Irish Mortgage Brokers Blog

There was an interesting talk given by CFA Ireland on the topic of Islamic Finance and Sharia compliant financial products. The long and short of it is that there are no retail Islamic finance products widely available in Ireland at present, there are two or three Sukuks domiciled here.

So what can a Muslim living in Ireland do in order to remain Sharia compliant? The good news is that a person can essentially engineer their own Islamic Finance products at home, and this is perhaps the reason that there has not been a bigger uptake or creation of strictly Islamic products in both the west and in predominantly Muslim countries, even in Pakistan the uptake on Islamic Finance products is only c. 5%.

Part of the reason is that Islamic Finance products often come with a ‘Faith Premium’ which means the cost of being Muslim is significant if you choose to use products that are in strict compliance with your religion. It is important to note that it is in the area of ‘interest’ or ‘usury’ that Islamic Finance distinctly differs with run of the mill finance, usury is forbidden in the Qu’ran.

However, many Islamic Finance products can be engineered at home so we will look at them now.

1: Current Account that pays interest - In a current account or indeed, any interest paying account you can easily get around the usury laws by taking any interest and giving it to charity, using and utilising only our own money.

2: Mortgages - This is a little harder, but essentially you would need to rent and stay renting until such time as you can buy with cash. Having said that, with rents at all time lows and vacancies at all time highs it could be a good time to negotiate a ten year lease and start saving as much as you can so that you can afford the price of a house at the end of that time.

3: Investment - Equities are fairly compliant already, you can receive dividend which is a share of profit, and the values can go up, that is a market transaction, it is only when the element of usury enters that you have issues, so you could buy equities but not via a margin account. Equally, there are certain things that are banned such as alcohol company stocks etc. so it is important to look at any fund and consider the underlying stock if you want to invest via managed funds.

The fact that Ireland has an increasing Muslim population is without doubt, people often (mistakenly) think of Muslims as being from only Arab states, in fact, much of the northern half of the African demographic is primarily Islamic, that means people of all varieties be they black, or north African arab, equally, many of the emigrants from former Yugoslavia are Muslim, as are many Filipinos and Indonesians living here so the chances are that there are many more Muslims in Ireland than the average person easily realises, and this diversity in our national make up means there are new requirements in many services including finance.

The question is whether it warrants a specifically Islamic Finance approach and that is really the rock upon which potential business models here may perish because in the absence of a ready made product, many of the Sharia compliant concepts can be home made.

Islam internationally: Green - Sunni, Blue - Shia

I called Fred Harrison in connection with a book review I had done for the national broker associations magazine ‘The Professional Insurance Broker’, I wanted to send him on a copy, what was meant to be a quick hello/goodbye turned into a fascinating chat on the topic of property taxes.

Something that we are seeing more of lately is a debate where the public sector are demonized - often for merely existing - and portrayed as being ‘wasteful’ and bloated. Bob Frank in the US said something to me before that stuck in my head, that ‘the serious waste occurs in the private sector, the public sector don’t go around buying hummers and other pointless trophies, the ‘waste’ in the public sector however, is found in the way that they budget and perform versus the private sector’.

I think that is profound, the public sector don’t waste in the same manner and it is important to remember that in any debate. However, when it comes to running a tight budget the private sector is head and shoulders above the public sector, and that is where the concept of ‘waste’ comes into play. This inherent dilemma was solved in a sentence (for me anyway!) yesterday.

‘The public sector must capture the gains the public sector creates and take it away from land speculators, bankers and anybody else who tries to capitalise their work’. Simple and yet genius. We shouldn’t be using the tax and transfer system via wages, it would make far better sense to let people keep what they earn and instead tax them on the services received and infrastructure used, property tax with services tax and a few other simple concepts would achieve this, and perhaps we might (if this was embraced) end up with a tax system that people understand!

