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Saturday, August 8, 2009
Friday, August 7, 2009
Economics 07/08/2009: Live Register - unemployment's deeper roots
Before we begin on Live Register - I would recommend an excellent post by Myles on Irish automotive sales - read it here.
So Live Register is in, prompting some cheerful commentary as per slowdown in the rate of increases in unemployment. Ahem... not that I noticed.
To be honest - there are some signs of a slowdown in the rate things deteriorate, true, but these are:
First CSO statement: "The seasonally adjusted Live Register total increased from 412,900 in June to 423,400 in July, an increase of 10,500. In the year to July 2009, there was an unadjusted increase of 197,495 (+82.9%). This compares with an unadjusted increase of 197,781 (+89.6%) in the year to June 2009. [So so far we are still in worse dynamics than in 2008 - pretty bad, wouldn't you agree?]
Note slight acceleration in females (more on this in a sec) and basically imperceptible changes in the slopes? So much for the 'green shoots'.
The real disgrace is in the unemployment rate - back to April 1995 now. Less than 14 months of economic destruction and 12 years of new jobs creation erased. Surely, Bertie would say that the doomers-and-gloomers should now hang themselves.
Weekly changes in the LR plotted above. Again, one note of caution - the averaging was done on 4 weeks basis in June and 5 weeks basis in July. If it was done on 4-weeks basis, the weekly average in July would be 4,286, still below 5,530 in June. Then again, July is a much slower month in general for any sort of business strategy change, let alone for mass layoffs. Let's wait till October/November... Again, note females - the average weekly change also declined, but at a much shallower rate, pointing to the pressures on female employment rising relative to males.
Now, to monthly rate of growth (chart above). The rate at which females are signing is up in monthly terms. This is the evidence of really bad news to come. Recall that layoffs happen sectorally and sequentially (meaning last in = first out). Females' job tenure is shorter than males' over economy, so if new sectors come on-line for mass layoffs, and these sectors are not dominated by males (like construction in the past), we should see an uptick in female unemployment rising faster first, followed by males in the same sectors. While there is no certainty as to whether this is what's happening, that blue line trending up in the chart above is a reason for concern and suspicion that a new wave of unemployment increases might be gaining mass.
Last chart is showing monthly figures deviations from the 3-mo Moving Average in total LR. This was converging toward the long run trend between January 2009 and May 2009 (the blue graph heading toward zero), but it now diverged again in June and July. Last time we crossed the long run trend line was in September 2008, which marked a smaller peaking cycle of April-August 2008. Duration of the last cycle was just 4 months. The current cycle is into 10th month and now apparently diverging further once again.
Other cycles were equally short-lived (2 months in 2007, 4 months in early 2008).
All of this makes me very conservative to call and 'improvement' - the series, in my view, are suggesting:
So Live Register is in, prompting some cheerful commentary as per slowdown in the rate of increases in unemployment. Ahem... not that I noticed.
To be honest - there are some signs of a slowdown in the rate things deteriorate, true, but these are:
- Hardly well-underpinned and can be easily reversed (see Female trends below); and
- Are pure mathematical (non-fundamentals-driven) in nature, as things must be asymptotically converging to some longer-term equilibrium at some point in time.
First CSO statement: "The seasonally adjusted Live Register total increased from 412,900 in June to 423,400 in July, an increase of 10,500. In the year to July 2009, there was an unadjusted increase of 197,495 (+82.9%). This compares with an unadjusted increase of 197,781 (+89.6%) in the year to June 2009. [So so far we are still in worse dynamics than in 2008 - pretty bad, wouldn't you agree?]
- The monthly increase in the seasonally adjusted series consisted of an increase of 5,100 males and an increase of 5,500 females. [Females now outnumber males - a sign that more dual unemployed families are being hatched under the nurturing light of our Government policies, and that better quality jobs are now being destroyed at a faster rate];
- The average net weekly increase in the seasonally adjusted series in July was 2,100, which compares with a figure of 3,000 in the previous month. [Sounds better, until you recognise that last months basis was 4 week, this month's basis is 5 weeks];
- The standardised unemployment rate in July was 12.2%. This compares with 10.2% in the first quarter of 2009, the latest seasonally adjusted unemployment rate from the Quarterly National Household Survey. [But it also shows that the rate of increase - by 0.3 percentage points per month - has been steady since May];
- In the month, the estimated number of casual and part-time workers on the Live Register was 37,415 males and 32,138 females [Which means nothing - nada - because many, if not a majority, of these workers are now facing hidden forms of unemployment, aka working, but not being paid on time!]
Note slight acceleration in females (more on this in a sec) and basically imperceptible changes in the slopes? So much for the 'green shoots'.
The real disgrace is in the unemployment rate - back to April 1995 now. Less than 14 months of economic destruction and 12 years of new jobs creation erased. Surely, Bertie would say that the doomers-and-gloomers should now hang themselves.
Weekly changes in the LR plotted above. Again, one note of caution - the averaging was done on 4 weeks basis in June and 5 weeks basis in July. If it was done on 4-weeks basis, the weekly average in July would be 4,286, still below 5,530 in June. Then again, July is a much slower month in general for any sort of business strategy change, let alone for mass layoffs. Let's wait till October/November... Again, note females - the average weekly change also declined, but at a much shallower rate, pointing to the pressures on female employment rising relative to males.
Now, to monthly rate of growth (chart above). The rate at which females are signing is up in monthly terms. This is the evidence of really bad news to come. Recall that layoffs happen sectorally and sequentially (meaning last in = first out). Females' job tenure is shorter than males' over economy, so if new sectors come on-line for mass layoffs, and these sectors are not dominated by males (like construction in the past), we should see an uptick in female unemployment rising faster first, followed by males in the same sectors. While there is no certainty as to whether this is what's happening, that blue line trending up in the chart above is a reason for concern and suspicion that a new wave of unemployment increases might be gaining mass.
Last chart is showing monthly figures deviations from the 3-mo Moving Average in total LR. This was converging toward the long run trend between January 2009 and May 2009 (the blue graph heading toward zero), but it now diverged again in June and July. Last time we crossed the long run trend line was in September 2008, which marked a smaller peaking cycle of April-August 2008. Duration of the last cycle was just 4 months. The current cycle is into 10th month and now apparently diverging further once again.Other cycles were equally short-lived (2 months in 2007, 4 months in early 2008).
All of this makes me very conservative to call and 'improvement' - the series, in my view, are suggesting:
- At least 60% chance of serious deterioration in September-November 2009; and
- A very significant sign of long-term unemployment rising through the roof.
Economics 06/08/2009: Travel Figures, Budget, ECB
Travel figures are in - abysmal showing for tourism and leisure industry here. As predicted, the fall off in foreign visitors to Ireland continues, while the number of Irish people traveling abroad is showing signs of stabilizing.
Per CSO:
Sadly, Michael O'Leary is on vacation or I would have brought to you his explicative in the address of the Leinster House on the latest CSO release. Instead - a picture:
Market to watch: RWR-Reit index and US financials.
How long the circus of our Exchequer meltdowns can continue, one of you asked.
In May this year I wrote in a related note (here): "Cowen also stated that "we have a way out that is working". Remember the brilliant German movie Downfall about the last days of the Third Reich? (See a reminder/spoof here). Say no more... our unbeloved leader is in a state of delusion that is equivalent to awaiting the arrival of a miracle weapon (which does not exist) as the real enemy tanks are crushing your city."
That was then. Now, we pretty much know that the Government has deployed all its imaginary weapons and divisions against the enemy. The latest signs from the Cabinet pronouncements (and this includes their advisers) suggest that the Government has assumed the enemy away.
They have borrowed up some €25bn on the estimated liability of of over €35bn (counting recapitalization demands) that in their view will get them (alongside NPRF cash and left-overs from 2008) through this year. The Government is so short-termist that they have no clue / plan/ idea as to what happens after.
From this vantage point - anything is possible. Note the latest ECB statement today:
ECB stated that there are “increasing signs that the global recession is bottoming out”. Eurozone economy's pace of contraction is “clearly slowing”. Compared to July when it was noted that the activity “should decline less strongly” than in Q1 2009 - the latest statement suggests the ECB is already pacing potential interest rates increases in months to come.
