Burning 18.3 billion of your money

I hope they are lying. I hope the government does not really intend to put 18 billion more into Anglo-Irish Bank. I hope they are just pretending that they are going to give Anglo all this money in order to boost “international confidence” - but that really they intend to wind it down. That’s our only hope now. That the government is lying.

According to Lenihan "Winding-up the bank is not and was never a viable option" because an immediate wind-up would lead to a fire sale of assets resulting in additional losses of €30bn. Yes, but those losses would NOT fall on the Irish taxpayer, if the winding up takes place AFTER the government bank guarantee lapses at the end of this year. And unless the government is insane, they will allow this guarantee to lapse. The foreign banks to whom Anglo-Irish Bank owes money would then need to make the best of it once the bank is closed down.

So really the government must be lying. Because if they are NOT lying, you know what this means? You want to know why the government would be doing this? It’s hard to believe the reason. I have difficulty believing it myself. It is incredible. But here is the reason: if Anglo-Irish Bank is closed, the foreign creditors will seize all the worthless property and land and sell it at knock down prices. That would mean that houses and apartments and land would become affordable to ordinary Irish people, which would be great for the people who live here, and a great boost to our economy’s competitiveness. But it would be a disaster for Fianna Fail and their property developer chums, as well as for the other banks.

Think about that all you young people out there, as your pay is being cut, or you are losing your job, or as you struggle to pay your mortgage, and are told that there is “no money” for any of these things. The state is taking 18 billion of YOUR money and pouring it down a hole. That is eighteen thousand million euro. You could build about 50 major hospitals for that, assuming each hospital cost 300 million euro. We have become so accustomed to hearing these large figures being thrown around that we no longer know what they mean – how many schools will be underfunded, how many hospitals will be understaffed, how many people’s incomes will be reduced, in order to pay for it.

Tax the rich until they scream for mercy

The politics of envy? BRING IT ON! We should tax the rich until they do us all a favour and take their “talent” elsewhere.

Those who have an immoderate love of money are imprisoned by their immoderation. Like all addictions, it damages the addict as much as anyone else.

Monbiot gets it right: “Extreme wealth invariably leads to captivity. Its victims live in an open prison … Everywhere on earth they live behind walls and razor wire, guarded by cameras, dogs, watch towers and sensors. The walls that shut the world out also shut them in.” Extreme wealth also means that one will inevitably be surrounded by flatterers, sycophants and greedy hangers-on, making it harder to find true friends and true love.

This might all be fine if the addiction of the super-wealthy did not damage society as a whole. But extreme inequality of wealth damages not just the wealthy, but also the non-wealthy, who become poisoned by their envy of the wealthy. I’ve previously discussed how economic inequality led to the global credit crunch. High levels of economic inequality mean that in order to try and keep up with the wealthy, the nearly-wealthy need to spend more and more. And then the nearly-nearly-wealthy need to spend more in order to try and keep up with the nearly-wealthy. And so on down the scale. This leads to a cascade effect on expenditure. Over the last thirty years in the West, median incomes have not been increasing much, while the incomes of the richest ten percent have exploded, which means that the only way for the non-wealthy to try and keep up is to borrow more and more money. That’s exactly what happened. And the rest, as they say, is economic history. In the West, it tends to be the countries with the highest levels of inequality that have the highest levels of personal debt.

So it is now patently clear that very rich people destroy societies, and that is why we need to make sure that the wealthy go somewhere else and ruin someone else’s society.

But unfortunately it’s not that as easy as you might think to get rid of these avaricious bastards. As Monbiot adds: “It's a bitter blow. When the government proposed a windfall tax on bonuses and a 50p top rate of income tax, thousands of bankers and corporate executives promised to leave the country and move to Switzerland. Now we discover that the policy has failed: the number of financiers applying for a Swiss work permit fell by 7% last year. The government must try harder to rid this country of its antisocial elements … The universal public response, as Tracey Emin found when she announced that she couldn't possibly survive here on her scanty millions, is ‘Go on, then – jump’”.

How much yearly income would you need in order to feel rich?

How much yearly household income would you need in order to feel rich? Before reading on, think about if for a moment and come up with a figure.

In the US a large survey was conducted by Target Point Consulting, and the answer was discovered: on average people would need about double their current yearly income in order to feel rich. For example, people who have a current household income of 50,000 said they would feel rich if they had a yearly income of 100,000. People who had a current income of 100,000 said they would feel rich if they had an income of 200,000. People with a yearly income of 150,000? They'd need 300,000 before they'd feel rich. And so on.

Conclusion: It doesn't matter how much you earn you will never, NEVER feel rich. People say they need double their current income, pretty much regardless of what their current income is. This makes sense, since people are much more likely to notice people who are better off than themselves, than people who are worse off than themselves. It's human nature.

David McWilliams should stop stealing his ideas from this blog

Last week I pointed out that Ireland actually has a much higher debt burden than Greece because total debt consists of public debt AND private debt – and Ireland’s private debt is much higher than Greece’s. Imagine my surprise when I looked at today’s Irish Independent, only to find David McWilliams making the exact same point.

