Ian, Martin and their big city love-in

Now is not the best time to go any exchange in New York and ask for money. The Credit Squeeze is tightening, and the market is switching from the bulls to the bears. The two characters featured on the front page of the Irish Times the other day with the Stock Exchange gavel put one in mind of that Mortimer and Randolph Duke in the 1983 film Trading Places. Given the filibustering of one, the procrastination of the other, this visit might have borne more fruit in 1998, when the boom was beginning and VC were scouring London and Dublin for new entreprenuers. Then again, despite the promised visit of one Donald Trump (and probably more usefully, Michael Bloomberg), this was never likely to be about attracting big US Capital (if the banks won’t lend each other money, they are not going to disburse it to us), so much as our nascent autocracy getting its head round how international market capitalism actually works in practice. If an improved understanding of what is attractive to big business is all that arises, that may not be a bad outcome. The question is, do they have the means at their disposal to get the conditions right? Gordon Brown thinks so.

,

  • mnob

    Mick – the credit crunch might actually mean more money is available to VCs and corporate investors.

    The crunch came out of inapropriate consumer loans which was fuelling the proprty boom and making everyone believe property and development was the thing to invest in. Investment in property adds nothing to the economy – it simply moves money around and was (is ?) a bubble waiting to burst. This style and type of investment was sucking money out of investment that actually created wealth (business, commerce and industry).

    Now that banks wont lend money to each other – and certainly not to Jo Blo the big investors will have to look to other areas to invest their money – where will that be ?

  • Wilde Rover

    “If an improved understanding of what is attractive to big business is all that arises, that may not be a bad outcome.”

    When they find out big business is attracted to paying non-union workers fifty euros a month for eighty hour weeks with no benefits and not particularly attracted to paying western European level wages and benefits, the Chuckle Brothers might be stunned into going on a bender and end up in a strip joint in New Jersey at seven in the morning, arguing over whether or not the girl on the pole looked like Dana when she was younger.

  • Harry Flashman

    Now this is where I plead my ignorance and seek genuine assistance.

    We’ve been overwhelmed with the story of the credit crunch caused by US sub prime loans, in other words the global economy is stalling due to the fact that some mortgages to some people in the United States may default, not all, not even a majority, not even a substantial minority but perhaps a minority of a minority of badly securitised mortgages might prove unwise.

    Is there really no way of ascertaining the size of dodgy residential property mortgages in the US? Could that hitherto unheard of sector of the United States economy be so huge that we could face worldwide recession if the holders of those mortgages fail to meet their repayments?

    Or is there an awful lot of nonsense being spoken about this issue?

  • mnob

    Harry its the snowball effect.

    What has happened is that the difference in price between risky and non risky loans has disapeared over the last decade i.e. its not that much more expensive for someone to service a loan if they are a bad risk than a good one hence the enormous amount of tv ads offering risky loans during the day. The fear is that this difference might be reinstated because some of the chickens are coming home to roost. This means an increase in the cost of servicing these loans (without an actual increase in interest rates) which leads to more difficulty in paying them back which leads to bad debt which leads to an even higher hike in the cost of servicing loans (banks have to make money you know) which leads to more difficulty in paying them back …

    When it is routine in the UK to lend 5 or 6 times a couple’s combined salary based on a 30 year interest only mortgage then its not difficult to see that a small perturbation can cause a big effect.

  • Mick Fealty

    I don’t really know either Harry. I do know that the FT has been obsessing about it for months, and still hasn’t come to any concrete conclusions.

    My feeling is that this is, in part, to do with the fact that the world economy is now a much more complex system, and complex systems are subject to all manner of disruptions that are hard to quantify never mind predict.

    It could be a light summer cold, bad dose of the flu’, or nasty bout of pnuemonia? But, hey, if even Larry Summers doesn’t know for sure, I’m happy to plead a degree of ignorance. What we can say is that the mind of Wall Street would have lingered on Northern Ireland for mere seconds after the gavel came down.

  • Harry Flashman

    *What we can say is that the mind of Wall Street would have lingered on Northern Ireland for mere seconds after the gavel came down.*

    Seconds longer than we deserve I would suggest Mick.

