People and Technology

I knew it was going to be bad but I didn’t think it was going to be as bad as this. And personally, I’m disgusted at bailing out the banks. The same banks that threw suitcases of cash at the housing developers that made first time buyers life hell during the boom years.

The first problem – it’s a bailout but people are pretending it’s not real money
Ah-hah, you say – it’s not really a bailout. The state is guaranteeing the deposits in banks (some Euro 400 Bn worth, or 300,000 Euro for every taxpayer in the country) – but no money has changed hands. What a stroke by the Paddys - not.

No money has changed hands - ‘yet’. Experience in the US (who have been through this  a couple of times in recent decades) suggests that 20% of the loan book will go bad. Because of gearing banks can lend out far more money than it takes in deposits, so 20% of bad loans = a lot more than 20% of our deposits needing rescued.

If the banks were hunky-dory, then why are other banks refusing to lend to them? Why couldn’t they go to their shareholders for more funds (like Royal Bank of Scotland did in recent months, raising 12 Billon Sterling)? And if these two groups (who know far more about banking than I or the average taxpayer does) are refusing to lend, then why should we? Fear is one factor, but fear is normally there for a good reason.

The second problem: Meet the new boss of the six largest banks in the country.

 I’m sure Mr Lenihan is a fine man, competent and full of integrity. He’s got a good CV – politician, lawyer, family man. Strange that – no mention of banking on his CV.

The new boss of Irish banks – minister for finance Brian Lenihan - image from Agent Provocateur

If the state is underwriting the banks, then they’ll be kept on such a short leash that they can’t go to the toilet without asking permission. And if they’re not being kept on a short leash, then why not – that’s 300 grand of my money that they’re playing with. So Mr Lenihan, as the person making the guarantee, is now the ultimate boss of not one, but six Irish banks.

Bit of a dilemma there: Who will run the Banks the best? The current management who made the loans to developers that got us into this mess? Or a politician without any banking experience (although I’m sure he’s learning fast)? Answers in the comments section at the bottom please.

The third problem: Moral Hazard

When we get through this and growth starts again (and despite my pessimism, we will get through this pain, with Ireland coming out in a competitive position) we now have a problem; The very same bankers that we are now supporting / bailing out will start making loans again. And making risky loans, knowing that the state will (probably) bail them out if they fail. So the state intervention now means that Mr Lenihan and his successor politicians will be regulating the heart of the banking system for years to come.

And who do you think will win? Well intentioned regulators on a fixed salary, or highly paid highly motivated bankers who get paid bonuses for finding new ways of bending the rules?

The finale

Can we roll out all the estate agents / politicians / brokers / other talking heads that popped up on TV predicting a ‘soft landing’? Yep, the same ones that critisied those who dared sound a warning as unpatriotic and ‘talking down the economy’?

(Tumbleweed)

Do I have any better answers? No. But it would be good to stop pretending that this bank rescue carries no cost to the Irish Taxpayer.

Update: Actually , this thing might  be cost free - but in a beggar-my-neighbour kind of way. Loads of capital is flowing into Irish Banks and out of UK and European Financial institutions. Great for Irish banks (loads of lovely money to fund existing loans), but I can’t see the other countries being too happy about it if the withdrawals cause a collapse there. Still, it will stop them complaining about our low 12.5% corporate tax rate.

Heard on the Doirt

Girl 1: I can’t believe my car is only worth 15 thousand but the car loan is still 20. It’s so unfair.

Girl 2: What colour is it?

Girl 1: Red

Girl 2: That’s ok then.

And women are normally more careful with money. We’re all doomed.

I’ve been very lucky in the 9 years that I’ve been working for myself. Lucky in the opportunities to travel and the people that I’ve met. Lucky in I’m doing something I love - playing with and building the latest technologies.  Lucky on the financial side of things that it’s given me a wide range of choices.

So, it’s surprised the people I’ve told that I’m now going to be doing something completely different.

Why?
No it’s not the economy. I can see the effects of the slowdown but I’m one of the most ‘low maintenance’ people I know (anybody who lives in Drogheda and drives a ‘98 Toyota isn’t exactly into bling!) I’d be ok. And the uptick (in 18months - 2 years time) is the most profitable bit of the economic cycle.

No , it’s not through lack of clients. One of the most painful parts of the decision have been the 3 prospective projects that I’ve had to turn down. The sort of ideal projects that I’d working to land for the previous 2 years.