What can weak eurozone economies like Ireland do to get out of the mess they are in? There are essentially four options:

1. Leave the euro, return to the punt, and then devalue. This would be a political and economic nightmare for Ireland in particular. Most of our debt is denominated in euros, so if we returned to the punt and devalued, the real cost of paying back those debts would escalate. We would be totally bankrupt, like Iceland. It would also be a PR disaster for the country - and perceptions matter, especially for FDI.

2. Default on our debt. Another not very attractive option. Again, look at Iceland. We would be subjected to merciless financial bullying from stronger economies.

3. Further radical cuts in expenditure, and increases in taxes, leading to massive further increase in unemployment, emigration, deflation, with all the misery and social unrest that this would entail. This is the current strategy of the Irish government. It means that the country would suffer the contemporary equivalent of a Great Depression.

4. A bailout by the richer Eurozone countries. Politically difficult for the richer countries, to say the least.

What we are likely to get is a mixture of two, three and four i.e. in return for the bailout, the governments of the bailed-out countries will hand complete control of their economies over to Brussels, Frankfurt and Berlin – and the subsequent cuts in expenditure and increases in taxes will be decided and monitored from there. Debt for equity swaps at the Irish banks could reduce our external debt burden – this basically means handing ownership of worthless Irish banks over to foreign banks, in return for them writing down the money they are owed. So, in addition to handing over entire control of Irish economic government to Europe, Ireland would also hand over entire ownership of its banking system to Europe.

The only alternative interesting suggestion I have heard for dealing with the weak Eurozone economies was from a professor of economics at Harvard.

“Allow Greece [and the other countries] to take a temporary leave of absence from the Euro with the right and the obligation to return at a more competitive exchange rate. More specifically, Greece would shift its currency from the euro to the drachma, with an initial exchange rate of one euro to one drachma. Bank balances and obligations would remain in euros. Wages and prices would be set in drachma … If the agreement called for Greece to return at an exchange rate of 1.3 drachmas per euro, the Greek currency would immediately fall by about 30 per cent relative to the euro and other non-euro currencies. If there is little or no induced inflation in Greece, Greek products would be substantially more competitive in both domestic and foreign markets.”

This would allow Greek real wages to decrease, without nominal wages decreasing, thus regaining competitiveness. The same could be done in other weak Eurozone economies. Decreasing nominal wages is almost impossible without severe social unrest.

Greece: Making Ireland look good?

Speaking as a philosopher, it’s slightly disconcerting to watch the land of Socrates, Plato and Aristotle turned into an international laughing-stock. But speaking as an Irishman, I am relieved that the Greeks are distracting attention from us, and even making us look good, at least if “international perception” is anything to go by.

But what’s really going on here? The government deficit in Greece is about the same as Ireland’s – so the government in Ireland is over-spending by the same amount as the Greek government. So what’s the difference? Why so much fuss about Greece? Well, Ireland is starting from a lower total national debt, so the Irish government can afford to borrow these large amounts for a few more years, unlike the Greeks. So overall, Ireland is in a better position than Greece right?

Well, hang on a second there. Ireland’s national debt, its total GOVERNMENT debt, its PUBLIC debt, is less than Greece’s, as a proportion of GDP. All well and good. But a country’s TOTAL debt is public debt PLUS private debt. Ireland’s total external debt (public debt plus private debt owed to foreigners) is 1.8 trillion, as opposed to Greece’s, which is a mere 86 billion. So external debt per capita in Greece is $3,953, compared to $448,032 per head in Ireland.

http://en.wikipedia.org/wiki/External_debt_by_country

Now external debt is a complex thing, but these figures make the basic point quite clearly: Ireland’s PRIVATE debt is much, much, much higher than Greece’s. Overall, Ireland is more in debt to foreigners than Greece. The average Greek citizen is not imprisoned by private debt, unlike the average Irish citizen. This explains why the Greek populace is kicking up more of a stink than the Irish populace – their personal debt and household debt is much lower, so they are not debt slaves. As Ambrose Bierce once said “Debt is an ingenious substitute for the slave driver’s whip”. And a whole generation of young Irish people have been turned into debt slaves. Our best and brightest, our most dilligent and responsible young people, have been totally sold out.

Sure, the Greek government and public sector is making a total mess of things, but their private banks have not screwed things up – and that’s much more important. That’s not because Greek banks are really clever – it was just lethargy on their part. Clever bankers screw countries up - they make lots of money for themselves, and then get bailed out by everyone else. It has been Ireland’s misfortune to have lots of clever bankers.

Much of Ireland’s private debt will now be transferred into public debt – via NAMA and other mechanisms. This will cost a lot. My namesake Kathy Barrington of the "Sunday Business Post" reckons the Irish bank bailout will cost the state around 30 billion euro. That’s a conservative estimate. Morgan Kelly thinks more like 50 billion euro.

Much of Greece’s national debt has been financed by private Greek savings, in the same way that Japan’s has. That’s why Greek external debt is so small. Compared to Ireland, the Greeks don’t owe foreigners anything, because, unlike Ireland, they didn’t go on a deranged binge borrowing money from foreigners. In Ireland, the borrowing binge was spearheaded by Sean Fitzpatrick at Anglo-Irish Bank, and Michael Fingleton at Irish Nationwide, with the other banks eventually going along for the ride.

