She interviewed 59 white men who had lost their jobs in the depression and tried to assess the impact on their families.

I read it when I was in university and it has stayed with me for the past 20 years. If you want to know why unemployment and the reduction in unemployment — not the banks, the bondholders or some secondary issue to do with the financial markets — has to be the cornerstone of our economic policy, read it.

If you don’t have the time to read it, just look at what is happening around you.

The original American study was the first to relate the loss of a job to the loss in self-esteem; it was the first to highlight alcoholism and depression associated with redundancy. It was also the first to link marital breakdown and domestic violence to unemployment.

In ‘The Unemployed Man and his Family’, the writer went deep into families and documented how the redundant father lost the respect of his children as well as the wider society, how the sex lives of the couples were destroyed and how many men didn’t recover from long spells of unemployment — even those who did get jobs eventually when the economy recovered.

In the 1930s, unemployed families and couples stopped socialising, not just because of a lack of money but also because of the embarrassment. Anyone who has experienced unemployment in the family will know that the family can become quite remote from their neighbours and friends. The family sometimes cuts itself off. This puts huge pressure on the family and in many cases the family is not strong enough to deal with this.

The world has obviously changed dramatically since the 1930s — not least gender equality changes and the entrance of women to the workplace — but the lessons are still valid.

The detrimental impact of unemployment happens at any age. One of the most annoying things I have heard in recent months regarding unemployment among young people and graduates is when older people dismiss it with the “get off your arse” line.

Equally infuriating is the assumption that because they are young, a stint of unemployment won’t affect them too dramatically. Again, the evidence from the United States reveals the opposite. The young unemployed go off the rails very quickly and very easily.

In Japan, which in the 1990s went through what we are going through now in terms of unemployment and economic collapse, the evidence is startling. The Japanese Centre for Socio-Economic Development reveals that the generation who started in the workforce in the 1990s and had to deal with high levels of unemployment in their early career now make up six out of every 10 cases of depression and stress.

Something similar is happening all over our country at the moment. So, what are we going to do about it? Are we going to let our doctors and our pharmacies deal with this? Are we going to let dealers make a fortune while we pick up the tab?

If we look at all economic recoveries, they are always led by small businesses. So small businesses will drag us out of this mire and in the main will be the key driver for employment growth. But at the moment in Ireland most small businesses are not in the position to employ people. The margins are too tight and demand is not strong enough, in fact it is weakening. In addition, if you have worked in a small business, you will know that training people can cost a huge amount in terms of time and cost. So we must do something that makes it easy for small companies to hire.

On the flip side, there are thousands of graduates who don’t really know what they want to do, but might have an idea of what type of industries interest them. How many of us have been faced with the dilemma of “how do I get in the door”? How often, particularly when we were younger, did we lament, “if only I can get a chance to impress these people”?

So, how do we get in the door when the people inside the door don’t even know that we are there? This is where the labour market has to be changed. We have to make it easy for small firms to take people on.

FAS has a scheme where young graduates can join companies for up to nine months to gain work experience on no pay, but they retain their unemployment benefits. This scheme should not be limited to young people. It should be open to all the unemployed.

Retraining is what is needed here and it can be done at a fraction of the cost by unleashing this programme to make it as open as possible. For instance, the scheme is restricted to companies of between 10 and 20 employees, which can hire only two additional staff on this basis. If the company can take on five people instead of two, why hold it back?

There is a myth that companies will somehow exploit such a system, but that is nonsense. Providing training within small companies is a hugely expensive task and is engaged in with care. No firm trains up somebody, not least a small firm, to risk seeing them walk out the door in six to nine months.

This is a win-win at little cost to the State. And there is a deeper opportunity here. For more mature businesses, let’s deal with an age-old dilemma that has held back employment — the initial cost of hiring staff.

When a company sees the potential for a new hire, it must weigh up the cost of taking on somebody for the position. Will it be worth it to train them? This is a cost to the company and deters employment.

What if, across Ireland, we adopted the policy that when someone is being hired, they are not hired at full salary from the get-go but would be given incremental increases as they learned their new role?

We could set out a period to full salary within a six-month period. This would have powerful knock-on effects. First, it would make it far more attractive for companies to hire. The expensive cost of early employment would be mitigated. Secondly, it would allow companies to take more risk in hiring as the costs of getting it wrong are reduced. For the potential employee, it gives them a chance to prove to employers that they were a good hire and a worthwhile investment.

Why not do this now? We are paying the dole anyway and the huge positive effect of employment can’t be underestimated. Open the scheme to everyone and see what happens.

© David for David McWilliams, 2010. | Permalink | 156 comments | Add to del.icio.us
Post tags: america, great depression, japan, unemployment

The human costs of unemployment and idleness are family breakdown, mental illness, depression and crime. These costs go way beyond the financial costs, which capture only a small proportion of the impact.

Ultimately, financial costs are only measured in money, which is considerably less important than the emotional and personal trauma associated with being told by someone else that you are no longer wanted.

If you want to see the real effect on our society of this entirely homemade recession, don’t talk to an economist, talk to a local GP. My cousin is a doctor in a commuter town and she has been shocked by the change in the type of people now coming to her clinic.

In the past, it was usually the old and very young queuing up to see the local doctor. Now she is inundated with young men and women in their 30s and 40s who have just lost their jobs and are suffering from depression. They can’t cope, can’t sleep and don’t know which way to turn.

She knows full well that medicine won’t solve the underlying cause.

This weekend, Ireland is home to thousands of wounded people who have been told that they are redundant .Their self-worth has been reduced to a measly severance cheque, a squeeze of the shoulder and an insincere pep talk about the needs of the company in the current climate.

These are real people and they are humiliated and frightened. In some cases, they are in mid-career, they have huge experience, contacts and networks. Yet they are being told they won’t work again because they are too expensive or are ‘overqualified for the job’.

Many don’t have the energy to face the enormous effort needed to start again on their own. Their confidence is shot. As a result, they will hoard their savings and won’t have the courage to throw their precious nest-egg into a new venture.

They will shrink from risk and become the walking casualties of the depression. We will see these soon-to-be-middle-aged zombies, the ‘might have beens’, walking around our towns or glued to afternoon TV, wasting away. Yet they have so much to offer. If only we could find away of using their years of experience constructively.

At the other end of the scale, we have thousands of young people, ambitious graduates and school leavers, who can’t find a job. One in three young men is on the dole, but they have everything to offer. This is the generation of Irish people who have nothing to fear; they have buckets of energy and can set up on their own, creating businesses from ideas.

But how will they commercialise this raw enthusiasm? What they have in energy, they lack in experience. What they have in vision, they lack in contacts, and what they have in stamina and technological savvy, they lack in business nous and sales smarts. This is where the older people come in .Would it be possible to fuse together the two generations, the recently redundant middle-aged and the hugely robust twenty somethings?

It is crucial to realise that, although it feels as if we in Ireland are on our own, plenty of other countries have gone through crises and come out the far side.

Take Argentina, a country I have visited a number of times. In 2001,Argentina suffered a dreadful depression. The following year, unemployment skyrocketed and, with no jobs around, young people were forced to set up their own small businesses to survive. These small businesses sprang up all over the place and, because the local economy was in tatters, the companies had to export to survive.

Precisely, the same will be the case in Ireland. It is small businesses employing a few people that will drag the country out of recession. This is always the way. In Argentina in 2003, these embryonic companies didn’t know where to start. How could they? For most, this was their first venture. They knew nothing about marketing or banking and neither did they have contacts.

At the same time, thousands of middle aged executives with tens of thousands of hours’ experience were being laid off every day. They were destined for the scrap heap.

At the time, a friend of mine was brought in to be the chief of cabinet of Argentina’s finance ministry. He was 35 years old at the time and many of his friends had given up and were emigrating to Spain.

He told mehe spent nights with his head in his hands trying to figure out what to do when everyone was telling him it was over for the country. Then he came up with the idea of a state-sponsored ‘match-making’ service to match ‘young companies with old heads’. To do this, the Argentinian finance ministry used a website which matched old experience with young companies. You can visit it here (www.experienciapyme.mp.gba.gov.ar).

The new start-up companies interviewed the old, recently-redundant executives. The state, instead of paying benefit, paid a much-reduced salary to the older guys, who got some small equity in the new companies. The scheme worked amazingly well. Thousands of companies were set up and thousands of people went back to work.

Most crucially, the older heads contributed enormously to the success of the new companies with their knowledge and experience. Their contacts with international counterparts and multinational systems of management and production were invaluable. Yet, had it not been for this initiative, this invaluable resource would have been lost between the ears of thousands of people, never to be used productively again.

Many middle-aged executives even went back to work for nothing and were reinvigorated. They acted as custodians for the new companies that dragged Argentina out of the depression. In addition, thousands of companies were saved from making the elementary mistakes that tend to scupper start-ups, because such potential mistakes were often spotted by those who had been in business for years.

Crucially, the older heads were not hands-off consultants. They worked for the new companies. If the relationship was working, after five months, the new companies started to pay their wages in full and the state stepped out, having done its match making job.

This is a perfect example of how a simple idea can translate into a fantastic outcome and of how using our noggins in the depression can transform a crisis into an opportunity. The key now for all of us is not to despair, but rather to focus on using our skills positively.

This means active government intervention in the labour market to ensure that our doctors don’t become the last line of defence against unemployment.

