Corporate Finance

Friday Stat Attack: The Financial Heaven that is Ireland


When we think of profits, we think of successful companies that employ people to produce goods and services that other people want to buy; for instance, the proverbial ‘widget’ factory.  Ideally, a profitable company employs people on good wages and conditions, invests in expansion (to keep up those profits and increase market share), and pays a competitive return on capital.

With the onset of financialisation, financial companies have come to over-ride traditional markets such as industry.  They don’t actually produce much, but they make a lot of money and with that comes political power to dominate decision-making in the economy.  If you have any doubts about that just remember our own bubble, crash and bondholder rescue.  The productive economy takes second place.

One measure of the extent to which financial institutions can dominate the productive economy is to compare profit levels between the two.  In a productive economy, profits from non-financial companies should be strong.  In a financialised economy, profits from financial institutions will be stronger.

Where does the Irish economy stand?  With the financial boys and girls.


Yes, if you’re a financial company and you happen to be in Ireland, you’re in heaven.  Even the UK, with the power of The City, doesn’t match Ireland in this measurement.

Yes, some people might say, but financial companies bring their own benefit to the economy.  Oh?  Not according to the latest Central Bank Quarterly Report – thanks to Ben (aka Conor McCabe) from Dublin Opinion for spotting this:

‘Financial sector developments, which are for the most part unrelated to the domestic economy, account for a significant portion of the rise in GNP. To the extent that these persist in contributing to growth in net factor income in the coming year, they would further support GNP growth unrelated to domestic consumption, investment or export activity.’

Ah, yes, they are in this economy but not of this economy.

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Britain’s Economic ‘Boom’

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This post originally appeared in Socialist Economic Bulletin on the 19th of November. 

As the British economic crisis becomes more prolonged the outbreak of stupidity that greets every new piece of important economic data becomes more generalised. Previously there has been a campaign to suggest that austerity has led to recovery when the opposite is the case. The recovery is based unsustainably on rising consumption, led by government consumption. The publication of the latest GDP data for most major economies has now led to wild suggestions that Britain is booming and is the strongest major economy in the world.

The level of real GDP in Britain since the recession began at the beginning of 2008 is shown in the chart below. It is compared to the US and the Euro Area. British growth has been almost exactly the same as that of the Euro Area as a whole and significantly worse than US GDP growth.

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The Cash Hoard of Western Companies

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This post was originally published on Socialist Economic Bulletin on Monday the 21st of October.

Supporters of ‘austerity’ would have a very strong argument if there really were no money left. In that case, opponents of current policy would be left arguing only for a fairer implementation of those policies, or that perhaps they could be implemented more slowly.

This is not the case. Firms in the leading capitalist economies have been investing a declining proportion of their profits. This is the cause of the prolonged period of slow growth prior to the crisis and a number of its features such as stagnant real wages, so-called ‘financialisation’ and the growth in household debt.

This negative trend of declining proportion of profits directed towards investment reached crisis proportions in 2008 and is the cause of the slump. As a consequence of the sharp fall in this investment ratio there has been a sharp rise in the both the capital distributed to shareholders and in the growth of a cash hoard held by Non-Financial Corporations (NFCs). This cash hoard is a barrier to recovery, releasing it could be the mechanism for resolving the crisis.

The chart below shows the level of surplus generated by US firms (Gross Operating Surplus) and the level of investment (Gross Fixed Capital Formation) for the whole economy. Since the former are only presented in nominal terms, both variables are presented here in the comparable way.



The nominal increase in profits has not been matched by an increase in nominal investment. In 1971 the investment ratio (GFCF/GoS) was 62%. It peaked in 1979 at 69% but even by 2000 it was still over 61%.

It declined steadily to 56% in 2008. But in 2012 it had declined to just 46%.
In a truly dynamic market economy there is nothing to prevent the investment ratio from exceeding 100% as firms utilise resources greater than their own (borrowing) in order to invest and achieve greater returns.

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Comparison of Relative Performance of China and the West Since the Financial Crisis Began

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I greatly admire and avidly read Gavyn Davies blog, but his latest comments on China, unusually, lack precise numbers which therefore creates some ambiguities which can give unnecessary credibility to wrong analysis. Putting in precise numbers should bring clarity.

