Vultures, Eagles & Turkeys

There’s a famous (or should that be infamous) episode of barbarity carried out against the Roman Empire in 88bce, known as the Asiatic Vespers. The people of Asia Minor, fed up of Roman rules, Roman taxes and Roman hegemony, rose up violently. In just one day the Roman population across Asia Minor was slaughtered; it’s estimated between 80,000 – 150,000 people were killed. This was a scrupulously prepared and viciously executed plan.

The fallout of which led to a series of wars that would last decades and pile countless more bodies on to the fire. Nonetheless, the Asiatic Vespers stand as a ruthless warning from history. A government (Rome was still a Republic) that has lost its legitimacy, has lost its mandate to govern.

This week we’ve seen, for the first time in it’s history, the Public Accounts Committee have submitted findings supported by the Majority and not Unanimously. This is a significant break of protocol and not just because the disagreement was over the wording about Michael Noonan and his handling (or alleged mishandling) of the Project Eagle case.

It was significant because it was part of another underlying trend at the hypocritical heart of Irish Politics. A secret 11th Commandment, not included in the Bible; Thou shalt do as we say, but thou shalt not do as we do.

You see, we’ve been lectured for weeks, whether by Pat Kenny calling us thick, or Alan Kelly calling us Populists, or Simon Coveney saying something. I can never remember what Simon says…

Anyway, apparently we have to pay water charges or we risk EU fines. We had to have austerity because we all partied. We have to have accept families in hotels because the banks balance sheets are still vulnerable. So on and so forth.

In the financial world there are rules, lots of them and contrary to popular opinion these rules are overseen by a Regulator. Many of these rules are arbitrary, some are helpful and then there are a handful of ones that are plain old common sense. One such common sense rule relates to Financial Dealings with Politically Exposed Persons, or PEP’s.

In dealing with the EU Anti Money Laundering Directive there are different criteria, based on the individual/entity and the service provided. They roughly fall under three headings: Simplified Due Diligence, Standard Due Diligence and Enhanced Due Diligence. A voucher for a Macari’s Snack Box to the first person who correctly guesses which category Politicians fall into.

Michael Noonan made a bad judgement call in meeting Cerberus the day BEFORE the sale of Project Eagle. This sale has resulted in a loss to the state in the range of €220 million. I’m not going to rake over the coals of this toxic fire sale. You can do that here and here.

I am going to point out that a Department of Finance, that is doing it’s job, might look into the EU Anti Money Laundering Act. I’m going to guess that they’d discover that a meeting with the Minister for Finance is a meeting with a Politically Exposed Person. I’d then be fairly certain that they would see this same meeting is covered under the Enhanced Due Diligence Regulations. Finally, I’d hope they might realise that breaches (if discovered) of these regulations can be punished with sanctions and or fines. The fines can be of “up to €5 million in the case of natural persons, and fines of up to twice the amount of any profits gained or losses avoided.”

I’m a banker, so my sums aren’t great, but I reckon fines of up to twice the loss (as confirmed by the Comptroller & Auditor General) could amount to €440 million. Do I think a Department of Finance that has it’s head buried in the sand is looking into this? Probably not. Do I believe a Government that is busy trying to delegitimise even the wording of a mildly critical report into this debacle, is going to look for our money back? I’m not holding my breath.

It does make me think of the Asiatic Vespers and how fed up people were of hearing “Do as we say, don’t do as we do”. I’m fed up too.

 

Tony Groves

 

 

 

The Kite Runner

Back in the Halcyon Days of the Celtic Tiger, I remember coming across a particularly complex (and not a little brilliant) version of the common practise of Cheque Kiting. Cheque Kiting, for those of you unfamiliar, is the practise where an individual has two (or more) accounts in different banks. He writes a cheque to himself (this first cheque is called the kite) from Bank A and lodges it into Bank B. The following day (taking advantage of Bank B’s lax clearing system) writes a cheque to himself from Bank B and lodges it to Bank A.

These artificial funds are then lodged; allowing the first cheque to clear. The cycle then repeats, typically escalating the amounts until he is either caught, cleans out the accounts and runs or lodges legitimate funds to cover the Kite.

