January 28, 2009

A mortgage plan that will save a whole generation

Posted in Banks · 400 comments ·
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What will happen to mortgages when unemployment rises to 15pc? How many first-time buyers, who bought at the top of the boom, will default? Will the banks throw them out on the streets and, if this happens, what benefit will the newly recapitalised banks get from an empty house with no tenant and a defaulted mortgage?

Widespread default on mortgages is likely to happen in the next year. This will accelerate the following year and will not stop until unemployment peaks.

As a result, house prices will fall dramatically in the next 24 months and this alone will influence many young people and couples to give the keys back. Negative equity causes people to give up hope and throw in the towel because, if there is no short- to-medium term reason for houses prices to rise, there is little point, bar your sense of obligation to the bank, in paying back the loan.

You might conclude that a charge against your name is a small price to pay. Furthermore, a charge against your name is of little immediate impact when you are on the dole. We can’t let this happen. We can’t allow people to lose hope.

The country finds itself in a conundrum. We are slashing public spending now on the advice of almost every economist in town. The logic is that this will get us back on some sort of track and that when we get out of this mess, we will be leaner, meaner and fitter. However, this view conveniently forgets that the banks are not lending, so there is nothing to raise local demand and the more you cut, the more you shrink the economy.

This will lead to a failed adjustment, and it will fail and fail again because there is no liquidity in the system and no prospect of liquidity coming back. There is now a real risk that the economy will contract by some 10pc this year and possibly more again next year.

If something like this comes to pass, Irish society will split in two. We will be left with what could be called an ‘insider’ and an ‘outsider’ society, as was the case in the 1980s. The insiders are, typically, a poor version of the European middle-classes whose jobs are reasonably secure and whose incomes have fallen by 5pc to 10pc from their peaks. Typically, these would be public-sector workers, semi-state employees, people who work deep inside the large financial institutions and small time businesses that sell into the protected sector of the economy.

Multinational workers whose jobs are not geared to the domestic economy exclusively might also escape the brunt of the depression.

These insiders are likely to be middle-aged who have bought their houses years ago and will not be hammered by the prospective fall in house prices.

Their wealth will be affected but as their mortgages were taken out in the 1970s, 1980s and early 1990s, their monthly repayments are manageable and negative equity doesn’t figure as a problem. Higher taxes will annoy them, but in general, their lives will not be enormously dislocated by the meltdown. They will fight therefore, to maintain the political status quo. The ‘outsiders’ on the other hand will get hammered and will find their tenuous grasp on a stake in society ripped away. Who are the ‘outsiders’?

They are people who have lost their jobs and will continue to do so, in sectors that are going to be trashed by the recession. They will be working in retail, construction, the more exposed sides of the banking and finance industry.

They are the many thousands who are in companies hammered by the overvalued exchange rate. They are likely to be younger, in many cases the sons and daughters of the ‘insiders’.

A significant proportion of them will be among the 200,000 first-time buyers who came into the housing market in the past five years. Negative equity will sap their energy, their resources and their will to stay here. As in the 1980s, many insiders will just assume that the outsiders have to emigrate, and that’s how we preserve social cohesion. But we can’t tolerate this.

Therefore everything must be done to prevent this happening.

How do we avoid this cleavage emerging in our society?

How do we give the outsiders a stake so that they don’t leave or they don’t sink under the weight of negative equity?

One thing we could do immediately is that the State, as part of the recapitalisation of the banks, acts to help those thousands of first-time buyers who are now drowning in debt.

The State could demand, as a condition of recapitalisation, that the banks re-negotiate thousands of mortgages. The principal could be halved now so that the debtor continues to service the debt, but on a much lower amount. This way they don’t default and the bank does not end up with a bad loan. But the debtor doesn’t get away with it. It is not a debt write-off, it is just deferred.

Initially, the State and the bank take the hit on the level of loan deferral. They pay 50/50. But this deferral, which is the difference between the old principal and the new principal, goes to the State so that when these houses finally rise in value again in, let’s say, a decade, the upside goes to the State and a proportion to the bank.

The bank’s proportion is much smaller than the State’s because the bank messed up in the first place. So although the State and the bank cough up 50/50 to pay now for the deferral, the State gets proportionally more of the upside so the taxpayer, not the future shareholder, is paid first and most.

The impact of such a move would be to release the noose of debt from around the necks of thousands of our younger generation. This will give them hope and maybe a reason to stick around. For the banks, it means the debt write-off will be smaller than they would otherwise be, and the loans will continue to be serviced.

This means the minister’s recapitalisation of the banks, with our money, might cost us less in the medium term because a smaller proportion of the mortgage loan book will go sour. Most significantly for liquidity, it will signal a floor to the house prices.

So how would it work? Consider a house bought in the boom for €200,000. The couple who bought it could just cover it with both working. One loses their job. The mortgage repayments now, more than likely, swamp them completely. They will not spend and the economy will contract more as a result.

What if we slashed their principal in half, so they now service a loan of €100,000? The State finances a proportion of this with a state-wide bond and the bank finances its bit out of its capital.

The State and, to a lesser extent, the bank, gets an option on all the price upside, up to and beyond, the old price over the next 10 years. As prices move back up, the State’s option becomes very valuable.

This means the State behaves responsibly and gives its citizens a break, while the citizens behave responsibly and ultimately pay the State back when they can. It is a win-win for everyone and is precisely the sort of lateral thinking we need to be coming up with.


  1. p

    suggested as much to leading politicians ages back

    no answer, no interest.

    of COURSE it’s a good, entrepreneurial idea, but the country is not run by entrepreneurs.

    OBVIOUSLY you cut a deal come to an agreement, give people the ABILITY to pay back and they will

    even if the civil service not ministers came up with the idea it would still have to fit govt policy, and be kicked back until it was made fit

    Brian will run the country as he sees fit.

    Problem is, his expertise in fitness is hardly renowned

    • John S

      David McWilliam writes
      “Negative equity causes people to give up hope and throw in the towel because, if there is no short- to-medium term reason for houses prices to rise, there is little point, bar your sense of obligation to the bank, in paying back the loan.”

      Well of course there is a point in repaying your mortgage – people usually buy a home to live in it. Continuing to pay the mortgage, irrespective of its value, allows the owner to continue to live there.

      Most people who bought a home did so based on their needs and on what they could afford to buy. They were not kidnapped by greedy bank managers and forced to take out a mortgage; they were not bullied by Govenment into buying a home.
      It follows therefore that home owners are, for the most part, independent people in thought, deed and action.
      The State does not need to put in place another scheme for default.
      Mortgage holders who fall on hard times due to redundancy or ill health will deal with their own problem as best they can. There are already tried and trusted procedures in place for dealing with debt – this is not a phenomen of the 21st Century.
      It will only be those who, are unwilling to face up to their problems that may end up having their homes repossessed. The most important message to get out to home owners who may be in difficulty is to talk to your lender staright away.

  2. Colin

    David,

    Well done on more clever thinking outside the box of consensus.

    However, the plan should only extend to a household’s primary dwelling. I’m sure you are aware that there are many families (some are young) which own more than one house. These “investment for pensions” properties should feel the brunt of the market values for them, meaning a family owning more than one house must pay off the proceeds from the sale of the secondary homes before they may qualify for the “new deal” on their primary home.

