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You & Your Money, July 2010

Posted by Jill Kerby on July 01 2010 @ 09:00

 

SUMMER DAYS…ON A WING AND A PRAYER

 

Ah the salad days of summer…long, warm, sunny days - if we are lucky. The kids are off school; it’s barbeque weather – so long as the rain holds off. There might even be a holiday to look forward to…but only if we can convince the sister’s husband’s cousin to lend us his caravan or we can find the fare to get to a nice cheap site in west Wales.

Everything we do these days in Ireland is punctuated by a ‘here’s hoping’, a ‘god willing’ or more popularly, a ‘finances permitting’. 

Gone are the days when the credit card(s) could be whipped out, or a home equity taken out, that could fund a 40 grand kitchen extension AND a month in Disneyworld Florida. 

The new normal in this country is that even those people still gainfully employed are checking their bank statements or the bottom line on their payslips before they make any purchases other than groceries, petrol, the cost of the kid’s school lunches and the rent or mortgage payment.

You can read all about the so-called economic ‘recovery’ in the United States until the proverbial cows come home, but even if you share my scepticism about that simulated and stimulated miracle, there ain’t no recovery here, not unless you’re exporting software or pharmaceuticals and can take full advantage of the 15% collapse of the euro against the dollar.

Our new reality is that we’re in this deflationary, deleveraging hole of our own making for the foreseeable future, that is, until job losses reverse and employment numbers grow by several hundred thousand; until those banks left standing are fully capitalised and are lending again and not until manufacturers and service providers are able to raise their prices.

‘Growth’ – aka recovery - only happens when surplus is turned into profit.  In Ireland’s case where incomes are still falling, taxes are on the way up and we’re paying off more debt that we are borrowing, it sounds like a big call.

Ah, there’s the rub. How exactly does one go about beating the Great Recession? 

As you sit around your smoking barbeque this month, you probably already know that throwing more fuel – in this case debt and credit at an out of control fire, is not a good way to put out the flames.

That is the cookery equivalent of the road to fiscal hell.  Anyone who purports to run a country with a population of four million (of which only 1.85 million are earners), a GDP of less than €50 billion, a budget deficit of €20 billion and a Nama excluded, national debt of €81 billion – should know, but clearly does not.

Career politicians and their creatures in the central banks have a single purpose in life:  to secure re-election and retain power. 

By some weird quirk of wiring, they collectively still think that they have correctly diagnosed the problem  - it’s the fault of the Chinese and incompetent regulators.  They propose the classic Keynesian solution: keep interest rates perpetually low, bail out insolvent banks and private corporations and beg, borrow, steal and print money out of thin air, so you can spend on behalf of and in lieu of your citizenry who knew the game was up when house prices and the stock markets first crashed.

Their conceit – that only they know what is best to do, and that includes robbing future generations blind before they are even born - is breathtaking.

Eighteen months into the Great Recession I have stopped shouting at the TV and radio; I no longer rip apart newspapers and magazines in frustration or pound my computer screen in rage at the stupidity and waste of it all.

What is the point?  Nama has re-introduced serfdom here: the Irish people will now have to labour indefinitely to preserve the apparatus of the banking industry and the state, not for ourselves and our families.

The scale of the western economic debt crisis is so disproportionate to our capacity to repay it, that the best any of us can do is to follow the Titanic’s example and declare that it is every man, woman and child for themselves.

Our overspending spree in the west, which pretty much began at the end of the second world war, means that there is probably better than evens chance that it won’t just be banks and big corporations that will default on their debts: it will be a string of countries too. 

Even the United States, with it’s mighty printing press, will eventually go the way of every overstretched empire, with a currency that becomes so devalued by all the printing, that the client states eventually see it for what it will become:  wallpaper.  

(Sound money would have stopped the barbarians at Rome’s gates in the fourth century but by then the emperor’s golf and silver coin…was nothing more than brass.)

So much for the history lessons. 

Our government thinks cutting public spending, but increasing the national debt AND raising taxation is a recession busting formula.  Good luck to them.

You need to take a very different path, say the non-mainstream commentators and financial advisors who have been warning their clients about the looming debt crisis since at least before the dot.com crash: 

  • Cut your spending. Then cut it some more.  Live within your means, and ideally below it.
  • Pay off your most expensive debts and consider fixing interest repayment rates. If inflation takes hold – as many of the world’s most successful investor expect it will - your debts will inflate away. 
  • Preserve your capital.  Save every penny you can and diversify your savings and wealth into more recession and inflation-proof assets like world dominator shares that pay steady dividends; index linked bonds; precious metals and arable land; soft, food commodities plus oil and energy.  Invest in the stuff that the people in developing economies want and need and can pay for in cash.
  • Do your own research and use experienced, fee-based advisors. Take personal responsibility for your money and actions.
  • Don’t pay more taxation than you absolutely must.  Take full advantage of all remaining tax breaks and DIRT-free savings limits (in An Post savings certs and bonds.)  Consider wealth transfers (say, a house from parent to child) now, before inheritance and capital gains taxes go up.  Make maximum pension contributions before marginal tax relief is compromised, probably in the next Budget. 

And finally, be adventurous.  Live a full life. Consider moving to a lower cost country, especially if you are a pensioner, where the lifestyle is cheaper but services are accessible, affordable and top class.

A place where the sun shines for more than for a few weeks in July...with no ‘if’ and ‘buts’.

 

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You & Your Money, June 2010

Posted by Jill Kerby on June 01 2010 @ 22:31

You and Your Money – June 2010

By Jill Kerby

 

 

WHEN BLACK SWANS ONLY OCCURRED IN NATURE... 

When my son was little, because we lived just across from the River Liffey and the Phoenix Park, we visited Dublin Zoo a lot. It was our own exotic playground and we each had our favourite animals that we had to see.   

Mine were the black swans. They reminded me of the first time I went to Swan Lake with my mother and sister and I saw Odile, the black swan and sorcerer’s daughter who is mistaken by Prince Siegfried to be Odette, the white swan that he falls in love after she is transformed by the moonlight into a woman.

In the days when the child and I played in the zoo, scouting out our favourite animals, black swans were just …rare swans.  No one had ever heard of ‘black swan events’ back then - those rare, improbable but calamitous events that the economist Nassim Nicholas Taleb first articulated in his 2007 book The Black Swan. 

The collapse of the global financial system back in 2008 is now considered to be ‘a black swan’ by the ‘light touch’ politicians and bankers who actually caused it, though of course many people like Taleb genuinely saw it coming.  No doubt the same naysayers will consider the collapse of Greece a black swan – something that was also utterly improbable. 

The collapse of the Greece was no such thing. It was just what happens to insolvent little countries – or companies, or individuals and families when they have no savings, wildly overspend, run out of income and cook their books.  Lenders, naturally enough in such circumstances, refuse to extend them any more credit.

