‘Define reality, face into it and do something about it’ — Jack Welch, CEO, GE
In 2001, I worked for Jack Welch, the legendary CEO of GE. He was on a book tour and I was his MC — asking the questions at events and teasing out ideas and experiences from the gnarled titan of corporate America. Welch was the hardest taskmaster I have every worked for, but it was worth every minute, every harsh word, every cold stare.
When we weren’t on stage, we chatted about all sorts of things and he was almost grandfatherly in these quieter moments. He was particularly keen to emphasise that crises define the person, the institution, the country.
He constantly referred to the fact that the crisis wasn’t the issue, rather how you react to the crisis and the fact that all of us experience crisis — whether in our business, social or personal lives. He told me that the most important thing to do was define exactly what the “reality” is — not as you’d like it to be, but as it is. Once you have defined reality, then he said you must face into it and meet the challenge by doing something about it. Ultimately, all crises pass; we all get through to the far side and, in most cases, the far side is a less intimidating place than we first expected.
However, the key is to define reality. Welch explained to me that if you don’t define the crisis, others will define it for you and then you play catch up and are on a hiding to nothing.
Think of our reality. Our reality is that our country is almost bankrupt and we will be unable to pay our bills. In practical terms, this is best evidenced by bond yields on Irish debt moving up to 6.99pc yesterday, a fraction shy of 7pc. Once bond yields hit 7pc, it’s curtains because the psychological impact of going above 7pc is that we are in Greek territory and there’s nothing to stop yields going higher.
The official reaction to this — rather than defining reality — has been to try to pin the blame on commentators and, worse still, to come out with the platitude that we have enough money already — at least to last us to next March. To say we have borrowed enough money to last us till next year is like two drunks at closing time when one lad says, “Don’t worry the night’s not over yet, I have a bag of cans stashed in the kitchen and a bottle of vodka behind the sofa”. Sorted so.
Reality is not being defined. The reality is that the Irish Government’s credibility is being contaminated by the banks. Today the guarantee should — according to the original plan — have lapsed and the banks should be left to deal with their own mess. The reason the guarantee was granted two years ago was to avoid a run on the banks in the chaos of autumn 2008. Then, once that was prevented, the Government could have seen which banks it was going to save and which it was going to let go. Clearly this would have involved using the clock ticking down to the end of the guarantee as an incentive for the creditors to come to the table and do a deal with the State. But instead of using the guarantee as a bargaining chip, it was used as a blanket bailout.
The reality of the Irish banking system was not defined and now the bond markets have defined it for us. Looking at the numbers, it is easy to see why we can’t pay the debts of the banks and any effort to do so will lead to the IMF marching through the door.
Let’s look at the reality. What I want to focus on here is the issue of re-mortgaging, equity release and the deluge of cash borrowed against houses, which made us feel richer but which was ultimately wasted. This is the reality and this is why we will default, because the money is gone. The internal default is what drives the external default, not the other way around. The ability of the Government to pay its debts is only the amalgamated ability of us to pay our debts. The “Irish sovereign”, as it is so grandly termed, is only the agglomeration of us.
The amount of outstanding mortgage debt at the start of January 2004 was â‚¬54.6bn. It is now â‚¬118bn. So mortgage lending went up by close to 120pc in five years.
It could be argued that there are many more houses in Ireland since the beginning of 2004, so maybe those numbers are not as bad as they seem — because at least we have houses on the other side of the balance sheet.
But this is not the case, because on the other side of the balance sheet are cars, second houses, fields, fancy kitchens, flat-screen TVs and holidays on the Algarve. This is what we borrowed for and we used our houses as a large ATM machine, and the banks eagerly facilitated.
At the beginning of 2004, 16pc of our housing stock (by value) was mortgaged; by mid-2010 that number stood at 39pc.
It is important to remember the majority of houses in the State are not mortgaged, or have very small mortgages on them. So a huge amount of the mortgage debt and the re-mortgaging is centred on a certain part of the population, which is likely to be young couples — the backbone of the society and the generation supposed to drag us out of the pit.
Their plight is now evident. Recent Central Bank data shows that of the â‚¬118bn in mortgages outstanding, â‚¬6.95bn are more than 90 days in arrears, with â‚¬4.8bn of those more than six months behind.
For these people in arrears (there are 36,620 of them) there is no way out, as property price falls mean that they cannot sell their property to relieve their debts (negative equity) and they cannot earn more money to pay off their debts (due to the economic collapse). Essentially, when these people most need money, they can’t get it.