© David for David McWilliams, 2010. | Permalink | 232 comments | Add to del.icio.us
Post tags: unemployment

He knew there would be another day and Germany could ill afford to waste another penny or lose another life or commit another tank to Stalingrad. But the party bosses in Berlin were worried about the systemic impact of a defeat in Stalingrad. Having promised that victory was “just around the corner” and having assured people that they knew what they were doing and that there was “no alternative”, how could they admit defeat now?

The party believed that it was better to risk everything via a mad gamble in Stalingrad than acknowledge reality. The generals on the ground knew that Stalingrad was of no importance. The soldiers were exhausted, hungry and scared. Apart from bearing the name of Stalin, there was nothing strategic or systemic about the city. If it fell, it would have no lasting negative impact on the German army’s capabilities.

But the boss was obsessed by Stalingrad. In his “bubble” world, a defeat in Stalingrad would send out the signal to the rest of the world that Germany was losing the war and could be beaten. “What would the rest of the world think?” he fumed. The Fuhrer’s line of thinking was that the credibility of the German war effort was on the line in Stalingrad. He was convinced that if they cut their losses there, their credibility as a fighting force would be irreparably damaged.

In fact, the opposite was the case. Defeat in Stalingrad with a retreat would have made Germany stronger, not weaker. However, those who had devoted so much political capital in Stalingrad couldn’t do a U-turn now, for political rather than practical reasons. They couldn’t be seen to admit that they were wrong, nor could they accept that the problem of holding Stalingrad at all costs was too big and that the resources of the army were finite.

Not surprisingly, Goering promised the German people that his Luftwaffe would keep the 6th Army fed by air. This was totally delusional as the German air force didn’t have the planes to fly in to Stalingrad and they didn’t have the logistics on the ground to cater for such air traffic under constant Soviet bombardment.

But reality never came into the politicians’ equations, no matter how often the generals in the field told Berlin the game was up. The politicians continued to move around — on their maps in the bunker — armies that had long since been destroyed, aircraft which had long since been shot down and Panzer divisions which had long since been immobilised in the great Steppe battles of 1942.

In short, Germany’s political top brass were totally delusional. Having fed propaganda about imminent victory to the people, they began to believe it themselves. This led to the ridiculous line that if Stalingrad could be held the war could be won. Of course the behaviour at Stalingrad simply confirmed to her enemies that Germany was run by fanatics and this fanatical behaviour would ruin the country.

Now keep this imagery in your head, and think about the Irish financial system. In banking terms, Anglo is our Stalingrad. Let’s consider “Fortress Anglo”.

Our politicians are throwing billions we don’t have at a shell which has no systemic value and will simply suck in more of our money. This money could be spent on classrooms or hospital beds, or it could be used as start-up capital for new companies; but no, it will go to Anglo. Four billion euro of our money has already gone into this financial carcass. That money is gone; we will never see it again. Brian Lenihan and Brian Cowen seem to believe that stuffing good money after bad — and in the process enfeebling the country — is the way forward. This is the behaviour of fanatics, neither of whom has ever worked in financial markets and so they don’t understand the people who they are trying to impress.

The guarantee was a bluff, not a policy. It has worked, now get rid of it.

The market knows we don’t have the money and is therefore penalising us in the bond market with higher interest rates than anyone else in the euro bar Greece. They know that the more money we plough into Anglo, the higher taxes and debts go in the future — both of which will drag the growth rate and undermine the ability to pay the interest on these debts in the future. They can see through the spin and the blather which might go down well at a Fianna Fail/GAA get-together but doesn’t wash anywhere serious.

We don’t need or want “Fortress Anglo”. Apparently Anglo is about to announce a €12bn loss — the biggest in Irish corporate history. Should we keep on drip-feeding cash into this? How can the average, decent Fianna Fail voter stand for this when unemployment is rocketing? Fianna Fail members should ask what Lemass would make of this?

It is time to shut Anglo down. The deposits should be transferred to either AIB or BoI. A “vulture” fund should be asked to come in to take the property debts and see what they can get for them. There are plenty of ways they could finance this. This avenue is always explored in distressed debt situations — we are no different. One of the biggest creditors of Anglo is the Central Bank, which has very quietly lent Anglo over €10bn under something called the “master loan repurchase agreement”. (It doesn’t want you to know about this by the way.)

The agreement is a hangover from when we had our own currency and is the ultimate “cash-for-trash” vehicle. Our Central Bank, out of its own coffers, loaned Anglo money and in return taken toxic collateral which the ECB wouldn’t touch. This is what has kept Anglo open. Therefore, we’d negotiate with our own Central Bank; it would take the loss and have to report less profit over the coming years. No big deal.

Anglo is our financial Stalingrad. We should close it down tomorrow, deal with the creditors and get the hell out. Ireland can’t afford to spend another cent on it.

The financial markets would shrug and move on if we did so. What most people fail to understand is that financial markets are forward-looking. Tomorrow’s prospects, not yesterday’s mistakes, are what drive investors. Markets are not in the business of punishing countries. There is no money in punishment. They want Ireland to grow, so that they can make money. Could someone please explain this to the fanatics who run this place and their lackies in the media who pedal their propaganda?

© David for David McWilliams, 2010. | Permalink | 392 comments | Add to del.icio.us
Post tags:

We should get down on bended knees, because the commission worries more about your money than the Irish politicians you voted for.

Last Friday, the commission – with Joaquin Almunia now holding the competition brief – told this reckless, incompetent government, which has been throwing around billions of our money as if it were confetti, to get a grip. The commission has said the valuations the government is putting on land for Nama are too generous to the banks.

Despite this, the spin put out from Merrion Street is that the commission was happy with Nama. This is not the case.

Closer reading of the press release suggests there is considerable unease in the European Commission about our latest ill-advised adventure. Of course, the mainstream media swallowed the government’s spin hook, line and sinker. No surprise there.

However, the press release, designed to obscure, not inform, is quite different. Hidden in the Department of Finance’s press release, there is a crucial line that states: ‘‘Within the valuation methodology, a higher remuneration risk margin and higher enforcement costs will be applied.”

As a result: ‘‘It is not the minister’s intention to perform another top-down aggregate estimate of the potential haircut that the institutions will face.”

This means, in plain English, that the commission believes the government is trying to shaft us, the taxpayers, with its optimistic valuations. It has told the government that there is no way the commission will allow it to stick to its original 30 per cent discount.

You might remember that, originally, the government said that it would apply a 30 per cent discount to the property loans Nama was supposed to buy off the banks.

The commission has obviously told it to snap out of it. The commission maintains that the valuations will have to come down significantly from the minister’s original estimates.

This clearly means that Nama will not make a profit – which was the silly spin of last year. It also means that, unless there is another inflated property bubble, the taxpayer will be left holding fields in Mullingar that no one wants.

The meaning of the minister saying he will no longer give ‘‘another top-down aggregate estimate’’ is that each loan will now be evaluated on a case-by-case basis, as opposed to the government’s original blanket discount approach. This means there will be enormous variations in every bit of property that goes into Nama.

Logistically, we can already see how this Nama is going to grow to be a bureaucratic monster.

On the upside, the commission’s intervention could be good news for taxpayers. But why did the commission side with the taxpayers while the government sided with the banks? Why would the remote commission side with ‘outsiders’, while elected politicians side with the ‘insiders’? What happened to the assumption that the government acts with the best interests of the people at heart?

The commission not only believes the government is living in cloud cuckoo land, but must be perplexed at the behaviour of ministers who tried to railroad through valuations which would impoverish the taxpayer, and enrich the banks and their investors. This stance of our politicians is quite extraordinary, and the opaque language of the press release is depressingly revealing.

Rather than speak plainly about this huge financial gamble, our government – possibly because it knows Nama is a mistake – tries to obscure the truth and muddle through. Pathetic really.

Why did the commission act to constrain the government? Maybe the commission saw the news from Athlone last week that development land valued at €31million in the boom is now worth only €600,000.Could it be that this 98 per cent fall in the price of development land made the commission think again about the 30 per cent discount that the government was trying to get away with?

The commission – unlike Brian Lenihan – concluded what the dogs on the street know to be true: much Irish land is almost worthless now. To force the Irish taxpayer to pay the difference between today’s price and the boom price would bankrupt the place. It also saw that what the Department of Finance was trying to do with the 30 per cent discount was keep the wretched Irish banks open by giving them an unfair ‘dig-out’ – or, in EU parlance, state aid.

So we know why the commission acted as it did, but why has the government acted against the interest of the taxpayer? The Brian Lenihan who discussed banking issues with me never struck me as someone who would put the banks’ interests ahead of the taxpayers’. In fact, the rhetoric suggests the opposite, but the reality is that he has put the banks before the people.

Why?

He is advised by people who, from the beginning, wanted a certain outcome, irrespective of the facts. The people who came up with Nama had the answer they wanted before they asked the questions. They wanted to keep the banks as private entities at all costs.

The banks are required to hold a certain minimum amount of capital. If a bank is trading recklessly without sufficient capital, someone has to inject capital. But without investors, the government has to nationalise. Of course, for ideological reasons, Lenihan and his gang wanted to avoid nationalisation.

The other night, as I was doing sums with my seven-year-old son, I thought of an easy way to explain the government’s dilemma which the commission has seen through. We were doing additions and takeaways at the kitchen table. We lined up rugby players to visualise the sum and make it easier.

Using the sin bin analogy, which kids love, the sum is how many Irish rugby players would be left from seven if five were sin-binned. The answer is two rugby players.

Let’s turn it around and say then if seven rugby players minus five rugby players is two, what is five rugby players plus two rugby players? Answer: seven.