The end of the euro may also be considered an improbable black swan, but who’s kidding whom?  The euro is just another trumped up, fiat currency, backed up by now by nothing more than the faith and promises of a collection of European countries, many of them as badly mismanaged and indebted as Greece.  The collapse of the euro was going to happen eventually, just as every paper currency, devalued by politicians, has eventually disappeared.  Genuine money is not just paper and promises…it is backed by an asset of value that is real, immutable, precious and rare…like gold.

But this isn’t a column about gold. It is about black swans.

 The Icelandic volcano, Eyjafjallajokull, is a black swan geological event. Most volcanoes in Iceland tend to produce a lot of lava and steam, not lava and 30 mile high columns of explosive rock and fine ash that can close European air space.

This angry black swan, which couldn’t be predicted and can’t be stopped, was certainly improbable given how seldom it goes off (in our time, not geological time). If it continues indefinitely it certainly will have a significant financial impact – just ask someone in the hotel or tourism industry here.

 But do ‘black swans’ of the Nassim Taleb kind, appear closer to home? Do they happen to individuals too?

Of course they do, and with just the same dramatic, sometimes catastrophic effect for the person concerned and their loved ones. 

This Great Recession is just part of the same Greece/euro event that many saw coming, but it has impacted on both the prudent, and the financially reckless.  Some people have quite rightly lost their businesses and livelihoods:  they made idiotic, unethical and sometimes downright criminal decisions that have now caught up with them.

But what about their innocent suppliers, employees or dependents, who had no hand, act or part of their recklessness?

Every financial advisor and insurance broker has a raft of black swan stories to tell.  Last week, one described a young couple he assisted to secure a large mortgage five years ago.  They had to buy mortgage protection as a condition of the loan but since they had no other kind of protection insurance, or even health cover, he recommended they buy some…just in case.

“Their attitude was pretty typical.  They said they were young…they were perfectly healthy…their jobs were secure.  She was French and said if anything ever happened she’d go home to France and its wonderful health and social welfare system.

 “Well, it was as if she was tempting fate.  Last autumn I got a call from the husband. His wife had had a baby a few months earlier but developed an allergic reaction to something and went into anaphylactic shock. By the time she got to hospital for treatment, the oxygen deprivation she suffered caused brain damage.  He was hoping – in desperation – that the mortgage protection policy they bought five years earlier included a financial benefit other than the life insurance.”

It didn’t, of course, and this man is now left to take care of his wife and child full-time. He had to quit his job but cannot keep up the repayments on their house, which he knew they were going to lose.

There’s very little that ordinary people can do to prepare for the appearance of a geological or climate related black swan, except perhaps to accept that we are mere specks on mother earth’s landscape.  That said, we can take some steps to protect ourselves against financial black swans – whether they perfectly match Mr Taleb’s definition or not.

Future asset bubbles, for example, can be identified and avoided if you just use some common sense:  the next time a share rises spectacularly on media or political hype (a la Eircom and most of the other dot.coms from back in the last 1990s) but has no profit stream or even customers, keep your money in your pocket. Ditto if the rise in house prices exceed your annual income.

And if someone comes along with a ‘sure thing’ investment or a horse in the 3.40 from Fairyhouse, get him to buy it or back it for you with no strings attached and an unwritten promise to pay him back after it “absolutely doubles in price” or comes in at 10 to one.

Keep in mind too that the only way to avoid losing a mortgaged home to a black swan – say, a catastrophic illness or death -  is to pay it off early or know someone who can on your behalf.  It’s called insurance.

No one with dependents (and an earned income) should be without top up life insurance, serious illness or income protection insurance in addition to the mandatory mortgage protection insurance that will at least clear the outstanding debt on their home.  We should all aim to have three to six months worth of income in a ring-fenced contingency account.

 Those personal black swans – in all their terrible beauty - will glide away and do little to no harm if you accept that, however improbable and unwelcome they are, they do exist.  

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You & Your Money, March 2010

Posted by Jill Kerby on March 01 2010 @ 09:53

 

I own an old house with, it seems, a very bad government energy rating. 

 

The windows are only single glazed, though most of them still have the original, slightly wavy Victorian glass.  The beautiful high ceilings, open fireplaces, and oak floorboards inadvertently pump cool air around the house all year round, making for rather chilly winters and comfortable summers.  The attic is properly insulated, but not ‘finished’: only half of it is floored.

 

This is not, by the new energy efficient standards, a “green” house.  More mauve to blue, I’d say.

 

However, it is located in a city neighbourhood within the Dublin canals, on a street lined with magnificent sycamores and chestnut trees. There are Luas stops at both ends of the road, two buses stop outside my door and the biggest city hospital is at the end of the block. 

 

If you are from Galway or Sallins, you will appreciate how this house is on high ground and is not subject to flooding or subsidence.  It is structurally sound and every tradesman who has ever walked in the door says the same thing about its foot thick walls, the arches and bay windows and the elaborate ceiling plasterwork: “They don’t make houses like this anymore”. 

 

My house may not have a triple A energy rating, or whatever it’s supposed to have, but it has stood solidly for over 110 years, sheltering first a British army officer and then a number of families from revolution and civil war, a global ‘Emergency’, various recessions and booms. The plumbing and heating function to my standard and this house, over the nearly 16 years of our occupancy, has suffered no lengthy power outages, or water shortages – we are lucky to share our power lines and water mains with the hospital at the end of the street.  

 

My heating bills certainly spike dramatically in the winter, and yes, double-glazing the windows is probably a good idea that I will get around to, but the draughts do not detract from the fact that I own a desirable, late 19th century house and that I accept it for what it is.

 

What I object to is being forced by the state to produce, at a monetary cost and under threat of a fine or imprisonment, an arbitrary, energy-rating certificate to a willing tenant or purchaser.

 

I was recently reminded of this by a tradesman who I asked to quote a price for a replacement porch door – a very green feature that was already here when we moved in – and who I know would also love to renovate the windows.  He warned me that the government might someday link property tax to energy ratings:  “The worse the rating, the higher the tax, missus.  You don’t want to be on the wrong side of that.”

 

If he is proved right then we are in even worse trouble.

 

What it means is that a group of inept, sanctimonious politicians with a green axe to grind, who hold the balance of power in one of the most incompetent governments in our history, could force higher taxes on property that neither they personally, or the state, inhabit, own, or pay to maintain, on the grounds that they don’t like the amount of energy the legal owners use (and pay for).

 

What, or, better still, who’s next?  Fat people? Smokers - again? How about old people with dicky hearts? They’re certainly not very energy efficient.