The biggest theft in the history of humanity

Mark my words: what is going on now with the bailouts of financial institutions will one day be clearly seen for what it really is – the biggest theft in the history of humanity. The money is being stolen off you and me - and off our children and grandchildren - in the form of higher taxes and higher future taxes. This is being done in order to bailout financial institutions that have made estimated world-wide losses of 4.1 trillion dollars (according to the IMF) - ) – “The next estimate will presumably be higher” notes Martin Wolf of the Financial Times dryly. The financial institutions knowingly took the risks that led to these losses, because they knew that they would be bailed out when things went wrong, and because they knew that the people who run the banks would make personal fortunes before the bailout became necessary.

Where is the biggest bank bailout theft occurring? Here in Ireland. According to the IMF, Ireland will pay a higher price (proportionately) to stabilise its banks than any other developed country in the world. This is because Ireland had a bigger property boom than anywhere else, and so there are more bad debts here than anywhere else. Thus, young people in Ireland will have to continue paying off the most over-priced mortgages in the world – but they will also face huge increases in taxes in order to fund the largest bank bailout in the world. Many people will start to ask themselves: Is there any point in staying in this country? And this is not just my opinion – it is the opinion of twenty of Ireland’s leading academic economists, all of whom think that the current proposed government bailout of Irish banks is basically a disguised rip-off of the Irish tax-payer. These 20 economists think that the government should nationalise the banks – so that the tax-payer might at least have the possibility of getting something in return for his money.

But remember that the governments of developed countries, including Ireland, have one objective: to give these financial institutions as much of your money as they possibly can, with a minimum of fuss, and without nationalisation. The IMF expressed concern that taxpayers were becoming weary of supporting the financial sector: “There is a real risk that governments will be reluctant to allocate enough resources” it fretted. Personally, I think the IMF is worrying for no reason: the public objects to these bailouts, but the governments will just ignore those objections. The bankers will not give back the money they made during years of illusory profits. They will just take our money now, in order to cover their losses.

So why do the banks need to be bailed out with your money? The official answer is that there is a “shortage of credit”. If the banks are not bailed out there will be no lending, so the story goes. This is rubbish.

If governments really wanted to increase “credit” here is what they would do: set up new state-owned banks using the money that they are giving to the existing banks OR nationalise the systemically important parts of the existing banks. But they wish to avoid nationalisation at all costs. By giving your money to the existing banks, governments are ensuring that your money will be used to write off the bad debts of those banks, rather than to “expand credit”. The purpose is to use your money to keep the existing institutions in tact, with as many of the same people in charge as is possible. And remember that the REAL problem with the world economy is not a shortage of credit – it is a shortage of demand.

The rest of us can go screw ourselves while the bankers laugh at us because we let them steal our money.

Will the government continue to treat you with contempt by refusing to nationalise the banks? Will you vote for them if they continue to treat you like this?

Why does Obama do what the banks tell him to do?

Leading Noble Prize winning economists like Paul Krugman and Joseph Stiglitz say banks should be nationalised. But when Obama has an economic summit to decide what to do, people like Krugman and Stiglitz are nowhere to be seen. Why not? Noam Chomsky explains why:

Obama’s plan is the same the Bush plan - it's based on the principle that the financial institutions should remian intact, no matter how much it costs taxpayers. They have to remain intact, and must remain under the control of the same people who destroyed the economy. Why?

“Obama’s constituency is basically the financial institutions. Just take a look at the funding for his campaign. I mean, the final figures haven't come out, but we have preliminary figures, and it seems to be mostly financial institutions. I mean, the financial institutions preferred him to McCain. They are the main funders for both—you know, I mean, core funders for both parties, but considerably more to Obama than McCain ... That's the way the system works: you make risky loans, you make a lot of money, and if you get into trouble, we're here to bail you out, namely the taxpayer … What does ‘too big to fail’ mean? ‘Too big to fail’ is an insurance policy. It's a government insurance policy. Government means the public pays, which says, ‘You can take huge risks and make plenty of profit, and if anything goes wrong, we'll bail you out.’ That's ‘too big to fail.’ Well, that's extreme protectionism … We lectured the third world that they must accept free trade, though we accept protectionism.”

“The modern information revolution—computers, the internet, fancy software and so on—most of that comes straight out of the Pentagon. My own university, MIT, was one of the places where all of this was developed under Pentagon contracts in the 1950s and the 1960s. In fact, that's another critical part of the way the economy works. The public pays the costs and takes the risk of economic development, and if anything works, maybe decades later, it's handed over to private enterprise to make the profits. And that's a core element of the economy. Of course, we don't permit the third world to do that. That's considered a violation of free trade when they do it. But it's the way our economy works. And it's kind of complementary to the ‘too big to fail’ doctrine of protectionism for financial institutions. But in general—we do not have a capitalist economy. We have kind of a state capitalist economy in which the public has a role: pay the costs, take the risks, bail out if they get into trouble. And the private sector has a role: make profit, and then turn to the public if you get into trouble”.

