Economics 27/07/2009: NAMA, ILandP rate hike, US home sales and redemptions

So NAMA failed the first day of Cabinet debate. We know this much - even RTE managed to issue a post, although the Montrose boys lacking anything real to report managed to produce a cheerful note on the debacle. Oh, how much they want the State to succeed in soaking the private sector...

But what really hides behind the Cabinet in-decision? Well, it is rumored that not the (allegedly) ethical Greens, but Mr Cowen's own troops are unhappy about NAMA. Some senior ministers, as I hear, are saying 'Hold on, we'll have to face constituency out there one day and you are about to load an average person (25 yo+) in this country with some €20K in fresh debt from the bankers and developers alone'. Good for them. And I certainly hope the Greens also stand up and tell Mr Cowen where to pack that NAMA idea.

Oh, and apparently, the DofF men are saying that the 'long term economic' value under the NAMA formula will be based on, well, more than 5 and less than 9 years. Hmmm... What does this mean? It means that NAMA should be expected to break even (at the very least) were we to price the property assets to be purchased into NAMA on this 'long term' valuation basis. Ok... but...

First there is one majour issue here - in real world of economics, long-term market value usually means a long-term past average or trend. What it means for NAMAphiles is thatwe will be forecasting the values forward over some long-term horizon. Anyone familiar with forecasting knows that this, in reality, means that we will be in a completely arbitrary forecasting territory. In other words, for DofF to say we want to take current discounts based on future values projected 5, 7, or 9 years ahead is like saying 'we'll name the price and then justify it afterward'.

But wait, there is also a problem with the way the DofF is allegedly timing the cycle.

Calculated Risk blog (see below) - the top forecaster for US housing market shows expected time to the bottom in price in the US residential market of 5-7 years. Do you think we gonna get there in this time here in Ireland? No. We have had worse correction in the market to date than Japan, who are 20 years into the downturn in their property markets and still not seeing the light at the end of the tunnel.

And NBER research paper 8966 (BOOM-BUSTS IN ASSET PRICES, ECONOMIC INSTABILITY, AND MONETARY POLICY by Michael D. Bordo and Olivier Jeanne) has a handy set of charts at the end, showing the most recent busts in property markets in the OECD economies. Ratios of boom length to bust duration are (defining as boom - trough to peak prices, bust - peak to trough):

• Australia 1980s: 3 years of boom, 7 years of bust: ratio of 3:7;
• Denmark 1980s: 4 years of boom 7 years of bust: ratio of 4:7;
  
• Finland 1990s: 4 years of boom, 6 years of bust ratio of 2:3;
• Germany 1980s: 4 years of boom, 7 years of bust: ratio of 4:7;
• Ireland 1970s-1980s: 3 years of boom, 7 years of bust: ratio of 3:7;
• Italy 1970s-1980s: 3 years of boom, 6 years of bust: ratio of 1:2;
• Italy 1990s: 4 years of boom, 6 years of bust: ratio of 2:3;
• Japan 1970s: 2 years of boom, 4 years of bust: ratio of 3:4;
• Japan 1985-today: 6 years of boom and 19 years of bust: ratio of 6:19;
  
• Netherlands, 1970s-1980s: 4 years of boom, 8 years of bust: ratio 1:2;
• Norway 1980s-1990s: 4 years of boom, 6 years of bust: ratio 2:3;
• Spain 1970s-1980s: 2 years of boom, 5 years of bust: ratio 2:5;
• Sweden 1970s-1980s: 4 years of boom, 7 years of bust: ratio 4:7;
• Sweden 1980s-1990s: 3 years of boom, 7 years of bust: ratio 3:7;
• UK 1970s: 2 years of boom, 4 years of bust: ratio 1:2;
• UK 1990s: 4 years of boom, 7 years of bust: ratio 4:7

So average ratio is 1.874 years of bust per year of boom... and that means that, given we had 5 years of a boom that the historical data suggests a bust of 9.4 years duration at an average. That is 9.4 years to a trough in Irish property prices! Not to a realization of some miraculous 'long term economic value', but to a trough.