    Also, I took out a car loan one year ago. I needed it for getting to and from work. Perhaps I could re-negotiate the car loan with the bank, since the car depreciates in value every year? Or since I chose not to buy property, perhaps the government could do a similar deal for tenants, where half their rent is knocked off, because surely we can’t have tenants being kicked out on the streets for not being able to keep paying their rent?

    • Irish Guy In Sydney

      I agree…..just cause people cant afford to pay a mortgage doesnt mean they cant afford to rent…..let them rent!

  3. Irish Guy In Sydney

    Whilst I appreciate the effort and thought gone into this article, as a 30 year-old who withstood both peer and parental pressure to take out a 40 year mortgage and spend $400k on a shoebox a few years back as I knew it made absolutely no sense, I genuinely hope the fools who boasted about their “wealth” in Ron Blacks and are now facing extreme negative equity in the face suffer extreme hardship and end up having to emigrate. I left Ireland a few years ago because I knew the country was gone to pot and will gladly swoop back and buy some extremely cheap property off my formerly “wealthy” peers.

    • Colin

      Irish guy in Sydney,

      The fools need help. The foolish, just like the poor will always be with us. I think the situation DMcW is outlining relates to people who have lost their jobs by redundancy, not by throwing in the towel at work to benefit from this “new deal”. It should not apply to people trying to find a cute hoor solution to their difficulties. Count your blessings you are free from a life sentence of mortgage repayments. Try not to be smug, no matter how much you enjoy the tables now being turned, it doesn’t help.

      You still can buy at a much reduced price in a few years, but why would you want to? Unless you like rain, bad tempered motorists, drink and drug fueled culture, keeping up with the joneses, scumbags two a penny etc…

    • jc2000

      It wasn’t until after I had lived in the US for many years that I truely realized that mass emigration is such a sad, almost devastating phenomenom for any country – particulary a small one like Ireland. Even though I felt I had ‘missed the boat’ by living over in the US during the boom times in Ireland (I left in ’98 and was one of the people who would get jealous listening to my friends talk about their ‘wealth’ while I was struggling to pay a mortgage and save over here), I was happy to see that families in Ireland were finally being spared the pain of emigration. It was great to see people younger than me have choices and not be forced too leave. I wholeheartedly agree with David when he says that leadership in Ireland needs to be stronger in the face of a possible renewal of the days of mass emigration. The effect on society could be disasterous. I, for one, am actively considering returning to Ireland this year. Call me crazy but I see opportunity with lower prices and a motivated workforce. It’s time for leadership!

  4. Furrylugs

    “The boy stood on the burning deck
    Whence all but he had fled”

    Some of you will remember me quoting this last year. The ship of state is about to blow and David McWilliams resolutely stands his ground trying to be heard against a cacophony of deluded drivel.
    What he describes above is already well under way. People are months behind with all sorts of repayments to the point that credit scoring as a control mechanism is defunct. Because credit itself is defunct.
    There’s one class of people he doesn’t describe above, the powerbrokers who care not for Ireland, Irish or Independence. They exist solely to cling to power and privelege.
    Mass emigration is a well documented tactic in lean times to keep a tight rein. The sheep with the “good job” remain and switch channels when someone reports on emigration.

    Whatever about the finer detail, I’m proud to see at least one of the people in the know standing up for our ordinary citizens. It shows more resolve than all the rackrenters we’ve elected to govern.
    It would be so easy to take the “schilling” and join the herd.

    “Men make history, and not the other way around. In periods where there is no leadership, society stands still. Progress occurs when courageous, skilful leaders seize the opportunity to change things for the better.”
    - Harry S. Truman

    • Deco

      Well said Furrylugs – David McWis showing us leadership. And so are you also Furrylugs. Now is a moment to keep the individual peace of mind. I reckon that Ireland as a society is in a state of shock (or denial – a step preceding a state of shock).

  5. Furrylugs

    http://www.businessworld.ie/bworld/rankednews2.htm?s=index.html;s2=rankednews2.htm;r=4;a=2350934

    With this sort of backing, someone is going to have to listen to DMcW soon.

  6. Tony (left 3 Ireland years ago)

    Jingle mail is the way to go.

    Politicans are only interested in looking after themselves. Same the world over.

    Time for anyone with any ambition to walk away from Ireland.

    Who wants to pay 48% tax in private sector? While the cosy public sector sit cosy in their little paper pushing jobs with no reason to extend themselves even the slightest bit

    If you got a brain and can get out – why are you still there?

  7. John ALLEN

    I think the article today is representative of the facts facing young people and maybe pragmatic .Yesterday someone wrote patriotism is for fools or words to that effect .It would seem to me that for many handing back the keys of the house is an easier option for many and ‘just rent’ only until times improve or when they return to ireland again if they decide to.
    To be honest I really think todays article is ‘in denial’ of what really is in store for everybody and ‘chaos ‘ is more likely the truth.Alan Ahearne Economist last night on Prime Time showed a face of fear that lies ahead .He knows better .

    • Woodsey

      I agree, John.

      It’s not so much that DMcW is in denial, it’s just that he gets paid for constantly coming up with something new.

      Chaos is already here, to a large extent. Social unrest is the starting point for chaos and the comments we’re reading here represent an attitude that reflects that unrest. Spice it up with a complete loss of income, accommodation, food and security and social upheaval will arrive to overwhelm us with a suddenness and a ferocity that will surprise us all.

      Ireland’s present financial position, and its position into the future being outlined today, is unsustainable. This in itself means that ALL schemes being put forward as ‘solutions’ by anybody are likely to fail from an inability to finance them. You can’t run stuff without fuel and finance is a necessary fuel for all these propsosed schemes.

      I’m uncertain that emigration will work this time around. Most other nations are shedding jobs just as fast.

      But never fear, David is boldly off to Davos today with his award from that illustrious crowd 2 years back still shiny. No doubt next week will see him with a similar ‘proposal’ cluttering up this column?

      Tin hats on, boys! It’s MUCH too late. It’s time to duck!

  8. gearoid

    One side issue which arises from this analysis of society into insiders and outsiders is who represents the outsiders politicially ?
    Labour through its close attachment to the insiders cannot be said to represent the outsiders. The same applies to FF & FG as well.
    The PDs, if they had chose to could have found a niche in seeking to allign themselves with the ordinary – non – public sector worker though it is debatable whether many of these workers would have made the switch from whichever of the main parties that they currently support. And this is the real crux of the matter – when will ordinary Irish people realise that they/we actually have a responsibility to engage at some level, even passively, with politicians to ensure our voice is heard ?

    • Fergal

      If the Irish electorate still haven’t realised that FF in particular does not have the long term interests of the state or the people in mind, then they will never realise it.
      Arise and Follow Charlie and his untold wealth – re-elected.
      Bertie Ahern – digouts, re-elected.
      The Flynns – re-elected.

      The Tribunals, beef, blood, planning. They made barristers millionaires. The average joe got stuck with the tab.
      The tax incentives for the Ponzi scheme. Made developers and builders wealthy. The average joe is facing negative equity and unemployment as wages had to rise to pay for the houses to make the developers wealthier.

      Pack your bags and get out of dodge. You owe your country nothing when it has mortgaged your future.

