Lost won, apparently. A TV series that went on to achieve global success, Lost, or rather, its capacity to captivate an audience numbering in the tens of millions, has come to be considered as crucial by the Obama Administration. A big event on the political calendar, the State of the Union address, was said to have been rescheduled to avoid clashing with the drama series.

Granted, the rescheduling is quite possibly a trivial matter of a poorly communicated announcement by the White House, which the media have been only too happy to sensationalise. Nevertheless, the mere appearance of trying to avoid clashing with a season premiere of Lost gives pause for thought. Obama had better improve his public relations team in the White House. His predecessor, George W Bush, was lucky enough to have a finely tuned PR spinning machine that managed to get a weak leader re-elected for a second term. The current Administration appears to risk suffering from a reverse form of this malaise.

Have serial TV dramas become the latest opiate of the masses in the 21st century, just as religion and football were in the past? The sheer size of the television audience means a lot of people are kept occupied on matters other than politics, so it certainly acts like it. If so, those who believe in grand conspiracy could easily imagine that the strategy must have been carefully designed by previous GOP Administrations – the Democrats have yet to learn about the importance of TV scheduling. A recession, global warming, and history repeating itself in Afghanistan are no-longer sufficient reason for a quite significant section of the US public to switch over to the presidential address, missing crucial plot-defining moments in the process.

So who are these mysterious Lost viewers? Who have managed to dictate the terms of Obama’s biggest PR moment in months? My guess is Generation Y. Generation X are a little on the old side to form a large part of Lost’s audience. Generation Z are too young be bothered with such trivial matters as voting anyway. Incidentally, it seems that there really was a “Lost Generation“, but that referred to notable authors of US literature who found themselves down and out in Europe after the First World War. I’m sure that the Lost viewers would have been considered useful material for the Lost Generation’s own view of the political and social realities of the 21st century if they were with us today.

It seems that there’s hope yet for the future. The Judiciary has stood up for the contractual rights of a foreign-owned company and defied the resistance of the Establishment. “What?!?”, you must be thinking. We can’t be talking about Ireland here. But yes. The rule of law in Ireland has prevailed. All that’s necessary is persistence (and a rather large budget for legal expenses). But is there more to it?

The background was a high-stakes gamble on property that Liam Carroll made with borrowed money, systematically channelled into the black hole known as Zoe Group (the parent company of Vantive Holdings and Morston Investments among others). He had made it big-time during the bubble years but a collapsing property bubble set the stage for a dramatic show-down. An imprudent speculator in many respects, he had the reliable backing of domestic banks, unconcerned for their shareholders but rather more concerned for their political allies and their network of cronies. There was, however, a dissenter in their midst in the form of ACC Bank.

The old “Agricultural Credit Corporation”, privatised in 2002 and bought by Rabobank, had gone astray in the froth of the speculative bubble, along with the rest of the banking sector. They found themselves in the unfortunate situation of having lent a vast sum to a property developer who had gambled away most of their capital through huge losses on speculative property “investments”. Unlike most of their Irish banking peers, ACC Bank have a wary foreign owner to answer to. Rabobank are a triple-A rated bank – a now rare breed of solid global banks – that can boast of a financial stability and a deep capital base they can dip into during leaner times, which is the envy of the global banking sector. It is no wonder that one of their Irish subsidiaries, ACC Bank, with its mounting provisions for loan losses, was proving to be a thorn in their side, and they needed to bring it under control. As a global bank with its headquarters in the Netherlands, Rabobank is reluctant to allow a large part of their Irish loan portfolio to rot away while the Establishment scurries about making deals to protect their own short-term interests.

