Comments on: Bank shares collapse is a blessing in disguise

By: Jonathan

Jonathan — Wed, 02 Apr 2008 10:45:14 +0000

Hmmm, my house or my knee caps………tough question. In any case John Q. is on the ball here with regard to regulation.
First off there is the question of whether the housing market should be regulated since unlike many other commodities there is no alternative (i.e. if the price of pasta rockets you can switch to spuds,…., not so with housing). Surely the boom bust cycle is not a good thing and the people who got in late, often the more productive members of society, are shafted.
A second and more general question is should private debt be regulated better. I’ve made this point before but I’ll make it again. Banks should not be allowed to have enough rope to hang themselves and create these massive bubbles. It’s in everybody’s interest if they are regulated somehow. This in particularly the case in Ireland where monetary policy is out of our control and interest rate cannot be increased to kerb inflation. In order to prevent a bubble when interest rates are low and growth high, increasingly stringent conditions should be placed on borrowing. It is logical that as the economy grows so does the amount of money at peoples disposal. Rather than have debt become easier to get it should become harder, (i.e. the size of the deposit on the mortgage should grow since you should have more cash in your pocket and the ability to repay should be calculated against a realistic interest rate). Decoupling of collateral on loans used to buy the same asset class should also occur (i.e. if I buy a house in a buoyant market and sometime later have 100k in assets due to asset inflation the bank should not assume that I have the equivalent of 100k cash when looking for a loan to buy another house). I believe that these two measures can be effectively used to keep the dept/asset bubble under control in the absence on monetary policy.

#
John Q. Public said,

on March 31st, 2008 at 8:23 pm

If loan sharks don’t get paid back, they beat you up. If banks don’t get paid back, they take your house away from you. I would rather be beaten up than made homeless. What’s my point? Well, I always thought that mortgage lending in Ireland should be better regulated as US officials have proposed:
http://www.rte.ie/business/2008/0331/usa.html

By: John Q. Public

John Q. Public — Mon, 31 Mar 2008 20:23:13 +0000

By: Ruairí

Ruairí — Mon, 31 Mar 2008 16:01:47 +0000

Totally agree with your article David. A little bit (or a lot of pain, depending on how gullible one was) will hone character and make us great again. Its a necessary evil after a binge.
George, how can you believe that Ireland lacks in natural mineral resources (it doesn’t, please do your homework more carefully) and how can you state that Ireland has no oil (and gas) resources? It does; and in fact sizeable ones at that. Some further research on the Irish chronology of licencing, finds and current exploration rights of multinationals might correct your opinion George as to which country, Ireland or Australia per square mile, may indeed have the most mineral wealth and natural resources. And point well made by another poster, water and its consequences for farm productivity, will see Irish agriculture producing more wealth again. If guided and supported correctly by the State. Lets produce more crops, less animal husbandry. Better use of land.

By: My Lost Generation

My Lost Generation — Sun, 30 Mar 2008 15:11:50 +0000

Due to over inflated prices on property market created by pure speculation, no one can argue, and a low tax regime on multinational enterprises establishing themselves in Ireland, we eventually reached a stage where all salaries and cost of living are higher than european average, inflation. We are out of sync. Shares are going down, good. Price of property are going down, good. What is next? Easy. Salaries, not good. Either because it will not be possible for companies (providing they stay in Ireland…) to sustain the higher than average Irish salaries, (necessary if you want to survive in a very costly Ireland, or you escape as some immigrants have started doing…not good…) or because the Government will eventually need to put higher taxes on salaries, because guess what; you cannot have everything; the nice public health service financed by low taxation, the nice infrastructure again financed by low taxation… a bit of EU money…mmm I wonder if they will give us a bit more so we can carry on screwing up the rest of the European countries with unfair competition. Something got to give. And with the decadent government that contols that country you can see how they will come to the rescue in times of troubles… Scary!
{I went to the march against the privatisation of hospitals. Don’t get sick if you are poor but then again only rich people never get sick. As a french stand up comedian used to say ‘you’re better off when you’re healthy and wealthy than sick and poor’}
In a nutshell, the quicker we realise that we need a serious cut down on absolutely everything to bring us back in tune with the rest of Europe, the easier it will be to cope with the economic crisis that we are now facing. Irish people need to leave behind these 10 years of dellusion and grow up. In clear we need to CUT OUR LOSSES, if not the reality check will resemble on of these bad Ryanair landings on a 800 yards runway.
Once again, good luck.