So the financial markets are looking at the internal situation and concluding that — unlike the Greeks who had a government borrowing problem that became a banking crisis — we have a bank borrowing problem which has become a government problem. If the guarantee was lifted today, a huge part of the State’s burden would be lifted.
But that would mean defining reality and our leaders couldn’t do that.
â‚¬36 billion into Anglo and 36 thousand people can’t pay their mortgage.
David, Is it not time to call a halt to the idiotic international monetary system that has no basis in material reality? It seems to me that to continue to operate with currencies that have no ties to actual physical resources is to continue to fool ourselves that the monopoly money we play with has a real value. The real reality is that if we do not do away with the imaginary capital that has evolved into money; if we continue to use a monetary system that is totally dislocated from the material resources of the planet, then all of… Read more »
Lessons that Ireland is learning. A crack up boom always ends up in a crack up bust. A crack up boom is not to be confused with economic progress. Debt does not go away once it is incurred – until you pay it off. You do not et out of a financial hole by digging yourself deeper into debt. Having a bad management culture restricts a society’s ability to allocate resources productively. Social problems are not signs that of progress because we can afford them, they are signs of a society that is creating it’s own decline. You cannot progress… Read more »
is everyone distracted by anglo irish bank, in other words focussing on anglo allows people to ignore the other things wrong with ireland, things that have been wrong for years, and which anglos money has illuminated, its an easy scapegoat to prevent us looking at other things, excellence is not promoted in any area of irish life, we didn’t spend the money on any world class or interesting architecture, alot the stuff built in dublin was glass boxes, the convention centre looks ridiculous like a pint glass about to heel over. The only building that looks interesting is actually anglo… Read more »
Is there any way that the identities of the Anglo Irish Bank bond holders can be put in the public domain, my main fear is that these people may have undue political influence and would be willing to see our Republic bankrupted in order to protect their liabilities. Can I ask the Gardi to investigate?
Thank you for another stimulating article; and hopefully a stimulating debate( although I’d like to see some more contrarian viewpoints)
P.S. EMMIGRATE IF YOU CAN (just realised I’m heartbroken by the mess we’ve gotten ourselves into)
A 7.2% compound rate of interest would mean a doubling in cost over a period of 10 years exactly. (Using rule of 72). I listened to the Taoiseach earlier this evening using the figure 5%: he was assuming Anglo @ 30 bn â‚¬ cost and a simple interest rate, resulting in 1.5 bn euros over a period of one year. His assumptions are unrealistic in present circumstances. For reasons I referred to in a previous comment we should calculate the cost at a compound rate: I am thinking of a business locally which was bought out of bankruptcy; but in… Read more »
David. I reckon this article is opening the banking wardrobe and oh look skeletons are falling out, one, two, three. What did the Irish spend the money on. Here is what I think. First group – babyboomers, spent the money on going ape shit on consumerism and stayed debt free. Second group – Bonos generation, spent the money on looking the bomb and managed to steer clear of deep debt. Third group – Generation x, spent the money on regular stuff like house car holiday and ran up an unhealthy debt. Forth group – Generation y, bought into the bubble… Read more »
We live in a funny world. I suggest we merge Scientology and Goldman ahd have them run a global government. Source: RegofinterestsSeanad2008 Fine Gael Seanad Justice Spokesman Senator Eugene Regan: 3. Directorships……………… Non-Executive: Goldman Sachs Global Opportunities Fund Offshore Limited;(25/05/2001)(Address: c/o Maples and Calder, Ugland House, South Church Street, P.O. Box 309, George Town, Grand Cayman, Cayman Islands, British West Indies) Goldman Sachs Funds Management SA (14/06/2001)/Goldman Sachs Funds SICAV I, Goldman Sachs Funds SICAV II, 49, Avenue JF Kennedy, L-1855 Luxembourg; Goldman Sachs Ireland, Hardwicke House, Hatch Street, Dublin 2; Goldman Sachs Funds Plc.; (24/08/2001) Goldman Sachs Global Alpha… Read more »
Great article and an even better TV performance on tonight with Vincent Browne earlier tonight. My TV has never seen or heard so much truth before. Take a bow Sommerville and Matthews, Our country need you! Many thanks to Vincent for arranging the show with the best 3 minds in the country.
Is it just me or do you think Fionnan Sheehan is a gobshite? Does he wear a wig?