 

Meat eaters would be a very good new whipping boy for the Green world improvers, and a tax on every steak or carton of milk, a substantial source of energy revenue. Not only does meat and milk production require massive energy (and water) to get it from farm to table, but cattle are said to be one of the single, biggest contributors to global carbon-based pollution…yet the animals, land and the profits generated are exempt from direct carbon tax.  

 

Of course this policy of arbitrary greenification is not new. There hasn’t been a storm of protest from car drivers who are already subject to higher taxes if they drive larger engine, higher carbon emitting vehicles.  Perhaps it’s because we’ve been reduced to being a nation of whipped dogs for so long that no one can remember when – or even if – there was a time when the government was the servant of the people and not the other way around.

 

I neither seek nor expect any kind of state help, assistance or subsidy for owning this house or any other. I reluctantly acknowledge that my house is a taxation target that the government cannot resist.   But I am not willing to accept that it should be taxed to an extent that it cannot attract otherwise willing buyers or tenants – who would know from the moment they crossed its 110 year old threshold that heating a house like this to modern semi-d standards would always be a challenge.

 

Nevertheless, I will pit my beautiful old house against all the energy efficient houses that ended up under five feet of water last November, or that lost power for days on end during the Christmas cold snap or that are still without regular running water today.

 

There are worse problems with Ireland’s housing stock that need contending with than making every house conform to arbitrary energy ratings.  Where were energy regulators and supervisors and green do-gooders when the flood plains were being built upon, when housing estates, wholly dependent on car ownership (or two) sprang up in the middle of nowhere?

 

And shouldn’t those of us who live within walking, cycling or public transport distance of work, school and amenities, and where car ownership is unnecessary, not be awarded with carbon tax credits?

 

I’m not sure that man alone, over just 200 years out of two billion, is to blame for heating or freezing our planet.  Perhaps Mother Nature is just up to her old tricks, causing yet another climate shift with or without a nudge from us.  It certainly bothers me that the Greens and their energy police, so adamant about cause and effect, are pinning the blame on those they’ve identified as energy ‘abusers’.

 

So let them be fore-warned:  others may sit back and accept their mugging, but the moment an energy tax is slapped on this old house…will be the moment this old house fights back.

 

ends

 

 

 

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HOW MUCH DO WE LOVE OUR MONEY? – February 2010

Posted by Jill Kerby on February 01 2010 @ 18:50

HOW MUCH DO WE LOVE OUR MONEY?  TOO MUCH? – February 2010

February is the month in which we are directed to consider our romantic relationships, ideally with the purchase of expensive, odourless roses, tasteless chocolates, scratchy lace underwear and overpriced candle-lit dinners (though perhaps not in that order of preference). 

Valentine’s Day itself is of course, about retail, not romantic relationships.  The amount of money you spend on your paramour if you live in a Hallmark-infested country is commensurate with how deeply, they say, you are committed to the ‘lurve’ of your life.

Luckily, once you’ve been married as long as I have been, it is no longer a marital tragedy (and certainly not grounds for divorce) if you both forget that it’s Valentine’s Day:  it is your teenaged or adult children’s turn to try to avoid exploding that little grenade d’amour.

But since it is February, and the nation is still perilously close to bankruptcy (as are so many of its citizens, especially younger ones), perhaps we should ponder on the subject of love and money a little longer.

How much do we love our children …and our money?  Do we love the former enough to part with the latter, perhaps forever? Is our baby boomer fear of old age and a poverty-stricken retirement so great that we will sacrifice our indebted children to a lifetime – theirs -  of personal and national debt repayment with only a modest hope of an inheritance from us in their 50s or 60s?  That is, if we haven’t blown it all on whatever goes for nursing home care in 30 years time?

We, the baby boomer generation that runs this country, thought we were so clever back in the boom years.  Once we rectified the terrible mismanagement of the economy in the 1970’s and ‘80s by controlling government spending; lowering corporate and then personal tax rates; boosting exports and the software industry, we geniuses then turned our attention to making personal fortunes by…borrowing and spending.

What a plan!  And boy, did it work. 

We reverted to the one thing, secretly, that we loved more than anything: land and the bricks and mortar that can be planted on it.  We not only reverted to type – we turned ourselves into latter-day Gerald and Scarlett O’Hara – only ‘Tara’s acres turned into Tara’s 475 square studio apartment somewhere in the IFSC or on the back road of Mullingar.

We could be the landlords now, not some English landlord, encouraged by governments and banks that conveniently, but artificially, set the price of credit so low that not only did the modest earning civil servant buy into the idea, but they even encouraged their young to follow suit.

The outcome has been …well, catastrophic. Replace Gone With the Wind’s liberated slaves and civil war with 2007’s liberated interest rates and a decimated global banking industry and you’re nearly left with a very similar montage of personal debt and national bankruptcy.

Except that our generation of 24-35 year olds are anything but liberated:  they are now debt slaves dragging heavy chains of mortgage and credit card debt that will prevent them from seeking better work opportunities abroad, and from which they may never be free.

So how much do we really love our children and our country?  Enough for those of us with genuine assets, like property, savings and pension funds – however diminished by the property and stock market crashes - to sacrifice some or all of it to liberate our children and our state from the unrelenting burden of debt we now own?

Think about it.

Our 4.4 million citizens, of whom fewer than 1.9 million are gainfully employed, now carry a national debt burden of €73 billion that is the equivalent of nearly €16,600 per person.  This doesn’t include total private sector debt* of €375 billion, of which €111 billion is residential mortgage debt, €3 billion is on credit cards and €138 billion is accounted for by term and revolving loans.  It doesn’t include the €54 billion Nama debt monster.  (*Source: Central Bank Monthly statistics.)

You can do the maths yourselves.  Except for older citizens, prudent middle agers who didn’t get caught up in the property bubble and young earners with no capacity yet to borrow, the rest of the population, like the country, is now caught in a debt sinkhole that has no apparent bottom.

This could be the year of Nama Mark II, the new debt agency that is set up to try and liberate the cohort of indebted earners (and unemployed earners) in an effort to secure the country’s long-term future (and the baby-boomer’s retirement.)

Unfortunately, this time it probably isn’t going to be as simple as raising another €20 or €30 billion off foreign debt markets to pay for a debt-for-equity swop that involves the banks and/or government. That extra debt write-off could push the dodgiest of the insolvent lenders over the edge, not to mention the country itself.

And even if such a new refinancing deal could be arranged, in itself it does nothing to liberate the mortgage holder from the miserable starter home or apartment on the wrong side of the M50 or in a midland’s bog estate. These are the sorts of places where half the houses are vacant and the others are beginning to look like a dog’s breakfast because they’re all in negative equity and the trapped owners are already resentful of the fact they are stuck…and stuck facing a possibly new rental/purchase contract with the bank manager as co-owner and co-signee.

