War On The Poor

Man walking dog, Lahinch, Clare, Ireland
Clare in better days (Photo credit: Mark Waters)

It’s not that I don’t have any time. It’s just that I don’t have any time where I’m not thinking “I should really be studying now”.

But the news today finally got my attention. It seems only recently we were having a war against poverty. Now, it’s all-out war on the poor.

I really didn’t expect Clare County Council to be leading the charge though.

Some background: In 1977, during a boom not so unlike the one just past, Fianna Fáil bought an election largely by abolishing local taxation. From now on, the towns and counties of Ireland would be funded not by householders, but from central government. This situation was allowed to continue even after the economy fell face-first off a cliff in the early 80s.

After this latest crash though, and the terrible deals made to get out of it, they need all the money they can get. So if there’s an asset that can’t be hidden – like say a job or a house – a tax has been slapped on it. At the moment there’s only what they call the Household Charge, an almost token €100 a year. This is just a clever ruse though. They believe people will be shamed into paying it. What householder cannot afford €100? Look at all you get for it! But it’s a trick; what they want is to get people onto the radar. Ultimately of course they intend to charge us far more than €100 a year, but thanks to the intervening 35 there is no reliable and comprehensive registry of home ownership in this country. So a property tax would be an administrative impossibility – unless we are tricked or forced into volunteering the information ourselves.

That’s why they’re being such hard-asses about it. Central government is forcing local to force people to put themselves on the register, by the brutal tactic of declaring how many households there are in a given locality, and reducing central funding by that times €100. Local government will now run out of funding for services like water and sewage and waste – unless they squeeze it out of the people they’re supposed to be representing.

Another service local government funds – for reasons lost to time – is higher education support. What fee assistance and maintenance grants they provide though are heavily means-tested and only paid to the poorest. And now, in Clare at least, applicants will also be required to provide proof that their families have paid the Household Charge.

This is not right, and it’s not right for a whole bunch of reasons. It’s contrary to several important ideas about how society works. Are we really going to stop services for everyone who hasn’t paid their taxes? Other forms of education too? Hospital services, welfare? If so, then surely Bertie Ahern should have all his pensions withdrawn. Are we going to put pressure on parents by withdrawing life opportunities from their children? Will we discriminate against children and young adults because of the choices of their parents? Will we set families against each other to raise tax?

Yes, some people aren’t paying this because they don’t want to get on that register when they know they’re going to be hammered by a new property tax. These though are hardly the people who qualify for the paltry maintenance grant. Others refuse as a form of protest, because they consider it unjust that the ordinary citizen of this country is being forced at financial gunpoint to pay off the losses of multinational banking giants. And they are right, it is unjust. To pay this tax is effectively to hand money over to a banker; not money that you ever owed to a banker, but money that a corrupt government promised to this banker. Why would you pay that?

And then there are some who simply haven’t been able to spare that €100. This is an (inadequate) subsistence grant which only the poorest, remember, can qualify for. Making it a condition of educational assistance provides yet more discouragement to the underprivileged, pulls jobs and wealth still further away, strikes another blow for the rich against the poorest. Another in an incessant rain of blows.

But it really doesn’t matter what the motivation of parents is. To use their children as an instrument against them speaks of a society that has divested itself of all values except the monetary. I realise Clare County Council are under a lot of pressure from our broken government, but they need to be deeply ashamed about this.

Oh, I have no dog in this fight by the way. The banking industry’s failure has already taken away all maintenance and fee support for postgraduates. I will have to borrow the money for my degree. And pay it back, with interest, to a bank.

Whose Is The Moral Hazard?

If you’re wondering what the Irish debt crisis – and indeed the Euro crisis as a whole – is all about, you could do worse than read this opinion piece, a passionate but clear denunciation of how we are being exploited from independent TD Stephen Donnelly. I wouldn’t have put as much emphasis on the public pay deal, but that aside he puts it so well that it’s hardly worth my while writing about it.