By: bryan

bryan — Sat, 29 Mar 2008 15:49:24 +0000

“Don’t forget one of our factors of production ‘labour’ has been detrimental in this equation. Multiple pay rises, union troubles and strikes leading to even more pay rises has pushed up inflation and house prices. ”

That may have been true in the non-traded sector but for non-unionised workers in the private sector the competition with immigration, and outsourcing has not increased their wages commensurately with house prices. Far from it.
Inflation in Ireland is not wage driven.
House prices were driven by the herd mentality, and the cheaper credit available, albeit over 40 years. ( And Strikes?)

In any case the point of any successful econmic system is to make people in the (broad) middle richer – thats the PAYE sector. The early part of the Tiger boom did that, the latter part made the property owners richer – without any entrepreneurial effort on their part.

By: n

Sat, 29 Mar 2008 05:24:26 +0000

By: Brian

Brian — Sat, 29 Mar 2008 02:13:57 +0000

Whilst the short term for Irish property does not look good as per discussions above, has anybody thought of the effects that global warming is meant to have on humanity? With a scarcity of basic human requirements of food and water, countries geographically positioned like Ireland in 20 years from now will apparently be more desireable places to live from a primative survival perspective.In the long term our houses should be filled with an increased demand. Who fills them is another debate!

By: John Q. Public

John Q. Public — Fri, 28 Mar 2008 21:40:13 +0000

Ed, your last sentence is almost a text-book definition of economics, why doesen’t somebody tell the government! Don’t forget one of our factors of production ‘labour’ has been detrimental in this equation. Multiple pay rises, union troubles and strikes leading to even more pay rises has pushed up inflation and house prices. Labour IS the demand so with their increased purchasing power they went on a binge for years, the banks took full advantage of it and the rest as they say is history-oops and the present of course, and maybe a miserable future for some!

By: Ed

Ed — Fri, 28 Mar 2008 19:28:03 +0000

Natural resources are not that important in the present age, ingenuity and application are far more valuable, as Japan proved a few decades ago. It’s a sham, however, that they fell for the property illusion – the Achilles heel of success – after such a spectacular rise. I was always fascinated by the way they expanded their economy using technology to enable grandparents of rice farmers to work at home. They developed miniature robots for operation in homes for the production small electronic assemblies for the consumer market. Millions of these assembles were required each year by the big companies and it was a win win solution for the country. Two thirds of Japan is mountainous and two thirds of the remaining one third. is reserved for agriculture, so the population has to live on one ninth of the country’s total area. They’re paranoid about having a secure supply of food , hence the restrictions on land usage. Having the Farmer’s grandparents supervising these robots added to the national output and also took pressure of the government when it came to subsidising rice production. Notice, hidden farmer subsidises there were linked to productivity , whereas here, they were in the form of non productive site/land sales for housing – totally different approach. How we use resources is far more important than having them in abundance.

By: Rob

Rob — Fri, 28 Mar 2008 11:06:19 +0000

Not sure I entirely agree with the commentator about the lack of natural resources. I visited that cliffs of moher recently and the scenery along with the new centre were fantastic. I have always thought that with our lack of oil, minerals etc we should carefully develop our tourist resources.

The house boom had to end, it was becoming a giant parasite sucking the life out of everything else. Ten years from now will be an interesting time to judge the developers, banks and their political servants who aided their grubby work. Yeats ‘Fumblers in a greasy till’ is looking very apt and contemporaneous.