One thing the Lisbon debate has done is distract us from the juggernaut that is NAMA. In Laois today, speaking to a large group of retailers — who can sense the credit crunch in their bottom lines — the only topic was the banks, the bailout and what is going to be left after NAMA.
The feeling in the room was one of outrage, bordering on disgust, and a palpable sense of powerlessness.
One woman, a big retailer from a decent-sized town, told me that watching events unfold was like watching a drama from prison. Because the electoral cycle is five years long, she felt there was nothing she could do to register her dismay at NAMA. There was just no way of signalling her opposition. She told me she wanted to scream “not in my name” but had lost her voice.
As far as she and others were concerned, Lisbon can come and go, but NAMA is where the big mistake is likely to be made. The retailer said she knew the builders in the town that would be bailed out and the bankers who lent to them and were still taking home good salaries and playing golf in the local club as if nothing happened. All the while, she feared her business would really feel the pinch when interest rates turn. Whatever about having precious little credit now she feared that, once rates began to rise, the position of her and many on the main street like her would become impossible.
Others shared her concern. They were worried about their outstanding loans. Many of these are “interest only” affairs, taken out when times were good and provincial towns were booming. Many retailers expanded their shops dramatically not only to respond to demand and the insatiable appetite of my old friend Breakfast Roll man, but also to try and stave off competition from big multiples like Tesco. This expansion leaves them very exposed to interest-rate moves.
With that in mind, let us have a look at the interest-rate cycle in Europe because, Lisbon or no Lisbon, interest rates in Europe will rise progressively over the next year or two. And this could be enough to push many Irish businesses over the edge.
Before we look at the likely trajectory of rates, let us examine how interest rates work differently in different countries in Europe. In Ireland and in the UK, we finance more or less everything at variable and short-term rates. In Germany, they finance at fixed and long-term rates. This means changes in interest rates have much smaller impacts on consumer demand in Germany than they have in Ireland.
When rates are decreased, we party here and when rates rise fast we suffer dramatically. So, in the past year, as the ECB cut rates significantly, we have have been given a significant breather. Many highly indebted companies are just holding on at the moment because rates are so low.
When the rates turn, however, the precarious position of many of us and our companies will become apparent. And the financial markets will factor this in to their equations.
To understand what is likely to happen, take a look at the chart above. It shows the reaction of the US financial markets in the past 12 months to companies that had lots of debt.
Traditionally, these risky companies are asked to pay a premium to investors of about 2pc over US government bonds. This is to cover the investor for the risk that these companies will default. In other words, because they are more risky than government bonds, indebted companies pay more for their borrowings.
Now look what happened last year. When the liquidity crisis broke, companies dependent on short-term financing looked far weaker than they already were. The graph shows the difference between the interest rate on their borrowings and that paid by the US government. At the peak of the crisis, indebted businesses had to pay 5pc more in interest than was paid on government bonds.
We see a dramatically amplified effect on the interest rates weaker companies had to pay in the graph, which caused many of them to go to the wall. But it is the taking over of the banks rather than the trials of indebted businesses that will worry the markets the most.
Investors will be afraid that the capital position of our banks will be eroded, once more, by new bad debts as interest rates rise — but this time from companies and retailers rather than builders. Crucially, this debt will not be in NAMA. Share prices will fall as bad debts mount, and the State may be compelled to act again. In this scenario, it could nationalise the banks — by injecting more capital — or it could preside over zombie banks with neither confident management or shareholders.
This is the vista we face, Lisbon or no Lisbon, and that worry was written on the faces of the people I met yesterday — who sell us our milk and butter late at night, or are there when we’ve forgotten to make the children’s lunch.
I absolutly agree with the above article and very well written. In the short term we are going to have deflation when all asset prices fall in value but in the medium and long term we will come into a lot of inflation due to the World Stimulus measures. It’s well known that government act to late. With interest rates at an all time low and with maybe double digit inflation to come then interest rates will have a long way to climb. If inflation reaches 6% then interest rates need to be at a minimum of 7% in order… Read more »
A welcome reminder of underlying realities. Those local shops that have improved their premises in expectation of continuing business are vital to our local communities. When they close they leave a huge hole behind.