In contrast, the two biggest lenders to the Zoe Group were far more willing to compromise to avoid liquidating the company. Allied Irish Banks (AIB) is Irish-owned and subject to the pressures of its fellow crony club members. Bank of Scotland (Ireland) is a subsidiary of HBOS and Lloyds TSB which have also proven their lack of aptitude for risk management. Both banks have been rescued from collapse by government bailouts. When Zoe Group finally breached its loan covenants, ACC called time and applied to the courts to liquidate the company. The other banks which had financed Carroll were still in denial about the severity of the problems of Zoe and of the wider property slump in general and focused only on the short-term consequences. Liam Carroll appealed for court protection and, according to an Irish Times article, his justification for this preferential legal treatment of his groups’ €1 billion deficit was a truly remarkable “single page outlining the hope value of his assets and two short sentences explaining the valuations and citing their source“.

Despite the Zoe Group being clearly insolvent and Liam Carroll proving unable to offer any credible plan for long-term survival, the banks were still prepared to support a deal involving examinership (a process akin to Chapter 11 bankruptcy for US readers) and reorganisation to keep Zombie Zoe on life-support – with the exception of ACC Bank. They fought a legal battle to liquidate the remaining value of their loans and were portrayed in the press as agressive.  Finally, on 11 August, the Supreme court dismissed Carroll’s appeal.

Perhaps ACC Bank is playing hard-ball to strengthen their negotiating position and force an offer from the other banks to buy out ACC’s loans on favourable terms in return for relenting on their petition for liquidation. Ironically, their own self interest is also in the interests of the taxpayer. A forced liquidation of Zoe Group companies would ensure that the banks realise the losses on the loans before they become a taxpayer’s liability when they are transferred to NAMA. It must be said, the Establishment, a crony-capitalist club of bankers, developers and politicians (predominantly Fianna Fáil) with vested interests, put up a good fight – as far as the Supreme Court, exhausting all domestic legal remedies. A continuation of legal proceedings and even a hypothetical victory involving the granting of court protection and examinership would have simply delaying the inevitable liquidation the hopelessly insolvent company. Thankfully, the result is a victory for ACC Bank and possibly even a rare victory for the taxpayer.

So, are we to congratulate our Supreme Court for upholding the rule of law for a foreign-owned company just as it would for a domestic one? Well, perhaps. That is the best answer I can give because my suspicions remain that the Supreme Court had their hands tied. Ever since Ireland joined the European Union in 1973, it has been subject to the supremacy of European Community Law which is within the jurisdiction of the European Court of Justice. The Supreme Court judges know that if they had ruled in favour of Liam O’Carroll and against ACC Bank, any appeal to the European Court of Justice would have been overruled. They would have lost much credibility.

It would be appealing to think that the government is pro-actively taking advantage of recent economic instability to push through critical reforms. In reality, the recent flurry of activity is simply a reaction to recent events and an attempt to maintain the solvency of the state. Well, whatever the reasons, at least things are getting done.

Progress is already being made by cracking down on tax evasion such as fraudulent mortgage interest relief claims. Other positive moves include reduced relief on mortgages for rented residential property and the obolition of the special 20% tax rate applicable to companies dealing in or developing residential development land. Another important, and as yet overlooked, element of reform is the introduction of property tax.

Property tax would help to:

• moderate speculative property investment
• smooth out the wild cycles in the property market
• broaden the tax base by creating an additional source of revenue
• provide more stable tax revenue

Compared to stamp duty which can be very volatile, property tax is much more stable, dependable and predictable which are desirable traits for a source of government finance. I sincerely hope that this does not fall foul of political and public resistence. Following previous failed attempts at implementing a system of property taxation in the past, this time the government is likely to tread carefully.

The state sponsored Commission on Taxation, with inputs from the Foundation for Fiscal Studies (among others), is currently examining the possibility of introducing property tax as part of a general broadening of the tax base in Ireland. The government explicitly stated that it was to consider options for the future financing of local government. Current policy recommendations in John Gormley’s Green Paper (pdf, html) concerning local government finance defer to the conclusions that will be determined by the Commission on Taxation no later than 30 September 2009.