No, it’s not through lack of choices. Two other ‘life changing’ choices I had to turn down were to scale inside a well known consultancy, or specialise in one tool and go international (you know who you are guys, thanks for making the final decision so hard

So why then?
The basic reason is that I’m enjoying this now (as in big smile on Monday mornings), but can see that I might not be enjoying it in 3 years time. And chances like this one don’t come along every day. That, and I’m fascinated by the new area and people that these guys are working with.

And what you’re doing is?
This is a big change for me, so a bit nervous about it and will blog about the new job (and it is very much a job, rather than being self-employed) in due course. It will either be the very best, or very worst thing that I’ve done.

Luckily it’s still dealing with People and Technology so no need to change the blog title … and I’m still a techie at heart (in that I’ll play with the stuff even if I’m not paid to) so expect more in that area!

If David McWilliams can take credit for the phrase ‘Celtic Tiger’, can I be first to use the phrase ‘Post Tiger Ireland‘? Looking 5 years out, whether or not the Irish property market has a hard or soft landing, Ireland is going to be a very different place.

We were looking at buying a car in Smiths Ford Garage in Drogheda. The Sales guy (very personable but old school salesman) knew that we were coming in. The car we looked at had a flat tire. In Tiger Ireland , this wouldn’t have mattered - he could shift his quota of cars in the first week of the month. In Post Tiger Ireland (TM), cars are still going to sell , but the salesman is going to have to work for his money - doing the basics like fix the tires and clean the car properly.

So, anybody want to put money on the following not happening over the next 5 years?

1. Not a national disater:
   We’ll have a hard / soft / gentle as a feather (delete as appropriate) landing in the housing market. This will be talked about as a ‘national disaster’. It won’t be - the non construction 73% of the economy will continue along, maybe a little bit more cautiously, but it will carry on.
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2. We’ll find a way to ‘blame the Brits’
   (and everybody else) but unlike the last 800 years, we messed this one upselves. Don’t expect this to stop an unwanted increase in nastiness towards anybody looking non-Irish. The majority of the bullies will be those who left education early to take advantage of the construction boom and are now left high and dry. Sales of Harp Lager to increase?
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3. There will be an increase in the politics of envy.
   Before we were living the Irish Dream - everybody could make it big. Now, expect punative (an ineffectual) tax proposals on property developers , complaints (but nothing done) about high public sector wages and pensions and demands from the ‘losers’ to be compensated (reform of stamp duty anyone?).
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4. Ireland will become (even) more like Britain
   A mature but growing , first world economy. Yes, they’re our closest neighbour (geographically and culturally) , we support their football clubs and spend money in their chain stores. Expect the politics to become more similar - the key debate will be around improving the quality of public services (Health, Roads, Schools, Policing).
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5. At least one major multinational will pull out with job losses in the thousands.
   There will be demands for government to ‘do something’ (the time for action will be 5 years too late). Away from the headlines, Irish Startups (in knowledge sectors such as IT , Financial Services and Pharmaceuticals) will create jobs, but in smaller companies.
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6. Ireland will grow older.
   The average age of the Irish population will grow older as the baby boom passes. It’s possible that we could have too many schools in 15 years time - at least until the current babies have kids of their own. Another Irish Property Bubble in 2027?
   -
7. The ‘New Irish’ will draw more talent into the Irish Economy.
   Many ‘New Irish’ (choose this weeks PC term) are here to stay for the same reason that many Irish people still live in England and the US. Would you take your 5 year old daughter back to school in Poland if she only spoke English? ; Migrants tend to follow where friends and family have gone before. This will give the Ireland a boost as we get the cream of overseas talent, even when other EU desinations become available. Expect more Paul McGraths on the Irish Football team.
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8. Suburbs are the new Ghettos.
   Carbon taxes and higher fuel costs are here to stay. Traffic jams in Dublin are going to get even worse (think pre-congestion charge London). Doing an expensive 2 hr commute will become less and less attractive, especially when house prices fall. Poorly built boomtime housing will decay quickly when not maintained leading to a vicious circle of decline when those that can afford to get out, will.
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9. IT will be the major growth factor in the Irish Economy.
   Despite all the buzz around Green, Space and Nano technologies, few of these are ready for widespread commercialisiation. Not only will IT be the direct engine of growth, but it will enable growth in other industries (e.g. Irish Business using Skype videoconferences to offer Financial Services to the City of London).
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10. Something will happen that we can’t predict.
    In the 60’s , few foresaw the viciousness of the troubles. In the early 90’s , few predicted the robustness of the Celtic Tiger. What does this decade hold? A 9-11 with Irish linked perpetrator’s? Large scale social unrest caused by the Euro-straightjacket? Miracle cures for obesity, cancer and smoking? I have no idea.
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There are some of these predictions (especially number 2) that I don’t like. What do you think?`]

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