Well, let's take a look at the same data from the point of view of time to full return to pre-crisis property prices, or peak to trough (nominal prices):

• Australia 1980s: 18 years from 1981 through 1998;
• Denmark 1980s-1990s: 8 years (1979-1986) and 13 years (1986-1998);
  
• Finland 1990s: 1989-2004 or 16 years;
• Germany 1970s: 1973- today... oh yeah, right - some 36 years;
• Ireland 1979 to 1995 or 17 years;
• Italy 1981- through today... right, so that's about 29 years;
• Japan: 1973 through 1986: 14 years;
• Japan 1990- today: 20 years;
• Netherlands, 1978 through 1998: 21 years;
• Norway 1987 through 2003: 17 years;
• Spain 1978-1987: 10 years;
• Spain 1991-1998: 8 years;
  
• Sweden 1979-today or 31 years;
• UK 1973-1987: 15 years;
• UK 1989-2000: 12 years.
  

So average peak to trough for 'long term nominal economic value' is 17.8 years. Again, given our peak at 2007 we have to look forward to NAMA recovering peak valuations at around, hmmm... 2026... But wait - not all corrections were steep enough to match ours... so let's isolate those that were:

• Australia 1980s: 18 years;
• Finland 1990s: 16 years;
• Germany 1970s: 36 years;
• Italy 1981: 29 years;
• Japan 1990: 20 years;
• Netherlands, 1978: 21 years;
• Norway 1987: 17 years;
• Sweden 1979: 31 years;
• UK 1973: 15 years

Which yields an average of 22.6 years, pushing our recovery to beyond 2030. By this standard, a break even value for NAMA should be based on something closer to 15-16 years, if we are to take a 20-25% haircut on current book values of the loans.

So DofF is talking about under 9 years then... I see... ah, the poverty of expectations...

The Government has time to get it right - they have the entire month of August to sort the new piece of legislation on NAMA, outlining in details:

• Provisions for taxpayer protection;
• Complete and comprehensive balance sheet and cost/benefit analysis of the undertaking;
  
• Exact amount of equity the taxpayers will receive in return for NAMA funds (hmmm, 100% would be a good starting point);
• The exact procedures for divesting out of the banks shares in 3-5 years time with exact legal obligation to disburse any and all surplus funds (over and above the costs) directly to the taxpayers in a form of either banks shares or cash;
  
• The formula for imposing a serious haircut (60%+) on banks bond holders, possibly with some sort of a debt for equity swap;
• A recourse to all developers' own assets - applied retroactively to July 2008 when the first noises of a rescue plan started;
• The list of qualifications for any bank to participate in NAMA, including, but not limited to, the caps on executive compensation at the banks and the requirement to set up a truly independent, veto-wielding risk assessment committee at each bank with a mandatory requirement for a position of a taxpayers' representative on the board that cannot be occupied by a civil servant or anyone who has worked in the industry in the last 10 years;
• Provision for a taxpayers' board, electable directly by people, to oversee the functioning of NAMA;
• A condition that the banks must undergo loan book evaluation prior to transfer of any loans to NAMA, the results of which will be made public - on the web - instantaneously - and will impose a requirement on the banks to write down their assets, again before NAMA purchases any of them, by the requisite amounts to balance their own books in line with valuations;
• A condition that any loan purchased by NAMA be placed on the open market for the period of 2 weeks and that NAMA will not pay any amount in excess of the bids received (if any), with a prohibition for the participating banks to bid on these loans;
• A condition that every NAMA loan should be publicly disclosed, including its valuations and bids it receives in the auction stage of the process;
  
• A stipulation that all and any regulatory authorities (and their senior level employees) that were involved in regulating the banking and housing sector in this country take a mandatory pension cut of 50% and return any and all lump sum funds they collected upon their retirement;
• A provision for dealing with the speculatively zoned land to be acquired by NAMA, i.e orderly de-zoning of this land and transfer of this land to either public (if no bidders arise) or private use consistent with sustainable agricultural development, environmental improvements, public use or forestry;
  
• The measures to prevent banks from beefing up their profit margins through squeezing their preforming customers;
• The measures to force the banks to reduce their cost bases by laying off surplus workers;
• The measures for accounting (in a transparent and fully publicly accessible fashion) on a quarterly basis for NAMA operations and the performance of the state-supported banks.

