The parable of the Duke of Marmalade

Once upon a time there lived a DoM with his family. Their estates were not very fertile and they lived a modest lifestyle, permanently in debt, in fact he owed his whole annual income.

Then his youngest son the Earl of Marmalade started to do very well. The Earl was contributing handsomely to the family finances. The Duke and his family started to live very nicely thank you and what's more he only owed 25% of his income, having paid back substantial debt. He knew that the young Earl incurred a lot of debts in his ventures and he also knew in his heart of hearts that the Earl rather used the proud Marmalade reputation to get his loans.

Then one day the Earl came home and said "Dad, my lenders are getting a bit fussy, there's no problem with the business but they want you to go guarantor for any loans". "No problem son", the Duke replied, but he was getting a bit worried and asked to look at the Earl's books. To his horror he discovered that the Earl's whole business was a complete sham. He thought for a second about walking away from it, after all the Earl's debts were not his.

The problem was that the Duke was now living way beyond his means, he needed himself to borrow to live in the manner he had become accustomed to. He had no choice, he had to honour the Earl's debts, after all it just left him back where he started with debts amounting to nearly his annual income. But he had a more serious problem, how on earth was he going to cut back on his lifestyle and those pesky lenders were insisting that he do so.

The moral of the parable is that the illusion that was Anglo was enjoyed by us all at the time. I estimate that the illusion generated about 50bn tax revenues. It is now pay back time.

Despite what many will argue, a lot of us did, in a roundabout way, do ok from Anglo, even if indirectly.

Anglo artificially boosted our entire economy and made the country look rich for a few years, and a lot of its citizens gained from it.

Duke of Marmalade said:

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The moral of the parable is that the illusion that was Anglo was enjoyed by us all at the time. I estimate that the illusion generated about 50bn tax revenues. It is now pay back time.

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I absolutely guarantee you that I did not participate in the party. I was steady as she goes throughout. Only when it was broke did I fix it. I know lots of people who were the same.

Have you people not being listening to Joe Duffy, Frontline, Newstalk.?

I have yet to hear any contributor say that they did well in the Celtic Tiger area.
It was people from outer space who got tax cuts, increased social welfare, SSIAs Benchmarking, Big payments from land rezoning, flipping properties.
How many " ordinary people" have properties abroad. Many of these are not in any financial trouble. They might have taken a mortgage out on their principal residence to pay for it but they are managing and they have the benefit of a holiday home for the family.
Tradesmen "earning" massive weekly wages. It was in the Labour Court. Plasterers with John Sisk earning 2500 a week

OK some did very well but a lot of people benefited even though they wont admit it. Head in the sand and blame someone else.
A nation of moaners

BOXtheFOX said:

I absolutely guarantee you that I did not participate in the party. I was steady as she goes throughout. Only when it was broke did I fix it. I know lots of people who were the same.

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Of course I was speaking in generalities. In general, the employed have enjoyed lower taxation than they could ever have envisaged before, the unemployed get at least 50% more dole than their UK counterparts, likewise public servants and when it comes to retired public servants, well I mean they get on average about double their UK counterparts as their pensions were bubble benchmarked in line with their working colleagues.

If you are only starting out on the economic ladder it is true that you missed out on these benefits and you have a national debt burden to pay back but this is no worse than it was before the bubble and there is at least something to show for the debt in terms of vastly improved infra structure.

But there is one general class of (innocent) persons who have seriously lost out, those who plunged in the housing market at its peak. I note there is a developing momentum to do something for those in negative equity and I have a certain sympathy with the argument.

Another losing class are those who relied on bank shares for their pension, some real hard luck stories here, but it is hard to see how they can be compensated.

Duke of Marmalade said:

I estimate that the illusion generated about 50bn tax revenues.

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WOuld you care to back up this estimate with some data? over what time period does your estimate apply?

Found it very sad to read this article about the AIB whistleblower and the disgraceful treatment that he received.

Complainer said:

WOuld you care to back up this estimate with some data? over what time period does your estimate apply?

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Anglo's balance sheet is currently €70bn. Let's say allowing for flowbacks, Anglo over the years generated, say, €100bn in credit. Most of this was spent on land/construction. Add up the Stamp Duty, the VAT, the CGT and even the PAYE taxes of the construction workers. At the very least 50% of this illusion fuelled credit found its way into state coffers, and I am not allowing for multiplier effects.