And then in Q&A, Trichet did leave open a possibility that growth outlook for the Eurozone might be revised upward in the forthcoming ECB Staff Macroeconomic Projections before September meeting. The forecast update might move growth from current -0.3% expected for 2010 to 0% or even the consensus level of 0.4%. Another issue is timing - the ECB used to forecast return to growth for Q2 2010. This time around, no mentioning of Q2 anywhere, suggesting they are moving for growth to resume in Q1. And then there was Trichet's view that deflation is temporary and that by the end of this year we shall see inflation.
All of this points to a rising interest rates environment sometime in 2010, possibly as early as the end of Q1 2010 if inflation firms up and growth resumes in Q1. Remember, all that quantitative easing will have to go somewhere - i.e into price increases. When that happens, Mr Cowen will be sweating profusely in his air conditioned Merc, because the la-la land of endless borrowing will be over in a second.
Before then, he will pile cash reserves through aggressive borrowings from the ECB to make sure he can pay public sector wages and keep unions from completely imploding. The ICTU/SIPTU have already sensed the weakened leadership and are ganging on Mr Cowen's positions left, right and center. The problem is that comes Q1 2010, the QE will be over, as will be the Lisbon vote, so Mr Cowen will face the real problem of having no cash left by, approximately Q2 2010 or possibly the end of Q2 2010 - depending on how his borrowing will go down in the next few months.
What bothers me most, however, is why on earth no one in the markets realising this?
Per CSO:
- Overseas visits to Ireland fell 15.1% to 636,600 in June 2009 compared to the June 2008.
- Visits by residents of the two main visitor markets declined substantially, Great Britain was down 19.8% to 260,700 and Other Europe fell by 12% to 219,600.
- Irish residents made 709,900 overseas trips in June 2009, 7.6% fewer than in June 2008.
- In the first six months of 2009, overseas trips by Irish residents totaled 3,439,300 or 9.8% less than in the same period in 2008.
- Six months total visits to Ireland from abroad fell by 10.7% to 3,304,100.
Sadly, Michael O'Leary is on vacation or I would have brought to you his explicative in the address of the Leinster House on the latest CSO release. Instead - a picture:
Market to watch: RWR-Reit index and US financials.
How long the circus of our Exchequer meltdowns can continue, one of you asked.
In May this year I wrote in a related note (here): "Cowen also stated that "we have a way out that is working". Remember the brilliant German movie Downfall about the last days of the Third Reich? (See a reminder/spoof here). Say no more... our unbeloved leader is in a state of delusion that is equivalent to awaiting the arrival of a miracle weapon (which does not exist) as the real enemy tanks are crushing your city."
That was then. Now, we pretty much know that the Government has deployed all its imaginary weapons and divisions against the enemy. The latest signs from the Cabinet pronouncements (and this includes their advisers) suggest that the Government has assumed the enemy away.
They have borrowed up some €25bn on the estimated liability of of over €35bn (counting recapitalization demands) that in their view will get them (alongside NPRF cash and left-overs from 2008) through this year. The Government is so short-termist that they have no clue / plan/ idea as to what happens after.
From this vantage point - anything is possible. Note the latest ECB statement today:
ECB stated that there are “increasing signs that the global recession is bottoming out”. Eurozone economy's pace of contraction is “clearly slowing”. Compared to July when it was noted that the activity “should decline less strongly” than in Q1 2009 - the latest statement suggests the ECB is already pacing potential interest rates increases in months to come.
And then in Q&A, Trichet did leave open a possibility that growth outlook for the Eurozone might be revised upward in the forthcoming ECB Staff Macroeconomic Projections before September meeting. The forecast update might move growth from current -0.3% expected for 2010 to 0% or even the consensus level of 0.4%. Another issue is timing - the ECB used to forecast return to growth for Q2 2010. This time around, no mentioning of Q2 anywhere, suggesting they are moving for growth to resume in Q1. And then there was Trichet's view that deflation is temporary and that by the end of this year we shall see inflation.
All of this points to a rising interest rates environment sometime in 2010, possibly as early as the end of Q1 2010 if inflation firms up and growth resumes in Q1. Remember, all that quantitative easing will have to go somewhere - i.e into price increases. When that happens, Mr Cowen will be sweating profusely in his air conditioned Merc, because the la-la land of endless borrowing will be over in a second.
Before then, he will pile cash reserves through aggressive borrowings from the ECB to make sure he can pay public sector wages and keep unions from completely imploding. The ICTU/SIPTU have already sensed the weakened leadership and are ganging on Mr Cowen's positions left, right and center. The problem is that comes Q1 2010, the QE will be over, as will be the Lisbon vote, so Mr Cowen will face the real problem of having no cash left by, approximately Q2 2010 or possibly the end of Q2 2010 - depending on how his borrowing will go down in the next few months.
What bothers me most, however, is why on earth no one in the markets realising this?
Wednesday, August 5, 2009
Economics 05/08/2009: Irish Exchequer - back into the furnace for a fresh meltdown
On to the Exchequer Returns for July 2009, then. As I predicted well back in February-March 2009, we are on track to reach the milestone of the total tax receipts falling below €31-32bn for 2009. I have not changed this prediction and I am still sticking to it.
The latest data is a disaster across the board:
Now onto details.
Tax Heads:
Now departmental expenditure (voted only):
Non-voted current expenditure is often overlooked by analysts, but the figures relating to the burden of our debt (just 18 months into the fiscal 'solutions' to our crisis) are telling. Interest on bonds now accounts for 10.2% of our entire tax revenue (up from 6.32% in 2008). Total cost of financing these bonds now amount to 13.55% of entire tax intake (up from 8.46% in 2008). We are already drowning in a sea of debt.
Two other notables in the table above:
And now to the conclusion: it is simply impossible to believe that these numbers can be interpreted by anyone - international or domestic markets participants, shy of the DofF own employees and the delusionary Government we have - as a confirmation that this Government has done anything to address the fiscal crisis. The July stats are simply a loud confirmation of what we knew all along - taxing yourself out of the fiscal overhang does not work! Never will!
The latest data is a disaster across the board:
- Tax Revenues are down 17.57% yoy in nominal terms, total revenue down 16.82% due to the increase in non-tax revenue, constituting, among other things a massive rip off of Irish consumers at the Dublin Airport and Dublin Port;
- Total current expenditure is up 4.55% yoy in nominal terms;
- As a percentage of GDP, tax revenue used to be 12.19% in 2008, now it is down to 10.99% thanks to the fall off in tax receipts, but overall current receipts declined from 12.41% of GDP to 11.29% - a bit shallower, as the Government continues to squeeze consumers and businesses for non-tax cash;
- Current expenditure has gone through the roof - rising from 14.18% of GDP in 2008 to 16.21% in 2009 - the real cost of public sector excesses (once social welfare increases are factored out);
- Current account deficit ballooned to €8.364bn in January-July 2009, an increase of 155% yoy. This used to account for 1.76% of the nation GDP in 2008. Now it is 4.92% and rising;
- Capital account deficit has gone to €8.075bn in January-July 2009 up 135.3% yoy, and as a share of GDP reaching 4.75% so far, as compared to 1.85% in 2008;
- Subsequently, overall Exchequer Deficit now stands at a whooping €16.44bn - up almost €10bn on 2008, or 145%. The ED now accounts for 9.67% of GDP, up from 3.61% in 2008. Remember that wishful thinking of a single-digit deficit for 2009? Gone in a blink of an eye;
- As a percentage of GDP our total annual borrowings have reached 14.72% in January-July 2009, up from 5.8% in 2008.
Now onto details.Tax Heads:
- Customs, Excise, VAT and CAT down 21-26% yoy;
- Income tax and VAT - two taxes paid by consumers - are rising in overall share of total tax revenue, as Mr Lenihan loads the burden of his Government's unwillingness to cut public sector waste onto the shoulders of average families;
- CGT down a whooping 69.35% yoy despite resurgent markets;
- Stamps down 64.12% yoy predictably;
- Unallocated tax receipts up 55% - presumably on the back of the Revenue going after middle classes to milk out every single penny left in their accounts - anecdotal evidence shows exactly such a predatory behaviour with Revenue officers querrying any out of line items such as medical expenses from families with 3-4 kids;
- Corpo tax is up stron 31.55%, but not because of any green shoots on business front - simply due to changes in the scheduling.
