August 2009 Archives

Nama - TDs and Senators

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The following message was sent to all TDs and Senators on 28th August 2009. It was acknowledged by about forty recipents who mainly supplied canned responses with attachments about party policies.

I'm very concerned about the Government's approach to resolving the banking crisis and wish to make the following points to you as a public representative in the hope that you can influence or lobby the Government:

  1. As the economy moves through an unprecedented recession, all possible measure should taken to ensure that credit is readily available for viable projects and credit-worthy borrowers. It is impossible to see how this can be done by a lame-duck banking system which is being pulled in several directions - to lend more, protect shareholder value, ration credit to improve ratios, hoard resources to cover bad debts, and make guarantee and recapitalisation payments to the state. 

  2. While the Minister for Finance views bank nationalisation as the "last resort", he must also appreciate that the main banks continue to operate thanks to the State's guarantees for €400 billion, its €7 billion preference share investment, its plan to purchase €90 billion of their loans and, if needs be, to take equity stakes.

  3. Nama is a huge gamble which exposes taxpayers to a multi-billion euro hit if prices paid for the loans prove to be too high. In these circumstances, the banks would emerge unscathed and their shareholders would make massive gains as the economy recovers. If you think that this couldn't happen, recall that an insurance levy paid for many years to bail out AIB after its ill-fated takeover of ICI. Note: This was incorrect - the levy related to the failure of PMPA.

  4. As the Government has a responsibility to protect the banking system and taxpayers ahead of banking institutions or bankers, it is very hard to understand why it doesn't simply "bite the bullet" and temporarily nationalise the main banks as a central element of Nama's rescue mission. Given that it holds the whip hand, the Government could cut deals with bank stakeholders to ensure that gains and pains are shared more fairly.

Thank you for reading this.

Who will Control Nama

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Based on the draft Nama legislation, the Minister for Finance will effectively control a €90 billion property empire and, given Nama's expected life span, several individuals of different political hues could fill this position over the next decade.

This raises concerns about the robustness of checks and balances to ensure that these ministers don't use Nama for pet projects at variance with its original purpose. Couldn't happen?

Just look at Nama's sister body, the National Pension Reserve Fund which was set up to develop a high-grade, international investment portfolio over a twenty-year horizon. Suddenly, at the direction of the Minister for Finance, it has been stuffed with €7 billion of Irish bank shares amounting to a third of its total assets.

Any requirement that finance ministers account for Nama to the Oireachtas offers absolutely no solace based on that body's track record. Instead, the legislation must include overarching controls to ensure that Nama cannot become a ministerial sweet shop offering goodies like bail-outs, tax-breaks, benchmarking and decentalisation.

Role of Nama

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Why is the Government proposing to use Nama to prevent a decline in property prices at a time when Ireland has the second highest cost of living in the EU?

Surely, it should be encouraging lower prices as these would result in cheaper houses, lower shop prices and more competitive commercial and industrial rents. Instead, taxpayers are expected to underwrite a multi-billion punt on Nama to ensure that property prices don't fall and that the country remains uncompetitive.

Lead letter published in the Irish Times on 26th August 2009.

Measuring the Economy

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The CSO's recent review of economic and social progress for 2008 incorporates EU-wide comparisons based on GDP (Gross Domestic Product) and GNI (Gross National Income). For Ireland, these measures differ by about 14 percent. In many situations, the lower GNI is the most appropriate measure of Ireland's output as it excludes the huge profits generated by multinationals. However, comparative studies by the EU, OECD, IMF etc. are based on GDPs which for many countries are very close to their GNI values. Consequently, their findings over- or understate Ireland's true performance as illustrated by the following examples derived from the CSO's review and covering the 27 EU states:

  • Ireland ranked second place in terms of purchasing power per person based on GDP but fell to fifth place based on GNI.
  • For capital investment, Ireland jumped from 16th place based on GDP to a much more favourable 8th position based on GNI.
  • Social protection expenditure based on GDP placed Ireland in 20th place. This improved to 15th based on GNI.
  • For public expenditure on education, Ireland ranked 15th based on GDP but rose to a commendable 7th place for GNI.
  • Ireland's ranking for public health expenditure jumped from 17th place when related to GDP to an above-average 11th place for GNI.

Surely, domestic and international studies should assess Ireland's performance based on GNI as well as GDP, even if only in footnotes. For example, the projected exchequer deficit for 2009 is 10.8 percent of GDP and extraordinarily high by international standards. If based on GNI, it rises to 12.7 percent and points to an even more serious position.

Letter published in the Sunday Business Post on 13th September 2009. The five examples were edited out for space reasons. 

Minimum Wage

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Calls for a review of the minimum wage should be placed in context.

According to the 2007 National Employment Survey 14 percent of all employees in the State had hourly earnings below €10 while a similar percentage had earnings above €40 per hour.

When account is taken of hours worked, employees earning less than €250 a week account for only 4 percent of the national wage bill as compared with a 13.5 percent share for those earning over €1,500 a week. A ten percent reduction in wages for all 233,000 employees earning less than €250 a week would reduce the national payroll by 0.4 percent whereas a similar reduction for the 233,000 highest paid employees would reduce the national payroll by eight times as much.

For maximum impact, any campaign to improve national wage competitiveness should start with high-paid employees, directors and self-employed rather than the lowest paid. To show leadership, our politicians should take substantial reductions in salaries which, even after minor tweaking, are still amongst the highest in the world.

Letter published in the Sunday Business Post on 16th August 2009. 


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In discussing the need for strong oversight of Nama, Noel Whelan (1st August) mentioned that the draft legislation provides for a special Oireachtas committee to oversee Nama in addition to the Public Accounts Committee.

I wonder how effective these committees will be given that the draft legislation contains clauses (50 and 51) which preclude the Chief Executive Officer and the Chairperson of the board of Nama from (a) questioning or expressing an opinion on the merits of any policy of the Government or a Minister or on the merits of the objectives of such a policy or (b) producing a specified document in which the Chief Executive Officer or the Chairperson questions or expresses an opinion on the merits of any such policy or such objectives.

Surely, these "gagging clauses" will preclude key officials from speaking openly on fundamental issues and effectively nobble comprehensive scrutiny of Nama.

Letter published in Irish Times on 4th August 2009.

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