Ireland after NAMA

Fine Gael’s claim today that that Irish financial institutions may be exposed to up to  €7 billion should Greece default raises an interesting question: which countries have the largest exposure to Greek debt? According to the Bank of International Settlements, exposure to Greek debt is very much a European affair. The Peterson Institute for International Economics report (based on data from the Bank of International Settlements) that French banks —with €60 billion—have the largest exposure to Greek debt, on an ultimate risk basis (mostly through ownership of Greek domestic banks, such as Crédit Agricole’s controlling share of Emporiki Bank), while German banks with a €34 billion exposure are the other principal eurozone creditor.  The potential losses facing the US are significantly less (€13 billion).

Of the other much-maligned “PIIGS”, Portugal and Ireland could also suffer hefty losses in the event of a Greek default: Portuguese banks have €7.5 billion in exposure to Greece, while Irish banks could be sweating over the fate of €6.5 billion. Of course, given the astronomical sums of money we have already poured into our banking system,  €6.5 billion almost sounds “manageable”.

Declan Curran

Private Banking Sector exposure to Greece by country, 2009 Q4

*Luxembourg and Switzerland figures are combined in Table 1 as the $60+ billion exposure of Luxembourg to Greek debt relates to the 2009 Q4 shift of residence of the European Financial Group (EFG) SA, ultimate owner of EFG Eurobank from Switzerland to Luxembourg. Source: ECB, Bank of International Settlements (BIS), estimates calculated by Jacob Funk Kirkegaard for the Peterson Institute for International Economics.

According to NCB Stockbrokers, as reported in the Examiner today, if house prices have continued to drop at the same rate as in 2009 then over 50 percent of all mortgage holders will be in negative equity by June of this year (this assumes that house prices are on average down 45% since the peak).  The same story reports that the ESRI predict that 53% of mortgage holders will be in negative equity if house prices fall by 50%, and that the Bank of Ireland report that 21.5% (40,000) of its residential mortgages are in negative equity, and that the average level of negative equity is presently greater than €50,000.   There’s clearly a significant difference between 21.5% (BoI) and 50% (NCB), and it’s likely that the true number in negative equity is somewhere between the two.

It is also the case that there are significant geographical variations in rates of negative equity for two reasons.  First, rates will vary in line with household growth, with some areas experiencing a large growth in new homes, and hence new mortgages, in the Celtic Tiger years.  For example, there was significant household growth in the commuting counties around Dublin – Meath (69%), Fingal (68%) and Kildare (57%) between 1996-2006, whereas growth in other counties was substantially less, such as Sligo and Monaghan (both 22%). In the high growth counties, a large number of new mortgages would have been in the 2003-2008 period (with house prices in Dec 2009 having fallen to April 2003 prices according to the PTSB/ESRI index).  Second, rates will vary in line with local housing markets.  Daft.ie, for example, report that asking prices have dropped between between 43% (Dublin city centre) and 21% (Limerick) between the peak of the market and Dec 2009, with more people in negative equity in those areas with the highest price drops.  It seems likely then that negative equity is likely to affect more people, with the size of the equity gap also larger, in the commuting belt around Dublin than in other places across the country.  What that means is that the consequences of negative equity, in terms of ability to move homes and consumer confidence, also varies geographically and may have additional effects on local trade.

Rob Kitchin

“In fact, I’d say the real war was a war over swibbles.  I mean it was the last war.  It was the war between people who wanted swibbles and those who didn’t… Needless to say, we won” (Philip K. Dick, ‘Service Call’ 1955).

In Philip K. Dick’s short story ‘Service Call’ the world is (about to become) policed by biological telepathic organisms encased in mechanical housing.  These entities called ‘swibbles’ were developed and sold as a way of stopping conflict ensuing from ideological differences.  When a swibble comes across an individual that holds an ideological perspective different from the mainstream they are literally ingested by the machine.