Now departmental expenditure (voted only):- Clownish numbers from D of Agriculture - spending up 35.12% yoy as the country is going into tail spin. Agriculture used to account for 2.3% of total voted expenditure. It now holds a 3.08 share. Soon, we will have agriculture - contribution to GDP 3%, as a burden on the Exchequer 6%;
- Only 5 departments show double digit reductions on 2008 spending - the minimum target for any serious fiscal stabilization programme in my view. Significantly, CMNR - down 32.16% on 2008, FA - down 19.28%, Transport - down 14.87% and AST down 14.51% are the only ones close or at the target (my minimum target for cuts is in the order of 15-20%);
- CRGA is down 6.05%. When this Government came to power, Brian Cowen has promissed the nation to put Irish at the heart of this Government's policies. Clearly, he is not too enthused about the objective... And yet, seriously speaking, the Department is miles away from serious change: at 6.05 reduction in expenditure, it is 9th ranked in taking appropriate measures out of 13 departments (15 less SFA and H&C);
- Incidentally, H&C are doing their job - they are up only 1.5% yoy despite having to face more demand for free medical services, defaults on medical payments and beraing some of the social welfare costs increases too - Mary Hearney is doing her job;
- Neither Finance Grou (down 9.06% only) nor D of Taoiseach (down 10.25%) are leading in the right direction.
Non-voted current expenditure is often overlooked by analysts, but the figures relating to the burden of our debt (just 18 months into the fiscal 'solutions' to our crisis) are telling. Interest on bonds now accounts for 10.2% of our entire tax revenue (up from 6.32% in 2008). Total cost of financing these bonds now amount to 13.55% of entire tax intake (up from 8.46% in 2008). We are already drowning in a sea of debt.Two other notables in the table above:
- Total non-voted current spending rose 19.24% yoy, with elections cost up 7.54% in 2009 and Oireachtas Commission costs up 6.69% - someone is living large out there in the public sector la-la-land;
- Nat Devel Finance Act spending is also up - 125%, now that is a current expenditure item, not a capital one.
- Income Tax 2.8% behind target, with a shortfall (cumulative) of €185mln;
- VAT is 6% behind target (as one could have predicted in the wake of our disastrous policy proposed and pushed through by the DofF boffins of raising VAT in a small open economy with competitive retail just across the border;
- Corpo and Excise are ahead of target because the boffins cannot forecast the least volatile and inter-linked (via imports of inputs) tax heads;
- Stamps 17.3% below target - which is predictable, unless you are DofF forecaster. You see, they think, alongside with our bankers, that people will simply bottom-out of not buying property etc. Alas, the bottom in the markets for investment and consumption is a Zero expenditure at home. We have some room to travel there still;
- CGT and CAT heads are now 16.7% and 14.4% below target; so
- Across CGT, CAT and Stamps, DofF boffins average monthly error under Budget 2009 (April) estimates is now around 6.1% per month! Wow - and that is for very well paid job-secure workers who have no other responsibilities aside form Budgetary estimates?
- So total tax receipts are now 3% below target. Linear projection implies another 5.2% in deterioration over DofF projections through December - an annual fall off the target of ca 8%, bringing tax revenue to €31.6bn not €34.4bn as envisioned in DofF's April 2009 framework.
And now to the conclusion: it is simply impossible to believe that these numbers can be interpreted by anyone - international or domestic markets participants, shy of the DofF own employees and the delusionary Government we have - as a confirmation that this Government has done anything to address the fiscal crisis. The July stats are simply a loud confirmation of what we knew all along - taxing yourself out of the fiscal overhang does not work! Never will!
Economics 05/08/2009: AIB Statement
AIB’s half-year report to June 30:
Now to my favorite – the denial of the obvious. A year ago almost to date, I recall AIB’s Eugene ‘Can’t See Anything Wrong With Me Self’ Sheehy said that Ireland does not have a problem with mortgages arrears. Oh, yes, he did.
So crunching through the report data, table above shows changes in impairments across the book. Home mortgages are recording a pretty hefty rise in arrears. And the table below shows just how severe is the problem in ROI.
Note the increase in the relative importance of defaulting mortgages in Ireland in qoq terms – from 66.26% of the total impaired mortgages pool to 80.2%!
And for overall stressed and impaired loans:
Tuesday, August 4, 2009
Department of Finance I: We love Ourselves and our Bosses
So Department of Finance has released its Capacity Review, 2009 a 61-page long document that is a gem of obtuse, double-speak bureaucratise, can't-get-my-head-out-of-that-rare-end-of... language that only a human pickled for decades in some sort of a secret Soviet Preservative can produce. It is, as I said, a gem and it is available here.
First, the off-the-starting-line analysis - the fact that this document was actually published is not a testament to the Department's 'openness' or 'transparency', but to the arrogance of its managers, who think that its contents actually present some sort of a strategy blueprint for the future and a fair assessment of its capabilities as of today.
Now, to the details (italics are mine):
Page 4 of the Executive Summary reads "The outcome of the consultation process and the discussions of the steering group for the review highlight 5 key messages which should shape and guide the future development of the Department’s role and capability. These 5 messages are:
1. The Department must continue to rise to the new challenges it faces, not because it is not
already doing a lot of things well, but in view of the combined impact of the internal and external
challenges set out in Chapter 5. [So, things are fine folks, we are just going to be doing what we've been doing to date. No need to stare. Oh, and by the way - the Department is clearly aiming to rise to the challenges, which should really be the same as in 'should be doing it's job', but hey - that would be too prosaic for warranting a Capacity Review...]
2. The Department must take a stronger outcomes-focused leadership role within the public service. This means taking a lead role and exercising central co-ordination and oversight in a more proactive and direct way in future. However, this must NOT mean micro-management or an over emphasis on process management. [Hold on, who appointed the DofF to the function of leadership within the Public Service?]
3. The quality of the Department's staff and a culture of excellence in performance are integral to meeting the challenges; these must be supported and enhanced through significant organisational and cultural change. [And that change would be?.. Oh, sorry - that would be a matter for another Strategic Review, then...]
4. Resources need to be continually deployed to match emerging priorities as has recently arisen in the financial services area. This includes the identification of functions the Department should not be performing or should be doing in different ways; and [Yes, you read it right - the DofF will be identifying itself those functions it should not be performing... Like a sovereign Legislature of sorts, not a Civil Service department (reporting to the elected Government)...]
5. Delegation and accountability must travel hand in hand, internally and externally. This should
allow for necessary streamlining of management grades. [This amazing - delegation and accountability normally start with the ability to hold the job, then with promotion - at least in the private sector. But in DofF - both are all about the management grades... This is our public sector culture at its worst].
And now to Staretegic Recommendations (note the word - recommendations):
Recommendation 1: Take a pro-active role in the modernisation of the Public Service
...In partnership with the Department of the Taoiseach, implementation of the Government Decision in relation to the Task Force on the Public Service must be a key task of the Department of Finance. [It is a real testimony to the arrogant, self-serving nature of the Public Sector in this country that DofF needs a statement of the bleeting obvious - it is required to implement the Government Decision, without questioning it, and without an external Capacity Review... They are being paid to do their job, they are not being recommended to do it!]
Recommendation 2: Lead e-Government
This recommendation complements (1) – progress in this area is crucial to the delivery not only of Public Service Reform and Modernisation and [sic] but also to development of the economy and society overall. [Without the DofF efforts on e-Goverment, it is clear that the entire humanity will suffer irreversible damages... This is from a Department that cannot produce a simple excel format for its own expenditure and revenue statements, reliant on a pdf format that is so far into the Stone Age version, you can't read it as a table into any spreadsheet...]
Recommendation 3: Take a more pro-active role in co-ordinating the State’s response to all spending proposals emerging from Social Partnership and any negotiations which ensue [The real masters of this country - the Social Partners... that routinely bite the dust on disagreements with the Trade Unions only to be resurrected like Phoenix from ashes to arrive at another carving up of the taxpayers' wealth pie between various cronyist interests... And this is a great benchmark of policymaking to pin your country's Fiscal and Financial Stability on?]