  9. Paul

    Is David our Casabianca, it certainly seems that way. That is a good idea in principle, but, will Fianna Fail bother, will they take the easy way out again, and use the pressure cooker approach, allowing us all to leave Ireland again, releasing that valve. I still remember the queues for the coaches back in the 80s. Do we need a change at the top, before new ideas like this can be implemented. Maybe the Greens will stop thinking of their pensions for a second, and make some positive moves in the Dail, putting some pressure on Cowen and Co.

  10. Frank

    you’re rearranging deckchairs on the titanic lads….too little too late as usual in this country…time to find a new ship to sail…

  11. David your suggestion is a variant GSE like Freddie Mac and Fannie Mae in the US (though we would more likely call them Paddy Mac and the Mary Mae GSE’s)

    The snag in this option is assessing the value for everyone as constitutionally everyone must be offered parity and equality. Therefore rather than halving the principle it could be bench-marked to an agreed date plus annual increases to a 20 year MA percentage.

    Another barrier to fair play is the “location” value and how would this be accounted for and even should this be accounted for?

    A 2 up and 2 down terrace property close to the the city went for 925,000 euro in 2006. How would this be assessed when compared to a 2 up, 2 down in Finglas that sold for 330,000? What is fair value in both those cases? Should the city buyers get penalised for being dumb enough to spend so much on a property that elsewhere cost no more than 30% of what they paid?

    I am in full agreement that solutions need to be found – not to maintain over value on property – but to open up bank lending to allow the economy to initiate growth. Providing banks with bonds in place of their current assets is a positive move, shifting the burden onto the government and tax payers may not sound palatable but it will allow some semblance of normality to return to standard banking practices and thus business to expand.

    The need for injecting of equity still remains and removing the bad debts from the banks will go some way to reduce the risk. Sadly even nationalization would not help this as the ECB has control of monetary policy so we could not achieve what the UK and US are doing, pumping cash into the system. We need an Irish solution to an Irish problem and yours should be fleshed out further to see how much value it has to help the recovery.

  12. Don

    A few comments on the aricle and some of the comments:
    1. As we now own the Anglo Irish bank, why do the government not use it to offer loans to people if the other institutions won’t do it? Trade as a bank and the commerial reality of a “competitor” taking all the business will soon un-stick them.
    2. Don’t let begrudgery get in the way of what is right. Some people seem to think that those who purchased property should be penalised. The government encuraged all of us to do it, just some had the nerve and wherewithall to find out how to raise the capital and do it. They are not necessarily “wealthy”. Plus, the government has already taken 40%+ of the cost of the property during the purchase, whilst the construction generated jobs and therefore income tax returns as well. Not to mention that the properties themselves have significantly devalued.
    3. Property purchase is a prudent investment as a pension. Many people depend on this as their pension. Why should they be penalised? Perhaps everyone else should have pension contributions removed from their tax-free status too. Is that what we want?
    4. Rent received by property owners is already subject to tax. This point appears to be being missed by many commentators.
    5. If the government make life unbearable enough, even by being unjust, they will drive not only the “outsiders” from these shores, they will drive many so-called “insider” also. And I would probably rate as an “insider”, having one (1) modest property in Spain and a home in Ireland. If it comes to it, I know which one I’ll be selling.

    • Karlos

      Don:

      1. Are you suggesting turning Anglo into a state backed Sub Prime lender? I don’t think thats a very good idea. Normal liquidity will eventually be re-established and banks should and will be much more prudent than they were. What you suggest would utterly distort the market and would be wrong for all sorts of anti-competition and anti-state aid reasons.

      2. Who is penalising people who bought property? Nobody. There is a difference between being penalised and not getting an handout/writedown. The government certainly did encourage property speculation and severe overheating of the market. They did not put a gun to anyones head, or suggest that property is a substitute for a pension. If and when the market corrects itself to match international norms vis-a-vis house prices as a multiple of income, you are not being penalised, you are reaping what you have sown. You thought property was worth x, unfortunately that price was the bubble-price, not a real-price. Please try and overcome your victim stance, and take some of your so called “nerve and wherewithall” and admit to yourself that property speculation is just like any other, sometimes you win, sometimes you lose.

      3. Over the very long term it can be a moderately successful investment – just beating inflation. The recent bubble market has skewed peoples ideas of how much they can earn from property via capital appreciation. However putting all your eggs in one basket is a silly thing to do for your pension.

      4. Rent is income – it should be taxed. Whats the problem here?

  13. leo30

    i will stay in ireland. it is worth struggling for. not in a nationalistic blind and stupid manner but simply because it is home. i will do all i can to help mend this broken place. that will include sacrifice and some pain. but hey hell – this is where i belong. this is where my family is. this is where i grew up. and this is where i know.

    • Furrylugs

      Good honest statement Leo.

      • Fergal

        It might be honest, but it is parochial. We are human as much as Irish. The earth is home. Ireland is simply the place you grew up in. The world is there to see and explore. Your family are a plane ride (or 2) away. Would you not leave the estate / townland you were born in? The city? The county?

        The country and continent are just an extension of that.

        Patriotism truly is the refuge of the foolish. Without it, try to imagine WW1 or WWII, or virtually any other war.

        If you can leave the country and improve your life, do. You owe Ireland nothing. The electorate kept rewarding corruption and greed and have mortgaged your future if you stay. Leave.

        • Furrylugs

          I’ve worn that t-shirt though for 26 years and I wanted to come back. For the village I live in and the people therin, I’m glad I did.

          I didn’t bargain for Nigerianesque corruption and corporate tribalism though. A lot of the people in this country are (or were) relatively simple people isolated from the big bad world. That came with a with a Tigers roar and now said Tiger wants the pound of flesh.
          Many people cannot comprehend whats happened and a lot of the comments here, though true, don’t allow for the non-cosmopolitan nature of great tracts of the countryside.

          Some people were just simply had.
          The wide boys saw them coming and snared them. In one way, The Tiger was no more than a huge timeshare scam.

  14. ire_in_exile

    A great article, a great suggestion, a sensible course for action in the current crisis.
    Perhaps in fact the only option.

    But as the responses already indicate this course of action involves logical, benign and socially responsible
    thinking at the top. Therein lies the problem.
    This sort of thinking is utterly alien to the ruthless, greedy, gombeen, cute hoer culture of the current powers that be in Ireland. These people have been reared to fleece and cheat and steal for themselves at the larger publics expense, and the idea that they shall now act with a good conscience for the betterment of all is sadly laughable.

    The current ruling class in Ireland need to be swept away completely and thoroughly before any progress can be made.
    Unless there is a new breed of the calibre of DmcW /Shane Ross et al in power, then the country will simply further rot away to extinction.

    …and I speak with conviction, I was an archtypal outsider from the 1980s.
    I would have preferred to have lived in my own home country and raised my family there but I could not do so as I was all too aggrieved at what I saw around me, and I wasn’t prepared to make myself a victim of it.
    Now those remaining, insiders or outsiders have the opportunity to do something about it finally.
    I hope they do.

  15. Diletta

    “This means that the State behaves responsibly, and gives its citizens a break”…

    And in addition, gives people something to strive for and to hope for. A sense of security and permanence that, in spite of the turmoil their home is secure, their children don’t have to move house or school, and that they can maintain a semblance of normality whilst trying to cope with their reduced income. David, I am very glad that an article as practical and objectively optimistic is out there in the public domain, because even if you don’t have the ear of the represented officials (and I hope you do) then at least people can read newspaper articles such as this, for themselves.

