As the banks move to sort out their bad debts, it’s imperative that the state also tries to alleviate negative equity problem facing young workers.
Just in time, the cavalry have arrived. On Friday, it emerged that some US-based private equity funds are interested in buying some of our banking assets. Bank of Ireland issued a statement suggesting that it had been approached and the state breathed a sigh of relief.
The first part of Brian Lenihan’s plan seemed to be beginning to work. The Minister for Finance gambled that if he waited long enough, some buyer would emerge because bank share prices would fall to such a low level.
Realising that he would have to write a cheque at some stage, Lenihan, by playing awaiting game, could at least avoid making the same mistake as Gordon Brown, who obviously bought stakes in the British banks too early and has lost a fortune of taxpayers’ money as a result.
Lenihan wanted to ensure Irish bank shareholders – not the Irish state – were exposed to the dramatic falls in share prices of the past few weeks. His judgment here was spot on.
Now that share prices are in cent – or as close to it as makes no difference – the state can begin to move, knowing that the downside is minimal. In fact, it might be well advised to wait a little longer before committing cash, because the banks might get even cheaper.
If you want to understand why banks might get even cheaper, look at the accompanying chart. This tells the story of the US banking system in the past year. It shows that banks are invariably always wrong when it comes to bad loans, because they underestimate the difficulties in their loan books. As you can see, the difference between the banks’ forecasts and reality was enormous.
When the banks realised that something was wrong, they went out and raised equity to cover the losses. To see the disparity between hope and reality, take the example of 2007.
In the second quarter of 2007, US banks realised that there was a bad debt problem of $5 billion. So, in the third quarter, they went out and raised $11 billion to cover these losses, believing that by raising $11 billion they would more than cover themselves for even a doubling of the bad debts from second to third quarter. But bad debts not only doubled, they increased by a factor of ten to $48 billion. In the fourth quarter, bad debts increased again to a whopping $184billion.
This chart is telling you that, whatever the banks are saying now, you can be sure that the problem will be much, much worse. Whatever the PricewaterhouseCoopers report is saying, a prudent investor can be safe to assume that the bad debts in Ireland over the course of the recession will be much worse.
Therefore, there is a huge risk in putting money in now because we have no idea what the true picture will be in a year. If you doubt this, just look at what happened to one of the savviest investors in the world, David Bonderman, the chairman of Ryanair. Bonderman put $7 billion into Washington Mutual last March, because he thought that the bank’s share price had fallen too far and it must be a bargain. By September, Washington Mutual was bankrupt and Bonderman lost all of his $7 billion.
Let this be a cautionary lesson to people who are committing money today – the minister included. The state will have to put money into this recapitalisation to match the private cash.
However, the question remains: what are we buying? For example, if the bad debts are admitted now by the banks to be €7 billion, recent history suggests they are likely to be three times that at least, meaning that the bailout will have to have a warchest of over €20 billion to succeed.
To raise that type of money, Lenihan will need to return to the idea of ‘war bonds’ where he opens up the recapitalisation to the Irish people, so that we can all participate in the upside as the economy recovers. But the recovery won’t come on its own. While numbers like €20 billion are extraordinary, we are living in extraordinary times, which call for extraordinary measures.
One extraordinary measure that has to be considered by the minister as part of any restructuring of the banking system has to be some alleviation of the negative equity problem faced by hundreds of thousands of young people.
Many people would see such an initiative as heresy, as it rewards the bad behaviour of those silly enough to scramble into a housing loan when prices were at their most ludicrous. A large part of me agrees with this, but for future social cohesion we cannot tolerate thousands of young people (in many cases, young families) defaulting on their mortgages and being kicked out of their houses. Neither can we entertain the prospects of those people languishing in negative equity for a decade.
Make no mistake about it: Ireland is likely to see massive mortgage defaults in the years ahead. The reason is simple: unemployment is rising rapidly and will be in double-digit figures by the end of 2009 or early 2010. Many people who lose their jobs will not be able to pay and the banks face a choice, either take the houses back or renegotiate the mortgage.
Instead of waiting for that in an ad hoc way, why not now, as part of the restructuring of the banking system, reset the principal of these mortgages down to, let’s say 50 per cent, of their peak value? The banks’ shareholders would take on the lion’s share of this pain, with the state taking a proportion.