To ensure a fair system, means-tested measures should be included to avoid taxing residents out of their homes and excessive gentrification. Properties valued below a certain threshold should be exempt. While a change in mindset would be needed to adapt to property tax, the prospect of retirees on modest pensions having to downsize to avoid tax bills need not be the case. A Valuations and Appraisals Register would need to be established and administered by local government. This would detail property values from the obligatory registration of final agreed prices of all property sales, and would form the basis of how much tax to charge.

It would also provide the added benefit of improving the transparency of the property market in Ireland, where property values are, at best, heavily biased guesstimates thanks to the lack of public data on property transactions. Estate agents and auctioneers would no longer be able to misguide people with impunity. Considering that the main house price index available to statisticians, policy makers and house buyers, is compiled with data from a minor commercial mortgage provider in conjunction with the ESRI, an economic think-tank, much remains to be done to improve matters.

Ideally, property tax should be controlled and directly received by local government. This would provide them with an independent means of raising funds. As the structure of government in Ireland is extremely centralised, however, I’ve no doubt that central government will be the beneficiary of revenue raised from the tax. A strong mandate, not to mention political leadership with vision, would be required to implement such an important first stage of structural reform of government in Ireland. Alas, neither the people of Ireland, nor Irish politicians have any desire to support such reforms.

Also from the Local Government Finance chapter of Gormley’s Green Paper:

The Indecon Review of Local Government Financing (March 2006) also makes numerous references to the implementation of a property tax.

The institutional underpinnings of local government, along with the whole area of urban planning, would need to be reformed, of course. Tax raising powers without adequate transparency would be a dangerous combination in the already murky and opaque world of local government and planning in Ireland.

Nope, this is not about some cultural and intellectual reawakening of the masses. Nah, it’s just lil’ ol’ Brian Cowen is waking up from his slumber… along with the rest of Ireland. It’s as if he were Truman Burbank discovering that a real world exists beyond his Truman Show-esque bubble reality. Welcome to the big bad world.

A friend emailed me a link to an article in the Independent, “Taxman ends mortgage relief for 154,000 ineligible homeowners“. The subject line of his email? – “Good news”. Both of us never jumped on the fabled property ladder and had tried, in vain, to ignore the constant smart-arsed remarks over the years about how people had “earned” so much on their property. I’m sure this was a constant conversational annoyance in any country that experienced a property bubble, be it the US, Spain, the UK or Australia, however, it really focuses your attention on what’s going on around you where you live.

For me, one of the ultimate smart arses, is Ciarán Maguire. He was lucky enough to jump on the property bandwagon in a big way with the right connections just as the credit was flowing in the right direction. His group’s website has been tamed, although I remember cringing as I read it in the past when it seemed to me as being little more than an arrogant platform of vanity and self-worship. There were lines like “one of the Worlds Youngest Chairmen and President of a Multi Billion euro Corporation” and he also shamelessly ripped off Warren Buffet with his rules of investing: “1. Never Lose Money 2. Never Forget Rule #1“. I’d love to know what the balance sheet of the Ciarán Maguire Group is like. I would wager a guess that their debt levels are stratospheric, considering how much leverage would be required for his far-fetched ventures. I digress…

For years, property as an “investment” was seen as a one-way bet. So why could a policy to remove incentives for property investment be “good news”? The establishment had tinkered with the tax system to favour property investment at the expense of other, more productive sectors of the economy. The tax authorities turned a blind eye to widespread fraudulent claims for mortgage interest relief such as claims from people who had bought undeclared “buy-to-let” investment properties which they rented out. The average man on the street firmly believed that property prices simply could never fall.

