Yesterday I spoke to a friend — let’s call him Mike — a hard working, non-greedy, frugal individual. This is not the sort of bloke who went out and splurged in the boom. He has a house, a car and, up until recently, a steady job. He lives for his children, his family and yet he is in serious trouble.
While Mike saw through the hype of excessive lending, his boss did not. The owner of the company borrowed up to the gills, swallowed up competitors and expanded in an ego-driven adventure which saw his company become the biggest player in their — admittedly small — sector. The “growth” of the company was entirely debt-driven, leaving it with a huge borrowing overhang. As long as the banks were happy to keep lending, these huge loans could be serviced. Revenue growth was strong, so all looked kosher. The boss reacted to the increased debt burden on the balance sheets by setting the salesmen ever more ambitious targets and incentivising them with cars, bonuses and holidays.
This time last year when the Irish banks’ share prices started to fall, no one in the company worried because the problems were in the property market, which was a totally different sector. As banks’ share prices fell, their ability to raise money was impaired. But there didn’t look to be a real problem. Mike at this stage was oblivious to the “credit crunch”, which he’d never heard of ; little did he know it would affect his ability to buy presents this Christmas.
Yet over time the banks began to admit some small amount of “impairment” on their loan books.
Initially, these losses were said to be small and manageable. However, they were far from that. Meanwhile, back in Mike’s company, rumours began to circulate that salesmen were missing targets for the first time in seven years. The annual golf trip in June was postponed, as was the corporate 4X4 orienteering away-day.
When the wholesale money market closed as a result of the collapse of Lehman Brothers, Mike read the story on the second page of the ‘Herald AM’ free-sheet. It was up there with stories of drug busts and a B-list celebrity wedding. It didn’t concern him, after all it was an American investment bank. But the closure of the wholesale money markets led directly to the Irish banks running out of their main source of funding.
They had bet the house on borrowing in the international markets to lend to Irish property. Now they couldn’t finance their businesses. Nobody trusted them anymore. They had been telling investors that all was grand, but obviously the banks were up to their gills in the Irish property scam.
A few days later, the bank’s HQ sent the message out that all loans were to be reviewed, all debts — where possible — had to be collected and no new lending could be sanctioned without senior management consent. What seemed remote was coming home to roost.
The debt of Mike’s company, which had been secured against the notional value of all the assets, began to look enormous and dangerous. As income faltered, because the banks were reining in credit everywhere, the company missed a monthly repayment. The bank, afraid to admit to yet another bad loan, told the boss that they would roll over his interest for a few months. The price of this reprieve was that the boss had to raise money.
The banks told the boss that he’d have to find the cash from cost savings otherwise they’d have to act against him, calling in the personal guarantees he’d signed in 2005. This meant the house and the holiday apartment in the Algarve, as well as the numerous houses and apartments he had bought in the boom — all of which had fallen dramatically in value.
So to save his hide, he started to cut. Hard-working, frugal Mike was in line for the chop. When we spoke yesterday, he was angry with everyone, the banks, the boss, the Government and even the immigrants, who still had jobs. He spoke to me about someone having to “look after Irish people first” and how we couldn’t just continue to support every “Tom, Dick and Harry” who showed up here. Mike was seething about the public servants and teachers who don’t realise that they are protected, and he insisted that next time he’d vote for someone who would “sort it out”.
These types of conversations are happening all over the country and they emphasise how the global economic meltdown permeates every corner of our society.
It also explains why we will see a wholesale change in the way this and other countries are run. The political pendulum is swinging. In the US, Obama’s campaign, which was running into the sand in September, got a huge kick from the financial crisis. People saw the collapse in the real economy, retail sales and house prices, concluding that someone must “sort this out”. However, if Obama is America’s agent for change, who is Ireland’s and Europe’s? This question is significant because America’s response to the crisis is probably quite different to Europe’s.
