NAMA saddles society with great financial risk
Professors of economics know as much about the future of economies as does Mary Coughlan. Perhaps they know even more if they are professors of economics at the London School of Economics (LSE).
Experts on banking know as much about rescuing the banks as does Mary Coughlan. A person who is both an international expert on banking and a professor of economics at the LSE therefore suffers from a triple disadvantage.
I offer this observation as a health warning before going on to quote someone who is both an international expert on banking and a professor of economics at the LSE on the lunacy of our guarantee to the banks, which has propelled us into Nama and now into a Special Purpose Vehicle (SPV).
A mark of this person’s credibility is that the new governor of Ireland’s Central Bank, Patrick Honohan (admittedly also a professor of economics), said more or less the same thing some months ago.
The expert I wish to quote is Willem Buiter, professor of European political economy at the LSE, who formerly worked with the IMF and World Bank.
He said at a conference in Dublin last week that the government was protecting creditors and exposing the public to great financial risk with its Nama plan.
He continued: ‘‘The Irish government’s approach to the banking crisis appears designed to maximise the cost to the taxpayer."
He wondered why the government, on September 29 last year, guaranteed existing lenders, bondholders and large depositors of the banks, instead of guaranteeing future lenders and bondholders. He argued this would have protected the banking system, as future lenders and investors (via bonds) would be assured, while absolving the state from any commitment to the existing lenders and bondholders.
It is that retrospective guarantee to lenders and bond holders that necessitated Nama and the SPV that, almost certainly, will end up costing this society tens of billions of euro in ten or 20 years’ time.
Those tens of billions will be shaved off welfare, health and education, if today’s toxic politics continue to prevail.
Make no mistake, what Brian Cowen and Brian Lenihan did was to give the financial elite priority over the welfare of the people of Ireland.
They didn’t do this because of any corrupt motive, but because of a mindset which ordains that the corporate financial powers must be assuaged, whatever the cost to society.
Once that guarantee was given, the management of its consequences was only a detail. Hence Nama and the SPV.
The guarantee was not about protecting the banking system or protecting businesses from the sudden withdrawal of liquidity. That could have been achieved by a prospective guarantee. What we did - or rather what Cowen and Lenihan did - was to give a retrospective and a prospective guarantee.
‘‘We had no option," they said - and they believed themselves.
They are saying the same now about cuts in welfare and public sector pay. Believing that the rich elite (which includes me and many readers of The Sunday Business Post) cannot bear any more pain, they decided the pain must be spread to people who have a good deal less capacity to bear it.
According to answers to written Dáil questions in the last few weeks, 44 per cent of public servants (183,629 out of a total of 414,623) are earning €30,000 or less. A further 30 per cent (125,540) earn between €30,000 and €50,000.
Three-quarters of all public servants earn €50,000 or less. It is evident that a major part of the burden of the pain is to be inflicted on these people in wage cuts.
Other data just released by the Revenue shows that 47 per cent of all workers earn, on average, less than €15,000 a year, and that 70 per cent earn €50,000 or less. These people are to be hit by cuts in welfare, education and health.
According to the same figures, those earning more than €100,000 will receive 30 per cent of all income earned this year, although they form just 7 per cent of the total number of earners and paid just 27 per cent of their incomes in tax. When the levies are added on, this rises to about 33 per cent.
Why should these people (ie most readers of The Sunday Business Post), who take such a disproportionate share of all income, pay such little tax? Isn’t there a case for saying, before any cuts in welfare or public service pay for those on less than €50,000, that those of us earning more than €100,000 should be required to pay, say, 40 per cent of our income in taxes and levies?
Anyway, isn’t there a case for increasing the tax take generally, since we have such a low tax rate compared with so many of our neighbours in the EU? (According to Eurostat, our tax take has been 31.2 per cent of GDP, while Belgium’s tax take was 44 per cent, Denmark’s 49 per cent, Germany’s 40 per cent, Sweden’s 48 and Britain’s 36.3 per cent.) What would be so bad about a property tax, imposed on houses valued at, say, more than €800,000 which were owned by people earning more than €80,000?
No option but to afflict the afflicted?