The case I came across was based on the circular kite model, but due to the involvement of several individuals (over 10) and spread across every retail bank in the country at that time it was not easily discovered. The seemingly reasonable monies involved in the cheques, the various clearing cycles of the banks and the fact that there was several people involved made detection next to impossible for any one bank. It really was well constructed and went on for months.

When the fraud was eventually spotted (due to address irregularities) and the kites crashed to earth the Banks had been taken for several thousand euro. It really was a significant amount of money and I’m not sure any of the participants were ever brought to justice. I recall seeing the last transactions on one accounts involved; it was a Laser Card purchase in Dublin Airport. So long, farewell, auf Wiedersehen, adieu…

Anyway, we read today that Denis O’Brien is trying to sell a company (Newstalk, part of his Communicorp empire) to a Company (Independent News & Media) where he is the major shareholder. It is understood that the two parties cannot agree the price, with INM wanting to pay less than Communicorp are asking for.

It is also understood that should the higher price be achieved, then Denis O’Brien would stand to get a “significant payout”. I don’t want to go into the individuals involved and their links with Mr O’Brien, they are available here.

But I do wonder about company law, specifically the laws around conflicts of interest and the Fitness & Probity Standards. You have to ask yourself that if I wanted to sell something to myself, for more than it’s worth, in order to pay myself from the over-inflated price, would that be okay with the Companies Act? Even if it is legal, are the conflicts of interest not such that it would call into question individual’s fitness to operate public broadcasting licences?  I don’t know. Nobody is really saying what did or did not nearly happen.

We know there was a falling out. We hear rumours of resignations. None of it looks good from a Corporate Responsibility viewpoint.

And what has Denis O’Brien trying to sell his company to his company got to do with Cheque Kiting? Nothing; it just makes you think, doesn’t it…

Tony Groves November 2016 Image result for dollar kites cartoon

 

Freeing Up Free Trade

“When nothing is owed or deserved or expected
And your life doesn’t change by the man that’s elected” – The Avett Brothers

Dan O’Brien has a certain Godlike quality. Not in the sense of infallibility, nor in the sense of reassurance in his doctrine. No, Dan has a godlike Omnipresent. The man is EVERYWHERE!

Pre-election, when Dan told us Trump will not win, he was on RTE discussing the need for the government to stand up to Public Sector Unions and not give in to pay demands. Post-Trump-Election (PTE), he was back on RTE, warning us that the biggest threat to Ireland in the PTE era is the demise of “free” trade agreements, such as the Transatlantic Trade and Investment Partnership (TTIP). Really RTE? The rise of a misogynist, racist and dangerous demagogue can be glossed over? But what about TTIP?

I’m not picking on Dan. I think he’s a clever and erudite man who assesses data and delivers the best hypothesis’s he can. His hypothesis are always well structured and sensible. Unfortunately for Dan, they are formed in the same echo chamber of sameness that was resoundingly battered and won’t survive the PTE.

Free Trade and the march of globalisation has lifted more people out of poverty than any other system in the worlds history. But to quote Brian Hayes, “we represent 10% of the worlds population in Europe, 20% of the wealth and we spend 50% of all the public expenditure in the world.”

He’s right, and he’s wrong. He’s right that this formula is unsustainable, he’s wrong if he thinks TTIP is the answer. The wealth divide cannot be closed by agreements that will create wealth but not transfer it to those at the bottom. I’m also choosing to not explore the fact that these stats show (on a balance of trade model) that the EU is a wealth consumer and not a wealth creator.

I’ve written twice already about TTIP, in The TTIP of the Iceberg and The TTIP’ing Point. I’ve expressed concerns about food safety standards. I’m worried that the Establishment of a Multilateral Investment Court for investment dispute resolution will lead to individual states (and citizenry) losing out to Multinational Corporate Profiteering.

I am a FIRM believer in the Free Market. but with constraints. Those constraints must be on the side of the worker, taxpayer and individual states. These newer “free” trade deals seem to favour the Largest of the Large Multinational Corporations.

I say “seem to favour” because I haven’t seen the agreement, apart from the Wikileaks information. I guess that means TTIP is a free trade agreement, in the sense that it is free from public oversight. If our political class have learned anything from the new PTE era, surely it is that vast swathes of the public no longer trust them, rightly or wrongly.

