The household charge

The household charge of €100 was introduced in the last budget as an intermediary step towards a property/council tax being introduced in the coming years. Based on there being about 1.5M houses in Ireland, some of which will be eligible for waivers, the measure will bring in about €100M or so in this year. That is, if everybody pays it and that is looking less and less likely.

What is surprising is the massive campaign against the household charge, while hundreds of other measures that have had a much greater impact (USC, Tax Credits, Social Welfare payments, health and education cuts) have been accepted fairly easily. One of the biggest scams of all was the setting up of NAMA and only about 400 people turned out at the rally against it.

What is even more surprising is that it is the left groups who are objecting most strongly. One of the key ideals of socialism is taxation of assets and wealth rather than labour. So how can people like Joe Higgins and Richard Boyd Barrett honestly stand up and say the household charge is bad? Sure, in its current form as a flat charge it is not equitable, but they are arguing against charges on property as a whole. "No tax on the family home" seems to be the mantra. But if most houses in Ireland are family homes then any property tax will not be deemed acceptable to them which flies in the face of socialism.
This is similar to the problem I have with the anti bin-tax campaign. Due to it's "success" Dublin City Council ended up having to privatise the service and we're now left with the mess of Greyhound not doing the job properly. Parties of the left should be in favour of proper public services, but that campaign ended up displacing quality jobs in the council into poorer conditions with a private operator. And I don't see the SWP or SP orchestrating campaigns against payments to Greyhound and Panda now that the easy target of the City Council has been defeated.
Another current red herring is the exemption for property owned by Ministers. Like lots of other legislation, the state is exempted from paying itself taxes as it just turns into an accounting exercise. These properties are things like social housing, hospitals and army barracks. Personal, private residences owned by people who happen to be Ministers are just as liable for the charge as every other home.

One thing that I am not sure about is whether NAMA will have to pay the household charge on all the residential properties it has sitting on its books. While NAMA is effectively a state agency, it was set up with only 49% state ownership to avoid various issues surrounding state support and also to dodge the FOI act. Will the charge eat into any potential profits or will it just increase the losses incurred NAMA which then have to be born by the tax payer anyway?
To me it's simple - a property tax (site based or house based) is a good thing in that it provides a sustainable and almost guaranteed income stream either to local or central government. The alternative, if property taxes are ditched, is to increase income tax across the board (but mainly in the soft middle 50-80k territory) or cut spending in health, education and welfare. As a Labour person, I'm enjoying seeing Phil Hogan make an eejit of himself and having to hide behind Fergus O'Dowd. I'm also somewhat cynical that the closing date for the charge just happens to coincide with the €3.1B card monte. However, if property taxes are good enough for every other western country then they're good enough for Ireland too.

It's the economy, stupid!

One of Bill Clinton's greatest contributions to language, apart from defining what sexual relations may or may not mean, was the phrase "it's the economy, stupid!". So as a stupid person, I spent last Friday in the conference centre in Croke Park being educated on all things economic and fiscal. The conference was organized by Stephen Kinsella, Liam Delaney and Colm Harmon and had in excess of 200 people attending over the course of the day. What follows is a rundown on the sessions I attended and what nuggets of information I picked up from them. I understand that videos of the day will be posted on the Irish Economy blog.

Property Market

After a very welcome cup of tea and having my name ticked off on the attendance list, I plumped for the Property Market session as I felt I might at least understand the topic compared to the meta-debate on how to make good policy that went on in the parallel session. First up was Ronan Lyons who presented his proposal for a site-valuation tax to replace the current property taxes and, perhaps eventually rates. In principle it seems like a good idea to encourage productive, high density use of land zoned for residential use. However, based on his plan I still don't see how the tax would work and provide a sustainable base of taxation for local government spending without large financial transfers from urban to rural dwellers. I tackled him on this in the Q&A session and at lunchtime and we agreed that the plan could do with some refinement.

Next up was Michelle Norris from UCD who presented a paper on the realities of mortgage arrears in Ireland. Despite the low number of repossessions, the stresses that many mortgage holders are put under by both prime and sub-prime lenders is huge. Her presentation really put a human face on the current mortgage crisis. The session finished with Rob Kitchen from NUIM outlining his thoughts on the future of the property market. A lot of his material has already been posted on his Ireland After NAMA blog but it was good to put it all in the one place. He doesn't see a recovery to peak prices for a long time to come yet.