The Menace of “Populism"

I notice that the media have started labelling the anger of people at bankers and the existing financial system, as “populism”. This is an interesting manoeuvre. The implication seems to be that the ignorant “populace” is succumbing to visceral and unfounded rage against its masters. According to the Economist magazine, people have been “seized by a spasm of fury” and there is a disturbing “storm of outrage”. Most horrifying of all there is a new political disposition that “tries to return power to ‘the people’” (note the inverted commas around "people"). Is this “just a storm in a teacup?” asks the Economist, hopefully. According to the Financial Times, there is a worrying “McCarthy witch-hunt” against bankers that could “send the country back to the stone age”. One senior banker told the FT that recent taxes aimed at bankers were “the most profoundly anti- American thing I’ve ever seen”. He objects to such anti-free-market measures. But presumably he does not object to the anti-free-market multi-billion dollar bail-outs of all the world’s banks?

“A recent Harris poll” the Economist observes with dismay “shows that 85% of Americans believe that big companies have too much influence on politicians and policymakers”. If only the irrational masses understood what was really going on, seems to be the argument, they would not be surrendering to their base emotions. But even Martin Wolf, chief economic commentator of the Financial Times, says his “blood boils” at some of the bonuses that bankers have recently received. But he hastens to reassure his readers: “I am no populist”. Phew!

In recent decades, the Economist magazine notes with satisfaction, “economic populism was trumped by cultural populism. The Republican Party championed the interests of the ‘silent majority’ against bra-burning feminists, civil-rights activists and effete liberals who were more interested in protecting the rights of criminals than preserving law and order. The Democrats made desultory attempts to revive economic populism in 2000 and in 2004”. But unfortunately this Republican tactic may no longer be working - trembles the oracle of the powerful “Economic populism is returning to the heart of American politics” .

The chief economic correspondent of the London Times says that “the only way to revive the system is to offer vast public subsidies and support to the banks. Who owns the banks and whether bank shareholders or managers benefit unfairly from public subsidies are irrelevant … What politicians must now do is to persuade the public that the time for quibbling about the precise rules of bank rescues is over”. He says that the BBC should play its part in performing “a priceless national service by distracting the British people and the media from throwing tomatoes at pilloried bankers”.

So what exactly is unfounded about this “populist” rage? The rage is, in fact, entirely justified – and its source is precisely the fact that people can clearly see, for once, what is “really going on”. The system is profoundly unjust. The rage is a function of this awareness of injustice. We live in a world where some people get slapped in prison for minor thefts, or taking drugs or whatever, and where other people work hard in order to earn modest wages. Meanwhile, people in charge of financial institutions earn millions, and when they lose billions, they are supported by the rest of us. Many of these charitable donations to bankers have simply been pocketed by them in the form of massive wages, bonuses, and pensions. The credit crunch was one of those moments where the essence of the state capitalist system is revealed for all to see: socialism for the rich, free-markets for everyone else.

Michael Fingleton – even worse than Sean Fitzpatrick?

I see that after his “bank” was bailed-out by the rest of us, Michael Fingleton took the trouble to award himself a one million euro bonus and a 27 million euro pension.

Will Michael Fingleton apologise and give back all the money he has stolen from the rest of us? No chance. And even if he did it would be too late. We already know what kind of man he is.

The latest on the global economy: screwing ordinary people again

All the world’s largest banks are insolvent, due to bad debts, and they will go bankrupt without government intervention. The major Central Banks in the US, Europe and Japan are creating money in an attempt to stop these banks going bust. The governments will, at the behest of the banks, try to avoid nationalising those banks – they will give the banks the money in return for no increase in control over them, although cosmetic changes to “regulation” will be talked about. The new money will be given directly to the banks so that they can “recapitalise”, write off debts and start lending again to “consumers”, so that people can borrow more.

Note that the newly created money is NOT to be given to “consumers” (i.e. ordinary people) in form of higher wages or higher incomes of any sort. The chief economist at the Financial Times identifies the main problem with the world economy: “The highest priority is to halt the free-fall in demand”. What does he mean by this? He means that people have stopped spending. There are two ways to increase demand and spending: increase people's incomes or increase the amount they borrow to spend. Now, most people's incomes have not been going up much. Remember: nearly all the increase in wealth from the last 30 years has gone to the wealthiest 10% of the population. Inequality of wealth has increased hugely. Median incomes have hardly increased at all, and now they are decreasing.

The governments and banks know that they need to increase demand, and get “consumers” (i.e. ordinary people whose average real incomes have hardly increased over the past 30 years) spending again. But they want to make sure that the money is borrowed by those consumers, and that the current bank system is kept in tact. At all costs they need to avoid increasing the real incomes of the non-wealthy – because then the non-wealthy would be able to buy what they need without borrowing, and the banks would not be so necessary. In short, people are to borrow the money, and get themselves further into debt, because modern Western economies and financial institutions depend on keeping most people is a state of debt-slavery.

When the banks make profits they keep them; when they lose money they are bailed out and everyone else pays. Then they are given more money to lend, so that the process can start again. This is all in keeping with the basic principle of state capitalism: socialism for the rich, free markets for everyone else. As Nicolas Taleb (who predicted this current crisis) says: “Banks have never made money in the history of banking, losing the equivalent of all their past profits periodically – while bankers strike it rich.”