The mortgage and negative equity crisis here is merely a private reflection of the wider credit nightmare the country finds itself in:  there simply isn’t enough income around to meet both the interest repayments on our debts or to write down the capital as the asset depreciates. 

Since the likelihood of the government raiding the tens of billions of wealth of those who have it – the mortgage-free, cash and asset rich pensioners and middle agers – and forcing them via penal taxation to buy the toxic property loans of the young is zero; and announcing national bankruptcy in order to write off the rapidly accelerating national debt is zero, where does that leave the young debtors?

Well, nowhere. Not unless one of the following happens: 

1) There is an immediate economic recovery and a new property bubble forms to allow them to start making their mortgage payments and to sell their properties at par or profit.

2) Hyper-inflation happens sooner than later and all that mortgage debt is inflated away.  (This is a terrible short-term solution that would only favour those who still have a job when the dust settles.)

or

3) Those who truly love their young take the initiative and transfer their equity for their children’s debt and hope that that good deed is reciprocated in old age. 

 I think the last option holds the most merit.  You might give it some thought this Valentine’s Day.

 

 

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NEW YEAR RESOLUTIONS – FOR THE FINANCIAL REGULATOR

Posted by Jill Kerby on January 01 2010 @ 18:49

NEW YEAR RESOLUTIONS – FOR THE FINANCIAL REGULATOR

 

I gave up on the idea of New Year’s Resolutions for myself a long time ago. The size of the list was so daunting – 1) Drop two dress sizes;  2) Buy fewer shoes (shoes being weight neutral, you understand); 3) Win the lotto -  you get the idea.

 

However, that doesn’t mean that I don’t think New Year’s Resolutions are not a good thing…for other people.

 

And I know just the person who could use a nice, tidy list of resolutions for the start of the new decade as he takes up his new job as the as the head of the Financial Services Authority, Matthew Elderfield.

 

Mr Elderfield, who, for some reason that eludes me as I watch the rain cascading down my window and forming a small pond on the street outside, decided to trade up his job as the head of the Bermuda Monetary Authority for the role of Head of Financial Supervision at the newly integrated Central Bank of Ireland.  He clearly relishes a challenge …in a country with two seasons and one climate, Spring, Autumn and wet.

 

Whatever about having to supervise the rebuilding of the prudential side of the Irish banks, which will be no mean task given the presence of NAMA and the severity of the economic downturn, Dublin’s reputation as a financial services centre hasn’t exactly emerged from the turmoil of the past year with a sterling reputation either. 

 

I just hope he doesn’t end up so overwhelmed by these issues that he overlooks ordinary, end users of financial services, who are none too happy either.  They – we - are the ones who will be saddled with NAMA debt and many of us now look upon our mattress as more than just something to help us secure a good night’s sleep: for some it’s become an alternative deposit account, a safe deposit box, so to speak, that was only provided by the so-called ‘professionals’ in the banks, stock broking firms and life and pension’s companies in whose trust we once left all our money.

 

 

So here are a few You & Your Money 2010 Resolutions, Mr Elderfield, to mull over and to add to your own list this January. I’ve kept it pretty short to keep down the discouragement factor:

 

Resolution 1.)  Ban commission payments. At the heart of every rip-off of every consumer of financial services products, whether it be a savings plan for a child’s education; a useless payment protection policy (the kind that doesn’t always pay out when you lose your job); an unsuitable pension or even a low cost mortgage that ends up costing a king’s ransom…is a non-transparent commission.  Get rid of them. 

 

No one has been spared the scourge of commission:  your own Financial Ombudsman’s reports are full of elderly people whose life savings were targeted by so-called ‘qualified’ financial advisors at their banks who convinced them to gamble it on short term stock market funds and tens of thousands of young and foolish first time mortgage buyers who were signed up by banks and brokers for 100%, interest-only 35 year loans that carried obscene commissions.

 

And when you get the inevitable feedback from the industry about how nobody in Ireland is willing to pony up for a genuine fee based on expertise and time, (unless of course the service involves legal, accounting, tax or medical advice), just mention how your old colleagues at the Financial Regulator’s office in London have already set in motion the phasing out of commission remuneration for independent advisors by the end of 2012. 

 

Resolution 2)  No more mister nice guy.  When widespread mis-selling of a financial product is unearthed – and they will be – the culprits at the top of the company who are ultimately responsible for the actions of their juniors should be brought in, sat down, and told the consequences of their firm’s misbehaviour. Chances are much of the problem will involve older people being sold high risk stock market funds, and other unsophisticated “investors” who really should be leaving their few quid in the post office. I have an old file somewhere here on my computer of cases of Irish financial services companies operating in the UK who were fined and had their entire sales-force pulled out of action by the FSA (your old colleagues) and re-trained.  It hasn’t happened here, but should have.

 

 

Resolution 3) Name and shame the worst transgressors of the FR legislation and codes of practise.  Ireland is a small place (even smaller than Bermuda in some ways.).  Everyone and his dog knew who was involved in the famous Davy Stockbrokers/Enfield Credit Union case last year even before it came out in the Courts or in the Financial Ombudsman’s reports. When large sums are involved and the same kind of transgression keeps coming up, the bad guys should be named and shamed.  (Not that it might make much difference given what the banks in particular have gotten up to.)

 

Resolution 4.)  Stop the deposit takers from ripping off elderly customers. It really, really bothers me to still hear how many people leave large sums of money in bog standard ‘inertia’ deposit accounts that pay a pittance percentage of one percent in interest even while their institution offers higher return products.  Again, older people are more likely to be directed into these lousy interest accounts.  It doesn’t happen in the UK where banks are required to alert their customers to better paying accounts, but the banks here were able to convince the legislators not to include this in the FR’s remit when it was set up (surprise, surprise. Get it amended.

 

Resolution 5.)  Take on the credit card companies.  Not only are their surcharges and penalties outrageous, and the way that interest is calculated both opaque and usurious, but they continue to present their terms and conditions in little booklets full of small print written in outrageous technical and legal jargon.  Before anyone should be allowed to sign a credit card application form they must also acknowledge that they have read a single page of terms and conditions, the most important ones being “That you risk paying X amount if you miss a payment or exceed your borrowing limit;  “That you will pay X interest on all cash withdrawals compared to X interest for purchases” and “That if you do not clear your credit card balance every month, the compounding of interest on the balance and further purchases may result in damage to your financial wealth.” 

 

Or words to that effect.

 

Five resolutions are about as many as you should probably consider for this year, but I’d like to add another, though it’s not as important as it was a couple years ago.

 

If you check your advertising budget you’ll see that the Financial Regulator spends a small fortune warning punters against unauthorised boiler room operators based in near and far locations who cold call them with offers of shares or other investments that they swear will make them rich.

