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Analysis/Comment Last Updated: Jul 24, 2011 - 8:30 AM


Irish Economy 2009: Talk to Joe! - - the asymmetric national agony aunt for confusing times - - and Cowen's €2 billion Budget
By Michael Hennigan, Founder and Editor of Finfacts
Feb 1, 2009 - 12:19 PM

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Caravaggio (1573-1610). The Fortune Teller, Musée du Louvre, Paris. Note how the beguiling gypsy girl steals the young man's ring as she reads his palm.

Irish Economy 2009: Taoiseach Brian Cowen is due to unveil a €2 billion Budget on Tuesday, that will have been primarily crafted by the public service unions. The slow-motion process is termed- - Pact for Stabilisation, Social Solidarity and Economic Renewal - - but will be simply a baby-walk in a multi-year challenge to close a  public finance gap of at least €14.5 billion by 2013. Joe Duffy, public service contractor and  asymmetric national agony aunt, at the State broadcaster RTÉ, will provide a platform for public anger while other outlets of the national service will be used, to spin the illusion of a new dawn.

We said last Thursday, that after the second period of monumental mismanagement of Ireland's economy, in a generation, ICTU and IBEC shouldn't just accept Cowen's so-called plan. It is a short-term band-aid fix and there is no evidence of plans for serious reform.

Finfacts Report:ICTU and IBEC in driving seat should press for reforms; Cowen's framework a short-term band-aid fix

Regrettably, the economic situation may have to get even worse, before the political class, together with social and crony partners, wake up to the radical medicine, which is required for a sustained recovery.

In recent days, it was reported that Taoiseach Brian Cowen and each Cabinet member (total of 15), have a total of 140 private office staff and 76 constituency office employees. Minister for the Environment and Green Party leader, John Gormley, employs 15.5 including part-time staff - - nine in his private office at a salary cost of upwards of €590,335. Non-salary staff expenses in Gormley's department last year amounted to €128,635. The average industrial wage is €32,000 and the majority of private sector workers, have no occupational pensions.

If the current drift, fudge and featherbedding remains, while the economy continues to deteriorate, public anger should be directed at Gormley, the once virulent critic of Fianna Fáil's crony capitalism, to force a general election.  

Black Swans have become a common metaphor during these troubled times.

At University College Cork, I had come across the simple illustration of the late philosopher of science Karl Popper, that a theory can't be proved - - he said that only one black swan is needed to repudiate the theory that all swans are white, while proving the latter is impossible.

Matthew Vincent said recently in the Financial Times, that the metaphorical birds, which have become shorthand for any improbable and entirely unpredicted phenomenon – ever since sightings of black swans in Australia by Dutch explorer Willem de Vlamingh astounded northern hemisphere twitchers in 1697 (up until when the Oxford English Dictionary listed “a whiting” as the collective noun).

John Stuart Mill first used the waterfowl to demonstrate the fallacy of drawing conclusions from a series of apparently consistent data. As he put it: “No amount of observations of white swans can allow the inference that all swans are white… the observation of a single black swan is sufficient to refute that conclusion.”

Nassim Nicholas Taleb, former trader and now a professor at New York University, has in recent times cited the birds as a reason for distrusting analysts’ financial forecasts and dismissing fund managers’ performance. Or as he puts it: “Go ask your portfolio manager for his definition of ‘risk’, and odds are that he will supply you with a measure that excludes the possibility of the Black Swan – hence one that has no better predictive value than astrology.”

Taleb's book: The Black Swan: The Impact of the Highly Improbable  - - was published in 2007.

At the World Economic Forum in Davos last week, Taleb said that the current system of “asymmetric compensation,” in which people are rewarded when they do well and aren’t required to return the rewards when they lose money, is detrimental to society and needs to change.

On Thursday, President Obama slammed the payment of bonuses on Wall Street, by banks, such as Citigroup, which has been bailed out twice by the federal government.

Finfacts Report: Greed Incorporated: Obama slams "irresponsible" and "shameful" bonuses for Wall Street bankers

The New York Times said on Saturday, if you’ve never worked on Wall Street, it is hard to wrap your head around the idea that a company that lost nearly $19 billion in a single year, as Citigroup did in 2008, could still pay its employees billions in bonuses. It is probably even harder to believe that some of those employees grumble about it.

“I feel like I got a doorman’s tip, compared to what I got in previous years,” said a 30-something investment banking associate at Citigroup’s offices in Lower Manhattan.

The newspaper said that for all the tectonic shifts reshaping the financial landscape, one thing has not changed: the bonus culture. Wall Streeters who make a lot of money for their employers expect to reap the rewards. In the parlance of the industry, they expect to eat what they kill.

“It’s just not acceptable. You’re talking about the same banks that caused the foreclosure crisis, took record bonuses in the past and continue to,” said George Goehl, executive director of National Training and Information Center, a nonprofit community reinvestment group in Chicago.

