Honahan’s Golden Fleece

October 15, 2014

national-water-protest-against-water-630x419Hats off to this blog for so long highlighting the so-called “Double Irish” tax avoidance scheme mounted by some MNCs operating out of Ireland. Because of this minor fact and mounting international pressure, this loophole has been crimped in yesterdays budget.

The budget itself was strictly a non event ensuring that €8bn+ equivalent in full, an amount exceeding the budget for Education, is repaid to international bondholders; assurance that Ireland’s crippling interest payments on its quadrupled levels of debt growing to 130% of GDP, is paid back in full.

Soldiers of austerity, Dr Alan Ahearne of the Fiscal Council and Professor Honahan of the Central Bank, make us await opportunity to throw our hats in the air again, following their resignation.

Dr Alan Ahearne has hinted that he may resign if the draconian austerity measures advised by the Fiscal Council were ignored. They were.

The resignation of Prof Honahan is quite another matter. His power in Ireland must exceed that of Rasputin’s power over the Romanov’s.

While it would appear the Fine Gael/Labour coalition run the country on behalf of the people, there is an Everest of evidence that shows they are but toll keepers of the Irish Central Bank and the ECB and their consular presence in Ireland.

Honahan is no Friar Tuck of Robin Hood legend. He has more in common with the German greyfriar demon, Mephistopheles. He has played a critical role in forcing Ireland into bailout by the troika under more odious conditions, than meted out to Greece or Portugal.

Throwing cold water on burning of bondholders with obedient compliance to odious bond repayment terms, he acted as virtual PR of Jean Claude Trichet; he failed to vindicate the rights of Irish taxpayers, to fair and just burden sharing among bondholders.

He claimed achievement promissory note debt repayment obligations of circa €30bn amortized into long term bonds that achieved nothing more than minor clipping of interest repayments, was a successful outcome for Ireland.

In contrast:


As IMF put it:

“Key to Iceland’s recovery was [a] program [which] sought to ensure that the restructuring of the banks would not require Icelandic taxpayers to shoulder excessive private sector losses.”

While contrary views exist on capital controls and whether Iceland has emerged from its financial crisis, clearly Prof Honahan with the Irish government marching to his Pied Piper tune, is no Ólafur Ragnar Grímsson defending Icelandic taxpayers against bondholders.

So-called success  clipping interest rates on debt coupons has been largely due to Ireland brought into step with negotiations on the sovereign obligations of other jurisdictions, Portugal and Greece.

Yet even here Ireland has not achieved what Greece has achieved in its negotiations.

Honahan’s Golden Fleece

Honahan’s latest gambit caper for the Irish economy is a new twist on the concept of economic controls that show the damage a financialized false economy can do to the real economy. Value has no longer real value, its new value is dictated by financial paper trail evangelists.

Consider the background:

PRE-RECESSION GROWTH A THING OF THE PAST “The International Monetary Fund (IMF) has cut its global growth forecasts for 2014 and 2015 and warned that the world economy may never return to the pace of expansion seen before the financial crisis. In its flagship half-yearly world economic outlook, the IMF said the failure of countries to recover strongly from the worst recession of the postwar era meant there was a risk of stagnation or persistently weak activity.” U.S. stocks tumbled at the news. [The Guardian]

Not so… in Ireland  some spokespeople from the financial services industry stating growth projections of 6-8% for next year.

Do not be fooled by such propaganda from the financial sector.

Evidence of returned growth is argued to be the booming  property sector in Dublin fueled by cash buyers and vulture funds.

However the boom has a sting in its tail and is not all that it appears to be:

Prof Honahan of the Central Bank has a ludicrous plan to stop the growing property bubble in Dublin.

The boom is largely the result of shortages due to lack of construction activity and supply.

Irish leprechauns with pots of gold are to be fleeced.

These leprechauns got their pots of gold by buying pre the celtic tiger and would have seen their properties rise in value during the Celtic tiger years. They are part of Ireland’s silver haired golden circle and they have savings in the bank.

Honahan has his eye on their saving pots of gold.

There is extreme risk that a property bubble fueled by once off cash rich injections by rich family members will not last; property prices will collapse with adequate supply and the end of such fuel, never mind collapse due to rising interest rates.

A shortage of construction in the property sector especially in Dublin has seen property prices sky rocket through the roof with some price increases of 25% in less than 10 months. The property boom is fed by those people on double incomes wanting a home in a scenario of little construction activity and residential property shortages.

Of course these young people cannot afford the high property prices without white knights riding to their rescue. Such white knights exist in the form of their parents.

Drawing down on savings from an older generation cohort, Honahan is pleased to see this cash fuelling the new housing bubble; it firms up the capital base of the banks who can claim safer equity against the growing value of property.

He must know such people will be fleeced with such high risk built on unsustainable investment.

Pretending to put a ludicrous curb on property investment due for early next year, he must knowingly be fuelling the stampede bubble.

If you havn’t got rich parents, you cannot play this game. You must rent and suffer exorbitant rent rises fuelled by rising property values and property shortages. Its a short term economic fleecing with Honahan fuelling the bubble by announcing that in December next in order to quell the bubble, the Central bank will restrict lending from Irish banks to those with 20% of the equity in cash.

Most young people without help from their parents cannot afford the 10% cash down payment required for mortgages. Some may regard the requirement of 20% down payment as reductio ad absurdam.

But there is mephistophelian method in this madness that is engineered to create a stampede amongst remaining potential property buyers pumped with cash from their rich parents. We know this category is diminishing fast in number. There are some out there still with cash in their pockets and Prof Honahan wants to wring the marrow from the bone.

Put aside the fact that prices are so out of whack with what young people can afford, fairy tale illusions must be generated out of a fog of propaganda to pretend all is well with the banks and the Irish economy.

The reality is the property mess is but one component in a dysfunctional economy that is teetering on the brink. Such lies and deceits are the hot air of the ballooning  financial economy. Its a false economy, a paper based services economy that serves the banks and not the needs of the people.

Houses need to be built at affordable prices. In order not to compete with the inflated asset prices of current property prices, Honahan is suggesting that €200m be set aside to build social housing for those who cannot afford houses.

The consequence of this and similar policies is the ruination and extinction of Ireland’s middle class. Beset with property charges, water charges, USC’s  increased charges/taxes; their property now being looted by rich property funds and transferred to the 1%, Ireland’s middle class, is fast disappearing. Their young find property unaffordable.

A future tenant/rentier society with dependant  lower class starved of services in education and health capped by a rich 1% beckons.

This is the amortized cost of Ireland’s troika bailout. In essence, this is a banana republic model  growing differential conflict between rich and poor.

In order to save the Irish banks property prices have to remain high as the banks capital reserves are leveraged against loans already taken out. The banks are not lending into the construction sector.

The reality is Ireland’s economy is still in a dead cat bounce phase with economic recovery compromised by high levels of public and private debt.

“The CSO figures also show that during the same period there was also a decrease in quarterly household expenditure, which dropped €138 million to €19.6 billion.”

In order to save the financial economy, property prices must be retained at high levels; in order to save the real economy, property prices must be vastly lowered.

In the short to medium term, some will be fleeced. The good news is property prices will lower eventually because of gravity.

Ireland needs affordable housing not financial paper leveraging high property prices  based on hot air.

Caveat emptor.










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