    *Harry its the snowball effect.*

    Thanks mnob, ok I can follow that, so actually the “sub-prime” stuff is shorthand for a whole heap of stupid credit decisions made by banks and financial institutions over the past decade, now that begins to make a little bit more sense.

  • Mick Fealty

    And the internationalisation of the credit markets. David McWilliams talks about how the Irish property boom is ultimately funded by elderly conservative Bavarian couples who save large amounts of capital each week. What’s unnerving everyone about sub prime is that this relationship to savings just wasn’t the case with the US sub prime market.

    The capacity to endlessly hedge off the upfront commitments is what has everyone quaking at the prospect of a butterfly wing flap in the States working its way up to a global storm. Lending long, and borrowing short only works whilst the value of assets are growing. As the directors of the Northern Rock now know to their cost.

  • Lafcadio

    Harry – it’s probably fair to say that the credit crunch as we are experiencing it at the minute started with subprime mortgage loans, or rather structured debt products with US residential mortgages, including subprime mortgages, being the underlying assets, but contagion set in quickly, and in some unforseen ways, causing wider liquidity pressures and a crisis of confidence. It has also shown that there is a higher degree of interconnectedness in credit markets than thought, and also that some risks which had been believed to have been widely distributed throughout the financial system ended up parked back on banks balance sheets at the end.

    So its not as simple as saying that it’s all caused by subprime mortgages – I’m not sure of the exact chronology, but in recent times a lot of banks had started up, or provided leverage to, vehicles called SIVs (structured investment vehicles) and conduits, which basically raised funds by issuing paper in the short-term asset backed commercial paper (ABCP) markets (on a rolling 3- or 6-monthly basis I think) and investing in longer-dated higher-yielding securities. Most of the assets they invested in were highly-rated, with many being AAA or ‘super-senior’ securities or tranches of CDOs of ABS (CDOs are vehicles that in turn invest in other debt instruments) – a lot of the managers simply got complacent, thinking that they were making money for nothing, for low risk, being blinded by the high ratings, and not fully understanding the risks in the underlying assets.

    What changed was that sentiment changed with regards to the mortgage market in the US, particularly the subprime segment – people started looking more closely at the exposure that these vehicles had to subprime mortgages, and started to realise that not all AAA risk was the same (in the context of investment grade corporates, AAA would only be afforded to the biggest and most credit-worthy institutions) and that in fact for example AAA or super-senior paper in a CDO of RMBS (residential mortgage backed securities) were starting to look much riskier.

    When the SIVs or conduits then had to roll over their funding in the ABCP markets, they suddenly found liquidity retreating, i.e. investors were either leaving the market or requiring higher returns, causing a spike in funding costs. While one of the attractions of these vehicles from the point of view of the banks was that they were off balance sheet, they typically had back-up liquidity lines in place with the owning bank, or a syndicate of banks, in the event that they were unable to raise CP (an eventuality which a lot of them viewed as purely notional, given the enormous liquidity of the market up until the summer).

    Therefore it became clear that these supposedly off balance sheet risks could suddenly start making their way back onto banks balance sheets, whether through liquidity lines or consolidation, and as the scale of the SIV and conduit markets became more apparent, and the uncertainty surrounding the exposure to these vehicles grew, banks themselves became spooked, and LIBOR (i.e. the rate at which banks will lend to each other in the interbank market) spiked upwards (i.e. higher rates of interest were charged).

    And basically this uncertainty became systemic, and spread through various markets. And it wasn’t all down to subprime. There was also a bubble in the leveraged debt markets (where I work) i.e. where (mostly) private equity firms raise debt for buy-outs and acquisitions – for several years it was very much a borrowers market, with margins heading down and lending criteria being stretched out, and by the first 6 months of the year you couldn’t pick up the FT without reading an article wondering whether it was all going to turn bad, and frankly it was just a matter of time (my team was turning down far more deals than we were doing in the first half of the year).

    And this market too stalled over the summer, liquidity disappeared from the market and arranging and underwriting banks were left with a huge pipeline of deals that were unsaleable as they were at the time – so between August and November we almost literally did no work, which would have been nice had we not had to worry about my employer going tits up and us all being sacked! It remains a problem market, but one which should eventually get back on track.

