Peter Mathews (Dublin South, Independent) | Oireachtas source

I am glad to be able to give a cascade of welcome to both the Minister of State in his new position and on his first Bill, and also to the incoming chairman of the Joint Committee on Finance, Public Expenditure and Reform, Deputy Twomey, who was elected the other day, a committee which I feel very saddened I was expelled from by the Government, along with my membership of the Joint Committee on Public Service Oversight and Petitions, a year ago as a result of voting in according with conscience.

I am glad to be able to offer a preliminary contribution on this Bill. I was very interested to hear the opening statement of the Minister and the observations of Deputy McGrath, and those of Deputies Boyd Barrett and Ross. It was an interesting melange of initial response, and all of it had validity.

I am reading a book, Stress Test, by Timothy F. Geithner, former president of the Federal Reserve and of the Federal Bank of New York, which came out recently. It would be well worth the while of anyone who wants to contribute to this debate to read it because it shows, even with cutting edge experience and qualification and high head count resources in the Federal Reserve, supported by the Securities and Exchange Commission, SEC, which looks after the Wall Street end of things, while the Federal Reserve looks after the licensed deposit, Federal Deposit Insurance Corporation, FDIC, banks in America, how far behind the curve even the best operated regulators and central bankers found themselves when the crisis began to crack in America. It was not a once-off explosion like a volcano. There were splutterings at first. Bear Stearns went. The type of leveraged instruments and assets that had been created in the preceding years were very badly understood by everyone, even the most sophisticated. Geithner had hands-on experience on site in the Asian crisis and the previous crises. This thing was unravelling faster than they could understand it. By a fluke they had just about got a handle on the tri-party obligation transactions approximately a year and a half before the uncontrollable crisis started to occur.

The danger, and I say this with all due respect, is that the introduction to this Bill sounds impressive. It is jargonised and full of technospeak. All these things in new instruments, new ways of doing business in mobile capital, exposures, liabilities and insurance products, because that is what they are, are hugely leveraged and built sometimes on the slimmest of margins. We call this Bill the Irish Collective Asset-management Vehicles Bill 2014, but it is not all about Irish collective asset-management vehicles. It covers international collective asset-management vehicles registered in Ireland. Let us correct that first. Let us strip them all back to find out what is behind the facades. What do their businesses do? Whose money is under investment? Where are the destination investments held? If we are the location for the management, whether back office management or decision-making management, with contractual party positions being taken up, we may be assuming, if we put it under the umbrella of an Irish Central Bank review or regulation, professional indemnity exposures to this country.

Our Central Bank is still wobbling from lack of resources, experience, qualification, involvement and meaningful conversation with the institutions it supposedly regulates. As regards the mortgage crisis, which is bread and butter stuff, it does not have a clue what is going on in the banks. It trots out aggregate figures for arrears reported by the banks, but no one is drilling down into what exactly is going on. No one has asked for a sample of 100 cases to be explained at bone marrow level. Jargon is a great veil to hide behind. There is too much opaque glass, too many veils hiding the realities and the nuts and bolts of what is going on. We should be getting into the engine rooms.

I speak from experience. Does anyone remember what a CDO is? The Minister of State probably remembers the SIV, special investment vehicle. A CDO is a collateralised debt obligation. These companies proliferated at the IFSC theoretically to improve the cost of capital of international banks that were already highly leveraged. The transactions that took place on the commercial paper issued in America, in dollar terms, to finance banks that had European balance sheets, when everything started to seize up and credit contracted from the over-leveraged positions of many banks, became a not very pretty sight. Who is behind the drafting of this legislation is a very good question. IFSC clearing house members are people of whom to be very wary. I am not saying they are untrustworthy but the Minister of State should cross-examine them. He should get down to nuts and bolts and quantify everything. He should not be afraid to ask the questions.

Tim Geithner admits in his book that they did not know what was going on. They had to get special teams to start beginning to learn what was going on. Bear Stearns was rescued in a breathless state of misunderstanding by a bank which equally did not know where it stood. Lehman Brothers did not have a clue. These were the investment banks with undoubted reputations. We vaunt our reputation. We talk about it and massage it. When one has to talk about one’s reputation, it is already gone. A banker said that and he was right. When one has to protest that one is safe, one is not safe.

This Bill will need a great deal of close interrogation and examination on the next Stage. We will not gloss over it because the cost will be too high if everything starts going wrong. We will be the platform for approximately €4.5 trillion of funds. Do we know what proportion of those funds will be leveraged? People think when they talk about an investment that it is saved up money invested in the product destination of the investment. It is not. Usually it is leveraged. Even the Federal Reserve is leveraged 77:1. The normal leveraging level of the Fed was approximately 20:1. Deutsche Bank is over 50:1, Lehman was 40:1 when it went bust. Lloyds reinsurance and insurance market almost went into meltdown from the stage when its reputation to that point had been undoubted, where people made presumptions and talked in the jargon of admiration.