Recommendation 4: Support the development of a modern and sustainable Pension System
The Department of the Finance must continue to work with other Government Departments to meet the key pensions policy challenge of ensuring self-sustainability over the long term in a situation where the task of financing increased spending demands on the pensions system will fall to a diminishing proportion of the population. [Here is an amazing statement - the DofF should be fully aware that Public Sector pensions are not sustainable and that they cannot be made self-sustainable, for in order to pay for them, some grades and employees will be required to contribute more than 100% of the own salaries to pension funds.]
Recommendation 5: Ensure the maintenance of financial stability, the repair and long-term viability of the banking system and the reform of financial regulation [This does not refer directly to NAMA, but it talks about minimising the risk to the Exchequer. Incidentally, the word 'taxpayer' is not mentioned in the entire document even once. This is also an important recommendation from the point of view of human capital resources that DofF does not possess - discussed below]
Recommendation 6: Optimise Civil Service Training and Development [AKA, blabber]
(II) STRUCTURE
Recommendation 7: Develop a more flexible team based organisational structure [all about processes - not goals or objectives, but processes].
Recommendation 8: Streamline the Management Structure of the Department
The top management structure should be de-layered over time from the current sixteen positions at Assistant Secretary level and higher. This will involve both a greater degree of direct responsibility for the two top posts and a greater delegation of responsibility to the next management layers (Assistant Secretaries/Directors). [Notice, over time... indeterminate and ultimately not goal-posted - a train to nowhere].
Recommendation 9: Streamline requests for returns from other Departments and Offices
The Department of Finance should take further steps to eliminate duplicate requests for returns and statistics from Departments by increasing internal coordination and the management of such information. ICT has a crucial role in this area. [The fact that DofF employs no statisticians, and that its own staff ability to process and manage data in modern ways (see my comment on its disclosure documents format) is legendary for being poor, I guess 'streamlining' is really a secondary problem - getting basics right would be a much higher priority].
Recommendation 10: Develop HRM function; reorganise Corporate Services Division
[Yeah, folks, they have no HRM and CSD is their word for Services to DofF employees - in case you though it is about services provision for private sector...]
I skip 11 - too much Orwelian speak for a human being to wade through...
Recommendation 12: Increase delegation of work and accountability at all levels to allow for a more balanced structure and the development of staff at all levels The organisational re-design ...must be underpinned by fundamental changes in the approach to delegation of work and accountability for decision-making in the Department not only to remove the requirement for senior management to be occupied by day-to-day operational and routine decision-making and
allow more time to be directed at high-level strategic issues and planning but also to develop and provide opportunities for staff. The HRM function recommended at 10 above should support this by facilitating Divisions to build capacity at all levels. [I would have thought that this is about accountability for getting things wrong, but oh, no - we can't have that in our public sector. It is about who is accountable for making sure the loo has TP in it in ample supply - a Principal Officer or a Director?]
Recommendation 13: Enhance communications
The Department should further develop both its internal and external communications to reinforce roles and responsibilities and to optimise the flow of information to and from Departments, staff and external customers [This is like telling a elephant to be more graceful in polka dancing].
Recommendation 14: Enhance and support Mobility Policy
[No - not mobility of key specialists from the private sector to the desperately under-skilled 9more on this below) DofF - mobility of its own staff, lest they become bored of their menial tasks before Recommendation 12 takes hold at that TP-in-the-loo supply function junction].
Recommendation 15: Access to Specialist Skills
The Department should consider designating a greater range of posts for the redevelopment of specialist skills within the specialist areas of ICT, economic, accounting/actuarial and HR disciplines [Yeah, right... finally they are admitting they have no expertise in economics, accounting and actuarial sciences... but more on this below]
Recommendation 16: Pro-active staff-development
...a specific commitment to on-the-job training and mentoring of staff, including those who are newly recruited, promoted or assigned. Performance issues must be addressed and remedied at the earliest possible stage. [You mean there is no performance assessment in place already? There are no adequate remedy strategies in place? Newly recruited staff is not encountering a commitment to on-the-job training? How long has DofF been in operation? Months? Weeks? Days?]
Before we move on to the beefier parts of the Review, here are some facts:
MSc in Economic Policy Analysis - a joke that wouldn't get you employed in a small regional bank as a bank teller in a proper country... -2
MSc in HRM - well, they've admitted this function is not working anyhow so -5
Industrial relations - since Social Partners are all about that, cut this out too as a non-core thing for DofF -1
MSc in Others (apparently from Rosswell or Plant Mars) -2
MSc in Public Management / Public Administration / Public Service Studies - you can get that one by literally going to work in the public sector and doing not much else -12
Training and Education - what is this? a secondary school? -2
So total number of MSc holders = max 84 relevant/remotely relevant to the job... not exactly an overly-educated (but certainly a well paid) bunch... that is supposed to lead the Public Sector in reforms and blah-blah-blah in the age of knowledge economy...
End Part 1
First, the off-the-starting-line analysis - the fact that this document was actually published is not a testament to the Department's 'openness' or 'transparency', but to the arrogance of its managers, who think that its contents actually present some sort of a strategy blueprint for the future and a fair assessment of its capabilities as of today.
Now, to the details (italics are mine):
Page 4 of the Executive Summary reads "The outcome of the consultation process and the discussions of the steering group for the review highlight 5 key messages which should shape and guide the future development of the Department’s role and capability. These 5 messages are:
1. The Department must continue to rise to the new challenges it faces, not because it is not
already doing a lot of things well, but in view of the combined impact of the internal and external
challenges set out in Chapter 5. [So, things are fine folks, we are just going to be doing what we've been doing to date. No need to stare. Oh, and by the way - the Department is clearly aiming to rise to the challenges, which should really be the same as in 'should be doing it's job', but hey - that would be too prosaic for warranting a Capacity Review...]
2. The Department must take a stronger outcomes-focused leadership role within the public service. This means taking a lead role and exercising central co-ordination and oversight in a more proactive and direct way in future. However, this must NOT mean micro-management or an over emphasis on process management. [Hold on, who appointed the DofF to the function of leadership within the Public Service?]
3. The quality of the Department's staff and a culture of excellence in performance are integral to meeting the challenges; these must be supported and enhanced through significant organisational and cultural change. [And that change would be?.. Oh, sorry - that would be a matter for another Strategic Review, then...]
4. Resources need to be continually deployed to match emerging priorities as has recently arisen in the financial services area. This includes the identification of functions the Department should not be performing or should be doing in different ways; and [Yes, you read it right - the DofF will be identifying itself those functions it should not be performing... Like a sovereign Legislature of sorts, not a Civil Service department (reporting to the elected Government)...]
5. Delegation and accountability must travel hand in hand, internally and externally. This should
allow for necessary streamlining of management grades. [This amazing - delegation and accountability normally start with the ability to hold the job, then with promotion - at least in the private sector. But in DofF - both are all about the management grades... This is our public sector culture at its worst].
And now to Staretegic Recommendations (note the word - recommendations):
Recommendation 1: Take a pro-active role in the modernisation of the Public Service
...In partnership with the Department of the Taoiseach, implementation of the Government Decision in relation to the Task Force on the Public Service must be a key task of the Department of Finance. [It is a real testimony to the arrogant, self-serving nature of the Public Sector in this country that DofF needs a statement of the bleeting obvious - it is required to implement the Government Decision, without questioning it, and without an external Capacity Review... They are being paid to do their job, they are not being recommended to do it!]
Recommendation 2: Lead e-Government
This recommendation complements (1) – progress in this area is crucial to the delivery not only of Public Service Reform and Modernisation and [sic] but also to development of the economy and society overall. [Without the DofF efforts on e-Goverment, it is clear that the entire humanity will suffer irreversible damages... This is from a Department that cannot produce a simple excel format for its own expenditure and revenue statements, reliant on a pdf format that is so far into the Stone Age version, you can't read it as a table into any spreadsheet...]
Recommendation 3: Take a more pro-active role in co-ordinating the State’s response to all spending proposals emerging from Social Partnership and any negotiations which ensue [The real masters of this country - the Social Partners... that routinely bite the dust on disagreements with the Trade Unions only to be resurrected like Phoenix from ashes to arrive at another carving up of the taxpayers' wealth pie between various cronyist interests... And this is a great benchmark of policymaking to pin your country's Fiscal and Financial Stability on?]
