Its early days and still unclear what legal basis the Government has to appropriate existing savings within private pension funds AND it’s also unclear what legal or administrative blocks can be erected to prevent this occurring to your capital BUT sending written instructions to Trustees and / or Administrators will help stiffen backs for the task ahead. Here’s a few drafts. Don’t forget to quote your account/ member number and keep a copy of your letter.

Letter to Trustees of Company Pension Schemes including AVC’s

Dear Trustee,

You are hereby notified and instructed that under no circumstances should any part of the assets held in trust by the trustees on my behalf be depleted to meet any third party demand including from Government without first testing it's legitimacy through the courts and without seeking written authorisation from me as beneficial owner of the assets.

Letter to Administrator of Personal Pensions, PRSAs and Retirement Bonds

Dear Administrator,

Please note that it is my wish that no part of the assets held by you on my behalf be depleted to meet any third party demand including from Government without first testing it's legitimacy through the courts and without seeking written authorisation from me as beneficial owner of the assets.

An Coillte and several other semi-State agencies facing massive losses on staff pension schemes sought cover by nationalising their pensions. No this didn’t remove their black holes, merely shifted them to taxpayers to add to the liabilities we still carry and which now run at €130 billion. The way tax transfers operate, most of this burden is carried from taxing the private sector. The biggest winners ,by far, in this grossly lopsided and broken model are Ministers past and present and their mandarins  whose pension pots are variously worth between €2 million and €5 million each.

That other semi-State companies like the ESB and RTE limped on but, since Tuesday, now face paying out millions from workers pensions to the Government despite already carrying massive deficits while others successfully ran to  State cover, tells you all you need to know about the stomach turning inequity of this fiasco.

In the calculation of the public sector elite, because a physical pot of assets do not support their liabilities, well, they simply don’t exist see. Its magic money. That explains the warped ideology and crass self interest behind Theft Tuesday last when the same people orchestrated a raid of 2.4% of all the accumulated savings of 800,000 workers in the private sector whose pension pots are worth a tiny fraction of theirs. Tens of thousands of short service public sector workers are also to face depletion of their pensions after struggling to save in AVCs, and that especially includes national school teachers. Many cynical things will make you throw up during this crisis but none so much as this asset grab by the State.

Uninformed thus far, much of the media commentary has been focused on what the Government intends to do with the money and very little on whether it will succeed in getting it. Despite making the announcement the Government has no legislative framework in place to give legal strength to it nor has it begun to figure out how to thieve 0.6% per year of all the assets in private pensions.

The Government may seek to make pension administrators liable for the levy. But these don’t own the assets. That raises the first fundamental flaw in its planned raid -how you can ask a third party to take money from workers funds without their permission? But the group in the most trenchant position are the trustees, the guardians of workers assets and who are specifically mandated to protect them under longstanding and complex legal rules. Just how the Government expects to defeat them by setting aside trustee law to snaffle scheme assets is unknown at this point but perhaps the Law Society pension scheme trustees may have a view.

The other hurdle the Government faces is affordability and liquidity. Many large worker schemes are bordering insolvency, carrying huge deficits while others simply have no cash, having committed funds to properties or locked them into illiquid financial instruments like tracker bonds.

Saying you’ll collect €470 million a year is the easy bit. Politicians love making speeches about  spending other peoples money but, collecting this from appropriating assets in the face of insolvency, illiquidity and likely robust legal challenges is entirely new ground for any Government in the history of the State.

Next week the Department for Finance expects to begin discussions on procedures with industry chiefs including large scheme trustees representing both semi state companies and US multi-nationals. Instead it will face, at best, a doctrine of non-cooperation and at worse open hostility and challenges with threats of job losses among administrators stuck with the bill. Don’t be surprised to hear rumblings about u-turns in the very near future as aghast Department of Finance officials come face to face with the  mess into which their political masters have landed them.