In an editorial on Jan 23, 2009, the FT said in regard to the $4bn in discretionary bonuses, that ousted Merrill Lynch chief John Thain had signed off on early, "came in a year when Merrill’s total operating loss was $41.2bn. Bonuses equivalent to 10 per cent of the profits would be excessive, but 10 per cent of the losses? Furthermore, reports that Mr Thain spent $1.22m doing up his office, including $1,400 on a parchment rubbish bin, after his arrival at Merrill last year will serve to feed popular perceptions that the greed and insensitivity of investment bankers knows few limits.

Whether or not the bonuses were legal – and it seems they were – outside the parallel universe of investment bankers they are seen as looting. Bankers played a very big part in setting fire to the world economy – and reaped large rewards for their recklessness. They are being supported with public money because the economy cannot work without banks, not because bankers should be a protected species."

This week's issue of the Economist, also uses the term "looting"in respect of Wall Street bonuses - -  Wall Street Excess - Star Looting.

The Economist says: "To some, Citi’s aeroplane fiasco is equally confidence-sapping. How can a bank that owes its survival to the taxpayer think it acceptable to procure a jet that boasts “uncompromising cabin comfort” and to hold on to several others (plus a helicopter)?

The explanation may be that finance’s most recent golden age created a culture of entitlement so deep that it survives, for a while at least, even when boom turns spectacularly to bust. It is telling that fully 79% of Wall Street workers who responded to a poll by eFinancialCareers.com said they received a bonus for 2008, despite the carnage. Almost half said they were dissatisfied with the amount received."

Asymmetric compensation and Ireland

As possibly 150,000 people lose their jobs in Ireland this year, there are some who like the Wall Streeters, convinced themselves, that they had invented the free lunch.

Joe Duffy
Stephen Collins, Political Editor of the Irish Times, wrote
on Saturday: "It is truly depressing to see some of the most powerful and well-paid vested interest groups in the land pursuing their own selfish interests with utter disregard for the common good. The ones that immediately spring to mind are the ESB workers and the overpaid RTÉ “stars” who have scornfully rejected the notion of pay cuts.

The decision of the ESB management to go ahead with the current pay round and give its workforce a 3.5 per cent pay increase in 2009, when almost everybody else in the country will endure a pay freeze or pay cuts, is an abdication of responsibility to the citizens of Ireland who are its shareholders.

The ESB workers are on average the best paid public servants in a country that pays its public servants very well. The rest of the public service will, at a minimum, have to live with a pay freeze this year and in the years ahead, while private-sector workers will be lucky to retain their jobs, never mind get pay increases."

Collins said: "The behaviour of some of RTÉ’s “stars” in shamelessly defending their exorbitant salaries is another example of the lack of genuine patriotism that infects so many layers of Irish society. The top salaries were never warranted to begin with but, with RTÉ’s advertising revenues plummeting, they can no longer be justified on any grounds. Again the management of a State company has to accept responsibility for allowing itself to be manipulated for years by some of its best-paid employees."

We wrote on Dec 31, 2008, that the State broadcaster  RTÉ, was part of the Irish system of crony capitalism.

RTÉ threatens non-payers of its compulsory licence fee with shame and embarrassment through being hauled before the courts, while during the Celtic Tiger boom, it took the lion's share of surging broadcasting advertising income. The service is a virtual monopoly.

The station's regular presenters claimed credit for the advertising surge and the corporate management gave in to demands for big pay rises, and they feathered their own nests as well.

Now that advertising revenue has plunged, the main presenters are unwilling to agree to a reduction in payment, while the management insist on cutbacks from lower-paid employees.

Where would the "stars" go if they were fired?

There are plenty who would fill their shoes and the jellyfish management shouldn't fret about losing advertising revenue. It would have a net gain.

Gerry Ryan, a public service contractor, is reported to have said that he would only agree to a cut if the advertising revenue generated by his radio programme fell to the level of his annual salary of €600,000.

If that's not hubris and arrogance, what is?

The service was there long before Gerry Ryan and will be there, long after he is forgotten.

In addition to big pay demands, the management also conceded holidays to match the politicians' disgraceful system - up to four months during the summer period.

"If people have a story to tell they phone Liveline", the presenter Joe Duffy, one of the asymmetric "stars" says."The topics come from the callers. They make the show what it is". And that could be anything, from dodgy dealers to your favourite holiday reading, according to RTÉ.

Duffy earns about €400,000 annually and writes a newspaper column for the Sunday Mail.

Last week, the man who has used his radio platform to encourage protests against public policy, pleaded the case for himself and colleagues - who are the highest public sector earners in the country.

Duffy warned in the Sunday Mail about a"head of steam building up from the commentariat blaming those who work for the State for our financial woes," adding: "There's no benefit to be gained from advocating equality of suffering for workers."

Crony Ireland remains a very comfortable place for some.

Rather than worry about the commentariat, Duffy and the others, with the arrogance of Wall Street bankers, maybe should worry about the proletariat, who may well in time direct their protests against the crony system, which they help to perpetuate.

Besides, how can these people seriously hold politicians to account, when they have their snouts even deeper in the trough?

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© Copyright 2011 by Finfacts.com

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