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Analysis/Comment Last Updated: Apr 21, 2011 - 8:16 AM

Nyberg Report: Plus ça change. . . or can conservative Ireland manage more than glacial change?
By Michael Hennigan, Founder and Editor of Finfacts
Apr 20, 2011 - 7:30 AM

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Source credit: www.irishnewsarchive.com

Nyberg Report: In the aftermath of another report on Irish financial mania, will it be as the French say: plus ça change, plus c'est la même chose (the more things change, the more they remain the same) or can conservative Ireland manage more than glacial change?

The omens are not good given that many still react with glazed eyes to issues of reform and matters of process or the lack of it even though the lack of accountability, the lack of concern for conflict of interest and the barefaced scrounging of public funds by beggars on horseback, goes to the heart of the calamitous failure.

Just observe the enthusiasm for debt default, bond burning and seeking foreign scapegoats while some of the same people would fight tooth and nail to preserve gains won on bubble income that has evaporated.

Is there any evidence of a community spirit even though tens of thousands face a jobless future on the dole? In contrast with others, many have had no occupational pension and basic redundancy is for people who are far from the groups who command the public megaphone.

We wrote last week that Ireland is no longer a society mainly marked by the division between rich and poor but it is an unjust society of insiders and outsiders.

The insiders can be multimillionaire lawyers and public staff with premium pay, pensions and job security, while the outsiders, without the support of powerful vested interests, are on their own.

The road to perdition was paved  from the time, Bertie Ahern, Charles Haughey's political consigliere, achieved power.

But as Nyberg said, the likes of him was part of an intricate tableau  and even before joining the European Monetary System in 1999, the Central Bank had raised the white flag and publicly declared that it had no power to restrict credit.

The Eircom floatation was the first big manifestation of tulip mania and in September 2000, the then Sunday Business Business Post journalist Emily O'Reilly lambasted Senator Shane Ross for what she termed the former stockbroker's pitching of the shares in the public floatation of State-telco Eircom and later heading a public crusade against the company.

O'Reilly wrote:
"Ross has made a virtual third career out of board bashing. As business editor of the Sunday Independent and part-time commentator on Today FM's Last Word programme, he and presenter Eamon Dunphy have developed a neat double-act. Outrage is the theme as the two handsomely paid media buddies rail against the handsomely paid business buddies on various company boards."

O'Reilly herself showed that she was another insider like the wealthy Shane Ross, and she hit the earnings jackpot when she was given the job of Ombudsman, which was a patronage plum in the gift of Minister for Finance, Charlie McCreevy. Her salary was hiked four or fivefold, to the level of a High Court judge.

In a crucial move in early 2001, the Irish Congress of Trade Unions (ICTU) joined the rest of the establishment in rejecting the censure by the European Commission of the Government’s budgetary strategy. Months later, when the OECD said Ireland’s social partnership needed to evolve towards setting general principles and guiding pay determination rather than committing the Government to delivering specific tax cuts, the then incoming ICTU president, Joe O’Toole, criticised “academic bean counters” and said they speak from Paris “with an air of authority that is utterly undeserved,”when different governments and groups were queuing up to find out how we earned our economic success  -- a sign of the hubris that was common in the bubble years.

A year later, the benchmarking body suggested an average public pay award of 9% but “strongly” recommended that 75% of the payment be withheld until agreement was reached on how “real outputs” would be delivered. It also recommended that an “appropriate validation process” be established to ensure that agreements on issues such as adaptability, change, flexibility and modernisation were implemented in accordance with their terms.

The Government ignored the advice; it refused to disclose the data used to arrive at the award; it went ahead and stuffed a super-ATM full of cash to ICTU’s acclaim, and almost a decade later, reform is still awaited.

Despite the potentially influential roles of both ICTU and IBEC, the employers’ body, both groups avoided pushing for reforms because of knee-jerk pandering to their vested interests.

The head of ICTU, David Begg, served 15 years on the board of the Central Bank but he plays Pontius Pilate on responsibility for displaying no responsibility.

And so the litany could go on...

RTÉ, the State broadcaster, through a spokesperson suggested, that it did not see any conflict of interest in having journalists in the public sector organisation, who were the highest earners in the Irish public service, being supplied with free BMW cars. In fact the spokesperson made a distinction between the high-paid contractors and the non-management staff: “As Pat Kenny, Gráinne Seoige and Diarmuid Gavin are freelance contractors, it is the RTÉ policy not to comment on their personal matters,” she said. “We would consider the matter of transport a personal matter.”

This is Ireland of course and local councils with up to 45% of the membership ruling on rezoning even though they had commercial property interests, was no big gaisce.

RTÉ has since the 1960's threatened non-payers of its mandatory TV and radio licence with shame and embarrassment before the courts, while for much of the period, people for whom the licence tax was chump change, were evading taxes on a massive scale.

A clerical error in the Department of the Taoiseach resulted in tribunal lawyers investigating corruption being overpaid €1m but in Ireland, why would they have felt it right to repay it?

Financial Times columnist, Prof. John Kay, wrote after the collapse of Texan energy trader: "Enron generated a lot of business for lenders, investment banks, consultants, accountants and high-profile individuals. Don’t expect any of these to give impartial advice to the company about its strategy or to outsiders about the company. Their incentive was to tell the company and people outside it what the company wanted to hear."

Prof. Kay wrote last week on the phenomenon of confirmation bias, or the tendency to find evidence to support what one already believes.

He said: "In politics and corporate life there is strong competition to support the opinions of the great leader, be it the head of the International Monetary Fund, or a major bank. Media developments also make it all-too-easy today to find information only from sources that reflect one’s existing opinions; think Fox News or the blogosphere."

Black swans are rare and usually it pays dividends to go with the flow and keep the head down.