We hear names like PwC, KPMG and Ernst & Young being trotted out with the suggestion that they make favourable observations and comments about the establishment of this type of arrangement. We should not forget certain facts in this context. KPMG acted for ten years or more as the auditor of Irish Nationwide, which blew losses of €5.5 billion onto the households of the Irish people. Ernst & Young acted as the auditor of Anglo Irish Bank, which blew losses of €32 billion onto Irish citizens. Anglo is still there, by the way. People think it has gone away, more or less, because of the promissory notes and bonds and it is all brilliant. It has not gone away. If any of those bonds are sold, we will be really on the hook because we will not be able to cancel them at that point. It is like the bar of the cross on the Irish people. The Government should cancel them because it was wrong to place such a level of losses on the Irish people. This is an example of a serious international financial service that the Government could do for the people of Ireland. It would enable water charges to be removed until a proper system of water infrastructure funding, investment and delivery is put in place. The same thing applies to the property taxes. Those taxes are income taxes by another name. They have to be paid out of income.

So far, corporates have been relieved of having to make any contribution to the national recovery. The effective corporate tax rate for multinational corporations is approximately 6.5%. As the Minister of State will recall, I said from the outset at parliamentary party meetings that a corporate contribution should be made in the form of a national recovery levy. The Government was well able to get hundreds of millions of euro by robbing pension funds at levels like 0.6% and 0.75%. It will get €750 million from pension funds this year. It is afraid to ask multinational corporations to contribute 3% of their reported profits - the profits they declare in their stateless existence - to a national recovery levy for three years. It is not right that these corporates hover over jurisdictions in which they pay no taxes until they decide where they would like to pay them and subsequently pay a very small amount of tax. It is a fact that taxes can only be paid from the incomes of individuals or corporates. The only exception to this is when, on the transfer of the realised difference in the cost of the investment to the point of sale, there is an actual profit cash uplift and a little bit of that is paid as capital gains tax. Otherwise, when people are being asked to pay money - one can call it a property tax, a water charge or whatever else one likes - it has to come out of their incomes. In effect and in reality, it is substantively an income tax. In the few remaining days before the budget, I ask the Minister of State to get the word back to the big man that he can do it if he applies some courage to a proper substantive understanding of what is going on.

Does the Minister of State know how many homeless people were asleep on Grafton Street yesterday morning? When I spoke to Michael, who sells newspapers and magazines like The Phoenixfrom a mobile stand at the junction of Johnson's Court and Grafton Street, he told me that when he was going to work with his newspapers early yesterday, he counted 40 human souls - people without homes - sleeping rough on Grafton Street. That is how all the losses and graphs, ups and downs, and pluses and minuses of the economy translate into human lives in our society. There is merit in people with higher levels of income having to pay a little extra until we steer around the ship. Approximately €500 million of necessary funding and expenses needs to be given to the health service to correct the ship. In real terms, this involves people waiting for operations and MRI scans etc. Does the Minister of State know that people with serious symptoms in their heads or brains have to wait two years for MRI scans in the public health system? That is how long one has to spend on the waiting list if one does not have private health insurance. There is no need for that in our society. It would amaze me if the CEOs, CFOs and COOs of foreign multinationals that have invested in Ireland were not able to advocate for the rightness and justification of taking on board an annual 3% levy on reported profits for three years as part of this country's national recovery effort. I am absolutely certain of it. I have asked many of them. Some of them are my contemporaries. They would not blink. It is a shame that the conservative establishment is frightened of its own shadow at times.

I would like to add a few thoughts to my brief remarks about the potential for professional indemnity exposure if we get the management of this arrangement wrong and funds start to sue us because our regulator was remiss or the on-site management went astray. The combined fines, penalties and settlements paid last year by two banks based in the US - Citigroup and Bank Of America Merrill Lynch - amounted to approximately $110 billion. Fines, penalties and settlements arise from bad operations, misbehaviour or rule-breaking. Citigroup has a reddened face in many of the parts of the world in which it has operated. Tim Geithner talks about this in his book. We should not be Pied-Pipered into something by buzzwords, jargon and technospeak. We should be able to ensure all of this is explained exactly. At the end of the day, it is all simple. People swoon over the sub-prime slicing and dicing of mortgages when it is referred to as securitisation. Even at home, on the familiar forecourt, people say "do not talk to me about car engines". They think it is a matter for an engineer to lift the bonnet. It is not rocket science. If one takes it simply, there is an engine with cylinders, which are spaces in which pistons go up and down. When petrol is injected and ignited, it explodes and moves the pistons, which in turn drive the rods that drive the shafts that drive the wheels. Finance is the same, but we do not ask enough questions. That is why we got into the mess we have experienced.

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