Fugue and Fog

August 5, 2014

With much fanfare the ESRI produced the following report last week https://www.esri.ie/UserFiles/publications/WP487/RN20140201.pdf

“The improvement in negative equity is important in the context of financial
stability, (Hellebrandt, Kawar and Waldron, 2009). The reduction in the value of
mortgage based assets can lead to a reduction in the availability of credit to
both households and firms as banks make provisions for an anticipated increase
in expected losses. The more mortgages that exit negative equity, the stronger
the balance sheets of Irish credit institutions.”

“The recovery in prices experienced in 2013 reduced the number in negative equity
to 268,000 by the end of the year, a fall of approximately 45,000.”

The report was followed by blanket coverage from RTE heralding the news as very positive.

The news is quite the opposite.

As stated in previous blogs, the return of a housing bubble upon which the above stats are based may be good news for the banks, but it is bad news for the general population. Housing bubble in Dublin has led to an increase in rents by 14% over the past 6 months with accompanying homelessness many losing their homes as they cannot afford such rises. Young couples cannot afford the asking prices to get themselves on the property ladder.

Vulture funds and cash buyers have propped up the housing market but a market that cannot provide housing for 3 times the main salary plus another salary, prices housing outside the range of young people starting on the housing ladder, is a property market that is dysfunctional. Today the Institute of Architects in Ireland have recommended a new approach to building of apartments, larger and more family friendly. To date there is a shortage of housing in Dublin in spite of 7 years of planning opportunities to respond to Ireland’s property crash.

What is good for the banks is based on misleading propaganda that blurs the truth.

ESRI have played a key role in propaganda that has misled the Irish public. Their Irish unemployment statistics have become impossible to fathom even to the point of deciding who is unemployed, or who is not. For example, http://www.citizensinformation.ie/en/social_welfare/social_welfare_payments/unemployed_people/self_employed_and_unemployment.html

“Self-employed people can become unemployed if their business has to close down. It may also be the case, though you continue to be self-employed the amount of work you are getting has reduced so much that it no longer provides you with a sufficient income.

If you find yourself unemployed or you are getting less work than before you may qualify for a job seeker’s payment. You do not need to de-register as self-employed to get a payment.”


According to Michael Hennigan: “The number of self-employed persons increased by 33,400 or +11.5% to 324,500 — likely including the assumed surge in farm numbers but maybe former construction workers who were part-time farmers are now treated as entrepreneurs.”

Over 2013, likewise there was a surge of numbers in the farming sector that were argued to be additional jobs due to statistical understating of numbers, criteria in previous years. This is the stuff of propaganda, folks.

Recent news that NAMA had sold large chunks of its property portfolio to vulture funds was hailed as great news for the economy. This weekend however we read of property developer, John Flynn, “comparing the state agency to North Korea and describing it as a cancer on the Irish economy” Sunday Independent, Aug 3, 2014.

The story of NAMA, employment statistics, housing bubble all point to a concerted effort to support Irish banks and their need to protect their capital base. Protecting the capital base of Irish banks instead of protecting the interests of Irish taxpayers who are prey to these banks is the story of broken promises, of government parties the Irish public trusted with this task, who have failed.

Irish banks are playing tough at the moment and seek investment and confidence from everywhere. One of these “pillar”  banks has been in the news posting return to profitability. According to Shane Ross  “In the near future there is likely to be a consolidation or another similar financial acrobatic for AIB.

What does this mean? As Noonan and AIB prepare for privatisation, small shareholders could be given one share in return for every six shares held.” Sunday Independent 3 August, 2014, Business 2. Ross is very much a lone voice in his efforts to throw light on the financial sector.

He makes the point if AIB had maintained their provision for bad debts at last years level at €738m instead of reducing the provision to this year’s $92m, they would have had to declare a loss of over €200m. Instead they posted a profit of €437m fanfared by RTE throughout the week. Needless to say any write-offs of mortgage debt fed into the lower figures on negative equity afforded by the ESRI above.

Its clear the fanfare fugue is taken up by all members of the titanic orchestra, RTE, ESRI, and others more of anon. If you are wondering what fugue means, “a contrapuntal composition in which a short melody or phrase (the subject) is introduced by one part and successively taken up by others and developed by interweaving the parts.”

Conor O Brien in Business 4, same paper, writes a defence of Ireland’s corporate tax code. He is head of tax at KPMG Ireland. he should go back to school.


Table 4 he might look at before initiating a misleading discussion on the ludicrous:

“Similarly for companies, they are taxed where they are resident or where they have a presence in the form of a branch”

I refer the reader to previous blogs here on corporate tax inversion. There’s obviously a lot of money a lot of money to be gained on how to set up a mailbox. In order to make this money, you need to leave your brain behind.

Being misled is becoming the new normal. According to the Israelis its normal to return fire leading to the death of 300 babies in recent Gaza conflict, to argue civilians are fair targets in a built up population where there is nowhere without civilians, to hunt people from their homes, decimate their economy and their property. Talk of sanctions against Israel and war crimes is off the table.  I digress on behalf of innocent lives lost.

Likewise, being misled is the new norm in international finance.

Mysterious Belgian buyer:

The establishment view is that the action by Mario Draghi in 2012 to introduce unlimited bond buying to bolster peripheral countries of the emu….


…was achieved without a shot being fired. However, speculation is increasing on a 2 hander between the FED and ECB with ECB taking up the slack of the FED’s slowdown in QE with ECB making large USTY purchases, story by Schiff and bloggers below.

It’s conceivable as part of quid pro quo, such purchases extend to the purchase of bonds of EU peripherals, but you’ll have to follow the trail yourself for now:

More bond purchases will be required with news BES has collapsed:

“Novo Banco, or New Bank, will be recapitalised to the tune of €4.9bn by a special bank resolution fund created in 2012. The Portuguese state will lend the fund €4.4bn. All of BES’s depositors will be protected as well as the bank’s senior bondholders.

Portugal’s central bank, which only days ago said that BES could be recapitalised by private investors, said the plan would involve no cost to the public purse because the loan would be temporary.

The Bank of Portugal expects the state to be reimbursed when Novo Banco is eventually sold to private investors.

– See more at: http://www.independent.ie/business/world/portugal-eyes-49bn-banco-espirito-santo-rescue-in-days-30482465.html#sthash.etReliRp.dpuf

Obviously those private investors changed their minds. Only private investors left are the governments of emu countries who freely fill from their taxpayers’ well.

It will be interesting to see if Irish taxpayers are asked to follow suit this Autumn following the stress tests of Irish banks.



until next time:



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