Lest we forget….
In all the blame allocation about the economic/banking/property crash, it seems to be forgotten that there was, in fact, a general consensus that the construction boom could not be sustained indefinitely. The debate centred on whether we’d have a soft or a hard landing. The vast majority of economists (incl. Brian Lucey) favoured the soft landing scenario, which would have yielded very different consequences to those we are currently enduring.
If we’d had the desired soft landing
- developers and builders would have experienced an orderly reduction in activity levels
- unemployment in the sector would have increased but, at a moderated rate, and much of it would have been absorbed by an economy that continued to expand in other areas
- House price rises would have stabilised, rising at a rate akin to normal inflation and moderating the need to “get on the housing ladder” for first-time buyers
- Banks would have suffered some decline in their profits, but those would still be quite substantial. They would certainly have avoided the catastrophic level of bad debts now being incurred.
However, how would the largest financial beneficiary of the construction boom, i.e. the Govt, have fared in a soft landing?
During the boom, it was routinely estimated that about 40% of the sale price of every new house and apartment went to the Govt through a variety of taxes, duties & levies. Doubtless something similar applied to new commercial properties.
On second-hand properties, stamp duty rates of up to 9%, Capital Gains Tax etc added to the overflowing coffers of the Exchequer.
Rather than recognise the temporary nature of this engorged inflow of property-related taxes, the Government instead embarked on a programme of long-term spending commitments, which were dependant on maintaining and increasing the tax inflows. These included increased public sector employment, bench-marked salaries & pensions, generous social welfare hikes etc etc..
It was a bit like a man working on a 3-5 year project, which temporarily provided a significant boost to his earnings, deciding to take on a 30-year 100% mortgage on the strength of that temporary boost.
So the Government was heading for an inevitable, and material, shortfall in its finances, the so-called structural deficit, regardless of the worldwide economic recession. We got the dreaded hard landing in spades, predicted by the very few, which has greatly exacerbated the problems in the public finances.
It’s clear that the Government was almost certain to be in trouble regardless of what happened, and it was the player who most needed the construction boom to continue as long as possible. Might that explain the annual budget incentives for developers, investors and first-time buyers?
Many investigations logically use a “follow the money” or “cui bono?” methodology. Assuming that the proposed inquiry into the banking crisis pursues this line, the Government will inevitably be in the dock alongside the bankers and developers.
Friday, February 26, 2010
Michael O'Leary & me
Michael O’Leary & I have something in common, we’re both minority shareholders in Ryanair. But only Michael gets to use our company as his own private plaything.
I bought Ryanair shares 7 years ago, in Feb/Mar 2003, at an average price of €3.14 (excluding dealing charges & stamp duty, and adjusted for the subsequent “2 for 1” stock split). The shares closed this week @ €3.50 – a gain in 7 years of just over 11%.
In those 7 years, the share price has generally bumped along within +/- 10-20% of the original purchase price.
So, allowing for inflation in the intervening years, I’m losing money on my Ryanair investment, given that the company has never paid a dividend.
In the same period, Ryanair has grown significantly in size – it carried 19.5m passengers in calendar 2003 and this had risen to 65m in 2009 – an increase of approx. 330%.
Based on this volume growth, Michael O’Leary is feted as a business genius and is a darling of the media – "he gives good head" lines.
There’s a saying in business that “volume is vanity, profit is sanity”, and, on that basis, Michael certainly does vanity very well. But I, and my fellow shareholders, would be much better served if Michael turned down the volume and concentrated on the profit side of the growth equation.
Frankly, I start to worry a bit about a business model where, it seems, that extraordinary volume growth is required to produce relatively pedestrian profit growth. It’s beginning to feel like one of these circus guys spinning plates – we all applaud as he adds more and more plates, but at some point it’s all going to spin out of control and they’ll come tumbling down.