It would be foolish to expect miracles now.

Irish people would understand the culture of grabbing what you can, while the going is good.

Ah shur $200 for breakfast for 2 on the taxpayer is only a drop in the ocean. "I've slaved long enough for those ungrateful bastards. Charlie can you give a few bob to those Indians?"

Finfacts articles:

Financial Mania: Nyberg report says large parts of Irish society let good times roll until last minute

Ahern, Harney, McCreevy, Cowen and the other individuals/groups with responsibility for the economic crash

It will be payback time for many years to come but most of the direct culprits can continue to live in clover.

Finfacts does not need any report to rationalise this sorry tale and unlike, those who went with the flow and kept silent to get baubles from ministers or contracts, we challenged the conventional wisdom, even though banks were among our customers.

July 2004

Harney has avoided decisions on every critical issue of deregulation and competition under the control of the Irish Government, by requesting the Competition Authority to produce a report. Nevertheless, she is far from shy about extolling the virtues of deregulation such as in aviation and telecommunications, which has been mandated by the European Union. 

Oct 2005

It says a lot about Irish public governance, the competence of individual Ministers and the senior bureaucrats, that everyone in a position to make what would have been commonsense and basic business decisions, did not do so until several hundred millions of euros disappeared down an Information Technology sink-hole and billions were underestimated on roadbuilding projects.

Instead of putting party flunkeys on the public payroll, has there been anyone in Government with the savvy to propose a CIO - Chief Information Officer - with key experience in world class IT organisations and successful project implementation experience? A similar function with responsibility for major infrastructure projects would surely have also been merited.

June 2005

The risk for the world economy is that over the past four years, US consumer spending and residential construction have together accounted for 90% of the total growth in GDP. And over two-fifths of all private-sector jobs created since 2001 have been in housing-related sectors, such as construction, real estate and mortgage broking.

Dec 2005

The buck simply stops nowhere.

Ministers pass the buck to public servants who are now subject to the regime called benchmarking, as referred to above, with phantom targets and so on.

It's a joke of course and no matter how big the blunder may be, nobody is accountable. This is one benefit of decision by committee.

So as the sands of globalisation, move under our feet, there is staggering incompetence at the heart of government and certainly no interest in contemplating how long will the good times last?

May 2006

The Central Bank reported last month that Irish residential mortgage lending continued to expand at a rapid pace in January, when the year on-year growth rate (adjusted for securitisations) reached a new record high of 28.8%, up from 28.5 % in December 2005.

The Central Bank has advised Finfacts that it does not require lenders to provide data on interest-only loans.

In recent years, more than 75% of Bank of Ireland investment customers have availed of the bank's ten-year interest-only mortgage, according to Bank of Ireland Mortgages Manager Olive Moran.

"It's very attractive as it enables investors to defer capital repayments for the first ten years," Moran told the Sunday Business Post.
"They can then spread the capital repayments over the remaining period of up to 15 years. Alternatively, if they have access to a lump sum from a personal pension policy, they can use these funds to repay the outstanding capital."

Last year, the US BusinessWeek magazine obtained the first-ever measurement by metro area of the increasing popularity of interest-only mortgages, and it showed that San Diego rates No. 1, by number of "IOs" in 2004. In metro San Diego, 47.3% of all mortgages required interest payments only in their early years. The survey covered the top 50 metro areas in the US and measured by the total number of mortgages issued. Atlanta, San Francisco, Denver, and Oakland, California, followed close behind San Diego. Milwaukee turned in the lowest number, just 4.8% interest-only loans last year.

The Economist also noted in 2005 that interest-only mortgages are all the rage, along with so-called “negative amortisation loans” (the buyer pays less than the interest due and the unpaid principal and interest is added on to the loan). After an initial period, payments surge as principal repayment kicks in. The Economist said that in California, over 60% of all new mortgages in 2005 were interest-only or negative-amortisation, up from 8% in 2002. The national figure is one-third.

Interest-only mortgages accounted for less than 2% of all US loans as recently as 2001.

Oct 2006

Taoiseach Bertie Ahern, said that problems in health and other public services cannot be solved unless working practices change.

Ahern said change and modernisation in the public service could be achieved only if staff extended their working day.

He said it would not be possible to face challenges in the future if public sector workers wanted to work only six hours a day and take a half-day on a Friday.

So in the tenth year in power, it's as if he had never heard of benchmarking

Nov 2006

In a report in The Financial Times issue of August 12th, 2006, on Irish buyers driving up farm prices in the UK, Matt Dempsey editor of The Farmer's Journal is quoted: "When you can now sell a piece of rezoned farm land on the edge of a town in Ireland for €500,000 an acre, several farmers have found themselves very rich."

A quarter of the €18.5bn of taxpayers' money being spent on new main roads will go into the pockets of landowners and archaeologists.

The Irish Independent reports today that an astonishing €4.6bn will be spent on compensating landowners along the routes of roads by companies over the next 10 years.

Irish Junior Minister Tom Parlon and President of the Progressive Democrats has warned that any change in the restrictive rezoning system of land for development that has a 20-50 times multiplier effect on values, would be to the "left of Stalin" even though as a big farmer, he is a significant beneficiary of European socialism.

Dec 2006

Patrick Honohan, Trinity College economics professor: Nevertheless, the business sector and indirectly - - Irish mortgage borrowers have had access to global finance. Indeed, there has been a very rapid recent growth in foreign borrowing by banks to finance their mortgage lending. In the past few years banks borrowing from abroad to onlend to Irish residents has soared from 10 to 41% of GDP.

In the past, financial markets served a watchdog role, and penalized national overborrowing with high interest rates. But now that Ireland is in the Eurozone, Honohan notes, the watchdog is muzzled and even high rates of borrowing can proceed without any warning sign from the markets.

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