Category: Comment

Oftentimes posts on the Irish Times Politics blog are about the theatrics, minutiae, of politics. Such theatrics and details, while sometimes making for interesting reads for politics obsessives, are often fairly meaningless in a wider context. Dermot Ahern slagged off who? Which Green minister of state doesn’t get along with which minister? The wider public doesn’t really care.

This post by Harry McGee is about politics and governence in a broader context.

What really scares me is that all the mantras that we all bought into were wrong. Low taxes were a myth. Perhaps low corporation tax was the only exception to that. The only reason we got away with them for so long was because of the property boom and the temporary bonanza in once-off transactional taxes like stamps, VAT, capital gains tax, and capital acquisition tax. As long as we continued to build record numbers of houses and scored obscene loans securitised on obscene valuations of properties we didn’t own, we could continue on our journey into never-never land.

…

What worries me about the situation we are in is the dearth of ideas and the dearth of policies. We’ve had a couple of announcements about job creation that are more fluffy than solid. The green and smart economy initiative looks all very well until you realise that some of the jobs (tidal energy) are still a long way off. Moreover, some of the jobs are merely replacements for existing jobs (alternative energy replacing conventional energy). And then you find out that the Government hasn’t actually put its money where its mouth is in terms of stumping up the money for its ‘ambitious’ (yeah!) national home retrofitting project (the one that’s supposed to provide gazillions of jobs in the construction sector). […]

It’s headed ‘The mess we’re in and the meaningless speculation about a reshuffle’ (though ‘…and the speculation about a meaningless reshuffle’ may describe the content slightly better) and it’s definitely worth a read.

Disclosure: As a freelance one of a number of companies which chips in to pay my bills is Irish Times Ltd.

NOTE 14.11 Feb 26: Spokesman for Batt O’Keeffe has told a national newspaper that the car in the photograph is not his vehicle. Right. Report below remains unedited.

I’ve been doing some research on homelessness in Dublin for a piece I’m planning. The last person I met told me he was born in eastern Europe but moved to the the US in his twenties. He lived there for more than ten years, during which time he lost touch with his family, and moved to Ireland eight years ago. These days he speaks with a Dublin accent.

Until summer 2008 he was the assistant manager of a gastro-pub in one of the more affluent suburbs. Then the owner told him he was cutting staff and, apologetically said the assistant manager’s role would be the first to go. He kept up with the rent for a few months but gradually fell behind. No jobs. He lived on friends’ couches for a while, until he felt like a burden.

Eight months ago he started spending his days in the City, usually between Nassau Street and Templebar. He sleeps in a 24 hour internet cafe because it’s only €5 a night and “there’s no drugs or screamers in them”. He’s in a strange situation with his welfare entitlements; getting rent allowance of €35 a week but unable to the dole. He was due to meet a welfare officer a week after we spoke to sort it out, a meeting he’s been waiting six weeks to happen. The last time he met her, a few months ago, she said she was going to get his paperwork readied, so he was hopeful. Continue reading “Cars and people”

So he’s resigned. Sure isn’t it all the rage these days up in Leinster House.

He’s gone from department. Rightly. Doing so speedily and with dignity appears to have kept damage to the coalition to a minimum. Thus, unless the Greens gather some more evidence to put foundations beneath their suspicions of the identity of The Leaker [maybe ‘The Leeker’, would better in this instance?], this ‘scandal’ looks set to peter out by mid-day tomorrow.

Kevin Doyle of the Herald “wouldn’t confirm either way” where the leak came from when asked if it was Fianna Fáil by Prime Time. You’d have to wonder. Sargent was done in by someone.

Really, the revealations do more to illustrate Sargent’s stupidity and naivety than expose some massive hidden trait of corruption.

I doubt more than half the TDs in the House can honestly claim not to have contacted a Garda to “enquire” about a constituent’s case at some time. Prehaps not so many done so in a tone similar to Sargent’s, but he is certainly not alone. Of course, I can’t back this up with more than what I’ve heard, in the main because An Garda can’t be FOI’d.

Usually the politicians are a little more “street-wise”. They call the relevent senior local officer instead of (deep breath) sending multiple letters by registered post on department-headed paper to low-ranking Gardas who are obviously going to bring it to their superiors to ensure their own backs are safe in case someone gets word of the correspondence in the future. It’s particularly bizarre when considering Sargent was most critical of Bobby Molloy back in the day for similar ‘transgressions’.

However, the above is in no way to be read that it’d be acceptable to for Sargent to have claimed “everybody does it, I was just caught, it’s no biggie”. I’m glad Sargent was caught. I’m glad he resigned. It was a corrupting act, an unlawful act. He has stained his reputation and will have to live with that. What’s really unfortunate is that we’re unlikely to catch the rest of them.

It’s worth noting that he’ll remain in his seat despite admiting commiting an unlawful act. I wonder if he’d have resigned had he’d been simply a TD, as opposed to minister of state. It does seem a position is something that can be lost, but a vote in the House? “Nah… keepin’ dah’.”