OK, so what’s two plus five? Wow, it’s seven. So if I have seven players and I want to be left with two players, what do I take away? Answer: five. So if I want to be left with two – not one or nil – and I start with seven? The answer has to be five.

Now think of Nama. Lenihan started with €70 billion-odd of bad developer loans. He needed to have capital of €20 billion (some of which he had in the pension fund), so the value of the bad loans couldn’t be lower than €50 billion odd.

So the clever people behind Nama knew the answer to the question before they asked it. The discount had to be 30 per cent, not because that’s what the land was worth, but because anything lower than that risked having to nationalise the banks.

This is why they have tried to rip off the taxpayer, when we know that the value of land has fallen by much, much more than that. This is why they keep blustering and spoofing, and this is why the commission called their bluff.

If only they had been up-front at the beginning, they would have saved us all this angst. They could have told us that Nama was never about land, but was always about protecting the banks – which the government erroneously thinks are viable only with the present ownership structure.

This would have explained their irrational and, at times, tragicomic obfuscation. But then again, could it be that maybe being this straight-up is just not in their nature?

© David for David McWilliams, 2010. | Permalink | 273 comments | Add to del.icio.us
Post tags: eu, nama

For the past year, this column has been warning of a “triple lock” in the Irish banking system, which would financially incarcerate the Irish people for a generation.

The triple lock would solder the people to the banking system in a suffocating embrace forcing us to borrow from tomorrow to pay for yesterday and, in the process, destroy the opportunities of today.

Now with the Government upping its stake in Bank of Ireland, this prediction — regretfully — is coming to pass. The worst thing is that it doesn’t have to be like this. The latest news that some development land in Athlone valued in the boom at €31m is now worth only €600,000 has truly terrifying implications for all of us, because it means NAMA will bankrupt us, and the triple lock implies that we can’t sever the fortunes of the people from the fortunes of the bank.

Let’s just recap what I mean by the triple lock. The first lock was the bank guarantee, the second lock was NAMA and the third lock was the “forced” nationalisation of the banks. It is important to remember one overriding fact: we do not need Bank of Ireland or AIB. This truism needs to sink in. There is nothing sacrosanct about either, nor is there anything sacrosanct about the debts these banks have run up. These debts have nothing to do with us.

Yes, we need a banking system or a couple of functioning banks, but they don’t have to be AIB or Bank of Ireland as constituted at present.

At this stage, the Government should be trying to give the banks away for free to a large European bank. This is what you would do if a sweetshop were in trouble and banks are no different. Any new owner, taking the opportunity of having cash, not debt, in a downturn, will do a deal with the creditors. This is how normal bankruptcies work.

What big bank wouldn’t want to take on the Irish deposit base of €175bn, the branch network and the banking possibilities of a European country? The new owners would do a deal with the old creditors. The way this is done in the real world is that the creditors are told the game is up, there is no cash left in the kitty, but if they are prepared to take stock of the new parent bank, they can get something out of their Irish misadventure. Obviously the new owners of Bank of Ireland would roast the old creditors, but, hey, that’s capitalism!

The only way new credit will emerge in Ireland is if there is a new banking balance sheet. And the only way a new banking balance sheet will emerge is if the big banks are given away to a healthy bank for free and the old creditors told where to go — to the back of the queue.

The problem for us in Ireland is that the people who are drafting our laws locking us to the banks do not understand this, because they are not capitalists; they are legalistic functionaries, civil servants and bankers trying to hold on to their jobs. In short, they are consummate insiders with their interests vested in the old status quo who can’t see that the old status quo is the problem.

As a result, these insiders are all too happy to give the outsiders (the people) the bill without any thought of how we are going to raise this money. This is why the Finance Minister can come on radio and talk blithely of billions here and there without appearing to consider just how much money this is and how much we have to produce to earn these sums he is tossing about.

Listening to politicians and bankers/brokers using these figures is like witnessing demented generals in the last stages of a war moving imaginary armies on a map — battalions that have long been vanquished.

About 18 months ago, the ‘guarantee’ was constructed to avoid this endgame. The logic of the guarantee was to buy time to get the banks to sort out their own mess. Implicit was the notion that the banks were to look to the market — not the State — for capital and, if there were to be a ‘bad bank’, the banks (not the taxpayer) would have to fund it from their own resources.

On the night the guarantee was first mooted, the ‘bad bank’ was touched on too. The bad bank would be a skip into which we threw our withered land portfolio. The State would raise the money, but the banks would pay for this out of their profits and the taxpayer was not to be touched.

Unfortunately, and not surprisingly given the way our country runs, the banking ‘insiders’ hijacked these ideas last year and have left us with the pathetic situation we are in where they get away with it and give us the bill.

To see how pathetic the reality is, let’s go back to the site in Athlone and extrapolate. The value of this land has fallen by 98pc from €31m to €600,000. So, after all the hype about Ireland and its new wealth, the price of the land has reverted to the price you’d get from a farmer for putting a donkey out to graze on it.

In the Commercial Court, Mr Justice Peter Kelly — who is emerging as a hero in all this — said that his original presumption (from his experience in the Commercial Court in the past year) that land prices had fallen by 70-80pc was now put “in a cocked hat”. So he thinks 70-80pc falls in land prices are too optimistic.

So if we look at the breakdown of NAMA’s ‘assets’ and see what this new reality means for the banks and us, we see that there will be €51.5bn of land and development assets and “associated loans” transferred. If we apply Mr Justice Kelly’s discount based on what he has seen so far, we are looking at a hole of possibly €40bn, where we will borrow €51.5bn from the ECB, for assets worth a little over €10bn.

Obviously there will be some assets that will be worth more. In addition, some of the assets that are in the UK or the US will recover reasonably quickly, but given that the lion’s share are in Ireland, a massive discount should be expected.

Whatever the gap, someone has to plug it and, although the NAMA plan is over 10 years, no one in their right mind believes that development land in Athlone will ever again be worth €31m — nor should it be.

In fact, permanently cheap land should be the aim in order to give us a comparative advantage. But permanently cheap land would impoverish the landlords and their financial backers — the very people who have got us into this mess and the very people NAMA is devised to rescue. So someone has to pay for the bailout.

According to the triple lock system devised by the Government, we the people — the outsiders — will plug this gap. This is grand larceny overseen by the insiders. Someone has to shout “stop”!

© David for David McWilliams, 2010. | Permalink | 429 comments | Add to del.icio.us
Post tags: Land, nama

Nothing is happening, absolutely nada. So what are we going to do about it?

The government was slapping itself on the back last week as the National Treasury Management Agency (NTMA) managed to borrow yet more money. The government’s spin aimed to show that, in some way, Ireland has pulled away from the other delinquents in the eurozone. What it didn’t tell you is that we are paying more for money than either Spain or Portugal.

The facts are as follows: not only has our government failed to distance Ireland from the other vulnerable members of the Euro club, but we are still regarded as a greater risk than Spain or Portugal .This is despite the fact that the financial markets have been focusing attention on them, not us, in the past few weeks.

There are a number of reasons for the gap between the government’s spin and the facts, but the one I would like to focus on is the most obvious. Our Department of Finance – which is at least partially responsible for this mess – seems to believe that economic success is measured by whether or not we can borrow on international markets. But when you have a single currency and an EU backstop as good as in place, bond issuance tells us very little about the economy.

The truth is that Ireland doesn’t have a recovery strategy aimed at reigniting economic growth and employment. We have a debt management strategy aimed at pleasing the bond market. The way we can titillate the bond market is by promising that the next generation will pay for the mistakes of the last generation, and that the relatively poor (the citizens) will pay for the very rich (the bank creditors).Why wouldn’t the bond market like to hear that?

It’s win-win for them and lose-lose for us.

Is it any wonder investment banks are patting us on the back? They have managed – together with the mandarins in Merrion Street and Brussels – to turn Ireland into a large debt-servicing vehicle for past debts whereby we are capitalists in the boom, when a few get very rich, and communists in the bust, when we are all responsible. By limply playing this game, rather than thinking for ourselves, we preserve the Euro status quo and no one – least of all the political elite – gets embarrassed.

But what do we, the people, want? Do we want an economy that is capable of growing to reduce unemployment? Or do we want an economy which simply exists to service debts? The choice is pretty simple. If we want the former, we have to act radically to save the day. If we are satisfied with the latter, then a prolonged period of unemployment and emigration lies ahead.

Let me sketch out to you what is likely to happen in the years ahead, if we stay with the present course. Before we do that, let us remind ourselves where we are and how pathetic the government’s misinformation actually is.

The Irish economy has contracted in nine out of the last ten quarters. Unemployment among young men is over 30 per cent and rising rapidly. Emigration is, not surprisingly, increasing. Prices are falling by 4 per cent per year, which means that the real interest rate – the interest rate adjusted for inflation – is close to 10 per cent for most loans.

The banks are broken and are in a competition to get deposits in the door – rather than loans out the door. We are facing a monumental contraction of credit, as banks try to pay back money they borrowed from shortsighted, and ultimately reckless, creditors in the boom. That gap between loans and deposits is €120 billion, close to 100 per cent of GDP.

On the national balance sheet, the asset against these loans is property, which is so worthless as to have ‘‘no market’’ for it. We have over 300,000 ordinary people in negative equity. And the rest of us are underwriting Nama, and God knows how much it will cost.

Despite this vista, Ireland is lamentably uncompetitive. If you take the reality of people shopping in Newry – which is the most common-sense test for Ireland’s lack of competitiveness – we are still way too expensive.