I bought Ryanair shares 7 years ago, in Feb/Mar 2003, at an average price of €3.14 (excluding dealing charges & stamp duty, and adjusted for the subsequent “2 for 1” stock split). The shares closed this week @ €3.50 – a gain in 7 years of just over 11%.
In those 7 years, the share price has generally bumped along within +/- 10-20% of the original purchase price.
So, allowing for inflation in the intervening years, I’m losing money on my Ryanair investment, given that the company has never paid a dividend.
In the same period, Ryanair has grown significantly in size – it carried 19.5m passengers in calendar 2003 and this had risen to 65m in 2009 – an increase of approx. 330%.
Based on this volume growth, Michael O’Leary is feted as a business genius and is a darling of the media – "he gives good head" lines.
There’s a saying in business that “volume is vanity, profit is sanity”, and, on that basis, Michael certainly does vanity very well. But I, and my fellow shareholders, would be much better served if Michael turned down the volume and concentrated on the profit side of the growth equation.
Frankly, I start to worry a bit about a business model where, it seems, that extraordinary volume growth is required to produce relatively pedestrian profit growth. It’s beginning to feel like one of these circus guys spinning plates – we all applaud as he adds more and more plates, but at some point it’s all going to spin out of control and they’ll come tumbling down.
Thursday, February 18, 2010
Willie O'Dea - did he gamble in court case?
An interesting opinion piece in today’s Irish Times titled “Lowest standard once again wins the day” is penned by barrister and former Green Party councillor Vincent Martin.
http://www.irishtimes.com/newspaper/opinion/2010/0218/1224264713504.html
He sets out the background to the case and highlights the relevant clauses of the Electoral Abuses Act (1923) which gave rise to the original court case involving Sinn Fein council candidate Maurice Quinlivan and Government Minister Willie O’Dea.
Possible penalties facing Minister O’Dea had he been found by the High Court to be in breach of that Act include:
“Section 15 provides that on conviction, a person will be barred from voting in all State elections for a period of five years.
Section 16 provides that on conviction, a candidate for election to the Dáil or Seanad shall be incapable of being elected to such office for a period of up to seven years and if elected that election shall be void.”
This would suggest that, had Minister O’Dea gone into court and admitted his guilt, he would have been facing very dire political consequences – the ending of his political career.
Much has been made by Minister O’Dea himself, his party colleagues and, indeed, some media commentators, of the fact that O’Dea knew the interview in question had been taped and that, consequently, it was highly unlikely that he would knowingly swear an affidavit which contained a blatant lie, given that the tape record was probably still extant (as has proven to be the case).
However, could it be possible that, faced with a choice of owning up in the High Court and facing the dire penalties of the Electoral Abuses Act, the minister decided to gamble on the interview tape either no longer existing or, alternatively, never being discovered by his court adversary?
Did he make the choice between certain political disaster now versus possible political disaster later – with maybe a better than 50:50 chance of getting away with it?
After all, his sworn affidavit was accepted in the High Court, the local elections went ahead and Maurice Quinlivan was duly elected in Limerick. Minister O’Dea might well have expected matters to rest there, the false accusation of brothel-keeping being just part of the normal cut & thrust of local Limerick politics.
It was only when Councillor Quinlivan issued defamation proceedings against both Minister O’Dea and The Limerick Chronicle that the interview tape surfaced and proved conclusively that O’Dea’s sworn High Court affidavit was very misleading.
Even then, it looked like O’Dea had gotten away with it, having won a confidence vote on the issue in the Dáil yesterday. Then the Greens wobbled the other way….
If Willie O’Dea did make such a judgement, it almost paid off.
http://www.irishtimes.com/newspaper/opinion/2010/0218/1224264713504.html
He sets out the background to the case and highlights the relevant clauses of the Electoral Abuses Act (1923) which gave rise to the original court case involving Sinn Fein council candidate Maurice Quinlivan and Government Minister Willie O’Dea.
Possible penalties facing Minister O’Dea had he been found by the High Court to be in breach of that Act include:
“Section 15 provides that on conviction, a person will be barred from voting in all State elections for a period of five years.