China's government has spelt out officially its precise growth target. That is to increase GDP by 100% in 2010-2020 – about four times the prospective growth rate of the US in the same period.

Given China’s cumulative growth in 2010-2012 (17.8%) this means China has to hit a 6.9% average growth rate for the rest of the decade to achieve its target. As all this is unambiguously spelt out the relevant yardstick is whether China will achieve this.

It is a wholly spurious method, not used by Gavyn but used by others, to invent some target China never set and then claim there is a ‘crisis’ because China has ‘failed’ to achieve a target it never put forward! There is no indication China is falling below its projected growth target – China’s growth this year will clearly be above the target rate.

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Padriac White and the Establishment of the IFSC

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The following extract is taken from The Making of the Celtic Tiger: The Inside Story of Ireland’s Boom Economy. Dublin. Mercier Press. (2000). It is Padraic White’s own account of the development of the Irish Financial Services Centre.

In the middle of 1973, the IDA launched international services as its latest product. At the time, this category included both technical consultancy services and computer services. However, within the IDA’s own research unit, work continued to identify and analyse other service products, including those n the financial-services area. One of the economists engaged in this task was Ken O’Brien, who later, as founder of Finance magazine, would provide specialist coverage of the Dublin financial centre. Our New York office befriended a Wall Street lawyer, Bob Slater, who was familiar with the then-exotic world of offshore banking – the reasons why banks set up in specialist offshore centres, the kind of financial activities undertaken there and the nature and number of jobs created in this developing sector.

As manager of the planning unit, I agreed to take on Bob Slater, both as a financial consultant on financial services to IDA and to produce a study of offshore banking systems. His report examined the success of Bermuda in creating jobs in financial services, and he was satisfied that Ireland could emulate its achievement. And so in 1978 – innocently, in hindsight – we set out to promote international financial services to the world, and did so on a pilot basis to test-market the reaction. The IDA executives embarked on their selling mission, armed with the expert conclusions of the Wall Street expert.

During the year the IDA team soon landed some big fish in the form of two US banks that had developed specific job-creating proposals. However, the agreement of the Central Bank was first needed. Michael Killeen* considered the proposals sufficiently important for himself to go with Jerry Kelly, who was negotiating the projects, and myself to make the case for Central Bank authorisation. The reaction was not encouraging and we left the Dame Street offices feeling rather dejected. We could not give the required assurances or promises of authorisations to our foreign bank clients. The projects died and we ceased to do any more financial-services promotion. Subsequently, it emerged the bank no stomach for the projects and would not approve them. However, the IDA could never get a clear reason for this. The most authoritative word which came back indirectly was that the Central Bank believed the offshore financial projects ‘smacked of a banana republic.’ (pp.323-4.)

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Translation: Bifo: “The defeat of the anti-Europe begins in Italy”


This is a rushed translation of an interview with Franco Berardi (Bifo), conducted by Amador Fernández-Savater for the Interferencias blog on, published 27thFebruary.

What is the context in which the Italian elections have taken place?

The political disintegration of Europe. Europe was born as a project of peace and social solidarity, taking up the legacy of the socialist and internationalist culture that opposed fascism. In the 90s, finance capital's major centres of power decided to destroy the European model and the signing of the Maastricht Treaty unleashed the neo-liberal assault. In the last three years, the anti-Europe of the ECB and Deutsche Bank seized the opportunity of the 2008 financial crisis in the US to transform the cultural diversity of the European continent (its Protestant culture, gothic and communitarian, its Catholic culture, baroque and individualist, its spiritualist and iconoclastic orthodoxy) into a factor of political disintegration of the European Union; and above all in order to make labour resistance bow completely before capitalist globalisation. The drastic cutting of wages, the elimination of the 8 hour limit to a working day, labour precarity among young people, the postponement of retirement for older people and the privatisation of services. The European population has to pay the debt accumulated by the financial system because debt functions as a gun pointed at the backs of workers.

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Progressive Film Club: Urban Finance and Suburban Sustainability, Sat 23rd of Feb, The New Theatre, Temple Bar

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The following are the upcoming showings this saturday, but check out the full program for February, March and April here.

