Comments on: Middle classes are hung out to dry http://www.davidmcwilliams.ie/2005/03/30/middle-classes-are-hung-out-to-dry?utm_source=rss&utm_medium=rss&utm_campaign=middle-classes-are-hung-out-to-dry The website of economist, author and broadcaster, David McWilliams Wed, 08 Feb 2012 16:55:03 +0000 hourly 1 http://wordpress.org/?v=3.2 By: Brian http://www.davidmcwilliams.ie/2005/03/30/middle-classes-are-hung-out-to-dry/comment-page-1#comment-303 Brian Sat, 04 Jun 2005 00:00:00 +0000 http://2091907871#comment-303 The rapid rise in house prices is, as you say, directly related to the cost of borrowing.The Banks are screwing every penny out of their customers that they can possibly get,one reason this is happening is because there is no real competition in the banking industry.Not much room for manouvre at low intrest rates they say while earning two million euros profit per day,every day of the year.Something rotten here. However there is another side to the rapid rise in house prices that is not highlighted nearly enough.It is the fact that the government now force the local authorities to provide the infrastructural costs involved in housebuilding.Put simply,when you buy a house you are paying for the water supply, drains, roads, electricity, phone lines and additional charges required of the developer by the local authority before planning permission is given. We know that charity is not a characteristic widely practised among building developers and so..all these additional costs are pushed straight onto the house price.Hey presto..higher prices for houses. The FF/PD policy of reducing income tax from the cruelly high levels of the 1980s was introduced to kick start a consumer economy and it has worked.The result was a booming economy and high prices.The income-tax return was lowered but the income had to achieved directly from the consumer economy.The government are thus equally responsible for the high price of housing. Here is another angle, the value of property is rising quicker than the value of money, i.e. intrest rates on savings are now averaging 0.1% p.a. so if you have money it is naturally wiser to invest in property, a second or third home perhaps.As you can only live in one house you will rent out your surplus property.Who will rent from you at a price that will cover the mortgage?Who can afford it? Step in the immigrant worker.He or she will probably be earning the minimum wage or perhaps 10 euro an hour,not enough to pay the rent required. Step in the government agency to assist with half the rent on orders from the gov. to assist the manpower shortage in our burgeoning economy.Who pays the rent allowance,you do,its taxpayers money,but its not really a rent allowance its now a mortgage allowance for the property owner.The taxpayer, remember him, if he/she is PAYE then he is paying over 80% of all tax raised by the Exchequer,is now paying for the house which/she cannot afford to buy for himself and his family. Marie Antoinette would be outraged as she lost her life for lesser crimes against the people. The rapid rise in house prices is, as you say, directly
related to the cost of borrowing.The Banks are screwing
every penny out of their customers that they can possibly
get,one reason this is happening is because there is no
real competition in the banking industry.Not much room for
manouvre at low intrest rates they say while earning two
million euros profit per day,every day of the
year.Something rotten here.
However there is another side to the rapid rise in house
prices that is not highlighted nearly enough.It is the
fact that the government now force the local authorities
to provide the infrastructural costs involved in
housebuilding.Put simply,when you buy a house you are
paying for the water supply, drains, roads, electricity,
phone lines and additional charges required of the
developer by the local authority before planning
permission is given. We know that charity is not a
characteristic widely practised among building developers
and so..all these additional costs are pushed straight
onto the house price.Hey presto..higher prices for houses.
The FF/PD policy of reducing income tax from the cruelly
high levels of the 1980s was introduced to kick start a
consumer economy and it has worked.The result was a
booming economy and high prices.The income-tax return was
lowered but the income had to achieved directly from the
consumer economy.The government are thus equally
responsible for the high price of housing.
Here is another angle, the value of property is rising
quicker than the value of money, i.e. intrest rates on
savings are now averaging 0.1% p.a. so if you have money
it is naturally wiser to invest in property, a second or
third home perhaps.As you can only live in one house you
will rent out your surplus property.Who will rent from you
at a price that will cover the mortgage?Who can afford it?
Step in the immigrant worker.He or she will probably be
earning the minimum wage or perhaps 10 euro an hour,not
enough to pay the rent required. Step in the government
agency to assist with half the rent on orders from the
gov. to assist the manpower shortage in our burgeoning
economy.Who pays the rent allowance,you do,its taxpayers
money,but its not really a rent allowance its now a
mortgage allowance for the property owner.The taxpayer,
remember him, if he/she is PAYE then he is paying over 80%
of all tax raised by the Exchequer,is now paying for the
house which/she cannot afford to buy for himself and his
family.
Marie Antoinette would be outraged as she lost her life
for lesser crimes against the people.