In sum: The governments and the banks are hoping that they can manufacture inflation by creating money, and that this will force people to keep borrowing. Whether this attempt to create another credit boom will succeed or not remains open.

Do YOU have a problem? Leave an anonymous comment, or send your problem in confidence to brianbarrington@gmail.com

Yet another rant about the economy

A READER WRITES: “You have not provided us with a rant about the economy for a couple of days now. I miss it. Please rant”.

BB SAYS: Ok, ok. But this is the last one. No seriously. I promise. This is my last word on the matter. From now on I won’t be mentioning it again. Honest. I’m boring even myself at this stage.

The predicted German bailout of Ireland is now being talked out openly:

“The German finance minister is raising the prospect of a rescue becoming necessary. While declining to identify countries facing problems, the German finance chief said Ireland, which has a widening budget deficit, is in a ‘very difficult situation’”.

Of course, Ireland is already being kept on life-support by the European Central Bank in Frankfurt:

“The ECB is able to get cash indirectly to countries by buying bonds under repurchase agreement in the secondary market. The ECB does not make public what bonds it holds and that made it unclear which countries, if any, might already be receiving this form of indirect help. But Mayer said he thought some countries were.”

Ireland is. The ECB presumably has reasonably reliable information about the real condition of Irish banks – I would imagine that Anglo Irish Bank has virtually no deposits (what rational person would have their money there?), and billions of loans owing to foreign banks that neither it nor the government will be able to pay back. The other Irish banks are not that far behind Anglo Irish Bank. Ireland borrowed billions from abroad to build and buy property - if banks increase lending by 20% then house prices go up by 20%. Now, if people think house prices are going to keep going up, the link between house prices and household income is broken – until such time as the bubble bursts, and then the link is re-established. Household incomes in Ireland are not nearly as high as people think, and they are falling fast.

As I wrote to a friend on the 9th of January 2008: “The big problem in Ireland is new financial instruments such as 35 year mortgages, or 120% mortgages and so on. On the face of it, people might think that 35 year mortgages are good for house-buyers because they allow them to buy a better, more expensive house. But all it does is allow everyone to get a bigger mortgage, thus driving up the price of houses for everyone. So the purpose of financial instruments like 35 year mortgages is to get ordinary people deeper in debt, to push up house prices, and benefit banks and above all builders. The Irish government has connived in all of this deliberately, in order to keep its biggest donors happy. The people who lose out the most from these scams are young people who either can't afford a house, or who have to plunge themselves into a life-time of debt in order to get a house”.

Much of the borrowed money will never be paid back. So now nobody will lend to Ireland except the ECB (indirectly). But don’t think for a second that any bailout will not come at a price. The people who provide the bailout dictate whatever terms they want, and the recipient country has no choice but to obey. When countries are bailed out the quid pro quo is always the same: huge increases in taxes and murderous reductions in public spending.

Some commentators are worried that the Irish economy now faces a Japanese-style “lost decade”. Certainly, house prices in Japan fell for 14 years in a row after its bubble bursts in the early 1990s. But unemployment only rose to 5 percent in 2001 from 2.1 percent in 1990. Its economy expanded in all but two years (1998 and 1999). In Ireland unemployment is going to rise to at least 12% this year and GDP is going to fall by 6% at least. The government’s tax revenue will be decimated. Nothing like this ever happened in Japan’s “lost decade”.

Sean Fitzpatrick: Loveable Rogue

SEAN FITZPATRICK WRITES: “Dearest Brian, thank you so much for your kind words of support. In these dark times, I need all the allies I can find. But Brian, I still can’t work out what went wrong. Who is responsible for the current mess that the country finds itself in?”

BB SAYS: Ah Sean, thank you for your lovely letter. You belong to a long tradition of charming Irish scoundrels.

I’m surprised that you haven’t yet worked out who is responsible for the current mess. Especially since you are on the record identifying the cancer that is destroying Irish society: children. Not just children but old people and sick people, particularly the over seventies. You will recall that you recently instructed the Irish government to “tackle the sacred cows of universal child benefit, state pensions and medical cards for the over-70s”. So you spotted who was responsible a long time ago. Of course now that Anglo-Irish Bank is state-owned, your half-a- million Euro a year pension will be, in effect, a state pension. So I think we should limit the focus of our attack on “sacred cows” to children and medical cards for the over seventies. That way we will still be able to afford paying your pension. I’m disappointed that you have declined the opportunity today to bring this message to the special Dail hearing into your dealings.