Against this background, it isn’t surprising that the government’s fiscal deficit has ballooned. In fact, it can’t do otherwise. And with prices falling, people are postponing spending and therefore credit is contracting.

This means retail sales and employment are likely to keep falling, which in turn implies that tax revenue will be weaker than expected and government spending higher than expected, so the Department of Finance’s budget estimates will not be met. This spiral is amplified by the fall in the working population as immigrants leave and young Irish people up sticks, pushing down house prices further.

These characteristics are the vital ingredients of what used to be termed by economists in the 1980s ‘‘failed budget stablisations’’. Economic history is full of examples where a government tries and tries again to stick to a budget target, largely at first, by cutting spending. When that fails, it raises taxes and ultimately, when that fails, because it stalls the economy, the government gives up. It comes under public pressure, while the financial markets stop giving it the benefit of the doubt.

Caught in the vice of a public that has got used to a certain living standard which is now slipping away and a bond market which realises that the rhetoric soars way above the reality, the government, or a new one, goes the other way and reverses policy.

This precipitates capital flight, irrespective of the currency regime, because capital is fleeing the twin risks of taxation and default. The entire edifice crumbles in chaos and we start again.

Membership of the euro almost guarantees this outcome, because the state can neither inflate away debts nor devalue to energise the exporting sector and to generate the growth that is necessary to pay the old debts.

Ultimately, in a democracy, something has to give. What gives is the status quo, and normally with it, the exchange rate commitment. This might seem a bit over the top to you, but the story of all crises is that what seems extreme now becomes logical, what is radical becomes consensus and what is termed impossible today becomes probable as events change.

The best historic example of this was the collapse of the gold standard in the 1930s. In the 1920s, the only voice arguing against the gold standard was JM Keynes, and he was regarded as eccentric. By the mid-1930s – in the face of the depression – all countries had abandoned the gold standard as an anachronistic relic and had begun to inflate away old debts to get the economy moving.

The gradual questioning of economic orthodoxies takes time. It might take years of needless underperformance where unemployment remains incredibly high, real interest rates do too and defaults are the norm, not the exception. Ultimately, the old way – in our case, adherence to the euro – is thrown out. The only question economic historians of the future will ask is why didn’t we act earlier and prevent all the pain.

At the moment, even suggesting such ideas is heresy. But so too – back in 2002 – was forecasting that we were in a credit/ housing bubble, after which houses would collapse in value and banks would fail.

I truly wish this wasn’t the case for us. I wish we could avoid having to make the hard decisions, but we can’t. Looking at the trough we are now in, it is difficult to see an alternative. However, if we do what is logical, there is nothing to stop this country growing rapidly again very soon.

That’s the prize. Isn’t it something we should entertain? Or are we going to do what we did in the bubble: attack the dissenters and slap down sceptics with the refrain ‘this time, it’s different’?

© David for David McWilliams, 2010. | Permalink | 214 comments | Add to del.icio.us
Post tags: euro, ntma

We still fall in love, still have children, still protect them and try to give them the best start we can. Sometimes we overburden them with our expectations or maybe sometimes we don’t push them hard enough — but as I saw a new mother walk out the door with her swaddled infant, I thought to myself, this is what life is all about.

That warm feeling stayed with me until I started to do some calculations. Finance Minister Brian Lenihan was on the radio telling us how we were not Greece. Obviously the mutual backslapping of his European counterparts had gone to his head. The spin now coming out from Brussels is why can’t Greece be more like Ireland.

Our politicians and top civil servants love this position, Ireland as the teacher’s pet, the role model, the prodigal son. Why can’t the errant Greeks take a leaf out of our book? The reason is they are not half as delinquent.

Let us go back to Holles Street and look at the prospects of a child born in Dublin vis-a-vis a child born in Athens. The child born in Dublin today will come out of its mother’s womb owing €46,641. This is before the baby takes its first breath. There will be more than 66,000 children born in Ireland this year and each one will be weighed down by this enormous debt — the legacy of the Cowen/Ahern years.

Contrast this with the situation in Greece. The newborn Greek baby will owe about half as much as the newborn Irish baby. The figure is still huge at €26,300 but it is €20,300 less than the Irish child. So don’t tell me Ireland is better off than Greece. It isn’t.

Mr Lenihan was in Brussels yesterday telling the Europeans that we are not Greece. This is true, we are worse than Greece.

Ireland’s total debt per head is much worse than Greece’s. Its government, in collusion with its banks, lied to foreigners; in Ireland, our banks, in collusion with our Government, lied to us. And clearly there is no way in the world the next generation can or should be lumbered with paying back the debts of the previous generation.

Let’s look at the numbers. Our national debt is €17,042 per person; Greece’s is €26,300. However, the Greek bank lending to the Greek people is covered by deposits. The Greek banks were well-behaved in the boom. They didn’t borrow from every Tom, Dick and Gunter to enrich themselves and inflate a property bubble.

Our banks, on the other hand, have a funding shortfall of €120bn. This is what they borrowed abroad to lend to the developers and the property buyers. Now the balance sheet is in ruins, these so-called assets are worthless — but the debt remains. If you add this €120bn to the national debt of €208bn, you get the real level of debt in this country. This is our babies’ inheritance — €46,641 of debt before they learn to walk.

So we are a more delinquent version of Greece, the only difference is that the financial markets are looking at sovereign debt rather than total debt at the moment. In so doing they are missing the picture. But should that surprise you? As they were the people who cheer-led the Irish lending splurge, the same people who rated our banks as virtually risk-free and who in the end believed “this time it’s different”. They were the same people who brought you sub-prime debt, 30-year mortgages and financed great opportunities like the Glass Bottle Factory and the Jurys site.

Just because the financial markets don’t see what is going on in Ireland, it doesn’t mean we should stick our heads in the sand too. Remember, when the bill is presented it will be you and me who will cough up for this mess, so we need to look deeper than the headlines in the ‘Financial Times’.

There are a few essential differences between Ireland and Greece but one of the most significant is that Greece is having a government spending crisis which is undermining its banking system, while Ireland is having a banking system crisis that is undermining our Government. Clearly the Irish Government and, arguably more egregiously, top civil servants are culpable in all this as they are the people who caused the mess. They were elected or promoted under the assumption that they would make the right policy choices to run the place. They failed miserably.

Their failure has left Ireland in a more significant debt bind than Greece. In looking at a country’s ability to pay its debt, there is little point at looking at the government’s debt or looking at the government’s ability to service government debt. This is because the ‘government’ doesn’t pay government debt; the people pay government debt.

There is a myth sometimes swallowed by financial markets and most often believed by politicians and mandarins that the ‘government’ is some autonomous outfit that can raise revenue to pay the debts that it has incurred. This is a grave misunderstanding of how a country works. The sovereign or the government is only the amalgamation of each and every one of us — the people. So you need to look at the total debt of the people and add this to the government’s debt to get the full picture.

When you do this for Ireland, the numbers make Greece and the average Greek citizen look like a paragon of virtue.

Taking the total debt into account, we can see that Ireland is caught in a debt cul-de-sac. This means we have nowhere to run, nowhere to hide. With these debts, the banks will not lend to us. So we don’t buy things that we used to because we can feel credit leaving the economy. This is why mortgages are down 50pc in the past year and will be down again next year. Houses prices are falling precipitously and everyone knows this. So we keep adjusting our price expectations downwards and keep postponing. So we don’t spend.

Meanwhile the banks, despite all the capital they have been and will be given, and despite NAMA, are not lending but are advertising in all the newspapers for deposits. This will cause the economy to contract.

Mr Lenihan can take all the plaudits from eurocrats, but the real story of this Government and the civil service elite’s mismanagement lies behind the proud smile of the new mothers at Holles Street. Each baby carries this Government’s €46,000 legacy.

What was that one about giving our children the best start we can?

© David for David McWilliams, 2010. | Permalink | 265 comments | Add to del.icio.us
Post tags: brian lenihan, greece, life

Until last Friday, Germany seemed to think that the first part of the deal held without the second, but the Greeks have played a canny game and called the Germans’ bluff.

The Greeks realised that, from a financial perspective, Germany regards the rest of Euroland much in the same way as the Pentagon regarded south-east Asia in the 1960s.The ‘domino theory’ guides senior German and European civil servants when it comes to financial crises on the fringes of Europe. During the Cold War, the Pentagon threw all the military resources necessary at Vietnam, not for any great love of the South Vietnamese, but to draw a line in the sand and prevent communism from spreading.

Similarly, Germany will throw its financial resources at an errant country or banking system at the edge of Europe so that the contagion doesn’t spread. This is why Nama could well be called ‘Vietnama’ because, in the eyes of the German government and central bankers, Irish banks last year – and the Greek government now – can’t be allowed go under because it would trigger a defaulting domino effect.

However, the snag is that, despite huge American involvement in Vietnam with the most sophisticated weaponry, the Americans fled because they couldn’t control the facts on the ground against a more determined enemy. It is too early to draw the same conclusion about the European Central Bank’s Vietnam:

Greece.

The Greeks twigged the German weakness and gambled that the Germans would blink first -which they did. So there is now a precedent and everything in the Maastricht Treaty can be torn up. All the rules, regulations and aspirations regarding government spending are out. There is now what the financial markets should call the ‘Merkel put’.

In the halcyon days of Alan Greenspan, there was a phenomenon called the ‘Greenspan put option’. A put option is an agreement to sell at a certain price. If people believe that the markets will fall, they buy a put option today that allows them to sell at today’s price in, let’s say, three months’ time, when the actual price might be much lower. So, if you want to make money in a falling market, you buy put options and wait.