But such debt forgiveness doesn’t mean the lender is off the hook. They pay later. As people move houses over their lifetimes and tend to trade up, the capital gain when the mortgage holder sells on the starter home to the next generation goes to the state.
Therefore, the state is protected, the system is preserved, the banks take the hit and the mortgage holder keeps his house today at the price of significantly lower capital gain tomorrow. It is a bitter pill for the banks to swallow, but so be it. Better to have someone paying some interest on a smaller amount of principal than paying nothing on a big loan.
The other main reason negative equity has to be addressed is that people with negative equity will not spend no matter how well the banks are capitalised. Without spending, the recession gets worse, unemployment rises further, tax revenues fall further and the negative cycle perpetuates itself.
Equally, what reason is there to stay in Ireland if you lose your job and your home? This is a possible future for an entire generation. The property boom enriched the middle-aged and indebted the young in a ‘generational scam’, which is now becoming increasingly evident. Without some really imaginative thinking from our politicians, this generation will move away from Ireland and mass emigration and social unrest is a likely prospect.
Therefore, a move to alleviate negative equity for our young workers is not only advisable, it is imperative. The banking crisis and its subsequent restructuring, gives us the opportunity to sort this out. No matter who eventually owns the banks, this is going to be a cost. This idea might not be for the financial purists, but it is for the social realists, and facing up to reality is what recessions are all about.
[23/11/2008, 11:40am]: chart added
Stephen, great post.
A fundamental part of the problem seems to be lessons learned from history. It is generally held that the 1929 stock market crash led to the 1930s depression because of a lack of liquidity.
So any financial crisis now is solved with increased liquidity. It seems like the perfect answer, increased liquidity = increased recovery.
But, liquidity injections work as economic first aid, they are the antibiotics to the financial cold. They also have the effect of rolling minor crisis over, so we end in a situation like the one we find ourselves in at the moment.
There should have been at least one ‘correction’ during the past decade, but the ever watchful economists knew when to give the liquidity medicine to stave off the flu. It has turned out to be more like taking the ‘hair of the dog’ to avoid a hangover. The hangover is still coming, it can’t be put off forever.
Let us imagine for a moment that this turns out to be a short downturn rather than a deep deep depression. Flat growth in 2009, returning to 3% in 2010. By avoiding the downturn, we avoid the correction.
This would not be a good thing. We need this correction. Rather than trying to hold back the tide, we should be preparing for the new paradigm. One where we do not have the same standard of living we have become used to, where we will have to save to achieve what we want rather than spend our furture earnings now. To give an historical perspective, we need to move from the 1920s to the 1950s. (hopefully without a repeat of the intervening world war)
Increased liquidity is like extending a free bar at a party. Sounds great but makes the hangover worse.
I’m not feeling any love for the debt forgiveness idea from these comments and I don’t agree with it myself for all the reasons already stated , but the FTB’s are a powerful and motivated lobby group , this is exactly why Tom Parlon mentions them everytime he’s trying to flog his members ghost estates, there is no organised group representing our interests and it will be pointless saying ” I told you so ” after Ireland becomes the next Iceland and then as a result of short sighted social policy becomes a failed state like Somalia. Most Fianna Fail backbenchers would relish the thought of becoming warlords.
What’s needed is a complete departure from the property porn mindset, property has to have a function not a valuation in the current climate, we should be thinking along the lines of whats the best function for this property based on location, once it has a functional use that links into a larger plan or vision for the irish economy it can finally be assigned a value.
It’s been mentioned several times by others that this could be an opportunity for the government to cherry pick some prime properties from the banks defaulters, instead of forgiving debt the government if changed could provide the kind of public services worth paying taxes for in return for much needed cash for the banks. The Irish tax payer should demand their pound of flesh up front, adapting existing depreciating assets into useful public amenities, shopping centres into secondary schools , empty hotels into hostels for the homeless and golf courses into state parks etc.
Converting empty office blocks into a 24hour state run creche system would artificially constrict supply putting some floor under collapsing commercial rents, why care about commercial rents? , because a domino effect here will have huge implications for the banks write-downs and ultimately public debt. Building roads is fine if we can be certain petrol prices will remain stable or decrease but we have no such guarantee.