These are, indeed, dark times. But amongst all the bad news on RTE last night, I noted one glimmer of hope: the station ran a piece telling potential “first-time buyers” (i.e. young people) that “now is the time to buy” because B of I has a scheme to “help first-time buyers to get on the property ladder”. A real estate agent identified the problem very clearly “If we don’t have first-time buyers, it blocks up the whole property market”. As you know only too well Sean, any pyramid scheme is only as good as the people at the bottom of it. “First-time buyers” (i.e. young people) have been at the bottom of this particular pyramid scheme. And there is a danger that young people will work out that if they don’t buy now, property prices will fall even further. Thus, by refusing to buy houses, young people are saving themselves vast quantities of money, which could instead be going to people like you and me. So we need to scare them. It’s heartening to see that RTE is taking its responsibilities as a state broadcaster seriously, and that it is playing its part in trying to scare young Irish people into buying houses. Far too many young people appear to be considering leaving the country – they seem to think that it would be more fun to wait out this recession lying on a beach in Australia. Apparently the new government scheme to help “first-time buyers” get on to the “property ladder” only had four applications, even though the administration costs of the scheme were 290,000 Euro. That’s nearly 75,000 Euro per application. What is wrong with young people these days? Why don’t they want to get on the property ladder?

PS: I see that doom-monger Morgan Kelly has now lost the plot completely http://www.irishtimes.com/newspaper/opinion/2009/0217/1224241278003.html

What ever happened to Gross NATIONAL Product?

We Irish are constantly being told that we are rich because we have a high “GDP per capita”. For example, we read into today’s paper that Ireland’s “income far exceeds European norms”. Really? A close examination of the article reveals that the writer is talking about GDP per capita.

Fifteen years ago there used to be something called Gross National Product (GNP). Then it mysteriously disappeared and was replaced by something called Gross Domestic Product (GDP). Gross Domestic Product includes money that just happens to be passing through a country (e.g. repatriated multinational profits and things of that sort). Gross National Product, on the other hand, measures the amount of money that citizens of the country actually make.

Ireland’s Gross Domestic Product is very high. But its Gross National Product is considerably lower (at least 12% lower).

Even with this, Ireland's GNP per capita is quite high (assuming it is being measured correctly), so there can be little doubt that some people in Ireland are wealthy. For example, when employers and politicians campaign against income tax increases for the wealthy, they point out that 50% of income tax is paid for by 6.5% of the population. This burden on a small group of people is, according to the employers and some politicans, a scandal. And they are right – it is a scandal, because it means that our society is scandalously unequal. The reason this 6.5% pays 50% of the income tax is because they earn hundreds of thousands of euro a year.

It’s surprisingly hard to find reliable figures about average wages in Ireland. Figures I have heard range between 32K and 35K as the average wage for a worker in Ireland. That is the average salary – that average figure is driven up by those 6.5% who earn hundreds of thousands of euro a year. The median salary is substantially lower than 35k a year. In other words, a large majority of people in Ireland who work, earn less than 35k a year. This is substantiated by government figures which show that only 21.58% of income earners in 2008 paid taxes at the highest rate (on income of over 35.4k a year) http://www.budget.gov.ie/2008/downloads/DistributionOfIncome.pdf .

Given the cost of living in Ireland (Dublin is the 5th most expensive city in the European Union) it is hardly surprising that most people in Ireland do not really feel very wealthy, despite the fact that they are constantly being told how wealthy they are. The only way most people in Ireland have been able to survive is by borrowing large amounts of money – but now they are all borrowed out.

Just to illustrate the point further: Ireland’s GDP per capita is higher than Switzerland’s. So the Irish are richer than the Swiss! Not really. Median household income in Switzerland is $55,000 dollars a year. Ireland’s median household income is $35,000 a year. A typical Irish person is NOT richer than a typical Swiss person.

Sean Fitzpatrick: the genius behind the Celtic Tortoise

SEAN FITZPATRICK WRITES: “I am appalled and disgusted by the way the Irish media is demonising bankers like myself. This behaviour has all the hallmarks of a witch-hunt. When will all this Irish begrudgery and envy end?”

BRIAN BARRINGTON, PHILOSOPHICAL COUNSELLOR TO THE STARS, REPLIES: Like you, I am appalled by the lynch-mob mentality of the media and the ordinary Irish people. So I’m glad to hear that you have not let it get to you, and that after your recent nice holiday in South Africa, you have reportedly returned to Ireland looking refreshed and tanned.

As you said in 2007 “Our wealth-creators should be rewarded and admired, not subjected to levels of scrutiny that known criminals would rightly find offensive”. Admittedly, you said this before 99% of the shareholder wealth of Anglo-Irish Bank was wiped out. But the point still stands.

It’s wealth-creators like you that have been the driving force behind Ireland’s economic success. It was you who worked out this simple scheme: the more Ireland borrows from abroad to buy property in Ireland, the higher property values go up. People then think that they will keep on going up, so they then keep on borrowing to buy them. Entrepreneurial genius! That is how Anglo-Irish Bank made such extraordinary profits over the years. Other Irish banks were then forced to copy that business model, in order to retain market share and match Anglo-Irish Bank’s profits.

Even during talks with the government to organise the bank guarantee to save the collapse of Anglo, you didn’t let your eye for a good business opportunity desert you. Instead, you bought hundreds of thousands of Euro worth of shares in Anglo while the discussions were on-going. Then, when the bank guarantee was announced, bank shares went up, so you sold the shares at a good profit. A brilliant move!

So what went wrong? Personally, I blame the media. As you said yourself in 2006 “Much of the nonsense being peddled by the media could fuel the anger of many of those who have FAILED to benefit from our economic success thus far. The media must be held accountable”. It was the media’s fault.