    I am a natural pessimist, and whilst out walking the dog I generally have my most worrying thoughts, (on an apocalyptic level) … However, I do realise that this is a destructive emotion which only sends the worrier into an ever decreasing spiral of despair.

    An article which is resolutely optimistic and outlines the case for solutions goes a long way to raise morale. The scale and complexity of the global financial problems has left many confused and overwhelmed, they are tired of hearing about it and some people I speak to are switching off and not listening any more. All the more need, therefore, for this clear and straightforward solution, which has meaning in their lives and that of their children… which at the end of the day is what most of us are most concerned about.

    On a more philosophical level, I hope that our values and sense of decency do not slide completely in the coming 2-3 years. It would be so heartening to see a stronger sense of community emerging.. Ireland would be the stronger for it, and perhaps politicians with a greater sense of duty would emerge. Personally, I will try to do my best, as the collective behaviour of the citizens could make Ireland the better after the worst of the turmoil abates.

    • Furrylugs

      Morale Diletta, Morale. Thats the key. Morale driven by charismatic leadership. How many timers have battles been won against insurmountable odds purely because there was belief in the leader?
      That morale and leadership will translate easily to the bond markets, making the road ahead somewhat easier.
      Where do we find the blasted leader though? Certainly not amongst the porky pie politicians. Nor amongst the “social partners”.

      The only name that springs to mind with the determination and drive is Sean Kelly. He steered the GAA through the peace process. No mean feat.

      An election is the only way to clear the decks. It would give a powerful individual the platform to stand.

  16. Irish Guy in Dubai

    David,

    Your suggestion is excellent & has also been discussed in a number of other blogs as a solution.

    Part of me thinks the goverment thinks the problem will be solved by mass emigration, guess what? there are very few places to emigrate to.

    The traditional ones America, UK are definitely out. Australia contrary to popular belief is heading toward recession. Also the exchange rate is such that if you are trying to finance a property in Eire it is non workable, believe me I know. I hold an oz passport ,proffesional qualification and a mortgage in Eire under 200k and still cannot manage it. People need to do their reasearch before blindly emigrating. Visas are an obvious problem.

    As for the Middle east where I am, it is potentially worse than Ireland. Job losses here presently are huge but not being accurately reported. The Dept. of foriegn affairs in Eire should give people honest advice on these issues.I have seen a huge influx of Irish over here lately who are trying to secure work. Most are poorly informed as to the restrictions.

    • wally Bazzum

      “It’s time to play the music”
      “It’s time to light the lights”

      Are things in Dubai as bad as in Ireland ?

      Lots of building, lots of empty buildings, but at least the Makthoums got poor non UAE humans in to build, paid them buttons and dont recognise them …
      actually i think that happened here too..

      • Irish Guy in Dubai

        the difference 5here is you get thron out when you lose your job, no state support here,they will just look after themselves

    • Liam

      Looks like a business opportunity to me, IGID.

  17. leo30

    is economics the new rock and roll?

    • gadfly55

      everyone is now an economist, jingle the coins in your pocket, key in your number in the ATM, open an online account, listen to George Lee and Alan Ahearne, and bingo, Bob’s your analyst. Clueless, innumerate, illiterate, untutoured, and daft, but hey, where did the ERSI and Milton Friedman get us.

  18. Principal debt reduction must be part of the bank recapitalisation. This is a political demand and the bankers, politicians and newspaper hacks are no substitute for real action. If you want to build a campaign to challenge the experts follow the IrishLendLeaugue on twitter.

    @IrishLendLeague

  19. MH

    David,

    Another very good article with a good suggestion to get the Economy moving again. I think it is time for a complete re-think of the Irish governance system so that the likes of David can be brought in to key ministerial positions to help run the country. It is obvious that the party political system of governance just ain’t cutting it. Time for a model that is more like the American model, whereby the elected Head of Government can bring in the people s/he sees as being most competent. Our best chance of working our way out of this mess is to have the likes of David McWilliams in Finance, and perhaps the likes of Michael Smurfit in Enterprise. Perhaps, as well we could get someone with real-world experience of the healthcare sector to take over the ministry of Health.

    I think it is time for radical change. Sometimes the system itself needs to be reformed.

  20. Mark Tully

    You have suggested in this and the previous article that the state cutting spending is a bad thing as it will only shrink the economy. Surely maintaining public spending on inefficiencies is not a good thing. Japan built many “roads to nowhere” in the 90′s to keep contruction workers employed. Money saved on public sector inefficiencies could be put to better use on something such as your mortgage plan.

    • Furrylugs

      Very true Mark though a lot of the money spent during the Tiger years was soaked by “consultants”. Targetted spend to get our cities connected to their respective airports or a revamp of the myriad “business development” quangos. We could start with an outright ban on foreign travel by anyone other than a designated group. Every Tom, Dick and Harriet have their flights booked already for Paddy’s day.

      The lie being promoted at the moment is that Ireland spends 60bn with taxes of 40bn. Absolute horse.
      The junket comfort zone needs tackling as does the appalling service delivered by some, I stress some, hospital consultants on a salary that was benchmarked by Prof Drumm when he held out for all the dosh he could get. Else he wouldn’t take the job.
      Others here have clearly outlined the excessive payscales in political life compared to other jurisdictions.
      We have waste on a horrendous scale. Take DMcW’s forecast of a 10% drop. Prof Ahearne said the same thing last night. Scour the country for comfort zones and lance them. The efficiencies to be made are huge.

      Else we will be Iceland and six months and all that.

  21. AndrewGMooney

    I like this article. A lot. It’s time to move forward with positive, pragmatic and constructive proposals.
    It’s time to optimistically invest in a positive future for Ireland. However, I’m concerned about ‘popular psychology’, the ‘wisdom of crowds’. The challenge is that, just as David was side-lined as a ‘maverick’ when he stood against the collective euphoria:

    He’ll face the same problem with apocalyptic dysphoria as it gains traction in the media. This will end up as irrational in it’s doom mongering as it was faux-utiopian when property boosterism was the rage.

    Alongside these proposals, I’m surprised to see no mention of new means-tested Property Taxes here. Whatever the resistance to the return of domestic rates, ‘window taxes’ and other such creative government ruses to get the ‘insiders’ to stump up their share, all avenues have to be considered.

    This is an ethical crisis, not an economic one. The ‘insiders’ have to accept moral responsibility en masse for bequeathing the property yoke to the ‘outsider’ generations beneath them. Not just blame the banks who gave them the re-mortages for the conservatory and the gaff in La Manga.

    This is about ‘trans-generation equity’. If all the Boomers care about is protecting their own turf so they can afford cosmetic surgery and lawn fees, whilst watching devastation unfold amongst the generations beneath them:

    Then they have no plausible credibility to enter any further discussion about Ireland. It’s past, present or future. They are just a parasitical generation who got lucky.

    It will be interesting to see if young people march on Dublin to demand ‘democratic debt relief’ and whether the Eldercare Medical Card mobilisation will join in support.
    Progressive property taxes, mean-tested, based on whatever criteria such as value, age, type of tenure, are appropriate. And why not!