In the evenings these creche centres(or agoge) could offer parenting classes and flexible babysitting sevices, each block fitted with internal playgrounds, all fittings and fixtures bulk bought by the government and installed by breakfast roll man re-branded as redevelopment man, staffed by jane who now needs a part-time nappy changing job to pay her half of the mortgage. In the short term this is nothing more than busy work for 100,000 or more ground level construction industry employees, so they can pay mortgages and maintain the lifestyle illusion created during the boom until low wages on these projects allows a more controlled disestablishment of the industry.
In the long term Ireland becomes a real liberal democracy ready for an upturn in the world economy, in which both parents can continue their careers and pay off their mortgages, the stock broker’s child goes to the same creche as the polish cleaner’s child as membership would be based on proximity to your workplace, this might create a cross pollination of thought so the middleclass don’t get trapped in any new asset bubbles.The middleclass save face by holding what they have, everyone else benefits from cheap rent and disposable income, extending this program into the sprawling estates by building community centres, football grounds and playgrounds would provide some stability for hoodied feral ten year olds.
Ireland as a relatively small economy should be able to adapt quickly and pre-empt the effects of decisions taken in the larger economies, Barrack Obama has already promised 2 million new jobs , share prices have collapsed in every stock market in the world which inevitably means massive job cuts, this leaves government as the only large employer. Foreign direct investment will be too scarce to mention , if we never intend to put structures in place to accommodate the reality of 21st century lifestyles then why waste state funds educating women if we only expect them to be productive in the workforce for an average of ten years before they semi retire to waste PHD’s changing nappies. This could be our best opportunity to plan our future rather than just wait and hope our economy isn’t the next to fail.
I recently saw Ed Walsh on questions and answers proclaim we didn’t have violence in the fifties in Ireland but we did have grinding poverty, so in his mind they aren’t linked, he selectively ignored the fact our health, education and a portion of our social services were run by religious orders, the state simply conceded all responsibility. This provision of basic universal education and healthcare created some social cohesion, the two tier systems in health and education that formed during the boom has created a stagnant society, of middleclass who borrowed their way out of reality and everyone else who were gouged by exorbitant rents which canabalised any real social mobility.
If we have no collective future then we have no future, but this doesn’t mean we should refill the middleclass punch bowl so their party can continue, the unfortunate reality is they are still wearing property porn goggles and are only listening to advice from other debt junkies .
Lorcan – that was well presented …..in France …it was known as …’le Trente Glorious ‘ 1945-1975 ……..( dont know why they had it started during WW2 ) ……it seems to tell me …..we must have a war first …and then ….a boom again……we must hit the bottom first ….and stay there before we can rise again…..nothing beats the law of nature
nostramartus – just fantastic
Upheaval is what we are facing. A deep deep depression. I think the issue of property or other causes of what put us here and the idiocy of the FTBs are actually beside the point – indeed irrelevant.
What is not irrelevant is that the FTBs are the most productive sector of our economy. While 37% of bought homes are without mortgages, this is mostly from the least productive and oldest part of the population. All DMcW is saying that if we choose to punish what is in fact the engine of our economy and society, we are dead ducks.
I would also add that the danger is not just some inconvenient case of loosing a few bob or having to put up with a much diminished lifestyle – as many on this column seem to believe. This is a real case of societal breakdown of law and order. You are screwing around with core of the community that makes Ireland work – whether you like it our not. Moral hazard etc is for the cosy minded twats who believe that 999 will always have someone answer it!
In any event, I think something really innovative needs to be done. Selling our banks to a hedge fund smacks of desperation and could sow the seeds of something far worse. The ability of Ireland to solve this problem is a real test of our community and our ability to work with one another. I think measures need to be enacted that recognises that the financial system is completely broken and that we may need to take a unilateral action similar to a country beseiged by war. A variation of the Emergency being a case in point – which seeks to preserve education, health and basic needs to all here for a limited period of time..2 years.
The ‘poor’, mislaid generation that David refers to – those who have now hit negative equity – are the best educated, were/are the best paid and were/are certainly the most hedonistic in this state’s existence. It’s hard to believe that, with such mass communication, and with people like David McWilliams warning about the dangers of property prices in recent years, that these younger people were in any way ‘misled’. In fact, their success has a lot to do with the sacrifices made by taxpayers in the 1980′s. Should we help them out now? We should, but nobody has really offered a reasonable solution to their problem.
