Sunday 17 December 2017

We need our own Obama to be an agent for change

Yesterday I spoke to a friend -- let's call him Mike -- a hard working, non-greedy, frugal individual. This is not the sort of bloke who went out and splurged in the boom. He has a house, a car and, up until recently, a steady job. He lives for his children, his family and yet he is in serious trouble.

While Mike saw through the hype of excessive lending, his boss did not. The owner of the company borrowed up to the gills, swallowed up competitors and expanded in an ego-driven adventure which saw his company become the biggest player in their -- admittedly small -- sector. The "growth" of the company was entirely debt-driven, leaving it with a huge borrowing overhang. As long as the banks were happy to keep lending, these huge loans could be serviced. Revenue growth was strong, so all looked kosher. The boss reacted to the increased debt burden on the balance sheets by setting the salesmen ever more ambitious targets and incentivising them with cars, bonuses and holidays.

This time last year when the Irish banks' share prices started to fall, no one in the company worried because the problems were in the property market, which was a totally different sector. As banks' share prices fell, their ability to raise money was impaired. But there didn't look to be a real problem. Mike at this stage was oblivious to the "credit crunch", which he'd never heard of ; little did he know it would affect his ability to buy presents this Christmas.

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