November 19, 2008

Act now, minister, or we will all live to regret it

Posted in Banks · 116 comments ·
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Act Now Minister
We are now reaching the endgame. Few are in denial any more. The situation is dire and we need real leadership to get us out of this mess. Businesses across the country are going to the wall, unemployment is going through the roof and people who have been trading for years say this is much worse than the 1980s.

Cash, credit and demand have evaporated and the prospects look grim. This is a national emergency and we need a national plan.

The following is a six-point plan that would minimise the economic pain over the coming years, while at the same time ensure — and this is crucial — that Ireland can emerge from this chaos a considerably more profitable place to do business than it is at the moment.

There are aspects of this plan that need to be put in place immediately and others that could be carried out over time. Most of all we need to be decisive. While we hope for the best, we must prepare for the worst.

  1. The minister has to make sure that the banking system does not implode in the coming weeks.

    While the falling share price tells us that shareholders have given up on the present management, it also implies that bank funding is drying up, meaning that the liquidity benefit of the “guarantee” is at risk.

    At this stage, without massive writedowns, it is unlikely that a private White Knight will emerge to buy the banks even at these prices, so some public recapitalisation is necessary. But this does not just mean State money from the pension fund.

    There is a way that we, the public, can fund some of this, to the benefit of hundreds of thousands of ordinary savers. However, before a cent of State or public money goes in, the minister must demand that the board and management of the banks resign immediately. Hopefully, some of the management will resign as a matter of principle. After all, if you preside over a 95pc fall in your share price, it is time to go.

    Whether this happens, or whether there is a coup at the top of the banks is immaterial, the point is the people who got us into this mess in the first place are not the people to get us out of it.

  2. The recapitalisation should be democratic. By this I mean that the Irish people should be invited to participate.

    There is plenty of money on deposit in Ireland — more than enough to finance the hole in the banks’ balance sheets. Therefore, the State could issue a convertible bond, which converts into equity in, let’s say, five years.

    This could be offered to us, the citizens of this country so that we — not just some hedge fund from outside — can profit from the Irish banks’ recovery that will be based, after all, on the sweat of Irish workers in the future.

    Any recapitalisation must also come with debt forgiveness for first-time buyers and the hundreds of thousands in negative equity.

    There will be no recovery if an entire generation is burdened with enormous mortgage debts on houses that will not recover in value for years.

    Many might argue that this penalises those who didn’t get involved in the property madness. This is true, but there are things that we must do in emergencies, however unpalatable.

  3. The new banks must be regulated more closely and instructed to limit property lending.

    We have to make sure that we never again become beguiled by the idiocy that we can get rich by buying and selling overpriced houses to each other using other peoples’ money. The recapitalised banks will finance proper businesses.

  4. The Government must also avoid the trap being set by the bean counters in the Department of Finance. If the Government cuts everything now, slashing public spending across the board, the economy will shrink even more.

    We must distinguish between good and bad public spending. At this stage, bad public spending is money spent now that doesn’t make the economy more productive in the future. So wages and salaries need to be frozen, public sector employment reduced significantly, but infrastructure projects and investment in education have to be accelerated. We should borrow to do this. The State needs to stimulate the economy, not contract it and offer incentives for the private sector to invest, not save.

    By reining in “bad” spending and accelerating “good” spending, the State can make the best out of a disastrous situation. Infrastructure spending and education investment increase the long-term productivity of a country.

  5. We need to be smart in Europe. The beauty of EMU is that it allows us to borrow for the future, without the penalty of having your currency hammered. So we should try to co-opt some of our smaller neighbours who are having problems raising government bonds into a European EMU bond. This is where we lead the campaign for a EU sovereign bond market, whereby the combined Euro region issues debt together rather than as individual member states.

  6. Ireland should borrow quickly and if we are to do it, we should make sure we raise enough money now so we don’t have to go back to the market next year. The reason for acting swiftly is that if the global financial markets don’t recover, there is a real danger that the world’s bond markets won’t finance us in the future.

    All plans are inherently risky, but we are facing meltdown. Ireland needs strong decisive leadership now. To borrow the minister’s phrase, it is his patriotic duty to act, not prevaricate. If he does so, we’ll stand behind him. If not, he and his party will not recover.


  1. John

    “debt forgiveness for first-time buyers and the hundreds of thousands in negative equity.”
    What about moral hazard? Nobody forced all these FTBs and speculators to rush out and purchase overpriced houses and apartments! It would be nothing more than a reward for greed and ignorance, a kick in the teeth for the prudent who have been suffering the whims of landlords over the past few years.

    • IrishGuyInSydney

      I totally agree with John. I think the idea of forgiving the debt of first time buyers is absolutely ridiculous. If we do that, we may as give up the whole show. People need to suffer for their greed.

      • b

        I dont agree with featherbedding ignorance and greed. They are adults and must be treated as such.

        • Steve

          Greed?! First time buyers are not the greedy ones, rather they are the victims of the greed of the previous generation. Don’t saddle us with your patronising labels – my fellow recent graduates and I sure as hell didn’t bid property prices up to such hilariously absurd levels, but are now unable to come within a stratosphere of starter prices. “Greed” isn’t what makes us want to buy a home, more “necessity”. Unless of course we should continue living with our parents in to our 30s.

          And yes, Goggin et al must go. Were this the US they’d be out the door months ago.

        • Una

          Alot of the idiots that got us into the same mess here in the US are still in charge. And to add salt to the wounds of the rest of us, the likes of Morgan Stanley have set aside 6.5billion for their bonuses for this year. An investment banker at a fairly low level is getting a bonus of 120,000 this Christmas. AIG wastes about 500,000 taking their senior management away to a spa and to play golf when they just 85billion to try and fix their current situation.

          Its not just an Irish problem…..

  2. Fergal

    John, I’m 100% with you. I didn’t buy back in 2002 because I recognised that Irish property prices were (even back then) out of the sphere of realistic value based pricing. Prices rose for 5 years after that. If you couldn’t see it in 2006 or 2007, then the phrase “a fool and his money are easily parted springs to mind”.

    FTBs in general do not have the same financial awareness as the leadership of the various banks that inflated the bubble, but they provided the air which grew the bubble! If you advocate sacking the bank leadership, how can it make sense to reward the FTB?

    David, where would you draw the line? Do you give cash payments / tax relief to those who not contribute to the boom? This might allow them to buy houses at the lower (but still vastly overpriced) valuations of today? They can rejuvenate the economy by buying houses instead. It makes more sense than relieving the FTBs of the predictable consequences of their risky decisions.

    I’m in agreement with the rest of the article, but the thought of actively and directly rewarding people for bad decisions just boggles the mind. It is insane. Rewarding the people who made the sound (though painful) decision not to buy makes far more sense. That is something I would not support, but it makes more sense than rewarding the bubble makers.

    Anyone who read the Irish Times property “Take Five at ” had to realise that there was an intrinsic problem at the core of Irish property.

  3. Lorcan

    David,

    Point 1 > Agreed that the prople at the top need to change. But who do we replace them with? It’s still up to the shareholders to replace the boards, so maybe we could see something like this at future AGMs:

    http://www.ft.com/cms/s/0/33ef221e-b4f9-11dd-b780-0000779fd18c.html

    2. Firstly, remember Eircom? Most people still do, and are unlikely to invest their nestegg in a ‘convertible bond’, especially one as risky as a bank bailout bond.
    I agree with John re the debt forgiveness. It would be a popular move to the minority in real financial trouble, but every euro ‘forgiven’ will have to be either written down by the banks or paid for by the bond-holders. It would only serve to make a very bad situation even worse for the institutions concerned.

    3. This seems to be happening already. Some institutions are limiting mortgages to 80%, which seems to be a reasonable level. There is still the concern that business lending (especially to start-ups) is riskier than mortgage lending, even in the current property market.

    4. Agree 100%

    5. Maybe if we had voted ‘Yes’ to Lisbon! Seriously though, who would buy such a bond? It would seem excessively complicated, and while it would spread the risk for the sovereigns involved, it would be viewed as increasingly risky by the bond market. If the PIIGS all get into bed together to offer bonds, what will happen if one country defaults?
    Or am I mis-reading your point?