David
Agreed Philip, But I’d suggest if debt forgiveness is to be part of the solution, something serious has to happen to balance the books. We need a national maximum wage, say twice the average industrial wage. It would allow more people to be employed particularly in public services and would mean that we wouldn’t have a society with double digit unemployment, while a minority of people earning obscene amounts of money for doing FA.
Gers point on Micheal Martin’s 250k salary sums it up perfectly, they are in an alternate reality. Its not like there are only a few of these guys, with the quangos etc there are thousands of very average people doing very average jobs for very big money. And there will be a lot of people available who could replace them, And very little tax revenue.
Oi! Don’t call Michael Martin average. Thats an insult to average people. He is an overpaid dense and arrogant bullshitter at best.
Begod b…you’re on a roll here. Lean ar aghaidh.
Lorcan
I’m not sure I quite agree with the parallel. As I see it, the financial dramas are a symptom of the underlying malaise, and relieving the symptoms in the way suggested will make the malaise worse.
Just relieving the symptoms while waiting, will not work in this case.
If you want a medical metaphor: Our muscles are atrophying, and we’re making the bed more comfortable, and dealing with the bed sores.
You’re probably right. I should leave the metaphors to David!
Stripped back, my point was: History tells us that lack of liquidity help create the 1930s depression. So we attack any downturn with liquidity. But, the more debt driven the economy becomes the less effective liquidity boosts become. Previous boosts have left us in the position where current injections are just serving the debt rather than the economy.
Future spending (and thereby economic growth) will have to come from savings, rather than debt.
i believe we are witnessing ….a new economic plantation….replacing what the indiginous irish once had to be taken over by ……migrants …..i would call these …the ryanair freebies …they are the only population segments that can be found not to be in debt and can benefit from liquidity and to be at the bottom and to only have one direction to go and thats…Up
Ireland has plantations every 50 years or so ….some big and some small and most of us are a migrant at some time or other in history …..so what happens the weak indebted indiginous irish …..unless they receive forgiveness of debt …..they …LEAVE and the rest just …move up or down and get on with it in a new multi cultural ireland…..the mandarins in merrion square wont change and remain the cute hoors indefinately claiming their allegiance to Kerry and the Atlantique Crescent
Hey everyone
my thoughts on “time to face up to reality”
I keep hearing people say that Ireland is in a much better position to deal with the current recession than it was in the 80′s. How can this be?
during the 80′s everybody left Ireland for the US, AUS, SA, UK etc and worked hard and sent money home or saved up to “buy a farm in Tippary”. That was fine at a time when Ireland was poor and your buck earned overseas would buy you that cheap farm in Ireland, just like what the
polish etc are currently doing: Earning high wages and going back and buying cheap.
But, what do people think is going to happen in Ireland tomorrow?
do people really think that they can go work in AUS, US, rest of europe or Dubai and bring those pennies back to Ireland today?
Do people think they can go work in AUS and come back to Ireland for a holiday every 2 years? Really…………………… I think they’ll be lucky to return with there families for a holiday once every 6 or 7 years.
Do people think that even in today’s information age where databases are being established and streamlined year on year working illegally in US, AUS etc…….is still not a problem?
Ireland is facing huge problems, worse than the 80′s. Its expensive, full of red tape, anti- families, anti- young, anti- change, racist (but claim we’re not, when 90 % of the population is catholic and white, how can we even claim to know what racism is when we open a separated school just for foreigners kids)
Ireland is a country where the sexes are in battle fighting each other on a daily basis ( do we not see the problems we create for our children when we send all boys to boys schools and all girls to girls schools at an important stage of natural development).
Ireland is way way way out of touch with reality………………………………the eurovision song contest has proved this fact very clearly.
Ireland is a miserable, dull place, where people live in tiny over priced shacks with no facilities or anything to do, so people drink themselves silly to escape.
The “Money” Ireland had was the only thing that made living here bearable —– a polish chap told me. “Now, there is no money, I think Ireland is hell on earth.” he said.
Ireland has been poor for basically all of its history……………………I think the trend will continue, I just hope we don’t become “the niggers of Europe” again.
Juicylucy, ahem
The argument does you justice but could I point out with democratic temerity that the handle is not conducive to gravitas? (Says he with a similarly quare name)
Right, all valid points except for “Ireland has been poor for basically all of its history”.