If I forget something, please, let me know...


Oh and on the topic of IL&P predatory rate hike for adjustable rate mortgages, here is a brilliant argument as to why Minister Lenihan must intervene to stop the practice of soaking the ordinary consumers to pay for past banks follies. Read it and think - can any government, acting in the interest of the broader economy and taxpayers and voters be so reckless in its attempts to hide behind 'protecting the markets' arguments as to willingly sacrifice its own people on the altar of cronyism. And do remember - I am a free marketeer, and a proud one, yet I see no moral strength in Lenihan's arguments.


US data is now showing more serious signs of an uplift... or does it? Sales of new homes rose 11% in June is a sign that some decided to interpret as a return to growth. I wouldn't be so trigger happy myself - this is the largest rise in new homes sales since... oh you'd think like somewhere in 2006? no - since November 2008. This is volatile series and the seasonally adjusted rate of 384,000 new homes sales in a month is, while impressive, way off the old highs. Thus sales are still down 21.3% on already abysmal levels of 2008 so far this year.

Here is what my favourite US housing guys - http://www.calculatedriskblog.com - had to say about the latest rise: a W-shaped bottoming out is coming. And a superb chart from the source:
Or, in the words of the blog author:"There will probably be two bottoms for Residential Real Estate. The first will be for new home sales, housing starts and residential investment. The second bottom will be for prices. Sometimes these bottoms can happen years apart. I think it is likely that we've seen the bottom for new home sales and single family starts, but not for prices. It is way too early to try to call the bottom in prices. House prices will probably fall for another year or more. My original prediction (a few years ago) was that real house prices would fall for 5 to 7 years (after 2005), and we could start looking for a bottom in the 2010 to 2012 time frame for the bubble areas. That still seems reasonable to me."

And to me too. But what I would caution against is the optimism for the overall property markets. Here are two tidy little reasons:

One: US equitable redemptions are the lags between the property being reported as a non-performing on the loan book of a bank and the time it hits the foreclosure market. Now, these vary by state, with some states having no er provision at all, while others having 9 months plus. The US average is about 4 months. This is what is yet to be reflected in the 'distressed' sales gap - the gap between new home sales and existing homes sales. Chart below illustrates:
Again, the distressed gap is not closing, but both series are pointing up. Now, notice that around November 2008-February 2009, the days of the most fierce destruction of income and wealth worldwide, the number of existent properties on the markets did not rise. Why? The ER lags are kicking in. So take the average of 4 months and get June 2009 to start showing an increase in existent homesales rising - foreclosures are feeding in. This process is likely to continue through months to come.

Two: I would watch the maturity of securitized commercial loans... these are still looming on the horizon for the roll-over (and they are also a problem in Ireland, where most of commercial property lending was securitized)... Comes autumn, expect things to get tough once again... Oh, and then NAMA will coincide with the already tightening credit markets and will take a large chunk of liquidity our of the market... Gotta love that Lenihan/Cowen timing - like two elephants trying to dance polka at a Jewish wedding - loads of broken glass, but not to the delight of the newlyweds...

What's wrong with NAMA

For those of you who missed the latest article on NAMA from myself and Brian Lucey in the current issue of Business&Finance magazine, here is the unedited version.