    The ‘insiders’ need to consider the following scenario. By their refusal to see the big picture, the end up with the following scenario:
    Many of my Mother’s friends were nurses in Birmingham hosptials. They moved to England in the 1950s because they had no chance of fulfilling their vocation in Ireland.

    Do the ‘insiders’ really want to see young Irish doctors and nurses pack up and leave in disgust because the ‘cuts’ have spiralled out of control, and the hospitals are meant to run on thin aire, whilst the estates where they struggled to buy their first homes are littered with empty, vandalised properties?

    There’s a choice here. Be selfish, carry on worshipping at the collapsings temples preaching the Creed of Greed Is Always G(o)od. Just don’t complain when you’re 83 years old and there’s no-one to change your incontinence nappy. Still, you ‘made it big’, you were a ‘someone’. And you were certainly a cute hoor when it came to ‘creatively organising’ your taxe issues.

    Regards.

    • I’m not an insider, and I’m not an outsider. I bought a little earlier than the outsiders and later than the insiders. I didn’t splurge on silly luxuries, but overpaid on my mortgage as my salary rose. The methods you suggest would see me penalised, and leaving the country. As an entrepeurial high tech head I would have thought I was someone you might like to stick around.

  22. The Eye

    Don how about the huge ball of money called stamp Duty which was paid up front and everybody seems to forget about, larger then any in the world that the gov thought was manna from heaven, whats this greedy investor business all about? Love the way in Ireland that when you try hard and take risks or plan ahead you become greedy and are open to attack from the masses.One thing I’m sure about the Gov will do what is popular not what is right eg Tax the greedy ones.

  23. Ian

    Sorry, I have no time for giving a gift to people who bought themselves a half a million Euro house, when I don’t have a house myself.

    Plain and simple, I would regard any such gift as theft and an abandonment of legitimacy by any government that gave it.

    • gadfly55

      SAY it again, and again, out loud, louder, and repeat together, pass it on, and co-ordinate public pronouncement at regular intervals. Create a hum, a din, a sub-sonic rumble shaking the ground. Plain and simple. NO.

  24. alan

    The ongoing daily procession of “social partners” into government buildings is deeply depressing to behold. The sight of journalists (RTE seem particularly virulent) giving such saturation headline coverage and near deifying these same three or four unelected individuals on the morning and nightly news and the likes of Prime Time / Q&A simply strengthens their hand walking into these “negotiations”.

    This is a critical point in our national sovereignty. We elect 150 plus highly paid TD’s to represent us where these are supported by a couple of thousand highly paid senior civil servants whose job it is to research, gather data, solicit opinions from key interest groups and generally formulate policy for consideration by the government. It is then the governments job to make decisions based (primarily) off same advisors input.

    It is highly likely that unemployment will in excess of 300K by this summer. I read recently that fewer than one in six private sector employees is now a member of a union which implies at most 300K odd union members in the private sector plus more or less the same in the public service. Turned on its head, this means that the interests of 1-1.5m private sector workers and the 300K recently unemployed (all former private sector) are to a large extent in the hands of the union leadership. That is to say the interests of <30% of the working age population have a “whip hand” at the negotiation table.

    I am deeply suspicious of the role that most (though not all) of the media has played in getting us to the point where the unions have so much power at this critical point. It is my belief that Union interests in the media have cynically manipulated the news agenda to their own ends on the grounds of self interest or indeed self preservation of unsustainable pay and conditions.

    I fully expect Cowen to capitulate to this agenda over the coming days and weeks and expect elements of the Union suggestions such as 48% income tax, increased CGT, local authority rates etc to be brought in rather than any biting of the bullet on Public Service pay. Each of these will impact directly and indirectly on private sector employers and employees but will be largely immune towards the Public Sector.

    In terms of the suggested change to mortgages (or credit card and unsecured / motor loan defaults which are pending on a massive scale), valid and well intentioned idea as it is I feel we are (if you excuse the pun) “urinating into a gale” with such ideas until such time as the cash furnace that is the public sector wage bill is confronted. That said, I too do like this idea a lot albeit it would need to be strictly ring-fenced to prevent abuse.

  25. Furrylugs

    When you think about it a little more (and I do apologise for a lot of posts, this article has got me dander up), David is asking to treat the private “homeowner” no differently than the developers who are allowed to write down their outstanding loans to current market value subject to “examinership” and “viability”.
    Sauce for the Goose…..

    • gadfly55

      For the moment, but this write down is sustaining them, the banks, the government and the country, because somebody, us the taxpayer, is going to cover the losses when the developers are bankrupt and the whole house of cards comes down, which it will. The end is in sight, so don’t think those who have been prudent will rescue those who have squandered their wealth and their future. The pain will distributed to those most irresponsible, as it should be. This is the lesson for the generation of fools who believed they were entitled to consider themselves the most successful Europeans in the history of civilisation. Delusion meets reality.

      • Furrylugs

        If it gets that bad Gadfly, there won’t be enough private sector tax to cover anything. Output will have ground to a halt.
        The “generation of fools” deserve some sympathy though. I agree that Caveat Emptor should apply but the degree of economic propaganda that ordinary people were subjected to was appalling. People were naturally proud to believe that Ireland had come good and why shouldn’t they? With what is understood of “Bubbles” by responsible commentators, the headlong rush into consumer debt without any attempt to put the brakes on smacks of corporate criminality.

  26. gadfly55

    You know who will take the hit, the little people and this will be a lesson to them for generations in the gnat’s ass millisecond attention span of their idiocy that got them into this. And the parents who remortgaged, they can expire and pass on their inheritance to pay for shortfall because there is no way Jose the price is ever coming back to next nor near to the sale price a few years ago. The fools believed that by signing a document the government would protect them, where was this in the contract? This is totally off the wall as a proposal, you are rewarding people who signed, why not just give 150,000 to everybody when they are born, and if they fail to use it wisely, they are sent to labour camps to break stones for roads. Cop yourself on, and don’t play games appealing to desperated people. The credibility you have gained will be shot to shite.

  27. martin

    Good comment Leo. I’m not going anywhere either. Globalisation has gotten us into this mess-globalised credit, globalised markets, globalised migration. Travel sure, trade sure, respect our neighbours certainly and learn from them where appropriate but home is home and now is the time to dig in and work hard. We should invest in biotechnology and exploitation of our natural resources and not expect some multi-nationals to come in and provide jobs. At the end of the day they don’t really care for us anyway and will leave when it suits them. Things are far from perfect but it’s up to us to change them and running away doesn’t help.

  28. walnut

    Some words from Murray Rothbard’s “America’s Great Depression”. Rothbard suggests that the very intervention so clamorously called for (both then and now) actually extends and amplifies a downturn:

    “If government wishes to see a depression ended as quickly as possible, and the economy returned to normal prosperity, what course should it adopt ? The first and clearest injunction is: don’t interfere with the market’s adjustment process. The more the government intervenes to delay the market‟s adjustment, the longer and more gruelling the depression will be, and the more difficult will be the road to complete recovery. Government hampering aggravates and perpetuates the depression. Yet, government depression policy has always (and would have even more today) aggravated the very evils it has loudly tried to cure. If, in fact, we list logically the various ways that government could hamper market adjustment, we will find that we have precisely listed the favourite “anti-depression” arsenal of government policy. Thus, here are the ways the adjustment process can be hobbled:

    1) Prevent or delay liquidation. Lend money to shaky businesses, call on banks to lend further, etc.

