This week we are going to talk about two Irelands, business Ireland and bureaucratic Ireland. They were both evident this week and both view the world from very different angles.
I’m sitting in the wonderful Urban Picnic cafe in Georges Street Arcade in central Dublin, listening to the government’s press conference about Ireland leaving the bailout. It is quite a surreal experience. The language of the press conference is pure bureaucratic Ireland, while the reality of the cafe is classic business Ireland.
In bureaucratic Ireland, the tone of the conversation this week has been almost entirely informed by a ”what will the neighbours think” bias. The high priest of the bureaucracy, the Minister for Finance, even referred to Jean-Claude Trichet as being a ”highly sophisticated Frenchman”, as if our neighbour the Frenchman, is on a higher cultural and intellectual planet to us Paddies.
In fact, Trichet has displayed neither sophistication nor particular ability in his two senior public roles. As governor of the Banque de France he presided over a calamitous run on the French currency in 1992 and as the boss of the ECB, European banks imploded on his watch nearly taking the euro with them.
I can’t count the number of times I have heard bureaucratic Ireland talking about the economy this week using terms like reputation, humiliation, shame and embarrassment as if we are talking about an unwanted teenage pregnancy in the 1960s rather than using 21st century economic terms like hard work, customers, balance sheets, productivity and profits.
In business Ireland, people know that economics and economic recovery is not some sort of Victorian morality costume drama: we are talking about buying and selling things for a profit – that’s what a recovery is. It is not about being respectable. It is about getting up every day, going out and selling stuff to other people in such a way that they are happy to buy and you are content to get paid at the price.
The contrast between bureaucratic Ireland and business Ireland isn’t just one of language, it is about identifying what is important and what is not.
Economic recovery is not about getting backslapped by European politicians, American multinationals or photo opportunities with spokespeople for investment funds that have no real fixed abode.
The recovery is about small businesses having a chance and it is about people deploying their talents and energies to make it happen. To make things happen we need to have enough credit to grease the wheels, enough customers to buy the product and enough energy to get there.
Banking dilemma
Assuming we have the energy to rebuild, business Ireland needs credit, customers, domestic demand and properly functioning banks. In Ireland we don’t have these, yet. In fact, the absence of a properly functioning banking system is still one of the biggest holes in the recovery narrative and it is one of the major unexploded landmines that could go off in 2014.
Indeed the banks are one of the places where bureaucratic Ireland and business Ireland meet because the banks are now agencies of the state and businesses need to deal with them every day. The banks are the link between press conference Ireland and hard-pressed Ireland.
You are probably familiar with the official story from bureaucratic Ireland. The account that has been spun all over the world is that Bank of Ireland is fine. Last week there was much made of the fact that foreign investors had made a few quid on its share price since 2011 and that it paid money back to the state at a profit to the country.
But a closer look at Bank of Ireland reveals the sharp distinction between the cheerleading of bureaucratic Ireland and reality of business Ireland.
According to its own figures, 10 per cent of the bank’s owner-occupied residential mortgages are in arrears and 16 per cent of its buy to let mortgages are too. This makes it about 6 per cent better than the rest of the banks. So far so okay.
But let’s look at how much it has provided against losses on these loans. The bank has set aside €824 million on a €20 billion loan book. This is about 4 per cent.
Now let’s consider when all these mortgages were taken out to see how bad these loans are likely to be. Over half were in the 2005-2008 period, ie at the height of the boom. Indeed, by way of comparison, the complexion of Bank of Ireland’s loan book is almost identical to that of KBC, the Belgian-owned bank.
Three weeks ago KBC announced that it was increasing its provision to Euro 1 billion for bad loans on a total loan book that is smaller than half of Bank of Ireland’s Euro 20 billion book. This move was driven by the ECB announcing stress tests for all eurozone banks in 2014. Clearly the Belgians decided to sort out the Irish problem by providing lots of capital.
Assuming that KBC and Bank of Ireland have the same problems in their loan books, this implies that Bank of Ireland might need to double or even triple the amount of money it sets aside next year to cover losses when the ECB looks at it with its new more strict stress tests.
This banking dilemma plays out in small business Ireland in two ways.
First, if Bank of Ireland, and the other banks, need cash, where will they get it?