- Eddie Hobbs

Today is Theft Tuesday May 10th 2011. The State is about to cross the line moving closer to Buenos Aires than Boston or Berlin. Imagine watching your home being stolen from today at about 4pm, brick by brick and that the thief simply alters the law to make it perfectly legal!

Because, if leaks are accurate, today the Government will announce its intention to rob 2% of the capital saved by 800,000 workers, including the unemployed, from their retirement savings at an annual rate of 0.5% for the next four years. These are nothing like public sector pensions. The pension capital saved by those under 35 is only about seven grand rising to about a hundred grand by age 65 and capable of generating a lousy three grand a year in pension.  Despite the fact that the average public sector pension is about eight times bigger and mostly paid out of tax transfers  by private sector workers, their pensions are to be immune. Ironically the weakest public sector workers, tens of thousands who hoped to bolster their shorter service pensions with AVC accounts will find they too are being raided. 

No, it’s not like DIRT or a tax on gains or a levy on economic activity it’s straight forward appropriation of property, that’s theft of capital by any other name and will continue to be robbed even if fund values fall and losses are incurred.

That’s a line never crossed before in the history of the State. After, successfully plundering the private pension market for cash, what do you think is next? Cash deposits, An Post, and Credit Union Accounts are no different to pension accounts, just better understood. Life Insurance savings also move into the firing line.  Today is the game-changer. The Government’s intention, if the briefings are accurate will be to;

• Unilaterally change the law to set aside complex protection surrounding pensions accounts.
• Attempt to coerce Trustees and custodians who are mandated to safeguard assets for members to deplete them by 0.5% each year for the next four years.
• Blunder into a minefield of operational and legal complexities chasing a daft political equation that 0.5% of €90 billion in assets which includes property and schemes bordering insolvency will yield €450 million in cash, no sweat.
• Leave public sector pensions uncapped including the obscene pensions paid to failed former ministers despite election promises to the contrary
• Destroy any incentive to invest in private pensions by chopping tax relief to a level that makes it fruitless.

That the Government intends to revive job growth by robbing the capital it needs off the weakest workers while immunising the strongest is cynical, immoral and ultimately unworkable. That it expects to get clean away with it is deeply misguided. There will be consequences. The best way to plan for retirement from Theft Tuesday is to adopt  the nearest public sector worker to you whose pension you’ve helped purchase with your taxes. Count your lucky stars if that happens to be a former minister or mandarin on about €120,000 per year, they'll make grand neighbours when your short on heating oil.

- Eddie Hobbs

Try looking through a microscope with a lens cleaned with the rag from the deep fat fryer and you’ll get some idea what it’s like trying to figure out the deal going down in the general insurance market involving Sean Quinn’s businesses.  The result is likely to cost you an additional levy on every single general insurance product you will buy for up to the next ten years – so getting clarity is pretty damn important.  But, despite all the confusion we’ve been through, the dealmakers acting on our behalf seem to have made a pigs breakfast of explaining it, while the media, so far, has been focused on the gossip surrounding the Quinn family and their home.  But what matters most is whether we’ve negotiated the best terms – if we’ve learned anything from structuring bailouts – because the more I squint through the smudge, the less I like what I see:

• The Quinn Group bondholders, who lent the Irish manufacturing, property and financial services conglomerate €1.3 billion, are getting a further guarantee from us consumers through the mechanism of the deal - a tidy €200 million potential extra payback.
• In addition, their annual interest income will jump by a sevenfold margin to an extra €60 million per year, putting the total interest bill at €90 million and threatening to swamp all the expected profits of the group. That means little left over for us.
• To further feather their position, bondholders will swap their contingent guarantees from various Quinn Group subsidiaries for 25% ownership in Group shares, but snaffle the majority of the voting rights.
• Because we’ve no visibility on any side agreements we can’t see if bondholders are prevented from breaking up the business, stripping its assets and selling to the highest bidders.

Does that mean bondholders get the deal of the century and we get nothing? Dunno, what do you think? What about the other side of the deal where Liberty Mutual, a US insurer, is setting up a joint venture with us through Anglo Irish to take over the book at Quinn Insurance? It looks like it secures vital jobs mostly in border areas and should help market competition keeping prices keen – so should we be grateful?