]]> By: londonreader http://www.davidmcwilliams.ie/2005/03/30/middle-classes-are-hung-out-to-dry/comment-page-1#comment-321 londonreader Thu, 28 Apr 2005 00:00:00 +0000 http://2091907871#comment-321 ...but on the bright side when the bubbles pops: save your pennies for the WONDERFUL assets that will be on sale when the blood is really flowing on the streets all those lovely assets at pennies on the pound.... mmmm, allied irish at EUR 2...mmmmmm ! take note : HK property and Jap property has been DECLINING for over a decade...hang on, it's now 2005, make that 15 years......now how many people in Ireland could possibly comprehend a situation where property doesn't go up but DOWN over a multi-year time frame ??? name two !! go on ! To address the point about funding costs being a necessary precursor for this bubble to pop.....what if now the US has stopped raising rates and may start moving them lower...what if DEFLATION is on it's way back (remember that in 2003...not so long ago but deflation was a fear back then) What if then EUR zone competes in lowering rates because it suits the French and Germans (to hell with the rest of them)? but what if in that scenario, the psychology changes....check out such an example in late 99 to late 2000..."what a difference a year makes" "i can't get enough" to "i can't get far away enough" When the crowd's psychology changes and runs for the door...wow ! just you watch them go …but on the bright side

when the bubbles pops:

save your pennies for the WONDERFUL assets that will be on
sale when the blood is really flowing on the streets

all those lovely assets at pennies on the pound….
mmmm, allied irish at EUR 2…mmmmmm !

take note : HK property and Jap property has been DECLINING
for over a decade…hang on, it’s now 2005, make that 15
years……now how many people in Ireland could possibly
comprehend a situation where property doesn’t go up but DOWN
over a multi-year time frame ??? name two !! go on !

To address the point about funding costs being a necessary
precursor for this bubble to pop…..what if now the US has
stopped raising rates and may start moving them lower…what
if DEFLATION is on it’s way back (remember that in
2003…not so long ago but deflation was a fear back then)

What if then EUR zone competes in lowering rates because it
suits the French and Germans (to hell with the rest of them)?

but what if in that scenario, the psychology
changes….check out such an example in late 99 to late
2000…”what a difference a year makes”
“i can’t get enough” to “i can’t get far away enough”
When the crowd’s psychology changes and runs for the
door…wow ! just you watch them go

]]> By: antod http://www.davidmcwilliams.ie/2005/03/30/middle-classes-are-hung-out-to-dry/comment-page-1#comment-312 antod Tue, 19 Apr 2005 00:00:00 +0000 http://2091907871#comment-312 Banks are like middle men They give out deposits, and they take the interest. But what interests me is I couldnt care who owns the bank because when the economy does contract led by the stockmarket everyone will lose. The bank, the depositors and the lenders. The banks will deserve it, you could argue if the depositors do as is true for the lenders. Its catch 22. Only real banks in the World are in Switzerland and Singapore. Some of them dont even lend money out. Which is why I guess they have the oldest banks in the World.( Switzerland 350yrs!) Singapore is relatively new however. Dont end up like the Argentinians,or the Japanese soon to be. get liquid, get safe.) Banks are like middle men
They give out deposits, and they take the interest.
But what interests me is I couldnt care who owns the bank
because when the economy does contract led by
the stockmarket everyone will lose. The bank, the
depositors and the lenders.
The banks will deserve it, you could argue if the
depositors do as is true for the lenders.
Its catch 22. Only real banks in the World are in
Switzerland and Singapore. Some of them dont even lend
money out.
Which is why I guess they have the oldest banks in the
World.( Switzerland 350yrs!) Singapore is relatively new
however.
Dont end up like the Argentinians,or the Japanese soon to
be. get liquid, get safe.)

