Smoke and Mirrors: Politics, Anglo Irish, and what the Bailout will do to Ireland

Smoke and Mirrors

Corrupted politics have been the status quo in Ireland for many years. From Haughey to Ahern, tribunal to inquiry, even from scandal to ever greater scandal, it’s clear that the land of saints and scholars is not being run for the benefit of the people. Indeed, save for a few honest individuals, it’s being run by the powerful elite for their own benefit – and we, the ordinary heart and soul of a nation, are being made to suffer while they feast in luxury.

Ivor Callely is a symptom of the cause. As Bock has pointed out, he has been suspended from Fianna Fáil for his actions where other politicians from the same suspect party have been quietly tolerated after committing far worse acts. The Mahon Tribunal, for example, depicts a sprawling mess of backhanders, favours, and dodgy dealings; Beverly Cooper-Flynn, a proven facilitator of tax evasion, was allowed to rejoin Fianna Fáil. The disease, however, remains the same. The politicians of Ireland act with impunity even in the face of scandal, because if history has shown them anything, it’s that they can still be elected as long as they please the right people.

It’s all smoke and mirrors, at the end of the day. I don’t doubt that there are some TDs that got into politics out of altruism, but the pathetic reality of Ireland is that the majority of our elected representatives are corrupt – especially Fianna Fáil – and it is only a matter of the degree to which they can be bought. The worst of them desire nothing other than to get into power, and hold on there as long as possible. Power means a huge paycheck, an enormous expense tab, and the fawning attention of other members of the Hiberno-elite who know that you can tug the reins of the country in their favour.

The Boom

2006 was the year of the property boom, when house prices all over Ireland hit the highest they had ever been. Between 1996 and 2006, prices had doubled or tripled due to the roaring of the Celtic Tiger; wages were up, credit was available in the expanding mortgage market, and people bought based on the assumption that their house was a solid investment, one whose value would not fall. Where there is demand, supply will increase to match it – and so enter the property developers, who needed loans to build houses and the compliance of the local government to keep regulations out of their way.

A report by the National Institute for Regional and Spatial Analysis has condemned the government as the final cause of the bubble. From an article in the Irish Times in July:

In a 66-page report into the crisis, Nirsa lays blame for the property boom and bust squarely with the Government and local councils. It says light touch regulation and tax incentive schemes administered by a political system infected by those in power favouring friends were the chief culprits. Planning guidelines, regional and national objectives as well as proper assessment of demand for housing were ignored, it claims… …A home-grown “litany of systemic failures” that allowed the over-development and re-zoning of too much land will see housing lie empty in some areas for more than a decade.”

The reports of the Mahon Tribunal released in 2002 showed quite clearly that politicians were taking bribes from property developers. Perhaps then, in retrospect, this particular report should not shock us. But what is quite surprising is that the evidence of corruption was ignored, for the most part, and Fianna Fáil were re-elected to the government in 2007 despite questions being raised about Bertie Ahern’s involvement in those same bribes – questions, by the way, that led to his resignation a year later.

Parochial politics at its finest. It is clear that the Irish people are happy to elect crooks, as long as the crooks keep them happy in small, trivial ways. But it’s still an illusion; the crooks take money from their pocket, keep prices high, and leave them hurting for jobs, and it’s all hidden behind the veil of government bureaucracy.

The Bust

Some economists saw what was happening in the property markets and warned that it couldn’t last. It was never going to, really – ours was not the first housing bubble in the world, nor will it be the last, and the result is mostly the same in all cases. Eventually the prices collapse, and those who have bet too riskily suffer a serious loss of equity. The Irish property developers who connived with the government and massively oversupplied the market deserve that loss – but this is not a just country, and there was no reason for them to lose all that money when their pet politicians could make it all go away.

Anglo Irish was their bank. When the bubble burst and demand vanished overnight, the developers were left with thousands of empty and unfinished properties that they had borrowed heavily to build. These are the ghost estates; acres of houses and apartments built on the assuption that they would be sold for an astronomical price, and with that money the loans could be paid back. Without demand, they became worthless, while the developers were still on the hook for the loans. On the other side of the equation were the investors who were now owed vast sums of money – who were they? We already know the names of four of the Golden Circle – the ten businessmen who bought a 10% stake of Anglo Irish using money raised from its own shares – and we know they had connections to Fianna Fáil. They were not alone.