'Service Call' by Philip K Dick available in Volume 4 of the Collected Stories (Gollancz)

Therefore people install swibbles in their homes to monitor their thought process and ensure they do not stray from the established ideology, a way of demonstrating their adherence to the hegemony.  As the swibble repairman in the story proudly proclaims:

“There won’t be any more conflicts, because we don’t have any more contrary ideologies.  It doesn’t really matter what ideology we have; it isn’t important whether it’s Communism or Free Enterprise or Socialism or Fascism or Slavery.  What’s important is that every one of us agrees completely; that we’re all absolutely loyal.  And as long as we have our swibbles… You know the sense of security and satisfaction in being certain that your ideology is exactly congruent with that of everyone else in the world.  There’s no possibility, no chance whatsoever that you’ll go astray – and some passing swibble will feed on you”

Dick’s story offers a science fiction metaphor for what Foucault terms the practice of ‘Governmentality’.  Governmentality accounts for the range of practices and discourses that are encompassed within the apparatus of the state.  Part of this process involves the construction and prescription of ‘truth’ which are produced through tactics of governing, and reproduce systems of power.  Foucault argues that the emergence of modern government has resulted “…on the one hand, in the formation of a whole series of specific governmental apparatuses, and, on the other, in the development of a whole complex of knowledges [savoirs]”.  (more…)

The Sunday Independent reported yesterday that deals struck with developers at the height of the housing boom could bankrupt county councils.  The example they give is of Dun Laoghaire-Rathdown who signed up for 63 ‘affordable’ units and 80 ‘social’ units on the old Dun Laoghaire Golf Club site for a cost of €35.6m.  The Council already has €27.5m of affordable and social units purchased at the height of the boom.  Assuming that the social housing will get used for that purpose, rather than being sold-on, it seems as if the council is the owner of c.€25-30m of ‘affordable’ property that it is presently unable to sell-on because its purchase/sale price is more than its present value.  Clearly potential purchasers do not see the properties as either affordable or a sound investment given present market conditions. (more…)

Gillian Tett, in her book on the global financial crisis entitled “Fool’s Gold”, points to the concept of a social silence (a concept outlined by French anthropologist/sociologist Pierre Bourdieu in his work Outline of a Theory in Practice) as a possible factor in facilitating and perpetuating the global credit boom that eventually burst with the collapse of Lehman Brothers in September 2008. Bourdieu’s social silence, as Tett explains, allows an elite group to control society not just by controlling the physical means of production but also by influencing the cultural discourse. Crucially, influencing the way society talks about itself also influences what is left unsaid – i.e. that which is regarded as impolite, taboo, boring, or taken for granted. Such silences can arise through overt strategies, but often come about less deliberately through social conformity or shared ideology and assumptions. According to  Bourdieu, all that is required for the ideology to establish itself in this way is a complicit silence. Tett speculates that such a social silence may have been pivotal in the general acceptance of the idea that financial markets could regulate themselves. What is more, the opacity that surrounded seemingly sophisticated financial instruments, deterred non-specialists from gaining a fuller understanding of the workings of the financial markets and created a self-contained silo of financial activity and knowledge that only financial experts could penetrate.

To what extent could this idea of a social silence explain the perpetuation of the Irish property bubble and reckless banking  practices of the late 1990s and early 2000s? After all, there does seem to be a general feeling of “we all saw it coming” yet only a handful of commentators warned of the dangers (and they were roundly dismissed as “talking down the economy”). Of course the social silence analogies don’t stop there: it could also be argued that, in the subsequent bust, the quality of debate over the Irish bank guarantee of October 2008, the implementation of NAMA, the capital injections into our ailing banks, whether or not to wind up Anglo Irish, and the risk of an Irish sovereign default has been anaemic at best, with only pockets of academics and media commentators really grappling with the details of these policies (in part, as illustrated by the difficulty in assessing the cost of winding up Anglo Irish bank,  due to a lack of full information).

So, are we trapped in an Irish social silence? And if so, how do we turn up the volume?

Declan Curran

After much debate in recent months on the levels of housing vacancies and ghost estates across the country it now seems that an official inspection to document the true scale of the issue is underway.