    6. http://www.ft.com/cms/s/0/a7afb08e-aaad-11dd-897c-000077b07658,s01=1.html Our last forray into the bond markets cost an extra 25 bps, or €30 million over the life of the bonds. The longer we leave it before we next dip into the pot, the more it’ll cost. Here’s hoping it’s not too late already.

  4. John & Fergal, you both make valid points but the main point is that by having a generation of people who are in serious debt for the next 15 years leads to other serious problems for the country. I don’t think wiping the large debt for FTBs is what is needed but, for example, if you lose your job and you are a FTB you will be near suicidal at the thought of where can you go. Governments should not allow this person to have debt written off but perhaps ease the pressure where it might be required, through whatever mechanism they can.

    On the overall topic, I agree that it is D-Day. The shit has hit the fan (pardon my language but sometimes the old expressions are the best). It is time to act fast, banks need the management out and capital in. This will instantly see the economy breath out and take the pressures off the small businesses who are the soul of this country, then we can start to build up the economy again and build more efficiently and more realistically. It will be a tough 2 years globally so we shouldn’t shoot ourselves in the foot now.

    Where are all the bank shareholders right now?? Why are they not looking for heads?? If I did this kind of job I wouldn’t even feel the door hitting me as I would be thrown out of work from the top floor window.

  5. martin

    If you’re to offer an amnesty to the foolish who fell for this deliberate Ponzi scheme, then why not go the whole way and use this situation imaginatively to earnestly alter Ireland’s social and economic policy for the good by nationalising all housing now. The indebted banks trade all housing on their books to the State and in return the State recapitalises the banks. The state acquires all housing and rents or sells to the populace. The first time buyer generation gets to keep their house at fairer, more humane terms than with the chastened bank, having more spending power as a result and the banks themselves can get on with business, loaning wisely to constructive research and development investment instead of trashy consumer spending. Local authority housing lists are cleared and finally, everybody learns their lesson and hopefully starts to live a bit more wisely and happily.

  6. David, with your ‘debt forgiveness’ program, watch moral hazard and unintended consequences run amok. The rush to qualify for ‘forgiveness’ would be a sight to behold ; winners will believe in the tooth fairy and act accordingly ; losers will gnash their teeth and vow never again to do an honest days work for an honest days pay. Better to leave well alone methinks.

    But at least you advocate that the fat cats walk the plank. Many of their underlings should follow them.

    Le meas,
    Paddy

  7. Shannoner Scalder

    David/Folks,

    The concept of a bailout for the FTB using taxpayers money is a tricky one. Either way, and this event has already occured, the banks/developers/investors mostly have pocketed the gains of the causes of this situation where people find themselves in negative equity. Free market economics dictates that people/investors win or loose and on an even keel. As they say in GAA, my heart says “yes” (i.e. to give assistence to FTBs) but my head says “no”.

    Ireland is a country where there is an expectation of getting something for nothing, and being a cute hoor’. Some healthy blood-letting is required here, but unfortunatley bearing the brunt of which is those in society who deserve it least. I remain convinced that those in at the high level side of things (professions, banks,..etc) will get their just desserts.

    I realise it will sound harsh, but its true in my opinion. You do make a good point in the fact that if FTB/People in negative equity are given a bailout that the economy will benefit quickly which is a good point. However I am hesitant to give a bailout to anyone, especially when this will only promote a bailout/amnesty culture. Its best to just take the sharp shock that is coming on the chin, despite the lottery assignment of the victims this will create, and we all will be the wiser for it. Only then can we move on.

  8. Debt forgiveness? I didn’t spend the last 10 years forgoing joining in the hedonism and paying off the bulk of my mortgage to miss out on being immensely smug, swanning around with the bulk of my salary not being whisked away by debt, laughing at the indentured slaves. Never I tell you!

    Sorry, but keeping up with the jones is a basic human instinct, muck with that and there will be a backlash. Anyway, New Scientist says we’re all shagged regardless.

  9. [...] probably right. D’ya hear Maca The Red is recommending that all first time buyers and people with serious negative equity be let off a [...]

  10. Malcolm McClure

    David: I have a problem with your recapitalization suggestion, which I have written about before. Perhaps I have a basic misunderstanding about how banks distinguish between “their own” capital and deposits by individuals, pension funds and government tax receipts. I think we fondly imagine these sums languishing in bank vaults somewhere, although in reality they merely inhabit columns of figures as credit balances in the bank’s accounts. Actually there isn’t a huge pile of cash there– it has all been lent out long ago and a multiple sold on as bonds which proceeds appear in the accounts as “assets”.
    Therein lies the problem. If people or pension funds withdraw from their accounts to prop up the bank, by whatever mechanism, the bank ends up receiving the same money just withdrawn. –Its a zero-sum game; what they really need is fresh, pristine, new money from the ECB or the IMF.
    It’s like replenishing the old black porridge pot. You can add hot water (government guarantees for the deposits) and stir it up (with new management) but unless you add more oatmeal (new cash) you just end up with a sickly gruel.

  11. Ted

    Recapitalisation is required but I can’t agree with your idea on debt forgivness for first time buyers – anyone who bought a house over the last number of years were aware that prices were inflated.They were also aware that the quality of the houses being built was way below acceptable standard, were build in the wrong location, had no facilities arround them – but they still bought them.

    I feel sorry for people who will be caught in the negative equity but at the end of the day there will always be people who loose when the market turns. I’ve lost 95% on BOI shares over the last year and a bit – is anybody going to bail me out? I don’t think so.

    Recapitalisation of the banks at this stage is essential – but this must be done in tandem with a a root and branch change to leadership and business strategy in the Irish banks. Forget lending to construction – we need to give money to innovative companies that will move the country towards being a knowledge based economy.

  12. My Lost Generation

    I also totally disagree with the idea of forgiveness for FTB. A quick look on property prices over the past 5-8 years around Europe or even the world and you could tell the whole property market in Ireland was an absolute scam, farce, call it whatever you want. FTB were fooled now they have to pay the price. However a mortgage house is the biggest investment in your life and you must think before you act! It is not a car loan?! Unfortunately a lot of people in Ireland thought so.
    The FTB definitely have as much a part or responsibility in their misfortune as the government and the financial authorities so the truth be told!
    We could have bought a house, mortgage approved and all the rest but decided against it and rent instead. Now we are thinking of investing in a flat in France, Toulouse for still a third of the price you would pay in Ireland in a much more economically viable environment than Ireland; this being done, of course, with our Irish savings and wages.
    Not a lot of people used their heads and I can only feel sorry for them. I have friends, FTB who bought a house for 650 000 in Rathgar 5 months ago, should we forgive them. Thanks but no thanks. Tough! and it will be.

  13. Basically I agree with John and Fergal.

    Everything looks fine, but the point about the forgiveness.

    I’ll tell you more. I didn’t buy, so I have a good amount of savings. I would invest on those banks as you propose, but I would never do so if the lost the only active they have, that are those debts. From my point of view, you need a charity to buy the banks and that’s not possible.

    Keep the plan without that and you could probably save those banks and reward the people who did have the common sense to not run into madness. And not just that, you would also teach everybody how important it’s to know what you do with your money and how important it’s to have some financial knowledge and common sense.

    With that part I only see a plan to invest on an empty bank and the reward to those that risk to a level where they could blackmail everyone else. What do you think that will happen when in 10 or 15 years a new bubble starts in Ireland?

  14. Peter Atkinson

    Here is my suggestion for what it is worth. FTB and negative equity holders to enter into an agreement whereby they become long term leasholders of their properties at a price that they can now afford.The asset transfers back to the balance sheet of the bank who in turn will be recapitalised by the taxpayer by way of government borrowing.Their is your equity bond by way of bricks and mortar.The houses continue to serve a purpose ie provide housing to the people who need it and at the same provide a vehicle for investment for the Irish taxpayer if and when a recovery takes place.The alternative is the current setup of giving homeless families €1000 plus per month by way of rent allowance or alternatively council housing which the taxpayer pays for anyway with no return.Ultimately the people who will benefit from these foreclosures are the very speculators who fuelled this mess.They will have sold at a crazy price new and will use these ill gotten gains to buy back from gobshite banks who have no idea what they are sitting on.The real cute huares.