People who’ve gained from falling mortgage rates, who’ve put up with increasing government confiscation of disposable income, who’ve not yet felt the full pinch – we are about to suffer, bigtime it seems.
It’s good to have your explanation because it removes some of the confusion.
David, the vista of ‘collectivism’ open’s up further and further and further, and in this scenario, outlined above on your article, the vista on central banking gone bezerk is on show. We have, credit provision run by a hidden crony capitalist elite now exposed, curtain pulled back, wizard of oz like, the shopkeeper woman now waking up too how the economic system is run and she is discovering the truth and the awesome realisation that perhaps it always has been so. We have, the local economy, seduced into extending credit to keep up with demand and wham bam thank you… Read more »
Anyone else feel like Michael Moore could be making a documentary on Ireland in a few years, chasing down Bertie, Cowen and Lenihan asking them why they ruined their own country? Cut to a clip of him walking in to the NAMA office and walking out with the deeds to half of Ireland bought for 1$
Eugene Sheehy is still chief exec of AIB, one year on from obtaining a bailout from Joe Public!.Policy is built around trying to kickstart the housing market and suckering people into buying the most expensive land on the planet..Unemployment has stabilised because emigration has resumed!.FF will be in decent shape if they hold out until 2012.Some things never change.
subscribe.
Lisbon isn’t a sideshow – its going to have longer consequences than NAMA – bad as Nama is we don’t get to vote on it.
The only way we can communicate with politicians is through the ballot box.
Check out this link on the referendum commissions shenanigans if anyone is doubtful about the real issues at stage in Lisbon
http://www.nationalplatform.org/
I concur with the Minister for Finance when he says that he’s frustrated with fhe fact that no banker is in jail…yet. The reality is that all the bankers who got us into this mess are living the high life on pensions and one off payments etc that would shame the lottery. When one bank ceo spoke about his ‘compensation’ last year, he said that he made around €3m last year while he expressed concern that he might not make that much this year. The same fellow resigned earlier this year and made as much or more even though he… Read more »
It;s not surprizing that many small businesses are complaining about NAMA as it is always easier to balme external forces than one’s own flawed business model. How many boutiques opened in recent years were simply loss-making tax dodges to get the spouse out of the house? How can any bank justify making loans to establish the sixth glorified minimarket in a village of 1000 people? Or the fifth fast food outlet in a small agricultural community? David ignores the lessons of Japan, where consumer prices tumbled at a record pace in August according to fresh government data, raising fears that… Read more »
Ah , the small shop keepers who opened or extended their premises to try compete with the Dundrum’s and Liffey Valley out fits’ of course they are in trouble now. We are after all in the coming to the middle of a perfect financial economic storm. With all the cracks now showing every where , the units these business people rent some are badly built others paid too much for the land and as tax free areas they have been asking for too high a rent. I know back in my south east down there are commercial units below un… Read more »
Calendar – This article touches the matrix of conventional Irish business throughout the country .Denial is over , so is shock and now the advent of Anger lands beside O’Leary’s Bull in the middle of the country.
I think the government has made a massive bet that Ireland will recover from this depression far earlier than France/Germany. But they probably are too stupid to realise this. Look at the NAMA funding approach, borrowing short term to meet long term debt with rollovers, crazy given recent ECB statements on their ‘exit strategy’. Ireland must be ahead of the game in recovery; or else we get higher rates and that is assuming the ECB will rollover… The gobshites seem obsessed with betting the future of the country on grand gestures, first the guarantee, now NAMA etc. All to hide… Read more »
NAMA is all about a controlling group of elites testing the waters too see how far they can stretch the credulity and acceptance of the populace in taking their regime forward into a new economic paradigm.