The PTE era is here now. Populism is popular. The Davos Class of Government has ushered in the distrust of people across the globe. The G20 has been put on notice. Don’t pose for selfies with world leaders at extravagant banquets and then come home to tell a Junior Doctor that she is being unrealistic in her pay demands.

Free Trade must survive in the PTE era. Isolationism and protectionism can only lead to regression, both in terms of human rights and (Dan’s beloved) wealth creation. But it must be mutually beneficial to all parties and not just a Corporate/Geopolitical Manoeuvring Tool. It will take imagination, and it will mean our “experts” will need to step out of their echo chamber of convenience.

I’m not mourning the (apparent) demise of TTIP. I am optimistic that revised free trade deals, that will deliver for people, are visible on the edge of the horizon. Or is that the mushroom cloud of disregarded public anger?

 

Tony Groves November 2016 Image result for ttip cartoon

 

 

 

The Complete Banker

Am I the only one still getting used to the clocks going back? I mean, really, that extra hour in bed has knocked me back a lot more than sixty minutes.

“How far back?” you ask.

Over a decade, I reckon.

I remember when, in 2005, I, yes me, was running a bank branch that trial-launched the first 100% mortgage into the Irish market. In those heady days, I was defending these loans as financially responsible due to “enhanced underwriting, stronger credit criteria and robust loan stress testing”. We offered these loans to “help people who meet strict criteria”. Verbal gymnastics and well-meaning soundbites that helped to hide the real motivation; greed.

Imagine my confusion when I read this mornings Central Bank Briefing that Irish Lenders are again offering 100% Mortgages! This little nugget was revealed in the report that also told how nearly 20% of total new mortgages are not inline with the Central Banks Mortgage Lending Rules.

Not only are the CBI Rules selectively applied, but some of these are now getting 100% finance. I’m forever blowing bubbles…

Perhaps this shocking blast from the past could be rationalised and explained if it was only  a Mid 2005 coincidence. But it’s not. No, it’s not even the most shocking development of the day.

No, that privilege belongs to Pepper Ireland, who this morning have announced they are entering the Irish Mortgage Market. The free market brigade will tell you that this is great. The government will say that this is proof that their “strategy” of not having a mortgage strategy is working. It’s none of these things.

Pepper is a Subprime Lender. It will lend to people who cannot meet the (20% broken) Central Bank Rules. Pepper will charge a premium for the additional risk. Then, Pepper will repatriate it’s over-inflated profits to it’s Vulture Fund Overlord.

In short, this added competition is not going to drive down the highest mortgage rates in the EU. It will actually lift our blended rate nationally. This will trigger the debt bundling that was the main driver of the Mid 2005 Mortgage Switcher Market.

People, under financial pressure, will bundle short term debt with their mortgage and think they are better off. Short term gain for long term pain. This is where we are going. Back to the Future…

Neil Hannon wrote it better than I ever could:

“Well that’s just me, the Complete Banker
In a black Bentley, Margaret Thatcher, right here next to me
Oh, how I hanker for the good old days
When I was free and a complete banker
I’m a conscience free, malignant cancer on society
And one day you’ll let your guard down
And I’ll come ’round again”

Tony Groves November 2016

Image result for evil inc formerly lehman brothers

 

Outing Innovation

“There’s no ‘I’ in team”, says the football manager.

“No, but there is 1 in Champion” comes the players retort.

If you were to play out the same verbal spat in the halls of the European Unions Common Consolidated Corporate Tax Base (CCCBT) offices, I’d imagine would go:

“There’s no ‘I’ in Team”

“No, but there’s 2 in Innovation!”

Life (my life) is all about Me. How I got like this (was I always like this?) and what makes Me so selfish is unimportant. It takes a lot of effort to maintain this Shrine to Me by Me. I run and go to the gym to maintain my body. I get grouchy if my sleep is impinged upon, I need it to maintain my (self-declared) fantastic wit. I maintain this blog, that masquerades as thought provoking, but is at its core is just an ode to Me.

