Nama and bankers take their place as new cuckoos in the nest

During the Noughties Government buildings entertained interlopers.

The political process was supplanted by partnership. Bertie Ahern developed a cosy consensus that rendered Parliament redundant, an irrelevancy to the centre of power. The negotiation of pay and conditions formed only part of Partnership agreements. These dealt with social objectives in health, education and the elimination of poverty. ICTU and IBEC became pivotal to economic and social policy. There were called pillars. Their mandate was facilitated by Cabinet ceding authority, believing together they could solve the nation’s problems.

This transpired to be disastrous. Public service payroll costs more than trebled. Benchmarking resulted in extra pay for little additional productivity. Worst excesses are visible in the form of slush funds to pay for union officials’ training and travel. SIPTU and the HSE operated a forum with budgets in excess of €5 million to keep the lads happy. Government lost sight of the fact that union bosses and employer representatives’ overriding obligation is to look after their members — not the public interest. There was no appropriate discipline, dividing roles of gamekeeper and poacher. Calamitous consequences for the state, not keeping at arms’ length from vested interests, are part of our bust Bertie legacy.

Alarmingly, harsh lessons haven’t been learned. There is a new cuckoo in the nest. It is almost faceless, seeks no public profile, is unelected and has become omnipotent. In a myriad of separate policy areas they exercise overwhelming influence in outcomes of government decisions. Who? Nama and Bankers. Voters cast their ballots for Fine Gael and Labour, but ended up with public administration on behalf of the newest and biggest elite. They’re facilitated and prioritised above all else. While election promises are repudiated across-the-board, a variety of concessions (never previously advocated by either party) are granted to shore up balance sheets.

The budget provided the biggest ever tax giveaway to property investors. Section 23 tax relief was to be abolished. FG & Labour depicted it as a Fianna Fáil wheeze for their developer friends. These schemes won’t be terminated. Capital gains tax was increased from 25% to 30%. However, a new zero rate is to apply on all commercial property bought over the next two years, if retained for seven years. Stamp duty on similar property was slashed from 6% to 2%. If FF had introduced these measures, present ministers would have derided them as a speculators’ charter. Culprits of the property bubble are to be feted with unprecedented generous incentives. Despite all sectors of business craving credit and capital, it is buildings that are to be earmarked for bounteous stimulus.

This benevolence came from nowhere. It wasn’t contained in any election manifesto. The joint Programme for Government made no reference to these potentially costly concessions. There was no prior publicity on behalf of lobby groups vociferously seeking same. No one in the bailout troika mentioned any external insistence on these measures. However, behind-the-scenes, one can readily imagine how Nama and our two pillar banks would desperately seek steps that would stop assets on their balance sheet declining further in value. €31 billion was invested in Nama. €62bn was procured to recapitalise indigenous financial institutions, along with €21bn from the National Pension Reserve Fund. It’s apparent that their interests are now equated with the public interest.

The budget is only the visible beginning of their influence. A direct commercial conflict of interest emerged since 2007 between landlords and tenants. Business operators, who paid rent, couldn’t rewrite their lease terms to either exit or negotiate downwards the cost of their premises. Specific cast iron political pledges were made to abolish upward only clauses in rent reviews. This was resolutely opposed by Nama’s chief executive, Brendan McDonagh, who publicly argued that it would reduce Nama’s asset portfolio by 20% or €2 billion. Their views reigned supreme. Previous promises were jettisoned due to legal advice. In other words, Nama rules, okay.

When the ECB cut interest rates by 0.25% in November, there was an outcry by Kenny and Gilmore as AIB and Bank of Ireland declined to follow suit. Top bank bosses were summoned to Merrion Street, dressed down and told to comply. This month, when a further 0.25% ECB cut was announced, the same lending institutions didn’t respond. BoI’s total reduction was 0.15%. This time there was no clamour on behalf of customers and borrowers by the Taoiseach or Tánaiste. The entire purpose of Draghi’s cheaper money is to pull the Eurozone out of recession. If banks pocket these benefits, original objectives will not be achieved. Politicians have been told to button their lips, because propping up banks is the paramount national objective.

ISME and other representatives of small businesses have lobbied about lack of credit. They procured surveys showing crude realities on the ground of refused term loan and overdraft facilities. The Irish Bankers Federation insists these claims are false and exaggerated. The Government knows the overriding priority of indigenous banks is to downsize their balance sheets. Hence, they are happy to turn a blind eye to the starvation of cash-flow from lenders. Approval of the rollover funds is equated with new lending. Finance houses are deleveraging at a rate of knots — it’s costing jobs. Mortgage finance has evaporated.

One fundamental flaw that led to our banking collapse was an incestuous relationship between regulators and financiers. Liquidity crises evoked a ‘green jersey’ empathetic support, instead of rigorous independent regulation. Investment banks were deemed to be systemic to the economy. They weren’t and should’ve been put into administration, with consequent insolvency terms for bondholders through negotiation. Nowadays, we conceal the McCann FitzGerald/Ernst & Young reports into Nationwide. This is not in the public interest, but protects key individuals wielding enormous power.

Early in 2012, we are promised new bankruptcy legislation. This could favour debtors, if a copy and paste replica of the UK system is adopted. This would release more than 100,000 entrapped borrowers from the Celtic crash. Such a scenario wouldn’t facilitate the maximum punitive advantages to banks, who can terrorise customers with threats of judicial sanctions. Don’t be surprised who wins out, as Nama/IBF leverage their political muscles. The same logic will be articulated: “banks’ interests equal taxpayers’ interests”. A new tank is parked on the lawn of government buildings. The partnership commanders have been replaced by banker/developer/property aristocracy.

This subversion of democracy must be opposed. It’s short sighted. Fundamentally, there is nothing wrong with cheaper commercial property — it makes Ireland Inc more competitive. The market, rather than a lethal cocktail of politicians and property magnates, should determine asset values. Down the road, the endgame of resuscitated banks and Nama is that they will be sold off to investors. The state has no long-term interest in their nationalisation. There is every prospect in a decade’s time that another set of vulture capitalists will have raped the country with the collusion of politicians. Cui bono? Usual suspects.

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Wednesday, September 22, 2021

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