The state of the Irish Economy... for Dummies

Kimia

Hi all,

Forgive my ignorance but I feel like I don't have a proper grasp of exactly what has happened to this country in the last few years. I would really appreciate if someone could take the time to give a simple description. I mean, I know the basics, but I couldn't have a proper conversation about it with someone as I feel (to my shame) that I haven't really investigated or read through all the data available to me.

I know (for example) the sub-prime mortgages, the boom, the ridiculous spending on apartments/houses etc, the collapse of Lehman brothers, the collapse of business after business, but I don't really understand exactly what happened to the banks and what the causes and solutions will be.

I'm really taking a risk admitting this so please be kind. Maybe there are others who are feeling just as ignorant..

I'll start..

It all began when........

Very simply we borrowed money to build houses, they were going up in value faster than other investments so people bought houses as "investments" and we built more. To do this we borrowed more. Developers borrowed more. We built so many we couldnt sell them all. The developers cant pay back the money they owe the banks. This was so much money that our banks began to run out of money so the Govt are giving them money and covering the loans that cant be paid back through NAMA.

Moore Mc Dowell on what all this will cost us:

The equivalent of 5% being knocked of GNP for the next 20 years

43minutes 30 seconds into part two of the right hook tuesday (yesterday 30/03/10) podcast:
http://media.newstalk.ie/podcasts/popup

This will cost us severely and for a long long long time

whatnext

Deleted User wrote: »

Very simply we borrowed money to build houses, they were going up in value faster than other investments so people bought houses as "investments" and we built more. To do this we borrowed more. Developers borrowed more. We built so many we couldnt sell them all. The developers cant pay back the money they owe the banks. This was so much money that our banks began to run out of money so the Govt are giving them money and covering the loans that cant be paid back through NAMA.

Moore Mc Dowell on what all this will cost us:



43minutes 30 seconds into part two of the right hook tuesday (yesterday 30/03/10) podcast:
http://media.newstalk.ie/podcasts/popup

This will cost us severely and for a long long long time

But to be fair, his figures are Gross, ie based on every developer defaulting on 100% of their loan and the reclaimed asset being sold for €0

I must meet up with mr mcd, so I can get our GNP figures for the next 20 years. There is massive money to be made with this information through spread betting... have you got his phone number

Kimia

How exactly does Nama 'get rid' of the loans? And where are the developers now? And what effect did the Lehman brothers crash have on our economy?

Fighting Irish

People got greddy, and now that's everything is gone to sh1t, it's someone elses fault

ParkRunner

Kimia wrote: »

How exactly does Nama 'get rid' of the loans? And where are the developers now?

Some of the loans have are performing to some degree. NAMA has paid the banks approximately 50% of the initial value of the loans and has taken them over.

The loans were primarily taken out to purchase property and land in both Ireland and abroad. The government are saying that these assets have a long term economic value and therefore NAMA will make a profit in the long term when they are developed further and sold on. At least that is my understanding of it.

Some of the developers gave personal guarantees for the loans they took out and have been hit very hard. There are no big construction projects really happening anymore though so the developers have pretty much gone off the scene assessing the damage to themselves and their companies.

Kimia

Fighting Irish wrote: »

People got greddy, and now that's everything is gone to sh1t, it's someone elses fault

Thanks but not really what I was looking for. Does anyone have a more detailed explanation and insight?

whatnext

Kimia wrote: »

How exactly does Nama 'get rid' of the loans? And where are the developers now? And what effect did the Lehman brothers crash have on our economy?

NAMA is buying the loans off the banks. An example that was given to me was as follows.

Sub contractor owed a million euro by developer. Developer says p!ss off I aint paying. Subcontractor sell debt to local crime lord for say €660k. Crime lord goes to developer and says give me the million euro or else. developer pays up. NAMA is supposed to be simillar but without the guns.

The developers still owe the full extent of the loans. If their debt is transferred to NAMA then they have 30 days to say how they intend to pay the full loan back. If NAMA believe the plan is good they repay as outlined, if the believe its rubbish they have to submit a more realistic plan. If that is rubbish also, they seize the asset, call in any securities against the loan and then decide how to maximise the value of the asset in the interest od the state / tax payer over the next 10 years.