The focus is all wrong, we shouldn’t concern ourselves with the public sector being over or underpaid, rather, their income should be a reflection of the services rendered and then spread that accordingly, that is how any business works, you don’t set your income based on what you reckon you want whether the money is there or not, you set it based upon what actual money is in the account, and that needs to be determined by a system where the reward comes from the service. How crazy is it, when you actually think about it, to tax me or you on our actual job earnings in order to pay for a road outside of your house? They are totally unconnected concepts and events.

The idea of changing the way that we collect taxes is a central theme in Fred Harrison’s work and he works on data sets going back over 200 years to prove that land and property have been central themes in financial crises since modern economies began. If his thesis is correct, a change in the manner in which we collect taxes would make a huge difference to this, and it seems to be largely backed up by well thought out research, TCD’s Constantin Gurdgiev did an excellent paper on the topic recently.

I won’t get into the minutiae of property tax (I’ve done that too many times in the past!), what I will talk about is the old nugget that gets thrown at you every time you mention property tax, it is the opposition trump card and all pervasive example….. ‘What about an old widowed pensioner who’s only income is social welfare, and they live in a house worth a million’.

That is a natural example to consider, because when it comes to tax the concern isn’t really about those who can and will pay, it is to be mindful of those who can’t (as opposed to won’t). I struggled with this question for some time, it is poignant because it is a real life example and many of us likely know a person in this very situation. How is property tax ‘fair’ to a person like that?

And that is when I was told ’stop for a second, if we want to talk about fairness in its truest sense then we need to ask ourselves ”who created the value of that property” is it existing as an island of wealth on its own? Or is it due to the amenities in the area,? The schools, location, transport and other things? We take a complex variety of these things and they are interpreted in a market fashion by ‘price’.

The value of the actual ‘Land’ isn’t theirs, that particular element of value was created by the state and should be the source of revenue for municipalities’ (note: he didn’t mention the value of the property/house on the land, that is created by a person and the additional wealth it offers can be private because the creation was private).

The value of a property is indeed largely accounted for by public spending but the property is held privately, in my own neighbourhood I didn’t pay for the Dart, the two large city routes next to me, the school, park, playground or anything else which make the location desirable, granted, I paid tax (haven’t figured a way out of that yet!) but it was from the communal pot that the money came, in particular I don’t have to pay for any of the benefits my area offers.

Back to the widower though, if they truly can’t pay then there are options, the coldest being ‘you are thus consuming far above your requirements and that is a personal decision, live with the cost’ this is the same argument you would use from an environmental perspective if we brought in a weighty fuel consumption tax (on the price of petrol) for a person who says ‘I’m old and widowed and all I have to get around is this four litre engined Mercedes’, grin if you like, we all understand the communal value of the environment but it seems to stop there.

The option would be to use a Californian method (evident bias: I’m a Californian!) where the person in retirement has a choice, they either pay and have an unencumbered property or they can start to accrue tax plus interest and it is paid upon death (at the transfer to their estate), the obvious second line in an Irish context is ‘what about the poor kids inheritance?’ [note: everybody seems to be widowed, a granny, on welfare and orphaned when we have these conversations]. The fact is that if kids truly want to have the property as-is then they could offer to pay the tax, if they don’t want to then the truth is that they don’t see the point and wanting to keep the asset but not pay is just rent seeking, which is fine, its just not justified.

We need to make some serious changes in Ireland, perhaps in the entire western hemisphere, if we are to change the road we are presently on in which increasing amounts of wealth and power are distributed to the East. Every nation has its moment in the Sun, their time to shine, the west does have the option of creating an economic daylight-savings time and ensuring this twilight occurs further down the line, the question is ‘do we have the appetite?’. If we do then the fundamental system of taxation is one of the core issues that must change.

There are three broad benefits to regulation of a financial system.

