Humiliation

A few days ago, the Irish Times carried a story claiming that the former chief executive of Anglo Irish Bank David Drumm paid only €10,000 in income tax between 2005-08. Today, they had to retract the story. It seems he paid in excess of €6 million in income tax during his period on the bank’s board.

Yesterday The Irish Times incorrectly reported that Mr Drumm had paid only €10,000 in tax during the period. The report was based on an incorrect interpretation of a document filed by the Revenue Commissioners in a court in Boston.

Income tax returns for the period show that Mr Drumm paid income tax of €6.31 million on gross income of €12.47 million.

The effective tax rates on his income during the period ranged from 36.52 per cent in 2004, the year he was appointed to the board, to 54.1 per cent in 2008, his last year on the board.

Still, it is scandalous enough that this man earned close to €13 million working for a bank that destroyed the Irish economy.

Denmark, Australia, Anywhere

DAA Pride Barry Murphy Parody from Ciaran McCarthy on Vimeo.

All the great things about Ireland, in one short video....

The faultless logic of an Irish Anarchist

No need for comment on this chart and video

Here is the latest data for Irish bank deposits....



And here is the regulator of the Irish banking system....

Let them eat cheese

The singing is a little rough, but still funny...

From South of Dub

Say hello to the bubblemen - first up, Brian Cowen

When Brian Cowen became Irish Prime Minister in 2008, Ireland was regarded as one of the great economic success stories of the last 30 years. It had recorded stellar growth rates, sometimes reaching double digits. Her citizens grew wealthy as Ireland’s per capita GDP became among the highest in the world. Every small emerging market country wanted to be like Ireland.

From the moment that Brian stepped up to the top job, things started to fall apart. The financial crisis kicked off in September 2008, and threatened to take down the Irish banking system. As Lehman's bankruptcy papers were heading to a New York Court, Irish bank depositors became nervous. Brian prevented a run on the banks by offering a blanket state guarantee on all bank deposits. The generosity of that offer forced the rest of Europe to follow.

The guarantee provided only temporary relief. The crisis exposed Ireland’s over dependence on the property market. Despite the bank guarantee, a string of Irish banks failed, leading to one of the most catastrophic declines in output ever experienced by an industrialized economy. Government debt exploded, while the financial system imploded. Unemployment is rising, the housing market is crashing, and the government deficit is as wide as the Irish Sea.

His party will almost certainly be destroyed as soon as he calls an election. Rather than face the ignominy of a wipeout at the ballot box, many of his cabinet colleagues are throwing in the towel, and quietly going into retirement. Few politicians have ever experienced the reversal that poor Brian has faced. But how much of this calamity is the responsibility of poor Brian?

Unfortunately, he doesn't have a strong defence. He was a permanent feature of the Irish cabinet since the early 1990s. He was finance minister from 2004-2008.

He could argue that since 1999 the Irish state was no longer responsible for monetary policy and the years of excessively low interest rates that that fuelled the Irish bubble. That task had been delegated the ECB. But it was the Euro that did in Ireland. It was the single currency that created the conditions for the huge rise in property values, and a decade of grossly irresponsible banking. It was Brian and his Cabinet colleagues who are responsible for lumbering Ireland with the Euro.

Brian is the first of our bubble men - the villains that fashioned the great financial catastrophe of our age.

Ireland and her growing fiscal deficit

In the late 1990s Ireland was one of the most fiscally prudent countries in Europe. It regularly recorded budget surpluses.

However, no one was watching over the banks. Throughout the last decade, Ireland's financial sector made appalling loans to property speculators and other folk of an unsavoury nature. Now, those loans can not be paid back.

Rather than passing losses onto the bank's creditors, who foolishly financed this farrago, the Irish Government decided to place the burden for paying for this disgraceful speculation on the poor taxpayer.  While the government is raising taxes, cutting services and reducing the public sector salaries, it is also taking on defaulted loans so that French and German banks don't have to reduce their dividends to their shareholders. If a government runs that kind of economic policy, it will quickly accumulate a 32 percent of GDP budget deficit.

Ironically, Ireland's mortgage holders continue to service their debts. Arrears are running at about 5 percent. That is a little higher than the UK, but given that the Irish economy has imploded, it is surprising that the default rate hasn't risen higher.

How the Chinese see the Irish crisis

Racial stereotyping - Chinese style.

Making things worse

The Irish “rescue package” finalized over the weekend is a disaster. You can say one thing for the European Commission, the ECB and the German government: they never miss an opportunity to make things worse.

Barry Eichengreen on the Irish bailout.

Read the whole thing here....

Irish deficit hits 32 percent of GDP

It is not news, I know. However,the Irish government has published its pre budget white paper. Although the 32 percent of GDP deficit number has been around for a month or so, it is still shocking to see the sorry story of Ireland's collapse in a few cold data tables.

