We'll be home before Christmas…

“We’ll be home before Christmas” was the optimistic prediction made by soldiers as they headed off to war in August 1914.

The term has become a popular catch phrase for describing those making overly optimistic predictions on any given situation.

The ongoing global financial meltdown, I believe, is one such case. Experts seem to believe that within one or two years things will begin to improve, I disagree.

This is the worst financial crisis in history further complicated by the fact that it comes at a time when natural resources are rapidly dwindling and the global environment is showing clear signs of irreversible damage.

It could be seen as a perfect storm that may result in a long term global depression. The Great Depression that started in 1929 lasted until the early 1940s when, grotesquely, it took mass destruction and the killing of over 50 million people to kick start the world economy.

At best, I would say we are looking at a five year global depression that could even stretch to ten years. It’s more difficult to predict whether we’ll see soldiers heading off to yet another world war promising to be home before Christmas but given the vagaries of human nature it’s not beyond possibility.

Home Choice Loan scheme – It's all clear now

I wasn’t completely clear on the motives for the Government’s new Home Choice Loan scheme for first time buyers until I watched Prime Time last night.

There are at least 50,000 newly built houses lying empty in ghost estates across the country. Most of these houses will have been built by ‘Fianna Fail friendly’ developers who now find themselves unable to repay big bank loans – Time to call in some favours.

The new scheme will, in effect, transfer responsibility for repaying these loans from rich developers to poor taxpayers. This is obvious from the conditions laid down for applicants. Only new houses are included in the scheme. Applicants must be first time buyers who have been twice refused a mortgage from a bank or building society.

Effectively, the Government is creating its very own sub prime market by giving first time buyers, whose credit rating is so risky that regular lending agencies won’t touch them with a barge pole, up to 92% mortgages in a rapidly falling market. Inevitably, many will be unable to keep up payments and taxpayers will be forced to make good the losses.

Developers’ interests looked after, bankers’ interests looked after, taxpayer’s screwed.

It’s all clear now.

Quinn Insurance fines – Suspicious

My first reaction to the news that Sean Quinn is standing down as director and chairman of Quinn Insurance following breaches of regulatory requirements is – Suspicion.

The punishment meted out to Quinn Insurance is what we would expect to see imposed by a real regulator in a functional democracy. And this is what bothers me – The Irish Financial Regulator doesn’t really regulate but rather acts as facilitator to help financial institutions get out of trouble.

We know, for instance, that for years the Financial Regulator stood idly by as various financial institutions robbed millions from consumers. We also know that the regulator strictly enforces draconian secrecy laws that are designed to protect the financial institutions to the detriment of consumers.

Last week, for example, I rang the regulator to confirm reports that the chairman of Anglo Irish Bank, Sean Fitzpatrick, was under investigation over allegations of insider trading.

I was firmly told that section 33AK of the Central Bank Act 1942 that was inserted by section 26 of the Central Bank and Financial Services Authority of Ireland Act 2003 prevented the regulator from answering my question.

This law and its strict enforcement protects Sean Fitzpatrick and Anglo Irish Bank but puts consumers and especially shareholders in Anglo Irish Bank at a very serious disadvantage.

Keeping all this in mind let’s look at some of the details of the Quinn case and how it was handled.

The Financial Regulator imposed a fine of €3,250,000 on Quinn Insurance and fined Sean Quinn €200,000 because it had

“reasonable cause to suspect that breaches of regulatory requirements occurred in relation to QIL.”

What? The largest fines ever imposed in the history of the State on the basis of a ‘reasonable cause to suspect’. Over the years the Regulator has had incontrovertible evidence of widespread fraud in the financial sector and failed to take any action whatsoever.

So what, according to the Regulator, was the great crime committed by QIL?

“These breaches related to contraventions by QIL of obligations under the Insurance Acts and Regulations, including failure to notify the Financial Regulator prior to providing loans to related companies.”

This seems pretty tame stuff in comparison to other breaches of the law throughout the Irish business world. For example, in 2004 the Director of Corporate Enforcement (ODCE) reported that directors and connected persons returned approximately €100 million in loans from their companies.

The law prohibits directors from taking loans from their companies in excess of 10 per cent of relevant assets yet some of these directors had potentially illegal loans in excess of €1million from their companies.

According to the ODCE:

“In a number of individual cases these loans were for substantial sums or represented a large part of the value of the company and were very substantially in excess of the permitted limits.”

To my knowledge no action was taken against any of these directors, they just paid back the money and all was forgiven.

I suspect that there’s more to all this than meets the eye, it’s all too pat. Substantial details are thin on the ground and the manner in which the whole matter has been dealt is very suspicious.

Quinn himself is far too relaxed in the face of such a massive fine, even if he’s a billionaire. The ODCE is also very coy about the whole matter, simply stating that he was informed of the regulator’s sanction.

Can we take a clue from Quinn’s auditors and lawyers when they say that there are no corporate governance issues? Could the imposition of these extraordinary sanctions be a cover for something even more serious? Time may tell.

Copy to:
ODCE
Financial Regulator

Musings while waiting for the Tsunami

Some musings on recent events

Minister for Finance, Brian Lenihan, said his budget was designed to ‘help the little people’. ‘Little people’ is an interesting choice of words, it suggests an aristocratic mindset of rulers and the ruled.