I’ll quote him extensively instead… (Emphasis mine)

The bonds¹ were bought from Anglo and INBS in 2007, at the height of the property bubble. They offered higher profits than buying Government bonds, as they didn’t come with a Government guarantee. If the people buying these bonds did their homework, they would have noticed that Anglo and INBS were massively exposed to the Irish property market. They will have read the IMF‘s warning of the “possibility of an abrupt unwinding of the housing boom”. They would have known that the higher potential profits offered by Anglo and INBS came with the clear possibility of losses. Indeed, some of the bonds will have been sold on by the original purchasers at a loss. When this happened, the European financial system did not collapse, the ATMs did not stop working. This week their gamble pays off. Yet again the Ferrari showrooms in London, New York and Tokyo will toast the Irish.

A commemorative Ulster Bank note. The other si...
Looking back, perhaps there were signs

In a massive irony, the ATMs did stop working this week – though at Ulster Bank, the largest operator here the government didn’t have to buy. It turned out to be due to a software update cock-up and not a bank run, but you know what? People dealt with it. Screaming crowds didn’t surge down the streets, horses didn’t start eating each other. Yet that was the scenario the banks used to frighten ministers into nationalising the liabilities of their profit-drunk industry. They bluffed us.

Donnelly continues:

This comes at an enormous human cost. Recently, the HSE told the parents of disabled young adults in Wicklow that there was no longer any money to fund rehabilitative training for their children. […] But we’ll find the €1.1bn [to pay these investors], and we’ll pay the €40m every year in interest. As of last Monday, there were 19 young adults in this situation in the Dublin/Mid-Leinster region. The €40m would pay for their training for the next 150 years.

The Government has reduced welfare payments to single parents, cut support to the disabled, removed staff from Deis² schools and introduced regressive charges. At the same time it incurs enormous interest payments to cover the losses of private sector investors who knew they were betting on a risky venture.

And who knew, what is more, that their reckless lending was fuelling a destructive property bubble. In 2007, they were clearly out to grab a quick profit off a boom. To use a term from the housing market that you don’t hear so much anymore, they were out to “flip” our economy.

They flipped it all right. Those flippers flipped it good.

And this week we reward them for it, with a further €1.1 billion. Money that decent non-gambling taxpayers will work for years if not generations to repay, while the vulnerable in our country have their lives stolen. Whose exactly is the moral hazard here?

 

  1. Bonds which our government is paying this week, even though they were owed by private financial  institutions that went bankrupt.
  2. Equal-opportunity.

Free Comedy Gigs Versus The Banking Industry!

In or near Galway? Doing anything on Sunday afternoon? Like free entertainment? Enjoy comedy?

Good. Those are all nice things.

Wait, yeah. There’s a free comedy gig in Kelly’s Bar in Bridge Street at 3:00pm Sunday. Comics Abie Philbin Bowman and Aidan Killian are touring the country in protest against the bank bailout. You’ve got to do something.

Stand Up Against the Bankers is a show fuelled not by profit but goodwill; no accommodation has been booked in advance and tour dates are determined in large part by the willingness of a community to host the pair. The audience is invited to attend free of charge and get into the meitheal spirit by supporting however they can. Some will cook them dinner after the show, someone else will put them up in their spare room. Some will throw a few quid into the hat and some will help to publicise the next leg of the tour. Aidan Killian explains:

Touring like this creates a different kind of relationship with the audience. We’re not asking them to buy a ticket in advance. And we better make sure our jokes are damn funny. Otherwise, we’ll end up sleeping in the car, eating nettle soup.

Aidan Killian, a former banker with the once prestigious (now disgraced) Bear Stearns, saw the writing on the wall in 2007 and decided to do something he believed in. He left the job, still carrying a huge mortgage for a house in Florida he has never seen. With his understanding of how banks had cheated the system, Aidan turned the tables and forced the bank to accept their liability for the property. This story forms a key part of his comedy set.

Abie Philbin Bowman took the 2006 Edinburgh Fringe by storm with his debut, Jesus: The Guantanamo Years”. His one-man comedies have since toured from London’s West End to Hollywood LA to Lahore Pakistan (during a State of Emergency). His jokes have been taken seriously by everyone from the Ku Klux Klan to Al Qaeda.

Abie spent the Celtic Tiger era pursuing his comedy dreams. He couldn’t afford to buy or rent a house, so remained living at home with his parents. He recalls the day the financial crisis broke.