This economic and political cycle has three distinct stages. The first stage is the financial markets phase. This is where shares collapse. This can be very sudden and unforgiving, but it happens quickly and on present evidence, it might be abating somewhat. The speed and severity of the fall and the consequent destruction in wealth might have something to do with it. At one stage last week, the Dow Jones was down 44pc in a year, almost half the world’s financial wealth that was held in stocks had been destroyed and many investors are now indicating tentatively that, with central bank help, the worst might be over.
The second stage then sets in and this is the real economy slump. We see this in Ireland with house prices collapsing, unemployment rising and the public finances going into a dreadful tailspin. Gradually, job losses mount as heavily indebted companies go to the wall and thousands of workers, like Mike, find themselves of out work. We are only seeing the beginning of this phase.
The third stage is the socio-economic and political stage, where this giant economic and financial upheaval leads to significant social change. This has not even begun in Europe. America was lucky in the sense that its agent for change, Obama, far from being radical, sounds like a member of Fine Gael.
When stage three plays out in Ireland and the rest of Europe and the hundreds of thousands of newly unemployed, yet innocent, victims go to the polls, we will count our blessings if we have someone as plausible as Barack Obama leading the charge for change.
The stage two you mention is very slow in taking off in people’s minds, for some reason, and that may well be our biggest obstacle. In one hand people want prosperity, wealth, holidays, homes, cars and all that goes with it but in the other hand they are clutching to an idea that their actions carry no responsibility. They can have everything they want without consequence. You cannot have both. It’s newtons law of motion. If, as a nation, Ireland is to change for the better (whatever that may be) then we need to focus less on what we want… Read more »
I think David has hit the nail on the head, we are in dire need of serious change of leadership, the current muppets have only shown there incompetence by the fiasco that was the budget. We all know we need a radical shakeup to prevent our economy falling over the precipice… the government need to target major sources of overspending ie the public service, to simply target the vulnerable sections of our society for a few euro is not going to make a blind bit of difference financially. We need to radically address the need for change. What is needed… Read more »
I forgot to ask if you were in MIKES shoes and had to start a business ?
would you start up in Ireland or go somewhere else ?
Greetings! Well, David, I know several people like your friend Mike, and I am sure everyone in the country knows at least one or two as well. And their number is rising daily. During the time of boom many company bosses behaved irresponsibly and let their greed get the better of them. They were encouraged and supported by the banks, and even by our government. Loads of more or less shady deals were made in the triangle marked by Leinster House, the Galway tent and the gold course. Few people kept their senses and remained sceptical, and I have to… Read more »
Ste – Great site, and great comment. David, I am a little confused after reading your article. Your friend bemoans the fact that he is loosing his job due to the financial crisis, and so fires off a scatter-gun of blame. As you point out, there are many like him in Ireland (and across Europe) having the same rant. Then you say we need an agent for change to be elected to ‘sort it all out’. Do you really think any Irish government, no matter how revolutionary, can effect change that will insulate us from the vagaries of the international… Read more »
I think that Stage 2 not sinking into the psyche of the general population here is a key point. 90% of people out there haven’t a clue. The attitude is one of both apathy and helplessness. We are like a mouse caught in a cat’s maw. Apparently it has been shown that the mouse decides to give up and enjoy their last moments. Will so many pubs closed and no consolation and little consolation to be had anywhere, who knows, without access to a decent few scoops, we could be creating a powder keg for social disruption. Obama et al… Read more »
I moved back to Ireland in 1995, when I saw the economy picking up. My brothers refused to move back, as they had both graduated from college in the 80’s, they had lost trust in the government on this Island, and decided they would not get stung a second time, so they stayed away. I think a lot of people forgot just how useless our Politicians are, simply because they threw money at us, while just a few did not fall for this ploy. I fear that the Irish will forget again, we only seem to remember dates that include… Read more »