Section 16 provides that on conviction, a candidate for election to the Dáil or Seanad shall be incapable of being elected to such office for a period of up to seven years and if elected that election shall be void.”
This would suggest that, had Minister O’Dea gone into court and admitted his guilt, he would have been facing very dire political consequences – the ending of his political career.
Much has been made by Minister O’Dea himself, his party colleagues and, indeed, some media commentators, of the fact that O’Dea knew the interview in question had been taped and that, consequently, it was highly unlikely that he would knowingly swear an affidavit which contained a blatant lie, given that the tape record was probably still extant (as has proven to be the case).
However, could it be possible that, faced with a choice of owning up in the High Court and facing the dire penalties of the Electoral Abuses Act, the minister decided to gamble on the interview tape either no longer existing or, alternatively, never being discovered by his court adversary?
Did he make the choice between certain political disaster now versus possible political disaster later – with maybe a better than 50:50 chance of getting away with it?
After all, his sworn affidavit was accepted in the High Court, the local elections went ahead and Maurice Quinlivan was duly elected in Limerick. Minister O’Dea might well have expected matters to rest there, the false accusation of brothel-keeping being just part of the normal cut & thrust of local Limerick politics.
It was only when Councillor Quinlivan issued defamation proceedings against both Minister O’Dea and The Limerick Chronicle that the interview tape surfaced and proved conclusively that O’Dea’s sworn High Court affidavit was very misleading.
Even then, it looked like O’Dea had gotten away with it, having won a confidence vote on the issue in the Dáil yesterday. Then the Greens wobbled the other way….
If Willie O’Dea did make such a judgement, it almost paid off.
Monday, February 15, 2010
Maire Geoghegan Quinn's Dáil pensions
http://www.tribune.ie/news/article/2010/feb/14/geoghegan-quinn-vows-to-hold-onto-her-pension/
The above report in yesterday’s Sunday Tribune on Maire Geoghan Quinn’s generous Dáil pensions makes interesting reading.
Ms Geoghegan Quinn served approx. 4.5 years as a full cabinet minister and left the Dáil in 1997, having served 22 years as a TD.
In 2008 her ministerial pension amounted to €62,945 in 2008 and, when added to her TD pension, she received a total Dáil pension of €107,326 in that year.
These pensions have been paid to her since she left the Dáil in 1997, when she would have been 47. In the real world, Irish legislation bans the payment of pension benefits before reaching 50 years of age, except in cases of disability.
This case is a perfect illustration of the gold-plated arrangements our national politicians have organised for themselves, both in terms of generosity and the waiving of rules that apply to the rest of us.
In the same way, the revised expense regime for Oireachtas members still allows unvouched expense claims to be made, in direct contravention of the rules applied by the Revenue Commissioners to every business in the country.
Why do our politicians believe that they should be treated differently from the general population, for which they legislate?
It’s time that the political classes applied the same rules to themselves that apply to their constituents. What’s sauce for the goose should be sauce for the gander.
Incidentally, contrast the generosity of MGQ’s Dáil pension package with that of former EU commissioner Charlie McCreevy, who served 6 years in that position.
McCreevy will qualify for a pension of €51,068 when he reaches age 65.
If Ireland Inc can put the renowned Brussels gravy-train in the halfpenny place when it comes to lining politicians pockets, it just shows the extent to which we lost the run of ourselves during the Celtic Tiger years – and it was led from the heart of Government.
The above report in yesterday’s Sunday Tribune on Maire Geoghan Quinn’s generous Dáil pensions makes interesting reading.
Ms Geoghegan Quinn served approx. 4.5 years as a full cabinet minister and left the Dáil in 1997, having served 22 years as a TD.
In 2008 her ministerial pension amounted to €62,945 in 2008 and, when added to her TD pension, she received a total Dáil pension of €107,326 in that year.