]]> By: John Bennett http://www.davidmcwilliams.ie/2005/03/30/middle-classes-are-hung-out-to-dry/comment-page-1#comment-295 John Bennett Mon, 04 Apr 2005 00:00:00 +0000 http://2091907871#comment-295 excellent article. I think people are finally starting to realise what globalisation really means. It is interesting to note that in the week following the announcement by the bank of ireland there was unprecedented uproar in the media about how dare the bank get rid of 2000 workers. However there was hardly anny comment about the 500 manufacturing jobs lost in clondalkin in january or the textile jobs lost in donegal. It was as if these jobs didn't matter because they were just manufacting and anyway wasn't ireland "moving up the value chain". However the bank themselves described the jobs they were cutting as being from "manufacturing". So I think in modern ireland "manufacturing" is a dirty word. However it proves that globalisation is now reaching into previously safe careers and it won't stop with banking. excellent article. I think people are finally starting to
realise what globalisation really means. It is interesting
to note that in the week following the announcement by the
bank of ireland there was unprecedented uproar in the media
about how dare the bank get rid of 2000 workers. However
there was hardly anny comment about the 500 manufacturing
jobs lost in clondalkin in january or the textile jobs lost
in donegal. It was as if these jobs didn’t matter because
they were just manufacting and anyway wasn’t
ireland “moving up the value chain”. However the bank
themselves described the jobs they were cutting as being
from “manufacturing”. So I think in modern
ireland “manufacturing” is a dirty word. However it proves
that globalisation is now reaching into previously safe
careers and it won’t stop with banking.

]]> By: Natalie http://www.davidmcwilliams.ie/2005/03/30/middle-classes-are-hung-out-to-dry/comment-page-1#comment-290 Natalie Thu, 31 Mar 2005 00:00:00 +0000 http://2091907871#comment-290 It has been a long time since I agreed wholeheartedly with your article. Shareholders are asking stupid returns, and institutional shareholders particularly are the most predatory, undercover and ruthless kind of them all. Overall the process of corporate governance (management, director, shareholder triad) is a right shamble. Corporate governance worked in the past as directors used to be the main shareholders and would have the long term protection of their investment at heart, but today's directors are merely puppets in front of obsenely paid CEOs and shareholders behave like absentee owners, there is no system of balance and check anymore. But I do have a problem with accepting that shareholders MUST rule the show. They only provide the capital when buying stock off the issuing corp, after that it is pure gamble between individuals extracting dividend out of that same corp. It is purely about wealth extraction rather than the original wealth generation. But in the process, the only entity knowing who the shareholders are remains the corporation. I question whether it is not the corporation responsibility to sell its stock to the right "owner". After all, alcohol sale is controlled, why not share. I also question whether the shareholders are truly the owners. Ownership comes with rights and responsibility. Among others: - the right to use a property as wished (in this case, only selling or buying since shareholders cannot directly influence how a company is managed) - the right to regulate anyone else uses of the property (shareholding is too diluted to even have a inkling of who else in the game, control and regulation is not possible) - the right to transfer property on terms he/she wishes (today shareholder sell at a given price, no choice there) - the responsibility for making sure that his use of property does not damage other (shareholders do not have a say in this - other than by selection criteria such as passive screening for SRIs). So the theoritical right and responsibility of the shareholder and the reality are totally at odd with each other. The shareholder is NOT the owner of the company, it merely owns a piece of paper. It should be referred as a gambler. Instead of blaming the gambler, corp could either try to manage its shareholder portfolio better (since it has this visibility) or ask itself what is the point of sitting on billion profit in exsanguinous society. The fundamental question is whether businesses are there to support society or society to support businesses. It has been a long time since I agreed wholeheartedly with
your article.