I can take some comfort in knowing most of you are like Me. Statistically, I’m in among a majority of Me’s. Most of us are maintainers. We are all working to maintain ourselves, our professions, our way of doing things.

We aren’t all innovators. So, if most of us are in maintenance, then why is the EU’s new CCCBT give a special deal to Innovation?

I don’t know is the real answer, but it’s fun to speculate. Innovation is sexy, no one wants to be the second to do anything, everyone wants to create the newest and bestest most innovationy-ist thingy.

Think about the plethora of charities and foundations that spring up like daffodils. Everyone of them dedicated to a cause that there is already a charity set up for. Everybody wants to be the catalyst for change, they have a dream that their new institution is the one to solve the problem.

Without sounding disrespectful of well-intentioned philanthropic people*, not everyone can be the hammer that cracks the nut. Most of us need to be part of the handle, without which the head cannot swing. We end up with too many charities, competing for too little money and the lack of consolidation leads to less progress in tackling the issue.

Maintenance is less glamorous than innovation. But consolidation and maintenance are critical and more often than not, more important than innovation. It’s not only the charitable sector that suffers from Innovation Addiction. Nope, these days the addicts are running the EU asylum.

Let’s go back to the CCCBT

One of the key proposals of the new Tax Reforms is based on Innovation. What the EU are saying is that start ups (which is good) AND Large Corporations (which is bad) who “support innovation” will be rewarded “through tax incentives for Research and Development (R&D) activities which are linked to real economic activity.” A tax break if you build a (Irish) Knowledge Box, or some other fancy Research and Development container.

These Large Established Corporations are defined as companies who earn more than €750m per year. Not the type of young dynamic company that needs a break. But the start ups are eligible as well, so we should automatically welcome this brave new innovation, right? Wrong…

These tax breaks are misdirected. The established high-tech innovation sector is not a big employer in the EU. In fact, it’s a small player. As Eurostat reported “in 2014, about 34m people were employed in the manufacturing sector across the EU, representing 15.4 % of total employment. Among these workers, 2.3m were employed in high-tech manufacturing, corresponding to 1.1 % of total employment.” That’s employers of only 1.1% of total EU jobs are to receive tax incentives the 98.9% won’t. What’s wrong with this picture?

Ireland doesn’t fare much better. While we lead the EU with 3% of our workforce in the high-tech sector, it’s estimated nearly 50% are not in high-tech jobs, but in administration roles. At most 2% of our workforce are employed in these Innovation, Research and Development roles. 2%, it’s hardly worth giving such huge tax breaks to, is it?

OECD, young firms, job creation

More worrying, the Big MNC’s aren’t really innovating anymore. They don’t need to. They are sitting on huge pots of money. What they do is wait to see which start up (genuine innovator) is doing well, or has promise and they buy them out. Bang, the market shrinks, they consolidate their position and the Innovation becomes theirs, along with the tax break. Doesn’t seem right, does it?

Between 2011 and 2015 the Big Players spent nine times more money in acquiring (buying up) innovation than on innovation itself. Yet we want to give the tax break to the Big Guys, already earning over €750m per year. Am I missing something here?

These Behemoths are not innovators. Some of them are not even big employers. In 2015 Facebook’s global workforce was less than 13,000. Poke that on your wall beside your timeline or something!

It’s the maintenance guys and girls that are the workforce. They’re the ones busy keeping the show on the road. The true innovators (young dynamic firms) aren’t earning €750m per year. The true innovators (job creators) are the head of the hammer, the maintainers swing the handle, but in this new CCCBT deal it’s the Big Guy who takes the nut they crack. I’m not okay with that. Are you?

 

Tony Groves October 2016

Image result for corporation tax cartoon

Warning: I will be writing about this CCCBT again.

*to support the Simon Community click here

What’s In A Name?

Something has been itching at me for a few weeks and I hadn’t been able to put it into words until now. Even now the best words aren’t my own, they belong to David Crosby (he of the Byrd’s and Crosby, Stills and Nash) when he told Marc Maron recently: “I have no respect for labels at all; because they are generally a way to not think about a thing”. Boom!