These pensions have been paid to her since she left the Dáil in 1997, when she would have been 47. In the real world, Irish legislation bans the payment of pension benefits before reaching 50 years of age, except in cases of disability.
This case is a perfect illustration of the gold-plated arrangements our national politicians have organised for themselves, both in terms of generosity and the waiving of rules that apply to the rest of us.
In the same way, the revised expense regime for Oireachtas members still allows unvouched expense claims to be made, in direct contravention of the rules applied by the Revenue Commissioners to every business in the country.
Why do our politicians believe that they should be treated differently from the general population, for which they legislate?
It’s time that the political classes applied the same rules to themselves that apply to their constituents. What’s sauce for the goose should be sauce for the gander.
Incidentally, contrast the generosity of MGQ’s Dáil pension package with that of former EU commissioner Charlie McCreevy, who served 6 years in that position.
McCreevy will qualify for a pension of €51,068 when he reaches age 65.
If Ireland Inc can put the renowned Brussels gravy-train in the halfpenny place when it comes to lining politicians pockets, it just shows the extent to which we lost the run of ourselves during the Celtic Tiger years – and it was led from the heart of Government.
Michael O'Leary woos Mary Coughlan
A great spat between Michael O’Leary and Tanaiste Mary Coughlan over the job potential for Ryanair taking over the old SR Technics hangar at Dublin Airport.
He’s as obnoxious as ever and she seems to be as useless as ever.
Another case of “the unspeakable in pursuit of the uneatable”.
You’d have to wonder what their love-child might be like?
He’s as obnoxious as ever and she seems to be as useless as ever.
Another case of “the unspeakable in pursuit of the uneatable”.
You’d have to wonder what their love-child might be like?
Sunday, February 14, 2010
FG up, Labour down - but Kenny the media focus
The latest opinion polls (Sunday Independent today)have Fine Gael up but Enda Kenny down.
Once again, Eamon Gilmore is the most popular party leader, but Labour has fallen 2% in the polls.
The media seems to believe that it’s Enda Kenny, rather than Eamon Gilmore, who has questions to answer.
In the 2007 general election, FG gained about 20 seats and it was the failure of Labour to make any progress which allowed FF to get back into power.
The media should be asking the hard questions of Labour and Gilmore, rather than hounding Kenny.
Once again, Eamon Gilmore is the most popular party leader, but Labour has fallen 2% in the polls.
The media seems to believe that it’s Enda Kenny, rather than Eamon Gilmore, who has questions to answer.
In the 2007 general election, FG gained about 20 seats and it was the failure of Labour to make any progress which allowed FF to get back into power.
The media should be asking the hard questions of Labour and Gilmore, rather than hounding Kenny.
The George Lee affair & RTE
Can RTE report objectively on the George Lee affair?
There is clear disbelief among RTE’s top current affairs commentators that one of their former peers and brightest stars could possibly be a political failure.
Hence it must all be the fault of Fine Gael and Enda Kenny.
Apparently it hasn't dawned on them that it's generally much easier to ask the questions than to formulate the solutions.
Perhaps it’s a case of “those who can, do; those who can’t, broadcast.”
There is clear disbelief among RTE’s top current affairs commentators that one of their former peers and brightest stars could possibly be a political failure.
Hence it must all be the fault of Fine Gael and Enda Kenny.
Apparently it hasn't dawned on them that it's generally much easier to ask the questions than to formulate the solutions.
Perhaps it’s a case of “those who can, do; those who can’t, broadcast.”
Wednesday, February 03, 2010
ESRI slams Gormley policy on waste management
The ESRI has today published a report from on Ireland’s Waste Management Strategy which is highly critical of Minister John Gormley’s policy. The report was commissioned by Dublin City Council.
A few juicy quotes from the Frank McDonald’s Irish Times report:
http://www.irishtimes.com/newspaper/ireland/2010/0203/1224263657516.html
MINISTER FOR the Environment John Gormley’s policy on waste incineration has “no underlying rationale” and is likely to impose “needless costs on the economy”,
the Minister’s policy to set a cap of 30% on the incineration of municipal waste could damage Ireland’s reputation as a place to do business and “will thus harm economic development and competitiveness”.