 

Anyone I’ve ever met (and I’ve been cold-called myself just hangs up.  Nevertheless, ads appear in all the newspapers quite frequently warning of this danger to our wealth.  Meanwhile, for about four years up to 2008, there was a stream of property shysters flying into Dublin and Cork and Galway every weekend flogging foreign properties from Bucharest to Bangalore via Dubai and Dallas.  Even snowy, remote Newfoundland holiday homes were on display to guileless Irish investors.

 

In the (unlikely) event that another property bubble is inflated, perhaps you could see that this last Resolution is enacted:  Thou shalt not attempt to sell overseas property in Ireland, and take away cash deposits, unless you are properly vetted and licensed by the Financial Regulator.

 

Amen.

 

 

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You & Your Money - Dec 2009

Posted by Jill Kerby on December 01 2009 @ 07:35

It’s Christmas…again. Yikes. That was quick.

Actually, I’m very pro-Christmas. I really look forward to meeting friends, going to parties and carol concerts, the panto.  I love Christmas Eve service and all the baking I end up doing. I Christmas Treepositively dread Christmas shopping which is why I spread if over the year, but I love decorating my house and putting up our huge Christmas tree, laden down as it is with zillions of beautiful ornaments.  

A few of them even hung on my mother’s childhood Christmas tree in Montreal in the 1930s.

Her family did very well during what is still known in Canada as The Ten Lost Years*. Her father, a first generation Irish Canadian, was a stockbroker in a firm that was still standing despite the crash, and her mother and her two sisters inherited a large fortune from two wealthy, childless aunts who both died in 1932. (A fortune my grandfather gambled away by 1939 when he went bankrupt.)  

My mother’s Christmas memories were mostly of weeks full of food preparation – everything was delivered in those days from the grocers and shops to the big stone house in Outremont – the ‘outer mountain’ of Mont Royal, the extinct volcano at the heart of the island of Montreal.  The entire house was decorated with holly wreathes and swags of ivy and tall white candles with red satin ribbons, as were the mounds of presents my grandparents bought for the extended families that joined them on Christmas Day. 

But the magnificent Canadian spruce Christmas tree was something that Santa Claus brought with the children’s toys and their stockings at the stroke of midnight on Christmas Eve. My mother and her two brothers were put to bed early (just as my grandmother and her two sisters were before them) and when they woke up early the next morning they found their stockings filled at the end of their beds and a Christmas tree covered in lights and glittering with ornaments and tinsel downstairs in the living room.

Santa never had the energy to set up the tree on Christmas Eve during my childhood, (or my sons’), but our Dublin tree is as true to tradition as possible and it is the abiding symbol of Christmas that our family – scattered around the world now – has carried through the generations.  

This year though, I remember other, not so idyllic stories my mother told of those Canadian Christmas’s.  They include the ‘recyclers’ – as we would politely call them today - who knocked on every door in that tony Outremont neighbourhood, not as eco-champions, but to collect rags and bones, old clothes and newspapers and wax candle stubs, in order to keep their families alive.  

“I especially remember the poor man who came every week during the long winter with his little girl, who was probably even younger than me, to collect our newspapers," she recalled.  "My father used to have three or four papers delivered to the house every day. 

“The man told my mother that he rolled the newspapers tightly after pouring melted wax and paraffin between the pages.  Bundles of such rolls would be tied together and then burned in their stove. They couldn’t afford cords of wood, or the coal that was delivered on great horse carts to our house and then poured down the coal shute into the huge furnace in the basement. 

“My mother would always have a bag of coal set aside for him as well as the newspapers and candle stubs, and at Christmas she’d give him a basket of food, as well as the others. The churches and charities were overwhelmed in those days with people out of work and their hungry families.  He and the little girl came every week for years.”  

With no social welfare safety net during Canada’s hungry ‘30s, Christmas was a mixed experience of great extravagance and guilt for my mother’s family, just as I expect it will be this year for those of us who find ourselves financially solvent at the end of this first year of the Great Recession. 

With Irish and third world charities all reporting a sharp drop in donations and so many of their donors experiencing lost or falling incomes and asset prices, higher taxes and fewer public services, there’s more than just a bit of a whiff of The Hungry Thirties about this season. 

Extravagance and excess just doesn’t seem at all right this Christmas.  

But how the charities are going to cope with providing groceries and presents for hundreds of Irish families let alone sending a goat to drought ridden Kenya or a hive of bees to Bangladesh, is something we should ponder as we turn on our Christmas tree lights.    

 

 

GRINCH?  SCROOGE?   BAH! HUMBEG!

This year is going to lay to rest, once and for all, that Christmas is only about endless shopping for stuff no one needs, wants or remembers receiving a week later, with money we don’t have. 

However, Christmas is the season of good will and giving and you can still give and get without it costing a fortune. 

Recycle.  Make a list and start putting together little packages of your own collection of CDs, DVDs, computer games, books, family photos, handbags, silk scarves.  We all have so much stuff – so much of it barely used or even unused – that you can pick out an item that you already know has been admired or coveted, wrap it up and pass it on. 

Start cooking, baking, sewing, painting, potting, gardening, filming, downloading etc.  Everyone loves home made food gifts, but what about downloading some music or pictures or potting up seedlings (if you’re a gardener?) 

Start a ‘bottom drawer’ for a much loved child?  This means passing on family heirlooms and other precious things if you have them – like a piece of old jewellery or Granny’s silver spoons, a piece of crystal or hand finished linen napkins. 

Make a gift of your time – to babysit, dogwalk (or dogwash), to do some gardening, grocery shopping or chauffering.

And if you do hit the shops, try to buy local and buy Irish.  Your neighbourhood butcher, baker, grocer, garden centre and clothing shops will certainly have a happier Christmas.

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You & Your Money - Nov 2009

Posted by Jill Kerby on November 01 2009 @ 15:06

 

The one thing you can be absolutely certain about a Great Recession

…is that it will come to an end some day.  What goes down always comes up again, and that goes even for an economy that has had the stuffing beaten out of it. 

The timing of this transformation, however, is another matter.  

One year after the pivotal collapse of Lehman Brothers investment bank, the politicians and central bankers who got us into this mess in the first place have declared an end of the Great Recession in the United States, France and Germany. 

They use so-called ‘technical’ data to mark the end of a downturn, usually by monitoring the increase in Gross Domestic Product (GDP) over a full quarter.  GDP is up in the US – allegedly - but only by about 1% in the second quarter of 2009; it’s due more to government stimulus packages and spending such as the two multi-billion car scrappage schemes, tax credits for new home buyers and the stimulus lending to states and municipalities so they can spend on projects that neither they, nor the private sector fancied investing in during the boom times. 