To date, the prevailing discussion internationally on how to rescue failed banks focused on repairing their balance sheets. This ignores the underlying cause of the problem – the deterioration of their asset base. In fact, in the case of NAMA-type ‘bad’ banks arrangements, the cure compounds the asset base problems.

Two major questions arise in the context of NAMA.

First, we do not know how the assets can be priced in order to align the NAMA objective of repairing banks balance sheets (with an incentive to pay high price for transferred assets) and its duty to safeguard taxpayers interest (requiring the price to be set below the expected risk-adjusted value of the loans total).

Second, we do not know how the impaired assets will be treated under NAMA. One option is to keep them alive as zombie development projects awaiting realization decades from today. Another is to shut them down. Which option will be pursued will, in the end, seal the fate of large scale development land banks and half-baked development schemes across the country. It will also underpin political legitimacy of NAMA. And this is before we consider the fallout from a virtually inevitable future creep of NAMA remit to cover defaulting mortgages on principal residencies, credit cards debts and bad car loans.

Extent of the NAMA-bility

With respect to the first question, the US Treasury Department identifies the bad assets before they are actually fully impaired using financial models that estimate future loan values under different economic scenarios.

Ireland is yet to make even this first step, but currently neither the CBFSAI nor the Department of Finance and least of all the infant NAMA have the capacity to develop and administer such model-based testing procedures. Even after years of operations, CBFSAI have virtually no real expertise in risk management and pricing, while DofF has no real economics, finance and analytical capabilities to oversee a minor credit union, let alone to control NAMA. Thus, ex ante pricing transparency is the only guard the taxpayers have to limit NAMA’s monopoly powers.

So let us consider the loans that are non-performing, stressed or rolled over with little chance of repayments any time soon. Banks provisions for future impairment charges are currently running at ca 4-5%. Independent and even in-house analysts are forecasting that some 12-15% of the entire asset pool of the Irish banks can be under stress by 2010.

In our view, this is a lower bound of the true state as:

• loans under threat to date will almost certainly remain under threat through 2010;
• the first quarter of 2008 saw a relatively benign trading environment, so 2009 is going to see even greater rates of impairment; and
  
• the economic troubles underlying the rapid asset quality deterioration are set to deepen in 2009.
  

We know nothing about the recovery rate on these risky assets. But globally, AAA rated CDOs carry the recovery rate of only 32% on face value, while for mezzanine vehicles the recovery rate is only 5%. The default rates on the US corporate junk bonds (which are less risky than Irish development-linked loans due to their higher diversification, liquidity and transparency) is estimated to reach a whooping 53%, with a recovery rate of zero. Given the perilous state of Irish economy, and the extent of the property-related exposure for Irish banks we see as reasonable (or potentially even generous) a 45-50% average recovery rate on the stressed loans. This implies that the expected final losses on the entire 6-banks pool of €165bn in property exposure (ex-Poland) will be closer to 25-30%, or €50bn. For anyone who thinks that this figure is unrealistic, a recent McKinsey study showed, that out of $2 trillion of impaired assets the eventual writedowns may total $1.5 trillion or 67%.

The above loss rate implies that NAMA will be purchasing the impaired assets at less than 28% discount to their face value, should the Government set the price to keep the 6-banks capital ratios at 8% minimum required levels. Such a discount will imply an issuance of €36bn in fresh bonds to the banks, underwriting only €25bn in risk-adjusted assets on NAMA-held €50bn book of loans. The implied expected loss to the taxpayers from such an operation is €11bn in capital cost, plus ca €11.5bn in interest costs for a 5-year bond to be covered out of tax revenue and higher cost of banking.

It is worth noting that these costs of over €22bn for NAMA operations assume that Irish banks keep capital ratios at the required legal minimum after deleveraging their balance sheets. In other words, these losses do not fully insure the banking system against future capital demands.

But 8% capital requirement is now considered to be insufficient for operating a private bank. Instead, markets are demanding a minimum 10% capital ratio, with 12-14% being a golden target. If NAMA were to keep Irish banks private, the recapitalization demand for the 6-banks system due to the NAMA assets transfers will add another €4-8bn in costs to the Exchequer bill.