Recommendation 4: Support the development of a modern and sustainable Pension System
The Department of the Finance must continue to work with other Government Departments to meet the key pensions policy challenge of ensuring self-sustainability over the long term in a situation where the task of financing increased spending demands on the pensions system will fall to a diminishing proportion of the population. [Here is an amazing statement - the DofF should be fully aware that Public Sector pensions are not sustainable and that they cannot be made self-sustainable, for in order to pay for them, some grades and employees will be required to contribute more than 100% of the own salaries to pension funds.]
Recommendation 5: Ensure the maintenance of financial stability, the repair and long-term viability of the banking system and the reform of financial regulation [This does not refer directly to NAMA, but it talks about minimising the risk to the Exchequer. Incidentally, the word 'taxpayer' is not mentioned in the entire document even once. This is also an important recommendation from the point of view of human capital resources that DofF does not possess - discussed below]
Recommendation 6: Optimise Civil Service Training and Development [AKA, blabber]
(II) STRUCTURE
Recommendation 7: Develop a more flexible team based organisational structure [all about processes - not goals or objectives, but processes].
Recommendation 8: Streamline the Management Structure of the Department
The top management structure should be de-layered over time from the current sixteen positions at Assistant Secretary level and higher. This will involve both a greater degree of direct responsibility for the two top posts and a greater delegation of responsibility to the next management layers (Assistant Secretaries/Directors). [Notice, over time... indeterminate and ultimately not goal-posted - a train to nowhere].
Recommendation 9: Streamline requests for returns from other Departments and Offices
The Department of Finance should take further steps to eliminate duplicate requests for returns and statistics from Departments by increasing internal coordination and the management of such information. ICT has a crucial role in this area. [The fact that DofF employs no statisticians, and that its own staff ability to process and manage data in modern ways (see my comment on its disclosure documents format) is legendary for being poor, I guess 'streamlining' is really a secondary problem - getting basics right would be a much higher priority].
Recommendation 10: Develop HRM function; reorganise Corporate Services Division
[Yeah, folks, they have no HRM and CSD is their word for Services to DofF employees - in case you though it is about services provision for private sector...]
I skip 11 - too much Orwelian speak for a human being to wade through...
Recommendation 12: Increase delegation of work and accountability at all levels to allow for a more balanced structure and the development of staff at all levels The organisational re-design ...must be underpinned by fundamental changes in the approach to delegation of work and accountability for decision-making in the Department not only to remove the requirement for senior management to be occupied by day-to-day operational and routine decision-making and
allow more time to be directed at high-level strategic issues and planning but also to develop and provide opportunities for staff. The HRM function recommended at 10 above should support this by facilitating Divisions to build capacity at all levels. [I would have thought that this is about accountability for getting things wrong, but oh, no - we can't have that in our public sector. It is about who is accountable for making sure the loo has TP in it in ample supply - a Principal Officer or a Director?]
Recommendation 13: Enhance communications
The Department should further develop both its internal and external communications to reinforce roles and responsibilities and to optimise the flow of information to and from Departments, staff and external customers [This is like telling a elephant to be more graceful in polka dancing].
Recommendation 14: Enhance and support Mobility Policy
[No - not mobility of key specialists from the private sector to the desperately under-skilled 9more on this below) DofF - mobility of its own staff, lest they become bored of their menial tasks before Recommendation 12 takes hold at that TP-in-the-loo supply function junction].
Recommendation 15: Access to Specialist Skills
The Department should consider designating a greater range of posts for the redevelopment of specialist skills within the specialist areas of ICT, economic, accounting/actuarial and HR disciplines [Yeah, right... finally they are admitting they have no expertise in economics, accounting and actuarial sciences... but more on this below]
Recommendation 16: Pro-active staff-development
...a specific commitment to on-the-job training and mentoring of staff, including those who are newly recruited, promoted or assigned. Performance issues must be addressed and remedied at the earliest possible stage. [You mean there is no performance assessment in place already? There are no adequate remedy strategies in place? Newly recruited staff is not encountering a commitment to on-the-job training? How long has DofF been in operation? Months? Weeks? Days?]
Before we move on to the beefier parts of the Review, here are some facts:
- 70% (table 4.4) of DofF employees thought they were doing a good job, even though they were concerned with losing institutional memory and lacked the skills to do core work. Preciously incongruous!
- (table 3.1) shows that DofF has more chiefs per employee count than the rest of the core Civil Service - they all are Chiefs, because the taxpayers are their Indians...
- Assistant Principals' grade - the core of the DofF - per page 28 upwards of 10% appear to have no degree level educational attainment and less than half have MA or MSc or MBS qualifications.
- Principal officer level only 20% seem to have any qualifications in economics, and there are only 4 degree holders in banking or banking and finance or finance or accounting;
- Administrative Officer level 23% have “single” degrees in economics and 28% “joint”. There appears to be nobody with MSc-level qualifications in accounting/finance, actuarial studies or statistics.
- There are no qualified PhDs, or Doctoral level graduates of any kind mentioned in the document.
- There are no CFA, QPA, CPA, no certified professionals mentioned at all.
MSc in Economic Policy Analysis - a joke that wouldn't get you employed in a small regional bank as a bank teller in a proper country... -2
MSc in HRM - well, they've admitted this function is not working anyhow so -5
Industrial relations - since Social Partners are all about that, cut this out too as a non-core thing for DofF -1
MSc in Others (apparently from Rosswell or Plant Mars) -2
MSc in Public Management / Public Administration / Public Service Studies - you can get that one by literally going to work in the public sector and doing not much else -12
Training and Education - what is this? a secondary school? -2
So total number of MSc holders = max 84 relevant/remotely relevant to the job... not exactly an overly-educated (but certainly a well paid) bunch... that is supposed to lead the Public Sector in reforms and blah-blah-blah in the age of knowledge economy...
End Part 1
Economics 04/08/2009: NAMA, Liam Carroll & Short Termist Bonds
I should make it a habit to direct every NAMA post reader to my proposal for NAMA 3.0 here.
Yeps, Supreme Court came in on the side of the Government, throwing a lifeline to NAMA and forcing taxpayers into deeper losses. My earlier note stand now (see here) with all the gory implications for losses on Mr Carroll's loans now being back in the NAMA court.
But two birdies have chirped to me that there is more brewing up in the land of NAMA-fantasy. Apparently, the rumor has it, the Government plan is to issue short term bonds to cover NAMA liabilities. Given that NAMA will start issuing bonds in 2010 for this undertaking, the short term nature rumored is for a 2011-2012 bonds.
This, if true, makes no sense for several important reasons. Here are some:
(1) Issuing short-term debt with maturity before 2013 is equivalent to a financial suicide. The reason is simple - there is no credible (or for that matter even an incredible one) commitment from the ECB that
(3) Short term maturity does not take into account the main risk to NAMA valuations, namely that by 2011 or for that matter 2013, the assets taken over by NAMA will be priced at any significant upside relative to what NAMA will pay for them, implying that, under short-term issuance, this Government will face the need to
Considering rolled up interest charges on impaired loans, banks' restructuring of interest payment schedules on so-called 'performing' stressed loans that in any other country would be classified as having defaulted, NAMA will be purchasing assets from the banks at an extremely shallow effective discount.
For example, a discount of 30% applied to a loan with 1.5 years (since July 2008 through December 2009) rolled up interest at 10%, and a built in re-financing cost of 1% will be equivalent to an effective discount of just 18.1% relative to the original principal of the loan itself. If, in the mean time, the underlying asset value itself has depreciated by, say 40%, then
NAMA will be buying a Euro 60 asset for Euro81.86. Now, in order for NAMA to recoup the original cost of purchase (not counting the cost of financing the purchase and managing the asset etc), the asset value needs to appreciate by a compound 36.4% within the span of the bond
finance. Thus between now and 2011 when the alleged bonds should mature, the annualized rate of appreciation required on the assets for NAMA just to recoup the original loan amount would have to be 16.8% per annum!
If anyone in the Department of Finance thinks this is a sane bet on a market turn-around, God help us.
Short-term financing of long-term obligations, as we should have learned in the current crisis, is equivalent to giving steroids to an unfit athlete and sending him out to run a marathon.
Though to repeat once again - this is just a speculation at this moment in time although two independent sources have tipped me on this one.
