Archive for June 16th, 2012

Quote of the Week

“Dear Greeks, create clear political conditions. Vote courageously for reforms instead of angrily against the necessary, painful structural changes. Your country will only be able to keep the euro with parties that accept the conditions of the international creditors. Resist the demagoguery of Alexis Tsipras and his (radical-left party) SYRIZA.” Front page of German edition of The Financial Times on Friday. Not generally welcomed by Greeks!

“All quantitative targets for the review were met, maintaining the strong performance in earlier reviews.” The IMF Sixth Review of Ireland’s bailout programme published yesterday. It’s no mean feat to have met quantitative targets, but the fact remains that qualitative targets like reforming personal insolvency, reforming competition in the professions and placing the Fiscal Advisory Council on a firm statutory footing have not been met. Elsewhere the IMF says “structural reforms are advancing as envisaged” but that’s not true in the sense of reforms are missing the deadlines outlined in the original Memorandum of Understanding.

Wake-up call of the Week

“Nonetheless, as a share of GNP, the net exchequer [public sector] pay and pensions outlay in 2015 is projected to be 0.4 percentage points below the 2008 level, representing a relatively modest decline.” The IMF Sixth Review of Ireland’s bailout programme confirms that savings in current pay to the public sector are being made with redundancies and cuts to allowances. However pensions have rocketed with a startling 53% more public sector pensioners in 2012 compared with 2008, and the net result is the cost of public sector pay and pensions is staying in line with 2008 levels, which in itself represented a 118% increase since 2000, comprising increased public sector employees of 35% and increased pay of 61%.

Image of the Week

Five days after the publication of the new Bacon report, there are people still in wonder at the judgment of economist and economics consultant, Peter Bacon and his thinking in getting/allowing NAMA nemesis Treasury Holdings to “commission” a report which included high-profile recommendations on NAMA. The report seems to have quickly disappeared from the national conversation, but what may be seen as the unpleasant whiff of opportunism might linger for some time to come.

In the Dail on Thursday, Independent TD Mick Wallace was granted 15 minutes to make a statement about his tax affair where previously he admitted to knowingly making a false declaration of €1.5m in VAT. That the national parliament gave time to such a statement, which was uploaded to Mick’s website here where it could just as easily have been read by anyone interested, says more about our parliament than perhaps it does about the Wexford deputy. Mick’s 15-minute contribution was described as a “Personal Explanation by Member” in the Dail schedule reproduced in part above. Wags were suggesting a different meaning of the word “Member” in this context.

Unbelievably the chairwoman of the Revenue Commissioners, Josephine Feehily (pictured below) has not been summoned before an Oireachtas committee to explain in general, if not specific, terms, the actions of the Revenue Commissioners which seemingly allowed a company director to walk away scot-free from a VAT under-declaration of €1.5m which will not now, seemingly, be paid. Josephine was summoned before a committee just after Christmas after pensioners had received letters threatening a claw-back in overpaid pensions.

Chutzpah of the Week

In Greece tomorrow they will be holding a re-run of their general election, and the betting is that there will either be stalemate (again) or an anti-Memorandum government will emerge which will lead to Greece’s short-term exit from the euro. One of the parties contesting the election is a controversial neo-Nazi group which gained its first national seats in an election in May. A week ago, its spokesman attacked two female politicians on a TV show, one woman was punched three times and the other had water thrown at her. It emerged this week that the attacker was suing his victims for “unprovoked verbal abuses”! There are possibly very elderly gentlemen inParaguay reading this and wondering if they might sue the Jews for the cost of temporary food and board 70 years ago.

Runner-up this week goes to the Independent TD for Wexford, Mick Wallace (pictured above) who was eventually allowed 15 minutes in the Dail to deliver a statement on his tax affair, the affair where Mick says he personally under-declared VAT, entered into a subsequent settlement with the Irish tax authorities, the Revenue Commissioners and admitted the settlement was unlikely to be discharged. Mick’s 15-minute speech received a quiet, sporadic applause after he had finished, and he did indeed offer up half of his Dail salary to discharge a debt which officially belongs to his company, and which legally it seems, he has no obligation to personally discharge. Mick also said his fate as a TD rested with his constituents in Wexford but there is no sign of him placing that fate in their hands until the next scheduled election in 2016. He magnanimously thanked the people of Ireland for their messages of support. His sister chipped in “His heart and soul is in the Dáil. He loves it: I don’t think he’ll give up”  Others were aghast at the chutzpah of someone who admitted bilking this State out of €1.5m in VAT, money paid to him by buyers of his property but which was used to pay banks and the operating expenses of his company including presumably the €290,000 combined salaries of Mick and his son Sasha. Mick seemingly will still keep €46,000 of his Dail salary, plus an Independent’s allowance of €40,000 plus travel and accommodation of up to €36,150 per annum plus a public representation allowances of up to €15,000 (unvouched) to €25,000 (vouched) plus a pension based on the €92,000 salary plus a host of other perks including the ability to hire family members for secretarial/research duties.