• We’re injecting nearly €100 million of raw cash from Quinn Insurance books across to the new insurer.
• That’s on top of another mountain of money to bolster the reserves against possible claims at three times the industry norm and estimated to be worth a further €200 million.
• For that €300 million we get a minority shareholding and Liberty Mutual get the majority. 

So are our new partners putting hard cash into equity too? See that’s one of the smudgy bits. A figure of €102 million is mentioned, but the coded language surrounding it, makes it look awfully like short-term support to cover the insurance book. In the right circumstances could Liberty Mutual quickly recycle its €102 million stake back to the mother ship and end up as the majority owner in Ireland’s largest direct insurer - picking it up for a song?  Dunno, what do you think?.

See that’s why it’s a wee premature to take down the sign at Arrivals in Dublin Airport just yet, you know the one: Bondholders and Carpetbaggers, welcome to the best little country in the world. Cheap State assets for sale. All suits welcome. Go to Taxi rank. Ask for Dept. of Finance.

- Eddie Hobbs

The Government is poised to adopt Fianna Fail’s failed strategy in dealing with the personal debt crisis. This is to camouflage, rather than attack the problem crippling at least 100,000 consumers caught in the vice grip of unsustainable debt by;

• Maintaining the ban on repossessions which delays but does not stop rising bad debts.
• Leave the debt resolution market unreformed and unregulated except for tweaking bankruptcy laws 

• Jack up mortgage interest relief subsidies for recent purchasers which will be swamped by rising interest rates
• Scattergun scarce resources to many people who don't absolutely need it.
• Fail to rescue Irish families, who are coming apart at the seams, from the source of their distress.

That we’ve committed €70 billion to bank recapitalisation to deal with bad debts including projected defaults on home mortgages, but failed to deal with the families being eaten alive by the problem, is obscene – but that’s the plan, still.

The sooner a comprehensive new model for dealing with bad debt in a civilised manner is introduced the sooner we can move on but the issue is weighed down by poorly informed political ideology and a ruling class that clearly has not read or does not grasp the Law Reform Commission report.

This provides the template to tackle bad debt and to deal with defaulting mortgages where the excess over and above current sales prices is treated as a normal unsecured bad debt and chipped away at over five years, thereafter allowing the borrowers a fresh start. Homeowners can be then be given the option of continuing as a tenant paying rent but with first option to buy back from the bank or, to sell and get on with their lives elsewhere.

With 100,000 mortgages and utility bills accelerating into further arrears and faced with continued economic headwinds, it’s pretty damn obvious that there is no way back for many of these families. Hard core bad debts are exactly that, hard core and they ain’t ever coming back, no matter what camouflage is applied. These bad debts are already, globally, recognised as a loss on the balance sheet of the banks which we’ve now recapitalised to deal with them. So why not act now, marrying that bank buffer to the families that badly need our help and through a modern non-judicial debt resolution process?

Is it because of fear of a backlash from the let-them-burn brigade. You’ll hear much of it about and read it in volume on websites; Look pal we did nothing wrong so why should we bail out these people? Their decision, their bad luck, screw them! The issue is shrouded in fear and ignorance about how modern debt resolution processes work but the worst aspect is the nauseating hypocrisy that seeps through it like wet rot.

Those who would deny these distressed families a humane work out to a fresh start are the first to bellow at the EU, IMF and ECB to let the bondholders burn. If European creditor banks and pension funds are to pay the price for their folly then how can we, with the same breath, insist that Irish banks are protected from failing to swallow hard core bad debt at home? Is it because the family next door on jobless benefit with no hope must not be given any, that we must punish them to feel better about ourselves? Sounds awfully like the German right wing bogeyman we’ve conjured up.