On the other side of this trade, there has to be someone who is willing to take a bet that either markets will go the other way or there has to be someone who is willing – for some reason – to make sure that the markets don’t fall too much and therefore will put a floor under the market.

The Greenspan put option was used to describe the situation that, whenever financial markets fell, Greenspan would cut interest rates, which would put a floor under how low prices could go. The same can now be said of Germany. If Germany bails out Greece, it puts a floor on how low Greek bond prices can fall. It therefore gives the Greek government the incentive to gamble that it doesn’t matter how much it borrows because Germany will always bail it out.

Over the past few years this column has been making the point intermittently that the euro is the wrong currency for Ireland.

In many official quarters this assertion is met with derision. Might this be because the ‘‘official mind’’ can’t deal with uncertainty? Or is it that the ‘‘official mind’’ is not able to do what we all should do at times, which is to ‘‘think the unthinkable’’. So the next issue is whether the Greek bailout is good news for Ireland?

I know it sounds parochial, but let’s deal with our own backyard first. Does the bailout of Greece, whatever form it takes, mean that the bigger, older countries in the EU now realise that there is a fault-line at the heart of the euro project?

As long as Germany chooses to run huge current account surpluses, this money will be borrowed either in the eurozone or outside it. If it is spent within the eurozone in countries that want to grow but haven’t the domestic savings to do so, there will always be regional booms and busts, as there are now in Ireland, Spain and – ironically, despite its bad press – to a lesser extent Greece.

On the other hand, if the German savings are borrowed outside the eurozone – in the US or Britain, for example – there will be a tendency for the euro to rise against these major currencies. Given that Ireland does far more trade with Britain and the US than it does with Germany and France – and Irish shoppers shop in Newry, not Nuremberg – this creates a tendency for Ireland to boom unsustainably and then fall back suddenly.

This means that the Irish boom/bust cycle is excessively amplified by our membership of the euro. Booms are longer and more effervescent and busts too are longer and more painful.

In away, Ireland is like a jockey riding two horses: a German one and an Anglo American one. When both horses are running together – the current account of Germany isn’t too excessive and the deficit of the Anglo-American world isn’t too delinquent – the jockey’s position isn’t too difficult. However, when the two horses move in opposite direction, the jockey’s groin area becomes uncomfortable. At this stage, this particular jockey is screaming.

Initially, the official architects of the EMU believed that Ireland, Spain, Portugal and Greece just had to put up with it and be good Europeans. This was before it dawned on the bureaucrats that a crisis would lead to the eurozone being undermined more than the individual country in trouble.

The reason they didn’t twig this from the outset is that most of the senior civil servants who designed the euro probably have never taken a risk in their lives, so they don’t understand the mind of the traders who are assessing whether the euro makes sense or not and betting accordingly.

The response to this crisis means that we are moving into a new era, which might be good for us. The worst of all worlds for Ireland is the current half-baked situation of a monetary union without a political union.

This is why this column has argued that, until there is full political union in Europe, Ireland should adopt the Danish and Swedish approach of having its own currency, something that could be done without too much disruption.

However, if this crisis and the German bailout were to accelerate political union, it’s a different ball game because we would have a system like the US’s, whereby the central government compensates states that are in recession by increased government expenditure. At the moment in Europe, we have things back to front because, in a downturn, the governments are being asked to cut spending rather than increase spending. This was one of the elementary mistakes of the Great Depression.

If the Greek crisis has finally changed the view in Brussels about the joint responsibility that is necessary to make the euro work, it will have been a crisis worth having, for Ireland in particular.

© David for David McWilliams, 2010. | Permalink | 264 comments | Add to del.icio.us
Post tags: ecb, emu, greece

On the other hand, you examine the polls taken by ‘Liveline’ and the like and you get a totally different picture. The average person believes George; the average person trusts him and supports his move to quit. If these polls are to be taken at face value, could it be that the political “insiders” are out of step with the civilian “outsiders”?

Arguably we have a clear division between, on one side, the wizened, “nose-tapping” cynics who believe they know how things should be done and, on the other, the wide-eyed, possibly naive, optimists who hope for change. The George Lee saga could well be the first skirmish in a long war between those who believe the system should be defended — the insiders — and the outsiders who believe the status quo is part of the problem. One of the most significant and consistent criticisms of George by the insiders has been that he didn’t do his time. Some say he couldn’t hack it. But hack what? Hack the “slowly, slowly, don’t rock the boat” world of biding your time, playing the game and, ultimately, engineering a career based on climbing up the slippery pole. Of course he couldn’t hack it and why should he? He wasn’t voted in to do that.

Another politician yesterday spoke earnestly of learning the ropes. He suggested that George didn’t really give himself a chance to understand how the system worked. But why should he have? Surely the point is that the system is the problem and if someone with his specific talents (for economics) is seen as being of equal value in an economic crisis to another backbencher who can’t spell monopoly, then what is the point in the whole exercise? Either we vote for competence or we don’t.

To the observer, it is difficult not to conclude that George scared the daylights out of lesser able contemporaries who decided that the only way to deal with a bright star was put manners on him. So leave him out, let him cool off. Anyone who has worked in an office will recognise the tell-tale signs of office politics.

One of the classic ploys in this game is to let it be known that the person’s assets are in fact superficial and a liability for the “hard graft” of the ground war. And so it came to pass. Amazingly, another factor that emerged as a stick to bash him with is that George Lee is famous, articulate, intelligent and a great communicator — and rather than these being attributes that could be deployed usefully these are seen to be the dubious affectations of a “poster boy”, leading to slurs such as narcissism and self-absorption.

When are the political insiders going to realise that there are people like George Lee who stand out from the crowd because of the very talent that distinguishes them from others? This is why people follow them. This is why 27,000 people vote for them, precisely because they are not like everyone else. Sorry, the world isn’t equal. Some kids are better at football than others, that’s just the way it goes and the one who is better gets picked.

George Lee’s crime was honesty and having the courage to ask, why? Why should it be like this? Why should we serve time on the backbenches? Why should the best economic communicator in the Dail who has forgotten more about economics than most of our politicians will ever learn, have to sit and listen to men on his own side make things up as they go along — spoofing and clutching at second-rate notes scribbled by advisers?

Just in case you think this is one high-profile economist defending another one, I acknowledge that I know and like George Lee. We were both economists in the Central Bank years ago — so we go back a long way. I have huge respect for his talents and know that he has “living room” appeal. Ordinary people believe him because he has been both right and honest in his work over the years. What the insiders don’t understand is that he has done his time, just not in the Dail. He has done his time where it really matters, in people’s living rooms. This is his currency. It is not celebrity, it is credibility — and credibility is what is lacking in politics.

Not deploying George Lee effectively is not an academic point. Fine Gael’s “good” bank was the best solution to our banking crisis. It is a basic model used in many countries. There is no need for a NAMA; instead the old banks should be allowed to disappear and their deposits transferred to a new bank. The State is the major shareholder in the new bank and so can make a huge profit for taxpayers when it is sold. The old creditors take a nasty haircut but get equity in the new bank and they stay in the game. That’s the basic story. It is easy to sell, easy to understand and far preferable to the NAMA monster (which the IMF told the Government close to a year ago wouldn’t work).

But instead of getting George Lee to sell this idea to the electorate which he would have done in his sleep, and in so doing might have created a united front against NAMA with a credible alternative, Fine Gael didn’t deploy him effectively. God knows why. Selling this idea should have been his and his alone and the older, more established politicians should have been big enough to see that he was the best man to sell it. He is the man that your auntie believes. The trust of the aunties and mammies of Ireland is hard earned. They see through show-boaters. They remember who said what when. They remember in the last few years, George Lee told it as it was. Who in Fine Gael is going to replace him? Who is going to do things differently now?

Worse still, whether you agree with the way he departed, who — with experience — will now contemplate joining one of the established parties now? On the other hand, maybe this episode brings closer the emergence of a totally new party looking to change, not preserve the system.

© David for David McWilliams, 2010. | Permalink | 361 comments | Add to del.icio.us
Post tags: george lee, nama

But what was worst was the English landscape – I have made up the quarrel since; but at that moment I conceived a hatred for England which took many years to heal’’.

Like many Northern Irish Protestants, his relationship with England – and, by extension, Ireland ,was considerably more complex than the political posturing at Stormont this weekend would suggest. In later life, Lewis described an experience which many of us who have spent time in England will recognise.

‘‘Like all Irish people who meet in England, we ended by criticisms of the inevitable flippancy and dullness of the Anglo Saxon people. After all, there is no doubt that the Irish are the only people – I would not gladly live or die among another folk.”

Despite living in exile in Oxford for most of his adult life, he kept his connection to Ireland, even going on his honeymoon in 1958 to Crawfordsburn – a picturesque village in Co Down beside beautiful Helen’s Bay.

Lewis’s Irishness is the same type of multidimensional Irishness that was on display yesterday in Croke Park. Hundreds of politically British, Ulster Unionist and DUP voters were wearing Irish jerseys as if it was the most natural thing in the world. They sat happily in the Hogan Stand, oblivious to the fact that it was built to commemorate Michael Hogan, the Tipperary captain shot by the Black and Tans on Bloody Sunday – who themselves were under military orders to keep Ireland both British and unionist.

Maybe CS Lewis, the Belfast man who created the parallel universe of Narnia, would have smiled at the ambiguity of it all.