 

Here, the economic movement is non existent, and it’s not being helped by taxes and levies being jacked up or by the transfer of €77 billion worth of private debts (at a cost of €54 billion) onto the public balance sheet.   

 

Nevertheless, desperate for any good news, there are an awful lot of people here pinning their hopes on our big trading partners being the first to “recover” what everyone seems to believe was lost after the Lehman collapse: that is, the prospect of endless economic growth backed by an endless supply of cheap credit and debt. 

 

Personally, I think too many false hopes are being raised by economists and stockbrokers (who never saw the downside coming) who now believe that once the credit spivot is turned back on, the spending party will resume and the global recession (whatever about our own home grown depression) will be well and truly over. 

 

Sadly, in the same way that a single swallow doesn’t herald the summer, a single stock market rally does not ‘a sustainable recovery make’.  

 

Anyone who thinks the Americans are going to get themselves, let alone the rest of us out of this Great Recession through a ‘jobless recovery’, is delusional: no new jobs means no new corporate earnings, or corporate profits.  No profits; no tax returns. No tax returns…well we know what that means.

 

I could fill this entire magazine with reasons why this recession isn’t over yet, but let us suffice with seven good reasons, all originating in the United States, the world’s biggest economy (for now), biggest debtor nation, and the owner of the biggest money printing press that is missing its ‘Off’ switch: 

 

1) The US Census Bureau has reported that real median income in the US fell by 3.6% in 2008 to $50,303, that a million people lost their employment based health insurance and that a record 39.8 million or 13.2% of the population now live in poverty. Meanwhile, 216,000 people lost their jobs in August and seven million have been made unemployed since the recession began at the end of 2007, raising the official unemployment level to 9.75%. However, the true rate of unemployment is 16% when those people no longer entitled to unemployment benefit or who can only find reduced hours are taken into account, said Atlanta Federal Reserve Bank chief Dennis Lockhart.

 

2) In August of 2009, one in every 357 homes in the US was at some stage of foreclosure. This figure was slightly lower than in July, but still 18% higher than in July 2008. Meanwhile, according to The New York Times, there are currently 2.8 million interest-only mortgages in the US worth $908 billion, of which $71 billion will expire over the next year and will reset at higher monthly repayments. Within another year, another $100 billion will reset higher, “and by the halfway point in 2011, another $400 billion will follow suit.”   Deutsche Bank predicts that 48% of all US mortgages will be in negative equity by 2011. 

 

 

 

3) By September more than 35 million –  one in nine Americans and nearly seven million more than last year - were receiving food stamps. In August, the US Senate passed a new $124 billion agriculture spending bill that will increase the numbers who can receive Federal food stamps aid. Another 12% has been added to the federal school lunch programme and 9% more to the food aid scheme for poor children and pregnant women.

 

4) Like here, consumer spending in the United States experienced a slight, seasonal, upward blip in August but it fell by $21.6 billion in July, the biggest fall since 1943 and 430% greater than the expected $4 billion retrenchment predicted by government economists.  Consumer spending accounts for 70% of US gross domestic product and is now 33% down from the summer of 2008.  The US consumer, who is now reducing debt by a cumulative 10% per annum, still has an estimated $26 trillion worth of outstanding personal debt to repay.  

 

5) Meanwhile, savings are on the rise, from a negative rate in 2007 to over 5% today.  But every 5% of income saved means $500 billion less being spent in the American economy (or on exports). Analysts say the savings rate could rise to nearly 10%. 

 

6) This year, the US budget deficit will reach $1.8 trillion or 13% of US GDP, according to the US Treasury. The previous largest peacetime deficit, in 1920, was 6%. The Obama administration expects the cumulative deficit to reach a whopping $9 trillion within 10 years. At time of writing the total current US national debt was $11.7 trillion, up from $9 trillion when George Bush left office and from c$5.6 trillion when Bill Clinton departed  (after balancing the federal budget.)  Is it any wonder the US government is desperately trying to inflate away their debts by devaluing the dollar?

 

7) In July, Neil Barofsky, the special inspector-general for the Troubled Asset Relief Program (TARP), said that the US Treasury's bailout program of the financial services sector could end up costing $23.7 trillion, reported the Bloomberg news agency. The programme, a sort of gargantuan Nama, was fraught with "conflicts of interest", “collusion vulnerabilities", and “deliberate obfuscation” of what banks are doing with the money they received from the government, reported the Wall Street Journal.  It is predictions like this that fuel warnings about price hyper-inflation. 

 

And finally, if the Americans are up to their oxters in debt, jobs are still collapsing, and consumers have stopped spending, should we all be turning to the Far East for an oriental knight-in-shining armour to come to our rescue? 

 

It’s a nice thought, but while the Chinese claim their GDP is up over 8% this year, their trade figures have fallen by 22%.  Their biggest western customer – America – can’t afford to buy the same volume of stuff from them and the Obama administration is starting to slap tariffs on Chinese goods like cheap car tyres that they say the Chinese are dumping in US markets at below cost price. The Chinese are threatening retaliation against the US chicken and auto parts export market. 

 

No, this Great Recession has some way to run yet.  Probably until the ordinary Chinese worker, who is a big saver, can be convinced to start spending his hard earned cash, and then when it runs out, to borrow and spend just like we did - before we broke the banks… and the banks broke us all. 

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You and Your Money - October 2009

Posted by Jill Kerby on October 01 2009 @ 22:08

An unwelcome piece of information that the new intake of students in the country’s colleges and universities are stuffing into their backpacks this month along with book lists, lecture notes and the flyers bidding them to join this society or that club, is a notice from their college about the level of fees they can expect to be charged next September/October, 2010.

 

The Department of Education believes it has a legal obligation to warn this year’s college intake that the semi-free ride of the past 14 years has come an end, and that they’ll be paying a market price for their education starting next year. 

 

As I write, the cost of the different degree and diploma courses hasn’t been announced, but it’s been suggested that the average arts graduate will be leaving after three or four years with a diploma and a bill for about €21,000, which they will be expected to start paying back once they find work. 

 

Welcome to the real world, kids. 

 

Actually, compared to the scale of car, credit card and mortgage debt that so many new graduates voluntarily collected soon after securing high paying jobs in banking and finance, IT, engineering and architecture, medicine, law and even the civil service during the heady days of the Celtic Tiger, €21,000 is a pretty tiddling amount. 

 

But it will certainly focus minds – especially parents’ minds if they feel under obligation to help their children meet these costs – on the difficulty of funding this investment, post-Tiger.  It might raise the question of value for money, and even teach their offspring a brutal post-graduate lesson that is never taught in college: how to live within your means.  Or better still, beneath your means. 