    If we have to listen to any more waxing from the media experts or any more Merril Lynch or PWC reports, which I might add are not provided free of charge, we will have lost the moment and may end up once again as part of some sovereign empire this time through a financial sell out.

  15. Fergal

    Ste – statusireland, first of all, an entire generation is not indebted. A minority chose the prudent step of not buying an inflated asset, while others were simply priced out of the market.

    Now, let uss imagine that the State will ‘reward’ one group over another to restore liquidity to the housing market. (I don’t agree that any individuals should receive direct subsidies, but let’s imagine.) Look what EU interference has done to farming – South American and African farmers can’t compete with European subsidies, and in Europe, small farmers have been almost wiped out. Individuals should never receive state support in this manner. All society benefits from infrastructure investment, healthcare, education etc. When only some groups benefit, other groups lose.

    FTBs
    These people made an active decision to invest in an asset that everyone now accepts was over-valued. They could either afford it, or they took a risk they couldn’t afford. Some, by no means all, are in negative equity now. They have been paying a mortgage and been living in their accomodation.

    NBMs – Non Bubble-Makers
    These people made either an active decision (which proved to be wise) or were simply priced out of the market. In either case, they had far less to do with the bubble. They have been paying rent and been living in rented accomodation.

    Who should be rewarded? Both FTBs and NBMs have ‘lost’ money.

    FTBs have lost investment capital (if they took out 100% mortgages, then they were incredibly fool-hardy), but still have a claim over the property, which may rise in value again though probably not anytime soon. What if prices do rise (in say, 15 years)? Will those FTB’s who were compensated for their fool-hardiness pay back the State? How will it be policed? They would get the upside now, as well as the potential for upside in the future! The NBMs would learn that making the right decision in Ireland can mean being punished.

    NBMs have ‘lost’ money because “rent is money down the drain”. They have no claim over where they have been living. NBMs have displayed either wisdom beyond their years by identifying a bubble or weren’t wealthy enough to be on the ladder to start with. Assuming the state is to give anyone a leg-up, then surely it is these people. This makes logical (they are financially wiser individuals) and social (these are also the dis-enfranchised) sense.

    Supporting the NBMs could stabilise prices (though I believe they should fall a lot further) thereby reducing the possibility for further downside for the FTBs. Both groups would ‘win’ to an extent.

    I believe that instead of focusing on groups, a focus on economic management would be a better idea. Let’s focus on creating jobs in indigenous companies. How about providing for tax-free status for all start-up companies with less than 10 employees for 8 years? (It typically takes 2 – 3 years for a start-up to be profitable anyway, that is if it survives). You could tier the tax-rate for the number of employees, so that growth is encouraged. How about a similar tiering structure for multi-nationals? The more they employ in Ireland, the lower the tax they pay.
    Why the continued investment in the periphery of Dublin city? Transport is a problem already. Why make it worse by continuing to encourage investment here? Smaller towns, Tipperary, Athlone, Rosslare, Sligo, Donegal…. How about more tax breaks for business there?
    Why is broadband access so poor in Ireland? Because Fianna Fail privatised it. Eircom’s goal is not to help Ireland, it is to raise share prices. The government shoudl recognise that internet access is just as important as road access in the long term. Let’s have ‘good’ expenditure there.

    The goal should be to make Ireland an easy place to do business, low tax, good infrastructure, educated workforce, low cost base. We need to work on the infrastructure. The cost base will come down in line with property values. Forget rewarding any group (except job & wealth creators / entrepeneurs).

    I think this is the first article I’ve seen from DMcW where he’s lost the big picture viewpoint.

  16. “The value of your house may rise or fall” – the warning is there for a reason. Ignore it at your pearl. My wife and I were on the wrong side of negative equity in the UK in the 90′s and we recovered, so will current FTBs caught in a NET (negative equity trap). It’s a home they bought, not an investment. If it teaches future generations about our crazy obsession with the property ladder, then it might be a good thing.

    Baling out FTB though…..OMDB (over my dead body:)

  17. Diarmuid

    “Any recapitalisation must also come with debt forgiveness for first-time buyers and the hundreds of thousands in negative equity.”
    This point does not square with the following:

    - “The recapitalisation should be democratic.” How can using the funds to forgive the debt of the group who engaged in the reckless borrowing that caused our problems be democratic? They bought on the basis that there was a bigger fool following behind who would pay an extra 15% per year for their house. Either they are the biggest fool or we all become it!
    - “We have to make sure that we never again become beguiled by the idiocy that we can get rich by buying and selling overpriced houses to each other using other peoples’ money.” But if the debts are forgiven for those who engaged in the idiocy the lesson will be soon forgotten, or will the lesson be moral hazard does not apply when borrowing in Ireland?
    - “By reining in “bad” spending and accelerating “good” spending, the State can make the best out of a disastrous situation. Infrastructure spending and education investment increase the long-term productivity of a country.” Handouts to those in negative equity would be the epitome of bad spending
    - “There will be no recovery if an entire generation is burdened with enormous mortgage debts on houses that will not recover in value for years.” Its not a whole generation – its a section of people in a ten year age span who grew up in era where success was equated with borrowing to fund your lifestyle. The people following behind will be more hard-edged and see that hard work is needed to get anywhere. Educating & upskilling them would be an infinitely better investment.

    • Dr.Nightdub

      “They bought on the basis that there was a bigger fool following behind who would pay an extra 15% per year for their house.”

      Way to generalise there! Not everyone bought with a view to sell-on profit, a lot were thinking of the psychological rather than financial return on investment – owing your own home rather than being beholden to a landlord, or being a burden on / stuck living with “hotel parents” (love that phrase). According to daft.ie, the current “market value” of my D10 gaff is about 7% less than what I paid for it. All very boo-hoo-hoo, except it’s not for sale and won’t be for the foreseeable future. so the value to me is what I’m paying PTSB.

      I know Xmas is coming and we’re all supposed to get into the festive spirit of giving and stuff, but even speaking as a 2007 FTB (go on ahead, laugh…), if I put David’s notion of debt forgiveness onto my letter to Santa, he’d wet himself laughing. And quite rightly so – it’s tantamount to asking a drunk driver if he’d like a faster car next time.

      A far better notion would be to give additional tax breaks to renters – and maybe even landlords – for long-term leases (say, 5 years plus). Security of tenure, security of rental income, no need for massive deposits so would put some colour in the cheeks of consumer demand. Whether we as a nation could be trusted not to simply go bling-crazy all over again is debatable, though.

  18. Fergal

    Dr. Nightdub, let those who bought (made a financial decision) on the basis of a “psychological return” suffer a psycholoigcal (as well as economic) loss. I understand your basic tenet that FTBs should not be rewarded, and clearly agree with you. I think your idea of rent stabilised apartments (as exist in Manhattan) is fantastic and to be applauded.

    Just one thing, let’s be clear, if you make a decision, you suffer the consequences. I really don’t care if the decision was economical, psychological or religious. The decision is the decision. You suffer the downside, or you reap the benefit.

    Emeral isle – it’s not clear what posts you’re responding to. We’re left guessing what you think is a good idea.

  19. Greetings!

    Like so often, I agree with most of the points you make, David. However, there is one exception today: I strongly disagree with your suggestion to bail out house buyers through “debt forgiveness”. That would – as some others have pointed out already before me – indeed reward the foolish, gullible and greedy in our society, and punish the prudent and sensible ones.
    I could have bought several houses during the bubble and would not even have needed a mortgage, a concept I very much detest anyway, as it turns gullible people into long-term slaves of the banks and other lenders.
    But I did not buy even one house, because I could see right away that they were overpriced. I have the benefit of knowing the conditions on the Continent quite well, and in most countries of western Europe you can buy and rent houses for – on average – 50% of the Irish prices.
    Actually, almost everything is only about half as expensive than in Ireland, from food and fuel over cars and petrol to utilities and services.
    They also pay taxes, and their businesses still make profits. Their crime rates are lower, and their public facilities (including schools and hospitals) are way better than what we have in Ireland.