The EU is spooked by the Irish general election. It’s point man, Olli Ilmari Rehn, the European Economic and Financial Affairs Commissioner, used this week to tell us there’ll be no haircut, no question of defaulting on the bank bonds. The rate may be adjustable, lads, but forget the debt. But since many international economists and analysts concur that loading an economy like Ireland with debt it can’t handle is simply bad business, what’s really going on?

The Germans and French would have us believe that it’s all about moral hazard, you know executing an admiral from time to time – pour encourager les autres - as Voltaire once put it. But I don’t think so. There’s an overwhelming economic logic to reducing the Irish debt load to something we can actually pay back, so what’s got the EU so jumpy?

Think about Irish bailout as a temporary bandage until the EU gets its act together with a resolute action  plan - one  that convinces markets and you tip toe closer to the truth. Ireland is the pin. Spain in the grenade. This year Spain hopes to refinance close to €100 billion of Government debt, starting with nearly €21 billion in April, which is why there’s a rush on to fix the European bailout model by end of March. That Portuguese bonds are nudging again towards the tipping point of 7.5% isn’t helping nerves. Neither are reports of Election pledges coming from Ireland. So what is it about Spain that’s frightening the horses so?

• Spain is Europe’s third largest economy and is as big as Greece, Ireland and Portugal combined which means its too big to save with the current EU bailout fund even if the fund is allowed to borrow more money.
• Spain's central and regional governments and its banks need to raise about €290 billion in gross debt this year – that’s a lot of cash even if the Chinese decide to support again.
• Spanish property indices are based on asking prices and only recognise price falls of just 12% but anecdotal evidence suggests that the real fall is more like 30% to 40%. Sound familiar?
• Spanish banks have reserves to meet bad debts at 2.7% of loans, that’s nearly half the level in the USA but Spain has double the unemployment level at 20%.
• Total write off’s so far are €45 billion but the lending portfolio is €1 trillion.
• The real concern are Spain’s savings banks (cajas de ahorro), which like the Irish Nationwide, aren’t publicly quoted so are difficult to see inside- except through regulators and Goverment.

No wonder the EU is fretting. There may be scope to restructure the Irish bailout deal but it ain’t going to happen until the EU has got its act together and Spain is saved from our fate. Oli won’t admit to that for obvious reasons but that’s the view from here.

Stimulating Stimulus!
The new Government might like an idea to stimulate productivity and spending but that doesn't cost a bob; Allow workers – that excludes owner directors and employed relatives – to earn extra cash over and above this year’s salary, tax free until Christmas 2012. Then the extra income forms part of taxable earnings into 2013. Course you’d need to place a reasonable cap like €30 grand in extra earnings and to exclude pipeline promotions and public sector increments, so that the scheme would focus on real productivity and encourage employers to develop genuine schemes.  Employer and employee declarations could discourage tax evasion if properly constructed

Fixing Trackers
As predicted throughout last year, fixed rates are on the move signaling increases in the ECB base rate about 6 months away. Thing is rate rises will be higher and faster than conventional thinking expects. The ECB base rate, now at 1%, was 4% before the 2008 crisis. Inflation is on the march throughout the fast growing parts of the global economy and economies such as the UK with has printed money to fill the holes in its banks and stimulate the economy is seeing inflation at 4% - in the teeth of an austerity drive. Why? Because of money debasement (monetary inflation) and energy (commodity-led inflation). The EU isn’t immune. So if your variable or tracker mortgage is accounting for much of your income ie over 20%, it makes sense to buy certainty because you may not be able to handle volatility of monthly mortgage repayments. So check out long fixed rates – if it’s not too late. Most providers have shifted fixed rates expecting a modest ECB adjustment but these will shoot a lot higher as fears of high inflation gathers in markets.

Readers, bewildered by campaign complexities and uneasy about getting duped by undeliverable promises, have been asking for a concise summary. So here’s mine for what it’s worth. You can boil the general election down to three critical national questions;

1. Who is best to renegotiate the bailout deal?
2. How do we bridge the remaining €10 bn deficit- tax or spending cuts?
3. Who is least likely to make a pigs breakfast of it?