Unemployment

Following a brief coffee-break, and the arrival of Minister Joan Burton with RTE in tow, I headed in to the session that she was chairing on unemployment. Not surprisingly, this was very well attended with standing room only at the back of the hall for a time during the session. First up was unemployment expert David Bell, from Scotland, who outlined the nature of our unemployment problem and compared out situation to that of other European countries. Next to speak was Aedin Doris from NUIM who gave one of the two best presentations of the day. Her mantra was that unemployment was a demand side problem and that no amount of badgering the unemployed can make them get jobs that don't exist. Finally Philip O'Connell from the ERSI examined all the data on state training and concluded that most of the budget was being targeted in the wrong areas. Just as well FAS is being restructured/closed! Due to the interest in the subject this session ran over by about half an hour, and so a much shortened lunch-break followed.

Banking and the Euro

On reading the conference programme, this session immediately jumped out as the headline acts. Brian Lucey, Karl Whelan and Frank Barry speaking with Constantin Gurdgiev chairing was just like an episode of Vincent Browne but without the haranguing and pointless government spokesperson (Coveney and Donohue I'm looking at you!). And it did not disappoint.

After a brief introduction from Constantin where he outlined the topics and the ground rules, the floor was yielded to Brian. During his half hour presentation he discussed the implications of the impending duopoly in the Irish banking system and touched on the likelyhood of co-operative or mutual banks (just like the old building societies) setting up and the possibility of a foreign bank entering the market. From what I took from the talk, we are unlikely to see much in the way of innovation in Irish banking for the foreseeable future with BOI and AIB continuing to dominated the market.

Following Brian was Karl who gave the best talk of the day. He explained in words of one syllable the funding mechanism for the rump of Anglo, why burning bondholders is now old hat, why the interest rate on the Prommissory Notes is a red herring and how the Central Bank could just write off the notes if it could convince 2/3 of the other central banks in the Eurozone that doing so is a good idea. This is a talk that should be watched by every back-bencher who comes out with the "there is no other way" mantra.

After Karl's magnum opus, Frank was always going to have a tough act to follow but he coped admirably and gave a very interesting talk on the problems with the Euro. His premise that unless there is some sort of federal funding mechanism to buffer the impact, the peripheral Euro countries will be at risk of external shock to their economy. Ireland due to it's reliance on the US and UK is particularly susceptible. Another talk that I look forward to watching again once posted online.

Fiscal Policy

I will have to admit that either due to the subject matter or my lack of mental stamina, both Philip Lane's and John McHale's papers went over my head. They seemed to be suggesting that in the new Euro deal that may or may not require a referendum there will be stricter controls over deficit spending and overall debt to GDP ratios than are currently in place. I'm not sure how the Eurozone countries will get to the target 60% in any reasonably time-frame but the plan seems like a reasonable one.

The final two talks by Seamus Coffey (UCC) and Colm McCarthy (UCD) tackled the issue of capital vs recurrent spending. The first presentation was right up my street with a relentless series of graphs outlining the collapse in capital spending through the recession. The implication was that we are now underspending on capital and that future cuts should come from the recurrent side of the budget. The pertinent question is this: Is the 94th euro spent on recurrent providing a better return on investment than a potential 7th euro spent on capital.

The master of Bord Snip then promptly stood up and demolished all of what had gone before. He suggested that we had splurged on capital during the boom, often driving up prices on ourselves, and that having built one motorway to Cork there was no need to build another. Of course this neatly sidestepped the fact that we still have schools housed in prefabs, Dickensian conditions in hospitals and even in a huge recession, gridlock in Dublin on a daily basis. However, his presentation brought the conference to an end in a lighthearted manner and was just what was required after a heavy day's thinking.

