LESSONS LEARNED THE HARD WAY

Where will it all end for little old Ireland?
Where could you possibly begin to project where it will all end?
Well, one could take a quick look at our northerly neighbour, Iceland, and you might gain some indication of the destination that the descending road we are on will take us. It is a town called the IMF.
The International Monetary Fund is the last port of call for bankrupt countries. You don’t call them however; they march in on you without as much as word of greeting.
The IMF is in local terms the equivalent of the court sheriff calling. The IMF will let you keep the milk and perishable foods needed for your family but they will take the fridge.
Iceland is a country of 300,000 people. In the last seven years, they prospered on being a centre for international financial trade. Previously they were fishermen. They made money out of paper, sometimes quite literally. Like the IFSC in Dublin, they provided a compliant tax and lax regulatory regime allowing vast amounts of money flow through their systems whilst reaping a fortune in fees and commissions. In a country with such a small population, it did not take long for the effects to permeate all the way down the food chain.
Like Ireland, Iceland grew prosperous and arrogant. House prices climbed through the roof making accidental millionaires out of ordinary folk , money from all over the world flowed in to the coffers of the banks, (including billions from the English County Councils), attracted by the high interest rates offered. Shops sold out of expensive stock. Fancy cars never seen before, except on television, soon jammed the streets of Reykjavik. New retail outlets opened up to gobble up the sudden stream of cash in the system. Igloos melted with the heat of all this frantic activity.
The Icelandic banks, strengthened by all this cash, puffed out their tiny chests and decided to take on the world. They bought other banks and financial institutions in countries throughout the world, including Ireland (Merrion Stockbrokers).
Remember, this is a country roughly the size of Blanchardstown in population and a little bigger than Ireland in size.
Like the Irish on the property scene, the Icelanders punched away above their weight in the international financial boxing arena. They were feared wherever they entered a country, targeting banks and stock broking institutions with relish.
Sadly, however, reality hit home when the credit crunch bit worldwide. When the big boys that dominated the world for a century like Lehman Brothers fell, what hope had our vastly leveraged Icelandic raiders? Their strength was based on the high share price of the bank and the strong capital ratio brought about because of insanely high interest rates paid to attract international depositors.
When international depositors took fright at what was happening worldwide and pulled their money back to their own countries that guaranteed the deposits, the house of cards that was the Icelandic financial giant tumbled to the ground. The IMF now runs Iceland with the cold authority of a Nazi concentration camp commander.
Warren Buffett, that great American investor, is fond of saying that you only know who is swimming naked when the tide goes out.
Back home in Ireland, the tide is retreating fast. Some obvious candidates are naked, but so too are some very surprising ones. We are in the middle a financial tsunami not known in our history. The government, paralysed by inertia and incompetence, dither and pretend it will be alright on the night. We await our fate, rather than being proactive and trying to input some direction to it.
Conditions are perfect. The IMF is on the way!