Great article as usual David. Just watching you on Vincent Browne’s programme with Paul Sumerville and Peter Matthews. You’re the best looking of them all! Anyway, now that the Govt. is going to buy AIB for more than it is worth, maybe it is time for a new bank. I would suggest setting up a Grameen Bank. Grameen Bank was first set up in 1976 in Bangladesh by an inspired professor Muhammed Yunus in Chittagong University. This bank provides micro-finance for the very poor in rural Bangladesh. 90% of it’s shares are owned by it’s borrowers, 10% by the government.… Read more »
‘Define reality, face into it and do something about it’ – Jack Welch, CEO, GE SM says:September 29, 2010 at 9:29 pm ‘â‚¬36 billion into Anglo and 36 thousand people can’t pay their mortgage.’ Ah, but those 36000 people are not the important people who get to ‘define reality’. They are the ‘little people who pay taxes’ as Leona Helmsley famously said. Forced to ‘face up’ to a rigged reality whilst they are dealt with by draconian debt laws. The privilged ‘bondholder class’ carry on with their exorbitant priviliges, being bailed out for their oligarch-class act gambling: http://www.bbc.co.uk/blogs/thereporters/robertpeston/2010/09/why_ireland_cant_afford_to_pun.html Charlie Munger… Read more »
Slavery, properly so called, is the establishment of a right which gives to one man such a power over another as renders him absolute master of his life and fortune. The state of slavery is in its own nature bad. It is neither useful to the master nor to the slave; not to the slave, because he can do nothing through a motive of virtue; nor to the master, because by having an unlimited authority over his slaves he insensibly accustoms himself to the want of all moral virtues, and thence becomes fierce, hasty, severe, choleric, voluptuous, and cruel. …… Read more »
Welcome to Slavery!
How does it feel for you?
Make sure you (the reader) take a good hard look
at yourself in the mirror now.
Then turn and look at you wife and your child
and realise that their lives at not there own
from now on in.
I for one, had a enough of this shite from Fianna Fail
and the Banking Scum!
I WANT MY LIFE BACK
“Be peaceful, be courteous, obey the law, respect everyone; but if someone puts his hand on you, send him to the cemetery.”
“In 2001, I worked for Jack Welch, the legendary CEO of GE” That’s some strong opening comment. The only people that worked for Jack Welch were the the toughest, the most ruthless and the best. As opposed to “the most cunning and devious of them all”. Mickey Mouse. Some boast. The greatest Barrow Boy ever.Sold the country down the Swanee to feather his own nest. Reaping and sowing come hand in hand and we’re about to reap a whole crop of pure torture, all down to a clique of self serving blaggards, in the fullest sense of the word. A… Read more »
It’s time for more cuts. The easiest way out of a bond market stranglehold is to stop going cap in hand to that market. At David’s ceili in his last article, how many of the audience were over-payed and under-productive in our public sector. Plenty I bet. If it wasn’t for the bond markets, these people wouldn’t be out drinking and splashing the cash. They should be thankful to the bond markets for the loan, but then they should take a look at their kids, and feel some remorse. The kids will pay for the ceili and the pints. Anglo… Read more »
The news this morning is not really about Anglo Banglo – it is about Ireland’s biggest bank, being taken over by the state. Constantin Gurdgiev has been proven correct. The State is going for a massive share of the economy. In one regard this is good, because the elites running the ISEQ are woefully incompetent. In another it is a disaster, because the clowns running the state are even more incompetent. Ireland has to deal with certain fundamental problems. Problems like the failed concept of Irish management culture, institutional overloading in the state, a failing work ethic, widespread waste of… Read more »
The elephant in the Euro-Zone.
It baffles me how a country with 20% unemployment, massive “off-balance” sheet borrowing, and 3 million empty residential units can still claim to have it’s banking sector in good shape. These are all symptoms of a country that is financially stretched, and covering up a lot of bad bank debt.
Limerick Leader : I am in Nice presently and there is an article on the ‘City Edition only’ of my reports on Irish Banks .I have not seen it yet.
What is it about September in this country??? September 1913 by William Butler Yeats (1865-1939) What need you, being come to sense, But fumble in a greasy till And add the halfpence to the pence And prayer to shivering prayer, until You have dried the marrow from the bone; For men were born to pray and save; Romantic Ireland’s dead and gone, It’s with O’Leary in the grave. Yet they were of a different kind, The names that stilled your childish play, They have gone about the world like wind, But little time had they to pray For whom the… Read more »
Welcome to Black Thursday, 30/09/10 Looking back over my last post, last article, basing a simple arithmetic calculation upon Anglo loan exposure given 2 years back in 2008, I was able to predict the ‘so far’ Anglo losses to the Irish taxpayer at â‚¬35 bn. Two years of procrastination, obfuscation, deliberate ‘constructive ambiguity’, plain old lies, the government now agree with this approximate figure ‘approximately’. Today our government, Santa Clause, opened the parcel to tell us what present they are giving us for Christmas. You better like it. Brian (Baby Lenihan) has even reprimanded Pravda RTE for allowing all this… Read more »
Okay. Lenihan has faced reality. At last. Here’s what the Germans think: The Anglo figure is pretty much as expected. Allied Irish is more unexpected, but the way they are going to inject it via the pension reserve fund is not actually going to affect the gross debt.” “We haven’t seen how they are going to reduce the deficit to 3 percent by 2014, which may be taken sceptically by the market. We need to see more details on that front.” “How you get to 3 percent from 12 percent (underlying budget deficit before bank rescue costs), that’s not an… Read more »
Good morning peasants!