    So what does one conclude from this? Very simple – the quality of leadership and management makes all the difference between companies, organisations – and countries.
    Ireland as a nation has not seen a great leader and proper management for quite some time. One of our more recent prime ministers actually robbed the State as much as he could – and got away with it, including a state funeral, which added insult to injury. And a second leader ran his own private cash economy of yet unknown dimensions – and without paying taxes on it – while being Minister for Finance and later Taoiseach.

    Now we are lead by a rude and foul-mouthed bully boy from the sticks, who is really a coward, has no ideas and still believes that doing nothing is the best way to deal with a crisis. His second-in-command is Ireland’s answer to Sarah Palin, and most of his ministers have neither a clue about politics, nor about the areas and departments they are in charge of. So we should not be too surprised about the mess we find ourselves in.

    As much as I agree with your 6-point-plan, David – with the exception of “debt forgiveness” for house buyers – we have to realise that it can only become reality and work if we have a proper political leadership. And this is the problem: we have no such leadership.

    I agree with you as well that both the Minister for Finance and his party (as well as all other major figures in it) will eventually become casualties of the situation they created and then could no longer handle. The well-known poem of the “Sorcerer’s Apprentice” comes to mind…

    It is therefore ever more important to prepare an alternative, a team of qualified and able people, who can be called upon when the time comes to really rescue this country from total implosion. I have said it here before, David, in fact several times already: We need to form a new party or political movement, and I once again propose you – David McWilliams – as the leader of it.

    Do I have a seconder? And are you, David, willing to accept the call?

  20. John ALLEN

    Both FTB’s and NBM’s lost …….we must now try to understand our basic tenets and ask why we must learn to forgive a sinner for everyone has sinned

  21. Philip

    Sort out the bank’s management – nice idea if you can find people outside the groupthink bubble. A few financial guys who just lost their job in the private sector would be my choice with an engineer at the top – preferably with entrepreneurial background. Give them 2-3 years at the job. Groupthink needs to be cracked apart.

    Public Service spending needs more rigourous management. Again, same methodology as above.

    The rest of the points will sort themselves out.

    As for FTBs – before anyone dumps David suggestion – It is not just another means of injecting money into the economy – it stabilises communities and families. Be wary of the social contract. The approach needs tuning. Saying people should be adults etc. is unnecessarily judgemental when you are trying to dig yoursel fout of what could be total societal collapse.

    • Some managers from continental Europe would be good, and they could work wonders. Especially German, Swiss, Dutch and Swedish people, who have a much higher work ethic and a more serious attitude to things than the average Irish person.
      After all, we are in the EU, which has helped us out for many years with billions of subsidies. Had we not blown most of them, we would stand better in the rain now.
      But I am sure there are plenty of good people from these countries who would accept and enjoy the chance and challenge of putting the Irish financial system back into order. The two countries I would specifically exclude from providing us with new managers are the UK and the USA, as they have created most of the trouble we are in now. Unfortunately our own clowns in charge of banks had nothing better to do than to copy their follies.

  22. John ALLEN

    ‘Death the Leveler’ – by this I mean we must nationalise all Pensions both Private and Public including Public Representatives – this will restore a dignified cohesive responsible society and empower The Nation .

  23. Paul

    I bought a place I could afford, because even as far back as 2003, I thought the figures did not add up, and there would be a crash (yes I got laughed at). Even though I was advised by a financial institution to buy a more expensive property, I went for the affordable one, thus, I now still get a full nights sleep. So, why should we reward ignorance, and greed, as the others here have stated ?.

  24. My Lost Generation

    I believe the FTBs will lose a lot more money than NBMs once the value of their property is slashed by half, as it wil happen. In addition to this they are stuck in Ireland as they cannot sell or rent and possibly emigrate. FTBs are to the irish economy the equivalent of the 30 year old irish living at home with daddy and mummy; economically, dead weight.

  25. MK1

    Hi David,

    Its a good idea to suggest a plan.

    > We are now reaching the endgame.

    No, I dont think we are reaching the end-game yet. The economic changes are still only taking effect. These changes may last 3 or 5 years yet. There are pains and problems which have not yet come to the fore. So, end-game it is not, using yoda-speak.

    > Few are in denial any more.

    There are many people in denial and also in ignorance. Not that they are stupid people, its just that they dont have the facts, the facts have in some cases not appeared yet. Like a wave crashing on the shoreline, we are just watching it.

    > this is much worse than the 1980s.

    It may turn out to be. What we do know is that the rate of change from growth to reduction is faster than the 1980′s. The 1980′s was a long recession though. The 1930′s was a deep one. Our woe is still in its infancy. Who knows what this enfant terrible will end up as it matures. GDP growth/contraction figures are not the only way to measure a slowdown. Jobs is a key one and we are just getting going (on the slippery slpe downwards) on that one.

    > Cash, credit and demand have evaporated and the prospects look grim.

    The thing that IBEC and the ISME and SFA need to realise is that just like property was supported by too much credit, so have businesses. Eircom for example was flipped several times due to credit-leveraged buyouts. Now that companies are suffering because they cant get credit, that is not a bad thing in and of itself. Businesses will have to adapt, cut their cloth to their measure. Reducing the credit binge is a good thing and needs to be done. Its what has got us here in the first place. Sure, ‘proper’ businesses will also take the flak, but that is the nature of the market. They got the credit benefit when it was there.

    > 1. The minister has to make sure that the banking system does not implode in the coming weeks.

    The choices may be grim and unpalatable depending on the state of the growing quagmire. Its still unknown. Giving the banks capital may be throwing good money after bad. Sometimes bad businesses just need to fold. That is capitalism at work. Te banks are not sacred cows and we are in the euro zone, there are plenty to take their place.

    > it is unlikely that a private White Knight will emerge to buy the banks even at these prices, so some public recapitalisation is necessary.

    This is a contradiction. If a private company is not willing to buy one or more failing Irish banks, then why should public money. We are not charity cases. The salient act which I think yourself and many do not yet comprehend is that these sick banks DO NOT NEED TO BE SAVED. Comprehend this and you will be one with nature young sensei.

    > Hopefully, some of the management will resign as a matter of principle.

    Xmas, Turkeys, ……. principles were left at the door at entrance interviews, which you will know from dealings with the banks. They have zero scruples.

    > 2. The recapitalisation should be democratic. By this I mean that the Irish people should be invited to participate.

    No, that will definitely not work.

    > Any recapitalisation must also come with debt forgiveness for first-time buyers and the hundreds of thousands in negative equity.

    David, that is bordering on insane, and is as sane as suggesting we leave the euro.

    > This is true, but there are things that we must do in emergencies, however unpalatable.

    No, we must not make knee-jerk reaction mistakes. Thats the key. Procrastination does have a benefit if a bad decision is no taken.

    > 3. The new banks must be regulated more closely and instructed to limit property lending.

    Fully Agree 100%. This should be step 1, in parallel with other things. We need to right the wrongs as to what got us here in the first place.

    > 4. …. We must distinguish between good and bad public spending. At this stage, bad public spending is money spent now that doesn’t make the economy more productive in the future. So wages and salaries need to be frozen, public sector employment reduced significantly, but infrastructure projects and investment in education have to be accelerated. We should borrow to do this.

    We need to do so prudently however. Vanity projects such as the Luas and the Metro perhaps not. We need bang for the buck and short-term benefits. Education gets a lot of money as it is. There are labs with 100′s of computers sitting idle in 3rd level across the country. Lets not forget that a lot of the education spending was in fact new buildings. ie: it wasnt going into education at all! People complain about pre-fabs, if they are habitable, there is nothing wrong with them and a child or teenager can learn just as much in one as in a 30m over-budget building of glass and metal.

    I agree that the state needs to focus and re-target its spending on areas which will stimulate economy. That is towards entrepreneurial areas. Education is long-term (10 years), not short-term wich is needed.

    > 5. We need to be smart in Europe. This is where we lead the campaign for a EU sovereign bond market.

    There should be a euro one already, its quasi there. However, euro land is not acting a one. In fact, our own government was complicit in that by acting on its own with the state guarantee for the banks. We have not shown smarts recently.