Lehman brothers introduced the previously unthinkable prospect of a major bank going bust, and depositers / financiers loosing their money. This raised the cost of credit and resulted in institutions calling in their loans. All the major financiers wanted their own cash back. Cash became king and credit dried up. no one would loan to another bank.

Ebonhoof

There used to be a saying that when Britain sneezed, Ireland caught flu. This is roughly how you could describe the relationship between America and Europe now.

Subprime in America is a totally different animal to subprime in Ireland. In America subprime meant lots of poor people unable to repay loans, in Ireland subprime meant relatively few people unable to repay loans (the developers). The only common thread is that banks both here and there overlent and a property bubble burst. When the lenders couldnt repay, it meant the banks were seriously compromised, destabilizing the economy and requiring recapitalisation.

When governments have to spend money recapitalizing banks they have less income to spend on other things like public services/wages. This contracts the economy making the amount of disposible income flushing around smaller.

When the property bubble burst, it also caused high unemployment in building and associated industries.

With less disposible income in the society, normal firms sell less and either have to cut staff/wages/go out of business. This causes more unemployment/less disposble income in economy. Basically a downward spiral.

A well run economy can counter this downward spiral by introducing stimulus packages to generate jobs/spending to kickstart the economy. However the Irish government cant afford to both save the banks and introduce a stimulus package. The government decided to save the banks, letting the economy go down the toilet.

This is a very simplistic view and I have tried to leave out knocking all the players; financial regulator, banks, developers, politicians, general public living beyond their means with huge credit card/mortgage debt.

Basically now we are locked into saving the banks to save our international reputations so that our national debt (which has doubled) repayments dont crucify us further. We need to get our unemployed to emigrate (hardly fair) so they are less of a drain on public coffers. We need the public service to cut costs because we cant afford to pay them at previous levels. We need the government to come up with ways to create jobs (not public but private sector ones that generate wealth). We need lots of tourists to come to Ireland and spend their cash here, personally I recommend a "How to destroy an economy bus tour" that could bring tourists around dublin showing them the Central bank, bank head offices, government buildings, unfinished building sites and empty commerical units.

Next 20 to 30 years the rest of us left in the country have to figure out how to survive, I'd recommend planting potatoes in your back yard only knowing our luck we'd get a blight again.

Laminations

whatnext wrote: »

Sub contractor owed a million euro by developer. Developer says p!ss off I aint paying. Subcontractor sell debt to local crime lord for say €660k. Crime lord goes to developer and says give me the million euro or else. developer pays up. NAMA is supposed to be simillar but without the guns.

This is all well and good, but people are concerned that the developers just do not have the money, and with limited liability we cannot chase down their personal assets in many cases - soooo we are left with a bunch of unpayable debts

Fentdog84

Fighting Irish wrote: »

People got greddy, and now that's everything is gone to sh1t, it's someone elses fault

Not everyone got greedy & took out massive mortgages and loans. I think each case should be taken on its merits, if you lost that money or defaulted on a loan, it should not be the taxpayers problem.

_Kaiser_

(Warning: Unpopular semi-rant.. ok its a full rant... ahead..)

In my opinion, the biggest problem in this country (and I say this as an Irish man), is that we as a people are too immature to run a country...

Think about it.. the State is about what? 90 years old? We're not mature enough as a country to make the tough decisions properly.

Instead what we get is a state appartus (be it eircom, ESB, Bord Gas, the banks, the health service - ANYTHING really that is/was run by the Irish) that's run on the "ah sure it'll be grand" approach to business - "oh we made a mistake with your account.. well sure it'll take a few days to fix that but sure you can manage in the meantime right?" :rolleyes:

Couple that with a government made up of people who's primary interest is getting into power, staying in, and lining their pockets and those of their mates as much as and for as long as they can! Naturally, they then think that the public are there to serve them, not the other way around and the concept of "the greater good" doesn't figure once, and the game is to pass the buck as much as you can and never, EVER take any responsibility for your decisions!

