Tuesday last I addressed the Independent Senator group in Leinster House. Here’s some of the things I said to them;

Perhaps this time, as the anaconda from the depression wraps another coil around us in December’s budget, the scales will finally lift and public will more clearly see the direct connection between the cost of carrying the protected species of The Croke Park Agreement, to cuts to social welfare, child benefit and higher Vat. Just how many nightmares about lavish pension payouts and fantasies about reform are we prepared to swallow before roaring that enough is enough?

Well here's a few suggestions that maintain the promises given but lance the growing boil of injustice. Course I know some of them have all the attraction of a concrete kite to those tasked with formulating policy;

BIK Job Insurance

In a depression the most valuable perk is security of tenure aka job insurance, so tax it as a Benefit in Kind. Consider a rate of 20% on the excess gross income over €30 grand. That protects the low paid but means the average public  earner on €52 grand pays about €1,500 a year for their  job insurance policy to 2014 and higher still for bigger earners. This extension of BIK would bring in well over a billion Euros each year and gets progressively more from the large  numbers earning over €80 grand a year.

Super Tax High Pensions

Apply the same rate of super tax to secure public sector pensions in excess of €40 grand a year as that which applies to risky private sector pension funds that might yield over €60 grand. That means taxing the excess over forty grand  at a rate of at least 70%.This would not affect public sector workers on salaries under €80 grand a year but Brian Cowen and co would pay back €70 grand in tax on a hundred grand of pension.

Wealth Tax or Altruism

Introduce a wealth tax of 1% pa on global investable assets in excess of 200 times average wages that’s means no tax on the first €6.6m. Exclude homes and working assets that generate jobs and economic value like trading companies and farms but tax non-productive assets like financial investments, works of art,and multiple homes. To discourage asset flight and encourage integrity, allow for a full reduction if an amount equivalent to two thirds of the assessment is voluntarily paid into a fund administered and operated by Irish charities that finance vital social support services like Simon, Jack & Jill, St Vincent de Paul, The Samaritans and  AWARE. This route alleviates strain on scarce State resources, is naturally administered more efficiently, gets the cash to the most vulnerable fast, satisfies the left, recognises that wealth tax is notoriously costly and difficult to implement and grows altruism.

Ready Plan B

Draw up Plan B to prepare for the worst case scenario, a Eurozone rupture, a return to the punt and a lock out from further borrowing that would instantly force spending within revenues greatly reduced by the chronic global recession that would inevitably accompany such an event. That means having a detailed plan ready to roll, one that applies triage to spending by beginning with a hefty cut in public sector pay, raises exchange controls to prevent capital flight and puts emergency plans in place to feed the most vulnerable. Plan B needs to consider a new economic strategy for an island no longer part of a functioning European Union and facesinto a new economic era.

- Eddie

Hope for the Best but Plan for the Worst

On Friday the 11^th of the 11^th, 93 years after Armistice Day Italian bond yields declined below 7%, the failsafe level. Hopes ride high that Mario Monti will head an interim technical Government that will drive through badly needed reforms and austerity, but Italian yields will need to fall to at least 5% before Euro leaders can breathe a sigh of relief that the Eurozone came within inches of rupture before being saved. This script however also requires a German u-turn at the precipice and the ECB ramping up quantitative easing thus creating an unlimited supply of Euros to fill the hole being left from bank runs going on throughout the continent as investors flee banks they perceive as exposed to losses, not just from Greece but from Italy and any other diseased banks in the inter-bank market. Think of the ECB as a fire fighter hosing down the conflagration with money before passing over the hose to the newest recruit the EFSF. That’s the script with the drama AND a happy ending.

But should you bet the house on a happy ending?

Here’s the bad script. Reality returns. Markets look more closely at Italy and see another country strangled by inflexible labour markets, restrictive agreements designed to protect cosseted sectors from competition, the common currency of union and professional power. They will also see a country where confidence in Government incompetence and inefficiency is so high that an estimated 16% of GDP is black market. Hard to blame the Italians when they see 945 Senators and Deputies averaging €140,000 per year being driven around in a top Italian car fleet estimated to cost €2billion per year and involving 30,000 vehicles across the ruling establishment. Will Italians differ from the Greeks and swallow austerity with a shrug and will Italian austerity avoid depressing economic growth by creating a negative feedback loop into the bond market?