Ireland has been kept poor, either fiscally or intellectually to facilitate a ruling dynasty. Not just FF but a cabale of introverted anglophiles who are quite delighted to ape their colonial masters. They have masqueraded as republicans but acted as demagogues for decades. Everyone in the country knows someone with connections getting away, sometimes literally, with murder.
The emotion on here, now turning to anger, stems from foreign experience and the ability of Irish people to shine anywhere except in their native land.
I have to say your comment about being the n***ers of Europe to be distasteful. I know you’re trying to make a very valid and serious point but that is not appropriate language to use in any context.
We will, however, become the pariahs of Europe if mature strategies are not adopted. We have shown ourselves to be wasteful of monetary assistance and insolent when asked to contribute in mature debate.
In plain English, our European “partners” think we’re so far up our own a**e, we’re too much trouble to be bothered about.
We need to get back on the planet. We’re a gnat of a country in the bigger scheme of things.
I await the onslaught (again)
Wow, this a particularly poor piece of nonsense.
Bank failures in the US and Europe are going to be massive – the Americans are now looking at a collapse in commercial real estate with huge exposure for the regional banks, and Europeans are watching in terror as eastern European debts unravel.
In that environment, suggesting that house prices be propped up by “addressing the negative equity problem” is bats. Lunatic. Cuckoo.
The market was distorted on the way up. Now it’s to be distorted on the way down? Disaster!
Furrylugs, I think Juicylucy was referencing “The commitments” when saying the irish were the n*ggers of Europe.
I would actually be of the same opinion, being foreigner myself and having lived here for 8 years, I have always been annoyed at the lack of infrastructure, the poor healthcare system, the expensive childcare and the useless people passing themselves as our “leaders”. Add to that the bad weather and the huge cost of living, there is not much left to like in here apart from the people (those who aren’t obsessed with money that is).
That said, I have bought a house with my partner in 2002, we thought it was expensive for what it was but we could afford it (we didn’t get a mortgage for more than 3.5 times our combined salaries) and the repayments are very manageable. However, if the situation gets worse, I feel I will be stuck here because of the house. We can’t sell it without making a loss (considering all the money we poured into it to make it nice) and renting it could be a nightmare even though it is quite central.
We both still have our job so far but my partner’s contract ends in the middle of next year and I work in a bank so not the best place to be either. The future looks very bleak indeed…
Morning Nono,
Point taken about the Commitments.
Prospect wise, I’d say you’ve just about described whats facing the majority of our DINKY professionals. Bleak being the operative word.
The situation with Fas at the moment and Cowens response gives a wonderful insight into how the Fat Civil Servant Cats view Joseph Taxpayer i meant the didn’t have the decency to fly by our national airway (support jobs… ha … more like hand jobs with nice nails in Florida.)
We don’t have a national airline – remember? Fianna Fail privatised it. That might have been a better decison than keeping it – it’s open to debate.
Selling Eircom – that was another matter.
Very entertaining, and worrying, article that helps explain the chart attached to David’s article.
http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom#page2
Make yourself a cup of coffee and enjoy it.
Sorry, bad link.
Here’s the right one.
http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom
As a young man in London in construction during the boom 80′s, I often noted that the City types were prone to the depressive effects of alcohol.It amazed me that they would spend all afternoon in the pub and then be allowed back to their trading desks to deal in (other peoples) millions.
Everyone should read the above link. It shows why the calculations where people estimate the actual value of bad loans are completely irrelevant.
It’s also entertaining.
Mad Max – anyone?
Lorcan: Thanks for that absolutely brilliant link. I speially enjoyed “In Bakersfield, California, a Mexican strawberry picker with an income of $14,000 and no English was lent every penny he needed to buy a house for $720,000. ” Tears still rolling down my cheeks. Don’t know whether from laughing or crying.