People complain about FF and the people who voted them in, but honestly what real alternatives are there? FG?? Sinn Fein?? The FF backbenchers who anonymously whinged in the papers about Cowen and the cabinet, and rumbled about a possible leadership challenge all stayed suspiciously quiet at the latest party meeting today.

Then you have a general public who are great at whinging at each other in the pubs and on message boards like this, but who then close their mouths like good sheep and accept the latest ridiculous scandal/announcement from the aforementioned "government" without comment.
I saw a letter in one of the papers recently and the author made a very good point - about the only thing that would get the people in this country fired up is if they were to close all the pubs and ban alcohol! :rolleyes:

The problem is that as a nation, we are too interested in looking after our own personal interests, our family, our mates, our little patch of land, showing off to our neighbours ("look at my shiny new 10-reg car (that I'm up to my neck in debt for)"), and getting one over on "the man" (be it social welfare fraud, or trying to get out of a speeding fine), that we really can't be trusted to run a country where the decisions (especially in a common market/global economy) are more serious and far-reaching than the parochial politics we engage in.

We have collectively squandered the biggest economic boom this country has ever seen (or is likely to ever see again). OK we have a few new motorways and bypasses but our "well educated workforce" is now largely a myth (while we waste time with Irish and the teachings of the Catholic Church, children at primary level on the continent can already speak 2/3 languages!), our healthcare system is on par with a third world country, and our infrastructure (secondary roads, broadband etc) is years behind even former Soviet Bloc states. What do we really have to offer potential investors?

Now thanks to all of this our government has effectively stagnated the country for the next 20/30 years. Anglo should have been left to fall, but instead we, our children, and probably our grandchildren will be left to pick up the bill from all of this!
Worse again, not one of the people at government/executive level responsible for selling out our country's future will see the inside of a jail cell!

It's a proud day to be Irish alright.... :rolleyes:

strathspey

Excellent post Kaiser2000. I couldn't agree more. I'll add that the Irish in the last decade even came to liken themselves to Jews ie. the chosen people, the special ones. There's nothing special about being Irish.
I have always maintained that Ireland is principally a nation of farmers and tradesmen who merely got lucky with a 12.5% corporation tax.

whatnext

Laminations wrote: »

This is all well and good, but people are concerned that the developers just do not have the money, and with limited liability we cannot chase down their personal assets in many cases - soooo we are left with a bunch of unpayable debts

I accept your point totally, thats why a NAMA type entity is essential to the state, we cant just wind them all up can we? we have to do everything in our power to try make (but also facilitate) them paying every single cent back.

You cant beat blood from a stone etc., but hence the discount paid to the banks, thats the risk we have bought. Tough as it seems I dont see an alternative, letting a bank go bust would have horrific concequences on our already massive national debt repayments, not to mention the continued borrowing we are undertaking.

As we all know there is no place in the real world for idealistic thinking, thats just not the way the real world works.

NOthing would give me greater pleasure than to see the major banking decision makers, reckless developers, corrupt planning officials (why there is no focus on them is beyond me, they have permanent state jobs to make them beyond reproach alledgedly), etc, etc in stocks in Stephens Green, but it wont fix the problem....

Now is a time for looking forward only.... we can nail all the culprits to the cross later, let them sweat for a while

changes

Kaiser2000 wrote: »

(while we waste time with Irish and the teachings of the Catholic Church, children at primary level on the continent can already speak 2/3 languages!)

I am particularly bothered by this myself. I was amazed when my son explained how much time they spend waste on religion and irish (OK some time needs to be spent on our national language, but not more than is spent on maths).

Also learning by rote is enough to get you into medicine in this country. 6 A's by rote is quite possible. We need people with the ability to think for themselves and problem solve..... not recitation!

SkepticOne

whatnext wrote: »

Sub contractor owed a million euro by developer. Developer says p!ss off I aint paying. Subcontractor sell debt to local crime lord for say €660k. Crime lord goes to developer and says give me the million euro or else. developer pays up. NAMA is supposed to be simillar but without the guns.

Alternative scenario:

Subcontractor owed a million euro by developer.
Subcontractor knows the loan is really only good for 100,000 or so.
Subcontractor sells loan to the State for 660,000.
State grants interest rate holiday to developer for next few years until another government is in power.
Developer celebrates in Malaga with his other developer mates.
Subcontractor also celebrates for having sold something worth 100,000 to the State for 660,000.

dan_d

Kaiser2000 wrote: »

(Warning: Unpopular semi-rant.. ok its a full rant... ahead..)