The Minister said there were no plans to impose losses on holders of senior debt in through legislative measures.
“As far as senior bond holders are concerned, our law treats them the same as depositors.”
OUR LAW DOES NOT COME INTO PLAY BUT ENGLISH COURTS!
A word about Ponzi Property Schemes: http://bit.ly/bstWEp “Lay was so impressed with Skilling’s genius that he created a new division in 1990 called Enron Finance Corp. and hired Skilling to run it. Under Skilling’s leadership, Enron Finance Corp. soon dominated the market for natural gas contracts, with more contacts, more access to supplies and more customers than any of its competitors. With its market power, Enron could predict future prices with great accuracy, thereby guaranteeing superior profits.” The secret of Enron was ‘mark to market’ being able to manipulate and predict market prices by cornering the supply and artificially creating… Read more »
How long will it take for the population to fall below 4 million? At least there wont be any triumphalism in 2016, Ian PAISLEY was right about the 26 counties, paedo priests, inept cute hoors running the show etc.
Get to the streets – organise protests – this cannot go on like this – How long are we going to take this? We complain about the way things are being handled, yet where is the voice? Where are the leaders of a new revolution? Where is there somebody to stand uo and ay “Enough, you shower of fucks – give us back our lives, our money our identity”. This has to stop. Stand up and fight. Take it to the tarmac….
There must be more to Anglo than meets the eye. Anglo for all purposes was a business bank with the high majority of it’s lending book to developers/ speculators and the likes not only in this country. Seemly it’s Isle of Man branch had one customer which accounted for 60% of that branch’s loan book. So again not a retail bank (no ATM’s!) a private business bank. Now it’s part of the banking system so yes at the start it was probably right to guarantee depositors and avoid a run on the banks. But over the course of time wind… Read more »
[…] David McWilliams writes on the defining realities we are all now faced with today: Â WE MUST FACE REALITY — AND END BANK GUARANTEE | David McWilliams […]
Somebody with conviction, leadership, courage, and honesty found on Kildare Street. Don’t worry – it is not a politician. Though he is electable.
98 FM have a produced a song called “Truck Off” in his honour.
KOwing on News At One
“We will have fewer working in the public service over time..”
“We as a country want to control our own affairs”
Who is the “We”
He was asked re accountability/responsibility
“At no stage was it brought to my attention by the independent authorities that we had a crisis of this magnitude”
The cronies were too busy milking the elephants! Enough of me listening to this joker. Enough said. Look forward to David’s next article.
34,000,000,000 euros =
A euro for every time Fianna Fail told a lie!
Bertie (Fianna Fail – King Terrorist),
I have to hand it to you.
You got away with it.
“We are not going to apologise for any small role,
we may have played in helping to remove a dictator who made his people suffer for 20 years,
carried out horrific acts and didn’t care about democracy.
He is gone now, and thank God for that.”
May 2003 –
speaking of the war in Iraq and the use of Shannon Airport for US military stopovers.