@Emerald, Lisbon is not perfect. That said, Europe as a power block needs to be developed. The idea of Ireland standing on its own feet is but an impractical dream. And this crises has revealed the sham of our economy and its management. I really do not see how this can be done outside the concept of a federation. Even in its poorly formed state, we see the EU tell the local government that the problem is of their own making. They are already helping the local populace. The idiots in finance have tried blaming the Euro. Clearly we are… Read more »
To anyone who thinks that this government has been the cause of the problems that we are facing now, and that we are so sure we need a change and a change fast, what is it exactly you would have changed, and what is it exactly that this government did so wrong that “put us here”. Irish people have always been quick to give out when things go wrong, and say how they would have been umpteen times better, had they had the chance. Well now is your chance, your soapbox awaits, as everyone s dying to find out your… Read more »
I think the change is one of generations. FF have too many fingers in every important pie in the country and that grip has been consolidated over many years. FG aspire to power but still wallow in the trappings of opposition. Every citizen succeeding abroad would be loath to risk bringing their abilities home. It’s true, therefore, that we need a younger team with a global perspective to harness the energy and flair we have demonstrated abroad and stifled here for parochial political gain. Look at this blog. We have Miners, Political analysts, Energy consultants, businesspeople to name a few… Read more »
We have two options that could come close. 1) A coup within Fianna Fail consisting of backbenchers. This would remove the current front bench of Fianna Fail. Cowne, the Lenihans, the Aherns, the Kitts, Cullen, Roche, Dempsey, Coughlan, Hanafin, to the back benches. It is a long shot. But it was heading that way a few weeks ago. It will not happen because the media wants prefers the current Fianna Fail front bench. The liberal end of Fianna Fail are in charge of the party, post Ahern. They are also closer to the vested interests. They are sitting tight on… Read more »
Eh, actually that was three options :) Agree with the poster EmeraldIslander on many issues. I would lay a bet that there will be a mini-Budget between now and the aptly named April Fools Day. And another one again, after April Fools Day and before Sept 1, 2009. Basically the Budget has created a lot of controversy, and solved nothing about the nation’s finances. In fact the state budget is making everything worse. And it causing worry in the competitive sector about how the Irish government is going to finance everything. It is a recipe for disaster for the majority… Read more »
http://www.finfacts.ie/irishfinancenews/article_1015187.shtml
The din for realistic change is getting deafening.
I have to defend the honour of my erstwhile home state of Nevada, where I was proud to vote by absentee ballot a few weeks back.
Nevada voted BLUE–not RED as your illustration has it!
While I’m writing…thanks for your great articles, David.
Deco
“And too many seem resolved to the failed methods of dealing with the situation from past eras of going nowhere – drinking, leaving, or passing the bill to others.
A culture of responsibility is required.”
I know, and I’m staying off the booze but I have to eat. So I have to go. The choice is that stark. And I’m not proud of it, neither am I going to adopt a high handed stance from afar. I’ll do my bit but the family have to come first.
It’s funny you should mention Maggie, FurryLugs, I was just thinking about her. (Successful) Leaders don’t really talk about economic issues, they never have. They inspire, encourage, and to some extent, direct: The history of the world might have been very different if Adolf HItler had stood up in front of the serried ranks of black uniforms, at the torch light rally at Nuremburg in 1938, and spoken about farming subsidies and tax policy. Maggie, although let’s be clear, I don’t compare her to the aforementioned German chancellor, launched a thing called the ‘Enterprise Culture’, back when I had a… Read more »
Deco, that is one very interesting analysis of options. Basically, there is no solution. The system as it stands at present is too ingrained and self interested (no matter what option is used) or you simply do not have enough time to effect evasive action to create a new broom – so to speak. Well, the change will be imposed on these interested parties whether they like it or not. We have about 100K people laid off this year. 25% more than would fill Croke Park at a packed All-Ireland. That is probably impacting 50K families plus 1000K already in… Read more »
Quick question David. The article above was published in Wednesday mornings Independant. I presume this meant you had to hedge your bets and write two articles for the editor, one to be published if Obama won, and the other to be published if McCain won. Any chance of a look at the other article?
