I recall that an actuary once calculated that the capital value of the extremely generous pension benefits that Bertie Ahern was entitled to was €7 million.  The figure was particularly relevant at the time because the Government has just introduced a cap of €5 million for the private sector as the maximum value that could be funded out of tax-relieved contributions.  So that’s one law for the super-rich Bertie, a different law for the merely adequately rich private sector punter.

People who work in the public sector don’t seem to understand the huge capital value attaching to an index-linked defined-benefit pension, and the impact on that capital value of moving retirement age down even a few years.  I suspect this ignorance was a factor in the Richie Boucher pension fiasco recently: Finance Minister Lenihan signed off on a deal allowing Boucher to retire at 55, never dreaming that the real financial impact of this was €1.5 million.  Our leader (sic) Brian Cowen compounded matters by trying to deceive the Dáil and the public about what was really happening in the Boucher pension saga.

Same with the Roddy Molloy pension enhancement.  Molloy resigned from Fás after Tánaiste Mary Coughlan sweetened the exit package by adding five years to his pensionable service, and this outrageous gift was rubber stamped by Finance Minister Brian Lenihan.  All hell broke loose (and rightly so) when it transpired that the value of this gift to the disgraced Molloy was €1.4 million.  

Politicians just don’t seem to understand what the real cost of public sector pensions is.  But not only politicians; almost all public sector employees are blissfully unaware of what a pot of gold awaits them. 

I suggest that every public servant should be given an annual statement showing (a) the projected actuarial value of his/her accrued pension at normal retirement date, as a capital sum, together with (b) a statement of the effective contribution rate needed to generate that capital sum, as a percentage of salary.  This would show just how valuable their pension benefits really are compared to the modest contribution they are asked to make, and might help get their thinking straight.

I would go further: all politicians’ pensions should be put onto a defined contribution basis immediately, with (say) a contribution of no more than 10% of salary made annually.  Maybe then they would have a bit more empathy with private sector workers, and would be more careful in signing off on pension increments to rich bankers and dodgy semi-state directors.

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Quote of the Year

25 April, 2010

Miriam Lord had a piece on Saturday in the Irish Times which is partly funny, partly tragic, and wholly revealing about the disfunctional nature of our electoral system.

The new clocking-in regime for TDs and Senators has been causing great angst for many in Leinster House, but a new twist in the saga has left critics of the system absolutely seething.    On Thursday, they got a letter informing them that request number 403 under the Freedom of Information Act has been granted to an unnamed petitioner. The information sought is to be released on April 30th.    The request is for the attendance records of TDs and Senators during the first two weeks of the new system, overall figures relating to the attendance and non-attendance for TDs and Senators in that period and a breakdown of who was, and was not, in attendance.

“This fobbing thing is causing blue murder,” a rural deputy tells us, referring to the small device they must use to register attendance…. “Nobody envisaged this happening, but now that our attendance is computerised it’s going to provide a whole new area for journalists to examine. It’s pure daft – how will anyone get re-elected if they have to spend so much time above in Leinster House? They won’t be able to get away for as much as a dog-fight or a funeral.”

There you have it.   In 30-odd words, this anonymous rural deputy has unwittingly told a profound and depressing truth about how TDs get elected.  Forget about Leinster House, forget about intelligent debate in the Dáil chamber, forget about valuable legislative and committee work.  To get elected you have to be seen at every dog-fight and funeral in your constituency.

You also, incidentally, have to spend almost all your time getting two types of things done for your constituents: (a) things they are entitled to, and for which an appropriate system is in place at great taxpayer expense,  but for which they are too lazy or corrupt to wait their turn in the queue; and (b) things they aren’t entitled to, but want you to bend or break the rules to ensure that they get them anyway, usually at the expense of more deserving cases.

Electoral reform can’t come too soon.

I have already noted that Minister for Finance Brian Lenihan, at the time of the banking crisis in 2008, leading up to the now notorious Government guarantee, was still devoting a very large amount of time to constituency clinics, and to local dinners and other functions.  Could he not have given full priority to the complexities of his brief at that vital and dangerous time?  If ever there was a time when one’s own re-election should have been subordinated to the national interest, this was it.  We will never know if it would have made a difference, but when the stakes are so high, he should not have taken a chance.

OK, so I’m not a professional economist, or a qualified lawyer, but fools rush in …..

Firstly, do the EU Treaties, and Article 125 in particular, really prevent a bailout of Greece, as we see/hear said frequently?  I don’t think so, but it depends what you mean by bailout.

Article 125 of the TFEU (post-Lisbon Treaty) states: “The Union shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project. A Member State shall not be liable for or assume …… etc etc”.

So, despite what some commentators have said, there is no prohibition on lending money to Greece; what can’t happen is for the EU or any Member State to take over its loans, or give it “free money”  And I would think that, as long as the interest rate charged is not unreasonably low, there would be no problem.

Secondly, almost regardless of what interest rate the Eurozone members charge Greece , I expect to see a challenge brought in the German Constitutional Court to the German participation in the loan facility.  I have already commented on that Court’s robust attitude to all EU matters, and the way it jealously guards what it considers is its ultimate right to decide if Union activities are ultra viressee this post

In a famous case in 1993, a Eurosceptic member of the FDP Liberal party took the Maastricht treaty to the German Constitutional Court in Karlsruhe, claiming that the abolition of the deutsche mark (as part of the creation of the Euro)  was unconstitutional. The court only agreed to permit the ratification of the treaty by Germany on the basis that currency stability would be as well protected by the European Central Bank as it had been by the Bundesbank.  There has, in effect, been a threat hanging over the ECB and the Eurosystem that at any time the good judges in Karlsruhe might seek to trump their actions; this would bring to a head the unresolved issue (at least in the minds of the German judges) as to who, in law, gets to make the final determination as to whether an action of the EU is ultra vires, and goes beyond the legal authority conferred by Member States in the various EU treaties.