General Thoughts

Overall the day was very enjoyable and very enlightening. From an organizational perspective some of the major positives were the free entry cost, working wifi, good chat on the conference hashtag (#ieconf), roughly sticking to schedule and a large turnout. The downsides include some issues with microphones, spam overload on twitter during the afternoon, running out of sandwiches at lunchtime and the lack of attendance by politicians and senior policy makers with a few notable exceptions. If, as has been suggested, these conferences become a regular event I will certainly try to attend. Congratulations to all involved in the event as I would deem it a great success.

Back in bonds!

Not quite as catchy as an AC/DC song with a similar name, the Irish Times reports that Ireland was back in bonds yesterday.The NTMA managed to swap about €3.5B of bonds that were due for repayment in 2014 into new bonds that are due in 2015. This is a good thing, as it reduced the amount of refinancing that will need to be done by NTMA in 2014, the first year of Ireland's post Troika existence.
However, to call it a massive success and claim that it shows an "appetite for Irish Government paper" is stretching things a bit. As opposed to you or I getting a term extension on our mortgage which reduces our monthly repayment, we have actually increased the cost of this borrowing from a 4% coupon to a 4.5% coupon. So this postponement of a year will cost us an additional €35M in 2012 and 2013. That crafty bond market doesn't give stuff away for nothing.
I am sure that it is just coincidence that the NTMA carried out this bond swap on the exact same day as yet another huge, un-guaranteed Anglo bond was repaid. Likewise I'm sure that the arrest of Ivor Callely yesterday was also just another coincidence, just like the arrests of Sean Fitzpatrick were in the past. I wonder what poor unfortunate will be perpwalked the next time the Rothschilds come looking for their cash back.

Reduced capital programme

I have written more than once about the major transport initiatives in the Dublin area, namely Metro North, Dart Interconnector and Luas BXD. With the publication the other day of the revised, and greatly slashed, capital budget it seems apt to mention them again.

It seems as though the only project that will now be completed will be the Luas extension from Stephen's Green through the city centre up to Broombridge Station. Of course, like all the big projects, it has been scheduled for the end of the time period of the project so it is the most likely to get chopped completely if there are further cuts required or other projects run over budget.

Two other projects in the North Inner City are worth mentioning. The Children's Hospital will go ahead with funding up front from the renewal of the Lottery license but the amalgamation of DIT onto the single campus in Grangegorman will not. It does seem odd that we will now have a Luas line missing its biggest source of passengers while we build a hospital without any mass transit to deliver patients, parents and visitors.

Slashing the capital budget is, in my mind, a short sighted and cowardly way to balance the books. By their very nature, capital investments are good for the country in that they provide employment while they are being delivered and then provide benefit to the community once finished. This is true of school building, hospitals, roads, railways and every other capital project. Borrowing for capital is good, and in many cases is to be encouraged.

It is far harder to hit the recurrent budget as it covers civil and public servants' wages and pensions as well as welfare payments. But it is the only real way to make long term savings that will close the gap between income and expenditure. With Croke Park freezing pay, it looks like natural wastage, retirement schemes and continued recruitment embargoes will be the order of the day.

The only other option is to increase revenue through taxation which sounds great to the Occupy brigade. Sure, tax the rich and make them pay. But the super rich will tend to up sticks and leave. The easiest target is the middle classes who are already paying at the higher rate. By reducing credits and bumping the top rate up a point or two more could be squeezed from this cohort (which includes me). And to be fair, we could probably take it. But we are also the very people who voted for FG and Labour so I'm not sure how politically astute it is to antagonize the very people who elected you.

Once I get time to trawl through some Revenue figures I'll come back to this topic. But for the moment let me finish by giving Minister Howlin's plan a 3/10 with a strong recommendation that he try a bit harder in future to make serious reform plans rather than tinkering at the edges.

Bonds and loose change

Tomorrow sees the repayment of about $1,000,000,000 of unguaranteed bonds owed by the rump of Anglo. This is the money that Dana was mentioning at every opportunity during the last few presidential debates. This equates to about €730,000,000 or in some more manageable terms, heading towards twice the total spend on Special Needs Assistants for a full year or about 20% of the cutbacks that are going to be announced in the upcoming budget.

The argument for paying goes along the lines of this: the EU/IMF deal has us going back to the market next year. If we don't pay back this bond the reputational damage done to Ireland will so great that we won't be able to afford to go back to the market at a reasonable rate. Therefore we must pay back these bonds at face value to have credit available to us in the future. Sounds reasonable, doesn't it?