Yeps, Supreme Court came in on the side of the Government, throwing a lifeline to NAMA and forcing taxpayers into deeper losses. My earlier note stand now (see here) with all the gory implications for losses on Mr Carroll's loans now being back in the NAMA court.
But two birdies have chirped to me that there is more brewing up in the land of NAMA-fantasy. Apparently, the rumor has it, the Government plan is to issue short term bonds to cover NAMA liabilities. Given that NAMA will start issuing bonds in 2010 for this undertaking, the short term nature rumored is for a 2011-2012 bonds.
This, if true, makes no sense for several important reasons. Here are some:
(1) Issuing short-term debt with maturity before 2013 is equivalent to a financial suicide. The reason is simple - there is no credible (or for that matter even an incredible one) commitment from the ECB that
- such issuance can be rolled over at the same or lower interest rates to cover maturing bonds; and
- the EU will allow these bonds to remain off the balance sheet of the Government upon the roll over.
(3) Short term maturity does not take into account the main risk to NAMA valuations, namely that by 2011 or for that matter 2013, the assets taken over by NAMA will be priced at any significant upside relative to what NAMA will pay for them, implying that, under short-term issuance, this Government will face the need to
- engage in a massive refinancing operations
- at the time when its balance sheet liabilities will be almost at their peak (see Department of Finance projections);
- pay higher expected cost of borrowing than today; and
- potentially, load the NAMA liabilities onto Government own balancesheet, while
- facing market prices and demand for real assets that is well below the valuations applied by NAMA.
Considering rolled up interest charges on impaired loans, banks' restructuring of interest payment schedules on so-called 'performing' stressed loans that in any other country would be classified as having defaulted, NAMA will be purchasing assets from the banks at an extremely shallow effective discount.
For example, a discount of 30% applied to a loan with 1.5 years (since July 2008 through December 2009) rolled up interest at 10%, and a built in re-financing cost of 1% will be equivalent to an effective discount of just 18.1% relative to the original principal of the loan itself. If, in the mean time, the underlying asset value itself has depreciated by, say 40%, then
NAMA will be buying a Euro 60 asset for Euro81.86. Now, in order for NAMA to recoup the original cost of purchase (not counting the cost of financing the purchase and managing the asset etc), the asset value needs to appreciate by a compound 36.4% within the span of the bond
finance. Thus between now and 2011 when the alleged bonds should mature, the annualized rate of appreciation required on the assets for NAMA just to recoup the original loan amount would have to be 16.8% per annum!
If anyone in the Department of Finance thinks this is a sane bet on a market turn-around, God help us.
Short-term financing of long-term obligations, as we should have learned in the current crisis, is equivalent to giving steroids to an unfit athlete and sending him out to run a marathon.
Though to repeat once again - this is just a speculation at this moment in time although two independent sources have tipped me on this one.
Economics 04/08/2009: NAMA & Liam Carroll - the saga continues
Oh, you have to love the drama and tension surrounding NAMA.
The latest thing to hit the rumour mill as we expect this afternoon our Suprem Court's rulling on Liam Carroll's appeal of the High Court decision to deny his companies examinership protection is that, allegedly, BofI and AIB are considering a buy-out of ACC Bank. Now, this is a rumor at this moment in time, and I have to stress this once again - it is a rumor - but given that:
From our, taxpayers' perspective, this is equivalent to throwing children off the sleigh in hope of holding back the wolves. The only hope we have at this stage is that a swift turning down of Carroll's appeal by the Supreme Court throws these schemes wide open.
The latest thing to hit the rumour mill as we expect this afternoon our Suprem Court's rulling on Liam Carroll's appeal of the High Court decision to deny his companies examinership protection is that, allegedly, BofI and AIB are considering a buy-out of ACC Bank. Now, this is a rumor at this moment in time, and I have to stress this once again - it is a rumor - but given that:
- ACC can be, probably had for ca Euro130-140mln;
- ACC's books are so toxic (30% plus impairement across the property portfolio, 39% impairment across commercial property alone that its parent Rabo Bank would simply love to get rid of it for any sort of money;
- ACC's removal from the challenge to Liam Carroll and other developers would allow the big 3 of Ireland to continue on their chosen paths to the taxpayer-financed feeding trough of NAMA;
- ACC's buyout wouyld please the masters in the Government; and
- NAMA would more than compensate the buyer for the extra cost (say ACC is bought at a 50% discount to the book, then NAMA buys roughly 75% of former ACC 'assets' at 30% discount, implying a nifty return of Euro 5 per original expenditure of Euro 100, and you get to keep 25% of the ex-ACC assets too...
From our, taxpayers' perspective, this is equivalent to throwing children off the sleigh in hope of holding back the wolves. The only hope we have at this stage is that a swift turning down of Carroll's appeal by the Supreme Court throws these schemes wide open.
Monday, August 3, 2009
Economics 03/08/2009: EU unemployment - no Green Shoots in sight
EU unemployment still climbing up: in June - the latest available data - 21.5 mln people, 8.9% of the labour force - were out of work in the EU27. The unemployment rate reached 9.4% for the Eurozone, the highest level since 1999. Spain (18.1%), Baltics (Latvia 17.2%, Estonia 17%, Lithuania 15.8%) led the EU27 in unemployment rate, followed by Ireland (12.2% and catching up).
The number of people unemployed increased by 246,000 in June relative to May. This is much slower than the gain of 646,000 recorded in March, but it nonetheless a continued increase. 
So see if you can spot the 'green shoots' or bottoming out in unemployment that the EU has been talking about on the back of the latest figures (chart above). No flattening in the rate of increase since April 2009 moderation on March disastrous figures...
The above tow charts are rather telling as well.
Sunday, August 2, 2009
Economics 03/08/2009: Lessons from Roubini for NAMA, Euro area GDP, Wages Falling in Ireland
NAMA has dominated newsflow in this country and on this blog. But the world around us still evolves to the laws that ignore the existence of the Senile Trio of Brian+Brian+Mary. So to recognize this - few housekeeping items that built up over the week.
First, the Eurocoin is out and it is time to update my Euroarea GDP projections. Chart below summarizes.
Main features to note:
There are interesting NAMA-related bits in Roubini’s forecasts: “In order not to impair the banking sector’s lending ability permanently, a quick disposal of bad assets is warranted. Lending to the private sector is slowing quickly, and for small and medium sized enterprises with no access to capital markets, bank credit lines represent the only recourse for liquidity. Based on IMF and ECB estimates, total bank losses in the eurozone will amount to between $650 billion and $900 billion, implying substantial additional recapitalization costs.” So two things jump out:
In the mean time, ISME survey (2,000 firms participating) last week showed new rounds of wage cuts unfolding in Irish SMEs. main highlights are:
Jack O'Connor of SIPTU was not available for a comment on these.
First, the Eurocoin is out and it is time to update my Euroarea GDP projections. Chart below summarizes.
Main features to note:- Eurocoin improved in July, for the 5th month in a row;
- My forecast for Eurocoin to move in August and September marginally down from its current -0.42 position to -0.44-0.45 and stay there through September/October, awaiting a decisive move (either up or down - a 50:50 chance from this point in time) for either an W-shaped recession or something with a single (albeir of unknown duration) bottom;
- My forecast for June and July Euro coin came in relatively well -0.52 as opposed to Eurocoin measured -0.61 to -0.42. Bang-on in the middle.
There are interesting NAMA-related bits in Roubini’s forecasts: “In order not to impair the banking sector’s lending ability permanently, a quick disposal of bad assets is warranted. Lending to the private sector is slowing quickly, and for small and medium sized enterprises with no access to capital markets, bank credit lines represent the only recourse for liquidity. Based on IMF and ECB estimates, total bank losses in the eurozone will amount to between $650 billion and $900 billion, implying substantial additional recapitalization costs.” So two things jump out:
- NAMA is going to draw down ca €90bn of taxpayers funds to repair, hmmm €90bn in banks bad debts. Across the entire Eurozone, a 7% Tier 1 capital requirement against the backdrop of $650-900bn in total banks losses expected by Roubini will require (RWA inclusive) around €52-73bn in recapitalization costs – €37-51bn. The idiocy of NAMA is that we will spend more in recapitalizing our puny banking system than would be required to support the entire Eurzone! This shows why the IMF (see here) thinks that direct equity take over by injecting capital into the banks works more efficiently than what NAMA is proposing to do.