    2) Inflate further. Further inflation blocks the necessary fall in prices, thus delaying adjustment and prolonging depression. Further credit expansion creates more malinvestments, which, in their turn, will have to be liquidated in some later depression. A government “easy money” policy prevents the market‟s return to the necessary higher interest rates.

    3) Keep wage rates up. Artificial maintenance of wage rates in a depression insures permanent mass unemployment. Furthermore, in a deflation, when prices are falling, keeping the same rate of money wages means that real wage rates have been pushed higher. In the face of falling business demand, this greatly aggravates the unemployment problem.

    4) Keep prices up. Keeping prices above their free-market levels will create unsaleable surpluses, and prevent a return to prosperity.

    5) Stimulate consumption and discourage saving. We have seen that more saving and less consumption would speed recovery; more consumption and less saving aggravate the shortage of saved-capital even further.. Any increase of taxes and government spending will discourage saving and investment and stimulate consumption, since government spending is all consumption.. Any increase in the relative size of government in the economy.. shifts the societal consumption-investment ration in favour of consumption, and prolongs the depression.

    6) Subsidize unemployment..”

    “Only governmental inflation can generate a boom-and-bust cycle.. the depression will be prolonged and aggravated by inflationist and other interventionary measures. In contrast to the myth of laissez-faire, we have shown (in “America‟s Great Depression”) how government intervention generated the unsound boom of the 1920s, and how Hoover‟s new departure aggravated the Great Depression by massive measures of interference. The guilt for the Great Depression must, at long last, be lifted from the shoulders of the free-market economy, and placed where it properly belongs: at the doors of politicians, bureaucrats, and the mass of “enlightened” economists. And in any other depression, past and future, the story will be the same.”

    • jim

      Rothbard the great anarco-capilalist, jasus thats all we need to here at this point, what next???? Maggie fu….g Thatcher. Give me a B…R ….E…..A….K. That fella was always trying to cherry pick economic ideas to suit his own philosophy.If you ask me I think he had issues with his own upbringing.

  29. Furrylugs

    Allied Irish up again today??
    I wonder if O’Leary is using the Aer Lingus takeover fund to buy up AIB?

    • Deco

      It would be great if MO’L took over AIB. He would sack 80% of the managers. He would sell the foreign owned subisiaries. He would sell loads of AIB property. AIB headquarters would be moved to Dublin (Portlaoise) along the lines of Frankfurt (Hahn). MO’L would then slash costs. You would see AIB staff dressed like LIDL staff – because the radiators would be switched off. All the Southsiders would be replaced with Westsiders/Midlanders/Poles.
      And AIB would be the low fees banks – in contrast to the current rip-off regime.

      BOI/ANIB would then run to the politicians and go looking for bailouts…

      • John

        Sorry Deco, AIB Headquarters has already been sold and leased back, as has most of their prime real estate branches around the country. “Selected” AIB customers were given the “opportunity” to purchase the bank branches with a sitting tenant paying rent [AIB]. The cash to fund the purchase was advanced by AIB. The Bank made a huge profit on the deal and the property risk was transferred from the Bank to the customers balance sheets. The collapse in commercial property values has surely impacted on the customers net worth. Not to worry! The Bank will pay the rent; the rent will cover the mortgage repayments; the bank gains by having a much larger and more secure loan book [AIB will never default on its rent?];The Bank has effectively borrowed from itself. How about that for “looking after your customers”

  30. Darren

    The 200K FTB in the last 5yrs is only a percentage of the overall population at work – if they bought at the wrong time then tough!!! – they where sold a pup so let this “unquestioning” lot emigrate they certainly made no bones about taking glee as there house went up in value and they watched others pay 30k-50K more for the next phase in there housing estate. Also, Amature speculators where another high percentage of buyers in the last 5yrs….there should be no bail out for them!

  31. g

    Thought the story below would go well with Deco’s earlier comment about overpaid politicians etc – a story from Tony Benn, also check out his comments on industrial democracy & college gees, if you have a moment

    “There was a boat race between a Japanese crew and a crew from the National Health Service (UK).

    Both sides practised long and hard and the Japanese one won by a mile. So the NHS faced with this problem setup a working party which reported that the Japanese had eight people rowing and one steering and the NHS had eight people steering and one rowing.

    So they brought in management consultants and the management consultants confirmed the diagnosis, suggested the NHS team be completely restructured to make it more efficient, gain critical body mass, cohesion, streamlining and all-round better performance.

    As part of the restructuring, a number of appointments were made including three Assistant Steering Managers, three Deputy Steering Managers, a Director of Steering Services and the rower was given an incentive to row harder.

    They had another race, this time the NHS team lost by two miles, so management laid off the rower for poor performance, sold the boat for a higher than average pay award for the director of steering services as part payment for making the hard decisions and determined they had too many management consultants and not enough managers.”

    Tony Benn on Industrial Democracy
    http://blogs.guardian.co.uk/podcasts/2006/12/brief_encounter_tony_benn.html

    Tony Benn on college Fees
    http://www.youtube.com/watch?v=oWxjReQZuTI&feature=related

  32. g

    Thought the story below would go well with this comment – a story from Tony Benn, also check out his comments on industrial democracy, if you have a moment

    “There was a boat race between a Japanese crew and a crew from the National Health Service (UK).

    Both sides practised long and hard and the Japanese one won by a mile. So the NHS faced with this problem setup a working party which reported that the Japanese had eight people rowing and one steering and the NHS had eight people steering and one rowing.

    So they brought in management consultants and the management consultants confirmed the diagnosis, suggested the NHS team be completely restructured to make it more efficient, gain critical body mass, cohesion, streamlining and all-round better performance.

    As part of the restructuring, a number of appointments were made including three Assistant Steering Managers, three Deputy Steering Managers, a Director of Steering Services and the rower was given an incentive to row harder.

    They had another race, this time the NHS team lost by two miles, so management laid off the rower for poor performance, sold the boat for a higher than average pay award for the director of steering services as part payment for making the hard decisions and determined they had too many management consultants and not enough managers.”

    Tony Benn on Industrial Democracy
    http://blogs.guardian.co.uk/podcasts/2006/12/brief_encounter_tony_benn.html

    • Deco

      Just as well the HSE did not decide on taking part in the race – they would have shown up in a go-cart. No matter how stupid the British NHS are – our muppets in the HSE always are worse.

      Tony Benn is a decent old skin, and should be on the media more – but he is not because he reminds the British people that the British Labour Party once stood for something of principle. The current “New” Labour Party only stand for power hunger, hypocrisy and incompetence.
      AndrewGMooney – if you read this – you are free comment. But New Lab are a big disappointment to the ordinary people (fools) who vote them into power. As soon as they get into power, the scions of New Lab are in bed with Bernie Eccelstone etc…

      • AndrewGMooney

        Deco, thanks for permission to comment! As you mentioned my blessed name, I’ll reply. Everyone else just press ‘Page Down’ a couple of times, ask the Webmaster to limit length of comments. Whatever.

        From reports the reports I receive and read about: The HSE appears to exhibit ‘challenging behaviour’. Often treating Irish citizens with health challenges as presenting with ‘difficult to meet needs’. Difficult for the mandarins of the HSE that is. Such as timely cancer diagnosis.