This year, the Irish government expects to collect €36 billion and spend €54 billion, leaving a deficit of around €18 billion. The banking sector clean up added a further €32 billion to the deficit. That is around €7,100 euros per person.  The combined effect of a large deficit and a massive financial sector clean up added  €50 billion.  That is equivalent to one year of government expenditure.

This isn't the whole cost of the clean up.  There were a few earlier cash injections into the banks that the Irish taxpayer will have to cover. However, I don't have those numbers with me. Nevertheless, we can all feel suffiicently enraged by the  €7,100 figure that was accumulated just this year.

Wailing and weeping

Regrets?  I've had a few, but I can't begin to imagine the soul searching going on in Ireland right now.  Where did it all go wrong?

Back in 1975, the average Irish home sold for €11,000.  At the height of the bubble, houses were changing hands for €330,000.  Take out a calculator and work out the percentage increase.

Still then, prices have fallen by a third.  That chart ends in March this year, so it misses out a full six months of red raw housing crash.

And the consequences of this catastrophe? The old curse of immigration has returned. 

The Irish Prime Minister and Buy-to-Let

We should be grateful for small mercies. At least, our Prime Minister didn't dive into the Leeds buy-to-let market. From today's Times:

Brian Cowen, the Irish prime minister, is facing legal action in the English courts over his ownership of a buy-to-let flat which his landlords say he is illegally sub-letting to Leeds University.

Mr Cowen is part of a group of Irish investors who invested in a block of “student cluster apartments” designed and built as a hall of residence in the city. The Newcastle-based freeholder is seeking payment of ground rents and management fees from the Irish group believed to be more than £100,000.

The disclosure of the legal tangle over his British investment property will be highly embarrassing to the Taoiseach as he struggles to navigate the Irish economy and national banks through the worst financial crisis in decades.

Ireland's credit rating downgraded; worse to come

Ireland has just been downgraded. It lost its coveted AAA credit rating. Standard & Poor’s weren't comfortable with the country's rapidly deteriorating public finances.

As soon as I heard, I quickly logged onto the Irish Department of Finance website, eager to find some lurid fiscal numbers as a basis for a new post.

Alas, the website is a total mess. The only thing I could find out for sure was that in 2008, the deficit was over 6 percent of GDP. As for recent performance, the Irish are keeping it quiet. As far as I can tell, they don't publish monthly tax or expenditure data.

Undeterred, I logged onto the Irish Central Statistical Office website. There I found some data that pointed to the source of Ireland's difficulties; the housing market, or to be more precise, housing construction.

The Irish bubble was totally different from the one in the UK. Whereas UK planning laws restricted housing construction, Irish planning laws encouraged new building. Over the last 15 or so years, Ireland embarked on a frantic construction frenzy. Between 1991 and 2008, the Irish built over 873,000 new dwellings. In a country with just 4 million inhabitants, this number was extreme.

More recently, the housing construction frenzy accelerated. Between 2002 and 2006, 378,000 homes were built, while census data recorded just 182,000 new households. Rough For every new household created, the Irish economy built two new dwellings.

In 2008, the construction boom came to a ruinous conclusion. The number of completed dwellings fell 45 percent from the 2006 peak. The collapse in construction activity pushed the Irish economy into an appalling recession. Tax revenues have crumbled, and the Irish government is now running up colossal deficits.

There is worse to come. The European Commission forecast that Ireland’s budget deficit may widen to 11 percent of GDP. Credit default swaps, i.e. the cost of insuring Irish government bonds from default, are hovering around 250 basis points. Wallpapering the deficit with Irish government paper is now extremely expensive.

As a member of the Eurozone, the Irish government has few policy options. It cannot devalue the exchange rate, nor can it adjust monetary policy.

With the cost of borrowing rising, it may have to consider an agonizing deficit reduction programme. This will, of course, only serve to reinforce and prolong the present recession. However, housing bubbles are like that. During the good times, they bestow prosperity, and then they cruelly steal it all back.

Irish economy crashes

In a world full of outrageous housing bubbles, few countries could match the Irish mania for property speculation.

The Irish bubble was driven primarily by a massive increase in housing construction. Holidy homes were a particular specialty. People took out huge loans to build country retreats, hoping to sell them later when prices rose sufficiently to cover the construction costs.

The bubble left the Irish countryside littered with empty bungalows. Perhaps as many as one in eight houses in Ireland are unoccupied.

The bottom is now fallen out of the Irish housing market. Construction, which depended heavily on the housing bubble, has collapsed. As a consequence, the economy is in freefall. Ireland now finds itself in one of the nastiest recessions in Europe.

Economic treason

It won't be long before bankers will be doing what the American's call the perp-walk; naughty men with their handcuffed hands behind their backs, smiling at the cameras.