It was awful: people were in negative equity, losing their jobs, facing repossession… At some point, I realised: ‘Hang on. I don’t own a house. So I’m not in negative equity and nobody can outsource my job to China.’ Somehow, I had gone to bed, a textbook loser… and woken up, an economic genius.

The two stand-ups travelled to last year’s Edinburgh Fringe Festival with solo shows on Ireland’s financial crisis and won rave reviews. They wanted to tour Ireland, but realised the country was broke. Explains Abie:

The financial crisis makes us all feel powerless. Every time we spend money, we’re paying tax, which is used to bail out the banks and pay off the Troika. But the Troika can’t tax barter, or generosity, or laughter.

Admission is free as they say, but please give them some money anyway. Otherwise they may eat all my food.

 

The Galway dates in full:

  • Campbells Tavern, Cloughanover, Headford on Friday June 22nd at 8:30pm
  • The Hop Inn, Athenry on Saturday June 23rd at 8:30pm
  • Kelly’s Bar, Bridge St, Galway on Sunday June 24th at 3pm.

So Where Do We Get The Money?

Cover of "Irish Gold (Nuala Anne McGrail ...They tell us we have to vote Yes to access ESM (European Stability Mechanism) funding, in case we ever find ourselves unable to meet current expenditure. But will it really be our only option? It had better not be – the ESM may never come into being after all. Would it be the best? Only in the sense that it might be cheapest. As I argued yesterday, in every other way it is probably the worst option conceivable, less a loan mechanism than a sort of national receivership. I do not believe we can meet its terms.

So what are the other, officially-denied options? You could categorise them in different ways, but I basically see five. I put them here in not my preferred order, but in what I think is roughly the order of likelihood that they’ll be resorted to (though likeliest of all I think is two or more in combination):

1) The EFSF (European Financial Stability Facility). This is the fund we’re currently availing of for the EU/IMF bailout, and though the ESM with its stricter and (it is hoped) more sustainable rules is meant to replace it, the EFSF will continue to exist for more than another year. Hopefully in that time it will become clear whether we need to borrow more.

2) The IMF (International Monetary Fund). The IMF may have a reputation for setting tough conditions on loans, but unlike the ESM it has no entrenched ideological opposition to countries investing in growth. Some argue that they would refuse to loan to countries that the EU had refused, but the organisation itself has not pronounced either way. And as a partner in our current bailout, the IMF has invested in us already. It is not known for letting its investments go bankrupt.

3) Leaving the Euro. Get out in some semi-ordered way, before we’re forced out precipitously like Greece could be any day now. Devaluing our currency rapidly would solve a lot of our problems, but it would not be painless; imports would leap up in price, effectively making us all poorer immediately. But it would be a huge boost for industry and jobs, sparking immediate actual growth. Indeed, much as I am in favour of the single currency in (broad) principle, it is virtually undeniable that we’d be better off now if we’d never joined. Its inertia has only served to exacerbate both boom and bust.

4) Debt Repudiation/Restructuring. The nuclear option to some, the obvious first step to others. In part this is because we have two main sources of debt, so morally different that they need to be taken separately:

(a) Bailout Debt. However pressured we may have been when we agreed to this, there is a strong moral imperative to, you know, do what we said we’d do. But that is not the highest of all values. Debt repayment does not trump such imperatives as, say, not letting people starve. You can always repay a debt later, but people die for good. No one claims it wouldn’t be a drastic step. It is bound to have negative consequences on other countries, and after we did it we’d be pretty much on our own. But remember the adage – if you owe the bank a million, they have a problem. We shouldn’t be afraid to contemplate default if it can win us better terms.

Most likely of course 3 and 4 would need to be done together, as debts denominated in Euros would be so much more painful if we’re paying in Irish Fairy Gold or whatever. (If we’re getting a new currency we may as well have some fun with it). And by the same token, if we aren’t repaying our debts I think the Eurozone would prefer if we got the hell out.

(b) Bank Bondholder Debt. This though we should have repudiated long ago. The taxpayer has no conceivable moral duty to repay this private debt. And if the European banking industry will collapse if they don’t, then quite frankly the European banking industry deserves to collapse. Let’s call their bluff on this one.