Firstly, avoidance of negative externalities, often the societal costs of these outweighs the private cost and prevention is possible when a regulator is function well and doing their job correctly. They do this by preventing excesses, by promoting conservative risk management in the financial sector and helping to maintain confidence by ensuring (for instance) that a liquidity shortfall in one institution doesn’t spill over into others (i.e. avoiding multiple bank runs which take down well functioning solvent banks in their wake) resulting in a widespread credit crunch.

Secondly, to set solvency and reserve requirements for banks, at times there are significant asymmetries in information within the consumer/institution relationship, or worse still, information gaps (where both institution and consumer don’t have full information – as happened in the sub-prime loan market in the USA), when nobody can determine the quality and reliability of a financial product a strong regulatory environment will ensure that banks are in a position in which they can weather the storm.

Thirdly, the provision of safety nets such as investor compensation schemes or deposit insurance. The downside of these are the degree to which they can promote moral-hazard, in other words, consumers stop caring about the strength of a bank balance sheet because they feel protected at any cost and equally banks may decide to take more risk than they normally would expecting a bail out if there is ever widespread panic.

From an Irish context our regulator is a failure in each of these examples, in the first example the Department of Finance has done a far better job of balancing the internal and external shocks to the Irish financial system.

On the second issue they didn’t encourage anti-cyclical provisioning, indeed, reserves should be set aside with a multiplier that rises as the wider economy goes up, this means that more is set aside the greater the upside volatility in order to be prepared for the downside volatility that often follows any boom. Dynamic provisioning is not a feature of the Irish regulatory framework.

On the third front, our deposit guarantee scheme had a paltry €527m in it last year, this wouldn’t be enough to save our smallest bank, and meanwhile the lenders have in effect been bailed out, the profits of capitalism have been privatised but the losses made into a public issue.

The Regulator is an entity which has not been sufficiently brought to question for their role in the financial crisis in this country, they are the police, the guardians at the gate, the very fact that bank balance sheets exploded on their watch while they stood by and did nothing about it are evidence that they were not fulfilling their mandate of protecting the economy from systemic risk, while the individual banks are to ‘blame’, it must be remembered that they have no mandate for the protection of the wider economy, they are, by their nature machines of greed and decisions are made on capturing market share and profits, any protective measures are made in favour of their balance sheet, not the national interest.

Their behaviour was akin to that of a police department sitting by while the city is looted, we paid the regulator to protect us, to be our caretakers, to keep the enemies from the gate, the costs of this failure are ultimately born by the taxpayer, and now, to a lesser degree, by the banks. Where are the calls for their public tribunal? Where are the answer? Quis custodiet ipsos custodes?

Yesterday the National Asset Management Agency (NAMA) legislation was brought out in the Dail (that’s the Irish Government buildings for our international readers) . We have put some of the developments into simple graphs to give an idea of the way NAMA will work and what the prices are as well as what they mean (for the pedants out there- they were drawn by hand to demonstrate the point).

So the total value of the loans is €68 billion, adding on €9 billion in rolled up interest - development accounts often had this factored into the end sale price, generally showing c. 15% profits (as a minimum) with the roll up included.

The €77 billion in loans will receive a 30% haircut (across the board) meaning the price paid will be €54 billion. It is important to note that different institutions will see larger haircuts than others, so it might be that BOI gets 20%, AIB 25% and Anglo 37% / INBS 42%, the 30% represents a varied pot in which individual loan sizes and haircuts will vary, having said that we know already that the biggest discounts will need to be applied to INBS and Anglo.

Brian Lenihan stated that the original value of these assets was €88 billion, of which the loans were €68 billion (before rolling interest was added on), an average LTV of 77% applied (which is over standard commercial lending levels so some more digging may be needed to see if there were cross-security/cross collateral considerations or cash flow producing securities for additional lending involved). These loans will being bought for €54 billion imply a 40% drop in the values of the assets on an economic basis (not today’s market price basis).

Each loan going to NAMA will have 185 queries/questions required on the property itself, and a further 300 on the loan, that means the diligence will be c. 500 questions that must be answered for each property. The staff of NAMA (c. 50) can’t cope and thus the banks are taking people out of credit and having them go to work for NAMA but on the bank payroll, so in essence NAMA has outsourced the work at no additional personnel cost which was a smart move (one of few).