Residential investment (% of GNP/GDP) *

* Alan Ahearne, Juan Delgado, Jakob von Weizsäcker, How to prick local housing bubbles in a monetary union: regulation and countercyclical taxes, VoxEU.org, 27 June 2008

It was an understandable assumption, because Ireland had not experienced a property crash in recent history, and the authorities blatantly ignored the lessons of property crashes elsewhere with spurious justifications such as demographic trends. I can only imagine how cozy ministerial chats over pints of guinness with their construction and property developer buddies, along with the top brass of Anglo Irish Bank, must have provided the basis of their official policy. The Department of Finance extended tax incentives for property investment and the puppet Financial Regulator left open the credit taps on an already frothy economy. Words to the effect of those chimed by Chuck Prince, former CEO of Citigroup, aptly describe the economic strategy of those holding the levers of power in Ireland and top level mandarins – “as long as the music is playing, you’ve got to get up and dance. We’re still dancing…“. Ireland experienced a multi-year nationwide céilí.

Well, that was then, and this is now. As property is such a substantial and all-pervasive sector of the economy, the effects are widespread – house buyers (mortgage holders), banks, construction companies, and, in fact, everybody else, as the rippling impact of the combination of the credit crisis, property crash, and economic recession now clearly demonstrates. Another conversation with a friend of mine some time ago who was about to buy his house springs to mind. His reasoning for buying? It has to be a safe bet. If property were to crash, everybody is in the same boat and then the entire national economy would crash along with it. What he assumed, of course, was that a broad economic collapse was highly unlikely. What a prophetic statement that proved to be.

The state guarantee of the entire banking system meant that we collectively “bet the farm“. I also fear that the taxpayer will be hit yet again when the National Asset Management Agency (NAMA) takes over €80 billion of dodgy loans off the banks’ balance sheets in return for inadequate discounts.  Some reports suggest that property developers used the same assets as collateral for loans from multiple lenders. What a nightmare it will be to recover anything close to the face value of those loans. The capital injections to date have only been to counter the lack of liquidity due to the credit crunch.

For those who think it is all over, think again. Only now are the inevitable bankrupcies of the property developers starting to hit the banks (i.e. the taxpayer), so we are still in for one hell of a ride. As of 29 May 2009, the already nationalised Anglo Irish Bank requires a capital injection of up to €4 billion due to significant defaults on loans they had issued. They anticipate billions more in losses if property markets fall by just another 10%. It is likely to fall by far more.

Getting back to the article, the government has made a shrewd move by freezing existing mortage interest tax relief and “forcing” mortgage holders to re-apply. Hopefully some of those smart arses are shaken out of their comfortable complacency and are obliged to pay their dues. That, however, is not the main point. The main point is that it removes an artificial and informal stimulation of the property sector by enforcing (for once!) existing tax rules. Another important aspect is that it will allow the state to collect more taxes to help fill a gaping hole in the national budget. A common attitude is that if everyone is involved in tax-avoidance, then it’s ok. Well, this is one hell of a way to force cultural change in Ireland. It’s only the start, of course. Another important, and as yet overlooked, element of reform is the introduction of property tax.

Contrary to his namesake “Biffo” and all his past failings, I’m sure that Brian Cowen is a fairly competent political leader. The trouble is that he’s been permanently stained by the dirt that slipped off Bertie “Teflon” Ahern after having been cozily snuggled up in bed together for so long. It must be said that Brian Cowen, and of course, Brian Lenihan, who, as Minister for Finance, must have had a hand in this, are finally making sensible policy decisions. The only problem is that this is yet another case of shutting the stable door after the horse has bolted. Fianna Fáil consists of a bunch of Truman Burbanks waking up to reality.

They’re now trying to fix the problems they created (as members of the Bertie bunch), so they’d better get it right.

Good morning… and in case I don’t see ya, good afternoon, good evening, and good night!

Although I wouldn’t place all the blame on dear Taoiseach Cowen for the mess Ireland’s currently in – Bertie “Teflon” Ahern wins that honour – I wasn’t impressed by the draconian action taken by the government following a satirical prank played on the Taoiseach. Conor Casby, a Dublin school-teacher, was the mastermind behind a (half-)nude portrait of Brian Cowen, stealthily placed on display in the National Gallery on 7 March. RTÉ saw the opportunity and made a comical report on the prank.

