Two money stories caught my attention last week – because they were so unusual.
The first concerned Setanta Sports which went into administration after a €23 million bail-out to keep their UK operation going fell through.
Setanta had 2.5 million subscribers in the UK, each paying about €15 a month to watch Premier League football games, rugby matches, cricket and PGA golf matches. They aren’t likely to see any refund of the cost of their annual contract.
However, the Disney sports station ESPN quickly snapped up the really lucrative Premier League fixtures and other broadcasters will be fighting over the other sports that Setanta broadcast.
Meanwhile, it is hoped (by my husband and others) that the Irish operation, which has been put up for sale, will continue as a going concern.
Two potential buyers emerged within hours: Liberty Global, the parent company of the Irish cable providers, NTL and Chorus and part owner of Dublin’s City Channel, and Mr Denis Desmond, a music promoter who already owns 20 per cent of Setanta Ireland. By the time you read this, the sale may have been secured.
The second story was also about a company going bust: Laragan Developments, a property firm with two unfinished apartment sites in north and south country and accumulated debts of €147 million.
In this case the story was that €1.5 million in deposits (typically €15,000-€20,000) that Laragan had taken from prospective buyers who had purchased their apartments off plans back in 2006-07, had effectively been lost.
The prospective buyers – about 100 of them would be lucky to get back between €150 and €200 of their money once the claims were dealt with by the examiner, Paul McCann of Grant Thornton.
What I found so interesting – and encouraging – about these two stories in the same week that the OECD and IMF noted that we are now the basket case economies of the developed world, is the efficiency with which the market itself has operated in dealing with these two collapses.
Within a day of Setanta not being able to secure the €23 million it needed to keep it UK premiership games broadcasting, and the company having to go into administration, a new buyer was found for at least that part of the business. Others are now bidding for its other fixtures.
Setanta’s shareholders will not lose all their €500 million investment. And while there will be job losses, some of the skilled workers may be taken on by other broadcasters and the Irish ones will hopefully keep their jobs.
In the case of Laragan Developments, the people who foolishly bought these apartments off the plans at the height of the property bubble have lost their €15,000 and €20,000 down payments, but they should count their blessings that it was only that much.
Had they actually purchased these apartments then they would today be facing much bigger paper losses and would be in negative equity.
By going into examinership and allowing the market to determine how much these sites are really worth, the price of the unfinished units has already been cut in half according to news reports.
The original buyers also now have a chance to buy finished but unsold units in the developments (at reduced prices) and their previous deposits will be put against the purchase price.
So what’s the moral of these two tales?
How about that the creative destruction that accompanies a recession is not actually such a bad thing? And that in these cases at least, the taxpayer has not been compelled to prop up the mistakes that have been made by the principals and their customers.
The people who ran these companies undoubtedly did their best to make them a success, but they got themselves caught in a credit bubble that was always going to end up in tears once customers could no longer afford to buy the product, whether with their own money, or someone else’s.
All over the indebted western world, the Setanta and Laragan experience is being repeated and it needs to happen for our hugely damaged economies to move on.
Yet governments and central banks are unwilling to allow this creative destructive process, as the Austrian economic school describes it (see www.mises.org).
Instead, in the case of banks and the auto and construction sectors they are transferring their private debts onto the taxpayer’s balance sheet, thus prolonging the mistakes that were caused by borrowing more money than could be repaid.
Precious capital – the money these governments borrow on the bond markets, or worse still, print out of thin air – only prop up the insolvent and the bankrupt instead of being better used by genuine solvent, entrepreneurs and individuals.
The consequences of this (and the inflating of the global money supply) is likely to be a longer, deeper recession and very possibly, hyper inflation.
The question now is, will the lessons of these two companies in examinership – that the natural process of growth, decay and rebirth is both painful but necessary, be heeded by government, politicians, trade union leaders?
We can only hope so.
Jill Kerby welcomes reader’s letters. Please write to her via The Munster Express, 37, The Quay, Waterford or via email at email@example.com