Bail-ins
This is where the new notion of bail ins’ comes into play. If the banks can’t raise money on the markets, deposits are likely to be raided – as happened in Cyprus. Given that most European banks will need capital at the same time, why would you think Irish banks would be at the top of the capital-raising queue?
Quite apart from the deposits side, the lack of adequate capital in the banks is strangling credit in business Ireland. It means that even when interest rates in Europe are at 1 per cent and moving towards zero, Irish business (or young Irish couples aiming to buy houses and profit from the fall in property values in the last five years) have to pay 5 per cent interest for the pleasure of a loan.
Contrast this with the foreign player in the market who can buy distressed assets at close to zero per cent financing and will therefore always outbid the Irish player. And so too will the cash buyer in Ireland always be able to outbid the young couple trying to get a house because the young couple don’t have the cash and have to borrow at 5 per cent.
Foreigners are being gifted the Irish recovery over the locals and, among the locals, the middle-aged cash investor is in a much stronger position over the young owner-occupier couple.
When you compare the rhetoric of bureaucratic Ireland with the realities of business Ireland, the disparities, as we exit the bailout, are as great as ever.
Subscribe to receive my news and articles direct to your inbox
David McWilliams is launching a new financial markets daily newsletter on Wednesday to coincide with the Federal Reserve’s crucial meeting. It will be accompanied by a new Punk Economics animation. Details either @davidmcw on Twitter or davidmcwilliams.ie
Subscribe.
Anyone leaving money or assets in any part of the banking system is looking for trouble. Everyone looking after their own best interest will paralyze what is left of the banking system. Best to leave the Euro. Issue treasury money at no cost or interest replacing all the euros. revoke the odious debts. Pay off the balance of the national debt with treasury money. Sell the assets of the busted banks. Let people/businesses buy back their existing debt if they can at market value as the loan portfolios will be sold to investors. (60 day right of first refusal). Fix… Read more »
Is this post going to show up or will my laptop freeze or throw another woobly.? Sick of spin..tired of lies…fed up with economists. ..tired of being a statistic. ..hate been spoken down to by F.A.S. Hate what this financial War is turning me into..although I fight..one day at a time..today I need heavy artillery. loath our legal system..loath our Banks..this much hate today cannot be good for me..? Tired of hearing about Death… I neef to be grateful..I need to be grateful. …I need to be grateful…..I am a armour plated motherfucker..I am a armour plated motherfucker. …I am… Read more »
Dear Santa I’d like one these for Christmas.
I think the ideal set up would be either Leeson st or Baggot st – The Dail should be in perfect range from those locations.
http://www.youtube.com/watch?v=58Er2ozcaws&feature=youtu.be&t=1m21s
Intersectionality is the key. An intersectional analysis of Ireland using radical feminist/queer theory tools applied to Economics shows there are more than just Insider/Outsider, Business and Bureaucratic layers of the onion that is ‘real Ireland’. There’s the culchies who are either unable to cross the moat of Dublin house prices in occupied enclaves or are being shepherded to the night boat or to drive a bus in Malta, sure isn’t der wedder der grand! There’s insured and uninsured health care Ireland whereby the access to the Doctor via ‘lavish’ dole is now under threat to satisfy the austerity junkies, not… Read more »
Politics -v- Markets Napoleons army never came to Ireland until our governments invited them after The Crash .Since then we have been indoctrinated by Code Napoleon and his officers are many including Trichet and others we read in the newspapers .All of these are from the same elite French schools that have now a new alumnae in Ireland displacing the Blackrock et al in that process .Our new regulator in the Central Bank is Cyril Roux from that same stock . The Markets that we lament in this article is what we know to be Mid Atlantic Speed with little… Read more »
Memorable excerpt from yesterdays’ Sunday Times Business Commentary.
“Ireland exits the bailout on a number of highs: high unemployment, high emigration, high debt, high mortgage arrears…
You gotta laugh.
