Ivan Yates wellies government for putting NAMA and Banks first – I cannot disagree.

Nama and bankers take their place as new cuckoos in the nest

By Ivan Yates

Thursday, December 22, 2011

During the Noughties Government buildings entertained interlopers.

The political process was supplanted by partnership. Bertie Ahern
developed a cosy consensus that rendered Parliament redundant, an
irrelevancy to the centre of power. The negotiation of pay and
conditions formed only part of Partnership agreements. These dealt
with social objectives in health, education and the elimination of
poverty. ICTU and IBEC became pivotal to economic and social policy.
There were called pillars. Their mandate was facilitated by Cabinet
ceding authority, believing together they could solve the nation’s
problems.

This transpired to be disastrous. Public service payroll costs more
than trebled. Benchmarking resulted in extra pay for little additional
productivity. Worst excesses are visible in the form of slush funds to
pay for union officials’ training and travel. SIPTU and the HSE
operated a forum with budgets in excess of €5 million to keep the lads
happy. Government lost sight of the fact that union bosses and
employer representatives’ overriding obligation is to look after their
members — not the public interest. There was no appropriate
discipline, dividing roles of gamekeeper and poacher. Calamitous
consequences for the state, not keeping at arms’ length from vested
interests, are part of our bust Bertie legacy.

Alarmingly, harsh lessons haven’t been learned. There is a new cuckoo
in the nest. It is almost faceless, seeks no public profile, is
unelected and has become omnipotent. In a myriad of separate policy
areas they exercise overwhelming influence in outcomes of government
decisions. Who? Nama and Bankers. Voters cast their ballots for Fine
Gael and Labour, but ended up with public administration on behalf of
the newest and biggest elite. They’re facilitated and prioritised
above all else. While election promises are repudiated
across-the-board, a variety of concessions (never previously advocated
by either party) are granted to shore up balance sheets.

The budget provided the biggest ever tax giveaway to property
investors. Section 23 tax relief was to be abolished. FG & Labour
depicted it as a Fianna Fáil wheeze for their developer friends. These
schemes won’t be terminated. Capital gains tax was increased from 25%
to 30%. However, a new zero rate is to apply on all commercial
property bought over the next two years, if retained for seven years.
Stamp duty on similar property was slashed from 6% to 2%. If FF had
introduced these measures, present ministers would have derided them
as a speculators’ charter. Culprits of the property bubble are to be
feted with unprecedented generous incentives. Despite all sectors of
business craving credit and capital, it is buildings that are to be
earmarked for bounteous stimulus.

This benevolence came from nowhere. It wasn’t contained in any
election manifesto. The joint Programme for Government made no
reference to these potentially costly concessions. There was no prior
publicity on behalf of lobby groups vociferously seeking same. No one
in the bailout troika mentioned any external insistence on these
measures. However, behind-the-scenes, one can readily imagine how Nama
and our two pillar banks would desperately seek steps that would stop
assets on their balance sheet declining further in value. €31 billion
was invested in Nama. €62bn was procured to recapitalise indigenous
financial institutions, along with €21bn from the National Pension
Reserve Fund. It’s apparent that their interests are now equated with
the public interest.

The budget is only the visible beginning of their influence. A direct
commercial conflict of interest emerged since 2007 between landlords
and tenants. Business operators, who paid rent, couldn’t rewrite their
lease terms to either exit or negotiate downwards the cost of their
premises. Specific cast iron political pledges were made to abolish
upward only clauses in rent reviews. This was resolutely opposed by
Nama’s chief executive, Brendan McDonagh, who publicly argued that it
would reduce Nama’s asset portfolio by 20% or €2 billion. Their views
reigned supreme. Previous promises were jettisoned due to legal
advice. In other words, Nama rules, okay.

When the ECB cut interest rates by 0.25% in November, there was an
outcry by Kenny and Gilmore as AIB and Bank of Ireland declined to
follow suit. Top bank bosses were summoned to Merrion Street, dressed
down and told to comply. This month, when a further 0.25% ECB cut was
announced, the same lending institutions didn’t respond. BoI’s total
reduction was 0.15%. This time there was no clamour on behalf of
customers and borrowers by the Taoiseach or Tánaiste. The entire
purpose of Draghi’s cheaper money is to pull the Eurozone out of
recession. If banks pocket these benefits, original objectives will
not be achieved. Politicians have been told to button their lips,
because propping up banks is the paramount national objective.

ISME and other representatives of small businesses have lobbied about
lack of credit. They procured surveys showing crude realities on the
ground of refused term loan and overdraft facilities. The Irish
Bankers Federation insists these claims are false and exaggerated. The
Government knows the overriding priority of indigenous banks is to
downsize their balance sheets. Hence, they are happy to turn a blind
eye to the starvation of cash-flow from lenders. Approval of the
rollover funds is equated with new lending. Finance houses are
deleveraging at a rate of knots — it’s costing jobs. Mortgage finance
has evaporated.

One fundamental flaw that led to our banking collapse was an
incestuous relationship between regulators and financiers. Liquidity
crises evoked a ‘green jersey’ empathetic support, instead of rigorous
independent regulation. Investment banks were deemed to be systemic to
the economy. They weren’t and should’ve been put into administration,
with consequent insolvency terms for bondholders through negotiation.
Nowadays, we conceal the McCann FitzGerald/Ernst & Young reports into
Nationwide. This is not in the public interest, but protects key
individuals wielding enormous power.

Early in 2012, we are promised new bankruptcy legislation. This could
favour debtors, if a copy and paste replica of the UK system is
adopted. This would release more than 100,000 entrapped borrowers from
the Celtic crash. Such a scenario wouldn’t facilitate the maximum
punitive advantages to banks, who can terrorise customers with threats
of judicial sanctions. Don’t be surprised who wins out, as Nama/IBF
leverage their political muscles. The same logic will be articulated:
“banks’ interests equal taxpayers’ interests”. A new tank is parked on
the lawn of government buildings. The partnership commanders have been
replaced by banker/developer/property aristocracy.

This subversion of democracy must be opposed. It’s short sighted.
Fundamentally, there is nothing wrong with cheaper commercial property
— it makes Ireland Inc more competitive. The market, rather than a
lethal cocktail of politicians and property magnates, should determine
asset values. Down the road, the endgame of resuscitated banks and
Nama is that they will be sold off to investors. The state has no
long-term interest in their nationalisation. There is every prospect
in a decade’s time that another set of vulture capitalists will have
raped the country with the collusion of politicians. Cui bono? Usual
suspects.

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