The actual value of the assets in today’s market is (we are told) €47 billion, this means that there is an upfront shortfall of €7 billion, so no matter what happens there has been a potential tax payer cost of €7 billion at a minimum, obviously that is the market value though and not a long term value which assumes that prices will eventually rebound (the estimate is 10% in 10yrs), that point can be argued for and against, the issue will be (in my opinion) the ongoing cash flow to ensure loans are serviced. There isn’t any information put forward about expected default rates and that could easily skew the numbers.

The debt is also predicated on Euribor and while Liam Carroll’s case was tossed out of court because it relied on low interest rates, we have pegged the NAMA on the same hopes! It tells me that this plan probably wouldn’t stack up if it was provided judicial oversight, then again, fairness was never part of the plan.

Having said that, of the assets going across c. 40% of them are cash flow producing assets - in some cases this is blocks of apartments that were retained by developers and let out or other commercial rents. The banks will have a big job ahead of them in the near future: they will have to raise some capital quickly to avoid dilution of their shares/potential nationalisation (or at least majority state ownership which is effectively the same thing), if today’s share price performance is anything to go by the appetite is back so this seems likely to be a working solution. NAMA isn’t about fairness, and in that respect it is a massive failure, it is about a plan with a chance and in that respect it has a better chance of success than the alternatives put forward.

This is an interesting video and well worth a listen, the video that Dan is referring to in the first one is the one posted below. He talks about the ‘Rahn Curve’ which is a ‘Government spending effect’ version of the Laffer Curve. The argument for smaller government is massive, in Ireland we have almost a fifth of the workforce either directly or indirectly employed totally by the state.

Extraction cost is something that we could do well to begin to come to grips with in Ireland, the autopilot answer we often hear about the ‘government needs to fix this’ should be more carefully considered, because the state is happy to step in (for the most part) but at what price?

Sometimes when I’m having a rough day I decide to reach out to some of the people that I see on TV or read about in the press and talk to them, it’s part of a greater ideal in which I believe people should have as many mentors as possible, spending time around the people whom they hope to emulate, if you can’t meet them in person then call them on the phone. It works (in my opinion!).

Anyway, today I was reading something Dan Mitchell from the Cato Institute wrote and decided that it would be best to give him a call, his receptionist obviously mistook me for somebody important (pigeon American/Irish accent works wonders!) and put me through and all I can say is that in person Dan Mitchell is a joy to talk to, while somehow managing to make a lot of sense in an easy to digest manner. That particular talent is a rarity.

I wanted to talk about taxation, the Commission on Taxation Report that came out this week has been playing in my mind, the idea that it is ‘revenue neutral’ is a myth in my opinion, simply because 1. it is state run and that means it will either be run badly (and not take in money) or run as most of the bureaucracy is run here meaning it will cost much more than expected.

Dan had an interesting point on this, his research has suggested that it is virtually impossible to have a positive and healthy tax system when a government gets too large, specifically, if they are responsible for spending any more than (when we mention ’spending’ you can replace it with ‘borrowing’ because the money they are spending recently is essentially coming from elsewhere) 20% of GDP, at which point it actually slows down an economy. We are (in Ireland) well above that mark unfortunately.

In considering a taxation system he said that there was a ranking of the ‘general approach’ and it is broadly as follows:

1. Consumption taxes (best).
2. Property taxes (middle ground).
3. Income taxes (worst).

While some commentators such as Fred Harrison are advocates of (essentially) a property only/asset only taxation system, it has yet to be tried in real life or in any country so the jury is out although it is definitely considered a better option than taxing incomes.

The Singaporeans try to avoid ‘tax and transfer’ and instead put much of the responsibility on the individual rather than using it to fund entitlement schemes. However, they also manage the money and that is why (according to Mitchell) the Australians have it right: mandatory participation in an individual pre-funding scheme.