- The second point of relevance to NAMA is that of speed of repairs. Roubini is clear that time is of essence. Of course, our Brian+Brian+Mary squad has sat on their hands for over a year now, doing preciously little other than panic-driven measures (blanket guarantees, rash recpaitalizations without proper equity transfers, nationalization of the dodgiest bank possible, followed by another rash recapitalization round, NAMA announcement, the extension of the guarantees…) But even more interesting is the fact that even if everything goes as planned by our Triumvirate, NAMA repairs will not bite in until January 2010 – 29 months after the crisis in the global financial markets started to unfold and 17 months after this Government bothered to recognize the reality of the challenges we face. If that is ‘a quick disposal of bad assets’ that ‘is warranted’ per Roubini, God help us.
In the mean time, ISME survey (2,000 firms participating) last week showed new rounds of wage cuts unfolding in Irish SMEs. main highlights are:
- 94% of SMEs have introduced pay cuts / freeze since the start of the year, 45% have introduced a pay cut, with 49% implementing pay freezes. Only 6% paid some wage increases;
- 50% of the companies cut working hours;
- Average pay cut was so far 13%;
- 26% of companies are still planning fresh redundancies in the next 3 months (August-October).
Jack O'Connor of SIPTU was not available for a comment on these.
Economics 02/08/2009: An idiot's guide to tax policy
Remember that senile reply that the Irish Times has published to my conjecture that higher taxes in Irish airports will hurt Irish tourism and ultimately will cost the Exchequer? Feel free to refresh this case here and here - the original piece that caused the Irish Times editorial page implosion).
Well, don't take my word for it, or CSO's figures - these are not sufficient for our wise ex-IMF Directors. Here are the hard jobs...
"Ryanair, the World’s favourite airline, today (30 July 09) announced 20% flight cuts at its Dublin base for the coming winter schedule (09/10). Compared to winter 2008/09, when Ryanair based 18 aircraft, and operated 1,200 weekly flights, Ryanair’s Dublin schedule this winter will be cut by 22% to 14 based aircraft with 20% fewer flights at less than 1,000 each week. Ryanair estimates that its Dublin traffic this winter will decline by a further 250,000 passengers compared to last winter’s figures, as Dublin Airport loses over 2m passengers overall in 2009.
Ryanair’s decision to cut based aircraft flights at Dublin Airport is for the following reasons:
a) Dublin is one of Ryanair’s two most expensive base airports (Stansted is the other).
b) Costs at the DAA monopoly continue to increase at above inflation rates.
c) The Aviation Regulator continues to rubber stamp unjustified Dublin Airport cost increases while costs at most other UK and European airports are falling.
d) The Irish Govts €10 tourist tax makes Ireland an uncompetitive tourist destination at a time when other European Governments have scrapped their tourist taxes.
e) Traffic at Dublin airport is collapsing (down 11% or 1m fewer pax in the first half of 2009) under the weight of these high airport fees and this stupid tourist tax.
The fact that the DAA monopoly are proposing further price increases at a time when most other UK and European airports are reducing their prices, highlights the damage being done to Irish aviation and tourism by this high cost, inefficient, badly run airport monopoly. Ryanair has repeatedly called on the Government to scrap the €10 tourist tax which has had an equally devastating impact on Irish tourism. Ireland cannot grow tourism by taxing tourists. The Belgian and Dutch Governments have recently scrapped their tourist taxes, and the Spanish and Greek Governments have reduced their airport fees in some cases to zero this winter in order to reverse traffic declines.
Ryanair’s Michael O’Leary said: “...The high and rising costs at Dublin Airport, combined with an insanely stupid €10 tourist tax, are devastating tourism here in Ireland. These cuts come just one day after Ryanair announced 39 new routes to the Canaries this Winter where the Spanish Government has reduced airport fees to zero. Last week Ryanair announced 11 new routes to Oslo airports this winter where again airport fees have been substantially reduced. The response of the Government owned DAA monopoly to this 11% traffic collapse is to seek yet further price increases! The incompetent Irish Aviation Regulator has already proposed that Dublin airport charges for 2010 onwards will be “18% higher” than they would be if the DAA’s traffic was not declining. Sadly the DAA gets rewarded by the regulator with price increases for its abject failure to grow and stimulate traffic."
So how much revenue to the economy and the Irish Exchequer is being lost? May be Michael O'Leary can sum it up.
I have nothing to add, other than perhaps to ask the Irish Times editorial team to filter economically illiterate arguments out of its pages in the future - just because someone writing an article signed 'ex-director of IMF and career ex-civil servant from Ireland' doesn't mean that they actually have much to say that is valid. Quite likely, it means the opposite...
Well, don't take my word for it, or CSO's figures - these are not sufficient for our wise ex-IMF Directors. Here are the hard jobs...
"Ryanair, the World’s favourite airline, today (30 July 09) announced 20% flight cuts at its Dublin base for the coming winter schedule (09/10). Compared to winter 2008/09, when Ryanair based 18 aircraft, and operated 1,200 weekly flights, Ryanair’s Dublin schedule this winter will be cut by 22% to 14 based aircraft with 20% fewer flights at less than 1,000 each week. Ryanair estimates that its Dublin traffic this winter will decline by a further 250,000 passengers compared to last winter’s figures, as Dublin Airport loses over 2m passengers overall in 2009.
Ryanair’s decision to cut based aircraft flights at Dublin Airport is for the following reasons:
a) Dublin is one of Ryanair’s two most expensive base airports (Stansted is the other).
b) Costs at the DAA monopoly continue to increase at above inflation rates.
c) The Aviation Regulator continues to rubber stamp unjustified Dublin Airport cost increases while costs at most other UK and European airports are falling.
d) The Irish Govts €10 tourist tax makes Ireland an uncompetitive tourist destination at a time when other European Governments have scrapped their tourist taxes.
e) Traffic at Dublin airport is collapsing (down 11% or 1m fewer pax in the first half of 2009) under the weight of these high airport fees and this stupid tourist tax.
The fact that the DAA monopoly are proposing further price increases at a time when most other UK and European airports are reducing their prices, highlights the damage being done to Irish aviation and tourism by this high cost, inefficient, badly run airport monopoly. Ryanair has repeatedly called on the Government to scrap the €10 tourist tax which has had an equally devastating impact on Irish tourism. Ireland cannot grow tourism by taxing tourists. The Belgian and Dutch Governments have recently scrapped their tourist taxes, and the Spanish and Greek Governments have reduced their airport fees in some cases to zero this winter in order to reverse traffic declines.
Ryanair’s Michael O’Leary said: “...The high and rising costs at Dublin Airport, combined with an insanely stupid €10 tourist tax, are devastating tourism here in Ireland. These cuts come just one day after Ryanair announced 39 new routes to the Canaries this Winter where the Spanish Government has reduced airport fees to zero. Last week Ryanair announced 11 new routes to Oslo airports this winter where again airport fees have been substantially reduced. The response of the Government owned DAA monopoly to this 11% traffic collapse is to seek yet further price increases! The incompetent Irish Aviation Regulator has already proposed that Dublin airport charges for 2010 onwards will be “18% higher” than they would be if the DAA’s traffic was not declining. Sadly the DAA gets rewarded by the regulator with price increases for its abject failure to grow and stimulate traffic."
So how much revenue to the economy and the Irish Exchequer is being lost? May be Michael O'Leary can sum it up.
I have nothing to add, other than perhaps to ask the Irish Times editorial team to filter economically illiterate arguments out of its pages in the future - just because someone writing an article signed 'ex-director of IMF and career ex-civil servant from Ireland' doesn't mean that they actually have much to say that is valid. Quite likely, it means the opposite...
Saturday, August 1, 2009
Economics 02/08/2009: Liam Carroll's case
For those of you who missed, here is my article from Saturday edition of Irish Daily Mail
An Irish person recently remarked to me in the context of NAMA that “If any other electorate in Europe, nay, the world, faced this scandal, their citizens would be on the streets.” They would. We have been led to believe that NAMA is a necessary solution for the banks having to write down the odious development debt acquisition of which over the years past was cheered on by the Government through tax breaks and the stamp duty widnfalls. In reality, NAMA is Ireland’s own financial Chernobyl – a self-inflicted devastation of taxpayers’ finances perpetuated for the sake of doing something about the crisis.