“Feck off and stop meidhering me” response of the Week

NAMA was subjected to some intense questioning in the Dail this week. And one question related to an income of €15.9m recorded in the NAMA management accounts for Q4,2011. Now in a country where we have gotten used to a national discourse in economics involving billions and tens of billions, €15.9m is probably generally regarded as piffling, but if the estimate reported by the BBC for providing free wi-fi and superfast broadband to Belfast is accurate, then €15.9m should be enough to do the same for Dublin AND Cork – it is a sizable sum of money. The only description or explanation provided by NAMA for the €15.9m income was that it related to “hedge ineffectiveness adjustment” Ask most accountants in this State what that is, and you’ll get a mass display in head-scratching. And so NAMA was asked for an explanation of the loss. Here’s the full exchange

Deputy Pearse Doherty: further to the publication by the National Assets Management Agency of its 2011 management accounts and its report for the fourth quarter of 2012, if he will provide an explanation for the €15.9m of income in the quarter booked in the accounts of National Assets Management Limited classified as hedge ineffectiveness adjustment.  [27944/12]

Minister for Finance, Michael Noonan: I have been informed by NAMA that the ‘hedge ineffectiveness’ adjustment of €15.9 million relates to interest rate swap contracts which were entered by the National Asset Management Limited Group (‘the Group’) to hedge its exposure to cash flow variability arising from interest rate risk in its portfolio of debt securities. These interest rate swap contracts were formally designated into hedge relationships during 2010 when the fair value of these derivatives was an unrealised loss of €30.4m. This unrealised loss was recognised as a fair value loss in the income statement in 2010. In accordance with the Group’s accounting policy for derivative financial instruments and hedge accounting (as per note 2.10 of its Q4 2011 accounts), this loss is being amortised from the Income Statement to the cash flow hedge reserve as ‘hedge ineffectiveness’ over the remaining life of the derivatives.”.

Somehow, you can’t help but think this clear-as-mud response was calculated to provide a response other than to the direct question asked!

“Suppression of information” villain of the Week

In Scotland, a blog operated by a 9-year old pupil, Martha Payne which photographically chronicled her school dinners was suppressed by the local council in Argyll where the school was located. This followed a newspaper report which referred to the blog and which criticised the Dinner Ladies who prepared the meals at  Lochgilphead Primary School. Following a public outcry which included celebrity chef, Jamie Oliver tweeting his support to the 9-year old Martha and urging his 2.3m Twitter followers to do like-wise, the council reversed its decision, and the blog continues to be updated. So far it has received 2m views and generated GBP 46,000 in charitable donations which have created facilities in Malawi, Africa. The blog is called “Neverseconds

In Ireland, the Economic and Social Research Institute (ESRI) was acting the villain by taking the reportedly “unprecedented step” of removing a working paper by a trio of academics including the respected Professor Richard Tol, from its website. The working paper examined the additional costs that a working person incurs in Ireland, such as childcare and transport, costs which an unemployed person would be spared. The working paper concluded that 15% of childless households would be better off on the dole rising to a remarkable 44% of households with children. The paper found that Ireland had the most expensive childcare costs in Europe. After the working paper – available here – was reported in the press, the ESRI took the “unprecedented step” of withdrawing it from its website. Its lead-author Professor Richard Tol was unimpressed and expressed his views on the matter here. The ESRI has now issued a press statement and a detailed explanation for its actions. Ironically the ESRI’s actions have lead to what is mostly a pretty obscure and wonkish paper being widely read, and its contents have become part of the national conversation. The suspicion remains that the ESRI which is substantially funded by the Government acted to obstruct a debate on both the cost of benefits and government policy on employment activation/incentivisation measures.