Shareholders are asking stupid returns, and institutional
shareholders particularly are the most predatory,
undercover and ruthless kind of them all. Overall the
process of corporate governance (management, director,
shareholder triad) is a right shamble. Corporate governance
worked in the past as directors used to be the main
shareholders and would have the long term protection of
their investment at heart, but today’s directors are merely
puppets in front of obsenely paid CEOs and shareholders
behave like absentee owners, there is no system of balance
and check anymore.

But I do have a problem with accepting that shareholders
MUST rule the show. They only provide the capital when
buying stock off the issuing corp, after that it is pure
gamble between individuals extracting dividend out of that
same corp. It is purely about wealth extraction rather than
the original wealth generation.
But in the process, the only entity knowing who the
shareholders are remains the corporation. I question
whether it is not the corporation responsibility to sell
its stock to the right “owner”. After all, alcohol sale is
controlled, why not share.

I also question whether the shareholders are truly the
owners. Ownership comes with rights and responsibility.
Among others:
- the right to use a property as wished (in this case, only
selling or buying since shareholders cannot directly
influence how a company is managed)
- the right to regulate anyone else uses of the property
(shareholding is too diluted to even have a inkling of who
else in the game, control and regulation is not possible)
- the right to transfer property on terms he/she wishes
(today shareholder sell at a given price, no choice there)
- the responsibility for making sure that his use of
property does not damage other (shareholders do not have a
say in this – other than by selection criteria such as
passive screening for SRIs).

So the theoritical right and responsibility of the
shareholder and the reality are totally at odd with each
other. The shareholder is NOT the owner of the company, it
merely owns a piece of paper. It should be referred as a
gambler.

Instead of blaming the gambler, corp could either try to
manage its shareholder portfolio better (since it has this
visibility) or ask itself what is the point of sitting on
billion profit in exsanguinous society.

The fundamental question is whether businesses are there to
support society or society to support businesses.

]]> By: Stephen http://www.davidmcwilliams.ie/2005/03/30/middle-classes-are-hung-out-to-dry/comment-page-1#comment-291 Stephen Thu, 31 Mar 2005 00:00:00 +0000 http://2091907871#comment-291 David, Without a real interest rate shock, as distinct from an gradual rate increase, what do you believe will be the trigger to upset confidence in property? With so many apartments coming onto the market in Dublin and so high a proportion of our inward immigration involved in construction of yet further property, the forces for some market change seem very clear, but there is no apparent prospect of a sudden jolt to affect confidence. Maybe mainstream media reports of some change will do it, but for the time being they are all singing the same song. What do you and your readers think? Stephen David,

Without a real interest rate shock, as distinct from an
gradual rate increase, what do you believe will be the
trigger to upset confidence in property? With so many
apartments coming onto the market in Dublin and so high a
proportion of our inward immigration involved in
construction of yet further property, the forces for some
market change seem very clear, but there is no apparent
prospect of a sudden jolt to affect confidence. Maybe
mainstream media reports of some change will do it, but for
the time being they are all singing the same song. What do
you and your readers think?

Stephen

]]> By: Christian http://www.davidmcwilliams.ie/2005/03/30/middle-classes-are-hung-out-to-dry/comment-page-1#comment-287 Christian Wed, 30 Mar 2005 00:00:00 +0000 http://2091907871#comment-287 Who owns Ireland? Well not the Irish thts for sure... cause the BANKS DO!! Who ever owns the banks, owns Ireland. Look at this a poll! Oh my GOD its contrary to the consumers "5% growth optimisim" translates infactually as opinion -> converts to => reality => converts to => relative => converts to =>rubbish All this was trumpted aobut in the media by all the vested intrests(BANKS) and agents blah balh balh ... just look see the poor dog-o-de-street, they know the big lie, oh and its a BIGGY. http://www.unison.ie/polls/index.php3?ident=Irish% 20Independent&mypollid=930 How about "Do you think the Price of a Head Of Cabbage is going to Appreciate in Value this Year" or how about this "Would you prefer a good nights sleep or a jam sponge cake.. . la la lalalal " Hmmm maybe then we'll get some real answers! ANY CHANCE OF POLLS ON THIS WEBSITE THAT WOULD BE FUN! Who owns Ireland?