Saturday 23rd February: Urban Finance and Suburban Sustainability

The New Theatre • 43 East Essex St Temple Bar • Dublin 2

2pm: The End of Suburbia: Oil Depletion and the Collapse of the American Dream (2004)
Since the Second World War, Americans have invested much of their new-found wealth in suburbia. It promised a sense of space, affordability, family life, and “upward mobility.”
As the suburban population exploded in these years, the suburban way of life become embedded in the American consciousness: it became part of the American Dream. But as we entered the 21st century, serious questions began to emerge about the sustainability of this way of life.

  • Directed by Gregory Greene.

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Selections from Finance Dublin Magazine, 1988

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These scanned pages are intended as an aid to research into the world of finance in Ireland. I’m going to try to post as much of the primary and secondary source material I come across as I can. The purpose here is purely educational.

Some quotes, just to give a sense of the articles below.

First, from Ray Douglas, group general manager, Treasury, of Allied Irish Banks, talking about Dublin’s biggest dealing room (January 1988, pp.37-38):


The commissioning of our new 80-position dealing room is Bankcentre is only the latest step in a long association between Allied Irish Bank and the global financial markets. In the mid-1970s AIB identified the emerging global financial markets as a major business opportunity for the bank… Our objective is to make AIB a significant niche player in the markets, trading on our own account, providing liquidity to the markets and acting as market maker in some specific areas…
During the 1980s the emergence of the new global financial markets in securities and in off-balance sheet instruments such as SWAPS* and FRAs** has provided a further range of opportunities for AIB.

**Forward Rate Agreement

Ireland had been hot-wired into the world of swaps, derivatives and other off-balance sheet activities for at least twenty years before the crash of 2008. This was no ‘bad apple’ scenario.

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EU Presidency Counter-Summit 2013

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The Counter-Summit Phenomenon – Forums for resistance and alternatives

Since the anti-globalisation movement of the late '90s and early 2000s, wherever the political representatives and economic thinkers of capital met, they encountered protest and opposition. From Seattle to Genoa, tens of thousands turned out to demonstrate against institutions like the WTO, G8 and EU. The anti-worker and environmentally unsustainable implications of their free trade and neo-liberal agenda were exposed.

With the understanding of the limitations of the model of protests at summits across Europe, came the rise of counter-summits. Generally called Social Forums these were an opportunity for socialists, trade unionists, environmental activists and others to meet. They represented an attempt to go beyond simply protesting against these institutions and to formulate alternatives as well as to discuss strategies for resistance.

The World Social Forum in Porto Alegre in Brazil which 12,000 people attended opened the process of the WSFs. It was followed with successful events in Athens, Mumbai, Nairobi and elsewhere. After playing a vital role in mobilising for the demonstrations on 15 February 2003, where tens of millions marched against a war on Iraq, the summits suffered a general decline, becoming somewhat disconnected from the real struggles happening around the world.

The model was successful in opening an important discussion, but it also contained within it an important contradiction that was always present in the anti-globalisation movement. This was the tension between an approach that was fundamentally reformist, aiming to curb the worst excesses of globalisation and capitalism and a more consistent anti-capitalist position. The formal exclusion of political parties did not keep out the various NGOs connected to Social Democracy and the reformist ideas associated with them, while revolutionary socialists were not able to openly organise.

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Costas Gavras, “Le Capital”: An Anti-Capitalist Masterpiece

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1. Motivation and history of the movie

Marxist theorists, beginning with Marx himself, did much to illuminate how capitalism moves, to reveal its laws and demonstrate the necessity of its replacement by socialism, when it becomes a hindrance to historical progress. This criticism was always applied “from outside”, starting from the class position and perspective of the proletariat, the class destined to overthrow the capitalist system, and aimed at orienting the actions of that class towards the directions dictated by the broader social conflicts of each period. In his latest film, “Le Capital” (“Capital”), Costas Gavras –Karim Boukercha and Jean-Claude Grumberg also contributed to the screenplay– proceeds to give a catalytic criticism of capitalist globalization from within, a criticism which, though not focusing directly on the social and class struggles of our time, is still, in its way, highly penetrating and effective.

