I woke up on Friday thinking we must be back to the good times. Morning Ireland was gushing about rising property prices, the ruling party is back to blatant cronyism and there was a mega cocaine bust off the south coast.
If anything sums up 2006, it’s property porn, cronyism and cocaine! It feels like it again, but this time it’s different.
This time, we have a kind of boom, but Irish people aren’t allowed to play. We are having an Irish boom without the Irish, and the best qualification for entry into the Irish recovery is not to be Irish.
The banks that are exiting Ireland are offering up their portfolios of loans to foreign vulture funds that have no interest in staying in this country.
Here’s what’s happening. European interest rates are going to zero because Europe’s economy is a mess. I know this isn’t a technical term, but bear with me. This slumping EU economy is causing the euro to plummet against the dollar.
Meanwhile, the American economy grew by 4.6 per cent in the second quarter, so the dollar is going upwards. I was in California last week and the place is flying, the dollar is going to keep going up.
So if you are an American vulture fund what do you do?
You borrow in euro, even though you are American, and you watch your borrowing cost fall as the euro exchange rate falls. Then you take this “free” money and you go to Ireland, where the locals have no credit and you buy up bundles of loans from their government – the very people who are supposed to be protecting the financial interest of the Irish people.
Remember Nama – an agent of the state – was supposed to get credit going? Well, it is getting credit going all right – but it is foreign credit! And Nama is pleased about how funds are “positioned” in Ireland. Nice word “positioned”, it conjures up an image doesn’t it?
We are pawns in the global credit cycle. The vulture capitalists know this but are too clever to admit it and the Irish political class don’t see it. We should be lamenting, but we are expected to celebrate the fact that Irish-based banks are selling their assets to foreigners at a discount that will be sold back to Paddies at a premium. Great craic, isn’t it?
Most vulture funds have a rule called the three-thirty rule.
This means they buy and hold for a maximum of three years and once they make 30 per cent they are out. This is their twist and this is why properties in Greenwich, Connecticut are a wee bit on the pricey side.
Listen, I don’t blame the funds. This is what they are mandated to do. They have to make as much lucre as they can for themselves and their shareholders. The global system is rigged, they are on the top, they fund the political campaigns and they get the codes written to suit their interests. If the “hopey-changey” Obama couldn’t change this, who can?
So the vultures, having bought up the glittering swanky office prizes in Dublin – and with various geniuses heralding their brilliance even though it was nothing more than having the access to capital at a time when our country was on the canvas – are now delving deeper into the economic carcass.
Deep inside the financial entrails are the loans of small and medium-sized businesses, the property loans of petrol station owners, publicans and undertakers. The vultures love this type of soft tissue.
As revealed in this paper today, the loans of more than 4,000 small and medium sized businesses are set to be sold to vulture funds in the coming weeks, following the decision by Danske Bank to sell its entire SME loan book.
The sale, the largest of its kind ever in Ireland, will effectively mean that thousands of small businesses will come under the control of vulture funds.
The strategy of the funds is to buy as cheaply as possible and sweat the asset until the yield on the property rises. Once the yield or the income of the property rises, they can re-rate the price of the property upwards. In finance this is almost formulaic. But in reality it is far from a formula.
Re-rating the property value upwards at a time of low inflation will involve putting up rents, squeezing the owners – who are pretty much bust and may have one business (a pub, say) which is throwing off just enough cash to pay the interest on the property. The notion of forbearance might not be something the vultures are entirely comfortable with.
However difficult the plight of the individual owners may be, the concerning issue for all of us is what happens to the national balance sheet when this process is over?
The first thing to accept is that the natural owners of Irish property are Irish people, not people who summer on Long Island.
Who will buy these assets from the three-thirty vulture funds? We will, of course. We will sell Ireland to foreigners at a discount and buy Ireland back at a premium!
And who will finance the purchases at 30 per cent above where we are now?
The newly operational Irish banks, of course! And the vultures will fly off, having sold up to Paddy.
A crisis that began with the Irish banks leveraged on expensive Irish property will end with more or less the same Irish banks leveraged to expensive Irish property.
How does that make you feel?
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Oasis of Nothingness and Bullshit I was in a jungle in Borneo with Jaheb and I was told to remain quiet and not to move and I did, I mean I did make noise and out from the bush a proverbial fly appeared and flew away .This was not suppose to happen because the noise of its wings causes the volcano to erupt after a few days and destroy the surrounding lands.And it did and the lands were destroyed .Everything was destroyed . I am reminded about the Late Late Show and when Old Gaybo would announce that’ there was… Read more »
“The global system is rigged,” Well yes it is but the narrative starts in the middle not at the beginning. What about a discussion on the global fiat money system where this all starts. The fact that the elite families such as the Rothschilds et al control the issuance of credit to the whole world is not worth talking about it seems. The fact that California is booming or anywhere else is because of extended credit. all is based on increased debt. The poor are affected first and finally all are strangled and destroyed. Ireland is a low man on… Read more »
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The difference between California and Ireland is information. Californians understand how their system works, the Irish do not. There are many reasons for this but the most fundamental is the Catholic education most Irish receive. A good Catholic learns to accept what they are told and not question their betters. Irish children are taught subservience from day one. It never leaves them. American schoolchildren start every day with their hand on the hearts with “I pledge allegiance to the Flag of the United States of America, and to the Republic for which it stands, one Nation under God, indivisible, with… Read more »
David,
good article…but Paddy and Mary have exited stage left and now the new stage oirish are Pawel and Ahmed….so who cares if the vulture is foreign or not there’s no one left to lament.
