independent

Sunday 20 April 2014

Gene Kerrigan: Poor always pay in tale of two Irelands

The Reilly and Hogan fiascos show yet again that the big boys can get off scot free, writes Gene Kerrigan

Maybe I'm just a soft-hearted sucker who can't resist a sob story. Listening to James Reilly, Minister for Health, explain his little spot of bother, I found myself feeling sorry for the guy.

I mean, you can see how it might happen. You're engaged in a bit of the oul' property speculation and the market goes pear-shaped and, well, you know how that goes.

Next thing, you and your mates owe someone almost €2m, you're being hauled into court. Ah, come on, now, says the judge, or words to that effect. Pay up or else. And you don't pay up -- for one reason or another -- and the next thing you know there's a High Court judgement against you and your name's in the papers and -- ah, sure, t'would wring a tear from a stone.

Leave the poor wee man alone, I murmured -- as various characters from Fianna Fail took the high moral ground and began sniping.

(I'll write that again, in case you missed it: various characters from Fianna Fail took the high moral ground. In matters of property and debt and acceptable behaviour, can there be any of us who needs moral instruction from anyone in Fianna Fail?)

Anyway, I caught myself empathising with James Reilly. A bit of property speculation, a bit of debt, a bit of a court judgement, name in Stubbs -- sure, it could happen to anyone.

Except -- no, it couldn't.

What do you make of this other thing, this Phil Hogan thing? I'm not sure what to make of that. Maybe I'm dithering because I haven't noticed the Fianna Fail chaps telling me what to think.

It was in this newspaper's business section last week. Tom Lyons and Daniel McConnell had a story about how Phil's loans from Irish Nationwide were personally approved by Michael "Mickey Fingers" Fingleton, head honcho at Nationwide and major player in setting the tone of Celtic Tiger Ireland.

Seems that Phil bought "a pied-a-terre house in Dublin 4 and a luxurious penthouse in Portugal". The story went on to explain the details of the "soft loans", but I had to take a break and look up pied-a-terre in Wikipedia. A town house, it means, separate from your main residence. Isn't that nice? Good man, Phil.

Phil got a normal mortgage of €330,000 to buy his family home in Kilkenny. Then, another €450,000 to buy the little place in Haddington Square, Dublin 4. That was, it seems, on a 10-year "interest only" mortgage. As was the next €430,000 borrowed from Mickey Fingers, to buy a luxury apartment in Portugal.

So, at the height of the bubble, as a very wealthy doctor, James Reilly built up a significant property portfolio. And, Phil Hogan ended up with property investments worth €1,210,000, personally approved by Mickey Fingers, who had the run of Nationwide. And Mickey's reign might be jaw-dropping, but it was all sanctioned by the wonderful Nationwide board.

What matters most when such stories emerge is what they tell us about the two Irelands. And the revelations of the finances of James and Phil gave us some details of that other smaller, richer, luckier Ireland, where most of us don't live. We learned, for instance, about "interest only" loans, and "soft" loans and "non-recourse" loans.

Let's say I had a dream, and St Teresa told me a horse called Celtic Tiger was a sure thing in the Grand National. So, I borrow €100 from the bank and head off to the bookies.

Suppose the horse collapses halfway down the course. I lose. The bank will demand its €100 back, plus interest, and will if necessary take stern measures to get it.

There are some lucky people, however, who are allowed take out "non-recourse" loans. Suppose they borrow a million to put on the same horse. And it loses. All the bank is entitled to is the losing betting ticket. It has no recourse to the other wealth of the borrower.

This applies to some lucky High Net Worth Individuals who borrow to buy shares or property. If it doesn't work out, you can hand over the worthless shares or the negative equity property -- and walk away.

If you're a normal negative equity mortgage holder, living in the Ireland in which the rest of us live, you could never just hand back the keys. You're pursued for every cent of capital and interest.

As the Lyons/McConnell story put it: "The favourable treatment of special borrowers contrasts with Fingleton's well documented treatment of ordinary people, with the society prepared down the years to chase widows to the Supreme Court and even send one borrower to jail."

In one Ireland, people are squeezed mercilessly by the Government. There's a policy of internal deflation, which requires an increase in unemployment and a decrease in the incomes of those employed, and significant emigration. It leads to a prolonged recession. The major pain is suffered by those on low and medium incomes, who never played the game that caused the collapse. Many had no idea such games existed.

In the other Ireland, the wealthy are slowly sorting out the consequences of their investments. That's what we see James and Phil doing.

Now, when the likes of Nationwide got into trouble, if you or I were asked what should be done, we'd probably have shrugged our shoulders. "Good luck to ye, but we're buggered if we're paying for your property adventures."

It was that other Ireland, that small Ireland of wealth and power and office, of circles and connections, that decided that the State should take on almost €70bn in debt, in order to save every bank. Bloody useless Nationwide alone cost us €5.4bn.

It was the well-off people who inhabit that little Ireland who decided to save all the banks. Along with the ECB, and all those shadowy people who now run our country. Because the money trail stretched back from the Irish property investors, through the Irish banks to banks in Germany and France and the UK, where other gamblers had been betting on the Celtic Tiger. And if you pulled a banking thread in Dublin, maybe something might unravel in Frankfurt.

It was that other small Ireland that decided, along with their comrades in the ECB, that bondholders should be paid every cent on their failed gambles.

And it is the bigger Ireland, where the rest of us live, that's being squeezed to pay for it.

In this bigger Ireland, it's not selling off an embarrassing nursing home property, at the right price, that concerns us. We worry about our jobs and our old age and our children's future. In this bigger Ireland, saddled with other people's debts, there are people who live in desperate hope. People who -- when they inevitably end up in the queue for a hospital bed -- can only pray that the queue moves faster than their disease.

So, good luck, James, but there's only so much sympathy to go around.

Sunday Independent

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