“From within” in no way implies that Gavras contents himself to show the decay and corruption of the world of capital, to write the record of its decline and to highlight its manifestations in the lives of its representatives. All these things certainly abound in his film. Yet had he limited himself to that, it could result to an improved version of soap operas like Dynasty, even making the representatives of capital likable within their degradation. The film is mostly an anatomy of capitalism’s general objective motion, taking an X-ray of the banking and finance system, whose impunity triggered and impels the current global economic crisis. But if Marx had presented the inexorable logic and inevitable results of this movement using the objective language of science, here its reality is refracted through the artistic prism in a realistic representation of the world of its actors, the leaders of modern capitalism.

Gavras is undoubtedly not only an extremely gifted, but, in the best sense of the word, a militant filmmaker whose entire work contributes positively to the understanding of the conflicts and meaning of our times. In “Le Capital” we can see though the climax of his creativity. Having started from uncovering authoritarianism, anti-democratic aberrations and conspiracies of the holders of power, the engagement of the state with para-state apparatuses, etc. in films like “Z” and “Missing”, he ends up here capturing and reconstructing the molecular processes of capitalism which inevitably generate these results. A look at the occasion and history of the film, as recounted recently by the director himself in an interview he gave to the Greek newspaper Vima, will better clarify his intentions and motives.

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The New Dependency Theory

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The crisis that began in late 2007, and which seems to be continuing for the foreseeable future, has highlighted the role of global wholesale financial markets in creating what may be described as new dependency relationships. Old dependency theory was a structural-Marxist theory. It hypothesised that the world capitalist economy is structurally arranged to facilitate massive transfers of capital from developing countries to the developed world. The new dependency theory agrees that net outflows of capital from developing countries have been continuing unabated for the past three decades. But—and this is a key difference between new and old dependency theory—these illicit flows are a problem not only for developing countries but also for developed ones.

This is so for two reasons. First, the net flow of capital is not necessarily transferred to or invested in the developed world. Rather, the transfer of financial resources from developing countries joins a large pool of capital registered in offshore locations. Second, there is evidence that developed countries are subject to net external outflow of capital as well. In contrast to old dependency theory, the new theory suggests that capital transfers do not necessarily operate on a regional or intra-national basis; rather, wholesale global financial markets have emerged as gigantic re-distributive machines that play a key role in the continuing and growing gap between rich and poor world-wide.

In developed countries, the main detrimental impacts of illicit flows are growing income inequalities and a weakening and narrowing of the tax base, as effective (as opposed to nominal) tax rates by corporations and rich individuals decreases continuously. For developing countries these problems are compounded further: they include poor governance structure, a large black economy, lack of capital for basic infrastructural projects, and over-reliance on foreign aid money that generates harmful political-economic dynamics.

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The Live Register – EP04 IFSC: The City Within

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I have to put up the latest and greatest episode of the Live Register.

It's an excellent exploration of the Irish financial services sector and its exaggerated yet highly influencial role in the Irish economy. It talks about the Clearing House Group, Hedge Funds, tax avoidance and transfer pricing, the origins of the IFSC, light-touch regulation, ultra low tax, what happened to Depfa Bank, Brass plate companies, the reality behind the employment myth in financial services and much much more.

Guests include Shane Brett, Harry McGee and Professor Jim Stewart.

Here is Jim Stewart's 2006 article “Financial Flows and Treasury Management Firms” which was mentioned in the interview. In the study of 41 Treasury firms he found that in many there was a median employment of zero.

“A treasury management subsidiary is a common feature of MNCs. Treasury Management firms are the conduits for the global movement of intra-firm financial flows by MNCs. They often form part of a complex organisational structure whose immediate parent may be located in a tax haven (Stewart, 2005). (pg3)

A database of all Irish registered companies was searched in order to identify Treasury management firms. Ultimately 41 firms with available accounting data were identified. These firms are of considerable economic interest. The median size in terms of gross assets in 2002 was $379 million, median profits in 2002 were $6.3 million ($9.6 if those reporting losses are excluded) but the median number employed was zero.(pg4)”

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