That made for wild reading. Still, you have to ask yourself what the 720k house would have been worth if banks hadn’t been handing unpayable loans over to mexican strawberry pickers. Nothing against mexicans, strawberry picking or strawberries themselves. The developed world is full of over-priced housing which is so expensive that a generation is crippled by the mere act of home ownership. This indicates that severe deflation of house prices is necessary. It won’t stop at house prices. All expensive or luxury goods will be hit hard. Just look at cars. Thanks to VRT they’re outrageously priced in this country. Now the governments obsession with high consumption-based taxes is shown up as dealers are finding it nigh on impossible to shift metal. Some are selling at a loss to get cash flow. The government’s decision to extract import duties, VAT & VRT on the one item creates a big nasty object of debt where outrageous extravagance was needed and encouraged by importers, dealers and most importantly finance companies. Much of the tax is supporting public sector and over-priced infrastructure projects that IMHO should all be either canned or renegotiated. Far from increasing taxes, we’ll quickly need to reduce sales taxes to ensure that that inevitable deflation doesn’t kill off traders. That’s a nightmare situation of redundancies and foreclosures. It’s on our doorstep.
“Those who cannot remember the past are condemned to repeat it “. A drop in living standards is necessary and inevitable. There is nothing that can be done to stop it. Nothing.
We live in an interconnected world where practically everything we consume/ make involves several other nations. The financial system is broken. Ireland benefitted hugely from the excess credit floating around in the world economy based on other property and similar bubbles, the CDS’s and so on.
We are currently demobilising (as is the rest of the world) because financial system is broken. We do not know how to reliably operate outside it. Or to be more precise, we are afraid to entertain ideas outside of the financial system as the “value” stored in it may vanish.
My suggestion of an emergency styly response to be keep people mobilised – which keeps skills fresh. Green Energy and Infrastructure should be the lead activities. Stop giving money to banks. It just vanishes.
We live in an interconnected world where practically everything we consume/ make involves several other nations. The financial system is broken. Ireland benefitted hugely from the excess credit floating around in the world economy based on other property and similar bubbles, the CDS’s and so on.
We are currently demobilising (as is the rest of the world) because financial system is broken. We do not know how to reliably operate outside it. Or to be more precise, we are afraid to entertain ideas outside of the financial system as the “value” stored in it may vanish.
My suggestion of an emergency style response to be keep people mobilised – which keeps skills fresh. Green Energy and Infrastructure should be the lead activities. Stop giving money to banks. It just vanishes.
check it out – same stuff different place……..old boy network…..keeping the plebs out of the house……..one life………..
http://www.democracynow.org/
“The problems we face today cannot be solved by the minds that created them”
–Albert Einstein
“It is difficult to get a man to understand something when his salary depends upon his not understanding it.”
Upton Sinclair, 1935
The IBOA Secretary ( Bank Unions ) is shedding tears for the potential loss of 3,500 Staff should mergers of banks go ahead .Had he adhered to what I wrote in Irish Times ( to the Editor ) in July , 1996 and drafted a proper Code of Ethics subsequently and adopted it ,he would not have to cry crocodile tears now…….
Yes. Because people look for 12 year old letters in the Irish Times from a crackpot to plan their lives.
CHILDHOOD IS A VERY IMPORTANT TIME TO LEARN.
I weep for you,” the Walrus said:
“I deeply sympathize.”
With sobs and tears he sorted out
Those of the largest size,
Holding his pocket-handkerchief
Before his streaming eyes.
“O Oysters,” said the Carpenter,
“You’ve had a pleasant run!
Shall we be trotting home again?’
But answer came there none–
And this was scarcely odd, because
They’d eaten every one.
AND THIS IS WHAT HAPPENS WHEN YOU FAIL.
CHILDHOOD IS A VERY IMPORTANT TIME TO LEARN
Whenever I feel afraid
I hold my head erect
And whistle a happy tune
So no one will suspect
I’m afraid.
While shivering in my shoes
I strike a careless pose
And whistle a happy tune
And no one ever knows
I’m afraid.
AND THIIS IS WHAT LEADS TO SUCCESS.
paddy – thanks
……..actually ……….Aer Lingus……..its the first space ship airline in the world…….way ahead of the rest ( atlantean gaelic )
Actually, I think we might get out of this. All that’s required is some new plausible bubbles. A new generation of bubbles. I think these new bubbles will include green technologies, education, and maybe a new generation of nuclear technologies.