This is currently only used for retirement, but similar schemes could equally be set up for health or unemployment, the obvious obstacle is that of trying to convince people to take responsibility for their own future, while that may seem cruel, it is equally cruel to sub-contract this out to the state who have a deplorable record (internationally) of getting things right individually.

There is a rare opportunity at the moment in Ireland to radically re-think the way we have been doing things and sadly, I believe that opportunity will be largely missed and the tenet of a ’simplified tax system’ (as suggested in the report) will not become a reality, nor will the horizontal equity it purports to bring about.

Dan is a well known commentator on CNBC, Bloomberg, and every other business channel of note, I was really delighted he took my call and some time out of his day to talk to me (so if you ever read this: thanks!). We hope to bring you more on Dan’s thoughts in the near future, for now, here is one of the snippets from the past.

We took to the streets to talk to people about their thoughts and feelings on the Irish economy and the government. The opinions were varied and colourful, we hope you enjoy this vlog.

The Local Government Act 2009 introduced a €200 annual charge for owners on non-principal private residences

The charge applies mainly to owners of private rental property and holiday homes.  It also applies to vacant residential property unless newly built but unsold (handy if you are a developer, lousy if you are the owner of a newly un-lettable gaff).  Liability to pay the charge is assessed by the owners themselves.  Ownership of a non-principal private residence on the ‘liability date’ (31st July 2009) determines liability to pay the €200 charge.

Payment is due by 30th September 2009. A €20 per month late payment fee will apply from 1st November in respect of each month for which payment is overdue. This bit is interesting - because normally surcharges and penalties for any unpaid tax are much much lower, this amounts to an ongoing 10% fine for every month - while €20 may not seem excessive, it is certainly (when viewed in percentage terms) extreme. Especially given that there is not much being published regarding the tax, have you read about it recently? Have you been told the deadline is coming?

Funny thing with tax, ignorance is not a defence, so don’t let the surcharge catch you and end up paying over the odds. Another funny thing: if you overpay tax you can only claim back to the last 6yrs, but if you underpay your liability is timeless, you can be screwed going back as far as revenue want. You have to love the system (love=profound hate)

Payment can be made on-line at www.nppr.ie or at the offices of any county or city council.  Further information about the €200 charge is available here.

This is the nonsensical bit of property tax that did make it through the system, it has nothing to do with common sense, it doesn’t make everybody pay for the services they receive, it is merely rent taking at its worst, so, my investor readers, you know what to do, assume the position, more luidicrous Irish taxation has arrived.

The age of retirement is going to rise, within the next five years it has to. There are several reasons, the most immediate being that the state doesn’t have the money to fund retirement at present, other factors are that people are living longer and the combined increase in health care costs to the elderly with the weight of funding pensions means one or the other has to give in eventually.

In October of 2005 Seamus Brennan gave a talk at the Merrion Hotel on the subject of the ‘Issues facing an ageing population’. The statistics are particularly relevant as they have not changed much since then.

(Excerpt) ‘The facts speak for themselves, in 2002 almost half a million people were aged 65 or over. The latest population projections suggest this may increase to 1.1 million people aged 65 and over by 2036. Right now we have almost 5 people working for every pensioner, when the demographic challenges are at their height this will decline to two workers for every pensioner. This fact has implications for two major areas, pensions and long term care. Clearly, future workers face an increased cost to cater for our older population unless, that is, we put in place a system which is sustainable and affordable.’

‘Currently out of a workforce of about 2 million approximately 900,000 do not have a private or occupational pension’.

So there you have it, almost 45% of the people at that time had zero provision, and despite the states best efforts with ‘pensions week’ and the like the figures have probably not changed significantly. This means that more and more people will be coming to retirement with their full income expectation resting on the state.