In my opinion, the biggest problem in this country (and I say this as an Irish man), is that we as a people are too immature to run a country...

Think about it.. the State is about what? 90 years old? We're not mature enough as a country to make the tough decisions properly.

Instead what we get is a state appartus (be it eircom, ESB, Bord Gas, the banks, the health service - ANYTHING really that is/was run by the Irish) that's run on the "ah sure it'll be grand" approach to business - "oh we made a mistake with your account.. well sure it'll take a few days to fix that but sure you can manage in the meantime right?" :rolleyes:

Couple that with a government made up of people who's primary interest is getting into power, staying in, and lining their pockets and those of their mates as much as and for as long as they can! Naturally, they then think that the public are there to serve them, not the other way around and the concept of "the greater good" doesn't figure once, and the game is to pass the buck as much as you can and never, EVER take any responsibility for your decisions!

People complain about FF and the people who voted them in, but honestly what real alternatives are there? FG?? Sinn Fein?? The FF backbenchers who anonymously whinged in the papers about Cowen and the cabinet, and rumbled about a possible leadership challenge all stayed suspiciously quiet at the latest party meeting today.

Then you have a general public who are great at whinging at each other in the pubs and on message boards like this, but who then close their mouths like good sheep and accept the latest ridiculous scandal/announcement from the aforementioned "government" without comment.
I saw a letter in one of the papers recently and the author made a very good point - about the only thing that would get the people in this country fired up is if they were to close all the pubs and ban alcohol! :rolleyes:

The problem is that as a nation, we are too interested in looking after our own personal interests, our family, our mates, our little patch of land, showing off to our neighbours ("look at my shiny new 10-reg car (that I'm up to my neck in debt for)"), and getting one over on "the man" (be it social welfare fraud, or trying to get out of a speeding fine), that we really can't be trusted to run a country where the decisions (especially in a common market/global economy) are more serious and far-reaching than the parochial politics we engage in.

We have collectively squandered the biggest economic boom this country has ever seen (or is likely to ever see again). OK we have a few new motorways and bypasses but our "well educated workforce" is now largely a myth (while we waste time with Irish and the teachings of the Catholic Church, children at primary level on the continent can already speak 2/3 languages!), our healthcare system is on par with a third world country, and our infrastructure (secondary roads, broadband etc) is years behind even former Soviet Bloc states. What do we really have to offer potential investors?

Now thanks to all of this our government has effectively stagnated the country for the next 20/30 years. Anglo should have been left to fall, but instead we, our children, and probably our grandchildren will be left to pick up the bill from all of this!
Worse again, not one of the people at government/executive level responsible for selling out our country's future will see the inside of a jail cell!

It's a proud day to be Irish alright.... :rolleyes:

In a word - we're parochial.
Well said Kaiser2000.

whatnext

SkepticOne wrote: »

Alternative scenario:

Subcontractor owed a million euro by developer.
Subcontractor knows the loan is really only good for 100,000 or so.
Subcontractor sells loan to the State for 660,000.
State grants interest rate holiday to developer for next few years until another government is in power.
Developer celebrates in Malaga with his other developer mates.
Subcontractor also celebrates for having sold something worth 100,000 to the State for 660,000.

You seem to have totally missed the whole concept of what is happening.

The value of the asset is irrelavent to the developer. The developer is still liable for 100% of the debt. And while I appreciate they are predominantly ltd companies, the vast majority of them have secured loans aginst privatly held assets.

I dont think even Joan Burton would suggest that NAMA has or will pay 6 times the value of any asset.

KerranJast

Even the worse outcome of NAMA over 10 (realistically 20-30 years) is tiny compared to how much off a budget deficit we're running up each year.

SkepticOne

whatnext wrote: »

You seem to have totally missed the whole concept of what is happening.

Who says your concept (i.e. that NAMA is about getting tough with developers) is the correct one?