        My experience of dealing with the British NHS [National Health Soviet], is that it is not fit for purpose and must go. The WHO report in 2000 ranked health systems as follows: 1. France 2. Italy. 18. United Kingdom. 19. Ireland. 37. USA. I don’t think it produces them anymore. Too embarrassing to the US.

        As far as I am concerned, the Brits need to drop their NHS Is Safe With Labour and/or Tory delusions and pragmatically adopt winning ways, i.e.: A hybrid of the French and Italian models. And pay the tax to fund it. Or if it’s now Holland or Sweden. Copy what works. Drop what fails. The politics of pragmatism as espoused by Barack Obama.

        Ireland’s bizarre fixation on ’efficient’ American business models has led it to an impasse that is neither here, there’ or anywhere with regards to health care. If the Republicans had won, Ireland would inexorably have descended towards the USA at 37. Massachusetts In The Rain, etc. With Obama at the reigns, Ireland will doubtless tweak half-heartedly in response. But it’s looking in the wrong direction. One can only hope that Quinn Direct is ring-fenced from any unforeseen eventualities.

        Ireland is closer to Birmingham than Berlin or Boston. Or, in this health-care analysis: Ireland is closer to Bordeaux or Bologna than Boston. So much for Ireland’s much-vaunted Europhilia. We’ll see if it lasts when Ireland becomes a net contributor in 2013, or will that now to be cancelled? *Alastair Darling rolls his eyes*

        The NHS Beveridge Principle of ‘free at the point of delivery’ is now a joke when you consider car-parking charges. My wife has rheumatoid arthritis. When she goes to Worcester Hospital, a troubled but inspirational brand-spanking New Labour PFI state of the art hospital: She is fleeced for parking. What if you’re too poor to pay? Oh, I see, you go to hospital on our world-class public transport system that everyone else is busily copying. *bangs fist!*

        The tragedy for Ireland is that most of it’s health vision is likely to come from a botched copying of something like Newt Gingrich’s ‘Center for Health Transformation’, rather than from the premise that ‘Ireland is closer to Bordeaux and Bologna than Boston’. Again: I stress the hope that Quinn Direct has robust defences and doesn’t throw too many citizens back into the incapable arms of the Irish State.

        http://newt.org/tabid/102/articleType/ArticleView/articleId/3941/Default.aspx

        Tony Benn is a national treasure. An icon of independent thought, unlike Tony Blair. I’ve met Tony Benn several times. He was fascinated by me, but that’s hardly surprising, is it?

        You say: ‘The current ‘New’ Labour Party only stand for power hunger, hypocrisy and incompetence.’ I say: “I’ve been dreaming of a time when, the English are sick too death of Labour, and Tories, and spit upon the name Oliver Cromwell.” Which is a lyric by my pupil, Morrissey.

        Essentially, the New Labour Project was a deviously genius plot to seize power, run the country as a Greenspan Clone Capitalist Country (flunkey) but, unlike the previous ruinous Tory regime, divvy up the profits so that at least some of the wealth ‘trickled down’ to the poor in terms of Education, Education, Education. And hospitals, jobs, tax credits for working poor (most people). And so on. All the non-dom, non-tax paying billionaires in Moscow-On-Thames in their Chelski shirts make me vomit, but I understand the lure of accommodating them and the Mayfair hedge funds, now and in the troubled future.

        All politicians are power hungry, that’s in the job description. I do not light a candle for Brown and Darling every morning despite what you seem to think! If they fc-uk up they know what to expect. In fact, as a long term Sun Tzu strategy: I hope the turkeys DO vote for Xmas once again and the barely disguised blood-lust of toffs like Cameron and Osborne unleashes the Thatcher Virus once more. After they repeal the ban on fox hunting, of course. Priorities, dear boy. If that’s what Little Britain wants, you’re gonna get it good and proper. Just don’t come whinging to me when you’re sleeping on The Strand. Again. If you haven’t learnt that lesson, it will just have to be repeated, with emphasis.

        What exactly happened to Britain’s oil wealth?
        Where’s the British Sovereign Wealth Fund? Etc.

        I contingently and equivocally support Brown and Darling as they have pragmatically thrown the utterly discredited Greenspan Bible in the bin. They have looked to British cultural roots (Keynes) to move, albeit in a blind room, towards a British Solution that is also congruent with a Global Solution: Lock step stimulus with Obama, but on a much lesser GDP scale. The Tories abandoned British Culture for a nefarious, internecine breeding experiment with the alien Freedman, Thatcher, Reagan, Bush, Blair petri dish. Before he went bonkers, Tony Blair warned when elected in 1997, “The Tories are not dead, they are only sleeping”.

        The British Tories once ran an empire that started in Ireland and stretched across the world. In their arrogant vanity and hubris under Thatcher, they turned to ‘colonialising the poor’ of their own country. Thatcher was a basket case who tried to run Britain like it was a corner shop. She will be remembered for her pointless class war with Scargill which destroyed Britain’s coal energy security. Carbon Capture and Storage Power Plants will be one of many epitaphs to her short-termism and utter lack of strategic vision. She, too, wanted to ‘save the NHS’, by handing it over to American insurance companies.

        In summary, since I started posting on this site, I have always maintained that economics is a subset of culture, which is a subset of ethics. This is an ethical and cultural crisis manifesting as an Economic Collapse. I’m not Irish. I’m not English. I’m a hybrid. A mutt like Obama. Soon everyone will be. I don’t think DavidXYZ ’gets’ this ’hybridity is the new authenticity’ rap.

        All citizens of the Brit-Eire-ish Isles seem to live in a fantasy dimension where you can have American levels of tax with Scandinavian levels of civilisation. You can’t. How many times does that have to be pointed out? I’m hopeful that British, Irish and American people will make informed choices appropriate to their needs and circumstances. But the idea that British Culture will EVER defer to either crass paranoid German Monetarism, or to an American ‘success story’ that cannot even provide basic health insurance for it’s homeless children in shelters is, to be blunt: A joke.

        And that’s what disturbs me about Ireland. It’s become a joke. A sick joke. Unless and until the whole corrupt FF/FG apparatus and their enablers is ripped up and replaced, I remain concerned, to put it mildly.

        My late Father had a heart attack whilst sojourning in Ireland in 1992. All six of his children flew to Dublin and took 2 taxis to say goodbye. He didn’t die. But the hospital was clean, efficient, the nurses seems to have a vocation rather than just a job. Unlike the nightmares I hear from friends now. As he recovered, I got engaged at Kilkenny Castle by the banks of the Nore. My father wanted me to move ‘back home’ with him and Mom. He said he’d ask around, see if he could get me a job at Avonmore in Ballyragget. After a row in a local pub about how ’you can’t expect an Ulsterman to accept a united Ireland whilst you God-Bothering busybodies are still in The Dark Ages about Women‘s Fertility Rights‘: I caught the next flight back to London Town.

        I write on this site because I have insultingly so-called ‘plastic paddy’ friends who were lured back to Ireland from Britain by the ‘economic miracle’. I’ve often been asked why I didn’t join them, for the ‘craic’. Simple: I predicted that the economic miracle was a short term phenomenon that would end in ruin without a concurrent ‘cultural revolution’. Hence, my interest in David’s ‘diaspora convergence hypothesis’ and my proposition that it can never work without a quantum leap in Irish politics and culture.