 Minister for State for Planning Ciaran Cuffe will tell planners at the Irish Planning Institute’s annual conference in Tullamore today that NAMA is to establish a committee to examine what should be done with “ghost” estate housing. A new initiative has also been set up within the Department of the Environment to document the condition of all housing estates across the country. According to Mr Cuffe this will include a detailed inventory of the overall number of housing developments, completed and occupied developments, units ready for sale, units near completion, units at specific earlier stages of construction, and units not started at all. It is hoped that this process will be completed by the end of the summer.

All going well, we will finally have a true picture of the level and state of the over-development throughout the country. This should then provide NAMA, the Department of the Environment, Local Authorities and all other interested housing bodies with an accurate evidence based platform from where a forward planning process can begin.

See today’s Irish Times for more.

Am I alone in feeling puzzled as to why revelations about the scale of our banking crisis seem to be followed so swiftly by outpourings of rancour towards the public service?  (The chart shows how interest in the public sector, measured by number of web searches from Ireland, surged after the first anouncement of the bank guarantee scheme in September 2008, and again after the publication of the NAMA legislation in September 2009.  The current surge, following the fallout from Minister Lenihan’s speech and the conclusion of talks on the proposed public sector agreement on March 30^th is too recent to appear clearly on the chart). After all, there is no direct connection between the financial burden that the failings of bankers have imposed on the state on one hand, and the perceived failings of public servants on the other.  There is, of course, a fiscal connection: the property bubble that fed reckless behaviour in the banking system also promoted (through its accompanying stamp duty receipts) the political fantasy that it was possible to increase spending on public services and reduce taxes at the same time.  But it is unclear why this mismanagement of the economy should have resulted in such extraordinary levels of hostility to the public sector as a whole.

The argument in favour of urgently addressing the ‘structural deficit’ created by the collapse of the property market through dramatic cuts to public expenditure – even as the state makes almost unimaginably high financial commitments to the banking sector – appears to centre on the reaction of the notorious ‘bond markets’ which, we are told, will punish us if we don’t mutilate our society in this way.  I am unqualified to comment on the merits of this argument – although Michael Taft has an amusing commentary on it over on progressive-economy.  But even assuming that the argument is correct, and that we have no choice but to reduce our public services and lower the standard of living and working conditions of our public servants, why should the process be accompanied by such bile?

There are two kinds of explanations discernible in public discourse.  One is that there has been a spontaneous upsurge of mass anger at the extravagant terms and conditions prevailing in an inefficient and ‘bloated’ public sector.  But there are reasons to be more than a little suspicious about this.  The hostility has come in surges marked by subtle but interesting changes in the terms of the debate – from a focus on the supposed ‘pay premium’ to one on the security of tenure enjoyed by (some) public servants and on our ‘gold-plated’ pensions.  The argument about pay differentials appears to have lost some energy in the face of unarguably severe reductions in pay, and also, I suspect in the context of the reversals of pay cuts to senior civil servants, and of pay increases at NAMA and Anglo-Irish Bank.  Furthermore, research showing that pay differentials between public and private employees were greatest at the lower end of the income scale must have increased the risk that people might begin to think unacceptably bad terms and conditions in segments of the private sector formed at least part of the problem.   The current hyperbole surrounding job security and pensions will likely diminish in the face of similar ‘real world’ insights.  It will dawn on us that not all employees in the public sector enjoy permanent positions.  We will remember that security of tenure is indeed one of the reasons why, historically, so many Irish families encouraged their children (daughters in particular) to enter the public service – but that these are our relatives, friends and neighbours.  And anyone who takes a deep breath and thinks calmly for a moment will realize that the absence of pensions in the private sector is the real pension problem faced by the country.