The value of the asset is irrelavent to the developer. The developer is still liable for 100% of the debt. And while I appreciate they are predominantly ltd companies, the vast majority of them have secured loans aginst privatly held assets.

Where did I say the value of the asset is relevant to the developer? What matters to the developer is the interest holiday that is built into the business plan and the fact that NAMA is likely to be reluctant to foreclose on developers knowing that they will be left with next to worthless land and developments.

This is the opposite to your analogy of NAMA being like the local crime lord collecting debt.

I dont think even Joan Burton would suggest that NAMA has or will pay 6 times the value of any asset.

I made the 100,000 figure up to illustrate the point that NAMA is overpaying for assets. However, forget about what Joan Burton may or may not say, no one knows the actual value of those assets. For all any of us know, NAMA may indeed be paying vastly over the odds for many assets, and that is the point I'm trying to make.

whatnext

SkepticOne wrote: »

Who says your concept (i.e. that NAMA is about getting tough with developers) is the correct one?Where did I say the value of the asset is relevant to the developer? What matters to the developer is the interest holiday that is built into the business plan and the fact that NAMA is likely to be reluctant to foreclose on developers knowing that they will be left with next to worthless land and developments.

This is the opposite to your analogy of NAMA being like the local crime lord collecting debt. I made the 100,000 figure up to illustrate the point that NAMA is overpaying for assets. However, forget about what Joan Burton may or may not say, no one knows the actual value of those assets. For all any of us know, NAMA may indeed be paying vastly over the odds for many assets, and that is the point I'm trying to make.

Which asset did they over pay for???????????

RichardAnd

Kaiser2000, everything you said was absolutely true and you are a brave man (or woman) for not simply blaming FF and bankers.

Yes people, the sad fact is that the Irish (most of them) are simply unable to apply themselves to anything that requires discipline or dedication. Is it at all surprising that most people pissed the money they were earning down the drain during the boom? Not at all.

Someone above mentioned that all it takes to get 600 points in the leaving cert is the ability to memorise text books full of waffle. This is something I've been concerned about for years and I think it's a huge problem with the education system. I know people who can't tell their back side from their elbow yet are studying medicine. Then there are the colleges themselves but to go into that would be a rant.

ei.sdraob

whatnext wrote: »

Which asset did they over pay for???????????

we the taxpayer are overpaying by injecting the money which is of larger amount that what was written of between NAMA<>Anlgo directly into Anglo

which is effectively the same as Anglo **** being shifted at no discount at all

yep that feeling in you might get at back of your throat, is how it feels to be robbed in bright daylight

SkepticOne

whatnext wrote: »

Which asset did they over pay for???????????

Hey, I'm only providing an alternative scenario to yours. Just like your example, it is based on suppositions, yours being that Nama is about being tough with developers.

Anyway we know that NAMA was planning to overpay based on the draft business plan published last year. I think the figure was about 7 billion in total.

The actual amount being overpaid is not known to the public. We know that less is being paid overall to the banks than originally planned but we also know the underlying value of the assets has also gone down and the 7 billion could be an underestimate for PR purposes.

whatnext

SkepticOne wrote: »

Hey, I'm only providing an alternative scenario to yours. Just like your example, it is based on suppositions, yours being that Nama is about being tough with developers.

Anyway we know that NAMA was planning to overpay based on the draft business plan published last year. I think the figure was about 7 billion in total.

The actual amount being overpaid is not known to the public. We know that less is being paid overall to the banks than originally planned but we also know the underlying value of the assets has also gone down and the 7 billion could be an underestimate for PR purposes.

Sorry about the analigy I used, it was supposed to outline the process in very basic terms and not the effect.

I do think both sides of this debate (myself included) need to accept that none of us can definatively say how this will all look in ten years. My personal opinion is that one way or another we end up paying for the Sh!t Pit that is Anglo. We can:
a. Pay via the NAMA / Bank Bail out Process
b. Pay some other bank to take it off our hands
c. Let it collapse in a heap and ignone its liabilities (in which case we pay with increased international lending rates. this also assumes the international markets will lend us money.)


But, and the big but is NO ONE CAN GAURANTEE HOW THIS WILL END UP. But in my opinion we have adopeted the best option of all currently out there.