There is increasing desperation and well done to David for highlighting the matter. What worries me is that reason behind this is now becoming irrelevant as people will be looking for a scapegoat. Yes NAMA, stupid business models, people’s idiotic voting styles etc etc are all coming back to bite – but the fact is, you will see a lot looking for succour. Anger is starting to become apparent. We had the petrol bomb into the windows in the Dept of Finance the other day. Who know’s what’ll happen next. And if you think we are not capable of it,… Read more »
Surely, another headache is that these people have leveraged their income in the base business to finance questionable investment elsewhere. If, as you write that investment is in expansion, then there may have some hope as coupled with interest rate there is likely to be a rise in inflation.
Business that were based on the insatiable appetite for consumption of Breakfast Roll Man or DIY Decklanders are surely not worth saving? The economic reality has changed and if they are up to their eyeballs, its most likely because they drank the same cool-aid as the ten-times salary mortgage chancers. If you go in to business these are the things you must accept as risks, something the Irish seemed to forget about in the last ten years. One of my memories of Ireland is that most small business owners think they deserve a living just for showing up in the… Read more »
Bloggers, fantastic debate on GLOBAL WARMING HOAX, with malcolm and liam over on ChINESE TAKEAWAY article.
For one moment kindly consider the following as an alternative framework through which to view NAMA (rather than a kidnapping): Now, the primary rules are: – Never allow the public to cool off – Never admit a fault or wrong; (never concede that there may be some good in your enemy) – Never leave room for alternatives – Never accept blame – Concentrate on one enemy at a time and blame him for everything that goes wrong – People will believe a big lie sooner than a little one; and if you repeat it frequently enough people will sooner or… Read more »
Gavin Sherdian has been doing a bit of drilling down into Anglo Irish Bank and some of its subsidiary’s and uncovered a veritable who’s who of Irish Buisness connections……”.Well I never met de bate out of it ” as they say in Ireland….worth a read http://www.gavinsblog.com/2009/09/29/anglo-irish-bank-part-1/
I am just waiting for Tim to come on and tell us how anybody in FF who has any morals has been sidelined
I have been away for a while Tim and I have not been able to follow up on why you a member of a party but don’t seem to support any of its policies .
So why are you a member of FF ?
Is it a family thing ?
David, webmaster. Really appreciate the new format.
Well this is an interesting article – as it in in the underbelly of the Taoiseach’s constituency. Retail has peaked in Ireland. It might not look like that as you fly around D2/D4/D6 and listen to teens babble away talking nonsense. But outside of the affleunza belt, in the core production belt as such, West Dublin, the Midlands, the provincial town centres, retail is on it’s knees. A big issue for retail is rates. Quite simply rates penalise everybody, and ensure that the multibranch operators with a centralized warehouse and centralized buying can cover the fixed overhead much easier. Various… Read more »
On NAMA. Here’s further analysis on it’s nut’s and bolt’s, i’ve uncovered which is worth typing out for perusal. ‘the crisis in irish banking wasn’t caused by mortgage defaults and mortgage debt right offs. The mortgage loans were very much on the books. The problem instead lay within the complex world of property loans for speculative purposes, which amount to ten’s of billions of euro(50 – 90 billion), which were funded through credit purchases on the international money markets, dodgy share deals, and creative accounting through the temporary transfer of billions of euro from one irish bank to another. With… Read more »
The Rate is not really the issue, I thought it was, but really it is a drop in the ocean of idiotic policy that washes round every county town. But the biggest issue is the rents, for even with those who own the shop have established a tax efficient system that has the retail renting from a separate company that owns the building.