 

The great leveller

 

The Great Recession is already turning out to be a great leveller:  like swine flu, it doesn’t discriminate between the educated and the ignorant, though at the moment it’s certainly packing a much bigger punch.

 

The graduate who falls victim to the new fees regime from 2010, and is lucky enough to get a job, will have two automatic repayments to make each month before he can spend another cent – one to the Revenue and the other to their bank. She should expect the former to keep rising and the latter to probably remain the same, though s(he) shouldn’t necessarily count on annual fees forever staying at that level.  The €21,000 that an older brother or sister ended up owing in, say, 2013, might be closer to €25,000, or higher, for the younger sibling by graduation day, 2017.

 

The re-introduction of fees also poses all sorts of familial dilemmas for students and parents. Is that minimum c€21,000 and all the other associated costs going to be worth the sacrifice involved in paying it off? 

 

If you’re a parent, faced with higher taxation, reduced pension provision and fewer, more expensive public services, do you commit yourself to paying all or part or none of the third level bill? Do you support all your children in the same way or just the academically gifted ones?  

 

And If you have no specific job goal at you Leaving Cert, would it make more sense to get into the workforce sooner, earn some money, and literally buy yourself more time to gain some life experience and maturity before you return for a third level education? 

 

 

Decisions, decisions.

 

One father or four or my acquaintance says these questions – and plenty more - are already causing conflict between himself and his wife.  The first born is two years into his BComm and not doing very well.  “He still hasn’t got a clue what he wants to do – aside from playing poker and rugby and spending most of his spare time with his girlfriend.  Just as well there are no fees.” 

 

Of the other three, two are in private secondary and only one “is particularly academic”.  The youngest, nine, “shows some promise, but that’s what we thought of the eldest at his age.”  As a higher earner and therefore disqualifying his children for education grants, he worries about where the money is going to come from; his wife insists they must all have a university education. 

 

And maybe that’s the nub of it:  for many, the children’s education has become,  often unintentionally, a sort of designer label – like the remodelled designer kitchen and the shiny SUV.  If the economic reality of the Great Recession focuses more minds on true value of education – both to deliver a fine academic degree AND a well-rounded individual -  it might not be such a bad thing.  

 

Much as the government would like to see a plethora of IT specialists and chemists and bio-engineers emerging to create the new ‘Smart Economy’, while middle class mammy’s would like their offspring to join the ranks of the professions, maybe what would benefit our children most in an uncertain future, is an investment in an education that prepares them to be the proverbial Jack-of-all-Trades…as well as a Master of One. 

 

Ends 

 

AND HOW MUCH FOR THE SCHOOL OF LIFE?

 

It really is too bad that our children can spend up to 17 or 18 years in formal education (to third level), at an estimated cost of at least €70,000 according to the Bank of Ireland, and still be unable to type, cook, drive, swim, sew, build a fire, grow a vegetable, service a car, sail a boat, catch (scale and filet) a fish, use basic hand tools, perform first aid, speak at least one useful foreign language, balance a chequebook and fill out of a tax form.

 

The modern economic model evolved to the point that specialisation provided the greatest rewards, but that model looks a little cracked these days and there’s a growing body of thought that believes that the target of high monetary reward and job security for as many young people in western economies as possible, might be a lot harder to achieve over the next few decades than it was over the previous ones. 

 

Forking out even a portion of that €21,000 fee/debt on ensuring your less than academically brilliant child how to become self-sufficient might be the best hedged bet for parents and young people. 

 

A lot of this stuff can be learned for free – from other members of the family, friends, work colleagues and business associates (whose children you can mentor); from the public library, Google and YouTube.  Of you can check out your local VEC, community centre and colleges, county training schemes, and of course, Aontas, the national adult learning organisation (see www.aontas.com/about/faqs/providers.html).

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You & Your Money - September 2009

Posted by Jill Kerby on September 01 2009 @ 07:32

An unwelcome piece of information that the new intake of students in the country’s colleges andCollegegraduate universities are stuffing into their backpacks this month along with book lists, lecture notes and the flyers bidding them to join this society or that club, is a notice from their college about the level of fees they can expect to be charged next September/October, 2010. The Department of Education believes it has a legal obligation to warn this year’s college intake that the semi-free ride of the past 14 years has come an end, and that they’ll be paying a market price for their education starting next year.

As I write, the cost of the different degree and diploma courses hasn’t been announced, but it’s been suggested that the average arts graduate will be leaving after three or four years with a diploma and a bill for about €21,000, which they will be expected to start paying back once they find work. Welcome to the real world, kids. Actually, compared to the scale of car, credit card and mortgage debt that so many new graduates voluntarily collected soon after securing high paying jobs in banking and finance, IT, engineering and architecture, medicine, law and even the civil service during the heady days of the Celtic Tiger, €21,000 is a pretty tiddling amount. But it will certainly focus minds – especially parents’ minds if they feel under obligation to help their children meet these costs – on the difficulty of funding this investment, post-Tiger.

It might raise the question of value for money, and even teach their offspring a brutal post-graduate lesson that is never taught in college: how to live within your means. Or better still, beneath your means. The great leveller The Great Recession is already turning out to be a great leveller: like swine flu, it doesn’t discriminate between the educated and the ignorant, though at the moment it’s certainly packing a much bigger punch.

The graduate who falls victim to the new fees regime from 2010, and is lucky enough to get a job, will have two automatic repayments to make each month before he can spend another cent – one to the Revenue and the other to their bank. She should expect the former to keep rising and the latter to probably remain the same, though s(he) shouldn’t necessarily count on annual fees forever staying at that level. The €21,000 that an older brother or sister ended up owing in, say, 2013, might be closer to €25,000, or higher, for the younger sibling by graduation day, 2017. The re-introduction of fees also poses all sorts of familial dilemmas for students and parents. Is that minimum c€21,000 and all the other associated costs going to be worth the sacrifice involved in paying it off?

If you’re a parent, faced with higher taxation, reduced pension provision and fewer, more expensive public services, do you commit yourself to paying all or part or none of the third level bill? Do you support all your children in the same way or just the academically gifted ones? And If you have no specific job goal at you Leaving Cert, would it make more sense to get into the workforce sooner, earn some money, and literally buy yourself more time to gain some life experience and maturity before you return for a third level education? Decisions, decisions. One father or four or my acquaintance says these questions – and plenty more - are already causing conflict between himself and his wife.

The first born is two years into his BComm and not doing very well. “He still hasn’t got a clue what he wants to do – aside from playing poker and rugby and spending most of his spare time with his girlfriend. Just as well there are no fees.” Of the other three, two are in private secondary and only one “is particularly academic”. The youngest, nine, “shows some promise, but that’s what we thought of the eldest at his age.” As a higher earner and therefore disqualifying his children for education grants, he worries about where the money is going to come from; his wife insists they must all have a university education.