Labels are a lazy way for us to explain away, dismiss or belittle something that challenges our inherent biased world view. They are nothing more than a convenient way to reinforce confirmation biases and give the labeller a sense of superiority.

How often do you hear dehumanising labels such as “economic migrants”, “so called refugees”, “left wing loony” and “far right fascist”? These are some of the more common ones, but I’m sure we all hear and use some every day. My own personal weakness is to label “the centrists” as “I’m alright Jacks”.

It’s trite and lazy; many of the middle have valid concerns about the polarisation of politics and societal change. Just because I don’t share those fears, does not mean they are not real! An interesting thing happens when you stop using the comforting crutch of labels; a new self-awareness allows you to enter an open dialogue with those who you ideologically oppose.

I’ve read horrendous pieces this week, one that even put the word children in inverted commas, because the children in question were foreigners? We’ve seen refugees reclassified as “mobs” and “a plague of feral humans”. In echo’s of recent dark history we’ve heard calls for dental checks on Children from Calais. Never mind the economic fact that net migration always results in net growth for the country of resettlement.

 

img_7681img_7680img_7679

 

I’ve seen this weekend factions on the Left squabbling over whom has the highest of high moral ground over refusing or reusing the pay rises for politicians. This infighting feeds into the label of the Left as divisive and disorganised. He said, she said politics belongs in the school yard.

There are several labels bandied about on a daily basis, but there is one that is so ubiquitous, so pervasive as to be perverted that I must once more address. That of course is the much loved by the commentariat “Populist”.

I’ve written before about how whenever you read or hear Populist used, you should substitute in the word Democracy and see what effect this would have on the sentence. For example, consider when the Lame Duck Taoiseach enda kenny told the Super-duper World Economic Forum in Davos that “It’s very easy to lose all that hard-won gain and recovery by drifting towards a sense of populism (democracy) without clarity about what that might deliver”.

Now apart from enda trotting out his favourite buzzwords, recovery and clarity,  what he said is that all the indicators are that growth is back and that tinkering with the democratic blueprint now would put that at risk. In summary, democratic calls for change risk changing things.

But he has, not for the first time, missed the point entirely. He has mistaken Growth for Progress, or to simplify it, he has mistaken Economic Progress for Poverty Eradication.

What is actually happening is economic growth that is exacerbating poverty.This is not unique in history, in fact, it is a well documented, often repeated mistake of Government. Most famously it was exposed by Henry George’s Progress & Poverty.

At the end of the nineteenth century industrialisation had dramatically changed the face of America. New technologies were opening up new frontiers and global trade meant access to the best bits of the wider world. Wealth mushroomed and luxury items from foreign lands arrived in US ports several times a day. But, not unlike today, something counter-intuitive was also happening.  People were getting poorer.

You see, as George explains, the relationship between progress and poverty is not symbiotic, in fact it can be very parasitic. The three factors of production are Land, Labour and Capital.

The person with productive/valuable land (land here includes all forms of natural resources) is worth a fortune, the Labourers (wealth producers) get only a small fraction of what they produce and the owner can suppress the wages in line with the high demand for these jobs.

The labour works efficiently at the land/resource/company to where productivity increases. This drives demand that results in rent also increasing and thus actual wealth of the labour falls.

Think about it, a large employer, paying low Corporation Taxes, with its pick of the labour market, uses its natural resources/wealth/share of a market to garner higher productivity, that in turn leads to higher (low taxed) profits, higher rents for the workforce and lower standards of living for the wider community.

Most of the benefits (low taxation, free infrastructure and favourable enterprise deals) are done in order to help the land owner. These they use to raise higher profits while driving down wages in real terms. The inevitable next step is industrial unrest. Workers, finding themselves left behind, see the large profits, hear talk about economic “recovery” and naturally want some of this growth for themselves. It was true in the late nineteenth century and it is very true today.

What is more, the solutions offered back then are as simple and relevant as they are today. George maintained that all men and women of this earth are equal and should be allowed access to the “land”. He points out that it was not nobility or human superiority that gave land, but possession of land that gave humans nobility and a sense of superiority.

