Ireland wake up and smell the coffey, actually don’t
bother, that wont really be necessary, with the arrival of
starbucks and 30 branches nation wide it should keep us
alert for years to come and serve to Lubricate the wheels
of corporate Ireland well into the next millennia
Starbucks is one to watch in 2006 and beyond despite the
crap Coffey We need starbucks like we needed Mickey D’s in
the 80’s again It’s a global indicator that things are
looking up. We are a hip, chic nation and ready to embrace
modernity and all its trappings, don’t worry about the
cost! Make mine a double expresso Grande Mocha Latte.

Yes Ireland too is a nation like any other world player we
will stand up For what we believe in we have core values
that we hold dear and like Khrushchev we too may have
balls to back it up minus the shoe, come on now What was
he thinking?

Great article but I have a question – in arriving at the
above statistic, is it just personal borrowing or is it
all national borrowing. For example, would it include the
huge sums being borrowed and invested in pension related
property, ie. the many very high net individuals or groups
buying up London and the like?

I get very worried when I see profitable business seeing
their property being more valuable than the actual
business itself, Jurys being an example.
_____________________________________________________
On an aside, you interviewed my daughter for a research
job last year and she left her glasses with you. You e-
mailed her to say you had them – can I collect them
sometime? – She is now working with UBS bank in London.

Jean Cashman

Another excellent article, but why do you stop short of
explaining how banks can lend ever increasing sums to
individuals? I see this as the pump inflating the bubble
and it seems to go unchecked.

Had banks been restricted to the central banks guidelines
on debt to income multiples (3.5:1 single etc), prices
could not have risen so much. Instead banks now use
affordability calculations. It would be nice to see
exactly what these involve, but if memory serves the banks
said it would enable better quality underwriting. It’s odd
then that this has coincided with the average DTI ratio
approaching double what it used to be.

I guess that using ‘affordability’ means that banks
determine the monthly repayment a borrower can afford at
origination. If this is the case, then the ECB rate
increases should have an immediate impact on the amount of
credit a borrower can get (monthly repayment on 300k 35yrs
@3% = €1,664. The same loan @3.5% has a monthly repayment
of €1,740. To get back to a monthly repayment of €1,664
over 35yrs you have to reduce your loan amount to €287k).

Unfortunately I haven’t heard any of the Bank economists
mention this. It must not be one of their fundamentals, so
I must be wrong.

Thankfully we have a regulator. Does anyone know what role
IFSRA plays in monitoring the extension of credit? Surely
they must have somebody running models/simulations – though
I have my doubts. I’d like to think that one of the
parameters might test what impact a reduction in lending
would have on net monthly salary via reduced government
revenue from housing. Or what about a more simple one from
last year: parents complaining that they can’t afford a
childminder. Why didn’t IFSRA tell the government that
these parents were telling porkies as banks have allowed
for this in their affordability calculations.

I think the banks now find themselves committed to ensuring
house prices keep rising. This is for a number of reasons
including maintaining profits, keeping debt write-offs to a
minimum (distressed borrowers can sell voluntarily and
remain in black), and enabling equity release. Though as
you point out this can’t continue indefinitely.

Time to get back to my eggs.

Don Con

PS. Given that the average house price is so high, perhaps
it’s time to start quoting increases as an amount rather
than a percentage. When I hear house prices in Dublin
increase by 1% in a month, it does sound much until you
remember that’s 3.5k (and that’s the average not fancy).

There are other more interesting topics to cover, like
Eastern Europe’s demographics and what the westward
migration means for their local economies and future. One
topic you never seem to cover is how we might have stopped
this debt bubble from developing in the first place.

Anyway good article, you are preaching to the converted and
here is a pair of Mr. Khrushchev’s shoes.

http://www.brown.edu/Facilities/University_Library/exhibits/khrushchev/images/new33.jpg