So what other explanation is there for the waves of public sector bashing?  Members of the union leadership have suggested that anti-public sector hysteria has been cynically orchestrated.  They have argued – as Jack O’Connor did on Monday’s ‘The Frontline’ – that the underlying motivation has been to reduce pay across the board, in the private as well as the public sector.  A venerable strand of labour market theory in sociology suggests that employer groups are better able to foment divisions amongst employees when the workforce is ‘split’ across ascriptive social categories like race and ethnicity.  So what, if anything, makes the public/private divide in Ireland so amenable to this kind of manipulation?  The recent growth in public sector occupations has largely taken the form of an increase in professional female occupations.  The numbers of people employed in public administration, education and health grew by about 180 thousand between 1998 and 2007, but fully 130 thousand of those people were women working in education and health. (The data are derived from Table 1.2 in a report by the ESRI to the Equality Authority. Women comprise the great majority of public sector employees (about 70 percent in 2007 if we treat those three sectors as a rough approximation; 64 per cent in 2006 according to an analysis of the National Employment Survey).  Correspondingly, the public sector accounts for a substantial proportion of all female jobs (about a third in 2007).  In this context, a comment reported from one of the recent teachers’ conferences  – “We are not overpaid babysitters” – is telling.  I believe that when the history of the present moment is written, the anger directed at the public sector will be understood as part of a wider pattern of social contention surrounding the transformation of social care and education from a vocation – associated mainly with religious organizations and with women whose primary role was perceived to be that of unpaid worker in the home – to a set of modern professional services.

There is more to it, of course.  The cynical amongst us will think it rather convenient that the public should be so distracted when vast public resources are being transferred to zombie banks and ghost developments.  And it must be acknowledged that some commentators are sincere in their belief that the private sector is always and everywhere superior to the public sector, even though their unwavering faith in this dogma seems extraordinary in the face of the global financial crisis.  But it is no coincidence that, over the coming weeks, so much will depend on the votes of teachers and nurses.

Jane Gray

Brendan McDonagh of NAMA was before the Oireachtas Joint Committee on Finance and Public Service today answering questions about how the agency will function.  He reiterated a previous statement detailed in the Independent a few weeks ago (which reported that there are €21b of work-in-progress assets), that NAMA will almost certainly knock down developments that stand little chance of providing a return on the investment of completion, stating, ‘the agency would take a ‘strictly commercial view’ of unfinished building projects, and would not give funding to complete them for the sake of it.’

The agency is almost certainly talking about under-construction projects, in the first instance, where entropy has already gone too far (e.g., unsealed woodframe dwellings) or where the estates or other infrastructure, such as shopping centres or industrial units, are in marginal locations in which there is already large oversupply and shrinking/limited demand.  For projects that are complete and sealed, one presumes that NAMA is going to sit on the properties, provide basic maintenance, and see what happens with the market.  If after 6 or 7 years from completion the market is flat, and there is little prospect of selling on, or the properties have deteriorated to such an extent that they would require major restoration work, they might be knocked.  More likely perhaps is the firesale route as the costs of demolition and reverting land back to agricultural use are not trivial.

Of course, McDonagh is talking about assets heading to NAMA.  What will happen with abandoned, under-construction estates not destined for NAMA or one-off housing, is not clear; but one presumes that, if they are not sold, they will be abandoned to become the next generation of such properties that already litter the Irish landscape as no-one will want to foot the bill for their demolition.  The Irish landscape has often been described as a pamilpsest, with layers of culture and meaning inscribed on it which can be read to provide an interpretation of the life and times of a place.  One gets the distinct impression that the recent follies of Irish housing development and banking will be long visible in the landscape for future generations, who will no doubt still be paying for it (financially, socially and environmentally).

For a longer, more detailed post on what was said at the Oireachtas hearing, see Namawinelake’s analysis.