  • Lafcadio

    Which brings me back to Mick’s article – their visit was pretty much a photo op and profile raiser. But generally speaking the private equity industry is still in pretty healthy shape, having raised huge funds (with investors still keen to stump up for them). Things certainly won’t be quite as rosy as they have been in the last few years, they’ll have to pay more for debt, write slightly bigger cheques themselves, and in the short term the big arranging banks will be restrained in their ability to write new business until they get the pipeline shifted. The bottom line is they will still be around, looking for assets – the biggest reason they will be less likely to find them in NI is less to do with the current credit crunch and more to do with the relative lack of ambitious entrepreneurs in the economy.

    [sorry for the essay]

  • mnob

    I think Lafcadio summed it up very nicely.

    Though probably not in the way he intended.

    It was the way he said it not what he said.

    Economists and people who should know better take the simple idea of investing in things and making money and surround them with so much gobbledy gook that they actually forget the fundamentals they are dealing with and believe things that cannot be possible. (e.g house prices will *always* rise)

    At the end of the day a bubble was sustained by inapropriate lending to people who couldnt afford it. The only way to sustain the bubble was by injecting more and more money from suckers (you and me – house buyers) which in turn kept the prices rsing.

    Once the first few want to get off the carousel the rise in prices stops which scares the lenders and raises the cost of borrowing which lowers the prices encouraging more people to sell and at the same time discourages buyers… and bang go prices.

    It was/is a pyramid scheme pure and simple.

  • Harry Flashman

    [sorry for the essay]

    Absolutely no need to apologise Lafcadio, I appreciated your reply.

    What you seem to be saying is that there was a lot of jiggery-pokery going on, not necessarily corruption a la Milken and the junk bond stuff but nonetheless a market in serious need of a bit of cop on.

    Now the party has wound down, we’ve woken up, it’s 7am, we’re a bit groggy, we have some vague ideas of the night before, it was fun but there do seem to be some blank patches in the memory and some odd feeling that we might have done something god awful but we just can’t put our finger on when or where. The solution is either to get up make a strong cup of coffee, think hard and maybe phone around some friends and risk the arrival of the delayed mid morning hang over or just turn off the phone, crawl back into bed, pull the pillow over our heads and just hope it’ll all be ok by lunch time.

    Am I on the right track?

  • Greenflag

    ‘It remains a problem market, but one which should eventually get back on track.’

    True but at what cost and more importantly when is ‘eventually’ ?. The fact is that there 2 million ‘households’ across the USA facing foreclosure the highest figure in 50 years. This is more than just a cyclical hiccup . Added to the above is the decline of the US dollar , the relative stagnation of US family /household incomes for 90% of Americans since the 1970’s when compared to productivity increases in that time -and the crisis in American Health Care whereby Americans pay almost 20% of their GDP on Health Care which rewards them by giving Americans shorter life expectancy than most Europeans or Japanese? Add in the billions going down the proverbial drain in Iraq and you end up with an economy and a polity that will take years to recover from the many manifest idiocies of the ‘compassionate conservatism’ of arguably the most inept US President ever 🙁

    American capitalism needs to be saved from itself . Perhaps war with Iran will do the trick ? I mean if war in Iraq has resulted in the price of Gas (petrol) falling in the USA since 2003 then according to ‘compassionate consrvative politics’ a la Bush then war with Iran will reduce gas /petrol prices by an even larger amount ?

    On the other hand perhaos the Chinese will come to the rescue or perhaps the dollar laden banks of Abu Dhabi 🙁

    Norn Iron missed the Direct Foreign Investment boom for three reasons . The most important being that as part of the UK it could not compete with the Irish Republic in terms of corporation tax rates. Secondly the legacy of political instability and uncertainty over a period of almost 40 years has not been encouraging for foreign investors or even local entrepreneurs.Thirdly with public sector expenditure taking up 70% of local NI GDP the private sector has been ‘downgraded’ .

    The Chuckie brothers banging a gavel in Wall Street should be about as productive as the ordering of the rearranging of the deck chairs on the Titanic . Still the sight of this peaceful Punch and Judy show on Wall St should give some comfort to their constituents back in Titanic land who will presumably as a result await the sinking of the NI economy with a stiff upper lips and extremely tight rear ends 🙂

    Better than shooting or throwing bombs at each other I suppose 🙂

    And for those (Americans ) who hope that a devaluing dollar will rescue the economy I can only remind them of Sir Thomas Greshams adage of bad money driving out good which is as true today as it was when Gresham made his point .