Who is Best to Renegotiate?

With the exception of Sinn Fein, all parties are in favour of a renegotiated deal – even if Gilmore’s unwise bravado masks it for Labour. Sinn Fein on the other hand has a novel idea, much like Jim Jones had with The People’s Temple. See below.

How the hell do we get out of this hole fastest?

That depends on who is first prepared to swallow the political poison of shrinking the State to fit the undersized economy. Nobody wants to admit that, just like in Russian Roulette where you eventually blow out your brains, you cannot dig your way out of a deficit hole by jacking up tax on consumers without ruining the economy. It’s really simple. Every Euro we fail to trim off optional spending must be recovered from consumers in increased taxes. More taxes, whether a super income tax rate, site tax or water tax, means digging the hole deeper – yet all parties are committing to do so. Better to keep rolling the barrel  and then blame the messy outcome on the Huns and Frogs or on conspiracies. People love conspiracies. Just ask Elvis.

Who is least likely to make a pigs breakfast of it?

You can’t trust any political party gripped by election fever to do what its promises - but some are clearly better positioned, less compromised by ideology, less captive to vested interests and less certain of being in opposition from where you can safely promise just about anything - eternal life, a six pack tummy, a new bum.

• Sinn Fein

Promise to give back the bailout money and go it alone for a year. No plan to deal with the subsequent bank collapse, ATM closure and food riots. Sinn Fein also want lots of cash from non-supporters from all their investment assets - including collapsed property values and bank shares. Well, at least it’s daylight robbery.

• Labour

Want to write up an entirely new deal with EU members to stretch out the Irish depression to 2016 by borrowing €5 billion more and imposing higher income taxes on nervous spenders with incomes just over TD levels. Eamon Gilmore reckons he’ll convince the IMF/EU/ECB with the argument he failed to sell to TV3 viewers Tuesday night.

• Fianna Fail

Promise to continue with the existing strategy and protect its legacy by proving it works. Relies more on spending cuts and less on taxes for the remaining €10 billion. So far Fianna Fail mostly raised taxes. Also plans innovative Dail reform but its radicalism appears to be a function of the distance from its next time in office.

• Fine Gael

Promises no more income tax increases unless a recovering economy can bear it. Remaining deficit to be closed on a ratio of €2 cuts to €1 taxes. Relying on exploiting shifts it believes are opening in the EU to renegotiate. Has a strategy to regenerate and redirect semi-states in energy, water and broadband by getting State owned companies to borrow for expansion.

• Greens, Socialists etc

Doesn’t matter. Not enough are likely to be elected to make any difference.

• Independents

Depends on whether a late Fine Gael surge edges it towards a single party government. Then, new independent TDs with business, economic and finance competencies like Ross and Summerville will be pivotal.

Any late Game Changers?

Funny you should ask that. Another €870 million needs to be added to the gap we are required to close in the annual deficit, if Alan Dukes is to be believed. That's the interest repayment at 5.8% on his estimate of the additional capital requirement of €15 billion to shore up even greater toxic loans losses than had been previously calculated by the experts.

The Department of Finance hotly disagrees -small wonder given the resounding criticism of its propensity to continuously underestimate bank loses. Thing is, without access to the underlying data we simply don't know who is right but what's odd is that the Anglo Irish Bank public interest director has chosen to issue the data publicly. If Dukes is correct this is a game changer in the renegotiation of the bailout fund, driving the total debt beyond the point even the most ardent German right winger can expect us to service. It also dramatically alters the political debate by questioning the relevance of the four year plan to get the deficit down to 3% of GDP.

There isn’t any doubt but Ireland cannot carry the debt burden without buckling and defaulting. The excess debt we cannot carry will have to be moved to a common E-Bond supported by all Eurozone Governments and bondholders must be forced to whistle for their guarantee. That’s a job for skilled diplomats like Pat Cox and John Bruton with tons of European experience and not table thumpers- IMHO.