Lenihan said he wanted to protect the vulnerable. So, why did he attack the elderly, cut school class sizes, abolish the Combat Poverty Agency and slash the budget of the Equality Authority and the Human Rights Commission?

Lenihan had no problem helping out the ‘big people’. He gave about €1.5 billion to Fianna Fail’s property developer friends and pledged €485 billion (that we don’t have) to bail out the banks.

When Mary Harney was asked about imposing a 1% levy on the lower paid she said:

“We’re saying somebody on €10,000, yes a small salary, will pay €100 a year – we’re all in this together.

“The levy is on gross income and I do not think it’s unreasonable that somebody that earns €100 would pay one euro out of that towards the difficult challenges this country faces. I think we’re all being asked to make a sacrifice.”

This woman, who is paid (but doesn’t earn) about half a million per annum, has absolutely no idea what it’s like to survive on a poverty wage of €10,000.

Somebody mentioned during the week that politicians are paid ‘walk around’ money of €12,500 per year. Apparently, this is used to buy drink, raffle tickets and whatever else they like – to buy votes.

Of course, there’s nothing to stop politicians from keeping the money for themselves – there are no spot checks on the honesty of those who rule us.

Nice to hear though, that Harney, in her uniquely condescending way, is confident that the ‘vast majority’ of over 70s are honest and will hand back their medical cards if they’re earning above the rate.

But she did let slip in an interview that the HSE would be carrying out spot checks – just in case. The Mail on Sunday reported recently that the HSE was determined to severely punish any elderly citizen who tried to cheat the State by imposing heavy fines and, if necessary, jail.

Ah yes, the HSE. An organisation set up by Harney and now completely out of control. A bureaucratic monster responsible for immense suffering; that regularly puts the lives of citizens in danger in order to cover up gross incompetence. Can we be confident that this monster will hunt down and punish every elderly citizen that tries to cheat the State – Yes, we can.

It’s amazing to see how quickly the Greens’ have become totally assimilated into the Fianna Fail world of double speak and hypocrisy.

The sat at the Cabinet table and said nothing, they gave Lenihan a standing ovation when he delivered his ‘little people’ budget, they ran for cover when the wave of anger began to build and finally, when they realised which way the wind was blowing, they tried to return to principles and honesty. How pathetic is that?

Where are all those journalists and commentators who bowed down before the Great Cowen? This man, they said, was the Second Coming, Bertie, apparently was the first.

Cowen, they said, was a man of immense intelligence, a man not to be trifled with, a man who gave and demanded total loyalty, a man who modeled himself on Lemass; a man of action who was going to lead his country to the Promised Land.

Now we know that he’s just an ordinary backwoodsman Fianna Fail bluffer who, when the going got tough, legged it off to China to hide from the wrath of pensioners.

Feck, Joe Behan ???? Completely threw me, still haven’t got my head around the fact that a Fianna Fail TD could resign on principle and for the good of the country – Don’t think I ever will.

Final thought:

All this local excitement has distracted us from the global financial crisis, the full affects of which have yet to hit. Most other countries have recapitalised their banks, we haven’t because we don’t have the money. When the banks come calling we’ll be depending on the likes of Lenihan and Cowen to look after our interests.

We’re in a moment just like that before a Tsunami strikes. The sea is sucked out a great distance from the shore and people, in their ignorance and excitement, rush out to stare at beached fish flapping about. There’s absolutely no realisation of what’s just beyond the horizon.

Waiting for visionary leadership

”We still call for political reform to get rid of the current political system plagued with corruption and abuse of power.”

(Irish Examiner).

No, unfortunately, it’s not a call by Irish citizens but citizens in Thailand where former Prime Minister, Thaksin Shinawatra has been sentenced to two years in jail for corruption.

The red hot anger demonstrated by the elderly over the medical card debacle is impressive but it is focused on a narrow sectional interest. Once the politicians satisfy their demands the anger will dissipate and it’s business as usual.

Real change will never happen in Ireland until the people en masse realise that the entire political and bureaucratic administration of the country is seriously dysfunctional. And that will never happen until we see the emergence of a visionary and courageous political leader.

It’s worth noting that Thailand, in common with most countries, has a raft of laws for dealing with political and business corruption. The system they use is also common in most countries – police, prosecution, courts and appropriate punishment.

No such system exists in Ireland.

Some light relief

Young Paddy moved to Roscommon and bought a Donkey from a farmer for €100.00. The farmer agreed to deliver the Donkey the next day.

The next day he drove up and said, ‘Sorry son, but I have some bad news, the donkey died.’

Paddy replied, ‘Well, then just give me my money back.’

The farmer said, ‘Can’t do that. I went and spent it already.’

Paddy said, ‘Ok, then, just bring me the dead donkey.’

The farmer asked, ‘What are ya gonna do with him?

Paddy said, ‘I’m going to raffle him off.’

The farmer said, ‘You can’t raffle off a dead donkey!’

Paddy said, ‘Sure I can. Watch me.. I just won’t tell anybody he’s dead.’

A month later, the farmer met up with Paddy and asked, ‘What happened with that dead donkey?’

Paddy said,’I raffled him off. I sold 500 tickets at two euro’s a piece and made a profit of €898.00.’

The farmer said, ‘Didn’t anyone complain?’

Paddy said, ‘Just the guy who won. So I gave him his two euro’s back.’

Paddy now works for the Irish Government