Well not the Irish thts for sure… cause the BANKS DO!!

Who ever owns the banks, owns Ireland.

Look at this a poll! Oh my GOD its contrary to the consumers
“5% growth optimisim” translates infactually as opinion ->
converts to => reality => converts to => relative =>
converts to =>rubbish

All this was trumpted aobut in the media by all the vested
intrests(BANKS) and agents blah balh balh … just look see
the poor dog-o-de-street, they know the big lie, oh and its
a BIGGY.

http://www.unison.ie/polls/index.php3?ident=Irish%
20Independent&mypollid=930

How about “Do you think the Price of a Head Of Cabbage is
going to Appreciate in Value this Year”

or how about this

“Would you prefer a good nights sleep or a jam sponge cake..
. la la lalalal ”

Hmmm maybe then we’ll get some real answers!

ANY CHANCE OF POLLS ON THIS WEBSITE THAT WOULD BE FUN!

]]> By: adrian http://www.davidmcwilliams.ie/2005/03/30/middle-classes-are-hung-out-to-dry/comment-page-1#comment-288 adrian Wed, 30 Mar 2005 00:00:00 +0000 http://2091907871#comment-288 Nice one David. good article! Its funny to notice that men with the rough hands and no nonsense attitudes are creaming it in comparison with us the supposedly educated bunch. The brickie who's throwing up our house is on more money than Roy Keane. I liken the rise of house prices to that of a Jenga tower. (you know that game we play at christmas where you carefully slide out the wooden bricks and put them on the top.) The vested interests are putting up the tower, they're cheating here and there, and the tower keeps rising. As Dougal says to Ted:'Ah sure Ted, if they put more bricks on the top and if they put more fresh air on the bottom it can only keep going up.' When you're playing jenga you always believe that you'll get another brick on top and its always a wee surprise when it collapses. Its putting the pieces back together afterwards that is the pain. The Bank of Ireland dont want to be staff heavy when things come crashing down and in shedding staff they're the first bank to run from the game.... but look I think they've shook the table... JENGAAAAAAH ! Nice one David. good article!

Its funny to notice that men with the rough hands and no
nonsense attitudes are creaming it in comparison with us
the supposedly educated bunch.

The brickie who’s throwing up our house is on more money
than Roy Keane.

I liken the rise of house prices to that of a Jenga tower.
(you know that game we play at christmas where you
carefully slide out the wooden bricks and put them on the
top.)
The vested interests are putting up the tower, they’re
cheating here and there, and the tower keeps rising.

As Dougal says to Ted:’Ah sure Ted, if they put more bricks
on the top and if they put more fresh air on the bottom it
can only keep going up.’

When you’re playing jenga you always believe that you’ll
get another brick on top and its always a wee surprise when
it collapses.
Its putting the pieces back together afterwards that is the
pain.

The Bank of Ireland dont want to be staff heavy when things
come crashing down and in shedding staff they’re the first
bank to run from the game…. but look I think they’ve
shook the table… JENGAAAAAAH !

]]> By: adrian http://www.davidmcwilliams.ie/2005/03/30/middle-classes-are-hung-out-to-dry/comment-page-1#comment-294 adrian Fri, 04 Mar 2005 00:00:00 +0000 http://2091907871#comment-294 Perfectly explained Eoin, It seems odd that the shareholders arent selling bank shares which are exposed to the irish housing market. Maybe the banks are very safely diversified into foreign markets. I hope they are. Perfectly explained Eoin,
It seems odd that the shareholders arent selling bank
shares which are exposed to the irish housing market. Maybe
the banks are very safely diversified into foreign markets.
I hope they are.