Word of the Week

“Peer-reviewed” This was the week where it seems many people became expert in the term “peer review” after the ESRI pulled a working paper by a trio of academics including Professor Richard Tol, from its website, a working paper which claimed that up to 44% of households in Ireland would be better off on benefits than at work. There were vague suggestions of criticism of the methodology in the report but the central criticism developed into the fact that the working paper was not “peer-reviewed” People who I am convinced have never mouthed the term “peer-reviewed” before in their lives suddenly adopted the term into the vocabulary where it competed with more common words like “the” and “and” in their utterances. I wonder will the “peer-reviewed” mania spread to other parts of our society? At Mass tomorrow, will someone stand up before the sermon and say “Sorry, Father but before you begin, can you lay before this congregation the names, qualifications and experience of those who peer-reviewed your sermon. Surely you didn’t make it up all by yourself?” And before Eamon Dunphy opens his gab to opine on Ireland’s footballing performance on Monday, will someone stop him and demand to know “who peer-reviewed that contribution, sunshine?”

Paradox of the Week

“NAMA has advised that in the case of purchases of residential property controlled by its debtors and receivers the Agency does not and has not provided financing…. I am advised by NAMA that it would not rule out in individual circumstances arrangements that include an element of deferred payment in respect of residential property transactions controlled by its debtors and receivers. NAMA have advised that they will look at other requests for financing on a case by case basis”

Okay, it’s not up there with “The following statement is true. The previous statement is false” but there are many who are still scratching their heads at NAMA’s response to questioning about its financing initiatives in the Dail this week. On one hand, NAMA says it doesn’t (in the present tense) or hasn’t (in the past tense) provided residential financing but on the other hand, it says that it will treat on a “case by case basis” requests for deferred payment by potential buyers of NAMAresidential property. A head-scratcher which requires a bit more consideration perhaps.


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He’s finally done it.

Minister Noonan has agreed to a term in the revised “Memorandum of Understanding On Specific Economic Policy Conditionality” published by the IMF yesterday which for the first time commits NAMA to debt reduction by 2013. The document is shown from PDF page 71 of the batch of documents published by the IMF yesterday and for the first time includes a target with the IMF/EU/ECB for NAMA’s redemption of its debt, and specifically that NAMA will redeem €7.5bn of its senior bonds by the end of 2013.

Wasn’t this a term of the bailout before? No, there was reference in a previous “Letter of Intent” to NAMA disposing of 25% of its assets by the end of 2013, something it has practically achieved today. There was NEVER a term agreed with the Troika to reduce NAMA debt at all.

But wasn’t there some commitment to reduce NAMA’s debt by 25% by the end of 2013? Yes, NAMA has an internal target of reducing its debt by 25% by the end of 2013. But that is an internal target and could be changed by NAMA today if it felt like it. It did not have any status in our agreement with the bailout Troika.

What difference does it make anyway, won’t NAMA have to redeem its senior debt anyway? Yes NAMA will have to redeem its senior debt by 2020, that is 8.5 years hence. But until then NAMA only has to pay the pay the 6-month Euribor rate – currently less than 1% per annum – on its bonds.

What practical difference does this make toIreland? It means that NAMA’s cash mountain, currently €5bn including the short-term loan to IBRC for the redemption of the March 2012 promissory note, cannot be deployed in furtherance of the NAMA objective – set out in the NAMA Act – of addressing Ireland’s economic crisis. NAMA might have used this funding in all sorts of ways which might have stimulated the economy, for example public-private partnerships with Government to build schools, hospitals, prison, infrastructure which as long as NAMA got its money back by 2020 would have allowed the state to get leverage whilst it was on its knees in 2012 as long as it was back on its feet by 2020.

But isn’t NAMA already commiting €2bn to investment in Ireland? Yes, NAMA has announced recently that it will be making up to €2bn available between 2012-2016 for investment in Irish projects managed by its developers and receivers. That’s an average of €500m per annum and NAMA is being coy in how and when the money will be spent. NAMA has an additional €3bn that it could deploy today, and yesterday’s development removes that potential.

What did Minister Noonan get in return for this concession? Absolutely nothing that is obvious from the latest Memorandum of Understanding.

This is a very disappointing development for Ireland, a development which curtails our freedom of action and denies a potentially cheap source of funding to generate a stimulus. For those politicians calling for a stimulus from the NPRF, the EIB, private pensions and NAMA, you can now forget about NAMA because Minister Noonan has cut you off at the ankles. And for what in return?

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