July 14, 2010
IF Seanie Fitz is bust, well then so too is much of Ireland’s professional class. Because they were all at the same game — buying into syndicates, borrowing against their incomes and hoping to make fortunes.
But now that history is being rewritten, FitzPatrick suddenly is painted as a man who acted alone. This is ludicrous. But when you are white washing you need a “baddie”, and Seanie fits that bill for many of his erstwhile associates who this time four years ago were all “Seanie this and Seanie that”. He has, in classic Irish fashion, become a “moral skip” into which many can throw all the sins of the boom.
Meanwhile, unlike Seanie, these guys are busy lining up to throw their own commercial sins into that financial skip that we term NAMA. This is (as predicted) turning out to be a horrible mess where no one who runs it seems to have the faintest idea what they are at, how much the thing will cost, and what effect it is going to have on the property market. In fact, no honest man can put a finger on any of this because, honestly, we can’t know. So what we get is dishonesty dressed up as certainty.
But a few things are clear: NAMA is full of fees for the professionals who get on this peculiar gravy train; the cost will be borne by you; and the underlying land will eventually have to be sold off cheaper than NAMA (ie the taxpayer) is paying for it because that’s what happens when the only buyer in town eventually begins to sell.
The bankruptcy of Seanie and yet the saving of Anglo with your money reveals a pattern in Irish public life — where the institution is saved no matter how rotten, but the individual is sacrificed no matter that he is simply a small version of the corrupted institution. So Seanie is declared bankrupt and his assets are sold but Anglo is not and its assets are subsidised!
We are shifting the losses of the banks onto the people and, in so doing, shackling the prospects of the next generation to the mistakes of the last one.
What this means is, at best, a “jobless recovery”. In plain English, this means that unemployment and emigration remain high, take-home wages fall relative to profits in the economy and “after-tax” wages fall even further. The “growth rate” is driven mainly by multinational exporters who don’t employ many people.
We are entering into a period of many years that will be precisely the opposite of what we experienced in the boom.
One of the most striking things about the boom in Ireland — which made it different to, let’s say, the boom in the US — was that wages rose dramatically as well as employment rising dramatically. Now this process will go into reverse.
Equally, the bill for bailing out the banks — which should follow the Seanie example and be declared bankrupt — will be paid largely out of income tax and all sorts of other stealth — and not so stealth — taxes.
In a classic example of “gombeenism”, where the feudal land economy is still paramount even as the rest of the world has shown that trade and human ingenuity are what makes you rich, the Government has decided not to raise a property tax. So taxes will come from other income, despite the fact that the main lesson of the boom must surely be that property is a useless form of wealth creation — otherwise we’d still be rich!
Given that corporation tax is unlikely to be touched, you should expect that your savings will be taxed in a superannuated DIRT-style levy in the months ahead. After all, your savings are just lying there, they are simple to trace and easy to get at.
Contrast the ease of taxing savings with the obvious difficulty of tracking down tax evaders who have money under the mattress. One of the central tenets of tax-raising is that it should be easy — and taxing savings is easy. For the State, finding cash which is hidden is difficult and expensive.
And speaking of under the mattress, with tax going up and credit non-existent, many cash businesses (such as pubs and shops) will simply start going into the black economy by under-reporting turnover and keeping precious cash in safes. This is what always happens when taxation starts to rise and a public expectation of further tax hikes take hold.
Unfortunately, this cycle is what happened in the 1980s when we had economic growth in all but one year of the decade and yet the whole period felt like a depression.
Don’t forget, the 1980s was a period when Ireland stagnated while the rest of the world boomed. So too was the 1950s for that matter, so there is no reason to believe that a global recovery now will be enough to drag us out.
In fact, a global recovery, by putting up pressure on interest rates, might have the opposite result because the effect of interest rate rises on our heavily indebted punters greatly outweighs the positive effect of trade because most people don’t work in the exporting sector.
With a few tweaks here and there, this is what we face into. Ultimately, the huge debts will be defaulted on, leaving people to ask why we didn’t just declare ourselves bankrupt at the start of all this and move on. But “conventional wisdom” tells us that the nation has to soldier on pretending not to be bankrupt. So the banks pretend to be solvent, the Government pretends to have a strategy and the cheerleaders pretend that we have “turned the corner”, when in fact, on the ground, things are getting worse.
It is quite painful to see the broad consensus across the political landscape on this economic prognosis. There seems to be no party offering an alternative. If there is no alternative, then this is the way things will pan out and yet again Ireland splits between the “insiders” who hunker down and survive the recession and the “outsiders” who emigrate or go on the dole.
Seanie Fitz’s bankruptcy represents not just his personal bankruptcy, but the bankruptcy of an entire generation of Irish go-getters and their imitators. If we are not to lumber the next generation with the bill of the last, we must call time on the likes of NAMA and say “enough, move on”.