The Irish authorities are off to a good start, with a raid on Anglo-Irish Bank.

Fraud squad officers and corporate crime investigators have raided the headquarters of the Anglo Irish Bank in Ireland.The Garda were understood to be searching the St Stephen's Green offices in central Dublin for books, documents and other materials which could provide evidence of any offences under company law.

Anglo Irish Bank was nationalised last month after the share price plummeted amid a wave of controversies. These included a loans-for-shares scandal, revelations about secret loans to former chairman Sean FitzPatrick and a multibillion-euro deposit from an apparent rival bank to boost its books.

Up to 20 officers working under the Office of the Director of Corporate Enforcement were acting on a search warrant issued on Monday by a judge in the Dublin District Court.Investigators are examining if any crimes were committed by the bank under Section 20 of the Companies Act.The raid followed remarks by Transport Minister Noel Dempsey on Monday in which he accused those involved in wrongdoing at the bank of engaging in "economic treason".

The Irish government starts to think about its deficit

Ireland was the first country to offer a blanket guarantee on bank deposits, it is also the first to try to curtail its exploding fiscal deficit.

The Irish government came up with an innovative solution; impose a levy on public sector pensions. During the good old days, when the economy was booming and Ireland was universially lauded as the celtic tiger, the government put public sector pensions into a sovereign wealth fund. It was a generous idea, and in principle, offered considerable protection to public sector workers.

Now, the government needs the cash, but the trade unions are in fighting mood. Over 100,000 workers took to the Dublins streets, to gently try to dissuade the government from taking back what it had already promised.

According to the FT, the Irish government is looking at 9 percent fiscal deficit this year. The first attempt to confronting that gap led to massive demonstrations. Proof, if any were needed, that it is very easy to loose control of public finances, but it is extremely difficult to regain it.

No more celtic tiger

My favourite quote: "This is how banks operate, when they make loans, they give themselves bonuses"

It is well worth taking note of what the Irish Finance Minister unwittingly says about monetary policy. He outlined perhaps the strongest arguements anyone is likely to hear why the Euro was a bad idea.

I have to give a quick plug for the subofdub blog, where I found this youtube clip.

Ireland faces rating dowgrade

That generous blanket deposit guarantee from the Irish government is starting to look a little silly.

Ireland has become the first western European country to have its top-notch credit rating given a negative outloook by Moody’s Investors Service, in a further sign of the strains being put on national economies by the financial crisis.

Ireland has already been given a warning that it could soon lose its triple-A status by rival agency Standard & Poor’s, which has already downgraded Spain, Greece and Portugal in recent weeks.

(from the FT)

The worst day in Irish financial history

"It's the worst day in Irish financial history and the government doesn't seem to be saying anything."

Brian Lucey, associate professor of finance at Trinity College, Dublin.

Share prices for Irish banks are in freefall. Yesterday, Allied Irish Bank dropped 72 percent while the Bank of Ireland plunged 48 percent. Anglo Irish bank - the country's third largest - is in now public ownership. It is an overused word, but the Irish financial system is close to meltdown.

There is something very odd about this collapse in share prices. A few months ago, the Irish government offered a blanket guarantee on all deposits. At the time, a great roar of approval went up in Ireland. The banks were sorted, the Irish government had come to the rescue.

Now, that generousity is looking rather ill-advised. Although Ireland may have recently enjoyed an extended period of unprecented growth, it still remains a comparatively small economy. Furthermore, the days of the celtic tiger are over; the economy is in recession, the housing market is collapsing and tax revenues are evaporating.

It is questionable whether the Irish government can make good on that promise to cover all deposits. Unlike the UK, Ireland doesn't produce its own bank notes. It gave up that right when it joined the euro. So when Darling promises to cover bank losses, he has the confidence of knowing that he can rely on the Bank of England to produce limitless quantities of money. The Irish finance minister has no such luxury.

So, while understanding Mr. Lucey's frustration, the silence of the Irish government is understandable. Right now, there is nothing useful that the Irish government can say. When a government is this deep in trouble, silence is definitely the best policy.

It is all starting to fall apart

Item one: Spanish public sector debt has just been downgraded. No more triple AAA.

Item two: UK bond prices fell sharply today, which is equivalent to saying UK interest rates went up. If I read the Bloomberg webpage correctly, 30 year gilt yields are up almost 15 basis points. Markets have just woken up to the fiscal risks of unlimited bank bailouts. Just how far is the UK away from a rating downgrade? Too close for comfort, I'd say.

Item three: There is talk in Ireland of leaving the euro. Irish exports are being crushed by that extremely unfriendly sterling devaluation. There is a whiff of default wafting around Ireland right now.

What do these three economies have in common? Housing bubbles.