Rob Kitchin

Re-evaluating Public Space

Throughout the boom years, the redevelopment of urban public space in Dublin took on a very particular image. Through the influence of cities such as Barcelona, this included wide-scale physical improvements to the pedestrian environment of the city (eg, Meeting House Square, Wolfetone Square, The Boardwalk and O’Connell Street). There was also a direct association with investing in public space and the attraction of further investment into an area. This was highlighted in the example of Smithfield, where the regeneration of the public space, which was part of the Historic Area Rejuvenation Project (HARP), was followed by the development of the west side of the square. There are a number of aspects to the redevelopment of Smithfield. First, it was to act as a focal-point in the area, with a mix of residential, commercial, and cultural functions, such as the Lighthouse cinema. Secondly, it was to be a central events space for the city, which, for example, has included Smithfield on Ice and the celebrations of the Chinese New Year. Other events have included the already established horse fair, and, more recently, a market (there is a lot more to be said on these topics which I do not have space to go into here). Outside its use for events, the everyday use of Smithfield is influenced by both the surrounding land-use and a wide variety of other uses which occur in public spaces. More particularly, however, at ground level it was envisioned that commercial uses would directly influence the use of the public space.

Wolfe Tone Square. Photo by Philip Lawton 2010

Smithfield Square. Photo by Philip Lawton, 2010

While activities such as retailing, bars, coffee shops and restaurants can, and often do, animate a public area, there are also possible down-sides to their being a central element of land-use surrounding a public space. The first of these is the degree to which private uses can dominate public space. The evolution of Temple Bar Square in recent years provides an illustrative example of this tendency, with the increase in tables and chairs from surrounding cafes and restaurants becoming the  prevelant function of the public space. This is not to say that all public spaces have become dominated by such functions. To say so would be to exaggerate the situation. However, the second down-side to the reliance on commercial functions in the development of public space, which is currently illustrated by the vacant units in Smithfield, is that private investment may not materialise over a prolonged period of time.

Temple Bar Square, 2007. Photo by Philip Lawton

Paddy Power Bookmakers amongst vacant units on Smithfield Square, 2010. Photo by Philip Lawton

With direct reference to the above factors, it is currently possible to take the time to think of alternative ways in which new urban public spaces can be developed within urban areas in the future (Here I am referring to small-scale spaces as opposed to larger parks). To this end, the redevelopment of Peckham Square in South London from the 1990s up until today presents a useful case-study. In the context of the regeneration of the area, Southwark Council invested in the construction of a public square which was surrounded by public buildings: Peckham Arch, Peckham Pulse leisure centre and Peckham Library (Currently, an arts centre called Peckham Space is being added to the square). Through research that I carried out on Peckham Square in 2005 (Including interviews with planners and architects as well as users of the square), the benefits of having such a space became apparent. The bringing together of the library, which also acts as a ‘one stop shop’ for information on Southwark Council, the multi-functional arch, and the leisure centre form a central point for people living in Peckham. The space provides an informal area to meet others between home and the shopping district, as well as providing an area for hosting locally organised activities, such as festivals. Thus, Peckham Square can be seen as a focal point in community life in Peckham.

Peckham Square, London, 2005. Photo by Philip Lawton

Peckham Square, London during the 'I Love Peckham' festival, 2005. Photo by Philip Lawton

This is not an attempt to look at public space through rose-tinted glasses, as it is in these spaces that conflicts of interests between different groups and individuals often emerge. It is however, important to think of ways in which we can develop public spaces in the coming years in a way that is primarily orientated towards public functions and uses. While surrounding land-use does not, nor should it, wholly dictate the use of a public space, it is evident that there is a clear relationship between the two. The example of Peckham Square illustrates how this relationship can reinforce a sense of belonging and public ownership amongst different groups and individuals. Perhaps in the long-term the development of public spaces on this basis could be one form of social benefit to emerge from a small portion of the land that comes under the control of NAMA.

Philip Lawton

An interesting article in today’s Examiner looking at the issue of unfinished estates, developers and bonds, and the plight of those seeking to get estates completed to an acceptable standard.  See here.  The Examiner received information from 28 county councils concerning the taking-in of estates by local authorities, wherein they take over the control and maintenance of ‘public roads and footpaths, public lighting, fire hydrants, water mains, treatment plants, public open spaces and playgrounds.’  There is little point re-iterating the article, which does a good job of explaining the main issues.  The following, however, caught our eye: ‘Co Roscommon puts at 86 its number of unfinished estates. Cavan has 55.’   (more…)