test
david, on the frontline the other night a comment was made that developers should be taxed to filled the hole in the public finances , to which the reply was that they are all bust so whats the point. .The truth is that it is the landlord class in ireland (of which developers are a subset) that is bringing the country to its knees. all these arguments between public and private sectors miss the fact that the cost of doing business in the form of hugely expensive leases is crippling both sectors of the economy. For example people in the… Read more »
Hi David, I dont agree with the title of your article that “Why economic recovery can be bad for business”. Economic recovery by definition can not be bad for businesses on average. I dont think problems in businesses are more acute in rural areas outside the metropolises. Sometimes cities can mask problems, but they are still there. Of course businesses should be segmented into many types of categories based on the amount of leverage they took out. Some will have been ‘caught with their pants down’ more by being in the wrong part of expansion when the so-called business cycle… Read more »
So Seanie Fitz is not paying interest on the 100 million He borrowed from Anglo,400k per month it costs US the new owners.Would’nt it be ironic if He was lets say experiencing cashflow problems as a result of His investment in that Casino in Macau. Bye the bye when He was asked about it He said “I dont talk to the Media”.What a difference that makes from the time He had all sorts off opinions about things ,from Medical Cards to taxing Social Welfare etc. etc. Ahhh Well I suppose we’ll just have to struggle onn repairing the Economy without… Read more »
Folks, I have been struggling to keep up with your many worthwhile posts (as well as those, indicated by wills, from Liam and Malcolm McClure back on the “Chinese Takeaway” article.) The education cuts have meant that my work in an Irish Secondary School has increased dramatically, especially in attempting to “plater-over-the-cracks” and somehow sheild the students from the worst excesses of the cuts. Everyone is working harder, but it is taking it’s toll on energy levels/alertness. On my computer work, the recession is showing that people who, a year and a half ago, were throwing away their broken PCs… Read more »
So the credit crunch has arrived in Gombeensville,the FF heartland ( FF fared less well in the citys last Election).So now the “high rent takers” who had no problems with their extortionate mark-ups during the boom and bored the shit out of all their friends (away from customers earshot) with their latest buy to let in F.cking Bulgaria etc . are starting to realise that the Ear ot the local FF Chieftan will not be enough to save their asses.Well Im sure they were listening to you David ,even though they demonised you for years.What were they hoping for,someone to… Read more »
I intend to keep posting the comment below on various websites until i feel it has hit the public domain. david, on the frontline the other night a comment was made that developers should be taxed to filled the hole in the public finances , to which the reply was that they are all bust so whats the point. .The truth is that it is the landlord class in ireland (of which developers are a subset) that is bringing the country to its knees. all these arguments between public and private sectors miss the fact that the cost of doing… Read more »
Good evening all, I was recently made aware of the following IT article which suggests that in the particularly exposed SME sector, loan rates by the Irish banks are proceeding a-pace: According to AIB and Bank of Ireland, there is no shortage of money available to SMEs at present. “We are sanctioning nine out of every 10 applications [for credit],” said Denis O’Callaghan, AIB’s general manager of retail and SME business, adding that the Mazars report backs up the bank’s figures. I have also been made aware informally that the banks BDM’s and account managers have been instructed to pre-screen… Read more »
Bella Cogniteratti – Tim , I believe one way to impact on the positive energy remaining on our isle is that you in your official capacity in FF to call for an Extraordinary Meeting of only all the Cummann Presidents in the country for an ‘Assemble Extraordinaire Connoisseur de Politic ‘ and elect a new group of Trusting Consensus of no more than ten .Their agenda should embrace everything we now see in the public eye and their decisions should be absolute without restraint and in the interest of the public first and last . Democracy is eroding fast and… Read more »
One Day without any of the nonsense about U-Rowup. And guess what ? FAS and ANIB dominate the news. Gormless is making soundings that indicate that he is more committed to NAMA than FF. And the country continues on with the normal corruption, wheeler dealing, deciet, PR and extortion. Did you know that Deisel went up 1 c per litre last night ? I found out, and there I was sitting in front a newspaper telling me that Seanie Fitz will not be paying interest on a 100 Million Euro Loan. This is the way things are going in this… Read more »
Gamble- Social Trust – When Developers borrow they gamble and maybe they will win or maybe they will lose.