But the beauty of Narnia for children is that it is a fantasy world where they are the main players, far away from the drudge, rules and dreariness of the world of adults. It is a playful place of talking animals and adventure – just the type of place that children themselves would imagine if they could.

Narnia is a dream world, which doesn’t mean that everything is saccharine sweet. There are pitfalls, there are nasty witches and dangerous, duplicitous characters, but there is also hope. When the children walk through the wardrobe, and enter Narnia, they enter a different world.

Last Thursday, I walked into an economic Narnia – a world of possibilities, optimism and positive energy – which was so far away from the relentless reality of Ireland’s battered economy that it was inspiring just to be there. The only difference is that this Narnia is real. It is not a fantasy. It is a world where Irish entrepreneurs are doing their stuff, where young and very charming Americans have blazed a trail. It is the world captured by the Dublin Web Summit. The idea, conceived by a young man called Paddy Cosgrove, was to bring some of the world’s most successful young web entrepreneurs here to talk to Irish people who want to set up their own companies.

The summit was held in Trinity College and the packed house heard how a laidback, laconic Californian called Craig Newmark created the world’s biggest classified ad site.

The site serves over 20 billion page views per month, putting it in 37th place overall among websites worldwide and 11th place overall among websites in the United States. It has over 49.4 million unique monthly visitors in the United States with over 80 million new classified advertisements each month, Craigslist is the leading classifieds service in any medium. The site receives more than one million new job listings each month, making it one of the top job boards in the world.

The company has fewer than 50 employees and an estimated turnover of $200 million. Craig Newmark, who said he had no interest in selling the company or in money in general, is the man who, more than anyone else, is responsible for shaking the foundations and the income stream of the newspaper industry. For a journalist, this man represents a huge threat, but I was transfixed by the opportunities he evidenced.

Next up was the very charming Matt Mullenweg, the 27-year-old creator of Wordpress. Wordpress is the software programme that is favoured by bloggers and used on over 200 million websites worldwide.

One of the key developers of Wordpress is an Irishman, Donncha O’Caoimh. The world of Mullenweg is one of limitless growth and, as pointed out by a question from the floor, he makes his money from the efforts of others. In what Marx would have called turbo capitalism, all these ‘web 2.0’ millionaires are making their cash explicitly from other people using their technology and increasing the value of their sites and products exponentially. For young Irish entrepreneurs, the opportunities on the web do seem enormous, and more important, as some of the ideas are so simple and cheap to set up, it has to be worth a go. At the conference, I also heard Irish entrepreneurs Dylan Collins of Jolt, Colm Lyon of Realex, Ciaran Bollard of Muzu and Fred Karlsson of donedeal.ie, explain how they created their companies.

The most fascinating thing about these entrepreneurs was the sense that they all had created something out of nothing. They saw opportunities with small -or, in some cases, no – investment, and went for it. Now anyone involved in the tech world knows this is not how it works. There are too many bankrupt venture capitalists around for this to be easy.

In fact, in the tech game, the difference between success and failure is often wafer-thin. One of the most interesting aspects of many of the experiences was how many successes stem from competitors making elementary mistakes. These mistakes seem elementary now but, given that there is no blueprint to follow, how could anyone have known any different?

For a brief moment, listening to the chronicles of this financial Narnia, it is easy to forget the world of Nama, Anglo and developers’ loans. There was precious little about why things can’t be done, only talk of what can be achieved. But this isn’t Narnia. These companies are real, and the explosion of what is called ‘disruptive commerce’ (which refers to companies which are disrupting the ‘normal’ way of doing things by using new technology) is here to stay. Arguably, this is the future – or at least part of it.

CS Lewis created a new world simply by using his imagination. In fact, he created a parallel world. Imagine our own parallel world where, at one side of the wardrobe, we have the dross of the banks, the property hangover, Nama and the politicians who led us into this.

On the other side, we have the opportunities afforded to Irish entrepreneurs which will allow them to transcend the limitations of this country. Despite all the obstacles, like CS Lewis, we can do this.

© David for David McWilliams, 2010. | Permalink | 379 comments | Add to del.icio.us
Post tags: entrepreneurs, Technology

Why the delay? One interpretation is that our government doesn’t understand that speed is crucial. If we compare our stagnation with other countries that have been faced with national bankruptcy, we compare dreadfully.

Look at what the Swedes achieved in their crisis of 1993 when their property market collapsed along with their banks. In the four months between November 1993 and February 1994 Sweden issued a bank guarantee, set up and transferred all the bad loans to a bad bank, committed state money only after all the private money had been wiped out, let some weak banks go bust, nationalised some big ones and devalued their currency by 40pc!

Sweden took all these decisions quickly in order to save the economy. The financial markets saw that the country was serious about sorting itself out and money cascaded back into Sweden. In a short time the Swedish crisis was over and the casualties were those who caused the problem — the banks and the big landowners. The devaluation allowed industry to recover quickly by becoming hyper-competitive.

So, is the reason for our inactivity the Government’s failure to understand that speed and significant policy change are crucial to getting out of the mire quickly? Or is it that they understand this perfectly, but also cynically understand that if they can brazen it out for another two years they might just be able to run an election campaign on the fallacious myth of taking “hard” decisions?

By adopting the latter tactic, the Government can divide the country between the “insiders” and the “outsiders”.

The insiders are those who have a stake in the society and, therefore, will support a government that is taking decisions that protect their dwindling stake. The insiders prefer the certainty of a tarnished status quo to risking the unknown of a rejuvenated country.

The outsiders are those with no stake in the society, who therefore have most interest in fundamental change. During the boom, some outsiders got inside the tent for a few years, but now they are back outside, in negative equity. They are likely to emigrate or go on the dole as they dutifully did in the crises of the 1950s and the 1980s.

The cynicism of the current approach is that it gives a political party, which is playing the percentages, a chance. On the other hand, it means the recession is longer than it should be. Credit dries up and the country is fixed in a holding position, which is sustainable as long as the Government can borrow abroad and the insiders are kept in a state of nervous anxiety rather than acute fear about their future. This allows the insiders to see the outsiders as, at best, a worrisome nuisance and, at worst, a threat to the insiders’ standard of living. The outsiders quickly become the enemy.

Playing the insider/outsider game allows the ruling party to experiment with what could be described as “ground hurling”. Ground hurling means you keep close to your marker, don’t do anything dramatic and see how the ball breaks. Ground hurling allows a team that shouldn’t have a hope in hell to eke out a win and rob the prize.

Think of this in political terms. We are now faced in Ireland with the pathetic spectacle of the Government protecting the rotten status quo based on the entirely mendacious strategy of political survival rather than national renewal. This starts with the banks. Forget patriotism, self-preservation is the name of the game.

The ongoing public sector versus private sector debate is also part of the bigger insider/ outsider tactic, as it creates false skirmishes. This new conflict is a by-product of the failed “a lot done, more to do” economics of this government. But expediently, this row actually helps the Government because it detracts from the real issue of who mismanaged the economy to such an extent that we ended up here. As smokescreens go, the public/private fight on radio and TV current affairs shows suits the Government.

The reality is that most Irish families are made up of workers who work in both private and public sector. Most families are made up of a small business person, a civil servant, a student, a pensioner, an employee of a private company and someone on the dole. There is no public/private divide.

It is entirely made up to detract from the real issue, which is that the present administration, their senior civil servants, who are supposed to run and regulate the country, and the insiders at the top of the banks and property companies destroyed this economy. This is the one and only issue. But that is not the issue the Government wants discussed so it sets up roadblocks, like the private versus public wage debate.

This is also what the NAMA strategy is based on. The Government argues that it is patriotic to save the banks and the bondholders of the banks because not to do so would undermine the “credibility” of Ireland. What do you think actually undermined the credibility of Ireland? Could it possibly be appalling management of the economy in the past five years?

It is not patriotic to lumber the next generation with the debts of the last. This is not patriotism, it is theft. But for a political power base desperately clinging to power, saving the banks and borrowing to do so is a strategy based on buying time and hoping something will turn up. If it works, Fianna Fail saves itself from obliteration at the cost of hundreds of thousands of extra outsiders being forced — unnecessarily — to go on the dole or emigrate. But they are outsiders, so who cares?

In Sweden of the 1990s, the government took a different approach. It fired those responsible. It nationalised the banks. It made sure all the stockholders’ funds were wiped out before it put a penny of government money into the bankrupt banks. In so doing, Sweden learnt from the disaster. The main lesson is a simple one, which is that the “more of the same” approach is not good enough.

This country needs to be fixed, not patched up. We don’t need tinkering about with the old model. We need to see through the present government strategy. It is not about renewal but is all about keeping its incompetent fingers on the levers of power until something turns up. In so doing, it is aided and abetted by the ECB, which will keep the Irish banks afloat because it is afraid of an embarrassment such as a default within the euro.

The only way it can achieve this is by allowing the banks to mortgage the next generation with more useless borrowing to keep land prices falsely underpinned using the new device called NAMA bonds.

That’s the game — and they dress it up as patriotism.

More fool us if we go along with it.

© David for David McWilliams, 2010. | Permalink | 246 comments | Add to del.icio.us
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In this atmosphere – listening to Neil Young and going to Russian classes every day – I tried, with limited success, to learn Russian.

Most mornings, the official radio carried riveting stories about bumper grain harvests in Ukraine and how the collective farms had beaten all expectations. Yet the shops in the village had no bread.

We heard stories about how much industrial machinery the Soviet Union was producing, yet there were no spare parts for the Lada, which kept breaking down.

Every week, there was a story about how the great triumph of socialism was just around the corner.