The real news, however, was the sudden disappearance of their report from RTÉ’s website and the subsequent events. All the machinery of the state had suddenly sprung into action to defend the Taoiseach against the evil powers. According to the Sunday Tribune:

• The government press officer Eoghan Ó Neachtain was infuriated by the tone of the piece. He placed a direct call to RTÉ director general Cathal Goan… ( – which seems to have resulted in the RTÉ apology. )
• by Tuesday, Fianna Fáil TD Michael Kennedy was calling on RTÉ ’s director general to “consider his position”, while the national broadcaster made arrangements to broadcast its apology…
• plainclothes detective arrived at the studios of Today FM on Tuesday morning. He demanded access to the station’s email system and told the programme’s producer Will Hanafin that “the powers that be want action taken”…
• [Casby] was finally under real investigation on suspicion of three offences, namely: incitement, indecency and criminal damage [for hammering a nail into the wall of the National Gallery].

It really does seem like excessive government interference. If they are willing to take a heavy hand against something as trivial as that, then what hope is there for freedom of the press in Ireland? RTÉ was (IMHO) forced by the Taoiseach to retract the report and issue an apology:

“RTÉ news would like to apologise for any personal offence caused to Mr Cowen or his family, or for any disrespect shown to the Office of the Taoiseach by our broadcast”

Personal offence? Possibly – but haven’t politicians and other public figures been fair game for non-slanderous parody and satire by the formerly stifled press since Ireland threw off the shackles Charles Haughey and the Catholic Church and joined the ranks of modern Europe? Offence to the family? I don’t see how. Disrespect to the Office of Taoiseach? His Imperial Majesty, Emperor Cowen’s reaction to the prank unnervingly echoes the story of poor Australian writer, Harry Nicolaides, who was thrown in jail for 3 years in Thailand for insulting the Thai monarchy.

In the portrait, Cowen appears in all his glory parading the uniform Fianna Fáil delegates have been sporting during the bubble years. The only problem is that the crisis has unmasked bubble Ireland for what it is. A small child cries out that the emperor has no clothes on, and everybody suddenly emerges from their denial and property-inspired, taboo-enforced hysteria. The cold, unforgiving light of day lays bare the deficient, short-sighted leadership of Ireland.

I only wish the portrait had been of Bertie Ahern, although perhaps the visual impact wouldn’t have been quite the same   Thanks to his bashfulness, Cowen has been caught with his pants down – twice. Hands off, Cowen!

So, in the interest of freedom of the press (and with thanks to Damien Mulley for the YouTube upload) , enjoy:

Ireland Inc. has begun to resemble a giant pyramid scheme even more than usual recently. The Sunday Tribune reports that “AIB, the country’s largest bank, has revealed for the first time it has hugely increased its take-up of Irish government debt” Is it just me, or does anyone else consider it more than a little strange that a nation state should now rely on a bank that it bailed out to provide it with funds? (more…)

Although Fianna Fáil government and their voters (along with the government-appointed Financial Regulator) deserve the blame for the financial crisis in Ireland, I must reluctantly admit that Fianna Fáil are probably the best choice to tackle the critical problems now faced by the state. Their determination to push through the pensions levy was needed in the face of fierce opposition. It is unlikely that another party would be prepared to take the necessary action without a strong mandate from the electorate. (more…)

Get if off your chest. Who would you pin the blame on for the economic crisis in Ireland?
(more…)

To catch up on recent events concerning the banking collapse in Ireland, I decided to watch Questions and Answers, a current affairs program of RTE. Fintan O’Toole, a columnist and assistant editor of the Irish Times, stood out for his pragmatic criticism of government policy. Also participating, among others, was Martin Cullen, Minister for Arts, Sport and Tourism, representing the government.

In a sharp exchange, O’Toole accused the government of (more…)

Anglo Irish Bank is primarily a lender to property developers and construction companies. They were nationalised following a staggering fall in their share price and lack of confidence in them by the financial markets. Now that their accounts are being scrutinised by auditors, (more…)