According to existing theory, debt must inevitably liquidate at the end of a business cycle. As Juglar said, “prosperity = depression”. So the clues to the form, severity, and character of the coming depression is in the just finished prosperity cycle we have gone through. If this is true (and I think it is), we would be screwed beyond belief in the coming depression. (and having learnt the hard (long) way that trying to re-capitalise the banks is like “waving a cotton bud at a man who has just had his arm cut off” -Sidewinder)
But, again, I think we might just get away with it, if the masses swallow the new story of the “big green, educational HOPE”.
In Ireland anyway (or in particular), I don’t think the propaganda-mongers would have much trouble with this. Going on past form anyway.
Hey, perhaps this is the new template for the world’s future economic development?! – Bring on the space-bubble!
Great post by Johnny Dunne.
I wish you had been born into a Fianna Fail dynastic family (and your name was Lenehan.?) You might be Minister for Finance now..
Matt said:
“I invested a large part of my life savings in Bank of Ireland shares and have watched the share price fall from €18 to €1.
As a shareholder can I take a legal case against each individual of the board of management for negligence?”
What´s the point Matt.If everybody who lost a lot of money did that-and won their case it would plunge the nations banks into new turmoil-and certain bankruptcy.!So you would end up paying your own legal expenses..
Thanks ‘soldierofdestiny’, the ‘Dunnes’ haven’t been in politics yet – maybe ‘uncle Ben’ will run in the next election!
roc
I would hazard that you are quite right.
It seems to me that we need but 2 things:
1. A flower sales company in the south seas that’s selling shares in high tech property (or equivalent) .
2. Some even cleverer forms of financial innovation, enabling us all to believe a new claim that they’ve reduced risk in the financial markets, thus enabling loan to asset ratios of over 200:1 to be common place
I really want this to be a joke, but (a) it’s not funny, and (b) I’m sure I’d buy at the top……
roc – it’s christmas….we need more commercials….keep it up
It isn’t Christmas. But maybe it is in Atlantis or wherever you are.
Though we need to get going on a new bubble (or three) quick, before the other bubbles still kind of holding up, get bursting badly..
http://www.siliconvalleywatcher.com/mt/archives/2008/11/beyond_the_subp.php
Well we could just hype up all of the shopping centres and developments that have got the aul FF ‘lift’ in the budget. When they are finished and the €47m is spent by our tourism people, begging punters to come to Ireland (its lovely, you know you love it), then all we have to do is sit back and wait!! Stop panicking people, the guiding hand of blue Fianna Fail is on your shoulder. Stand up, breathe deeply and take action, you patriots one and all
Could I quietly (Patriotically) ask why we’re the only country in EU not participating in the “co-ordinated” stimulus action?
Seems like a good time to stay in the playground.
Punishing the prudent by rewarding the reckless is obscene. I used to think you wrote smart things and I was a David McWilliams supporter. No more.
We may have lost a fortune on the bank shares but look on the bright side,at least we can put bread (and wine) on the table this Christmas.´
Im off to Newry to do my shopping.!
(Go early though there isnt a parking space within a mile of the two shopping centres.!)
Thank God Jerry adams has not achieved his aim-yet, and left us totally isolated and at the mercy of the nefarious Soldiers of Destiny..
“Punishing the prudent “
Who the hell are they when they’re at home.
You mean the “not so prudent” who got us into this.
There’s a place for you in the USA punishing the greater part of the population (the entire economy depends on) who have been reckless.
Or off to Russia.
Now there’s a country that knows how to punish the ordinary Joe.
Well I guess we wont be seeing you no more.
I never bought a house in Ireland. The reason for this is that I couldn’t afford one, and I believed the ones I could afford (far out in the ‘burbs) were over priced. I couldn’t feel happy about staying in Ireland myself if I was to end up paying higher taxes to cover others who bought these over priced houses while my wife and I have been renting and saving all this time. Though I must admit that I feel pretty foolish to have savings at all, since the likelyhood is that they will be wiped out as our governments use inflation to get us out of the current bind!
We are obsessed with house ownership in Ireland, to the detriment of other values. We end up a nation of developers and house owners. Where is our industry? What is our trade?
Insecure people who were afraid of being labelled a loser bought houses in order for themselves to then be labelled as a winner.
its amazing how many insecure people are out there these days.
peer pressure is the root of the problem.
i love the following lines robin williams has in dead poets society ,
“Two roads diverged in the wood and I, I took the one less traveled by, and that has made all the difference”
“Don’t just jump off like lemmings! Take a look around”
Another prudent man is FÁS Director General Rody Molloy.
