July 28, 2010
This Government will not contemplate selling property just in case it would bankrupt the banks. The State’s argument is that the market is depressed so if we were to sell the land, we would not get a fair price for it.
So we will postpone the problem: we get NAMA — a financial skip into which the banks throw their worthless mistakes — and you pay. The logic of NAMA and this Government’s central strategy is to wait for the value of land to improve before selling.
Whether you agree with it or not, this is their logic. It can be summed up by: “Don’t sell land in a depressed market.”
Yet at the same time, the Government has just announced that it will sell real assets via privatisation in a similarly depressed market. So why can it sell ESB — a real company with real assets — and not a field in Athlone which is worthless and should command the price a farmer would pay you to put a donkey grazing on it?
Why is it imperative to sell proper state assets and inconceivable to sell useless land?
This is the part I do not understand. Why does the State believe that it is okay to have a fire sale of the family silver and yet protect the very asset which caused the problem in the first place? How could it be that a depressed market is a bad time to sell land but a good time to sell a strategic electricity company?
We the people are supposed to fork out for NAMA which is paying over the odds for the banks’ and the developers’ mistakes, yet look on helplessly as the State sells — at knockdown prices — those companies that our taxes have built up. Can anyone explain this inconsistency to me?
If you look at what the Government published about the privatisation of everything it can sell, the first aim is: “To consider the potential for asset disposals in the public sector, including commercial state bodies, in view of the indebtedness of the State.”
So the key phrase is the “indebtedness of the State”. But selling big companies like ESB will not solve the indebtedness of the State.
Furthermore, the indebtedness of the State wasn’t caused by companies like ESB in the first place. The precarious position of the State with respect to its finances is a result of the estimated â‚¬50bn cost of saving the banks and a reckless overdependency on land and credit to generate enough tax to pay for the State’s current expenditure.
If you don’t solve the underlying problem, the issues will not go away no matter how much you privatise.
It is akin to the alcoholic flogging his house and his car to pay for his drinking; unless he stops drinking things won’t improve. This is why privatisation (the putative cure) side by side with NAMA and the land scam (the obvious problem) will not work. It will make us poorer and make someone hugely rich as the assets are sold cheaply.
Worse still if Eircom is anything to go by, strategic state assets are sold off and then asset stripped by anyone who can raise enough leverage to do so. I gave up counting how many times Eircom was flipped, stripped and flogged on. What is clear, is that each time Eircom was overburdened with debt to make a few quick quid for the buyers, the chances of us having a first-class telecom infrastructure faded.
Think about the challenges ahead for energy. The biggest single economic issue facing not just us, but all of the global economy, is energy. The most far-sighted countries are those which are harnessing their energy companies’ resources to come up with an environmentally friendly and efficient new energy blueprint.
And what do we do in Ireland? We flog our main energy company, which will end up in the hands of a private equity outfit that has little more than a five-year time horizon.
But there will be winners, so let’s see who might make a quick buck in a rapid Irish privatisation. Would it surprise you if it is the same professional “insider” elite being bailed out by NAMA? Well the same lads emerge as winners again.
The stockbrokers who put together (and took a fee from) many of the syndicated deals which NAMA is now buying, take a fee for every new euro of debt we issue. I have been told that entire units of our biggest brokers have morphed from selling equities and land deals into flogging debt. The more indebted the country, the more fees they make.
So the brokers made in the boom and are making in the bust and now with privatisation they will make again because they will get a fee for “placing” the shares of the newly privatised companies with investors.
What about the big law firms, the ones who put the property deals together in the boom? Well apart from being given a gig at NAMA, they will be paid with your cash to issue legal prospectuses, which will govern the terms of the privatisations.
What about the big auditor companies? What about these guys who audited the likes of Anglo and Irish Nationwide and saw nothing at all untoward? Well they will be given hefty fees in the privatisation process to produce audited accounts of our companies.
And what about the geniuses in the Irish pension fund industry, the ones who bought shares in Anglo and the Bank of Ireland when they were in the high teens? These lads will be given another opportunity to shine by being given cheap shares on a plate — for which they will take a fee for buying a company on our behalf, a company which we already own!
Selling state assets for a decent price could well be a clever thing to do, but selling cheaply is always stupid, particularly if it doesn’t solve the underlying problem.
When you look at this idea of flogging the family silver right now, you see that Ireland is doing everything backwards as this Government fumbles from one crisis to another. In economics, when a country or a company gets into huge debt difficulties, the standard approach is to kick off the recovery with a debt for equity swap. This means you tell the people who are owed money that they will have to take shares in the company or in the country instead of real cash, which the country can’t afford to pay.
In Ireland we are doing the opposite: by privatising now, we are selling real valuable equity to pay for old debt! So rather than a debt/equity swap, we are doing an equity/debt swap in a depressed market.
You couldn’t make up a worse strategy.