I’ve posted here a couple of times now and i think i end up saying the same thing over and over… Ireland has pissed away a golden opportunity to develop a small, dynamic and fast moving entrepreneurial economy, and subsisted on the heroin of FDI. Withdrawal will hurt (and with luck Obama will force the issue with tax breaks) but it may not be too late to change if the current shower in Kildare Street have the insight to see that we’re going to take a bath now but investments and public spending in the right areas, and the cultural… Read more »
Yes Lorcan……thats a great idea…….there must be inspiration from it to learn….
” I really struggle to understand why it is not plainly obvious to everybody in the country that FF has taken you all for a ride.”
This is because the average voter is only interested in the current sub plot on Eastenders or Coronation Street, I think it is whats know as dumbing down society. That and the fact, that most people vote for the same party as their parents.
God. All this talk of supermen, or new men…
We’ve got what we’ve got. Our schools, culture, values, and vision have made those in upper positions what they are…
Rather than talking about finding new supermen, how about we properly articulate and agree on a new vision and values to work off of?
This could provide a new blueprint for the behaviour of everyone with hands on levers…
Everybody beefs about politicians but they can only be as constructive as our underpinning creed of ideas. Seems that globally we have run out of constructive ideas. Fascism failed. Communism failed. Socialism failed. Capitalism failed. Islamic values have failed. Christian values have failed.
Greed rules. Celebrity rules. Nepotism rules. Debt rules. Begrudgery rules. Brown-nosing rules. White-nosing rules. Green-nosing rules.
Politicians merely deliver what we deserve.
Malcolm,
Christian values failed???????
Come off it. Don’t blame Jesus for this mess.
If we had practiced the 10 commandments we wouldn’t be in this mess.
As for the 7 deadly sins, Ireland as a nation has committed the most.
A quick note on the Obama campaign, it was never running into the sand in September. I believe the outcome on Tuesday would have been more or less the same whether or not the economic crisis hit. There was a rising wave of energy here in his favor for ages (I’m in the States, since the 80s), undetected, like a Tsunami before it hits the shallow shoreline. Undetected it is by the mainstream media, but not by the people, myself included. (I was never in doubt, not for a second. Thank you Internet!!, and Tim Berners Lee, for this!!) Even… Read more »
I think Time of Fear …has begun in aoulde eeerland……deeze lande in deze West of europe ……..just look around you …..constipation has increased ten fold so early B4 Xmas………..we aint seen anything yet
Furrylugs – I see your point. 100% valid. Family comes first. It is more important to feed the youngsters. If you were here, you would be subsidizing quangos, cost overruns, massive public waste, oligopolies, and the economic rent infrastructure. This is the power of the economic rent infrastructure in Ireland – it is driving working people out, it is driving productive capacity out. But Furrylugs, because you are actually analyzing the situation and applying your noggin to it, you are doing more good than thousands of sheep. As Paul stated seem a majority of people in this country seem more… Read more »
Steam Power caused the first industrial revolution and I am sure subsequent revolutions were caused by electricity, the car, you name it. We are at the end of the computer/ internet revolution. There is nothing new in that business anymore except for a few refinements. It’s all been value engineered to near zero. Many successful people in that business have invested their retirement in property and many may be feeling silly right now. Eneryone seems to be aiming to get to a point where they do not have to work to earn a crust. Is that not really the aim… Read more »
While I feel sorry for Mike and the hundreds more like him, I’ve had umpteen conversations with people like ‘Mike’ over the past three or four years pointing out the property pyramid, Fianna Fail kleptocracy etc… yet these ‘Mikes’ voted the same crowd in again. The Irish people need to take a long hard look at themselves and apportion a large part of the blame to themselves. Only the other day a well educated colleague expressed the opinion that if Bertie was in charge things wouldn’t be as bad and was supported by many around the table. I couldn’t believe… Read more »
Lorcon, Enjoyed the email about Leviticus.