Undoubtedly all this cant about recovery is nonsense. I agree with that aspect of David’s article. And also that there are fully predictable landmines ahead which we will most likely tread on; as well as a few depth charges waiting to go off in the banks and stock markets etc. This is not over; not even nearly. My one criticism relates to what is lacking in David’s analysis and vision….the public sector. I would argue that real recovery will require both a thriving private sector AND a thriving public sector. To see the economy as being exclusively the private sector,… Read more »
As I read your piece from Georges Street Arcade in central Dublin this morning I was sitting in sunny La Jolla, California enjoying 25 degree air temperatures and gentle ocean breezes. I had just watched one of our San Diego County Supervisors (we call county councilors “supervisors” in America) on a local morning TV talk show. She addressed the very same subject: the contest between bureaucracy and business (from her Republican pro-business political perspective of course). San Diego County has roughly the same population as the Republic of Ireland. We relate to the far-away Washington bureaucracy as Ireland relates to… Read more »
Enda defeated Scylla and now sails the ship of state right into the maw of Charybdis. He probably thinks he will survive alone, an Odysseus on his way to Calypso’s island. The muinteoir never read Homer!
David, A bank bail-in involves deleting money from depositor’s accounts such that the money won’t exist once the bail-in is complete. The result is the banks’ liabilities (‘deposits’ from customers) decrease and so the banks’ balance sheets are made to look more healthy. At that point the banks are in a better position to create money through loans again. This is an important point. The Cypriot economy was short of money and I would question the logic of deleting money from people’s accounts help at a time when they obviously need it most? On this note, the paragraph on the… Read more »
“A bank bail-in involves deleting money from depositor’s accounts such that the money won’t exist once the bail-in is complete”
Is it not the case that the depositors funds are bailed in by being converted to equity shares so the money still exists as it is now received by the bank in exchange for the shares. The bank now has increased reserves. i.e. a liability is stolen and thus becoming the property of the bank is converted to an asset immediately.
A double whammy of exchanged fortune. Not just being rid of a liability but increasing an asset too.
Good Morning Ladies & Gentleman
We apologize for the break in transmission yesterday
This was due to a fault from the mast on the Mourne Mountains.
Normal service has now resumed.
This morning heading of for another day of negotiations with Banks & into the Four Courts later for more justice.
Have to remind myself “to keep things simple” & to remember whats important.
have a great day
be careful out there !
Quietly the (US)10 year bond yield has risen to and above 2.8%. This is significant and something that very few are talking about. Those in the mainstream that do mention it are pointing to the “strength” in the economy as the reason. This is pure hogwash. Interest rates are rising for one reason and one reason alone, foreigners are selling Treasury bonds. –Bill Holter The reason why silver continues to languish is purely a political one. Silver, along with gold, compete against fiat currencies. All [Western]currencies are issued by central banks. All central banks are owned by the elites, New… Read more »
long term bond rates double over 17 months. Debt has doubled over 5 years.
Double /double = 4 time more interest to pay.
Debt will stifle and the interest rate suffocate.
http://blog.milesfranklin.com/22quadruple
Government tariffs on gold of 10% and on silver of 15% have created a black market and premiums over world prices of 2025%.
One billion gold loving Indians are likely to change government over this issue.
The cracks are appearing in the paper market suppression. Is gold / silver about to do a bitcoin?
http://blog.milesfranklin.com/the-upcoming-indian-catastrophe
The QE black hole will suck in all financial assets. Paper fiat note ones that is. World wide money expansion increases the intensity of the competitive currency devaluations. Tapering is all talk with no traction. http://blog.milesfranklin.com/the-qe-black-hole Protect yourself. I know a man with no income other than 45 pound a week allowance as a carer managed to buy a coin or two of silver every so often on ebay. He told me he paid 20-25% premiums at times. He did it anyway. Over the last 4 years his stash has gone to over 4000 pounds sterling and will likely see… Read more »
Cringe-Worthy Jargon That Should Be Retired Before 2014
http://www.entrepreneur.com/article/230383
A timely reminder is required, early and often, on what “libertarian” means :
The Legacy Of Friedrich Von Hayek: Fascism Didn’t Die With Hitler
For those who may wonder at the Austrian School, the report is refreshing is’nt it? We have politicians saving us from bail-out by bailing-in – the wallet fleeced twice by such fancy terms “bail-in” straight from boating. Even fancier, “sound money” from goldbugs. Tigers have been taken in by swindlers, fine speakers, and filthy speakers. Time for a change.
Your father, Enda, is inspired and is NOW – after three year – going to create jobs!-He exclaims?
