end corruption,stroke politics, & incompetent administration

A few nuggets from

Today, Breakfast Roll Man is looking at his ghost estate. Not one sold. The three auctioneers don’t return his calls. Nothing is working

A bewildered Breakfast Roll Man can’t quite believe his eyes. It’s like watching Paul McShane at right full for Ireland; he’s got to pinch himself and ask how it happened. How did the banks pull the rug from under his development in Kells? Two years ago when he paid (admittedly, a fair whack) for the site, they told him they would stand behind him. He remembered that little twerp from the bank’s head office with the shiny suit and buckets of gel in his ‘fin’ haircut.

In ‘fin boy’ strolled to give Breakfast Roll Man the spiel about how the demographics of the country were excellent and how the Irish fundamentals were sound. He laughed as he described County Meath as Ireland’s ‘baby belt’, where young children outnumber the elderly four to one. He chummily patted Breakfast Roll Man’s shoulder and forecast that ‘they’ would be able to sell the houses, no bother.

Even then Breakfast Roll Man was a bit worried about the spec. He’d explicitly chased the market upwards, sparing no expense, with ‘islands’ in the kitchen, expansive decking, hot tubs and second faux-marble bathrooms downstairs.

But the bank assured him that they’d finance the first time buyers — who apparently were getting ‘more demanding’.

There’d be no problem and we’d be out by Christmas 2007, they said. Even if there was a bit of ‘resistance’ as they called it, the bank would roll over interest payments, ‘kick’ out the maturity a few years and wait for the buyers to snap them up.

Sure anyway hadn’t everything worked for him before? He was sorted. Breakfast Roll Man had it all going on.

Today, he’s looking at his ghost estate. Not one sold. The three auctioneers — all of whom told him that they’d sell the houses off plans — don’t return his calls. Nothing is working, not even the idea of paying the first three years’ interest for first time buyers. Prices are dropping like a stone and there is still no floor.

As for the banks, they are squeezing every last penny out of him. Worse still, the personal guarantees — or ‘PGs’ as ‘fin boy’ called them — mean that everything he worked for since 2000 is tied to this field on the N3. His whole world is cross-collateralised.

Back in 2001, he took some politician’s advice and started to shop around. He started dealing with all the banks, thinking he was smart. But the bank’s insistence on personal guarantees meant that everything was now tied up, nothing was his. All his properties were weaved together in a web of debt and he — Breakfast Roll Man — was sitting squarely in the middle, facing bankruptcy.

How did this happen?

Had you told him in 2005 that he’d be facing ruin and his only parachute was to go back to the US to work on jobs in the freezing New York winter, undercutting Hispanic builders, he’d have told you where to go. Back then, during the last years of the Bertie Boom, Breakfast Roll Man was the subbies’ subby. He was employing Polish lads, driving a blacked-out Touareg, flipping apartments in Dunshaughlin and buying off plans in Bulgaria. The only way was up. He had a full Bose ’surround sound’ home entertainment system, Katya, the exotic Czech ‘dancer’ in the master bedroom, a season ticket at Old Trafford in his back pocket and a direct line to bank credit whenever he wanted.

He’d never again work for anyone else. He was free and what’s more, he was the first one in his family to be free. He and his younger brother — a chippy — laughed when they remembered their Dad talking about loyalty. Well check out what loyalty did for him after thirty years at Dunlops in Cork!

Credit and his own hard work had liberated him from the snobby class of bankers, insurance men and doctors who ruled the Ireland of the 1980s. He felt vindicated driving past them in his 06 Jeep, bidding for their houses at auction and eyeing up their daughters at Lillies.

Breakfast Roll Man voted for Bertie. He only got the vote in 1994, just as Bertie was coming to prominence. He benefited from the tax cuts, the builder bias in every Budget and when he started ploughing surplus cash into tax-free car parks no one could argue with him that Bertie wasn’t the man. After all, even Katya — who didn’t say much, between the pouts — claimed that he looked like an honest man in the VIP ‘exclusive’ of ‘Bertie at Home’ that she kept beside the king-sized waterbed.