It’s an open question. But the most immediate question is how many Eurozone banks are tottering on the brink of collapse and how many will be deemed to be non-systemic if their Governments simply can’t save them? That’s the fault line. As you read this there is a pan European flight to safety occurring. Will it overwhelm the ECB? If it does and Ireland loses her source of daily liquidity to the banks what happens?

The Irish Government in the event of a failure of the Eurozone itself would be forced to revert to a local currency and raise exchange controls to prevent capital flight. All deposits held by all banks operating in Ireland including those in foreign currency would be declared in punts. That elevates cash deposits as the most vulnerable asset on a balance sheet until this period of extreme risk passes.

Locked out of bond markets but desperate for cash to avoid facing the protected species within the Croke Park Agreement with 50% pay cuts and slashing social protection rates, would private pensions be nationalised? Would the Government also begin to eye cash in the banks and life offices as another possible reserve? Could asset appropriation, the nirvana of the hard left who believe that everyone should be equally miserable, becomes the de facto mode of an overwhelmed Irish Government? This is at the most extreme end of outcomes for sure, but it is still a risk nonetheless.

What can you do?

Well you can just ignore it all and be patriotic betting that sense will prevail, that politicians can be trusted with sound economic decisions. Or you can plan for the worst on the basis that anything else is a bonus. In response to clients and recognising that, until the dust settles, the bank sector is unsafe, we are assisting them in moving some money out of Euro and out of the jurisdiction in three different ways;

If you wish to use any of the above to put some cash outside the Euro simply email; eddie@eddiehobbs.com. Specify which and how much. If I can’t reach you someone else will from our network firm the Mount Street Group

- Eddie

Rip Off Pension Charges
In the early 90s when life and pension products had all the translucency of mass concrete, when consumers had zero rights to lift the veil on charges and who was getting what, I took action under Competition law against the Irish Insurance Federation who operated a self regulatory cartel that had the full backing of a captive Government. The result, after a decade long battle was the implementation in 2001 of consumer rights to disclosure at point of sale. The most vile and excessive rip off products were taken off the shelves but their legacy remains for those who unwittingly contribute to schemes they took out in the 80s and 90s.

These are the kind that legally allow the pension industry to conceal the effect of swiping up to 60% of the first years contributions and all fresh increases upon it to retirement age. The rip off is hidden by using a highly controversial book keeping system that reports false values each year. It remains a very ugly business when a simple ban would have done it in.

Are there still excessive costs in parts of the pensions industry? You betcha. Wherever there is poor information access and restricted competition there is a rip off. But fee based advice, low cost products and fierce competition abound so there's lots of choice too. The real problem with modern products is the unfair disadvantage many consumers are at because of product complexity and lack of fluency in personal finance, hardly surprising given the deficit in the education system.

Biggest Pension Scheme is a Ponzi
But that's not the big issue of our time. If a cash strapped employer owes a million Euro in pension promises but has only fifty grand in assets, the scheme is patently insolvent and must be wound up. Nearly one Euro in ten of all our taxes will pay pensions this year to retired public servants. We already owe €116,000,000,0000 in promises to about a fifth of the workforce that's €116 billion and rising. The assets backing those promises are gone. By any sane measure it is a ponzi scheme but while the Government enforce the rules on insolvent pension schemes to protect workers, it continues treat public sector workers like mushrooms.

This week in what can only be described as some of the best examples of the dark arts of deflection and propaganda the Taoiseach Enda Kenny and Minister Joan Burton are busily striding into the debate on pension charges. This is a political campaign designed to combat their decision to rob private pensions of 2.4% of their capital.

But the big question is how can the Government continue with a patently insolvent public sector pension scheme? When are members going to be told the truth that these pensions are a classic ponzi scheme illusion? Where is the blue print to address the most basic truth - that the Irish pension model both private and public is broken? That's what Enda and Joan should be talking about but that means facing up to the fact that their own pensions , the most cherished asset of the mature big beasts in politics and the civil service, is a trick of the light.