Still, I did raise an eyebrow when I heard some Opposition TDs moralising today. They’re not all at it, but he’s far from alone.

There is a slight nuance to the Trevor Sargent story on the front of today’s Evening Herald not immediately apparent – to me at least – on first reading.

The constituent on whose behalf Sargent wrote to the Garda Siochana, it is claimed, was subject of a malicious prosecution, if the talk on News At One is to be interpreted correctly.  The question therefore is whether Sargent in his correspondence, was referring specifically to a case and attempting to influence it, or simply informing the Garda Siochana that a constituent was concerned about a matter.

If the former, can Sargent stay? I doubt it. The letters – if the politicians don’t – will tell all, but the Herald have not printed them in full [yet]. So we await.

In the meantime, the fact the Green Party statement has confirmed that Sargent communicated with a Garda is important. Furthermore, the quotes used in the Evening Herald article don’t shine Sargent in a good light.

All in all, right now, it’s not looking great for the deputy.

Unless he can pull out a surprising (and rock solid explanation) – and the malicious-complaint claim doesn’t cut it as the tecnicalities of the case are largely irrelevant – or this story has been hugely misreported, this looks like the end of his career.

The ball is in the Green Party’s court. Do they cut Sargent, arguably their most “ethically conscious” of all deputies, over this apparently extremely serious matter? Those insterested in seeing ethics upheld and political accountability imposed, would say they should.

Or do they try to make an excuse for Sargent and cling to power? Surely not?

Last week the Irish Times editorial finished with “[for the Green Party, the handling of the O’Dea ethics issue is] a hard lesson learned”. I doubted, [in Footnote IV] whether or not they’d learned any such lessons. I suppose we’ll see in the next few hours.

Might be worth keeping an eye on Dan Boyle’s Twitterstream.

“Delay and Pray”, also known as “Extend and Pretend”, probably best sums up exactly where Irish banks and indeed NAMA are right now.

No, I’m not joking. There are oft used phrases across the Atlantic – specifically in relation to the type of loans that have made our banking system insolvent – commercial real estate (CRE).

The US itself is facing a commercial real estate crisis, particularly over the next four years, as this excellent FT analysis outlined last week. $1.4 trillion worth of CRE loans will reach the end of their terms over the next four years. The problem is that nearly half of these loans are already in negative equity. As the FT says:

More shocking is that banks and their auditors are typically well aware of the problem, but have not written down the value of property as prices have fallen. Instead they are “extending and pretending” – or “delaying and praying”: holding property values steady and assisting the borrowers where possible. They need to. If banks were accurately to record property values, they would write down assets on their own balance sheets and jeopardise their business.

This actually sums up how the Irish banks, especially Anglo, have been dealing with our property developers. Rolling over interest, not writing down the loans, not crystalising the losses, doing repayment deals with developers – to drag it out – extending and pretending.

The US government has examined this situation throughout a Congressional Oversight Panel. Their report was issued two weeks ago. You can read it here. The panel concluded that it expects many banks to go under, and the pretence to come to an end, as the FT quotes:

“There is a commercial real estate crisis on the horizon, and there are no easy solutions to the risks commercial real estate may pose to the financial system and the public.”

Equally so for Ireland. Brian Lucey, writing in today’s Irish Times, makes a point along similar lines. He is worth quoting here at length:

Eighteen months into the crisis in the Irish banking sector, and astonishing as it may seem, no real effective repair action has yet taken place. Not a single impaired loan has been taken off the books of the banks. Instead, Government handling of the banking system has been marked by an unwillingness to face up to this fundamental problem – the banks are effectively bankrupted by the losses that they face on speculative lending.

The National Asset Management Agency (Nama), as structured, is designed to buy time for the market, somehow, to sort it out, as there is an ideological obsession at the heart of Government against the notion of the State as the majority shareholder in the banks, even if required and even if temporary. But events may force their hand.

Recall that Nama will in essence take off the banks the loans secured on now deflated bubble assets. The idea is that, in extremis, Nama can sell the assets for their “long-term economic” value and recoup some of its outlay. Nama is proposing to take over some €33 billion of land and development loans in Ireland alone.

Here it is in a nutshell: NAMA is one massive “Delay and Pray”.

Given that our banks are insolvent, that they are facing massive liquidity issues with the imminent closure of the ECB discount window, they cannot keep the pretence of extending and pretending up forever – and NAMA is, or was supposed to be, the answer to their prayers. You could also argue that Bank of Ireland recently changing its fiscal year was part of this tactic.

The Government would take the crappy loans from the banks (rather a lot), and through some financial voodoo, the losses would still not be crystalised, and rather ingeniously – the debt would not appear as sovereign debt for Ireland, or as debt for the banks, but would instead be dumped into this NAMA bad bank.