Except it isn't. These are unguaranteed bonds that have been traded multiple times since issue with the current owners probably paying somewhere around 10c in the euro to mop them up. So the original lenders have already taken losses on these bonds. The current owners are hedge funds and the like who are looking to make a killing when Ireland Inc foolishly pays back face value on bonds that are effectively junk.

Of course I am just guessing that these bonds are held by hedge funds as nobody will actually say who holds these instruments. We have no idea who the owners are and whether they are the same institutions who will be our lenders in the bond market in the future. However, the cloak of secrecy surrounding their identity suggests to me that they are not the same people.

I'm also getting sick of Ireland trying to be the best boy in the class while Greece gets 50% hair cuts, second bailouts and a referendum on their financial future. while I wouldn't suggest becoming the rebellious punk that is Greece, we could at least ruffle our hair once in a while, open the top button on our shirt or wear mismatching socks. We still are, despite the best efforts of Fianna Fáil, a sovereign nation and should play that card once in a while. We have made some progress on the reduced interest rates, you just get the feeling that we're still sucking up to teacher in the hopes that someone else will get into trouble before us.

Speaking of trouble, I really can't believe that €3.6B was mislaid in a transfer between two state agencies, namely NTMA and the Housing Finance Agency. How someone doesn't immediately notice that rather than going up by €3.6B that their overall balance went down by the same amount is outrageous. I would certainly know if my wages were taken out of my current account on the 20th of every month rather than deposited. It makes you wonder what sort of quality control and monthly account reconciliation is going on over at the HFA.

PS - now that #aras11 is over I'll be getting back into more regular blogging. Huzzah say the masses!

The Bailout

This EU/IMF bailout stinks for a whole lot of reasons. Our great leaders went into the discussions and seemed to be happy to give away everything as long as corporation tax wasn't touched. I am not at all convinced by the arguments around corporation tax and the reasons for keeping it at 12.5% but I am pretty sure that flushing the country down the toilet isn't one of them. And even after the draconian measures being imposed on us I'm pretty sure that the bailout isn't going to fix Ireland, Irish banks or stop the spread of "contagion" to the rest of the EU.

As I have harped on about before, the entire mess goes back to the disastrous bank guarantee in September 2008. Turning private debt in the banks into sovereign debt owed by the tax payer was the single most stupid thing ever done by Fianna Fáil and it's not like there aren't plenty of other options to choose from. This has left the tax payer on the hook for the banks' massive borrowings still outstanding to European banks. This is where the biggest stink in the bailout comes from.

We are being loaned €22.5B from the IMF and a further €45B from two EU funds. On top of that we have to immediately throw most of the contents of the Pension Reserve Fund into the black hole of the banks. All of this bank funding is required to enable the German, French and UK banks as well as the ECB to be repaid at some point in the future. So the net result of the liability to the Irish tax payer is that other EU banks remain solvent. Seems to me like that's pretty good leverage to have in negotiating terms on these loans. Instead the government played meekly and took whatever was offered without flexing any muscle at all.

Secondly we have to ask, what is the price being paid for this money? We the tax payer are being lumped with an average rate of 5.8% for the €67.5B external bailout. That's just under €4B per year in interest to the EU/IMF. But when you look at long term financing costs for Germany they come in at around 2.67% on their 10 year bonds, so we are being gouged by our EU partners by over 3%. Hardly, seems like a community coming together to help each other out. Again we should have turned around and say that unless the rate was closer to 3% that we would just default and bring the whole Euro house of cards tumbling down.

Finally, how will this bailout actually help Ireland and our deficit in current spending? The fastest way to close the gap between taxation and spending is to get sustainable growth back in the economy and the best way to do that is via targeted stimulus using the NPRF. Having now blown our main avenue for growth on the banks we are now stuck in a zero/low growth scenario with higher and higher interest payments swamping any increase in taxation due to growth. That means we have to raise additional taxes and since corporation tax is sacrosanct, that means extra income tax, PRSI, property taxes, VAT, excise and the like for the ordinary punter.