Bertie had a social contract with Breakfast Roll Man. The Taoiseach did everything he could to keep house prices rising and this gave hundreds of thousands the impression that they were getting rich.

This illusion acted like a prosperous conveyor belt, which we could jump on and in so doing avoid the heavy lifting of hard work. Bertie promised Breakfast Roll Man a get-rich-quick scam and in return Breakfast Roll Man gave Bertie his support and ignored the blatant deficiencies in our public services. All this carry-on on Joe Duffy about class sizes, waiting lists and trolleys on corridors passed him by. The only thing that got him texting was the bleedin’ toll bridge.

He even voted for Bertie last time because although house prices were beginning to wobble, he trusted Bertie to sort things out. As far as Breakfast Roll Man was concerned he voted for Bertie not Fianna Fail. But he realises now he was sold a pup. He doesn’t know what to make of Cowen.

Breakfast Roll Man was never ideological. He knows nothing about the civil war. Sean Lemass might as well have been Brian Boru as far as he is concerned. Wolfe Tone sounds like a children’s Halloween character and his Ma couldn’t stand De Valera. He is now a floating voter, with allegiance to no one.

Whoever wants to win the next election has to get inside Breakfast Roll Man’s head. He wants security, not risk; familiarity not novelty and above all he wants to be given a second chance. Like thousands of others, he deserves it. But who is going to throw him a lifeline? Can you afford to pay for his parachute?

Arguably David's best article.

Developers can’t be allowed to renege on partnership deals 
25 May 2008  By David McWilliams 
Never mind the tent at Galway Races, Cowen needs to deal robustly with builders who mess the state about.

The Taoiseach’s decision to abandon the tent at the Galway Races means he can talk the talk of reforming the way we do our business in this country. That’s the easy part. The hard part is how he reacts to Bernard McNamara’s shock pullout from five public/private house building partnership projects. 

If the developer can walk away, and the state is left to pick up the tab for social housing, the true nature of the sorry Irish story of the past few years will become evident and Cowen’s PR stunt with the Galway Races tent will be shown as nothing more than a hypocritical stroke.
This column has argued for years that much of the boom in Ireland was little more than a scam. Ireland was the victim of a financial coup d’etat whereby a cabal of the banks and developers, with the blessing of the government and cheer-led by various vested interests who were getting their grubby cut, took over our economy.

They colluded in the farce that saw one of the least populated countries in Europe having the highest land prices and, in the process, terrified thousands of young workers into years of indentured commuterism.

In the process, the psychology of the nation was altered, leaving us,140 years after the Land League, back where we started, owned by landlords. In the past ten years, land ownership - rather than enterprise, creativity and most importantly hard work - became the single biggest arbiter of wealth.

This led to a culture of the fast buck, where the ‘flipped’ deal and the easy profit were lauded and difficult things like innovation, service and production were frowned on.

So hotels and other businesses were closed down to make way for the property juggernaut, which was always based on the ‘greater fool’ theory, that there was always a bigger eejit that would buy the assets from you - until we eventually ran out of eejits.

Now that we have run out of eejits, the main players in the coup d’etat are running for cover. The banks won’t lend to their erstwhile stars, the developers, and in turn the developers are reneging on deals they had signed with the state.

Meanwhile, badly-off places like O’Devaney Gardens - which never got a look in - are left carrying the can. This reads like Dickensian fiction, but it is fact. The state can solve this problem. First, it needs to restore the credibility of the entire public private partnership (PPP) approach to public infrastructure.

At the moment, voters would be right to conclude that PPP is too often a one way bet for developers. PPPs seem grand in a boom, but at the first sign of a downturn, are the developers to be allowed to walk away and the taxpayers to be left carrying the can?

Bernard McNamara has argued that planning delays and changes have had a key impact and, of course, that the market has now changed. However, surely these risks should have been assessed when the deal was signed.

For the future of social housing in Ireland, the impression that PPPs are a one-way bet has to change.

Secondly, this government could send a signal that things are different now and that there is a penalty to be paid for messing the state about.

