bluereek

Today’s report in the Irish Times gives a reasonable summary of just how bad things are around Europe.  We have made some serious errors in Ireland – but there is a major international dimension to this.

Was interested in listening to economist John Fitzgerald today.  Even if we end up putting €20bn into rescuing our banks this number will pale into significance when we look at costs associated with government spending – be that public sector or unemplyment payments.

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The concept is great.  Join an organisation.  Give the best years of your life to the organisation.  Expect that when you receive the retirement watch in your 65th year that you should be able to ‘retire’ – meaning live a confortable life, without being required to work.  You should expect to retire without any financial worries – with a month income of 50 -66% of your salary on retirement. In Ireland, if your are working in the public service, then this should adjust in line with salary increases awarded after your retirment date.

Companies operating such schemes have been ploughing money onto the schemes – and the fund managers have been investing these moneys in shares, bonds, property, cash, whatever.  Unfortunately these funds have nose dived.  In addition the companies with the commitments to make regular payments to the funds (to include payments to make up for the shortfall in the fund performance)  are not making much (if any) money themselves. 

The debate re defined benefit and define contribution seems to focus on twoitems: (1) who should take the risk re the performance of the funds in which the moneys are invested – the employer or the employee? (2) are companies using the move to defined contribution to reduced their total costs of employement?

Today’s Economist, private accounts, poses many of these questions.  The statistics around pension funding shortfalls are pretty intimidating.  For a number of the entities it might be argued they would be better off going to the wall than trying to run themselves into the ground to meet pension funding shortfalls.  Or it might be argued the employees in such companies might be better off walking out – on the basis that they realise the companies will be inable to meet their pension obligations without effectively going to the wall.  Or it might make a lot of sense on both sides to sit down and come to a workable, mutually acceptable, compromise – whereby these pension benefits (and associated commitments) are reduced and agreed.

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We’ve been there before – .com bubble & bust.  But what will be the impact of the current economic collapse on the WWW business?  The first time round many of the businesses did not have any real business  model.  The last number of years have seen ‘established’ businesses embrace and exploit the technology e.g. www.ryanair.com moving to a web based booking model only.  However at the same time we have seen businesss such as the newspaper industry being almost annihilated by the move to the online world.

In two recent pieces the Economist references the challenges being faced by many of the web2.0 and/or Silicon Valley companies.  For instance how will Facebook extract value from its global penetration, how will Twitter make money?

Seems to me we will have the same result again.  Those with a sound business model will survive.  And a sound business plan includes providing something of value – ie something worth more than it costs.  www.linkedin.com seems to be able to generate revenue from its business members.  I think the www.ft.com offering whereby a limited amount of free reading is provided may be a way forward for newspapers.  However business’s also need to understand that the technology itslef has changed the business environment.  News cannot be delivered by print – comment/analysis/ out of the box thinking can be delivered in print.

Should be an interesting next 12 months.

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Dan O’Brien (senior Editor & Economist, the Economist Intelligence unit) did not hold back in his call to action in his article in the Irish Times yesterday.  O’Brien is a well known face to the Irish public – through his regular appearances on Prime Time.  Clearly he is very fearful for the outlook for the Irish economy.

O’Brien is critical of our political system – whereby he believes we do not get the most competent people in key positions at a time of crisis.  I would agree with this.  My previous urging for a National Government is just another example of this.  Interesting to see Buffett reminding Democrats and Republicans to work together to address this ‘Pear Harbour’ economic situation – in his recent CNN interviews.  At best Fianna Fail’s invitations to the opposition to put forward their ideas can be described as half hearted.  The Fine Gael response was less than half hearted – they are more like a ‘dog in heat’ – believing they have the opportunity to grab power in the near future.  Heaven help us.

Returning to Dan O’Brien – he obviously believes the government is avoiding the issues re management at the main banks.  I had presumed, that given that the government is represented on both boards, they were 100% satisifed with the recent appointment of a new CEO at Bank of Ireland.  I think O’Brien is very clear – they should all go.

Interesting to listen to Michael Soden (former CEO Bank of Ireland) on this morning’s Eamonn Dunphy radio show.  Soden suggested complete replacement of both main bank boards (on basis of being in place while 99% of the value disappeared) - rotating off 4 at a time – getting to a new Board within 12 months.  Seems like a reasonable approach – and perhaps a way to implement what O’Brien is suggesting.  Soden excludes from necessary removal those with less than 2 years on the Board.

Things are moving on.  Obviously Messrs Cowen and Lenihan have been engaged in a serious roadshow for the last week.  There have been distractions – including unhelpful – and supposedly unfounded – comments from a German politician – subsequently countered by the German Minister for Finance.  The move towards a ‘toxic bank’ seems to be gathering speed in the US.  But clearly the US is taking the view that is can continue to write money to kick start things.  Only David McWilliams seems to think Ireland can do something similar (listening to him on Prime Time during the week).

Here in Ireland the press continues to be highly sceptical/ critical.  I continue to believe that a right of centre govenment (combining FG and FF – and anyone else who wants to be part of it) – would provide a national response and have the capability to win over far greater support – both in the street and the press.  Within such a government there should be room for non elected experts in key cabinet positions – is that’s what it takes.  Dan O’Brien is just another well informed commentator putting up his hand (again) and warning us that we are not doing enough.

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