Romantic ireland’s dead and gone,
it’s with O’Leary, McCarthy, Doyle and GAA in Boston, Sydney and Berlin.
President Cristina Fernandez de Kirchner, told to President Obama’s face, and the rest of the world leaders, at the last meeting of the Security Committee of the UN, that “capitalist vultures” ( that represent 6% of the creditors, that didn’t want to restructure the debt with the Argentinean Government, and that got the support of the High Court in the US, in a case against Argentina), that go around the world destabilizing national economies, are financial terrorists. It took a woman from South America, with more balls than many world leaders put together, to call a spade a spade, and… Read more »
I believe the main reason the European economy isn’t doing well is because of the stubborn reluctance of the ECB to print money so that it is weaker against the dollar and sterling to promote more exports. It seems as if the euro has been artificially high in recent years due to the markets perception of a currency not undergoing any form of quantitative easing. Finally Dragi is starting to see this is now the only real viable option to get Europe going again. It’s no surprise to all of us which Euro zone country benefits the most from a… Read more »
“We are pawns in the global credit cycle. The vulture capitalists know this but are too clever to admit it and the Irish political class don’t see it. We should be lamenting, but we are expected to celebrate the fact that Irish-based banks are selling their assets to foreigners at a discount that will be sold back to Paddies at a premium. Great craic, isn’t it?” Pawns? Not at all. NAMA’s remit is to make a profit for the tax payer. The present day tax payer. If that means another bubble then so be it. There is a clear agenda… Read more »
NAMA is like a medieval Irish king. Those guys invited the British. NAMA is inviting vulture funds. The result will probably be the same. The Irish can’t afford to buy property (can’t get loans) so it’ll be sold to anyone who can come up with the cash. Many of these properties are being rented at exorbitant rates. So much so that we have working middle income earners finding themselves homeless. As long as a balance sheet somewhere is satisfied, it doesn’t matter what the repercussions will be. But it’s ok. Emigration will sort it out eventually.
Good article David !!
and this is a must read [and the comments section too]
two words – BANKING ENQUIRY – it’s a MUST ! simple as
http://www.independent.ie/irish-news/politics/revealed-the-troika-threats-to-bankrupt-ireland-30621197.html
You can fix nothing at all until the money system is fixed. The current money system is the root of all corruption. All other discussion is a waste of time and diverted energy.
http://www.marketwatch.com/story/there-aint-no-such-thing-as-a-free-market-2014-09-10
http://usawatchdog.com/spending-into-oblivion-gregory-mannarino/
“It is a debt based economic model. It demands that cash be borrowed into the system in perpetuity. It cannot stop. Once we stop or admit we have a debt problem—implosion time. “
The latest EU declarations concerning Ireland’s low tax rate, should have people alert. Have we reduced our overall debt levels ? Have we reduced the oversized, underly accountable, wasteful institutional state ? Have we changed our behavioural patterns away from those that led to the consumerist binges that drove up debt levels ? Have we seen a more open and honest public discourse ? Have we purged the banks and the semis state sector of the “performance/pay scale/leadership” quagmire ? Have we done anything to address our structural inefficiencies, like the high costs of using state services ? Have we… Read more »
Lads, Mr. bonbon has been let out of his padded cell for an hour, and is on the computer in the communal area as usual, so brace yourselves for about 20 posts full of incomprehensible shite, then he’ll go quiet for another 24 hours.
GLASS SEAGULLS ALL THE WAY!
The times, they are a changing
http://www.foreignaffairs.com/articles/142114/alan-greenspan/golden-rule
“Yet gold has special properties that no other currency, with the possible exception of silver, can claim. For more than two millenia, gold has had virtually unquestioned acceptance as payment. It has never required the credit guarantee of a third party.” Alan Greenspan, 2014
More on the Greenspan about turn which is actually a 360 to embrace his first opinions. Greenspan’s Golden Secret by Bix Weir http://www.roadtoroota.com/public/101.cfm January 2007… “This book is part detective story.” Alan Greenspan — First Line Back Cover of “The Age Of Turbulence” No truer words have been spoken when examining this book or the rhyme and reason behind the life and career of Alan Greenspan. He is a “mystery wrapped in an enigma”…or is he? A life long admirer, student and follower of Ayn Rand, Greenspan spent his early years as an economist trumpeting the virtues of sound money… Read more »
Will ebola shut down world travel and trade
http://marketsanity.com/eric-sprott-ebola-tipping-point/
you might amuse yourself looking at this for a couple of minutes. Maybe it will change your mind if you think the US is in recovery as suggested by a scribes recent visit to California.
Every dollar of debt added is producing 2 cents of economic activity. This figure is about to turn negative even as you sit mesmerized by the scrolling numbers.
http://www.usdebtclock.org/