I suppose we would now call this sort of stuff ‘talking up’ the economy.

Communists were great at it. They would spot a recovery, a new dawn, at the drop of a fedora. They believed in the ‘incantation’ approach to economics, which held that, if you incant or even chant long enough about something, that something will eventually come true. Daft, I know, but the communists were great believers in positive thinking, even if there was no evidence to back it up.

Now is it just me or do you get the sense that you are listening to Pravda on the radio these days? There seems to be a concerted spin, delivered by politicians and so-called economists, who never saw this bust coming and were preaching ‘soft landings’ two years ago, that Ireland is now on the cusp of recovery. We are going to experience some mythical ‘export-led growth’, which will drive down unemployment and, by next year, we will splurge again, spending all the savings we are sitting on.

Quite how we could possibly have labour-intensive, export-led growth when we have one of the highest wages in the world is beyond me. For that matter, I can’t see how we will splurge our savings when the government deficits are so huge that they will absorb our nest egg. I can almost hear the sheaves of wheat bursting out of their ties on the steppe.

The truth – a strange concept which ultimately broke the communists – is that Ireland is not going to experience a recovery any time soon, and this year will feel worse than last year. Behind all the spin and incantation, there is a barely audible sound which will get louder and louder. It is a large sucking sound: the sound of money leaving the economy.

What is now faint will become a cacophony.

We don’t seem to realise that we are now in a phony war situation where our sense of stability is based on the European Central Bank (ECB) injecting soft loans into the banking system. This massive monetary injection was carried out all over Europe to make sure the European banking system survived last year.

The ECB is now unwinding this credit. Let’s just recap on the way the banking system works. If the banks stop lending to each other (as happened in September 2008), the Central Bank, acting as the ‘lender of last resort’, steps in. It says to the banks: ‘‘Give us what you call ‘assets’ on your balance sheets and in return we will give you money so that you don’t run out of money and go bust.”

In Ireland, the assets on the banks’ balance sheets are our mortgages and all sorts of loans to property. So the banks package all these mortgages into what is called an asset-backed security (ABS).

This product, which could be thousands of performing mortgages, is rated by the rating agencies and then given to the Central Bank in return for cash.

This cash goes into our ATMs and we spend it. The ECB did this all over Europe from September 2008, because every banking system was experiencing problems.

The pathetic spin put out by the government and believed by many is that Ireland has some sort of sweetheart deal with the ECB, whereby the Europeans looked favourably on Ireland.

This is not true. The ECB treated the Irish banks the same as any other banks in Europe. In fact, it could not have legally treated us any differently to any other country. It loosened its rules on what did and did not constitute ‘security’. So banks in Europe that couldn’t get money anywhere else went to the ECB and exchanged ‘assets’ for cash.

In normal times, the ECB will only accept assets with an AAA rating as collateral. In the past two years, it has loosened this and accepted any old trash in return for cash to protect the system. Look at the chart for Europe as a whole, and we see that the ECB provided over €500 billion in this type of financing across the eurozone.

In July, it intends to pull €442 billion out of the system, as it reverts to taking only AAA assets and signals to the rest of Europe that the banking crisis is over. But it’s not over in Ireland.

In the crisis, different countries needed differing amounts of cash, depending on how delinquent the country’s bankers and regulators were during the boom. It will come as no surprise that Ireland is the most badly affected. Today, Irish banks are getting €98 billion from the ECB in this type of ‘cash for trash’ funding. That is 17 per cent of our banking system’s assets, which are about €520 billion.

Nearly as fragile are the Greeks, who are getting €42 billion or 8.8 per cent of total assets. For Italian and French banks, only 0.8 per cent and 1.8 per cent respectively of their total requirement comes from the ECB. In other words, when the ECB changes its rules, it will have no effect in Italy and France, a nasty impact in Greece and a catastrophic impact on the amount of money in ATMs here.

The major problem for Ireland is that the ECB will accept only AAA assets from March, but we don’t have any AAA assets.

Our government debt, the least risky (apparently) asset in Ireland is not even AAA any more. The ABS packages of our mortgages are clearly nowhere near AAA and will be further downgraded as mortgage defaults rise.

So where are we going to get €92 billion and how much will our banks have to pay over and above ECB interest rates? Someone will lend to us – but at a huge premium and probably a rationed amount of cash.

This means the most heavily indebted country in Europe is facing interest rate hikes and a massive contraction of credit from bust banks, which are looking for more cash from us. This can only be generated by more government borrowing, which drives down the rating on the debt further, drives up the cost of money to businesses and increases the likely tax hikes. Recovery, how are you?

I lived in Russia too long and listened to drivel about the whopping grain harvest in Ukraine as we queued for bread. We are hearing the same nonsense from our government and their lackeys on the radio and in print these days. As that great economic thinker, Chuck D of rap group Public Enemy, once said: ‘‘Don’t believe the hype.”

© David for David McWilliams, 2010. | Permalink | 255 comments | Add to del.icio.us
Post tags: nama

Fianna Fail has placed the middle classes in a ‘debtor’s prison’ and, what is more egregious, it has given the middle classes the bill for the mistakes of Fianna Fail’s developer mates because it is obsessed with keeping the banks afloat in their present crippled state.

This ‘debtor prison’ approach to financial mistakes will bankrupt the middle classes. Today the average Irish family owes €132,000 to the banks. This huge debt overhang, taken together with tax increases and cuts in real wages plus the prospect of families supporting their unemployed children who are living at home, and what we are looking at is nothing less than the shattering of the Irish Dream.

The Irish Dream, like the American Dream, is based on the notion of a progressive conveyor belt of prosperity whereby each generation becomes better off than the generation that came before them. It is an idea rooted in the expectation of progress and the hope that aspirations can be translated into real results, traditionally with the help of increased family investment in education.

As Irish families moved from being predominantly single breadwinner to two income households, we didn’t get richer, we got more indebted and this debt made us feel rich. Feeling rich, we borrowed more and more, cheer-led by Fianna Fail.

This was the Ahern/Cowen conveyor belt. The deal was simple: we Fianna Fail, will keep the house party going and you will feel richer, safe in the knowledge that the next generation will be able to afford the silly prices because the unregulated banks will make the cash available to them. You just vote for us and take the cream. The banks will get the cash because we are in EMU and we will never again face a credit constraint.

This is how the middle classes started to become enfeebled. It began in 2001/2 and went into overdrive in 2004. The Irish Dream of prosperity was a sham and worse still there was no Plan B. No one thought about how we would react when or if the money stopped flowing. Would we have provisions for the inevitable default? Who would come first in the crisis, the people or the banks’ creditors? Without a coherent plan, the same Fianna Fail Government just stumbles from crisis to crisis, hoping the middle class who voted it in has infinite resources to pay for the mess.

But we don’t. We are broke. The middle aged, middle classes are rocked by the sudden unemployment of their children (30pc of our under-25s are unemployed) and the collapse in value of their second home. On top of that, their pension funds — which were invested by charlatans in the shares of Irish banks — are now worthless (and after the nationalisation of the big two, they will be wiped out altogether).

So the “two income”, middle class family in Ireland — as in the US — ends up on a knife-edge. The only way it can maintain its status and ensure that its children have a better opportunity is if Ireland finds a new economic blueprint to kickstart employment. But we are stagnant at best, going backwards at worse.

Without significant job opportunity and income opportunity, the middle class has only two other avenues to maintain its living standards. The first is to sell its assets and the second is to borrow more. But it can’t sell its assets because its assets are houses and these will continue to fall for a few years.

Selling now, even if it saves money over the longer term, will crystallise the losses and leave the average family with a huge debt to the banks. So the natural tendency is to hope that something will turn up. But what if it doesn’t?

The other option is to go back to the Ahern/Cowen model of borrowing to get rich. We know that doesn’t work and anyway it has been supplanted by the Cowen/Lenihan model of the State borrowing in order to try to protect the already decimated shareholders of the banks. This leads to NAMA and the errant folly of betting the country yet again on the hope that the property market will recover to make the bad balance sheet of the banks good again.

But even looked at from first economic principles, for the Fianna Fail plan to happen, the banks have to lend out money. But the middle classes don’t want their money (even if the banks had it) because they are stuffed with debt anyway. In short, the broad middle classes still think that if we do the right thing, things will turn around.

But what if they don’t? What if the middle classes of the likes of Korea, Malaysia and Poland compete with us in a way they they didn’t in the 1990s? What if they are as educated as us and are half the price, hungrier and, most crucially, without the useless debts we have built up?

What happens to the Irish middle class then? It shrinks is what happens. It gets weighed down by unpayable debts, living in a “never-never land” of an overvalued currency and insurmountable debts, tied to worthless assets (houses) in a place where the working population is falling. Given that the middle class provides ballast to society, this is a dangerous thing.

Fianna Fail is well on the way to destroying the very class that put it in power in the past three elections. Extraordinary times demand extraordinary solutions but more of the same has been advocated. Like the Irish Home Rule Party in 1916, denial abounds and a vacuum emerges.

© David for David McWilliams, 2010. | Permalink | 288 comments | Add to del.icio.us
Post tags: fianna fail, social classes

In Dun Laoghaire in the 1980s,the news of a free house could travel miles, with all sorts turning up at the doorstep to be let into someone’s house to drink Stag or flagons of whatever was going.

The free house was a mystical place. It was much better than hanging around with nowhere to go, and infinitely better than going to Wesley, where you would have to run the gauntlet of the bouncers – and then figure out how to get home.