And NAMA has one sole purpose – keep the pretence going that someday, somehow, the value of the underlying assets will return to peak prices. Delay and pray. Do not write down the loans. Do not accept the reality of the losses. Do not pass go.

Not only is it unlikely that this will happen, it is almost impossible. Morgan Kelly wrote in December that it could take 50 years for the underlying assets to return to 2006 prices. Last week, in the High Court, we saw development lands being written down by 60% to 98% (in terms of valuation, not borrowing). These figures are the reality of the lands that NAMA is taking charge of. And we are overpaying already. How long do you think it will take rezoned agricultural land bought for €13m at peak, revalued at €600,000 in 2010, to return to €13m? The answer is: it won’t. So much land was rezoned that there is no necessity for rezoning for a further 70 years in many counties. Add to that the 300,000 vacant properties. Add to that little demand. Add to that zombie banks unable or unwilling to lend.

This is the reality of NAMA. Delay and pray.

And as if to add salt to the wound, Lucey further explains:

“…in many cases of development land the title was not actually transferred to the developer; rather, they took out a licence to develop. This was, it seems, a scheme to minimise tax, but it leaves open the incredible scenario that rather than being secured on an asset, these loans were secured on what is technically a derivative whose value has now collapsed to zero. If the underlying assets are worth zero, the hole in the banking system is that much larger.”

Lucey is referring sideways to the famous Section 110 of the 2007 Finance Act. This was a part of the Act that was never activated through a commencement order, which would have effectively closed the loophole that allowed developers to avoid paying stamp duty when buying landbanks. Brian Cowen, as Finance Minister, and Brian Lenihan after him, failed to commence the section due to concerns that it would further undermine the property market.

At the time, the Government commissioned AIB/Goodbody to write this report on the Section. It was published in November 2007, and is available here. The report concluded that if the Section were to be commenced:

It is recommended that Section 110 provisions should not be commenced at this time. To do so, would run the risk of exacerbating the down turn in the property
market.

Of course, the market was already beginning its freefall by this time, as the market had peaked some 11 months previous. The Goodbody report hedges its bets, in some places saying things could get bad, and in others saying they might not – as any good report does. But was is critical here is who owns the land.

A developer wishes to buy rezoned land from a farmer. Instead of paying money directly to the farmer (and incur stamp duty), the two instead enter a deal in order to avoid it. They enter a resting on contract or a type of lease. The developer essentially takes out a 100% mortgage to buy the right to build on the land, with no collateral to back the loan since he essentially does not own the land in question. Stamp duty is payable by the buyers of the houses that are to be built on the land, but the developer has avoided paying it.

As Lucey says it is essentially derived, and with little or nothing backing the loan, the losses are far steeper for the lender in a situation where few or no houses were built or sold. Those ghost estates are ‘worth’ far less than many might have assumed. Joan Burton pointed again to this last week. As late as April 2008, the Government was still considering commencing the section, but never did so.

It logically follows that where the banks lent money with no obvious collateral to back the loan, and where the supposed value of derivative is now zero, the bank sustains a massive capital loss.

However the banks are simply delaying and praying until NAMA takes over the loans, and then NAMA continues the praying.

We are in for one hell of a fiscal mess.

The Bizarre Green Timeline pre-O’Dea’s Resignation: On Wednesday Minister Eamon Ryan was in in the Dáil saying… eh… well see for yourself.

[Thanks to Alexia for the clip.]

And it that, I suppose, that is the crucial issue. That when there was a mistake [noted] in that affidavit, when there was something [noted] that was not true, it was acknowledged in Court, dealt with in Court, and accepted by the other party.“

As shown above, Minister Ryan, “speaking on behalf of the Green Party” defended Mr O’Dea in the Dáil. Minister John Gormley also stood behind Mr O’Dea. As did the rest of the party when they voted confidence in the then defence minister on Wednesday afternoon.

According to Minister Gormley around the same time he had been assured by Mr O’Dea that an article in the Limerick Leader the following morning would “vindicate” him. However, at this point various unchallenged reports (not to mention the court settlement) showing that Mr O’Dea had falsely claimed an electoral opponent ran a brothel (and then denied doing so in a sworn affidavit to court) were already in the public domain. What exactly could vindicate a minister in this situation is unclear.

Despite this, Minister Gormley said he was waiting for the next edition of the Leader before considering whether or not he had confidence in Mr O’Dea. He did so so0n after, or just before… erm… voting confidence in Mr O’Dea. Continue reading “From Green to red in less than 48 hours”

This is the letter of resignation of Willie O’Dea, along with Brian Cowen’s reply.

Willy O’Dea interviewed by Mike Dwane of the Limerick Leader/Chronicle makes a number of comments about Maurice Quinlivan of Sinn Féin, which he subsequently withdrew. O’Dea then swore an affidavit to court saying he made no such comments. He categorically and emphatically denied saying such things, then the audio below emerged and he changed his story.