And maybe that’s the nub of it: for many, the children’s education has become, often unintentionally, a sort of designer label – like the remodelled designer kitchen and the shiny SUV. If the economic reality of the Great Recession focuses more minds on true value of education – both to deliver a fine academic degree AND a well-rounded individual - it might not be such a bad thing. Much as the government would like to see a plethora of IT specialists and chemists and bio-engineers emerging to create the new ‘Smart Economy’, while middle class mammy’s would like their offspring to join the ranks of the professions, maybe what would benefit our children most in an uncertain future, is an investment in an education that prepares them to be the proverbial Jack-of-all-Trades…as well as a Master of One.

AND HOW MUCH FOR THE SCHOOL OF LIFE?

It really is too bad that our children can spend up to 17 or 18 years in formal education (to third level), at an estimated cost of at least €70,000 according to the Bank of Ireland, and still be unable to type, cook, drive, swim, sew, build a fire, grow a vegetable, service a car, sail a boat, catch (scale and filet) a fish, use basic hand tools, perform first aid, speak at least one useful foreign language, balance a chequebook and fill out of a tax form. The modern economic model evolved to the point that specialisation provided the greatest rewards, but that model looks a little cracked these days and there’s a growing body of thought that believes that the target of high monetary reward and job security for as many young people in western economies as possible, might be a lot harder to achieve over the next few decades than it was over the previous ones.

Forking out even a portion of that €21,000 fee/debt on ensuring your less than academically brilliant child how to become self-sufficient might be the best hedged bet for parents and young people. A lot of this stuff can be learned for free – from other members of the family, friends, work colleagues and business associates (whose children you can mentor); from the public library, Google and YouTube. Of you can check out your local VEC, community centre and colleges, county training schemes, and of course, Aontas, the national adult learning organisation

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You & Your Money – August 2009

Posted by Jill Kerby on August 01 2009 @ 09:10

 

I’m getting a lot of positive mileage from being a Canadian these days.  

I may have lived longer here in Dublin than in my native Montreal, but whenever anyone with whom I am discussing the insolvent condition of our banks, rising unemployment figures or the general economic malaise discovers that I’m a Canadian and not an American, their eyes widen, a smile appears on their face and I get to bask in the compliments showered upon a country that is now hailed as a haven of fiscal virtue. 

Dear, dull Canada – as the US and British media invariably described it – mostly forbade its bankers access to the dubious riches that spewed forth from the sub-prime and credit default markets, and that last year blew up in all our faces. 

Now, dear dull Canada’s (nearly) balanced budget and reduced national debt means that it has one of the last, (just about), solvent banking sectors left standing in the western world. 

I’d like to be able to write that all Canadians are by their nature thrifty and prudent. Maybe the pioneering Scots/Irish and French Canadians were, and the millions of new immigrants it welcomes undoubtedly are, but in reality Canadians seriously overspent during the last decade, though not to the same degree as Americans… or us.  

By early 2008 the Canadian personal income to debt ratio had reached an unprecedented 130%, mostly accounted for by higher mortgages and personal savings rates had fallen to a miniscule 1%. (At one point during our boom, our debt to income ratio was estimated at over 180%.)

The only reason Canadians never proportionately hit our levels of personal debt is because they pay personal income taxes reminiscent of Scandinavia and receive cradle to grave public services.  

The only reason why the five main Canadian banks avoided melt-down is because they were discouraged by strict federal banking regulations from lending money via the toxic sub-prime, credit derivatives model, a model that could only work if the Canadian and global economy remained in a perpetual, credit fuelled bubble.  

Who would have guessed, eh?  A banking system saved by default regulation. 

Even though individual Canadians have succeeded in racking up historic amounts of debt, anyone applying for a mortgage there still had to satisfy strict conditions regarding their income, existing debt and their ability to repay the loan within the agreed time-frame.  A mortgage deposit of between 10% and 20% is not uncommon. 

Hmm.  Sounds familiar.  Rather like Ireland, c1986, when I bought my first home.  

 

                          *                        *                          *

My father, who was not a thrifty Scot or Sri Lankan immigrant, but rather a flaithiulach, second generation Irish Canadian of limited means (who somehow maintained a sterling credit record), only ever gave me a single piece of financial advice:  “Get to know your bank manager.” 

That advice has never been so relevant or so timely, which is why it’s such a shame that there are so few decent bankers worth knowing.   

Our banking model of easy credit, facilitated by poor central bank regulation and incompetent legislators, is broken. The national debt is expanding to keep our insolvent banks on life support and to meet our current spending.  Unable to see the trees for the wood, the government’s decision to borrow and tax its way out of a crisis created by too much overspending and borrowing, is going to prove to be an interminable burden for generations of Irish taxpayers. 

Diverting capital to keep our zombie banks on life support is also certainly going to scupper the plans of legitimate business people and entrepreneurs to expand or build their companies and it will increase the cost for the rest of us to borrow for expensive purchases like a home or costly third level education for our children. 

It’s going to be a hard slog to repair all our balance sheets - personal, corporate and state – but that’s exactly what needs to be done before genuine growth and prosperity returns. 

The Canadian banks and government don’t really deserve all the gushing accolades they’re been getting, but given the state of our lot, it wouldn’t do any harm if they started behaving, well, a little more Canadian…and a bit less Irish. 

 

WE’VE JOINED THE GLOBAL SAVINGS CLUB

The global recession is inspiring a rate of personal saving that hasn’t been seen here for over a decade, and in the case of the United States, not since the 1960s. 

Today, the average American has reversed their negative savings rate – at the height of the US property boom in 2005 it fell to -0.4%, the lowest savings level since 1933; by May US savings amounted to nearly 6% of disposable income. 

Here, it is estimated that the average Irish savings rate will account for as much as 12% of disposable income in 2009, compared to just 4% in 2007.  That new figure is entirely commensurate with the fall – the precipitous fall, say retailers -  of mortgage lending, personal loans and credit card spending and the collapse of consumer confidence.

This year alone, reports the Central Bank, shoppers are spending €200 million a month less using personal credit cards than in 2008, and even business credit card users have cut their spending by about €35 million a month. 

The term ‘average’ is misleading since the savings rate is much higher amongst the over 50s than it is for anyone between 25 and 45, the peak spending years. 

However, the urge to save is a natural one when property prices and pension funds are plummeting and your income is falling from a combination of higher taxes and wage cuts.  

By last June, the average Irish family’s household assets, excluding the value of their home, but including pension funds, shares, deposits and other assets, had fallen from €95,200 at the height of boom in 2007 to just €51,500.  Collectively, the wealth of the nation’s 1.5 households dropped from €117 billion to €81.2 billion. 

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