    > 6. Ireland should borrow quickly and if we are to do it

    The cost of future borrowing may come down even as our country’s risk rating goes up, and there is no point borrowing money and paying interest on it if we dont need it. Ireland Teo isnt going to go away as long as some people on the island stay!

    > All plans are inherently risky, but we are facing meltdown.

    Yes, action is needed. I think I have said it often enough, Lance The Boil …. we are letting the banks problems fester and spread out. Encourage other EU banks to enter the market, to provide the loans that small businesses need, etc. Assist those foreign more healthy banks to help our economy rather than propping up some of our ailing ones. Patriotism doesnt meen we have to be ‘green’.

    MK1

    • Malcolm McClure

      MK1 gives us a cool-headed, perceptive and practical analysis of the problems facing us. Much better than David’s passionate but slightly over-wought take on the matter. The Bank Guarantee was a hasty and ill-thought-through bandage on a broken arm. Now that the patient is on the operating table we have to follow the first principle “Do no further harm”.
      I think the government’s best “splint” option is a debt moratorium for the recently unemployed, with pay-back limited to one third of after-tax when they get a job.
      Also they could budget a tax-break that allowed a single potential loss on investment in bank shares to be carried forward as tax credits for up to 10 years.
      Neither of these suggestions costs the tax-payer a penny, but the newly generated investment would compensate the banks for losses on moratorium debts.

  26. Lorcan

    David > “Any recapitalisation must also come with debt forgiveness for first-time buyers and the hundreds of thousands in negative equity.

    There will be no recovery if an entire generation is burdened with enormous mortgage debts on houses that will not recover in value for years.”

    This is turning out to be one of the most controversial ideas you’ve had for a while!
    But I doubt you’ve completely taken leave of your senses so I’ve tried to find where this could lead to economic benefits for the nation.

    When I think of debt relief I think of the Heavily Indebted Poor Countries initiative. Helping third world countries out of their debt spiral remains a popular idea, so why not help Heavily Indebted Poor Irish (HIPIs)?

    The HIPCs, like the HIPIs got themselves into the debt, but it is internationally acknowledged that keeping them (the HIPCs) in the position they are in will be damaging to future growth. You seem to suggest that the same logic can be used for the HIPIs.

    Two questions arrise. Qui Bono? and what’s the risk-reward ratio?

    Obviously, the HIPIs will benefit. But who else? In the short term the banks won’t, as they will have to write off large amounts of their loan-book. This could have benefits in the medium to longer term though. If banks are forced to write down large amounts of debt now, those that survive will have ‘clean’ balance sheets, making them more attractive for the White Knight investors.
    If the HIPIs are not spending their money servicing their mortgages there is an argument to be made that they would spent their money elsewhere which would help the real economy.

    The risks involved are huge. The moral hazard argument has been well made by others here, and I agree. It would create the perfect one-way bet for property buyers. If the price goes up, they are quids-in. If the price falls they are bailed out. (actually sounds a lot like what the banks want for themselves).

    We make a mistake considering property as an ‘investment’. Nobody considers a new car to be an investment, it is a tool to do a job. It is guaranteed to loose money. An home should be seen as the same. It is an (admitably expensive) tool that satisfies a need. There is always a chance that property prices will never recover (on an index-linked basis) to 2007 levels.

    I’ve tried to see how this would be a good idea, and have failed, the more I look at it, the less it seems to makes sense. Maybe you’re just ‘flying a kite’?

    Why not fix all property prices? (seen as radical ideas are being sounded) Remove them from the ‘market’. Allow them only to appreciate in line with inflation. The argument always seems to be that the property market is different, so remove the speculative element from it. The government could then give relief to those with negative equity because they are tying in their losses, and hit those that have profited from rising values with capital gains tax, because they are tying in their gains. New houses would only be built to satisfy demand, and this bubble could not be created again.

  27. Peter Duffy

    We are past “moral hazard” aka moral outrage , when the Irish Times are looking for 30 heads BEFORE Christmas, to make it into 2009.

  28. John ALLEN

    ….so can someone arbitrate in a summary what should be done ?

  29. roc

    If those seeking a bail out from negative equity were able to adequately demonstrate in front of a jury of their peers, their naivety, and that they were conned, I would have no problem with this. This judgement would then be entered on a publicly available register (ie. avoid doing future business with this person). For those not able to demonstrate such naivety, a good boot up the hole would probably be fairly in order.

  30. KeithD

    That’s a great idea, inviting the public to buy convertible shares, didn’t we try something along those lines here before, Jasus I’m scratching my head here trying to think of why this sounds familar???………………………………………..

    AAAAAAAARRRRRRRRRRGGGGGGGGGGHHHHHHHHHHHHHHH Eircom Shares!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

    I didn’t buy them back then because I didn’t see a company like Eircom with a public sector mentality doing very well in the real world. As it happened I was correct. However at less than a Euro a share, I suppose there is only one way the share price can go! Brilliant idea David, only thing is that I doubt you’ll see this bunch of inept lurchers doing anything as smart as this. Looks like more of the same, same bank management, same waffle same indecision about recapitalising or not recapitalising the banks, more pouring in support and it not coming out the other end to businesses.

  31. Philip

    How do we address management issues. MK1′s point on education is excellent and demonstrates unbelieveable mismanagement we all seem to resign ourselves to. And there was that recent engineering consultant’s report on the Ringsend Sewage plant – and the list goes on. HSE is just another example of it. It’s as though the guys in our public service know nothing about basic planning methods and plain people and contractor management.

    I have met public service guys doing MBA and Prince II project management courses you name it. They get courses funded courtesy of the taxpayer…unlike most Mr Job from private enterprise. They use the jargon collected to build intimidating specifications and haul unfortunate bidders over the coals on the finer points of “recently learned” minutae. They come across as though they could build space ships as a nixer…geniuses. Unfortunately when the contract gets under way, the brain goes out the window. These guys really do not know how to manage day to day – which cannot be learned out of a course and there is no mentoring from good management to be found anywhere. Their method and professionalism is just all show.

    It really does not matter what you do in terms of policy adjustment or tax breaks or infrastructure funding…unless we address management we are sunk. Shareholders of banks see this as the key issue. We have dead wood steering the ship in banking & public services that is absorbing cash and it is not being corrected.

    Why are we so bothered about letting the FTBs off the hook? it’s not that they are exactly rolling in it. and as indicated above, they are an economic deadweight – and that could pull us all down. We better start understanding we are all in this crap together. Things can be settled when times get better.

  32. Here’s a fantasy, a virtual currency devaluation.

    We can’t devalue independantly, but if we had a one off across the board division of debt/salary/any other relevant number to 0.75 of it’s current number what would happen?
    Well in terms of our debt we would be in the same position we are now in, no worse no better. Imports would become more expensive and exports could drop in price thanks to a reduced cost base. Immediate stimulus to the local economy as exports rise and we choose to buy Irish due to the higher cost of imports.

    un-implementable, but one can dream I suppose.

  33. Paul

    I remember the tv adverts in the 80′s, pleading with us to buy Irish.

  34. The Dude

    What a lot of people here dont seem to realize is that most FTBs had no choice the reason most of them payed so much for shit houses was becaues the had just got married and wanted to start a family, what should they have done, lived at home with their parents, or worse rent a house and pay off the mortgage of a property invester muppet, we all know the price of rent was based on the cost of the investers repayments

    So we have a huge number of people in their 20s and 30s who had no choice, I would have no problem helping this group but everyone else all the landlord invester muppets should only be mocked, I hope the fools lose it all

    I find it strange that a nation that had to struggle for so long against a landlord class would then all aspire to become landlords either in Ireland or eastern europe
    Davitt must have been spinning in his grave
    but he may be laughing now

    • Fergal

      To “The Dude”,

      Nobody was forced to buy. Buying is an active decision. One chooses to buy, rent or live with one’s parents, or to emigrate. One chooses to marry or not to marry. One chooses to have children or not to have children. Those poor FTB’s who “got married and wanted to start a family”. Oh, the poor dears. IT WAS A CHOICE. Wear a condom or go on the pill until you can afford children. With social pressure like that, maybe people wouldn’t have kept voting in Fianna Fail, with their legacy of Haughey corruption, Ahern Dig-outs, Builder’s Tents, LUAS and Port Tunnels, stupid and corrupt re-zoning, PPars and electronic voting, explosive growth in the public sector…… It was a CHOICE.