I also blame the regulators. As you said in 2006 "The increasing burden of corporate McCarthyism and business regulation is threatening the entrepreneurial zeal that has made the Irish economy the envy of the world”. For example, you showed great entrepreneurial zeal over the years when you kept disguising the 80 million Euro loan that Anglo-Irish Bank gave you. The McCarthyite regulators didn’t spot this at the time, but now things have become immeasurably worse – and it seems that our entrepreneurs can’t do anything without some resentful, envious regulator looking over their shoulder.

So I think you deserve every cent of the millions of Euro you made over the years, as well as the 550,000 a year pension that you will now be receiving from Anglo-Irish Bank. Of course, Anglo-Irish Bank has no money, so it has been nationalised. This will mean that your 550,000 Euro pension will be paid for by taxpayers, the ordinary plodders who earn modest incomes and who, as you put it, “failed to benefit from our economic success”. Another entrepreneurial master-stroke on your part.

PS: just when I thought I had got to the bottom of your flare for business, I read today that €4 billion was temporarily lodged with Anglo Irish on September 30th 2008, hours after the State’s bank guarantee was announced, allowing the bank to show a higher level of deposits on its books on the day the auditors assessed the bank’s accounts. A stunning move!

PPS: I have now just read that you were on the board that approved a state agency's decision to buy a €411m development site -- which was funded a month later with a €293m loan from your own bank. It just gets better and better and better ....

Brian Cowen: “I can’t sleep because of the state of the country”

BRIAN COWEN WRITES: “Dear Brian Barrington, I’m having difficulty sleeping at night. I just don’t know what to do about the state of the country. That fecker Eamon Gilmore is having a field day. Even gormless Enda Kenny is making the most of it. I read your frightening post about Ireland’s external debt ( http://brianbarrington.blogspot.com/2009/02/ireland-and-debt_03.html ). The interest rates we need to pay on debt are going through the roof. I sometimes fear that anti-European Anglo-Saxon speculators are targeting Ireland, and trying to drive us out of the Eurozone. But what can I do?”

BRIAN BARRINGTON, PHILOSOPHICAL COUNSELLOR TO THE STARS, REPLIES: You can’t do anything. You can look like you are doing something. But actually you can’t do anything. However, don’t worry. I predict that, just at the moment when it seems that all is lost, and the country has gone irrevocably bankrupt, a hero will come blazing across the sky and save us all. That hero will go by the name of … Germany. Ireland will be bailed out, possibly along with the other basket-case euro economies (Greece, Italy, Portugal and Spain) by the European Central Bank and the Germans, along with a token contribution from the other 10 or so decent eurozone economies. But this bailout will come at an enormous price – we will need to more-or-less surrender control over our economy and our country to Berlin, Brussels and Frankfurt. The price of the bailout will involve:

• A dramatic increase in Irish taxes, to put us in line with other eurozone countries. Including an end to our low corporation tax. This will put an end to Ireland’s tax-haven status. Henceforth we will actually have to earn money by hard-work, productivity and other traditional methods.

• We will have to hand over control of all our banks to the Germans, and slash the pay of top bankers. There is a danger that our top bankers will respond to these cuts in pay by “taking their talent elsewhere”. For example, for destroying Anglo-Irish Bank, Sean Fitzpatrick got paid millions euro a year, and now he gets a pension of 550,000 euro a year (personally, I would have been prepared to destroy the bank for a mere 200,000 euro a year myself). But there is a danger that people like Sean Fitzpatrick will take their entrepreneurial zeal elsewhere. That will be one of the sacrifices we will have to make for handing over control of our banks to the Germans.

• We will have to decrease public spending. The pay of public servants (as well as professionals like lawyers and doctors) will need to be brought in line with that of other eurozone economies. By my back-of-the-envelope calculation, that will mean a pay-reduction of about 35%.

• We will have to vote Yes to Lisbon. You may recall that last year, in a fit of astounding collective national stupidity, we Irish voted No to Lisbon in order to “teach our European colleagues a lesson” or something of that sort. This kind of adolescent hubris and self-delusion will now become a thing of the past.

Should we be worried about handing over control of our economy to the Germans? Given the mess that we have made of it ourselves, I can personally face this eventuality with equanimity.

Ireland and Debt

Some interesting facts:

Ireland’s external debt is $448,032 per person – more than twice as high as that of any other EU country. The next highest is the UK at $189,855 per person. Italy is $124,049 per person. Germany is $54,604 per person. Greece is $3,953 per person.

External Debt is defined as the total public and private debt owed to nonresidents repayable in foreign currency, goods, or services. Basically, it's the amount of money we owe foreigners.

http://en.wikipedia.org/wiki/List_of_countries_by_external_debt

As pointed out in today’s Irish Times, Ireland’s total external debt is greater than that of Japan, Spain or Italy. Ireland’s total external debt is a sixth of the total external debt of the USA. Ireland’s population is currently about 4.5 million, compared to 300 million in the US and 120 million in Japan.