I just dont believe the 30 billion figure for Anglo, on a cost benefit analysis it is much higher when you consider the extra cost of interest on borrowing. It was all built on property and prices are still falling so expect losses to rise as will bond interest. The next question is how much will the cuts be in December, I will suggest that it will be carnage with our current deficit to be 30%. I for one will look to emigrate as I dont see a future in this country. It will not be long now until the… Read more »
I just read someone on irisheconomy describing David (and Gurdjiev) as dangerous while the other day, re his Iceland article, he was accused of economic illiteracy, being selective with the facts, etc. So let’s remember, once again, that these same economists (or rather some of them) called it wrong, big time, over the crisis and the build-up to it. And if they didn’t call it wrong they kept mighty quiet about it. It’s interesting when two realities collide, at least from the safety of the sidelines where I am. Occasionally I wonder if I should cease being a contrarian and… Read more »
Maybe I am being over simplistic when it comes to the issue of home owners in arrears but is there any merit in the following: The negative equity really only becomes a problem if you cannot meet your repayments. Therefore, if mortgages were extended over a longer period, repayment amounts woudl fall and people woudl be better positioned to meet their repayments. Obviously there will be a greater interest cost over time. However, with the time value of money, in say, twenty years the amount of repayment will be significantly proportionately less than the individuals income. There is absolutely nothing,… Read more »
Your logic I don’t believe to be flawed, in fact don’t they have mortgages in germany that can be passed down from one generation to the next – i:e say a 100 year plus mortgage, I could be wrong on this. I read that an American billionaire was looking to buy EBS and he had stated that he would write off x amount of the principle sum on certain mortgages with conditions that if the property say was sold off in the future making a gain the bank would share in that gain. At the end if the day something… Read more »
Coincidentially it was just on Newstalk – there is a recruitment fair for Canada on in Dublin this weekend – the guy said they are a developing country and taking in 230 thousand people a year
We are first on channel four headlines – repeated on four plus one at eight – peter sutherland interview – john snow said he was putting positive spin on things
“Clearly this would have involved using the clock ticking down to the end of the guarantee as an incentive for the creditors to come to the table and do a deal with the State. But instead of using the guarantee as a bargaining chip, it was used as a blanket bailout.” David, this is wishful thinking. They had two years to do a deal with the creditors and sell these banks off. We painfully watched the deadline tick down while they twiddled their thumbs. Now the taxpayer gets the worst possible deal. Basically they have no clue what they are… Read more »
AND 24% OF THE POPULATION WOULD STILL VOTE FIANNA FAIL TOMORROW WITH 19% THINKING COWEN IS A GREAT FELLOW (IRISH TIMES MRBI POLL).
THIS COUNTRY IS A JOKE.
Yes – my landlady is eightyish and she recently said ‘I liked Bertie better than Cowen – he was a straight man’ but she has lots of property and her son has done well out of building so she would…maybe if they cut the pension and bring in property tax (she will change her mind. they’ll have a job to hunt the landlords down I reckon, (many landlords properties are strangely owned by their children who live abroad in my experience of renting)she will change her mind.
Deco: In the ‘Recovery Local’ blog you said:
Brian Lucey has been lambasting NAMA since it’s creation, and has been shoved RTE for good as a result of his commentary.
He was on a short clip close to top of the RTE news today.(Black Thursday) so he hasn’t been banished completely.
Disinformation David, good work in the last week. You should stand up for yourself a bit more on tv because you are getting them rattled What the truck driver did was mirror the anger felt by the powerless in Ireland and his actions will be applauded by many. When someone is an outsider, a real outsider, and has reached breaking point then individual action is sometimes the only way to make your point and save your sanity. Officially he broke the law and he is being dealt with severely to get out the message that this kind of behaviour will… Read more »
I’ve read the Morgan Kelly Article three times and this blog for a few months and I’m still not sure what’s going on or coming next but I have come up with this foolproof survival plan that’s the distillation of all that I’ve learned
1. Buy lots of tins of beans and a shotgun (sage advice from politics.ie poster)
2. Invest in Gold (some one here)
3. Learn Chinese (some economist off the bbc)
4. Emigrate (everyone)
So I I follow this fool proof plan everything will be ok yes
I really feel that the curse of Apollo and Cassandra is on the contributors to this blog. Have a read of this.
What the fuck must be done to make the assholes in the Dail see the light?
Thank you Pauldiv – for setting things out clear – your posts are dynamite
Selective Media Commentary….Example From my records. Prime Time Tuesday, September 28th: Dr. Constantin Gurdgiev was announced to be on Prime Time Thursday, September 30th. The last face on this Prime Time edition was Constantin stating (my own words) ‘If you take into account the main banking institutions covered by the banking guarantee we are talking about a hit of Euro 66-70 bln. Prime Tome Thursday, September 30th: None of the recorded interview was broadcasted. Suggestion to the editor/broadcaster. Next time you choose to broadcast what you recorded concerning Dr. Gurdgiev’s analysis, and he has done this country a great deal… Read more »
Just how much can we take as a nation? We need to understand that the usual pressure valves of emmigration may start to malfunction when the financial breakdown really starts to spread globally. Just eyeballing a little paper on civil unrest. http://www.hicn.org/papers/Justino_philadelphia.pdf A little piece taken out…showed both theoretically and empirically, using the example of India, that policing is only at best a short-term instrument in the fight against civil unrest. In the medium-term it may trigger further social discontent and unrest. In the medium-term, social redistributive policies are a more effective tool for reducing conflict. Seems like we are… Read more »