems of “‘crony capitalist’ connections”, he refused to be drawn on the moral dilemma of rescuing the banks. “I’m an economist,” he declared, “not a moralist.”
CV: Peter Bacon
Who is he?Economic consultant
Why is he in the news?Was the architect of the plan to create a National Assets Management Agency to deal with the banking crisis
Most appealing characteristic:His understanding of the property sector – and its flaws
Least appealing characteristic:Too many, his confidence comes across as pomposity
Most likely to say:“They should have listened to me when they had the chance”
Least likely to say:“A crisis in the economy? The horrible fall-out from a property bubble? Zombie banks? Really? I never would have guessed it”