Of the five projects, McNamara had signed contracts on two, while he was the preferred bidder on three others. This is over €800 million-worth of work, which in the current downturn would be welcomed by any developer, provided the terms were workable. It looks unlikely that the McNamara deal can be resurrected, so Dublin City Council should act swiftly and go to the under-bidders with offers immediately.

If they are not prepared, for whatever reason, to move judiciously, Brian Cowen should take charge of this and do it. Obviously, given that apartment prices are dropping precipitously and the PPP was based on using the cash from the sale of private apartments to subsidise public housing, the numbers will have to be reworked. The state will have to accept fewer public houses and more private houses in the schemes. However, this should not be a deal breaker.

No one expects a developer to build and lose money on the project, so both sides might need to lower their expectations. There need not be any panic now, just clear commercial decision making. If McNamara doesn’t want the business, someone else will. Just do it. Get the houses built.

Thirdly, questions are being asked about whether it was wise to give one developer all five contracts. Was this the best way of getting value for the taxpayer?

Junior Cert economics tell us that the state, acting on our behalf, would cut us a better deal by having several contractors competing with each other. The impression that a small number of builders have benefited from state business during the boom is overwhelming. This has to change. There is little point in abandoning the tent at the Galway Races if the philosophy that underpins it remains alive and well.

The fourth issue at stake is Thornton Hall, another multi-million euro state contract to build a new prison. Apparently, McNamara is very close to signing this deal too.

A prison deal is much less risky than a PPP to build social housing, which is dependent on the housing market cycle. In a prison deal, you simply build the prison for the state, get a stream of income and take no risk. This is a no-brainer for a developer.

There is a strong argument that McNamara’s action in the past week, cherry-picking the PPPs he wants, should come into the equation when the government is deciding how to dole out this contract. If you mess with the government - taking projects when they suit you and abandoning them when they don’t - you should pay a penalty.

Cowen is sending clear signals that he wants to break with the recent past. He talks about patriotism and duty, invoking images from the past like that of Sean Lemass (who, by the way, most people under 40 have never heard of). If he is sincere, he needs to stand up and be counted on this McNamara saga and, for once, do the right thing.

Situation unchanged? 2007

Corruption does have victims

September 29th, 2002 , Topics: Uncategorized

The moll, all legs, stilettos and big hair, got out of the Ferrari and demanded a Harvey Wallbanger. The gangster was more subdued, but the mobile hitched to the belt of his Armanis did give him away. “Mr McWilliams, I would like a word,” he said in halting English with a heavy Bulgarian accent. Across the beach, beyond the 1960s style beach tents, the Black Sea stretched for miles. “One million dollars.” He didn’t repeat himself and knocked back his beer.

The blonde at this stage was getting giddy and I was nervous, having just been part of a team that had bought a beach resort for a western bank. Now the local hoodlum, who also happened to be an official in the region (Varna, one of Bulgaria’s finest tourist stretches) was looking for his cut. Corruption is everywhere there. When you come up against it, the first reaction is one of incredulity, followed by anger and resignation.

In our case, it was quickly established that this character was only a small time bluffer who could be seen off quite easily but I have no doubt that somewhere in the legitimate purchase price of the resort was more than a few Bulgarian levs for the local hardchaws.

International corruption indices show that, the poorer the country, the more likely it is to be corrupt. The evidence also reveals that the corruption itself makes countries poor because the dodgy characters drive out the straight businessmen and ultimately, investment and entrepreneurship suffer. The root cause of corruption lies in the delegation of power. Corruption will emerge in any country where the culture allows it, where local councillors or civil servants shrug their shoulders and turn a blind eye. In short, corruption is about bad government. The more licences and regulations, the more likely there is to be corruption. Incentives and opportunities for corruption depend on the size of the rents or the personal profit that the public official can derive from the stroke. Corruption therefore, occurs at those points where political, bureaucratic and economic interests coincide.

A quick trawl around the world indicates that there are three major forms of corruption. There is legislative corruption when politicians betray the electorate by selling their votes to pressure groups; administrative corruption when public officials take payoffs to allow someone to secure a procurement contract or to gain immunity for tax dodging. And there is the blatant Irish-style corruption where a government minister simply trousers the loot in return for a licence or planning permission. Opportunities for misdemeanour exist at every level, from grand corruption in the highest public office, to petty corruption at the lowest rung on the ladder. Our tribunals have thrown up all manner of dodgy dealings from the trivial to the monumental, but at every stage the public suffers.