When a family buy a house they do not gamble and they do not intend to make a profit as in a business profit.
What NAMA does it inverts this social bond and implicates the family to have gambled and the business person to a safe haven.
The result is Social distruction and disorder and poverty.
It makes more sense to take on the family home mortgages instead and release more confidence into the economy.
Wills Ducktion Hose – do I deduce that seanie is now an uncrowned king of Ireland if we are all captured?
hmm maybe uncrowned king of ireland but that would not do justice for parnell……still pondering who the real king of ireland is and who is his emperor in uk or eu
….wobble wobble wobble ….well seanie has ‘hair’ and ‘curls’….and always the courtier emulates his king and emperor……so…….what king/ emperor has…lots of hair?
David, You spoke about how great Indian development is. Well Booker Prize-winning novelist, political essayist and global justice activist Arundhati Roy has somethin to say about it, which may inform yourself and readers. Her books include the Booker Prize-winning novel The God of Small Things and her latest essay collection, Field Notes on Democracy. Taken from Democracy Now: “So, when India opens its markets, you know, because it has opened its markets, and because it’s–you know, international finance is flooding in, and all of that is so attractive, it is allowed to commit genocide in Gujarat; it’s allowed to commit… Read more »
Folks, I love this quote from wills:
“Are you on this site for some type of chilling effect on tim. If so, your wasting your time.”
I will engage, fully (if allowed by him), with Alan42, as and when I have the opportunity.
However, I am rather glad that you seem to have my “measure”, wills. Amusing.
John ALLEN, you know I’m working on it. Can I work fast enough, i wonder?
Alan42, your posts suggest that you have read on this site for quite some time, before posting. I did that, too. However, if that is true, I cannot understand how you can possibly assert that I do not answer questions about my membership of FF. I have been TOTALLY honest about it. Totally. I have accepted and addressed all questions asked that I am able to answer. Yours, too….. twice (I think). I have given my full name, address and phone numbers. What more do you want? Yet, you post this: “Alan42 says I am not a troll or a… Read more »
Folks, not liking “Addicted to Money”, at all, yet.
Seems a bit “revisionist” – don’t see the relevance.
What am I missing, here? Please help?
Alan42, Yes; you have found the solution to all problems:
I “have a problem with english” (you ask).
I am a member of a political party named Fianna Fail (you know);
.. and I have “taken your money” (you claim).
Come to my house (address provided), murder me (get rid of Fianna Fail);
Look under my bed (and retrieve your money).
Tim’s out of the way, folks, once Alan42 gets his wish.
No more worries, then!
NAMA is off.
QED.
Liam, I am sorry; I forgot. (It’s kinda tempting, though….. in a way…..?)
Folks, Labour-party-man from Vb show says new Central Bank bosss, Honan , feels Nationalisation of banks is bad because that would “politicise” bank-lending; says that is bad ’cause “would be very difficult to foreclose on people who weren’t paying their mortgages, and so on”.
There ya go….. make of that, what you will.
Guys,
the arguing is taking us all off topic, as justified as it maybe, it’s taking up space on the “forum” and making valuable comments harder to find. So drop the personal insults or ignore them and debate the issues we raise here.
Sorry I know I don’t contribute much but I read most everything :-)
Colin_in_Exile,
FFS
You know better. I do, too; but I had an inkling that Alan42 had something worthwhile to say, so i excuse myself from the criticism many her will level at me, that I “fed the troll”.
I do not think he is a troll.
I think his questions are legitimate.
I will take as much of his bile as I can before I drop him.
I think he could be a valuable addition to the debate – he is forthright of expression and (crucially) he is looking-in from outside.
Let’s see.
Colin_in_Exile, interesting post here:
http://www.davidmcwilliams.ie/2009/09/30/why-economic-recovery-can-be-bad-for-business#comment-64216
.. which supports my No. 49 above.
Dunno what tac you are on for the last two days, but it’s gettin’ interestin’ to watch!