  • I liked Brian Feeney’s take on on this, in the “Irish News” (and via Newshound at http://www.nuzhound.com/articles/irish_news/arts2007/dec5_no_pot_of_gold_US__BFeeney.php ). That might, in large part, be because he segued neatly from Brian Cowan’s budget to Famous Seamus Heaney’s:
    We’re on the make
    As ever. Long sucking the hind tit
    Cold as a witch’s and as hard to swallow
    .
    Pity he didn’t get the lineation right, though.

    In between Feeney landed a few deft jabs about the false security of the RoI economy, by noting the:

    “the ominous news that Dell Computers has just opened a new computer manufacturing factory in Lodz in Poland and you can see why there are jitters in the Department of Finance. Dell has about 4,500 people employed in factories in the Republic. Are they under threat from eastern Europe and Latin America?”

    Remember: Dell alone is 4% of the RoI’s GNP.

    I was getting spittle-stained yesterday, on my own blog, about the disconnection between the manufacturing and financial sectors of the RoI economy. Employment and wage-rates in manufacturing are slipping. Most of the new employment is in the financial sector (where wage rates are roaring ahead +11.7% last year). The financial sector (labour costs totalling €4,862 million) is now approaching half the whole industrial sector (€10,829 million).

    So far, so good?

    Well, perhaps not. A lot of that growth is predicated to the RoI being a ‘semi-tax haven’ (see http://www.finfacts.com/irelandbusinessnews/publish/article_10003988.shtml ) for US firms. Dell has its patent royalties rendered through the RoI, none of which are subject to tax under Irish legislation. Microsoft is up to the same trick, to the tune of half a billion dollars processed through what is basically a lawyer’s post-box.

    Now, if we take Nigel Dodds, in the “Boston Globe”, at face value, NI is after some of the same: “financial services, IT, business services and life sciences”.

    It suddenly looks a bit crowded in that particular market-place. And I’m not convinced that Dodds is a fair match for a give-away tax-regime (financed by slealth taxes, including health taxes) and the IDA.

    May I also chuck in the piece I cited in another thread, by Michael Casey, formerly the chief economist for the Irish Central Bank, and now a board member of the IMF?

    He is stinging about what he sees as successive RoI governments’ tendency:

    “to adopt soft-option policies whenever possible … the line of least resistance … to maintain the status quo…
    “Most important decisions on Irish life are now taken not by Irish governments but by the EU and the US. At one bound Ireland has gone from one colonial master to two others. We now have no control over a large swathe of social legislation, domestic interest rates, the exchange rate. We have less control over the fiscal policy and, because of the US multinationals, little effect on the supply-side of the economy. And deep down this is exactly how we want it because it protects us from the burden of decision-making … ”

    And, that article has one particular relevance to NI:

    “Clientism and stroke play run counter to the notion of excellence, hard work and real decision-making. Short-term political strokes also give rise to a culture of petty corruption which is bad for business especially in a global environment. The emergence of real entrepreneurship has been impeded by strokes and wheezes. Entrepreneurs are supposed to take risks, not operate on the risk-free basis of inside information.”
    ___________________________

    The other lobe of my brain is fretting on that Heaney quotation. It’s from a 1971 poem, “Whatever You Say Say Nothing”, one of his few outbursts specific to the “Troubles”. Curiously enough, the quotation is not present in the edited version which he includes in “Opened Ground” or “New Selected Poems 1966-1987”.

    So, on this occasion, did Heaney bottle it?

  • mnob

    Malcom – the bland statements from Dodds actually carry a bit of wit (no really !).

    The FT article points out that the jobs (that actually are) coming to NI are back room jobs – cost centres in economic terms that are based on the skills and knowledge of NI people and are much more anchored to the locality than the ROIs strategy.

    Cti, Liberty et al are major employers adding half a billion dollars a year to the NI economy – they all started small but are growing fast adding high value export focussed high growth jobs.

