People always make money in times of crisis. Some of the world’s most lasting fortunes have been accrued during recessions, depressions and even wars. It is just the way of things. We have seen it again in recent years in Ireland.
Just as international hedge funds profited by shorting our banks as the crisis escalated, a small number of global investment titans will, without doubt, make colossal fortunes acquiring distressed assets from those broken banks at knockdown prices.
The world of international finance which helped create the Irish bubble, has in turn profited from our country’s collapse and its recovery. When money is lost, it is also won. It is, after all, just the way of things.
Yet, the real issue is not with the people who have bought Ireland. Instead, it is with the people who have sold it. After all, it is the job of business to deliver profits and shareholder return. It is the job of government to regulate, to tax and to protect citizens. Somehow, Ireland’s policymakers managed to sell vast swathes of the country to a handful of vulture funds in a manner that left them broadly unregulated and largely untaxed. Should this be the way of things?
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For a number of months earlier this year, I worked on a television documentary on the flight of speculative capital into post-crash Ireland. The programme, The Great Irish Sell Off, was broadcast again last night. The response has surprised me. The production team has been contacted by an army of individuals whose loans – both personal and business debts – have been sold to vulture funds. Many had harrowing stories, and had, until the programme was broadcast, felt that they were alone.
But beyond the people directly involved, it has also led to broader debate about public policy. People are now discussing why so much was sold so quickly, and why so little tax has been paid on the upside. They are also asking if there was an alternative or another way.
The government has long maintained that there was not, and that offloading the toxic debts from the national balance sheet allowed bond yields to fall and Ireland to exit the bailout successfully. They also argue, not unreasonably, that the policy prescription was imposed by the troika.
Yet, in reality, the government made two key decisions that dramatically escalated the disposal strategy. The first was in early 2013, when the government liquidated the IBRC, the bank established to clean up the carcass of Anglo Irish Bank and Irish Nationwide Building Society.
This allowed the government to eradicate the dreaded promissory notes, but it also meant that €21.7 billion of assets would be auctioned off within a matter of months. When the bank was liquidated, the government thought as little as 10 per cent of this would be snapped up by cash rich international buyers.
In the end, they bought all but 10 per cent. The success owes much to the ingenuity of the special liquidators KPMG, but also showed the wall of money that was interested in Ireland – at a low price.
The second decision came later that year when Michael Noonan, the finance minister, asked Nama to examine fast-tracking its asset disposal timeline. The move came just months after vulture fund Lone Star cornered Noonan at the World Economic Forum in Davos and asked to buy all of Nama outright.
Noonan said no, but it planted a seed. A formal decision was made the following year when it was agreed Nama would offload much of its remaining loan book by the close of 2016, four years ahead of the original timeline. Again, this decision brought billions of euro in distressed debt to the market.
The government was conscious that other countries such as Spain would also try to sell toxic assets, and it wanted to capture as much of the foreign capital before it was lured elsewhere.
The strategy, however, also allowed Noonan and Fine Gael to tick some political boxes, and claim credit for shutting Anglo and calling time on Nama.
But those decisions had massive consequences and we are seeing this now. For a start, the expedited nature of the sales process meant that Nama, and to a lesser extent IBRC, has been forced to sell multibillion portfolios rather than smaller debt bundles. This limited the number of potential buyers to a handful of massive funds such as Lone Star, CarVal, Cerberus and Goldman Sachs.
It also meant that we were left unprepared for the arrival of such funds. This has been seen numerous times, and on each occasion, the government has been left playing catch-up. First, we saw the fact that many of the buyers of mortgages were unregulated and outside the scope of the Central Bank. Many have signed up to a code of conduct, while intermediaries are now regulated. The owners of the mortgages, however, remain unregulated.
Second, we saw it in the case of Tyrrelstown, whereby a deal between the developer of an estate and Goldman Sachs resulted in eviction letters sent to 40 tenants. This exposed Ireland’s lack of rental security.
We have also seen it in terms of tax. As our programme revealed, 25 subsidiaries of vulture funds paid less than €18,000 in tax on assets of close to €20 billion, with an estimated loss to the exchequer of €700 million.
Vulture funds were ready for Ireland. Yet Ireland, despite courting them heavily, was not prepared for vulture funds.
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This is not a debate about sovereignty in a “who really owns Ireland” manner. Yes, it is about where the profits go, what these assets are used for, and how these assets are taxed. But ultimately it is a problem we will still be dealing with in 20 years’ time. That is the legacy of bad policy, poor vision – the missed opportunity that led to worse outcomes for our citizens.