I remember the conversation so clearly. I was sitting on the side of a fountain in Dundrum shopping centre, one of the temples of the Irish property boom. I was on the phone to my oldest school friend.We’d been best men for each other and remain very close, despite not being in the same country together since university.
The chat then was about a potential property investment we were going to do together in Belfast. My friend had lived in Chicago, New York and London so he knew a thing or two about property and was wondering why Belfast’s per square foot prices could be so high. It was spring 2006, not long before the crash.
When he asked for the last time (before agreeing to invest) about the costs, I remember saying: “the market may slow down but it’s not going to go backwards”. Those were my exact words. What an idiot I was.
In the end, we bought into two apartments. They were sold a few years ago at an approximate 50 per cent loss. Today, 13 years later, we are still paying down the loans. It’s been a very tough lesson though, most importantly, not one that has caused any chinks in our friendship. We’ve just got on with it, though of course I regret ever drawing my friend (and other friends) into such a disastrous investment. And my line about the market not going backwards will forever haunt me. The first word I think of to remind me of my mistake is ‘hubris’.
One of my favourite business writers is Gillian Tett in The Financial Times. I save most of her articles for when I’m on planes and trains, and this past weekend I read one I’d been saving for a while. The article dates back to September last year - marking the anniversary of the collapse of Lehman Brothers investment bank, maybe the lowest point of the global financial crisis.
Tett’s article was really about how to predict and avoid such crises in the future, especially when we have such a rich history of past crises to learn from. Believe it or not, according to the International Monetary Fund, between 1970 and 2011 the world has suffered 147 banking crises. Tett identifies two common things in those crises, the first is the pre-crises period marked by hubris.
As Tett describes it: “greed, opacity and a tunnel vision amongst financiers that makes it impossible for them to assess risks”. Second then, when the crisis hits, there is the loss of trust - among investors, governments, institutions, or all three. Tett reminds us that “the root of the word ‘credit’ comes from the Latin ‘credere’ meaning ‘to believe’”. As Tett puts it: “finance does not work without faith”.
Not surprisingly, what shone out for me in the article was that word hubris again. It’s also been on my mind a lot because of Brexit. I was at a business drinks event last Thursday in Belfast city centre - some corporate financiers, commercial lawyers, bankers etc and I was asking anybody who would listen whether or not they were seeing any negative effects from the prospect of Brexit, in whatever form it might take. I have been asking that question pretty regularly over the last year.
For the first time, I heard genuine concern and worry being expressed. Deal flow slowing down, caution about investment, worry about legislative difficulties around trade, particularly in a no-deal scenario.
That, of course, led me back to thinking about what I’ve heard from some politicians in response to these types of concerns, particularly senior members of the DUP. All I hear is hubris. “These are minor matters which will be easily resolved” or “you are naïve and are being misled” or “everything will be fine, think of the new markets and freedoms that will be created”. That type of thing. I can think of a few cruder descriptions of that approach in addition to hubris.
I’m generally an optimistic person and when I think about how we got through the last recession and the pain of, for instance, that failed property investment, I think I am reasonably resilient, but I am now genuinely worried that we are walking ourselves back into a recession and some of those who should be taking responsibility simply aren’t.
Thankfully, I do know that the Northern Ireland Civil Service is taking serious steps and is working in a structured way, despite the lack of any real political leadership, to prepare, department by department, for March 29. We don’t half need it given the fact that the Northern Ireland economy has been the worst performing UK region across a wide range of metrics for many years.
Our gross value added (GVA) per head in Northern Ireland is around 76 per cent of the UK average and the latest long-term unemployment rate for Northern Ireland is 51.1 per cent, which is more than double the equivalent UK rate of 24.9 per cent. What’s also crucial to remember is that some of our biggest business sectors are highly regulated, like agri-food and pharmaceuticals.
What happens in those sectors if there is a no-deal Brexit? And what about the single electricity market, the common travel area arrangements, data exchange, tourism cooperation and the other north/south bodies? These are all particular to us on this island.
I’d like to be more optimistic and cheerful in this column, and I usually am. But today, less than six weeks away from the deadline, I’m reminded that hubris is not a viable business or investment strategy and the hard work that’s been done to prepare by the many business organisations here and the Civil Service needs to be supported as much as possible. Time for us all to buckle down and do our best to avoid the mistakes of the past.
:: Paul McErlean (paul@mcepublicrelations.com) is managing director of MCE Public Relations
:: Next week: Brendan Mulgrew