I am the first to admit I did very well during the Celtic Tiger.

I was able to upgrade my house and my salary doubled in little over 5 years. I went from having to buy the cheapest carpet, etc for my home, to picking what I wanted and not having to look at the price tag (within reason) Where I worked at the time was involved in setting up some Tax Break Schemes (mostly Hotels) and we worked hard, but there were some nice bonusus.

I have since moved to a different industry and have as yet managed not to have a drop in income, though job security is not there.

I have a nice lifestyle, new car, and this year went on 2 holidays, though that is the exception.

I did not go "mad" spending during the Celtic Tiger but went from having nothing to a comfortable lifestyle. I have a bit saved (I was going to buy a property abroad) but the only reason I did not was because the only way I would invest was if I could afford to write off the money and I couldn't, so I chickened out. That is the only reason I did not. It's there now to cover the mortgage if I lose my job (which could happen)

My next door neighbour in 2005 was a painter and was earning over 80K a year plus did nixers at the weekend - (2 of them would paint a whole house at the weekend for 2k - hence 1,000 each) almost every weekend for a year. He has since emigrated to Australia, where he bought his house outright.

A lot of my friends did very well during the Celtic Tiger era and these were ordinary working class people and trades people, not bankers, or what would have been considered high earners. Many have 2 houses, or their own house and an apartment. Some are struggling now, some are still doing well.

I have just come back from Dundrum Shopping Centre and I can tell you people are spending money there, so there is still money in the Country.

MandaC,

I think you prove the point well, although you may not be typical of a lot of people.

But despite what many will claim, a lot of us did well out of the good times. They might think they didn't but if they were to sit back and analyse it they may find they did avail of the improved credit, money, tax breaks etc that were around at the time.

They may not have savings, 2 properties, loads of holidays etc but what they did have back in the day would have been better than it would have been if the country had not have been the way it was (hope that makes sense).

Further to my earlier post I suppose the one issue that does cause so much pessimism is that we had a fantastic opportunity to raise the living standards of everyone on a permanenent basis but due to bad management, greed etc we blew it

Duke of Marmalade said:

Anglo's balance sheet is currently €70bn. Let's say allowing for flowbacks, Anglo over the years generated, say, €100bn in credit. Most of this was spent on land/construction. Add up the Stamp Duty, the VAT, the CGT and even the PAYE taxes of the construction workers. At the very least 50% of this illusion fuelled credit found its way into state coffers, and I am not allowing for multiplier effects.

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I don't get the connection between the current balance sheet and the credit generated over the years. Are there recognised ratios for this kind of relationship, or is this your own best guess. How many years are you talking about for this income? How much of Anglo's activity was done outside Ireland?

Yorrick said:

Further to my earlier post I suppose the one issue that does cause so much pessimism is that we had a fantastic opportunity to raise the living standards of everyone on a permanenent basis but due to bad management, greed etc we blew it

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I wonder. Remember the story of the Duke. Traditionally he was the poor neighbour, his estates didn't amount to much. He even got handouts. Then amazingly because of the young Earl the Duke rose to be the wealthiest in the land. Only his next door neighbour remained sceptical believing the Earl to be a bit of chancer. Alas, the next door neighbour was right. The Duke is back in his natural position as being the perennial begging bowl.

Alas poor Yorrick it was an illusion. Houses never were worth twice their equivalent value in the UK. Public servants never did truly earn 50% more than their UK counterparts etc. etc.

Complainer, of course I haven't done a rigorous analysis to support my very round numbers but common sense dictates that the taxman enjoyed a fair chunk of the Anglo illusion.

The "duke" has been on this forum since the beginning of NAMA trying to convince us that "there was no other way"...his words.. and justifying the government bailout of Anglo irish Bank.
Now when everyone can see that bailing out a private bank to the tune of 50,000 million e is a disaster for the country and the taxpayers. This bailout didn`t have to happen..it was a private bank , but the government and its advisers couldn`t bear to let this rotten leg of the financial system go.This was,they said because anglo was of systemic importance. The real reason of course is that all the vested interests ...the bankers, the shareholders, the developers and the bondholders and bloated professionals involved leaned on the government to go the bailout route in the hope that all the wealth could be preserved and they could play for time and anyway the taxpayer could foot the bill if it came to it. That rotten foot of anglo should have been amputated and the rest of the economy would be in a much better state.
Anyway The "duke" with his interesting parable has now changed tack and is saying that we all did well out of Anglos credit boom and of course he is right,but the fact is that we are in huge debt and it has to be paid back, mostly by the next generation.