Nine to see heads roll from idiotic organizations like FAS.
I remember when they were quite prudent, using bananas for telephones; a scientific breakthrough that was ridiculed. Little did they know the about the great scientific venture (including basic cosmetics) that would immerge in the future.
A shame really. I had a sure slogan winner for their science brochure: “SCIENCE CAN BE FUN IN THE SUN.”
Sean – well spoken and very very clear
Many of the FTB’s have mortgages that they have no hope of paying off in their lifetimes (unless mega inflation comes along to rescue them, but that’s another discussion).
So , instead of creating loads of Moral Hazard my letting them off the debt, why not just extend their 40 year mortgages to 100 years. Or 1,000 years? Or 10,000 years. I other words, formally accept that they will never pay it off and restructure the debt accordingly.
The problem with letting overstretched FTB’s off their mortgage debt is that it discourages individual thought and responsibility. It re-enforces the notion that if you mindlessly do what everyone else is doing, the government will have to make sure that you’re ok. If you think for yourself, you’re different, and that’s bad!!
Dear McGoo, Mr.
“It re-enforces the notion that if you mindlessly do what everyone else is doing, the government will have to make sure that you’re ok.”
Well why not, that’s what the big financial institutes think now don’t they when cost and risk are socialized, while profit is privatized. “TOO BIG TO FAIL”
What’s good for the Gander should be good for the Goose, or which way around do you look at.
David:
i’m normally behind you. I understand your Mother Theresa meets Keynes view on this one but hold on a heart-beat. As many have pointed out above you are setting out a dangerous future precedent. Way back, 5 years ago when I was explaining the obvious property bubble to my brother (much to his denial it has to be said)…my brothers answer back then was ..”don’t worry about that Mick, the government won’t allow that to happen, they’ll bail everyone out”. My respeonse at the time was “Bro, it will be too big for the government to under-write”.
.Five years later I can hardly believe my eyes that one of the country’s best placed and informed holistic economists David McWilliams is suggesting the said same. Look I hear you David, it’s a friggin mess, it’s going to be horrifc,..correct. There will be a plethora of victims, but the gobshites that bought at Riviera prices don’t sway much sympathy in the current meltdown I’m afraid.
Look if they are in negative equity, then they must have bought in the last 5 years. They probably have 30 year mortgages. That’s 1/6th of the way way in. It’s sore but they’ll survive. What’s wrong with filing for bancrupcy along with the other countless thousands, Hand the keys back to the bank in a brown envelope and rent a bigger house for 1/3rd the price …They should then take a good look at themselves in the large bathroom mirror of the new house and repeat the following manta ad nauseum ” Everthing I’ve been told is wrong” …job done ..back to the banks to sort it out. Ireland has shredded it’s social credentials over the past 5 years and adopted the US Darwinian view …It’s simply too late to dig out a Sally army tambourine politik at this ugly juncture.
While repaying mortgages is at the forefront of most peoples minds, and retaining their jobs-the new “stealth tax” on air travel ,is an incredible repeat of a similiar imposition by the same government (Fianna Fail) in the previous century.!
The tax then was 5 old irish punts-for those of you old enough to remember it- and was eventually struck down by the European Commission.
Portugal tried the same stunt in 2001 and again the European Courts declared the tax discriminatory and alien to the principles of the European Union (free movement of peoples) and made the Portuguese government (read taxpayers) pay the costs of outlawing it.
I have submitted a citizens petition to Europe, asking that its legality in European Law be examined and if found wanting-that it be challenged immediately.
I have also contacted our six Euro MPs, four of whom (the Fianna Fail ones did not bother to reply to my E-Mail) have responded positively and indicated their intention to to seek legal opinion on the tax and contact me further.
This crowd are bankrupt of ideas as well as funds to run the country.
it can only get worse.
Excellent article. Its important that if banks are to be bailed out for their errors-then the average punter should too(to a degree). However, I see that outcome as unlikely, because FF ,while doing a great job of portraying themselves as the People’s party, are really the party of Big business. However, in this uncharted territory anything is possible.
I would disagree with you over your prediction of possible Social unrest. Look at our history David-half of the children born in Ireland 1920-1980 emigrated and I don’t recall reading about an Irish Revolution after the War of Independence.