By denying the examinership to Liam Carroll’s six companies, the Irish High Court has put itself out as the sole branch of State that stands between the innocent taxpayers and this redlining reactor.
First, let me clearly state that I have no objection to proper developers who build what is truly demanded by the market. They too will be the victims of the NAMA debacle.
Pursued by a creditor, the ACC Bank, Liam Carroll has been languishing in the High Court for a better part of this week, awaiting a decision on whether he will be granted an examinership for six of his companies. An alternative for Mr Carroll was to face an appointment of a receiver – a sure bet that his companies will be shut down. This alternative has now come to its logical fruition – denying Mr Carroll the examinership, the court has forced him to face the music. Receivership is now all but inevitable.
The motivation behind this battle was NAMA. Mr Carroll would like his companies debt to be assumed by the state, allowing for them to continue as an ongoing concern. Mr Carroll even hoped to convince the folks running the bad bank to give him few quid to finish some of his
failed projects. A pipe dream for a businesses that, by his Senior Counsel’s admission generates just €22-23 million in annual revenue against the debts of roughly €1.4 billion. Now, do the maths – a company that was supposed to be bought by us, the taxpayers into NAMA will not be able to cover even 15% of its annual interest bill.
Mr Carroll’s case has serious implications for us all – the Irish taxpayers – as the underwriters of NAMA.
Mr Carroll’s Senior Counsel Michael Cush told the court that the six companies in question, had historically been very successful businesses. But he said more recently they had suffered credit problems, the downturn in the property market, and some “problems with investments”. Per Mr Cush, the companies are clearly insolvent and if liquidated, their unpaid debts will reach €1 billion. This indicates that there is no hope for a recovery of the business and that examinership was rightly denied to them.
But it also shows that there is not a snowballs chance in hell that NAMA will be able to recover any positive value from Mr Carroll’s companies, unless it forces his banks to write down at least €1 billion of some €1.4 billion in loans amassed. That NAMA will do nothing of the sorts, preferring to continue the circus of pretending that these businesses worth something in excess of their debts is clearly something that the courts disagree with.
The NAMA legislation published this Thursday states that the taxpayers will be paying for the current values of the banks loans, while the developers will be pursued for the original loans amounts. Mr Carroll’s case illustrates that currently insolvent businesses continue to accumulate liabilities (rolled up interest and fresh demands for continuity funding) that simply cannot be repaid, ever. These roll up debts are odious, for they are extended to the clearly insolvent companies in the hope that NAMA will simply cover them at a higher rate than the markets would were the banks to go out into the open trying to liquidate these development loans.
Which means that NAMA will be using our money to pay for the rolled up interest on top of already grossly overvalued loans of insolvent enterprises.
Do a simple math, with a 50% fall in the value of underlying assets, 11% interest charge on the non-performing loans and a 25% NAMA discount, the taxpayers will be overpaying for the assets they by to the tune of 70% plus. Put simply, imagine walking into a shop and seeing a TV set on sale. The sign reads: ‘Sale! Original price €100. Sale price €170”. That does look like Minister Lenihan’s bargain for the taxpayers.
Liam Carroll’s case also shows that over the last year, soft budget constraints for insolvent businesses, like Liam Carroll’s empire, were accepted by the banks solely on the anticipation of a state bailout. If not, these banks actively engaged in destroying their shareholders’ wealth by undertaking knowingly reckless decisions. Take your pick.
I have absolutely nothing against Mr Carroll's enterprises, other than the simple argument that if they are insolvent today, the should be shut down today and they should not be allowed to accumulate additional liabilities at our, taxpayers' expense.
The examinership case for Mr Carroll’s companies was not warranted from day one of his application to the court. Minimizing losses to the economy and the taxpayers resulting from his companies farcical ‘operations’ required an appointment of a receiver and no restructuring period under the examinership would have done any good to their solvency. If only the same wisdom of the courts can be applied to NAMA itself.
An Irish person recently remarked to me in the context of NAMA that “If any other electorate in Europe, nay, the world, faced this scandal, their citizens would be on the streets.” They would. We have been led to believe that NAMA is a necessary solution for the banks having to write down the odious development debt acquisition of which over the years past was cheered on by the Government through tax breaks and the stamp duty widnfalls. In reality, NAMA is Ireland’s own financial Chernobyl – a self-inflicted devastation of taxpayers’ finances perpetuated for the sake of doing something about the crisis.
By denying the examinership to Liam Carroll’s six companies, the Irish High Court has put itself out as the sole branch of State that stands between the innocent taxpayers and this redlining reactor.
First, let me clearly state that I have no objection to proper developers who build what is truly demanded by the market. They too will be the victims of the NAMA debacle.
Pursued by a creditor, the ACC Bank, Liam Carroll has been languishing in the High Court for a better part of this week, awaiting a decision on whether he will be granted an examinership for six of his companies. An alternative for Mr Carroll was to face an appointment of a receiver – a sure bet that his companies will be shut down. This alternative has now come to its logical fruition – denying Mr Carroll the examinership, the court has forced him to face the music. Receivership is now all but inevitable.
The motivation behind this battle was NAMA. Mr Carroll would like his companies debt to be assumed by the state, allowing for them to continue as an ongoing concern. Mr Carroll even hoped to convince the folks running the bad bank to give him few quid to finish some of his
failed projects. A pipe dream for a businesses that, by his Senior Counsel’s admission generates just €22-23 million in annual revenue against the debts of roughly €1.4 billion. Now, do the maths – a company that was supposed to be bought by us, the taxpayers into NAMA will not be able to cover even 15% of its annual interest bill.
Mr Carroll’s case has serious implications for us all – the Irish taxpayers – as the underwriters of NAMA.
Mr Carroll’s Senior Counsel Michael Cush told the court that the six companies in question, had historically been very successful businesses. But he said more recently they had suffered credit problems, the downturn in the property market, and some “problems with investments”. Per Mr Cush, the companies are clearly insolvent and if liquidated, their unpaid debts will reach €1 billion. This indicates that there is no hope for a recovery of the business and that examinership was rightly denied to them.
But it also shows that there is not a snowballs chance in hell that NAMA will be able to recover any positive value from Mr Carroll’s companies, unless it forces his banks to write down at least €1 billion of some €1.4 billion in loans amassed. That NAMA will do nothing of the sorts, preferring to continue the circus of pretending that these businesses worth something in excess of their debts is clearly something that the courts disagree with.
The NAMA legislation published this Thursday states that the taxpayers will be paying for the current values of the banks loans, while the developers will be pursued for the original loans amounts. Mr Carroll’s case illustrates that currently insolvent businesses continue to accumulate liabilities (rolled up interest and fresh demands for continuity funding) that simply cannot be repaid, ever. These roll up debts are odious, for they are extended to the clearly insolvent companies in the hope that NAMA will simply cover them at a higher rate than the markets would were the banks to go out into the open trying to liquidate these development loans.
Which means that NAMA will be using our money to pay for the rolled up interest on top of already grossly overvalued loans of insolvent enterprises.
Do a simple math, with a 50% fall in the value of underlying assets, 11% interest charge on the non-performing loans and a 25% NAMA discount, the taxpayers will be overpaying for the assets they by to the tune of 70% plus. Put simply, imagine walking into a shop and seeing a TV set on sale. The sign reads: ‘Sale! Original price €100. Sale price €170”. That does look like Minister Lenihan’s bargain for the taxpayers.
Liam Carroll’s case also shows that over the last year, soft budget constraints for insolvent businesses, like Liam Carroll’s empire, were accepted by the banks solely on the anticipation of a state bailout. If not, these banks actively engaged in destroying their shareholders’ wealth by undertaking knowingly reckless decisions. Take your pick.
I have absolutely nothing against Mr Carroll's enterprises, other than the simple argument that if they are insolvent today, the should be shut down today and they should not be allowed to accumulate additional liabilities at our, taxpayers' expense.
The examinership case for Mr Carroll’s companies was not warranted from day one of his application to the court. Minimizing losses to the economy and the taxpayers resulting from his companies farcical ‘operations’ required an appointment of a receiver and no restructuring period under the examinership would have done any good to their solvency. If only the same wisdom of the courts can be applied to NAMA itself.
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