Duke of Marmalade said:

Complainer, of course I haven't done a rigorous analysis to support my very round numbers but common sense dictates that the taxman enjoyed a fair chunk of the Anglo illusion.

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Give the low corporate tax and property reliefs that operate in Ireland, my commence would dictate that the taxman enjoyed a gratutitously low unfair chunk of the Anglo illusion.

Duke, I think you are leaving one very important part out of your parable. That is, that the Duke had no income of his own, but took it from all the other earls in his brood, and it just so happened that one of them provided a whole lot more than the others based on an illusion.

sunrock said:

The "duke" has been on this forum since the beginning of NAMA trying to convince us that "there was no other way"...his words.. and justifying the government bailout of Anglo irish Bank.
Now when everyone can see that bailing out a private bank to the tune of 50,000 million e is a disaster for the country and the taxpayers. This bailout didn`t have to happen..it was a private bank , but the government and its advisers couldn`t bear to let this rotten leg of the financial system go.This was,they said because anglo was of systemic importance. The real reason of course is that all the vested interests ...the bankers, the shareholders, the developers and the bondholders and bloated professionals involved leaned on the government to go the bailout route in the hope that all the wealth could be preserved and they could play for time and anyway the taxpayer could foot the bill if it came to it. That rotten foot of anglo should have been amputated and the rest of the economy would be in a much better state.
Anyway The "duke" with his interesting parable has now changed tack and is saying that we all did well out of Anglos credit boom and of course he is right,but the fact is that we are in huge debt and it has to be paid back, mostly by the next generation.

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Oh yes, crony-capitalism at its best. Funny how some things just never change.

Complainer said:

Give the low corporate tax and property reliefs that operate in Ireland, my commence would dictate that the taxman enjoyed a gratutitously low unfair chunk of the Anglo illusion.

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On corporate income tax alone that would be the case. But I think Duke was referring to all the other taxes that were collected on what the €100b was spent on, predominantly housing. I think the figure of the tax take on every house built was somewhere between 40 and 50%.

I was in that meeting with FF, the bankers, the shareholders, the developers and the bondholders and bloated professionals when it was decided to save Anglo.

Oh how we laughed at the people of Ireland. Brian Lenihan was particulary convincing when he said 'Lads, we don't care that we will be committing political suicide and the fact that we will face oblivion in the next election. We don't even care that we could bring this country to it's knees. As long as all you guys are ok, that's all we care about'.

They we went to Shanahans for a lovely Steak Dinner.

"as long as all of us very cultured gentlemen are O.K. and we all support each other thru` thick and thin. Don`t worry if anyone has to resign we`ll give you millions in pensions and lumpsums. The public will be angry as the real details gradually leak out but we`ll have our PR to spin it out and anyway we control RTE and we`ll have our agenda there. Of course we`ll be reduced to our core vote at the next election. and the other crowd will have to take the heat for a while, but thats no problem as we are all buddies behind the scenes.The taxpayer and the poor people will have to endure 10 or20 years of hardship but they`ll get used to it.Didn`t they live thru` the famine for gods sake and didn`t they vote us in?
Now lads get closer in a nice circle....ha ha we`re the golden circle....whatever happens we`ll all look after each other. We`ll still have our millions and our property portfolios and even if we take a bit of a hit we`ll still be very rich."
I believe the above dialogue would be more likely than any hard talk between Brian and the bankers and their friends.

Chris said:

On corporate income tax alone that would be the case. But I think Duke was referring to all the other taxes that were collected on what the €100b was spent on, predominantly housing. I think the figure of the tax take on every house built was somewhere between 40 and 50%.

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Well we all know that no-one in the construction industry pays income tax. THat's just for the little people. So there may have been some tax relating to Anglo's activity, but how much of their activity was actually in Ireland?

And regardless of the amount, that doesn't make ordinary citizens complicit in the Anglo debacle.

Everyone is complicit in the Anglo story. The Anglo story is the Irish banking story. The Irish banking story is the property bubble. The property bubble is the huge surpluses enjoyed by the government. The huge surpluses are the benchmarking, tax cuts, social welfare increases, the explosion in public sector workers etc etc. Anglo is a disgrace and no-one can defend it but let's not pretend that everyone did not benefit from the bubble.