Malcolm, How’s about Des Bishop for Taoiseach? They say laughter is the best medicine. He doesn’t drink, unlike that Bass swigging Drumcondra gombeen
Colin, the biggest of the deadliest sins is Pride. A lot of that in evidence in Ireland in the last fifteen years. Look were it got us. Up to our necks in debt accumulated for stuff that no longer matters. The Irish are full of pride. And we are led by people who tell us that we must be proud. That this is very important. Important because it means that we pay up for the Economic Rent Infrastructure that is robbing us blind. Pride is the emotion that receives commitment even though we are all being taken to the cleaners.… Read more »
David your headline reads “We need our own Obama to be an agent of change”. But Obama is hiring Clinton people right left and centre. That is not change – that is more a case of here we go again !!!
Colin – my point being – we Irish were full of pride, following the rabble rousers (Ahern, McAleese, etc.) telling us to increase our pride, at our ‘achievements’. The whole thing has turned hollow. We are learning to be humble for the first time in twenty years. However I expect a rabble rouser to show. He/She will tell us that we can keep our pride, ‘to wrap the green flag around me’, to continue believeing all sorts of unworkable nonsensical delusions like the 2000 mile stag party, the 6000 mile pre-Christmas shopping trip. We will be told to hit the… Read more »
@ Malcom I am surprised at you again suggesting Nuclear for a man who does so much research you haven’t looked too deep into the disposal of its by product . On the subject of power and to keep my post brief and not another long winded ( excuse the pun ) essay that others like to post here. We can become self sufficent for domestic and commercial power by developing wave , tidal, wind ( build farms just within 5 miles ) , and even solar which uneducated will of course laugh at since we don’t get sun here… Read more »
I don’t think that Obama is a “saviour” in any way but certainly he is a major improvement on the goon Mr. Bush.. That said , surely Ireland could do with at least ONE politician with some integrity , charisma , or even an ability to look like a member of the human race… Obama has more of those characteristics in his toenails than any of the politicians on offer on this silly little Island of ours.. Personally I like Eamonn Gilmore , he is a great orator and seems like a real Human being… But Irish politics always falls… Read more »
Furrylugs – did you know that 50% of women and 25% men in Iceland are Celtic from Ireland and that the parish of Iceland is part of the Roman Catholic Diosces of Derry and that Vestmannaeyer Islands ( Irish man Islands ) on south east coast and that they sings all Irish Ballads in Icelandic …and that Brehon Laws are practiced there as in mac and ni – son and dottir …..and in the natural order of things as a source of law ….and that vigdis finnsbugsadottir was first female president in the world …as in tradition of queen maeve… Read more »
Brendan W – if there is no revolt within FF, then we will have the current ministers in charge of various departments for another four yeas. The Greens are happy with their new mercs, and the PDs will stay inveolved, because when this government is over, then the PDs are over. Besides the Greens are able to go to conferences and talk about the rain forests. So the Greens are very happy. But, we need a solution now. We keep hearing phrases like ‘we are staying with our commitment to government’ and ‘we need stablity to lead us throught the… Read more »
One thing that develops innovation no matter where you go in Europe, Asia and naturally America is Weapons. Even the nice Scandanavians are blessed with their wonderful development in mobile technology courtesy of military requirements. Military application leads to new technology (with associated boffins) and the rest is history…in a positive sense. I am a great believer in Green energy initiatives, but I know what energy density is needed for many of the things we do in our daily lives and believe me, Nukes are not to be ignored. Wind, Wave etc. do deliver humungous amounts of energy – but… Read more »
I agree with Phillip, technocratic leaders just don’t cut it. So what sort of leader would people, the thirty-somethings for example, rally around? What sort of person is the Irish Obama? There are many configurations for a successful leader. In terms of popularity (and not necessarily populist), the rallying cry can be a negative (anti-English, anti-Europe, for example), but without a positive direction, it is, at best, just sound and fury signifying nothing, and at worst, somewhere we really don’t want to go. A rallying cry of ‘Rebuilding of an Irish Ireland’ (i.e. a positive description of ‘anti-old order’), supporting… Read more »
The last time this ‘kind of thing’ happened: Someone did eventually step forward to ‘sort it out’. Here’s a clip of the historical foreign-language film ‘Mike’ tuned into one night after a few sorrowful pints in the pub.