This is a mistake for several reasons, firstly, if the state runs short of money pensions will become increasingly under pressure as voters grapple for money to be spent on schools or hospitals, they might become means tested across the board, relying on the state for anything other than collecting tax from you is (in my opinion anyway) an error of judgement, the person who best knows how to take care of you is the same person reading this article.

Pensions are largely unfunded, this means there is not a ’special reserve’ sitting around waiting to pay for it, instead governments generally rely on an expanding population and on people dying fast enough to make sure that the money is collected faster than it is paid out.

While Ireland does have the NPRF (national pension reserve fund) it is important to remember, it wasn’t set up with ’state pension’ beneficiaries in mind, rather it was there to fund an increased public sector pension responsibility that had/has gone beyond that of being possible to run unfunded. If there was ever anything left it was a bonus but the core reason it exists is not for regular state pensions.

When pensions were first introduced they were meant to be a ‘reward’ to those who were fortunate enough to live so long as to retire, they came about in the late 1800’s and were available for people over (for instance) age 70, when life expectancy was about 50. Prior to this working life had no formal stopping point outside of death. In the USA when Social Security was introduced, retirement was set at 65 when life expectancy was 62, the issue is that we all started to live longer individually and collectively but the age of retirement didn’t change with it.

Today in Ireland a male can expect to live to c. 76 and a female to about 81, that’s the ‘average’ life expectancy, which means that for all the people who die prior to 75 (which will encompass a figure captured by both men and women’s life expectancy) that many must be living well beyond that. With retirement coming at age 65 you can start to find that 20 years and more are being funded for those with good longevity.

It’s a balancing act, you need to balance the people who die young having paid taxes, with those who live to 90 and more who claim pensions for 25 years and more, the only way to change the direction of the coming pensions bubble is to move the goalposts toward something close to what they used to be, in other words, make pensions something that you need to live close to your absolute life expectancy to receive.

A 65 year old today is also in much better shape (in general) than one who turned 65 in the 1940’s and that needs to be reflected in our attitudes to workers and working life as well, I have often wondered if the ‘ageism’ campaign had an ulterior motive!

The age of retirement needs to increase in line with the changing world we live in, for a start the age of retirement should move to 70.

Retirement -at least that part funded by the state- should, like many things be progressive, if you retire older you should be able to claim a higher payment, this is a system that could make a difference because it would allow people to stay in the workforce (and many people are happy working, being put out of the workforce isn’t necessarily for everybody), and lower the cost of provision because invariably many people would not claim retirement for longer periods and they would also pass away leaving their entitlements untouched, this might sound callous, but it isn’t because this is precisely the way pensions work now, I’m just laying out the facts as they stand with some minor tweaking on elements of the existing system.

You could also encourage pension provision (reducing state funding because universal means testing will likely become a part of the system in the future) by allowing people who fund their own pension to retire from 60 - 65 onwards, this would give an incentive to people, ensure that they are saving for their retirement.

A better system would be that of changing our entire tax system, rather than having PRSI going into a pooled collection, the use of personal accounts would be better. What I mean is that every person would have their own Pension/Unemployment/Health account, and a fixed amount of your tax goes into it, divided accordingly across it and invested in different ways depending on the sector (ie: you couldn’t invest your health money in high risk stocks).

This account could be supplemented by additional contributions which would deservingly be given preferential tax treatment, but essentially it would belong to the person, the backup plan -if for instance you were out of work and used up the portion you had put aside for unemployment- would be a means tested state system. It would also be something that you can pass on to others, it makes sense that a person who saved, didn’t get sick, and cost the state very little would be able to bequeath their money to another (under standard CAT rules) when they die.

The issue is really that of statism, one in which we divest key personal responsibilities to that of a centra authority under the belief they can do a better job of taking care of the individual than the individual can themselves.

If, instead of PRSI we had a system that puts your tax money into an account you could manage yourself (to make a claim you’d still have to go through a process) in terms of investing in corporate grade bonds or deposit with some scope for higher risk on retirement provision, it would encourage active planning of the individuals future, it would eradicate the need for huge swathes of state lead substitution for this responsibility and free up resources in the existing mechanism to concentrate on helping those most in need, and the most vulnerable rather than wasting energy on those that don’t.