But no one on boards can tell me I am incorrect at this point, just as I can not say I am 100% correct. Only time will tell, unfortunately

whatnext

ei.sdraob wrote: »

we the taxpayer are overpaying by injecting the money which is of larger amount that what was written of between NAMA<>Anlgo directly into Anglo

which is effectively the same as Anglo **** being shifted at no discount at all

yep that feeling in you might get at back of your throat, is how it feels to be robbed in bright daylight

I'm not that thick to try argue that Anglo is an asset. Its a liability of the highest order. I can even see it making its way into the dictionary as an adjective to describe a complete and utter cock up

MagicSean

So the government owns the banks. They own all the debt and can foreclose on loans and seize all the property. And then we'll have a communist state.

Although I do see a benefit in the government taking over any properties. Couldn't they be used as government buildings and public service offices?

patmar

The four main economic objectives are :

Full employment
Low inflation
Growth
Favourable balance of Payments


We are fed indicators on these all the time

All other economic activities are tools to achieve the objectives

The objectives are incompatible and the culprit is INFLATION

The only known cure for inflation is DEFLATION

The best known method of deflation is MASSIVE UNEMPLOYMENT

This is the case past, present and future

The biggest economic dummies are professional and armchair ECONOMISTS

Kidchameleon

OP should watch this,

explains very well about how economies in general HAVE to go to recession every few years...

http://video.google.com/videoplay?docid=-2550156453790090544#

patmar

Kidchameleon wrote: »

OP should watch this,

explains very well about how economies in general HAVE to go to recession every few years...

http://video.google.com/videoplay?docid=-2550156453790090544#

Thanks for that excellent piece. Since 2008 have struggled with understanding how the whole banking system collapsed all at the same time. Never one for conspiracy theories I still felt certain there was a deliberate dominoe effect triggered by something or someone. Also feel certain there are dramatic changes on the way that will become clearer in time. Have the sense that the powers that be in our country are just doing what they are told. Thanks again

RichardAnd

patmar wrote: »

Thanks for that excellent piece. Since 2008 have struggled with understanding how the whole banking system collapsed all at the same time. Never one for conspiracy theories I still felt certain there was a deliberate dominoe effect triggered by something or someone. Also feel certain there are dramatic changes on the way that will become clearer in time. Have the sense that the powers that be in our country are just doing what they are told. Thanks again

Sounds like what Alex Jones has been saying for years. I don't buy into conspiracy much myself but I think it would be foolish simply to think that everything is as it seems on RTE news.

Fighting Irish

Fentdog84 wrote: »

Not everyone got greedy & took out massive mortgages and loans. I think each case should be taken on its merits, if you lost that money or defaulted on a loan, it should not be the taxpayers problem.

I agree

Elmo

Kaiser2000 wrote: »

(Warning: Unpopular semi-rant.. ok its a full rant... ahead..)
:
:
:

It's a proud day to be Irish alright.... :rolleyes:

Bar the idea that we are too immature, it is not unpopular had to gone for other aspects etc then perhaps but it is fair comment. I am sure their are many countries that you could say that about. and its a rant, not a semi-rant. However the ESB is a fairly large company with several international operations.

You missed Labour as an option.

ei.sdraob

The state of the Irish Economy... for Dummies, in one sentence

the crazies are running the asylum

:mad:

James Reilly (Dublin North, Fine Gael) wrote:

Is Mr. Maurice Keane, who is a director of Anglo Irish Bank, also on a committee to select management for NAMA, to which his bank will be selling bonds and loans? Is this not a gross conflict of interest?

link

Elmo

ei.sdraob wrote: »

The state of the Irish Economy... for Dummies, in one sentence

the crazies are running the asylum

Perhaps the thread should be re-titled

The state of the Irish Economy by Dummies.

MagicSean

k_mac wrote: »

So the government owns the banks. They own all the debt and can foreclose on loans and seize all the property. And then we'll have a communist state.

Although I do see a benefit in the government taking over any properties. Couldn't they be used as government buildings and public service offices?

Now the government own Quinn

http://www.rte.ie/news/2010/0408/quinn.html

My prediction is coming true comrads.