Note: should NAMA buy into €80bn in loans, as discussed in recent reports, the associated required maximum discount rate will be 23% and the total losses to the taxpayers will be €43-51bn.

How can toxic assets be priced?
Generally, assets on bank balance sheets are valued either at hold-to-maturity value or at fair value. Both frameworks fail in the current environment.

An alternative solution is that the Government can set up a two-stage process of buying stressed assets into NAMA. The first stage will involve a quasi-voluntary scheme that would establish a functional resale market for the stressed loans to be used in the second stage of purchasing.

To do so, the Government should set a basic level of discount on the assets based on the publicly verifiable valuation model. The discount should be fixed on the date of the scheme announcement to prevent future manipulation of the fair value by the banks. It should apply to all systemically important banks regardless of who holds the specific loan or what project it is written against. This will avoid political interference in the pricing of stressed assets.

Loans with interest and principal non-payment of less than 3 months can be sold at a fixed discount of, say 15% (reflective of the current expected default rates), loans with non-payment of 3-6 months can be sold at a fixed discount of 25% (a rate that is more consistent with the US experience and the ECB discount lending criteria). Non-performing loans in excess of 6 months and repeated roll-up loans can be traded at a 50% discount equal to their estimated default risk. This first-stage transfer will remove the most toxic paper off the balance sheets of the banks.

After the first stage establishes quasi-market pricing of the assets transferred to NAMA, the Government can retain the face value discount on other stressed assets, while allowing for some recapitalization support to be given to the banks that need it. The second stage involves using the same discounts on loans as in the first stage with the Government using additional bonds to swap for banks shares to cover some fixed proportion of the discount. In other words, the banks will still sell most impaired assets at 50% discount, but they will have an option to receive a roll-back of say 10-15% of the discounted value in the form of the NAMA taking new shares in the banks. For example, a loan package of €10bn with average non-payment of more than 6 months will be sold to NAMA for €5bn, but the bank involved will have an option to sell €500-7500mln worth of new equity to NAMA at the same discount on the share price as on assets sold to NAMA.

The advantage of this scheme is that the clean up of banks balance sheets will be systematic and non-distortionary.

The disadvantage is that it still saddles the taxpayer with the task of recapitalizing the banks after they take a hit on their capital base under the NAMA. This, however, is inevitable under all possible scenarios for toxic assets removal. In our view, the only real option to avoid the need for endless rounds of recapitalizations is to nationalize systemically important banks outright. Nationalization option will allow the Government to keep capital base of the banks at 8% limit, outside the markets demand for higher capital reserves. In addition, under nationalization NAMA can choose and pick specific assets off banks balance sheets to create a blended portfolio of loans with lower expected default rates.

Avoiding zombie land banks
The second problem with the Government proposal is that we do not have any idea as to how the impaired assets will be treated under NAMA. Upon purchasing the loan, the Government will have an incentive to keep the underlying assets alive as a zombie development projects. This is so because as long as the development-zoned land remains ‘active’ as an investment project it will retain some notional value on NAMA balancesheet, creating an illusion of value to the taxpayer. Of course, much of the existent recent vintage land banks that NAMA will end up holding will cover speculatively purchased agricultural and industrial land with virtually no hopes of being developed in the next 15-20 years.

Another option is to shut these projects down, de-zone the land and either release it into the market as agricultural land or retain it as public-use land. This option implies NAMA writing down the asset value of such land.

In our view, the Government will be wise to opt for the second option, converting improperly zoned development land into a mixture of leasable publicly-owned land (useable for sustainable developments) and commons (for public amenities, such as parklands). Incidentally, our pricing scheme described above incentivises such conversion as most of speculative land banks will fall under the heaviest discounted price category, minimizing the value of the write down and maximizing land rents to be collected on leasable lands.