Ireland’s total external debt is 960.86% of GDP or national income – the highest of any country in the world (except Monaco), and by far the highest in the EU. The next highest is the notoriously indebted UK, where external debt is 376.82% of GDP.

One is tempted to ask: should we Irish have been a little less daring and a bit more careful with money?

Is David McWilliams a demi-god or what?

Read this by David McWilliams, the only Irish columnist and commentator who has a clue, apart from Morgan Kelly.

http://www.davidmcwilliams.ie/2009/01/28/a-mortgage-plan-that-will-save-a-whole-generation

Here is Morgan Kelly writing in Aug 2008, before the international financial meltdown:

http://www.irishtimes.com/newspaper/opinion/2008/0815/1218747921594.html

“Am I a stupid socialist?”

A READER WRITES: “I once read a quote somewhere to this effect: ‘If one is not a Socialist in his twenties, then one has no heart. However if one is still a Socialist in his thirties, then one has no brain’. I have recently turned thirty and find myself still adhering to a 'quasi' Socialist ideology. Does this mean that I am stoop-id?? Yours worriedly

PS: I read your article on Schopenhauer’s Pessimism. I liked it, but find it slightly irksome that what I consider to be Realism, is constantly rebranded as Pessimism by others.”

BB SAYS: No, it means you are smart. You see through the free-market propaganda and ideology that has facilitated a bunch of greedy scumbags to wreak havoc on the world economy. People who have given up on social justice and progress have no heart – they are missing something. Ultimately people should find a Golden Mean between the head and the heart. We must be realistic idealists, or idealistic realists. Socialism and Progressivism are about to become hot again.

Even, Karl Marx, a philosopher who has been out of fashion for the last couple of decades, is due a Renaissance:

"Owners of capital will stimulate working class to buy more and more of expensive goods, houses and technology, pushing them to take more and more expensive credits, until their debt becomes unbearable. The unpaid debt will lead to bankruptcy of banks which will have to be nationalised and State will have to take the road which will eventually lead to communism." Karl Marx, Das Kapital, 1867

Reader “increasingly bored by economic recession”

A READER WRITES: “When this whole economic dowturn thing kicked off I felt excited and energised. It was fun for a while. Now the novelty has worn off. It’s the same damn thing every night on the news - this bank has collapsed, that bank has collapsed. I mean Jesus Christ, just how many bloody banks are there out there? Or are the same banks just collapsing over and over again? Frankly, I’m bored with it and I feel that certain elements in our society have been PULLING THE ARSE OUT OF IT. Brian Barrington, please end the recession”.

BB SAYS: I wish I could, Reader, I wish I could. But I fear that ending the recession is beyond even my enormous powers. However, I feel obliged to strike a positive note amongst all this economic doom and gloom: 53% of economists reckon there is a 65% chance that the country will avoid going bankrupt, in which case there is a 72% chance that the recession will only last 12 years. So don't worry, only another 12 years to go …

“Should I buy a home?”

A READER WRITES: “Should I buy a home in Ireland? My mortgage broker is advising that I buy now, as the market has bottomed out. He is offering me a one-bedroom apartment with paper walls, in a remote suburb of Dublin, for 750,000 Euro. According to property developers I know, prices are going to rise dramatically in the months ahead and ‘now is the time to buy’”

BB SAYS: Of course you should buy a home. The purpose of human existence is to own your own house. That is the reason we were put on this earth. If you take out a 35 year mortgage now, you will own your own one-bedroom apartment in 35 years, and the monthly repayments will probably only cost you about 50% of your disposable income. After 35 years, you can take out another mortgage, and if you live for a very long time (say, for four hundred years), you will eventually own a dozen properties – one to live in, and another 11 holiday homes in picturesque corners of the country.

Any fool can see that the property market has now bottomed out. Unemployment is rocketing. Wages are collapsing. The banks are starved of credit. Rents are falling through the floor. Ireland has the highest household and personal debt anywhere in the world. Multi-nationals are fleeing the country in droves. The country is littered with ghost estates and half-built apartment blocks. By conservative estimates, there are only about a couple of hundred thousand unsold properties in the country. The market capitalisation of Irish banks has decreased in the last year by an average of 97% - because they have borrowed money from foreign banks to lend to property developers, so that they could build houses that nobody can afford. When the banks collapse, taxes will need to increase hugely in order to fund the government’s bank guarantee. Emigration is starting again, the country’s population is in decline. There is massive deflation.

So all perceptive observers agree that property prices are now at rock bottom. Ignore “independent, unbiased advice” from economists and other doom-mongers. Instead, listen to property developers and mortgage brokers, because they know what’s really going on.

750,000 for a one bedroom apartment in Dublin is what is known as “a steal at twice the price”. For 750,000 Euro, you could buy a 12-bedroom mansion in the South of France with a swimming pool and 100 acres of olive trees. Or a 4-bed penthouse apartment in the upper East side of New York. But why would you do that when you can get a one bedroom apartment on the outskirts of Dublin for THE EXACT SAME PRICE? The fact that the walls appear to be made of paper should not deter you – the paper walls allow you to follow the intimate lives of your neighbours, which revitalises community life in our fragmented, isolated modern world.

If you don’t buy now, you will never own your own home. Carpe Diem.