      I chose renting (1996 – 2004 and then emigration 2004 – present day, still renting), and not to get married or have children until I feel I can support a family in the way I want to. I make over USD 100K a year, and I can’t afford a wife and family (the way I want it). Others chose buying, and still others took the rent / live with the parents routine. Some chose marrige and children and rent.

      And yes, I know people renting 3 bedroom houses. In fact, my brother (not in banking or property, nor is his wife) got married in late 2005 and in late 2006 he sold his house that he owned for 10 years and his wife sold hers (she’d owned for 3 years) and RENTED. This with a baby on the way. Their friends said they were crazy, that they’d never get back on the ladder, but they saw the valuations were insane. They CHOSE to sell and rent. That is how crazy the market was.

      So yes, people had (and have) a choice. If I owned in Ireland now, my house would be on the market, I’d be looking to rent for a few years until prices bottomed out.

      Look at today’s Take 5 at EUR415k in today’s Irish Times and tell me the bottom is here. If you do, you’re wrong. Artane is not well-to-do Brooklyn, the house shown is massively overpriced. Dublin doesn’t have the infrastructure – subways, bus-lines, 3 international airports and it is not a ‘global’ city in the way that New York, Hong Kong, London and Tokyo are. Irish property prices are still over-valued by a minimum of 30%. That 450K house is really worth no more EUR 300K. So, make your choice, sell now, swallow whatever loss you’ve made, or hold it longer and watch your losses grow.

      You always have a choice. At then end it maybe a choice to declare bankruptcy, penury or emigrate and abandon your debts and let others shoulder the burden.

      Sell, sell, sell. The person who buys now will have made their choice to risk their capital or credit-worthiness on their viewpoint of the market. If he or she is an FTB, then they cannot be bailed out. They are making a conscious decision to bet on the upside. Their choice. Good luck to them.

  35. b

    I agree to a point but you did have a choice. You always had a choice and yet time after time we voted that pillock Ahern back into office for more of the sah,e

    The market went off the charts nuts and were of the opinion that we could have the rockstar lifestyle right here and right now. People had the loopy notion in their heads that money was cheap and in unlimited supply and that things could only go up and up. Buy it now before it got too expensive and you know houses are running out. Which was complete unvarnished bullshit.

    When the unelected clown that calls himself the Taoiseach said that the banks had enough capital I almost spat out my breakfast.

    This bullshit has to stop and the bullshitterati need to be tossed out a high window.

  36. The Dude

    b
    I am not one of the FTBs or a property invester for two reasons

    1 I could never afford to get on the property ladder
    2 I could see that the prices were way too high and it was all going to end in a crash

    I am almost 30 and even with the present drop in house prices i still can’t afford a house. So people like me are watching all of this waiting for further drops and then who knows in maybe two years i might buy a house, if i still have a job

    I know plenty of FTBs and when they were buying their houses I pointed out to them that the prices were insane. Most of them agreed but as they said “we have to live somewhere, is it better to pay off my mortgage or my landlords mortgage”

    And that was and is the problem we see in Ireland, the working people could not buy a home

    • b

      I am 35 and I never bought either. I am looked down on from some (narrow minded, but a friends wife, so unavoidable!) quarters. I was never tempted because I can’t see 30 days ahead never mind 30 years. I have been thrown with force from a number of projects and had to queue in the Post Office for the dole. It is humiliating but the people that did the throwing all went out of business. Even the well connected ones. They wanted a quick fix and to wallpaper over the cracks.

      My job has never been stable enough for the banks and I laughed in the managers face when she suggested I would be back for a car loan. the really funny thing is that the banks are my biggest clients and we clean up their messes. I get worried when the bank actually wants to give me money not the other way round. I would also not be so fast to lend out money to business when they are going to piss it up against the wall as has become the norm. Cost control and credit control is non existant in Ireland. And also the prevailing attitude is to tell you to piss off instead of paying for what you have bought. Not paying your bills is rampant.

      Stop the bleeding first then restore the bloodflow. Extending even more credit to those who have absolutely no money sense makes no sense. Let daily banking continue but the situation that I was in personally with a construction company who were permanently 5k from their 1.5 million overdraft. This company wasn’t able to trade out of the difficulties in the good times never mind now.

      I remember being horrified when I saw this crackhead on some RTE program about getting out of the family home saying you are “entitled to borrow x” from the bank. People got used to getting what they thought they were entitled by right to get from the bank. the only entitlement that was given was to the bank to ride them with no kissing for the next 30 years after buying the right to live in a badly built house that was thrown up. You can’t heat them, you have to commute half way across the universe where there is no public transport or amenities and they are worth jack shit now and probably never will recover the “value” they were sold at.

      A house may be advertised for sale at 300 grand but in reality after paying it off in 2038 you will have pumped in around a million euros. So instead of saying to yourself “is it worth 300k” say “I won’t pay a million for that heap”.

      My friend recently returned from 10 years abroad living in some fairly dodgy places and he went looking for a place to live. And the one trend he noticed was that houses “built” in the past decade were of a far lower standard than houses built before the mid ’90s.

      And I haven’t even spoken about the misery that is the rule of 78 that applies to car loans, personal loans and to credit cards.

  37. Hey Dude, so you can’t afford a house – big deal. 90% of the worlds population is wondering where their next meal will come from. The comment “is it better to pay off my mortgage or my landlords mortgage” is a typically insane Irish comment. We put ourselves under enormous pressure, lose mobility and tie ourselves down with (in some cases) a 30 year millstone, but hey that’s better than paying towards my landlords mortgage. Do we raelly begrudge others their success that much? And by the way, by buying overpriced properties aren’t you just paying off the developers and the bankers mortgage instead? This country has got to grow up an apply some objectivity to the whole property ladder obsession. And it’s that obsession (“I have to get on the property ladder”), and not the banks or property developers that is behind this mess. If you bought recently as a FTB you were foolish. I sympathise, but don’t expect me to bail you out.

    David, I’m afraid you’ve lost the run of yourself if you think we’d swallow this one. Don’t you know ‘dig outs’ don’t apply to little people.

  38. Stephen Kenny

    Debt forgiveness for mortgage holders in heavy negative equity (First time or not).
    There is clearly a very strong argument in favour of this – in terms of the national economy it is undoubtedly important to reduce the debt burden of so large a proportion of the population.
    The problem of moral hazard, and moral outrage, are both equally important, and real.

    The goal of debt forgiveness isn’t, actually, to forgive the debts, but to make the people concerned more flexible, and enthusiastic, consumers.

    One possible solution is for the state to take on a proportion of the debts, and, as with other state loans, collect the this new debt via payroll, at some future date, using some affordability metric. For example, if someone’s pay rises above a level, start to collect the debt. It would also be possible to collect some, or all, of the debt, if the property is sold at a profit. There a no doubt other models possible.

    The main problem with ‘Moral Hazard’ is the name. In an amoral world, the problem is not conveyed by starting it with ‘Moral’. These days, it might be better described as ‘The Hazard of Rational Man’, which, really, is what it is.

  39. The Dude

    Paul
    People have to live somewhere. I don’t fancy living on the streets, so i can do the one of the following

    1. Live at home with my parents, @ almost 30 this is not good for me, and not fair on them

    2. Rent form a landlord OK if you are single but the price of rent in Ireland is tied to the cost of the landlords mortgage. Do you know anyone married with children renting a 3 bed house because I dont

    3. buy a house

    If we lived in France Germany ect we could all rent but this is Ireland most people who rent dont have the “three Fs”
    I do agree with what you are saying. I live in a first world country so things can only get so bad
    I don’t begrudge anyone who does well even if they are just idiot landlords
    like I said above I have never and will NEVER buy an over priced property

    • 1) is standard practice in Italy, is Ireland special?