We are now in a downward spiral from which there appears to be very little hope of exiting. Thanks a bunch Soldiers of Destiny.

Burning Anglo

One of my favorite tunes of recent times is Doomsword's Heathen Assault. It is a song about the onslaught of the Danes through medieval England and features a very simple refrain that gets the crowd singing.

Burn! England to the ground
Burn! Jorvik to the ground

To my mind this is currently the best option for Anglo Irish and their bond holders as well. And unlike what various ministers might like to portray (Mary Hanafin I'm looking at you) it wouldn't be the end of the world or some sort of treason to suggest it as a course of action.

If the government pulled the plug on the blanket guarantee of Anglo the the company becomes insolvent. At some point the creditors would get together and insist a liquidator is appointed to wind up the company as a going concern. This leaves three groups looking for money back - depositors, senior debt holders and subordinated debt holders. Remember the equity holders have already been written off when the bank was nationalized. The first two have primary call on the assets of the bank and it is unlikely that these assets would cover the liabilities to them. This leaves nothing for the subordinated holders so they get burned.

This leaves the assets of the company to be divided between the seniors and depositors. I would imagine that the assets would be split pro-rata between the two groups. So if there were say €10B in deposits, €30B in bonds and only €20B in assets then the depositors would get 25% or €5B and the bond holders the remaining €15B with each bond getting effectively a 50% hair cut. On the deposit side again the €5B would be split pro-rata amongst the depositors. All deposits would be covered up to €100k by the old fashioned deposit guarantee, but beyond that the big depositors would also end up being burned as well.

To my mind, that seems the most straight forward solution to the Anglo problem. We've had enough dumping of good money after bad into this corpse. Of course it doesn't suit those who are invested in Anglo compared to the current policy, but to be honest I don't care. They invested in a flaky company, took their high rewards and so now should have to face some of the consequences. You can't have the tax payer on the hook for all of this.

Bond blues

I don't really know a huge amount about the financial markets. I sometimes feel like the guy on the Financial Regulator ad who doesn't know what a tracker mortgage is. Well maybe I'm slightly further along the learning curve than he is but probably not by much.

I have been doing some research into bond yields over the last few days, trying to understand what is currently going on with regard to Irish Government bonds. Today, NTMA issued €1.5B in two sets of bonds - €500M of 4 year bonds at 4.767% and €1B of 8 year bonds at 6.023%. Both of these bonds have a coupon of 4% so plugging the figures into one of many online yield calculators I reckon that only €875M was paid into NTMA's bank account for the longer bond and about €485M for the shorter one.

So while it is correct to say NTMA shipped €1.5B in bonds, we the people only have €1.36B in cash and an annual interest bill of €60M to show for it as well as the requirement to pay back or roll over the €1.5B principal in the future. Of course the spin will be the over subscription to the issue, but you'd be mad not to grab a 6% return that is effectively guaranteed by the EU.

The other question of interest is who is actually buying these bonds. I strongly believe that a large portion of them are being purchased by Irish banks looking to bolster up their balance sheets. This source of this money is the bail out that the banks are getting from the Irish state and ECB at rates far lower than we are paying to borrow it back off them. Somehow it seems wrong that the public are being screwed repeatedly in this process. What is also galling is that part of this borrowing at 6% is being lent to Greece as part of their EU bailout at 5%. Again the Irish taxpayer is being taken for a ride.

Smarter economists are welcome to correct my maths and show me where I am getting this completely wrong.

The cost of money

Ireland is massively in debt - I think we can all agree on that. The state currently spends somewhere around 50% more than it brings in through taxation. That money is raised on the international bond markets by the National Treasury Management Agency (NTMA). Over the last few weeks the cost of Irish Govt bonds on the secondary market has risen substantially, with rates having risen to 6.459% at close of business today. However, that is not the rate that the state is currently paying for its bonds as those rates are fixed when each bond is issued.

You can see from the graph (from Bloomberg), that in the last month Irish bonds have risen to record highs. The previous spike in May coincided with the Greek financial meltdown and the knock-on effects for the rest of the Euro zone. This month's moves are entirely of our own making.