Money lost on both sides, and it seems that the property developers were listed among both. They had a problem, one that would need billions of euro to solve.

Enter Fianna Fáil, the major player in a “political system infected by those in power favouring friends”. They had a history of corruption. They had links to the Golden Circle. Sean Quinn, who was among one of Anglo’s biggest shareholders, was friends with Bertie Ahern. They had control over the budget of Ireland, and all they needed was an excuse.

Everything that has been done to Anglo has been for one purpose – to keep the bank afloat, no matter what it will cost the nation. It’s all a matter of misdirection and obfuscation; start small, say it’ll only cost so much, say this is the best option because it’ll ruin us to let it fail. Then little by little, make the public accept that which would be unthinkable. The final debt for Anglo’s life support may be €33 billion or more, which we probably will never get back. That debt includes a loan of €11 billion given to Anglo Irish based on highly risky property loans – collateral that the European Central Bank could not accept, which forced the Central Bank here to step in to save it.

Do not believe, not even for a second, that this was necessary. Gavin Sheridan noted the following quote on his blog, taken from Ireland’s note to the European Commission regarding the recapitalisation:

Anglo Irish Bank is a focused business bank with a private banking arm. The Bank provides business banking, treasury and wealth/management services. It is not a universal bank and its stated strategy is niche rather than broad market. Each of its customers deals directly with a dedicated relationship manager and a product specialist.

Niche. Oh, yes.

The Recovery

€33 billion is a huge number. After a certain point, it all becomes unreal and fantastic. Steal a tenner from a man in the street, and his rage knows no bounds; steal 2% of his wages every month, and he may not even notice. It’s all about taking from the places where no one will look, or where people will grumble the least without realising the extent of the damage to their lives. It may be legal, but that doesn’t make it right.

€33 billion, the cost of Anglo Irish alone, is more than the total revenue that the government will get from tax this year. The current national debt stands at €84 billion. In order to keep the country going this year alone, the government will have to borrow €18.5 billion from somewhere. As more money is poured into the dead bank, and more money is borrowed simply to run Ireland, that debt will accelerate out of control. The Budget for 2010 announced savings of €4 billion, but that may not be enough; the debt still rises, as making savings of €4 billion will not balance out borrowings of €18.5 billion. With a higher debt comes higher interest payments on that debt, which must be paid, leaving less money to run the country and a greater need to borrow. The government seems to be unwilling to stop giving money to Anglo Irish, so the cost of running the country must be reduced somehow – and that means bleeding the ordinary citizens of Ireland dry.

Of course, it won’t be the politicians who suffer. Even after the wage cuts for civil servants in the Budget, Brian Cowen is being paid €220,000 a year. Ministers are paid roughly €190,000 a year. The entry level salary for a TD is €92,000, with the average being €110,000 – expenses not included, of course. We can only dream of being so well off, so pampered, for a job that is essentially part-time, especially when (as Bock has pointed out before) there’s no qualification requirements other than being able to convince enough people that you’re a pretty swell guy who can do things for them. And after that, of course, bloody-minded tribalism takes over and the people will re-elect you simply because you’re ‘their lad’.

Smoke and mirrors. It always comes back to that. It’s ok to screw over your country because, well, you’re helping a few friends who helped you out a while ago. You can’t say no, because his father always drank with your father, and sure didn’t he donate a load to the party and he’s not asking for much in return. And you can hide it just enough so that no one will say anything, or you can spin it so that no one will listen, and anyway you’ll be getting a pension at the end of it and the money won’t be your problem anymore. This is Ireland, isn’t it? Half of the sheep admire you for getting away with it, and the other half don’t care. All you have to worry about are the few friends who did you a favour, and then another, and then another, and didn’t ask much until now, and where’s the harm in selling a little more of your soul for a lot more money?

Someday soon, there won’t be any more money left to take. In the cold, hard light of day, bereft of smoke and mirrors, it’s all a game of numbers on which the crooks of Fianna Fáil are gambling the economic future of generations of Irish citizens. Forget Ivor Callely; he’s another distraction. Watch the actions of NAMA, and the politicans who swore it was the best thing to do. Watch the wealthy elite who have a stake in Anglo Irish.

At the next general election, do not be fooled again.