    • Colin

      2, You will soon know plenty married with children who will be renting or living with mammy and daddy again! Having a wife and children doesn’t automatically entitle you to your own house. Grow up! Anticipate problems before you become a prisoner of the problem

  40. Philip

    The FTB debt forgiveness are not dig outs. I think many are failing to grasp just how serious the situation is. Questions of how idiotic people may be given the stupid situations they placed themselves in etc. are not appropriate. see parable…

    A man went to the Buddha insisting on answers to these questions, but the Buddha instead put a question to him: “If you were shot by a poison arrow, and a doctor was summoned to extract it, what would you do? Would you ask such questions as who shot the arrow, from which tribe did he come, who made the arrow, who made the poison, etc., or would you have the doctor immediately pull out the arrow?”

    “Of course,” replied the man, “I would have the arrow pulled out as quickly as possible.” The Buddha concluded, “That is wise, for the task before us is the solving of life’s problems; until the problems are solved, these questions are of secondary importance.”

    The “Arrow” in ireland’s case has well and truly hit us and poison of indecision and procrastination is bringing it to its knees. Rules have changed fundamentally and nepotism/ cronyism with its lack of self criticism is going to make matters worse. DMcW is just saying…Act Now and be radical or loose a country…simple as that. I notice many of you commenting “objectively” on the latest numbers like bored pilots on a ship reading off some dashboard – not bothering to look over gunwhales and see the approaching iceberg.

    If I may paraphrase badly another saying:
    If you are cool-headed while others are panicking all around you, then maybe you have seriously mis-judged the situation.

  41. Dude (I love that moniker), The price of a house to buy or to rent is tied to one thing only; and that’s what people are willing to pay for it. I’m renting a three bedroom at the moment for €1,000. If I were buying it, the repayments would be a lot more. I am renegotiating the rent because the laws of supply and demand being what they are, I can drive the price down.right now. But here’s the best bit. The price of the apartment I’m renting was €250,000 a year ago. It’s now valued at €220,000. The landlord has lost €30,000 in net value. Assuming I had bought this a year ago with a 100% mortgage I would have shelled out €7,000 in interest alone and would have seen my property drop €30,000 in value. This means I am €37,000 better off in one year (not including all of the additional costs of buying and maintaining a home).

    And the really best bit is that if I decide to move, I don’t have to contribute to a real estate agents mortgage.

    Renting is FREEDOM

  42. Pavlov

    How quickly we forget what it means to be prudent. What recent graduate needs to buy a house worth 300K+; If you lived with your Mammy in your early 20′s for a few years and saved for a deposit wouldn’t have negative equity but you are way to cool for that FTB.

    The previous posting’s give delightful insight to the psyche of the FTB; full of excuses such as “we had no choice” hey, remember what your parents told you, ‘if everyone was jumping off a cliff…” You do realise that if you did not buy into this ponzi scheme, demand would have slowed down and with it prices..but patience is a virtue.

    If you play with fire you will get burned; nothing’s free in this world. I am Pavlov and the FTB’s are my dog, let them learn.

    “They built portholes for Bono, so he could gaze
    Out across the bay and sing about mountains
    Maybe. You are what you own in this land
    You can be King and it all depends on the view and what you can see
    And around here nobody tells me what to do anymore”
    Ferghal McKee.

  43. Philip, nice parable and you put forward a good argument but one based on false logic. Firstly, nobody has died here. More of a kick in the nuts that an arrow through the heart. If you’re stupid enough, you probably deserve a kick in the nuts. If most people are panicking because it’s because it’s in their nature to panic. If enough people panic, the stampede becomes the problem rather that the event that caused the stampede. There’s still a lot of money out there. Some sectors are dead, but my philosophy is that if your market is dead, find a new market.

    I don’t know if you’re old enough to remember the 80′s. Sadly I am and I remember a debate on the Late Late that put forward the motion that we (Ireland Inc.) should renege and walk away from our national debt. We didn’t (thankfully) because long term self interest prevailed and self interest will prevail again and we will work our way out of this mess.

    The bottom line is that if you can feed your family and they’re healthy, NOTHING else matters. Let’s focus on what’s really important and stop panicking; the sky is not going to fall in.

  44. Fergal

    To “The Dude”,

    Nobody was forced to buy. Buying is an active decision. One chooses to buy, rent or live with one’s parents, or to emigrate. One chooses to marry or not to marry. One chooses to have children or not to have children. Those poor FTB’s who “got married and wanted to start a family”. Oh, the poor dears. IT WAS A CHOICE. Wear a condom or go on the pill until you can afford children. With social pressure like that, maybe people wouldn’t have kept voting in Fianna Fail, with their legacy of Haughey corruption, Ahern Dig-outs, Builder’s Tents, LUAS and Port Tunnels, stupid and corrupt re-zoning, PPars and electronic voting, explosive growth in the public sector…… It was a CHOICE.

    I chose renting (1996 – 2004 and then emigration 2004 – present day, still renting), and not to get married or have children until I feel I can support a family in the way I want to. I make over USD 100K a year, and I can’t afford a wife and family (the way I want it). Others chose buying, and still others took the rent / live with the parents routine. Some chose marrige and children and rent.

    And yes, I know people renting 3 bedroom houses. In fact, my brother (not in banking or property, nor is his wife) got married in late 2005 and in late 2006 he sold his house that he owned for 10 years and his wife sold hers (she’d owned for 3 years) and RENTED. This with a baby on the way. Their friends said they were crazy, that they’d never get back on the ladder, but they saw the valuations were insane. They CHOSE to sell and rent. That is how crazy the market was.

    So yes, people had (and have) a choice. If I owned in Ireland now, my house would be on the market, I’d be looking to rent for a few years until prices bottomed out.

    Look at today’s Take 5 at EUR415k in today’s Irish Times and tell me the bottom is here. If you do, you’re wrong. Artane is not well-to-do Brooklyn, the house shown is massively overpriced. Dublin doesn’t have the infrastructure – subways, bus-lines, 3 international airports and it is not a ‘global’ city in the way that New York, Hong Kong, London and Tokyo are. Irish property prices are still over-valued by a minimum of 30%. That 450K house is really worth no more EUR 300K. So, make your choice, sell now, swallow whatever loss you’ve made, or hold it longer and watch your losses grow.

    You always have a choice. At then end it maybe a choice to declare bankruptcy, penury or emigrate and abandon your debts and let others shoulder the burden.

    Sell, sell, sell. The person who buys now will have made their choice to risk their capital or credit-worthiness on their viewpoint of the market. If he or she is an FTB, then they cannot be bailed out. They are making a conscious decision to bet on the upside. Their choice. Good luck to them.

    • Malcolm McClure

      Fergal: Let’s say your brother and his wife paid off their two mortgages when they sold in 2006. Let’s assume they cleared a neat €300.000. Next decision– what to do with their honest profit. Suppose they put it into an Icelandic bank to get a good interest rate, or invested in BoI shares, which then seemed like blue chips of stability. Today they might be wishing they had kept the houses and accepted the 30% downturn.
      Reading some of the stories–all of human life is here. However solution-oriented contributions are the most useful. The tendency to waver between schadenfreud, ostentation and begrudgery is a typically Irish cast of mind.

      • Fergal

        Malcolm, I have suggested solutions – see previous posts. The only point I have disagreed with DmCW is on compensating FTBs. Rewarding people who didn’t contribute to the bubble is less unpalatable to me than rewarding those who helped inflate it.
        Long term solutions include investing state funds for long term benefit – infrastructure raods, Broadband (maybe the state needs to buy back Eircom, or give huge tax incentives to a company who will bring braodband out beyond the major urban centres), look at my propositions for tax incentives for the growth of small indigenous industries, with suggestions on how to allow those same industries to grow into bigger entities. Why should ireland not have it’s own Silicon Valley? Lets look at how public money has been spent, LUAS, Port Tunnel – both massively overbudget and delivered late.
        Let’s look at investing in areas OUTSIDE the large urban centres – Dublin expanding past Athlone is insane. Let’s look at planning options – what is wrong with high rise? it allows far easier development of local services, schools, healthcare, and most notably transportation.
        What is Stamp Duty but a tax that reduces people’s mobility? It is a drag on the economy.

        Malcolm, before you diss someone, you might want to do a bit of reasearch (not that hard in this case – my suggestions are on this page!). fergal will find all my posts, solutions included.