The big test comes tomorrow (21st September) when the NTMA is holding an auction for between €1B and €1.5B of 4 and 8 year bonds. In the past the spin from NTMA and the Minister for Finance has been how over-subscribed each bond issue has been, while ignoring the rate that is being paid. I have no doubt that tomorrow's auction will also be oversubscribed but with many offers being in the 7%+ range. If the issue comes out with an average cost of 5% or thereabouts then we won't have done too badly. Yes that is still a huge amount more than the Germans pay, but it is still 1.5% less than the market currently thinks we should be paying.

Anglo Irish bailout equivalents

Brian Lucey (Professor of Finance in TCD) posted a Anglo Irish challenge on Twitter this afternoon. He is looking for things that we could have spent the €25B that Anglo has cost the tax payer. These items might be useful or might be ridiculous. Here are some of my suggestions (some of these are a bit back of the envelope)

• A Maglev rail system from Belfast to Cork via Dublin. Based on the costs for the Shanghai one it would cost about €11B but lets assume Ireland is twice as expensive as Shanghai.
  
• The Porto metro system that has been built in the last decade or so cost about €4B and has about 70 stations over 60km of track. Therefore we could have a 400 station system with about 250km of track
  
• A round the world plane ticket costs about €1,500. So we could send every man, woman and child on three trips and still have money for some duty free on the way home.
  
• Canada is in the process of purchasing 65 F35 fighter jets for about €7B. Our Anglo money could get us 250 allowing for some bulk purchase discounting.
• The 200km long proposed Japan-Korea tunnel is estimated to cost about €60B. Dublin to Holyhead is about 100km so the Anglo money could almost bankroll a tunnel joining Ireland to the UK.
  
• We could buy for full cost all the external debt of Bangladesh. This is all the money owed by the country and its residents to outsiders.
  
• Pigs cost about €1.50 per kilo and weigh on average say 100kg. So that's €150 per pig or about 160 million pigs per Anglo which is about 5% of the world's total pig population.
  
• Gold currently trades at about €1000 per oz. One Anglo turns into 25M oz or around 700 tonnes of shiny metal.
  
• The construction of nuclear power plants comes in at around €1Bn per GW. Eirgrid's website suggests that Ireland's peak consumption is about 5GW in winter. This means we could power Ireland 5 times over for the cost of the Anglo bail out.
  
• It costs about €100k per annum to employ an academic between wages, PRSI, pensions etc. and there are about 2000 of them employed in TCD. Anglo's lump sum would cover TCD's academic staff costs for 125 years assuming no inflation. Given inflation that might come down to 40 years.
  
• My mortgage (not with Anglo) could be paid off about 100,000 times over. Instead it'll take me another 20 years to do it just once.

There is almost an infinite number of possibilities. I look forward to seeing Lucey's final list.

Farmers milking it

There is a brief report in the Irish Times today outlining the payments made to various landowners in respect of the Gort bypass on the N18. The payout for land was €37.7M for a road scheme approximately 23km in length. With the overall cost of the road being €207.5M, this means that the land cost came in at approximately 18% which initially doesn't look like an outrageous cut of the costs.

In standard EU motorway construction each lane is 3.65m in width. Therefore, it is safe to assume that the mainline of the route is about 50m in width (2 lanes + hard shoulder in each direction comes to 22m, then allow for central median and edging). This makes the total area of land covered by the purchase just over 1.1M m² or around 280 acres of agricultural land. When the amount paid for the land is divided evenly by this area, it puts the price at around €135k per acre.

This is a complete rip off as the average price for agricultural land in Ireland is somewhere between €10k and €15k per acre. Why do the NRA continue to pay massive premiums on land required for vital infrastructure? It can't be argued that split land becomes unusable since as part of the scheme, multiple access roads, bridges, underpasses and culverts will be provided to allow the continued agricultural use of the land as part of the remaining €170M. It's plain and simple, the farmers are yet again taking the tax payer for a ride and we're just letting them away with it.

If only there was some sort of report, say by someone called Kenny, which could be implemented to limit the massive windfalls on land prices. The state should not continue to line the pockets of a small few who happen to live in the right place at the right time.