    They may be financial services but they are actually ICT jobs and have made a good job of hoovering up those lost in the .com bust (and then some)

  • jaffa

    Greenflag,

    You’re a big misery guts. These are the economic stats for NI vs the rest of the UK. Perhaps not stellar but the relative rate of growth with respect to the rest of the UK isn’t embarrassing and the difference (if not the headline rates) is accelerating.

    “Provisional results from the experimental Index of Services (IOS) for the first quarter of 2006, estimate that the NI service sector has increased by 5.6% in real terms since the same period last year. This compares with an estimated increase of 3.0% for the UK as a whole over the same period.

    Results from the Index of Production (IOP) for the first quarter of 2006 show that production in Northern Ireland has increased by 3.7% over the quarter, while the UK reported an increase of 0.8%. Over the year NI output levels have increased by 2.9%, whereas the equivalent UK figure fell by 0.9%.

    Northern Ireland manufacturing output, the main component of the production index, increased by 3.6% over the quarter and by 2.4% over the year. The equivalent UK figures showed an increase of 0.9% over the quarter, but a fall of 0.4% over the year. ”

    What are the comparable ROI figures?

  • mnob @ 08:49 PM:

    Yes, I appreciate the reminder: the “back-office’ jobs are a better match for the local “high skills and low-cost economy”.

    I see that the FT article also included:
    “Nigel Smyth, chief economist with the CBI in Belfast, says productivity rates have been improving by 3-4 per cent each year for the last few years.”

    The parallel article, by Michael Casey in “The Irish Times”, was (as I recall) lamenting the declining productivity in the RoI.

    However, there is an old article (some 15 years back) by Professor Richard Harris which addressed the long-term problem of the NI economy (this from the abstract):
    “The province is an interesting example of a branch plant economy, since government regional policy has been particularly responsible for encouraging inward investment. The effect of external control on occupational structures, inter-firm linkages, technological development, and plant closures … suggest[s] that high levels of external ownership in Northern Ireland lead to proportionately more unskilled, as opposed to skilled, manual workers; linkages tend to be truncated leading to generally lower levels of integration into the local economy; R&D;activities are reduced leading to fewer innovations; and there appears to have been a higher propensity for closure if the plant was externally-owned (especially from Great Britain).”

    I seem to remember (from an old “Economist” piece?) that something like 90-odd of the largest 100 firms in NI are externally-owned.

    Not nice. Not comfortable. We need another string to the bow.

    That means, for one thing, vamping up the local higher-education facilities to be more responsive to local needs, to work more closely with local enterprises (especially the smaller firms we need to develop in size and scope: almost by definition they’ll be high-tech). Look at how RoI higher education has been harnessed to the national needs. We also need to compensate for the 30% shortfall in higher education places in NI.

    Sorry to repeat myself.

  • mnob

    Malcom – theres not much to disagree with there.

    There is a light though – these high tech companies are spinning out a new breed of entrepreneur – almost unnoticed by those in government – check out Lagan technologies, Asidua, Relay, Singularity etc etc as shining examples of locally owned companies growing fast selling globally, locally owned and employing more than a few people.

    Even the ‘branches’ such as Liberty IT and Northbrook are either locally owned or wholly owned subsidiaries based in NI.

    Similar things are happening in ROI – the only issue there is how dependant the Irish Exchequer is on the foreign money in the short term.

    The evidence you cite is a little old – things are changing we are moving away from a war time economy after all – the question is how fast and can the high tech graduate based industries support an economy without technician or manufaturing jobs.

    (BTW The FT article also pointed out that last year Belfast attracted more inward investment than any UK city other than London)

  • jaffa @ 09:00 PM:

    Productivity for the RoI was covered by a Microsoft report and a National Competitiveness Council report, both in 2006, and both therefore now rather out of date.

    However, here’s this (from http://www.siliconrepublic.com/news/news.nv?storyid=single8215 )

    “Productivity is a cause for concern for the Irish economy, standing at only 1.3pc of GDP, former Eircom chief executive Dr Philip Nolan has said…

    ” ‘On the face of it, Ireland is doing well. For the past 10 years productivity growth in Ireland has been slightly ahead of the EU average – somewhere around 2.3pc. However, many of the firms contributing to the economy here are foreign-owned. If we strip out the high productivity sectors supported by foreign investment such as IT and biotechnology, things begin to look very different.