This process will only be further enhanced by imposing a direct land-value tax on development sites, mentioned in this column in the previous issue.

Box Out: 8 reasons to mistrust ba-NAMA-rama

1. The potential for politicisation of the property and land valuations, combined with further politicisation of planning and development.
2. The lack of adequate oversight capacity in the Oireachtas even with the enhanced committee structure.
3. The lack of transparency in the pricing and valuation process.
4. The monopoly which it is to be granted on development and land related activity which is backed by lending from Irish institutions. There is a prima facia case here for very careful consideration of domestic and EU competition issues.
5. NAMA is to be granted portfolios of assets, regardless of whether these are performing or otherwise. Will performing borrowers whose loans are transferred to NAMA injunct such transfers on the grounds of reputational damage?
6. The skillsets required to manage a fundamentally distressed asset portfolio (NAMA) are lacking not only at NAMA, but across the entire public sector and most of the private sector.
7. The portfolio approach, where all loans in a portfolio regardless of quality are transferred, leaves NAMA open to mission creep with for example the potential for credit card, or auto loan portfolios being transferred in the future.
8. Finally, and most important there is the issue of the price to be paid for the assets of the banks.

Time to dump some bad risk? and ESB's rip-off 'investments'

EXCLUSIVE: Is it time to let Nationwide sink?
Here is an opportunity to show the financial world that we are serious about cleaning up the mess. It is also a good opportunity to show the world that we understand, as a country, that finance is about controlling the downside as much as exploiting the upside - in other words, that risky trades must be closed off. Nationwide is one of the riskiest plays in town - so the Government should let the stronger ones - including international banks - bid for the pieces. In other words, the Government should not mix Nationwide in with the systemic banks for nationalization or future re-capitalisations, or indeed NAMA cover.

Here are tomorrow's results from the Nationwide:

1. Loss after tax €243mln on a loan impairment charge of €464m (2007 pre-tax profit of €309mln), Operating profits €260mln
2. Total Capital at 10.2%, Core Tier 1 at 7.2% (not spectacular, but on par with other Irish banks - hardly impressive for internationals)
3. Total assets at €14.43bn - down 10% (unrealistic assessment, given equity and property markets conditions and shut down of land markets - details below)
4. Loan Book at €10.474bn - down 15% (so lending stalled, the patient is dead)
5. Customer accounts €6.785bn, so accounts cover 65% of loans - up from 59% cover in 2007 (but at what cost did Nationwide achieve this gain in cover?)
6. Cost-income ratio at 17% - the lowest among Irish financial institutions (i.e they have no soft-savings left to achieve as a cushion against future losses)
7. Liquid assets stand at €3.26bn - liquidity ratio of 24% - again, good luck to them if they think they can actually sell the stuff they hold against the loans...
8. Society reserves are at €1.2bn

"The Society did a very detailed examination of the loan book with the result that the sum allocated for provisions was a very robust figure of €464m for the year under review in line with market expectations... The Society’s loan book decreased in 2008 to €10,474m from €12,332 at the end of 2007. €1,339 of the reduction was attributable to the decline in the value of sterling; the balance was a reduction in capital balances. The commercial loan book now stands at €8,183m with the residential book at €2,291ml. As a result the total assets of the Society were reduced from €16,099m in 2007 to €14,429m in 2008."

So the impairment charge is of 3.22% of the total asset base and 4.43% of the property book. This is laughable. Also, Nationwide claims that as a part of its strategy it was actively reducing its exposure to commercial loans. But this active reduction took out at most only €331mln (16,099-14,429-1,339) in real assets, or ca 4%. This is in the time when property values fell over 20% and equity values are down more than 80%?

"Because of the reserves built up over the years from cumulative profits the Society was able to absorb the impairment provision. The Society still has total reserves of €1.2 Billion to absorb further impairment charges should they arise."