The Rise of Quanglo

This country and specifically the inbred circle at the top of the financial world gets worse by the day. After years with effectively no supervision, the first time the new financial regulator steps up to the plate and actually does his job by protecting the interests of the public he is asked to back down. The anger of the Quinn employees is wrongly directed - the regulator isn't their enemy, the man at the top of the firm who led them over the edge of the cliff is.

I am at a complete loss understanding why the tax payer, through Anglo Irish, the bank we already own and have pumped billions into, is to underwrite any outstanding debts that might be incurred by the Quinn group. This is a private company that made bad decisions and should not be protected from itself. Live by the market, die by the market should be the motto, not privatizing profits and socialising losses. I'm sure that Quinn is a wonderful employer up in the Cavan area, but the future of a few FF TDs in the region should not saddle the rest of the tax payers in the state with another massive debt.

How can an institution that has just been bailed out by the tax payer now turn around and use that money to bail out yet another corporation? Of course the links between Anglo and Quinn are well known with the magic 10 who were given unsecured loans to buy out Quinn's CFDs a while back. Any surprise that the FF gombeenarchy is rowing in behind these shenanigans to protect the Galway tenters? Makes me sick.

Retirement date blues

Yesterday the Government announced plans to move the state pension age from 65 to 68 over the next 18 years or so. From 2014 you will need to be 66, in 2021 the age will be 67 and only those over 68 will get the state pension form 2028 onwards. The logic behind this is that with increased life expectancy, it is unreasonable for the state to be paying out from age 65. Of course this is not likely to be the last change. There will more than likely be further increases to 69 and 70 any possibly beyond as life expectancy increases.

My main objection to this proposal is that it exacerbates the problem of youth unemployment. People at the top of the system tend to be on the highest wages due to experience, promotion etc. Companies benefit from these people retiring by reducing the wage bill. You replace someone on 100k with a two graduates on 30k and still save money. If senior staff are now required to keep working, fewer places will be available for young people to get a foot on the employment ladder.

From a personal perspective I'm not sure how this affects me. My contract forces my retirement date to be the 30th September following my 65th birthday. Until last year, the university had a private funded pension scheme into which all employees were paying. As part of the finance bills, all such schemes in the public service were closed and the assets transferred to NTMA, with a promise that the state would underwrite the liabilities of the scheme. This makes my occupational pension a state one, coordinated with the social welfare one, which I may not be allowed to draw until I reach 68. So where does that leave me from 30th September 2041 until 25th September 2044? Unemployed, but not drawing a pension?

I assume that issues like this will be resolved in the fullness of time but I am sure that there are going to be hundreds if not thousands of similar problems that will crop up. Issues relating to medical cards, bus passes, TV licenses, heating allowances will all have to be resolved.

AIB shenanigans

The row about pay levels for bank executives has raised its head in the last few days with AIB's appointment of a managing director. As part of the re-capitalization earlier on in the year, Brian Lenihan capped the pay for top bankers at €500,000. However it appears that AIB was unable to attract anyone from outside the organisation to run the place for such a paltry sum of money.

Therefore, AIB decided that they would have to appoint from within and came up with Colm Doherty as the man to do it. The problem was that Mr Doherty was already earning in excess of the €500,000 cap. After various back and forths it was announced this morning that he will take the job at the reduced rate. Of course it is unclear as to whether bonuses, options and other perks will be extended to Mr Doherty to bring his total package back up.

Of course the real problem with the whole exercise is that we now have AIB being run by an insider - one of the very people who ran the bank into the ground over the last few years and forced the government to step in and prop it up. Is it really that difficult to attract someone half competent to run the company for less than a half million? Half competent would be infinitely better than the current group at the top table since they have shown themselves to be completely incompetent.

To my mind the thing that stinks here the most is the timing. With NAMA jst around the corner, AIB released an interim statement today which has been completely ignored as people focus on the pay dispute. In the section called Asset Quality there is an interesting table showing the breakdown of the €24B of property loans that will be transferred to NAMA. It reckons that €10.5B of those will be impaired by the end of the year. That is almost 44% of their NAMAbound loans in trouble which is hard to reconcile with Lenihan's continued insistance that NAMA will end up making a profit for the Irish taxpayer.