    “ ‘Doing that, we see that home-grown productivity drops to 1.3pc. This is well below the EU average and a cause for concern,’ Nolan warned.”

  • mnob

    oh and as an aside the ‘high tech’ Seagate jobs in Limavady were no such thing (its mentioned in the Feeney article so I feel justified in sidetracking)- they were manufacturing jobs. The high tech stuff is done in their Londonderry (with a silent London if you like) which is resolutely staying open.

  • Lafcadio

    mnob – there were certainly a few people who “should have known better” (e.g. big swinging dicks at my firm who lost billions) but most economists and market commentators were flagging the various bubbles and risk areas for months if not years before. In fact our first thought on hearing about our own problems was “have they not being reading the fecking financial press for the last 18 months???” Similarly you won’t find any, in fact a single serious economist who will argue that house prices, or any asset price, will always rise.

    The big problem was complacency, and the complexity that the growth of all of the structured vehicles, and supposed ‘dispersion’ of risk in the system, brought on. And most market participants have been burnt, from the ratings agencies whose ratings have been shown up as highly questionable, to the ‘quant funds’ and investment banks, whose models were shown as inadequate.

    When you say that “a bubble was sustained by inapropriate lending to people who couldnt afford it” you’re pretty much on the money, in respect of the subprime loans in the US. But it wasn’t just the ‘little man’ who got burnt, lots of financial services companies are feeling serious pain, and some have gone under. In fact I think that actual delinquencies even in the subprime end of the US market haven’t hit critical levels (and there are moves afoot in the US to mitigate the effects of the expiry of the introductory rates on these loans) – most of the losses booked to date by the banks are writedowns of the assets as opposed to actual cash losses.

    Harry – your analogy certainly applies to certain participants in certain markets! In our case, while we didn’t drink to excess last night, we’ve woken up the next morning surrounded by mates suffering from big hangovers, and the neighbours looking over the fence lump us in with the others as they shake their heads thinking “oh those drunken fools”..

    At this stage there wasn’t much “jiggery-pokery” going on, in the sense of fraud, it was just something of a risk binge in some markets and many people have got their fingers burnt. And its hurting, and will continue to hurt – I was at a conference on Tuesday where a banking sector analyst at a big bank said that she was pretty bearish about the sector in the forseeable future.

    Greenflag – the market I was referring to which will get back on track was the PE buyout market. In terms of the wider macroeconomic outlook there are definitely big downside risks for all of the big economies, particularly the US.

  • pfhl

    There was reference to the credit crunch earlier which arised from mortgages being offered to NINJA’s(people with No Income No Job or Assets) by US banks, these NINJA’s have now been defaulting on their repayments in large numbers. This was not a practice taken up in Europe. It has however affected Europe because US banks load all their loans together, whether risky or not, when trading these debt’s on the money markets. When these instruments made up up of a number of mortgages are traded across the money markets, it is very hard to track what proportion of Bad debt that each aggregative loan posseses. This lack of knowledge has lead to the lack of confidence in the money markets. This will lead to many of the world’s major financial institution’s having to face the fact they have many bad debts on their balance sheets which previously had been considered as future income and hence added to the value of the company. Citi in particular has had to write off quite a bit of bad debt recently.

    On a whole this could lead to large financial institutions investing money elsewhere, really not sure how this will lead to helping northern Ireland though. Most of the Credit crunch has ripped into many hedge funds who invested in these debts. Hedge funds will not invest in the North as they don’t really have jobs to offer and will choose to operate in equaties or other financial instruments where the return will be highest. It could actually lead to a decrease in the number of back office jobs, assosiated with funds, as some may loose faith in these previously pretty reliable Hedge funds. There is also the fact we are competing with Dublin as it is at the center of fund administration in Europe. We all know the difference in corporation tax. Citi’s investment in Belfast i believe is limited to Information technology back office work. Citi increased it’s capacity in Dublin with the Purchase of Bisys Hedge fund services and many other back room administration companies advertise a great deal for staff in the Dublin newspapers. I do not see these companies that matter to us switching the strong operating bases they have down the road with up here as we do not have the experienced people in these jobs and of course we have much higher corporation tax. The presence of the IFSC further leads to a major advantage in Dublin as it is a Mecca for the world’s major financial institutions and it does not make since to operate in both areas. As in the UK we are competing with London, i am gonna stop there as London is too important for finance to compete with. My thinking to myself leads me to believe that NI must concentrate on Tech jobs which it is succesful on to a degree( Nortel, Shortts and Thales). NI musy broden its base though and i do not believe it can compete in the globalised world while we are restricted to the state we currently live in. I believe the differing tax systems on this island will always lead to major investors looking south most of the time. Stability in NI will not matter when higher profits are to be made in more stable enviroments other places in the world. I would love somebody to tell me what NI has to offer to set it apart. I hope somebody reads feels like i have been writing for quite a while