Well, now, suppose real impairment rises to 15% of the property-related loan book on commercial and 5% on residential. You have a need for €1.34bn in cash right there but you have only €1.2bn... and that is in the form of Tier 1 capital...

So are Nationwide's numbers (especially in the area of impairment) a case of exemplary management? Or of reckless 'ostrich' syndrome? You decide, but it does look to me like something is amiss. Here's what.

In 2008, Nationwide repaid some €750mln plus £500mln in debt securities, and in December 2008 it raised £325mln in new term notes maturing September 2010 (note the date?). But the beast still has €2.23bn in debt maturing in 2009 alone and "the Society plans to finance [this] through reduction of its loan book, the securitization of loans as well as the issue of new loans."

Yes, you did hear this right - securitization of loans (presumably Irish buy-to-let properties in the UK and Irish developers toxic waste in Ireland have strong market with ready buyers?). Of course they have no such hope, so in reality the Society is most likely looking for refinancing.

And here comes the confession: "the ability of the Society to raise wholesale funding on a continuing basis depends on the Government Guarantee. The Government intends in line with its previous indication to put a State guarantee in place for the future issuance of debt securities with a maturity of up to five years... The society's ability to remain a going concern and achieve its Business Plan is dependant on the continuation of Government support. As a systematically important institution Irish Nationwide was included in the guarantee Scheme. The Irish Government is committed to ensuring the continued viability and stability of systemically important credit institutions."

So here is Nationwide's survival strategy in a nutshell: "Give us more tax money! Now!"

In the end, Nationvile has €2.23bn of debt maturing this year alone and needs the extension of the Government guarantee to keep itself going. It also has an acute case of denial when it comes to potential losses it faces on its asset base and its loans, so it will need even more tax money to survive. This looks like they've gone to the markets to raise refinancing, but the markets laughed at them, they've gone to the auditors for a life-line on their NAV and they got that extension, so now its up to rich Uncle Taxpayer to rescue a systemically important private estate. Hmmm...


ESB's 'stimulus'
For shortage of time - more analysis of this is to follow, but in the nutshell, ESB announced new plans to 'create' 3,700 jobs through 2013... The Government & Opposition have welcomed the move that will see a notorious state monopoly

• using consumers' and businesses' cash (remember - it cannot pass cost reductions to its clients because it's out of town subsidiary - CER - doesn't let it)
  
• hire more grossly overpaid (remember, ESB runs a unionized closed shop with highest salaries in the entire public sector and work pracices that allow its employees draw full pay even when are asigned for years to plants producing absolutely nothing)
• to expand its dominance in the market that is so starved of competition, that much of our economy's competitiveness loss can be attributed to the ESB's existence.
  

This is a farce that passes in this country for industrial, fiscal and economic policies. Instead of breaking up a noxious monopoly, the state will allow ESB to piggy-bank the revenue it gains from ripping off its customers into 'developing new infrastructure such as smart metering and a system to allow for the recharging of electric cars'.

You might also notice that the two investment objectives are a red herring. Smart metering is already widely available and does not require any 'infrastructure' - you can install smart meter at your own home. Electric cars are about as widely spread in Ireland (or indeed anywhere else in the world) as dinosaurs. By 2013, this is unlikely to change.

Lastly, the Government has been calling for increasing ESB's and other state monopolies contributions to the Exchequer to compensate for some of the revenue losses incurred in this crisis. Now, the same Government is welcoming ESB chipping into this contribution. Who will make for the shortfall? Well, the same people who will be paying for those 3,700 new jobs to be 'created' by the ESB - you, me and the rest of taxpayers. ESB claims it can raise funding for the investment in private markets. Maybe so, but it can't raise funding for interest charges on the loans and it can't raise funding for paying lavish salaries to its new employees. At over €80,000 per average ESB job, this 'green investment' will cost the consumers some €300mln per annum in wage costs alone. Now that's what I call 'smart' metering.

WSJ today (here) has an excellent parallel story to the ESB circus.