Most of the time, there were enough sensible people – mainly teenage girls and a keen bloke waiting for favours based on good behaviour – who cleaned up the freer after everyone was gone. They made the place look as if only the daughter herself was there all night doing her French homework.

Anyway, for many of us, the free house was a rite of passage, a wonderfully chaotic place where all sorts of carry-on passed for normal teenage behaviour. The golden rule was that, if you were snared or if things got out of hand, the free house wouldn’t happen again. Parents who rumbled a melee made sure that was the last. A kind way to look at our delinquent Irish banks and the mess they have left us with, is to regard them as the equivalent of out-of-control teenagers who were mistakenly treated as adults and acted like little children. Over the past ten years, the government gave them the equivalent of a financial ‘free house’, and they made a hames of it.

Worse still, they gave us the bill. Like dumb teenagers who couldn’t see that if they just kept the lid on things, they could have free houses every week, they blew it – and their chance of ever being left on their own again.

Last Friday, US President Barack Obama closed down the ‘Wall Street free house’. What will our toothless government do to penalise and rein in our economic adolescents?

‘‘Never again will the American taxpayer be held hostage by a bank that is too big to fail.” With these words, Obama did what almost everyone outside Wall Street had been hoping he would do for at least a year. Obama has pulled American – and by extension global – investment banking back to the 1930s.Like errant children, they were given the run of the house when the parents were away, and they messed up.

He has told banks that they must get back to the knitting and stop running their own private trading desks, investing or owning hedge funds or private equity firms.

At the stroke of a pen, he has taken a huge amount of the risk off the balance sheets of the banks so that, in the future, if there is a market meltdown like last year, it will not threaten the banking system. It is not that there won’t be the same trading and risk-taking; it is just that the traders will not be risking ordinary depositors’ cash, and therefore there will not be a risk for the taxpayer. By taking this risky stuff off the balance sheet, the US government hopes that the risky speculation of the few will not be paid for by the many – which is now the case in Ireland with Nama.

Before we get back to our own case, let’s examine what Obama is trying to do by explaining these shadowy-sounding entities like proprietary trading desks, private equity outfits and hedge funds – and how the banks ended up owning them.

Many years ago, I worked on one of these proprietary trading desks at French bank BNP. We traded the government debt of emerging market countries, such as Russia, Brazil and the Asian tigers. We also traded debts that had defaulted, such as those of Argentina, Venezuela and Brazil.

The idea was that we would bet on these risky but very high return markets, using the bank’s (depositors’) money. By doing this, we would drive the profits of the bank through the roof and everyone would be happy.

Over the next ten years, international banks extended these types of operations to include hedge funds. These were again trading operations taking risky bets on listed stocks and bonds to make more money than the average stock. In later years, private equity operations emerged which took large positions in existing private companies and then sold them either to competitors or to the market by way of a flotation. In many cases, the banks themselves financed the acquisition of their own companies by lending to the potential buyer. All the while, profits increased.

Then, of course, the hedge funds started buying all sorts of property-related derivative products, as did the proprietary trading desks, taking bigger and bigger and riskier and riskier bets to make the more elusive ‘home run’.

When the market collapsed, so did these bets, and the depositors of the banks had to make up the shortfall. But they couldn’t, as the banks had been borrowing many times the deposits on the books due to deregulation. The free house was out of control.

So Obama had to come in and buy all this stuff that was on the banks’ balance sheets to make sure the banking system didn’t collapse, even before the traditional runs on the banks occurred. These schemes, where the Treasury paid good taxpayers’ money for rotten derivative products, were nicknamed ‘cash for trash’.

In Ireland, we have our own ‘cash for trash’ deal. It is called Nama. Here our government will buy trash from developers to keep the banks afloat and try to tell us this crud is worth something.

Imagine the government went one step further and, like Obama, vowed ‘‘never again’’. What could it do? Well, it could prevent banks from ever again getting involved in property and move back to a building society model. Remember: our ‘derivatives’ equivalent was commercial property,100 per cent mortgages and speculative development land deals. If we were to follow the US, the next move after Nama would be to ban the banks from getting involved in property again.

We could also change the rules associated with how much collateral we extend against property. In order to make sure that a property boom never happens again, we could restrict the collateral given against property to the ‘average’ price of the property for the last 30 years. We would never have a property boom again.

But such moves would imply learning from our mistakes. Is this something we do in Ireland? Or, putting it another way, are we, the parents, prepared to make the out of control teenagers pay for their mess? Nah, never, that would be too sensible.

The lesson from the Irish financial free house is: don’t worry, you can do whatever you want. These parents are a walkover.

© David for David McWilliams, 2010. | Permalink | 270 comments | Add to del.icio.us
Post tags: barack obama, nama, wall street

For years, it was thought that the “bone” in the rhyme referred to money, the Old Mother Hubbard was shorthand for all of us who forget to save in times of plenty, and the dog referred to anyone close-by who needed something to tide them over.

In fact, the rhyme may have a more complicated, political meaning, referring to the demise of Cardinal Wolsey and Catholicism in England. Wolsey was Henry the VIII’s trusted adviser and head of the Catholic Church. When he couldn’t deliver the Vatican’s blessing (the cupboard) of divorce (the bone), poor old doggie (Henry VIII) got nothing from the church. So the King set up his own church and the rest is history.

Whatever the origin, let’s go back to the idea that Old Mother Hubbard is someone who needs cash and goes to find whether she has put something aside for the bad times.

Now think of Brian Cowen as Mother Hubbard and consider the next stage of the Irish recession.

In the next year or two, Ireland will have to go to the cupboard to see whether we can sell assets for cash. That’s what happens when you are broke and can’t pay your bills. It is already happening in the real world. Have you noticed the mushrooming in the “cash for gold” business in recent months? These gold-buying outfits are now becoming commonplace on our streets. It has been like that for over two years now in Belfast, but it is only beginning to catch on here. I spent a lot of time recently in Belfast and was amazed to see the amount of shops — in reasonably well-heeled areas — advertising “your gold for cash”.

Whether North or South, the message is the same. People need cash and are selling their assets to get lolly. Like Old Mother Hubbard, we now have to go to the cupboard. Countries have to do the same and — strange as it may sound now, because it has not been talked about for years — Ireland will have to sell some of the family silver to stay afloat over the coming years. Privatisation is back on the cards.

This should not come as such as shock because if you look at any country which has experienced a debt crisis following a period of economic mismanagement, privatisation is a normal result. The chaotic Labour government in the UK of the late 1970s, which had to go cap-in-hand to the IMF, was followed by the privatisation agenda of Margaret Thatcher. Likewise, the humiliated Carter administration, which allowed American government spending to get out of control, was followed by Reagan’s home-spun conservatism supported by his economic catechism of “sell everything” (to your mates). You could even see the end of the Soviet Union being down to state and regime bankruptcy, which led directly to the privatisation of the Russian oligarchs. All around the world, the government that bankrupts the nation — this one and the last one in our case — is followed by one that must sell assets to balance the books.

For those of the right-wing persuasion this is a godsend, the “natural” opportunity that comes from crisis. For those of the left-wing view this is the incarnation of Naomi Klein’s “shock doctrine” where a crisis is engineered to force through policies which move ownership from the people to private shareholders.

Whichever way you look at it, it is likely to happen because we have no money to fill the potholes or to re-line our leaking reservoirs. But what if, like Old Mother Hubbard, Cowen goes to the cupboard and finds that while the cupboard is not quite empty, what’s left doesn’t amount to all that much.

What’s in the cupboard? Well, did you know we have a semi-state company for seaweed? Or do you remember that we have a separate commercial semi-state body for greyhounds? Or horses? As well as RTE, TG4 and, if we are in the flogging game, the port of New Ross, or Dun Laoghaire Harbour, Dublin Port and the ports of Cork, Galway, Drogheda and Waterford. We could also flog the National Lottery and Radio na Gaeltachta. What do you make of the cupboard so far?

It’s unfair to judge yet because the really big semi-states include CIE. This is Bus Eireann, Irish Rail and Dublin Bus together. The total revenue is €789m. Unfortunately, the total cost of operation was €1.18bn in 2008. The company also has a net pension liability of €560m. Maybe it’s not worth so much, on the market.

Then we have An Post. It made a profit in 2008 of €31m. Although it has a pension liability of €582.3m due to the financial downturn, which means the company has a shareholder’s liability of €212m. It is basically insolvent.

Oh my, oh my, the cupboard looks bare. What else is in there?

Bord Gais is an interesting one because it has been spending lots on wind farms. This is one that might be worth selling. It has good cash and not unreasonable debt in relation to its assets, and has 900 staff.

Bord na Mona has a profit of €19m on a turnover of €400m, which is hardly an O’Leary-esque return. But with a decent enough balance sheet we might get something for it.

ESB made a profit of €273m on turnover of €3.5bn last year; its net debt of €2bn seems high but if you look closer it has a €2.6bn pension deficit — of pensions it has promised to staff who have yet to retire.

Taken together, it seems that although this Government or the next one might want to sell its assets, there is not that much of significant value in Irish semi-states. That doesn’t mean they won’t be sold. Like the hundreds now selling their gold jewellery for cash, the forced seller never gets a bargain.

Yet again, Irish taxpayers will be shafted by our politicians. Old Mother Hubbard Cowen will go to the cupboard at the worst possible time and sell assets for the worst possible price. Maybe, like Cardinal Wolsey, this signals not merely a bad economic deal but the end of an era.

© David for David McWilliams, 2010. | Permalink | 331 comments | Add to del.icio.us
Post tags: semi-state companies