      • Malcolm McClure

        Sorry Fergal: I shouldn’t have nested the general comment on McW’s blog in my reply to your point.

        • Fergal

          Malcom, they both sold their houses and left the money in cash – the majority in Northern Rock, which did cause a few sleepless nights at one point.

          I don’t have issue with nesting comments – it makes perfect sense. My issue with your response is that you implied that I had not offered a solution, and was instead experiencing schadenfreude at the current state of economic affairs.

          I have offered solutions – focus on job creation and less waste of public services. See above. Do a search for “Fergal” and you’ll find them.

          I work in New York, in financial services. A colleague was let go last week. No schadenfreude here.

          I want SOLUTIONS. Compensating FTB’s (or any other kind of buyer) in my opinion is not a solution.

        • Malcolm McClure

          Stay cool, Fergal. I pointed out in my last nested comment that when I said previously, in a separate paragraph: “Reading some of the stories–all of human life is here. However solution-oriented contributions are the most useful. The tendency to waver between schadenfreud, ostentation and begrudgery is a typically Irish cast of mind” I was making a comment about the negative side of Irish attitudes, not about any views you have expressed. The wide range of opinion in McW blogs give a useful reflection of the present situation. Many respondents are into the ‘blame game’ but others, including yours, are usually constructive.
          Regarding FTB’s, I know of a young couple in London who bought at the top of the market last year, supported by astute advisors. There was a herd mentality that clouded people’s better judgement. Combined with that other human nest-making instinct, it was an unprecedented recipe for disaster.
          I have suggested elsewhere that in these circumstances, if any FTBs lose their jobs, there should be an automatic moratorium on their mortgage payments until things pick up again. In any investment, timing is of the essence.

  45. John ALLEN

    Fergal – well put……/ that reminds me if the government reform the bankruptcy laws the first time buyers would have a choice ….if they are technically bankrupt…..thus then they can avoid …’ Slavery ‘……./ …David…take note !

  46. juicylucy

    Hi everyone

    been reading the above comments and here’s what I think:

    I think that getting married and having kids etc is a thing of the past, the world can only accommodate a certain population and that’s it. I think it is going to become alot more common for 30 and even 40 somethings to live at home with parents. Not because of choice, but because of economic reasons like “the young paying for the old pensions and healthcare etc”

    People who do get married will live in bigger houses with both sets of parents for synergy reasons and will not have children, this is already common practice in indian, chinese and some eastern european groups.

    RTE will stop broadcasting shows like “I’m an adult, get me out of here!”

    Ireland’s future will be full of bachelors and spinsters…………….which is nothing new. But the battle between the sexs will be new as boys and girls study harder and work harder to try to reach an unattainable lifestyle.

    People keep talking about rent money being dead money and its better to pay-off your own house. So lets assume you pay 1500 a month on a mortgage.

    1500 x 12 months x 30 yrs = 540 000 total cost of mortgage.

    if you rent a room at 500 x 12 months x 10yrs = 60 000 cost of rent for ten years
    and saved the extra 1000 x 12 months x 10yrs = 120 000 saved as a deposit to buy house in your 40′s

    in addition to the mortgage repayments, costs like insurance, maintenance, bin charges, water taxes etc……..have to be added to the 540,000, but renting for a period of time means the landlord is responsible for these charges.

    I don’t think renting while saving for a substantial deposit is a waste.

    In life your 2 greatest expenses are

    1) the interest you pay on your debts (including the total interest paid on your mortgage)
    2) Taxes

    If you live at home while saving instead of renting, the savings are greater and a smarter economic choice, yet Irish society will find it hard to accept this reality.

    As for FTB, the 1979 baby boom in ireland has lead to all of todays problems, the irish economy is like a python that has just swallowed a massive meal. As the baby boom generation moves through the economy from
    birth to education
    to getting married to buying there first home
    to trading up later in life to a bigger home
    to going on pension

    as the baby boom generation moves through the economy (pythons belly) it stretches the economy (belly) to its maximum limits…………..so for the 1979 baby boom generation……. there will never be enough money for

    education
    health
    jobs
    houses
    pensions.

    Nice article David

    • b

      You talk a good game but blaming the output of one year is a bit rich. Ireland had 12 million people at one stage so we have the room. trouble is that everyone is rammed into one tiny part of the island.

      Ouside forces that Fianna Fraud must have thanked their lucky stars for are going to rip the shit out of this economy. Its going to be the new kneejerk response to blame the recession in the same way the Americans blamed 9/11 for getting a cold or stubbing their toe.

      We deride people for living with their folks. Big deal. We voted for a government who looked the other way when private companies picked everyones pockets and then at the end of the boom have the gall to lie about how much trouble they are in and DEMAND that we the taxpayer pick up the tab for their casino debts.

      We have an ignorant, greedy population that take no responsibility for their own actions and expect no consequences either. Politicans pander to this and we get where we are. Fools with no money and developers off in the Carribean with all the cash.

      FTBs do not deserve to be bailed out and if we had any balls and if the shareholders of the banks had any balls the ENTIRE board of the six banks would be tossed out on their ears.

      We are rewarding market failure and we are rewarding greed. Isn’t it time we stopped?

      The politicians know that there is nothing too bizzare that they can ram through and we will all sit there like gobdaws and nod our heads. THEY WORK FOR US not the other way around. Its time we grew some stones and voted in the people that can and vote out the people that can not. We won’t do it because we are all “afraid” and are shackled up to our necks in debt. If you want to control the people make sure they are in debt. Simple but we never saw it coming and now we want Santa to save us.

  47. The Dude

    the Dude returns
    In the article above David said that FTBs in negitive equity should be helped. Like everyone else in here i don’t really like this idea, but all i am saying is that there is a difference between a FTB who bought a house to live in, and invester who was only out to make the fast and easy money
    one group I laugh at, the other group I feal sorry for

    In the real world we can all see the the number of FTBs in negitive equity is far too large now and since we are such a long way from the bottom the numbers in negitive equity will grow and grow
    So lets not worry there can be no debt forgiveness

    In the end it looks to me that the plain people of Ireland are getting their just deserts. There is somthing very wrong with a people who continue to vote fianna fraud back into power.
    The amount of people who think that the return of Bertie would fix all our problems suggests to me that Ireland is a nation of tards

  48. John ALLEN

    juicylucy – i agree…/….summary of expenses …time to live……and a…time to die ……thus money is…Time

  49. Well i am slightly surprised at some of the above comments with regard to the attitude towards the FTB, but not really that surprised either as it is this selfish attitude that has us where we are today both economically and politically stuck in a vacuum and sliding down wards .
    David is just putting forward a mere suggestion and most of you should know it was not the FTB’s of the last two years with the 100% morgage which have caused this recession , these were individuals who were sucked in by a over hyped system with General Media and Governmental spin telling them they lived in a Country that ‘the rest of Europe was envious of’ with our Banks daily sending mail shots to take out loans for the new car, holiday or yacht, each radio station blaring out cheap loans the national and regional papers showing full page adverts for the latest ‘Dream Home’ while on the other page we looked at what those on the ladder could re morgage for, the ‘Dream Home in the sun’ , at the time The Irish Times was getting , or should I say ‘charging €34,000 for one of these pages.
    The 100% mortage was after all only brought in because the banks knew they had already on their books several thousand un filled units , they had to spend and increase the loans to get these units shifted to keep as many here call it the Ponzi scheme going.
    It is ignorance to say these FTB were fools to purchase , that is as simplistic as saying Boyzown can’t sing and are talentless, your fourteen year old sister only sees the gloss image machine, it’s the same for the majority of the FTB’s , with brothers , sisters family and friends on the property ladder it is the result of mass media and peer pressure which forced these onto this folly of stepping in at the peak. When we have here a state controlled Television station only showing George Lee ( who of course was laughed at by ‘the General majority’ and the likes of David telling us about how foolish we were in an economy of selling houses to each other.
    We will go down a lot further than we did in the eighties unless TD’s on the gravy train listen and wake up to the now general consensus that we are sinking fast , like wise if these politicans don’t start making the right decisions the employees of all the banks who’s shares along with the ordinary people who were advised to invest in them by their bank managers don’t demand a change at the top , this country will become the ‘laugh of Europe’

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