“Arbitrary limits on incineration and consequent expansion of MBT [mechanical and biological treatment] have no place in waste management policy,” it says, disputing Mr Gormley’s contention that his new policy would create jobs and improve competitiveness.
Minister Gormley has responded to the strongly worded criticisms in the ESRI report, claiming that some of the data and assumptions used by ESRI are flawed.
However, I laughed when Gormley accused Dublin City Council of commissioning the report in an attempt to undermine the national strategy on waste management. Because what is undisputable, is that Gormley changed the national waste management policy specifically to undermine the plans of Dublin City Council to build a large incinerator at Poolbeg, in the minister’s own constituency.
A few juicy quotes from the Frank McDonald’s Irish Times report:
http://www.irishtimes.com/newspaper/ireland/2010/0203/1224263657516.html
MINISTER FOR the Environment John Gormley’s policy on waste incineration has “no underlying rationale” and is likely to impose “needless costs on the economy”,
the Minister’s policy to set a cap of 30% on the incineration of municipal waste could damage Ireland’s reputation as a place to do business and “will thus harm economic development and competitiveness”.
“Arbitrary limits on incineration and consequent expansion of MBT [mechanical and biological treatment] have no place in waste management policy,” it says, disputing Mr Gormley’s contention that his new policy would create jobs and improve competitiveness.
Minister Gormley has responded to the strongly worded criticisms in the ESRI report, claiming that some of the data and assumptions used by ESRI are flawed.
However, I laughed when Gormley accused Dublin City Council of commissioning the report in an attempt to undermine the national strategy on waste management. Because what is undisputable, is that Gormley changed the national waste management policy specifically to undermine the plans of Dublin City Council to build a large incinerator at Poolbeg, in the minister’s own constituency.
Bailout for FTBs in negative equity?
Brian Lucey is back in the Irish Times – again.
http://www.irishtimes.com/newspaper/opinion/2010/0203/1224263658137.html
In an opinion piece titled “State must not bank on bailout of bad mortages” he makes a number of points I’d agree with (for a change).
However there’s one I’d like to take issue with. Lucey identifies first time buyers from 2004 onwards as those most likely to be suffering from negative equity, but he also highlights a potential problem with a NAMA-style bailout for mortgage-holders as involving “transfers from persons who did not borrow excessively to those who did.”
However, during the boom it was routinely estimated that Government, at national and local levels, received about 40% of the sale price of every new house and apartment, garnered through a range of taxes, duties and levies from a variety of sources.
Therefore, a Government bailout of those first-time buyers would constitute a refund of their own money, rather than a transfer from anyone else. As the major financial beneficiary of the construction boom, the Government, rather than the banks, bears the primary responsibility for any bail-out of mortgage-holders.
My advice to FTBs who find themselves in a real bind: “Get your own back”.
http://www.irishtimes.com/newspaper/opinion/2010/0203/1224263658137.html
In an opinion piece titled “State must not bank on bailout of bad mortages” he makes a number of points I’d agree with (for a change).
However there’s one I’d like to take issue with. Lucey identifies first time buyers from 2004 onwards as those most likely to be suffering from negative equity, but he also highlights a potential problem with a NAMA-style bailout for mortgage-holders as involving “transfers from persons who did not borrow excessively to those who did.”
However, during the boom it was routinely estimated that Government, at national and local levels, received about 40% of the sale price of every new house and apartment, garnered through a range of taxes, duties and levies from a variety of sources.
Therefore, a Government bailout of those first-time buyers would constitute a refund of their own money, rather than a transfer from anyone else. As the major financial beneficiary of the construction boom, the Government, rather than the banks, bears the primary responsibility for any bail-out of mortgage-holders.
My advice to FTBs who find themselves in a real bind: “Get your own back”.
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