  • Aquifer

    ‘structured investment vehicles’ are companies set up to borrow lots of money to increase the return on the original investment. To increase the return they take bigger risks, and in a growing economy they usually succeed, and only occasionally go bust and lose the original investment. The bankers hope that enough SIVs make loads of money to cover the ones that go bust. However the SIVs were borrowing short-term money which now has much higher interest rates due to the mortgage crisis, so lots of them could fail as they try to renew their borrowing. Incompetent and greedy bankers will have made things worse by lending too cheaply and easily first off. ENRON did a lot of SIVs, essentially betting on energy prices in a way that the investors hoped to avoid ever paying out if things went wrong, letting banks or electricity companies take the hit.

    So who has real money these days, unencumbered cash? I think it’s the oil exporters, who often have huge state investment corporations. Maybe people with business ideas should make their pitch in Dubai.

    We should not be too pessimistic about the local economy, smart young people drive modern economies and we have a few of those. People with ideas can have stuff made cheaply elsehwere. NI can also profitably sell services into the ROI market. Many more (not sub prime) people have enough equity in their homes to borrow to start businesses, and inherited wealth tumbles down the generations to encourage risk or excess.

    There are lots of intangibles here about why people may chose to invest. Fishermen and Golfers may like the place enough to accept lower profits. Poles seem to like it here. We should be running business courses as a way for them to learn english and hope to keep some of the smartest.

    Have we equality proofed economic opportunity?

    it could pay back bigtime.

  • jaffa

    Malcolm,

    Thanks for that repsonse. I’m not sure the reasoning is very sound though. If most FDI is IT / Manufacturing related and most “indigenous” business is service based then stripping out the FDI will; in any economy; dramatically depress the productivity level. As manufacturing and IT aren’t stripped from the comparator countries (which also contain plenty of foreign owned business) then the comparison is falsely (and mischevously?) overstated.

  • mnob

    “structured investment vehicles’ are companies set up to borrow lots of money to increase the return on the original investment. To increase the return they take bigger risks, and in a growing economy they usually succeed, and only occasionally go bust and lose the original investment. The bankers hope that enough SIVs make loads of money to cover the ones that go bust. ”

    Sounds very much like gambling to me.

    Like the old trick of if you are losing double your stake for the next hand. Usually you can stop when you are ahead but every so often you will lose *big*.

  • mnob

    and thats what I mean by losing sight of sense by being blinded by jargon.

  • Lafcadio

    Aquifer – in fact the vehicles used by Enron were SPVs (special purpose vehicles) and while they have some legitimate uses, they were used by Enron and their advisers to basically perpetrate accounting fraud, by placing debt off balance sheet and inflating their income figures.

    SIVs are just vehicles set up to take advantage of the arbitrage between (lower) short-term CP rates and (higher) longer-term rates available on other assets. This worked like a charm as long as the CP markets were liquid, and the assets were good quality. SIVs were, in retrospect, a riskier punt than most people realised, but there wasn’t anything nefarious about them.

  • Greenflag

    Greenflag,

    ‘You’re a big misery guts.’

    Brilliant response . When all else fails then a total pig headed unwillingness to look the economic facts in the face will see you through eh ?

  • Greenflag

    ‘I believe the differing tax systems on this island will always lead to major investors looking south most of the time. Stability in NI will not matter when higher profits are to be made in more stable enviroments other places in the world. I would love somebody to tell me what NI has to offer to set it apart. ‘

    Good jayziz -common sense at last emerging from behind the black pigs dyke 🙂

  • I absolutely abhor the both of theirs hero’s welcome in America. Just wanted to register that.