Thirdly, a question: why is the Euro being hit so badly by the fiscal woes of Greece and other delinquent states, when the value of the dollar is apparently not affected by the budget deficit and debt problems being experienced by (for instance) California?

Fourthly, if Greece defaults (and some observers believe this is very likely), might the resulting grief suffered by that country’s citizens be a help to the Irish government in its battle with our public service unions?  Maybe Greece needs to be the sacrificial victim, pour encourager les autres?

Fintan O’Toole wrote an opinion piece earlier this week in the Irish Times called “Bailout has turned us from citizens into serfs”.  As usual, it’s an interesting and extremely well-written article.  However, I’m again compelled to wish that O’Toole would stick to subjects in which he has some competence.  He tells us:

There are 1.9 million people at work in the Irish economy. Their average earnings last year were €36,300. After tax, that’s €29,500 each. From this, each one will stump up an average of €4,600 just to pay the interest on the money the State is borrowing to fund the bank bailout…..Or, to put it another way, everyone lucky enough to have a job in Ireland over the next 10 years will be working most of one day a week to pay for Seanie, Fingers and the lads.

The numbers here are ludicrous.  Where are the editors and fact-checkers? Assuming an interest rate of 6%, O’Toole would have us believe that the State is borrowing €145 billion to fund the bailout!  In fact the real net cost will be a small fraction of that (and the government will argue that the cost is in any event smaller than what it would ultimately have cost us all if they had let the banks collapse).

He bases his numbers on this blog posting.  At least the author of that blog is careful to advise as follows:

In fairness, it’s not clear that we have enough information to know that yet. If the banks raise their own capital we won’t need to borrow as much. Also, if we part-recapitalise the banks out of the National Pension Reserve Fund (which is what we did before) we will borrow less again.

And, more importantly, everybody seems to be forgetting the enormous value to the taxpayer of owning big percentages of BOI and AIB.  These organisations (unlike Anglo-Irish and Irish Nationwide, I fear)  will quite quickly return to profitability, and the government stakes will be worth billions.

The Irish Times wouldn’t habitually commission an economist or an accountant to write controversial articles on, say, theatre or art, where these are outside their sphere of competence.  So why does it regularly publish economically illiterate articles on finance matters, written by a social and arts commentator, however brilliant he may be in those fields?

It’s well known that the presence on the board of the Dublin Docklands Development Authority (DDDA) of Anglo Irish Bank chairman Sean FitzPatrick, together with Anglo director Lar Bradshaw, was influential in the DDDA’s disastrous course of action in becoming a property speculator.

As long ago as 2004, independent TD Tony Gregory raised concerns about a conflict of interest between members of the DDDA and Anglo Irish Bank.  The then environment minister Dick Roche gave assurances that no conflict of interest could arise (!)  Subsequently, Fine Gael environment spokesman Phil Hogan claimed in the Dáil that the DDDA was “run like a downtown branch office of Anglo Irish Bank”.

A key factor in the story of the DDDA and Anglo is the ability of the former to grant planning permission to proposed developments in its area of influence, without the normal checks and balances of the mainstream planning system. And guess what?  If you were a developer with a project which needed planning approval from the DDDA, and you had carelessly obtained finance from a bank or banks other than Anglo-Irish,  you might find yourself confronting various delays and obstacles in obtaining said permission.  Or you might find that inspections of your development for compliance with the planning permission were surprisingly scrupulous.

Yes, truly the poisonous tentacles (or testicles, per Bertie Ahern) of Anglo-Irish Bank extended almost everywhere in Irish corporate life.  We can look forward to years of additional revelations as the scandalous goings-on are gradually revealed.  The inevitable collapse of the current government will lead to an even greater flow of such revelations, as key files are opened to scrutiny by Fine Gael and Labour, and those with stories to tell lose their fear of retribution for breaking omertà.

I was listening to Myles Dungan yesterday morning, on RTE Radio 1 .  As usual, a panel was discussing the state of the nation, and socialist MEP Joe Higgins was one of the talking heads.  Higgins said that the media must take part of blame for our financial mess – and he cited the Irish Independent and Irish Times property supplements as being particularly guilty for promoting the bubble.  A fair point, I suppose.

However, just because there is an element of truth in many of Higgins’ utterances doesn’t remove my surprise that he continues to be invited to propogate his extreme, outdated, and generally outlandish views in the media. 

Whatever about RTE, I’m always amazed at the relentless exposure he gets from other stations and from newspapers.  Cop yourselves on, chaps.  You will be the first to bite the dust if Higgins and his pals ever get their not-so-horny hands on the levers of power.

Remember that Saint Joe, with his comic-book view of economics and politics, believes that the State should control the mass media.  In one of my very first posts on this blog,  I reproduced a quote from him about what would happen in his Stalinist nirvana:

The whole media apparatus would be taken into public ownership, with access for all shades of opinion and society, since ‘a press that is owned by a corporate elite is not a free press’ ”

Why is Higgins never challenged on this scary policy?  He should be held to the same standard as the rest of us, and made to spell out exactly how his policies would be implemented if he were in power.  He seems to benefit from some variant of a fool’s pardon, just because he has a few good Dáil performances behind him, and because we are all sickened at the unholy shambles that Fianna Fáil incompetence and corruption has produced.