http://www.youtube.com/watch?v=bNmcf4Y3lGM&eurl=http://housingdoom.com/2008/11/05/schiff-what-obama-as-president-means-for-the-economy/
Furrylugs……..i think what u are trying to say is that we need a new national manifesto…….these are known to add to GNP…….its worth the thought to try
I think that the real source of the problem is the high degree of overlap between national and local politics. And this is derivined from the powerless of local government and the centralization of power in Ireland. Irish government is excessively centralized. In every community in every country will have local level politics. I mean if you read a local newspaper from the early 1990s you will see councillors being lobbied to get Telecom Eireann to install phone boxes in estates. These were expensive and the bill was picked up the taxpayer. 10 years later and they were idle. We… Read more »
Furrylugs – Obama will not pour any resources into Africa for some time. Bono claimed that Bush did more for Africa than any American or Western leader. I think this is a bit on the generous side. And I suspect that even these commitments will now get postponed. The Chinese are watching the new Obama Administration with respect to Africa. The Chinese will be very cautious. Bush needed Chinese support for various manoevres, including gaining influence with/applying pressure on Pakistan, Syria, North Korea, and even Burma. With North Korea mellowing somewhat, Syria now fighting Al Qaeda, and Iraq becoming increasingly… Read more »
@ furrylugs furrylegs what really is the difference both are posthumous and neither are your real name so don’t be so worried about your bodily hair. While I to enjoy visiting this site , have read Davids books I have also noted here that there are a few calling on Mr Mc Williams to step up as a leader of a new political force which is certainly needed on this small island of ours, while I have also noted there is less than sixty regular posters to this blog, which amazes me considering the number of books he has sold… Read more »
If you look around, internationally, there is a slightly strange situation in many countries, and especially in those that are up to their necks in this financial mire: They all have a similar problem of there being little to chose, in practical terms, between their political parties. As I see it, at the moment, everyone is, and has been for quite a while, a supporter of ‘borrow and spend’. Because the trouble hasn’t really hit main street yet, the politicians still have to promise to solve all known problems by throwing money around. Governments are saying that they’ll cure the… Read more »
Furrylugs – I agree ……we are all here because we want to exercise our maturing democratic rights and to feel free to do so without impediment …with people who are commited to make that happen at all levels …….long live ferrylugs
I don’t suppose many of you saw the programmes about the 1930s depression on BBC4 last night. – Factory gates locked, ships laid up, the dust bowl, food mountains destroyed while people went hungry, soup kitchens, hoboes searching for jobs all over the USA. In Britain there was the Jarrow March, which didn’t result in any change in a government policy of Laissez Faire. That just goes to show how deeply entrenched political partys have become, when an economic disaster of even that magnitude fails to produce a fundamental shift. In America it took the New Deal under hardheaded patrician… Read more »
IMPORTANT !!!! Do we have a strategy to make the competitive part of the economy competitive. If not then we are finished. Obama’s economic advisors are producing recommendations to the Irish to get prepared to changes in the tax code. Can we compete without the tax breaks ??? We have the economic rent infrastructure to support, and currently this is inhibiting us from competing efficiently, as we move foward. http://www.irishexaminer.com/breaking/business/mhideysneygb/ David – it will be people like you, Moore McDowell, Morgan Kelly etc.. who will have to advise the IDA etc on how to respond. Preferably in an understated manner.… Read more »
[…] read David McWilliams Blog recently about needing our own Obama for […]
@ Shane Dempsey , excellent post concise and to the point , politically I hope we will see a change here in the upcoming local elections while we may still be underpopulated as a country we now have a influx of non nationals who are more politically minded and educated than the vast majority of Irish people are , as we have for decades just followed our fathers and voted for the same party as they had voted for , where as now with the age of communication and mass media even through a state controlled media people see how… Read more »