In the heat of this week’s revelations, it is often forgotten that corruption is not a victimless crime. There are serious costs to an economy and we are all victims. Corrupt politicians are robbing us, plain and simple. The knock-on cost to the economy can be enormous. It is highly likely that emigration and taxes in the 1980s would have been lower, with wages higher and growth more robust had corruption not prevailed.

In addition, it is now also clear that among the social costs of corruption are soulless estates devoid of infrastructure in west and north Dublin. Citizens in socially-deprived areas are the victims and many are still living with the consequences of backhanders. By extension, it is highly likely that car insurance premiums, inflated as a result of joyriding, are related to corruption, as is the public bill for Garda and prison officers’ overtime. We could go on, but the point is simple — corruption has victims.

International evidence also shows a direct correlation between corruption and economic underperformance. A study of developing countries in 1997 (by the World Bank) found that if Egypt were to improve its corruption score from 4 out of 10 to 6 (where 0 means total corruption and 10 means none at all), the rate of investment would increase by 3 per cent and the growth rate would increase by 0.5 per cent. Another study (by the OECD) shows that a worsening of Singapore’s perfect score of 10 to that of Mexico’s 3.25 would have the same negative effect on the economy as raising the tax rate by 21 percentage points.

Corruption also tilts public spending towards projects that make it easier to collect on bribes at the expense of priority programmes. Hence the proliferation of “white elephant” projects in developing countries. Crucially, corruption can lower the quality of public goods and services and even threaten safety. The collapse of buildings in Seoul and the recent earthquakes fatalities in Turkey were partially blamed on substandard contracts and shabby construction.

Corruption also erodes the rule of law. If our politicians are not seen to be clean, then the rest of us will have a perceived reason to defraud the state as well. Thus, generalised tax evasion will thrive. More money will have to be extracted from areas of the tax system where corruption is not possible — such as PAYE workers — to pay for the services that everyone (the corrupt and the non-corrupt) benefit from. Corruption fuels the black market. And in the international context, it distorts programmes to combat poverty, undermining international aid and reconstruction programmes.

In Ireland, we appear to have a strange dichotomy. Most of the international evidence points to the effect of corruption on international investment. In many developing countries the civil service is corrupt and this militates against international investment. In Ireland, the situation appears to be different. The civil service here is by and large clean, smart and very efficient. In fact, many multinationals indicate that the quality of the civil service is one of the positive reasons to chose Ireland over other destinations. Irish corruption exists in the domestic, closed sector of the economy — in construction, planning and government licences. In short, when it comes to backhanders and dodgy envelopes, we are content to leave the foreigners alone, as long as we can rob each other.

Yet the perception of corruption in Ireland is having an effect on investors. Transparency International, the agency that ranks nations according to corruption, reveals that this year Ireland has slipped well down the index. Today in Europe, only Greece, Italy and Portugal are seen as being more corrupt than Ireland. This is a result of the revelations at the various tribunals. Far from this being a cleansing experience, as many would see it, the era of the tribunal is alerting foreigners to a lack of compliance at the highest levels of Irish society, and, according to the international evidence, this scares them.

Arguably more important than the absolute ranking is the direction in which Ireland is moving. Ireland used to be regarded as the 8th least corrupt country in the world; we are now 23rd. This slip has been all the more dramatic because countries with similar income levels have all risen in the ranking.

Ireland is now the only developed country in the world where international investors believe that corruption is getting worse. If we continue on this route, by 2005 we will be down there with the likes of Bulgaria and Romania.

Given the huge competitive pressures we are facing, the rise in the euro, the increase in our wages and the huge efforts the IDA is making to steer the economy onto a higher growth path, we should expect more from the ruling party than obfuscation, cute hoorism and denial.

Corruption hurts all of us. It is not a victimless crime and it is time our leader woke up to this.