Creativity and imagination are defining attributes of our humanity and these unique qualities are what separates us from EVERY other species. Actively expressing this uniqueness is key to the evolution of mankind and an environment in which we can freely express said creative humanity, is crucial. Hamilton banking embraces this human spirit, while all other schools, choose an insanely illogical approach, rooted in an irrational belief that “free markets”, with Zeeero creative intervention by humanity, will yield the necessary growth ,to meet the current physical economy’s realities. Hamilton’s economic approach, [as we are talking ECONOMICS, not money ] has as… Read more »
I feel like a helpless one eyed king in the land of the blind I am just hoping something will poke out my good eye so that I can become blind and laugh too. We are living in a pre Nazi like world and like most people back then, there is blind complicit appeasement.
Irish banks remain source of ‘some concern’ – Mario Draghi
He said what he called “outstanding issues” still required swift and decisive action.
He finally coped on to what’s wrong he must got in a remedial teacher-five years to late
Dictators supported by the US – McCain’s friends to darken up your brightest hours http://tinfoilpalace.emp.yuku.com/topic/3836311#.Uq96WvRdWSo http://friendlydictators.blogspot.ie/ El Salvador: Maximiliano Hernandez Martinez “It is a greater crime to kill an ant than a man,” When you’re down and troubled And you need a helping hand And nothing, nothing is going right Close your eyes and think of me And soon I will be there To brighten up even your darkest night You just call out my name And you know wherever I am I’ll come running to see you again Winter, spring, summer or fall All you have to do is… Read more »
So funny… the joust between Bruton & Mary Lou McDonald this evo.
He claimed the Government’s ‘strategic plan’ couldn’t possibly be expected to have all the “detail” in there.
She retorted by simply stating it didn’t have any of the “detail” in there.
He received about 80% of the speaking time and still managed to talk over her.
Noonan’s ducking stool really did a number on that fella!
Their cut&paste report predicts either strong growth or very strong growth.
Anyone daring to utter anaemic / no growth or horror of horrors… economic contraction erm, sorry ‘negative growth’ shall be derided as a naysayer “talking down the economy” as if by seeking to utter such terms they might be willed into BEING!!!
Lock & Load.
Morpheus: Do you believe in fate Neo?
Neo: No.
Morpheus: Why not?
Neo: Because I don’t like the idea that I’m not in control of my life…
Morpheus: I know exactly what you mean!
Take the path less travelled.
Choisissez la pilule rouge!
Red Pill/Blue Pill. . .
http://www.youtube.com/watch?v=zQ1_IbFFbzA
Meanwhile the US slips closer to totalitarianism by the day.
The end of the troika distraction will underline the reality of Ireland’s economy, if for no other reason this is a good thing as it will focus more attention on the reality of the mess we are. It wasn’t the fault the troika that we got into this mess (if only we got rid the troika all will be well) three years and this government have done nothing to improve the economy, now that the troika has gone in to the shadows who are they going to blame for their incompetence. Who are they going look to when searching for… Read more »
whatamess, bonbon: ta for seriously on-topic contributions *smirks*
“How do we finance such MEGA projects?” If that was your very very first thought,then you are being predictably ‘practical’ and NOT utilising your imagination and creativity, which some would say is a God given blessing ,a Gift , so why not EMBRACE it and USE it then?…, and take CONTROL of our future, combining our imagination and science, poetry in motion Glass Steagall even for the supremely ‘practical’, join-the-dot crew here( and I was a General in said crew, so I’m trying my best to not so sound pretentious and patronising, believe it or not? ) ticks all the… Read more »
Physics,Science is TRUTH and our Minds are a Force of Nature! “It is PURPOSE that created us, connects us, guides us, drives us, defines us”. Glass Steagall is this punctum saliens, to INTELLIGENTLY serve the ‘Common Good’ and creatively terminate / END the “penury and Totalitarian enslavement” ,embodied in the current financial system of looting EMPIRE,destroying humanity’s Hope for a Future! To answer that all important funding question of MEGA projects , Glass Steagall , no fantasy stuff , but rather TESTED with RIGOR for decades, CAN BE humanity’s designed intervention ,and it’s HONEST implementation will OPEN the credit streams… Read more »
I never accused libertarians of all three epithets – swindling, fine and filthy words, with murderous intent, at least not at the same time, nor all of the time. But to endure all three insults at different times from different mugs even some of the time, is just too much of the time.