]]> By: Eoin http://www.davidmcwilliams.ie/2005/03/30/middle-classes-are-hung-out-to-dry/comment-page-1#comment-293 Eoin Fri, 04 Feb 2005 00:00:00 +0000 http://2091907871#comment-293 Stephen, My feeling is that the external shock will probably have to be an interest rate rise, which we can't rule out. Even a small rise in basis points will push the mortgage repayments higher. It is clear, that the latest round of house prices , are being caused by inward migration of a scale absolutely unprecedented. An article in the Irish times today talks of 50,000 extra Poles since Accession last May, other Eastern Europe's probably bring that number to 80,000 plus. Then there are the non-Europeans. In total that gives one hundred thousand or more extra migrants last year, which explains why 80K houses wont make a difference to prices . If - as i suspect - a lot of these people are being employed in construction we have a circular loop of people migrating to take jobs in construction, jobs needed because of demand for housing caused in large part by migration. So lets say there is an external shock which would affect house prices. To pick one: the ECB raise rates, and indicates it is on an upward trend. House prices begin to fall in Ireland, and else where. However, in Ireland, the shock caused by a house price fall will reduce the massive employment in construction as they curtail; and since that employment is 30% of the private sector ( about 400,000 people) you can see the effect that a collapse to 50% of present day construction would do (and that figure of 40K house completions would still be large by world standards. It could be worse). what would happen would be a 200,000 increase in unemployment. If most of these new unemployed were external and left the country, house prices would tumble even more. People would have higher mortgage payments, and reduced spending anyway, but the wealth effect of having equity in houses would be diminished, and debtors would realise they have actual real credit card debt, and their home equity will not cover it. This would reduce spending more across the economy, reducing the need for non-European immigrant employment visa - there is, in fact, no justification for such visas in a recession. So no one would come in in that year of recession, and plenty would leave. The result could be a mass reduction in the population in one year, with apartments lying empty all over the place. I think this scenario is more than likely. Stephen,

My feeling is that the external shock will probably have to be an interest rate
rise, which we can’t rule out. Even a small rise in basis points will push the
mortgage repayments higher. It is clear, that the latest round of house prices
, are being caused by inward migration of a scale absolutely unprecedented.
An article in the Irish times today talks of 50,000 extra Poles since Accession
last May, other Eastern Europe’s probably bring that number to 80,000 plus.
Then there are the non-Europeans. In total that gives one hundred thousand
or more extra migrants last year, which explains why 80K houses wont make
a difference to prices . If – as i suspect – a lot of these people are being
employed in construction we have a circular loop of people migrating to take
jobs in construction, jobs needed because of demand for housing caused in
large part by migration.

So lets say there is an external shock which would affect house prices. To
pick one: the ECB raise rates, and indicates it is on an upward trend. House
prices begin to fall in Ireland, and else where. However, in Ireland, the shock
caused by a house price fall will reduce the massive employment in
construction as they curtail; and since that employment is 30% of the private
sector ( about 400,000 people) you can see the effect that a collapse to 50%
of present day construction would do (and that figure of 40K house
completions would still be large by world standards. It could be worse).

what would happen would be a 200,000 increase in unemployment. If most of
these new unemployed were external and left the country, house prices
would tumble even more. People would have higher mortgage payments, and
reduced spending anyway, but the wealth effect of having equity in houses
would be diminished, and debtors would realise they have actual real credit
card debt, and their home equity will not cover it. This would reduce
spending more across the economy, reducing the need for non-European
immigrant employment visa – there is, in fact, no justification for such visas
in a recession. So no one would come in in that year of recession, and plenty
would leave.

The result could be a mass reduction in the population in one year, with
apartments lying empty all over the place. I think this scenario is more than
likely.

]]>