The name of this post ‘retire young! retire poor!’ is based on the belief that soon, anybody who retires young will increasingly be paid less or not at all because the age of retirement will change, that, matched with insufficient pension planning means we will face a pensions bubble eventually, we are not replicating fast enough to make the current system work by replacing old workers with new ones. Change is needed, it is just a question of what will change and when.

I have been quite public about my belief in property tax (caveat being we should have far less income tax/levies etc. perhaps a ‘flat tax’ would be best), and if there is one book that has really helped to shape that opinion quite succinctly it is Fred Harrison’s masterpiece on the topic, and the subject of this review ‘Boom Bust‘.

Fred Harrison saw the property crash in the UK of 1989/90 in 1980, and furthermore, he named a date, he also named a date of specifically 2010 (as a bottom, not as the ’start’ of a crash) in the mid 90’s. How? It is due to his analysis which goes back to the 1500’s of property cycles, and while I am still sceptical about his ‘18 year’ cycle, the one thing that fully convinced me was the basis and need for a more rational and working approach to property and taxation of same, or the ‘democratisation of the tax base’ as he often refers to it.

This book was published in 2005, based on research carried out long before that and naming the time-lines that a crash would occur in, how this book is not more widely known is beyond me, it is almost like a looking glass into what was coming down the line.

The book covers a wide diversity of opinions and areas, one that is slightly overdone is the personal vendetta Harrison seems to have with Gordon Brown, I tried to reach Harrison several times, I like to call the authors of books that I read and talk to them, however, so far I have not even been able to get an email back! Even Peter Schiff responded to me! It’s a pity because I would really relish an opportunity to talk to this guy for a half hour. His knowledge , the breadth and scope of which seems almost unbound, would offer any discerning interviewer an opportunity to look into what is perhaps the ‘right road’ to travel in terms of avoiding painful busts in the future.

One of the messages I took from this book was that perhaps income related tax was only brought about due to the societal mix of the people in power when it was passed to law and that meant that from the very start the system has been flawed. He points out that taxation on property should have been the basis of the system but the House of Lords who prevailed over passing law in the late 1700’s were the very landowners themselves so such an approach would never come to pass. In essence, rent seekers have been protected from the very start.

While there are elements of this book that one may disagree with (it covers so much that it would be hard not to find fault in at least one or two areas), it is, on the whole, a ‘must read’. In particular if you have an ‘against’ opinion when it comes to property taxation. While it doesn’t go on to say we need flat tax on incomes or such, the idea of taxing assets rather than focusing on incomes is well put forward and makes for challenging reading, don’t read this book if you are looking for something to switch off to, it is inherently thought provoking.

The idea of property being central to every historic bust with few exceptions is a compelling one, and it is teased out in no short order with facts and statistics drawn from around the world. The link to speculation in land as well as leverage is clearly drawn out and in that respect it is one of the core correlation to the roaring twenties and the late nineties to now, liquidity and leverage, albeit the two times had very different causes.

Fred Harrisons ‘Boom Bust’ would be on my list of ‘must read’ books, even though you may or not may agree with elements of it such as the 18yr cycle theory that he puts forward. The problems of property are many but the solutions are thankfully pragmatic. Will we actually see any of his solutions used any time soon? Unfortunately, I would wager ‘no’, but that doesn’t mean that the process of rationalising taxation and understanding the shift that needs to take place in revenue raising is not underway on some level.

The question that still remains, is one first asked by perhaps the greatest economist of them all ‘to whom belongs the wealth of nations?’, until we realise that land is a national rather than purely private asset then we are likely to continue the current application of taxation and thus, follow the boom bust path that has lead us here to begin with.

Here is a video of Fred Harrison, talking to the renegade economist.