Even DMcW is beyond endurance, at least some of the time.
The ONLY way NOW of not getting ‘the chop’,is to reinstate our designed mechanism of Glass Steagall. Then with GS in it’s rightful place of PROTECTING us,a REAL THRIVING PURPOSEFUL RECOVERY can take place! Then Hamiltonian banking approach allows a healthy recapitalisation based on a credit system of national commitment to humanity’s PROGRESS —- Everybody back to work, up stream, down stream, a REAL functioning economy with NO more limits to growth poison and an environment where entrepreneurialism will FLOURISH ! And it must flourish to keep pace with the TANDEM mission based MEGA element of the recovery PLAN. With… Read more »
It is that quality of the Irish–that remarkable combination of hope, confidence, and imagination–that is needed more than ever today. The problems of the world cannot possibly be solved by skeptics or cynics, whose horizons are limited by the obvious realities. We need men who can dream of things that never were, and ask why not. It matters not how small a nation is that seeks world peace and freedom, for, to paraphrase a citizen of my country, “the humblest nation of all the world, when clad in the armor of a righteous cause, is stronger than all the hosts… Read more »
DMcW does make a good few points about what recovery is not.
He could add that a recovery will never spring forth spontaneously from any amount of goldbug gold, and especially not from the insane casino of vice still intact, firmly biting at the jugular. And neither from the fine words of most Nobel Prize luminaries, even Kilkenomics regulars.
Alexander Hamilton would not get a Nobel Prize today, and did have an excellent command of language and banking, and sheer genius in economics.
Alexander Hamilton was shot by U.S. Vice President Burr (July 11, 1804), in a duel over Hamilton’s exposé of Burr’s treason. This is the Burr who launched the Andrew Jackson project, Austrian School favorite icon.
A bit of american history for the locals. But the Austrian school hails neither from Dublin nor Philadelphia, rather from the Club of the Isles London school of Economics. In other words the british Fabian Round Table.
Just in case someone claims it came from the gold-bearing rock seams (wherever they might be).
A duel at 50 paces…. who bears the velvet glove?
There’s a duel happening in a global context between the unrighteous and the righteous…
Which faction shall prevail?
Cast down thee Banker filth… thou art nowt but a stain on humanity, an abomination!
Vincenzo railing against the ‘Bail In/Out’
http://www.irishtimes.com/news/politics/irish-people-did-not-sign-up-for-what-was-done-to-them-in-the-bailout-1.1631046
A le Mickey Noonan at Lonergan’s ball…. Bail- In ..Out ..In Out… In/Out Shake it all about.
“Ah yeah, we all wint a bit mad there fore a whiile, sa we dit. We cant be doin’ dat agin” proclaimeth Mickster NooNAN.
I feel a craving for some “knettle” soup… with just a pincée of parsley. :)
What Is That You Said
I was making a jibe at myself… whatamess caught me in sleep depravation, moonshine mode misspelling NETTLE!! :D
Here is to Organics Michael
China said to reject more than 500K tons of US corn: Bloomberg reported that China has rejected more than half a million metric tons of genetically modified US corn in November and December, almost three times the amount it previously announced. China’s Ministry of Agriculture said in 6-Dec that it rejected the grain because its safety is under review.–www.lemetropolecafe.com
It’s time the US rejected its own corn!!
http://www.arabianmoney.net/gold-silver/2013/12/18/us-to-export-a-record-750-tonnes-of-gold-this-year-mainly-to-china-as-local-investors-respond-to-high-domestic-inflation/
US gold inhaled by China. First the gold then the economy then the country??
Will Chinese inflation soon impact the west causing interest rates to rise?
100 year birthday on 23rd.to little fan fare. Curiously quiet!??
Give them a good send off and bury them. The fed and all central banks
http://www.thedailybell.com/editorials/34838/Ron-Paul-After-100-Years-Of-Failure-Its-Time-To-End-The-Fed/
Perfect timing for our hoast to analyze the good the bad and the ugly of the money system as propagated by the Fed and the B. of E.
How about a 100 year special edition David.