Now I know in a global market we cannot go around ripping up trade deals, grabbing natural resources from those who control them or forcing Multinational’s to distribute all of their stateless profits. But we can use the laws, taxation and legal, to decrease the gap over time. We can lessen taxes on productive industries that will agree to make strategic choices that mean labourers share in the successes.  We can incentivise production by taxing unused land/resources, eliminating speculators and thus creating more opportunity for more people to benefit.

Over time, such strategies will lead to land/resources changing hands more often. We’d have more people able to partake in new industries we haven’t even created yet. We would see a more motivated labour force, one that sees a more equal society. Wealth would still increase, but it would do so in such a way as to be of a wider benefit.

There’s no such thing as equality of opportunity, it’s a myth. But there can be such a thing as opportunity of achievement. Enda and the populist bashers are miles away from the types of policies that could lead us to this system. They’re still stuck in the loop of boom/bust and in trusting in trickle-down economics.

We are seeing advances in technology that will automate many jobs in the near future. We will need to have a real and serious debate on the basic income model within the next ten years. These ideas are not Populist, they are facts that have yet to materialise.

Besides, Populist is a just a disrespectful label, used as a way to not have to address democratic and economic realities. Today’s reality is that a Recovery is not a Recovery if the people are left behind and if thinking there’s a better way to build a better society labels me a populist, then so be it.

Anybody can call names. I’ve yet to hear a lazy commentator offer workable solutions. At least  populism comes with progressive ideas.At least populism gives pause to the growing inequality. At least populism is about inclusiveness.

A funny thing about Henry George and his late nineteenth century realignment cohorts, they were also labelled Populists. So I’m in good company.

 

Tony Groves October 2016 fullsizerender

Image stolen once more from the excellent @Feckthelottom

Philosophical Gossip

Socrates, the Athenian Philosopher, is still celebrated today as one of the founders of “Western Philosophy”. As much as he is famous for his teachings, it is his wisdom and integrity that I want to discuss here.

The story* goes that one day, the great philosopher was confronted by a colleague who, with a pained expression said, “Socrates, I need to tell you what I just heard about one of your students?”

“Wait a moment,” Socrates sternly replied. “I don’t just listen to gossip. Before telling me anything, I’d like you to pass a little test. It’s called the Triple Filter Test.”

“Triple Filter?”

“That’s right,” Socrates continued. “Before you talk to me about my student, it might be a good idea to take a moment and filter what you’re going to say. The first filter is Truth. Have you made absolutely sure that what you are about to tell me is true?”

“No,” the man said, “actually, I just heard about it and …”

“All right,” said Socrates. “So you don’t really know if it’s true or not. Now let’s try the second filter, the Filter of Goodness. Is what you are about to tell me about my student something good?”

“No, on the contrary …”

“So,” Socrates continued, “you want to tell me something bad about him, but you’re not certain it’s true. You may still pass the test though, because there’s one filter left, the Filter of Usefulness. Is what you want to tell me about my student going to be useful to me?”

“No, not really,” said the man, now totally exasperated.

“Well,” concluded Socrates, “if what you want to tell me is neither true nor good nor even useful, why tell it to me at all?”

The man walked away, his head repentantly bowed.

This is why Socrates was considered a great philosopher, and the wisest man in Greece.

So what am I getting at? I’m discussing the pre-budget discussions that make up the majority of our news and media output this week. It appears that giving expert opinions, about unconfirmed reports, passes mustard as news.

We have more speculators on the radio than cash buyers at a fire sale. Everyone is telling us how the (unconfirmed) budget will affect us. The reportage is awash with unconfirmed changes to Pensions, USC and tax bands; not to mention the guesstimates about new social project spending.

I won’t bore you with links to articles on speculation. If I was to discuss these kite flying speculations, I wouldn’t pass the Triple Filter test. Whatever the journalists/columnists/commentators/politicians are saying across the platforms is currently not True or Good or Useful.All they are doing is philosophically gossiping.

Think of Socrates, remember how he abruptly ended the gossip before it started. Remember how he filtered out the background noise and demonstrated his wisdom.

Just neglect the fact that, by not hearing out his colleague, Socrates never found out that Plato was having an affair with his wife.

Tony Groves October 2016 Image result for socrates botanic gardens

*okay, so it was a joke, but you get the point.