Wednesday, March 11, 2009

The real Golden Circle of Ireland Inc: Updated

An excellent letter today in the Irish Times by Myles Duffy (do see a link to his blog here) puts into perspective the real extent of Ireland's Golden Circle - reaching, cancer-like deep into our public service leadership. I have questioned in this blog on several occasions the competency of the CBFSAI. Now, as Myles puts it in his letter (linked here):

"When the governor of the Central Bank appeared before the Oireachtas Committee on Economic Regulatory Affairs, ...the committee was reminded that the governor is paid an annual salary of €348,000, a figure that reflects the voluntary reduction taken last October from the €368,000 that he had hitherto been paid.

It is interesting to compare the salary for this position with those whose influence on global economic affairs is absolutely pivotal and whose utterances and nuances greatly affect the world investment climate and the effectiveness of economic recovery initiatives.

The US Federal Reserve system consists of 12 federal reserve banks ...supported by the Federal Reserve Board based in Washington DC. The system as a whole employs almost 20,000 people and the board employs 2,053. The annual salary of the chairman of the Federal Reserve Board, Mr Ber Bernanke, is $191,300 (€150,000), and was approved by the US Congress in February 2008.

The president of the European Central Bank, M Jean-Claude Trichet, oversees a staff of 1,499 and was paid €351,816 last year. He is also provided with a residence, in lieu of a residential allowance, but his salary is subject to EU tax, pension, medical and accident insurance deductions.

...The Bank of Canada’s governor, Mr David Dodge, whose seven-year term ended on January 31st, was paid on a salary scale with a maximum of 407,900 Canadian dollars (€250,000).

...Mr Hurley ...and seven [out of eight] of his predecessors formerly held the position of secretary general of the Department of Finance...
The salary of the governor is therefore influenced by that of the secretary general of the Department of Finance. This was set at €303,000 in September 2007 by the Review Body on Higher Remuneration in the Public Sector; the figure may have been reduced voluntarily by the current incumbent."

Given that Mr Hurley's position has none of the traditional demands of the Central Banks' chiefs across the world - he does not manage national currency, he has no role to play in interest rates and general monetary policy, etc - in terms of economic and financial functions he carries, he is largely a regulatory officer of the ECB. And yet he earns more than his real boss - the head of ECB. Vastly more when the cost of his pension and tax advantages to being located in Ireland are factored in. In fact, Mr Hurley is paid more in real terms than some of those whose names were listed as belonging to the Anglo's 10. This is pretty much all that needs to be said.

Update: In an unrelated (to the above) story, here is another potential affiliate (not quite a member) of the Golden Circle of those who have grown better off on the back of the Celtic Tiger. This time - from the shores of America. See this article in WSJ (here) - hat tip to PMD - on venerable and (for now?) honourable Senator Chris Dodd's dealings in Irish real estate...

Senator Dodd (D, Connecticut), Chairman of the US Senate Committtee on Banking, Housing, and Urban Affairs, is at the centre of the US policymakers efforts to deal with the financial crisis. He has been in the past insturmental in aggresive expansion of the Freddie-Fannie-Ginnie mandates to increase lending to lower income minorities - a move that has been at the heart of the current sub-prime mortgages collapse. Senator Dodd is also a senior member of the US Senate Committe on Foreign Relations and a member of the Subcommittee on European Affairs - a position of power that would require, one presumes, to keep any personal European affairs at arms length and spankingly clean. Adding more to the circus of titles, he is a member of the US Senate Committee on Rules and Administration - an entity responsible for setting rules of ethical conduct and compliance in the Senate.

Now, here are the main points of the story in WSJ:

"The story starts in 1994, when the Senator became one-third owner of a 10-acre estate, then valued at $160,000, on the island of Inishnee on Galway Bay. William Kessinger bought the other two-thirds share in the estate. Edward Downe, Jr., who has been a business partner of Mr. Kessinger, signed the deed as a witness. Senator Dodd and Mr. Downe are long-time friends, and in 1986 they had purchased a condominium together in Washington, D.C.

Mr. Downe is also quite the character. The year before the Galway deal, in 1993, he pleaded guilty to insider trading and securities fraud and in 1994 agreed to pay the SEC $11 million in a civil settlement. The crimes were felonies and in 2001, as President Clinton was getting ready to leave office, Mr. Dodd successfully lobbied the White House for a full pardon for Mr. Downe.

The next year -- according to a transfer document at the Irish land registry... -- Mr. Kessinger sold his two-thirds share to Mr. Dodd for $122,351. The Senator says he actually paid Mr. Kessinger $127,000, which he claims was based on an appraisal at the time. That means, at best, poor Mr. Kessinger earned less than 19% over eight years on the sale of his two-thirds share to Mr. Dodd. But according to Ireland's Central Bank, prices of existing homes in Ireland quadrupled from 1994 to 2004.

In his Senate financial disclosure documents from 2002-2007, Mr. Dodd reported that the Galway home was worth between $100,001 and $250,000. However, Mr. Rennie reports that in 2006 and 2007 the Senator added a footnote that reads: "value based on appraisal at time of purchase."

Mr. Dodd had good reason to add the qualifier. Senate rules call for valuations to be current and anyone who looked into the estimate would immediately spot Mr. Dodd's lowballing. A June 17, 2007 feature in Britain's Sunday Times did just that. "Diary" observed that in Roundstone "a two-bed recently made E680,000 ($918,000) and a cottage is currently on offer for E800,000." Noting Mr. Dodd's estimate of his property -- between E75,000 and E185,000 -- the diarist quipped, "to hell with the stamp duty, and form an orderly queue."

Mr. Dodd is busy these days blaming everyone else for the real-estate bubble and financial meltdown. But he owes his constituents and the Senate an honest accounting of his Galway property over the past 15 years. If its value grew with the rest of the area, he needs to explain why Mr. Kessinger handed it over for a song, why that isn't an unreported gift under Senate rules, and what role Mr. Downe might have played as a middleman.

More broadly, Connecticut voters might want to know why their senior Senator has hung around for years with Mr. Downe, the kind of financial scoundrel Mr. Dodd spends so much time denouncing.

Now, of course, this side of the Atlantic we would like to know - was Senator Dodd, presumably a US resident, liable for tax on his purchase of the land share and how this tax was assessed.

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