5) Taxing the rich. This is last on a list in order of likelihood because of course the rich have considerable influence over these decisions, though in a sensible democracy it would be first. It has been pointed out that with only a moderate tax on capital and/or a new upper tax bracket we could pay off our debts without making cuts at all. That may be unrealistic, but could very significant new revenue be raised without causing capital flight or discouraging investment? I think it could. There is money to be made here, all we’d be doing is raising the price of making it. I think the market can bear that.

And let’s not forget that the richest have been consistently increasing their share of the wealth, while simultaneously reducing their tax contribution, since the 1980s. If they don’t start paying their share again now when will they start?

~    &    ~

Well OK, the obvious next question is if all these alternatives exist, why does the government prefer the one that will wreak such havoc?

The answer has to be that they don’t really believe what they are asking us to sign. The draconian terms of the agreement are there to convince the money markets that they won’t profit by breaking up the Euro. In the real world exceptions will be made, just as they were made for Germany when they were in trouble. Right? Perhaps we can fudge what is and isn’t structural deficit; no one seems to know quite what that means so it’s a useful bit of ambiguity. Surely, when it comes down to it, we cannot be held to borrowing limits and repayment rates that would wreck our economy?

Perhaps they sincerely believe that, perhaps it’s even true. But to sign your name to a contract on the basis that you hope it will never be enforced is, to put it mildly, unwise.

How Abject Can We Get?

The Dail Eireann
What is the opposite of social welfare?

A Dáil committee debate; someone yet again makes the point that if we selectively burn lenders now, they will remember it if we ever want to borrow again.

The government’s logic seems to be that the bank debts taken on – but not created – by the State are just like all public borrowing now. But they’re not the same. It was money lent into an overheated credit market by reckless lenders. Just as our banks made loans they should not have, those international institutions lent money they should not have lent to our banks. They took unreasonable risks, they stoked a boom, and they helped collapse the entire Irish banking industry.

We want them to remember not to do that.

How The Euro Exploded, Part 1

Berlusconi-comizio
"I have no idea what I'm doing!"

Italian stock markets rally on rumours that Berlusconi may step down. That says everything really. Usually the forced resignation of a head of government sends the markets plummeting, as a country switches from general predictability into leaderless chaos. But it seems even leaderless chaos would be more relaxing than Silvio Berlusconi. You can actually calculate the millions he’s costing his country every minute he hangs on.

If he does go though, he will be the third national leader directly forced out by the financial crisis. I don’t think there’s been such a wave of regime change across Western Europe since 1968. How did it come to this – and to ask the question that everyone really wants answered, whose fault is it?

You can’t pinpoint a single cause in these things of course, but surprisingly I think we can narrow it down to just three:

Problem one: The credit boom. We’ve spoken of this before, but its origins can be traced back to the liberalisation of the US banking industry, and the creativity this consequently introduced into a previously staid profession. In particular, the creativity about what the term ‘asset’ means.

It’s always been quite acceptable to loan someone some money and then consider their promise to pay you back as an asset you own – as long as the value you give to that asset realistically reflects the risk of them not paying you back at all. Be unrealistic however, and you’re in trouble. Though many complex and obscure mechanisms were applied to the task, I don’t think it’s grossly oversimplifying to say the basic problem was that overvalued loans were used as collateral to raise more money, which was then turned into more overvalued loans, which were used to raise more money, which was… Et voilà, magic money from nowhere. Inevitably this reached the point where it was mutually profitable for everyone involved to overvalue the loans they were all giving to each other.

This free money fountain naturally encouraged borrowing throughout the US and Europe, and indeed about everywhere with access to currency markets. The first I knew something had gone badly wrong was when I got a letter from my bank telling me I’d been ‘pre-approved’ for a loan I hadn’t asked for. I’m a freelance artist for God’s sake. When banks go round pushing loans on poor people, the Emperor is out waving his dangly bits to a cheering audience.

But it wasn’t just private borrowing that got out of control. Countries too found credit temptingly cheap. What’s more, easy credit helped fuel a consumption boom, which upped tax revenues, which encouraged governments to ease off rates and make more promises. The problem is that largely fictitious revenues can dematerialise overnight.  Public borrowings and spending commitments on the other hand are not so easily gotten rid of.

This though merely sets the global scene; in Europe specifically there was further trouble brewing. To follow…