        Irish culture has not changed, never mind change radically enough to lure me ‘back home’ to set up camp with my priceless children as future wealth, income streams to be fleeced by corrupt gombeens.

        My children will migrate down The Thames to Oxford and London. Or to Cambridge. To Bath to James Dyson’s Engineering Academy, if it ever gets planning permission. Or to Paris with their Baccalaureates in hand. Currently, Ireland isn’t even in the running. The political and business oligarchy that run Ireland are still the same, just wearing a different disguise. They are indeed, the Western Brits, and like the British Tories: They colonialise their own people under the bogus banner of ‘Patriotism’.

        I’m aware of the complex issues around the use of the word Tory (tóraí) in Irish culture and history as detailed in ’The Heroic Outlaw in Irish Folklore and Popular Literature’ by Ray Cashman. But I use it here purely in it’s modern political context of Tory, Republican and FF/FG.

        Perhaps this makes my position clearer. Though remember: I’m an agent provocateur. I’m not here to be ‘nice’ or make friends. I’ll contradict all this in a flash if it amuses me. That’s what I do!

      • G

        well Benn maintains that isn’t part of New Labour, he is/was a member of the Labour party. He felt Labour was hijacked etc

        His comments on Moore’s ‘Sicko’ are outstanding
        http://ie.youtube.com/watch?v=OnserZOf1-4

  33. Imtiaz1

    Why compensate those who made a bad decision? Why should those who did not participate in the frenzied market now be forced to subsidise those who did?

  34. Robert

    David,

    Nice idea . . . . Not going to happen. Not in a corrupt country like Ireland – with leaders who are so completely immoral and owned by their paymasters in the building and banking trades.

    Basically anyone born roughly between the years 1974 and 1984 is going to pay heavily for this recession/depression – only those who didn’t join the media-driven property bandwagon in the last 5 – 7 years will get away with it.

    Others who will get away with it are the rich builders and developers who won’t be paying back their debts. Ironic that a scheme is thought up for the ordinary Joe Soap (with wife and kids * on the dole) to pay back his debt whereas the never-to-be-paid builder property debts are to be referred to as toxic or bad debts . . . ready to be written off!

    The Govt and Banks might turn 30-35 year mortgages into 40-45-50 year mortgages with debts (if unpaid) to be passed on – even to those yet to be born.

    You also state “Consider a house bought in the boom for €200,000″ . . . . . Where exactly would such a house for €200,000 have been bought for? On Tory Island. You’re average one-bedroomed apartment in a commuter town like Celbridge was going for €295,000 in 2006.

    This must be the only country in the world where the old rich are paid for by the young poor.

  35. MK1

    Hi David,

    I agree with the main thrust of your article, which is to:
    a) give hope to people
    b) prevent mortgage defaulters who will only exasperate the current situation.

    However, are you attempting again to put forward a financial ‘magic bullet’ that will somehow move money from peter to paul and attempt to create a new ‘heavenly’ situation and solution?

    Magic doesnt work nor does it exist. I agree that banks could prevent some (or even most) mortgage defaulters by giving them leeway, and this could or indeed will have to be supported by the government, but that comes at a cost. If the mortgage holder isnt paying the mortgage somebody has to be.

    However, there are clearly a lot of things that could be done to reduce some of those costs though and to give as much leeway to mortgage holders as possible.

    1. Only do this with nationalised banks ….. so AIB, BOI, come in to join the club, cost to the state for your shares – 1 euro (not per share but for the whole lot!)

    2. efficient and cheaper nationalised banks …. so major reductions in salaries, etc. Offer new contracts, those on what benefit will the newly recapitalised banks get from an empty house with no tenant and a defaulted mortgage?

    Agreed, a house that has been emptied where the occupants have emmigrated will exasperate the problems we face. We need to keep people here, and we need to keep them working, even if on low salaries. 100 people on 40k pa is more beneficial than 40 people on 100k.

    I wish I had a magic wand or silver bullet to clear away the credit binge of the recent past, but I dont, nor do I believe does anyone.

    MK1

    ps: hadnt time to read other comments yet

  36. wally Bazzum

    Imagine a bank lending 7 billion euro ot just 4 people.
    Imagine that that bank is now gone.
    Imagine that its CEO has big houses in Nantucket,
    Imagine that the 4 people with the big loans wont have to pay them back.
    Imagine that their is bottomless bucket being made for them
    But not for us.

  37. ghfh

    Is there anything to be said for another mass??

  38. MK1

    My other points didnt make it somehow ….. strange:

    3. the banks to be ran as a banking function for its shareholder, the state/the public, to provide a service, NOT to make any profits. Sell all that artwork, if anyone will have it, etc.

    4. The mortgage ‘shelter’ scheme to only apply to owner-occupied homes.

    5. Re-negotiate lending criteria as vigorously as possible, extending the term, reducing the payments, making mortgage defaults less likely, allowing windows, assessing other debts (cars), ensuring other assets are realised, etc.

    6. favourable tax treatment for all mortgage holders

    7. In the event that even with all of the above, the mortgage holder still defaults, the state bank acquires the property and rents it to the mortgage holder (now ex-holder) for a cheaper rent, say 50-75% of the mortgage. In that way, liquidation costs will be avoided, people can stay in their ‘homes’, etc.

  39. MK1

    My point 2 was mungled as well. I realise this doesnt help readability:

    2. efficient and cheaper nationalised banks …. so major reductions in salaries, etc. Offer new contracts, those on < 50k, 10% sal cut, those on 50-100k, 20% sal cut, those on 100k+ 40% sal cut. If they dont want the work fine the door is there. And reduce costs across the board.

    All this is perhaps a sign that David’s ‘blog’ is getting more and more busy. “The server, she cannae take it cap’n …..”

  40. wally Bazzum

    Spanish police have arrested six people suspected of involvement in fraud totalling £420m on the London stock market, it is reported.

    The suspects were arrested in Madrid, Barcelona and the town of Elche in the southeast, a police statement said.

    Police said the fraud began in 2003.

    It’s believed they carried out a stock market scam whereby they bought shares and sold them – without ever owning the shares.

    Is this not called short selling ?

  41. Dracula

    This is just another temporary sticking plaster solution.There has been enough interference in the property market already.You explained on Sunday that Finland and Sweden devalued their currencies and as a result they were able to trade their way out of their difficulties.Ireland is a British satellite and the sooner people accept this the better.This is the only solution for Ireland.Should sterling fail to strengthen, 25% unemployment within 24 months is a given, as well as a shrinkage in national income of a similar magnitude.Iceland will be in better shape!.What a mess.

  42. Mark

    I’m not sure about this idea. Nobody was forced into buying these houses at ridiculous prices. And as a principle, why stop at houses? Why not bail out people who lost their money in AIB shares or the general stock market? It’s not about seeing people get their comeuppence but people have to take responsibility for their own actions.

    However, if it was to work, it would have to be much more detailed and subject to more conditions that the article outlines. And I don’t think that halving the principle of the mortgage is the way to do it. Freeze interest rates and halve the monthly payment, but cutting the mortgage principle is not something I think should happen.

    • Furrylugs

      Maybe it’s not so much a sympathy strategy but one designed to halt emigration. The bloodstock that would have gone get to stay and vote for change??
      Just a thought.

      • Mark Cork

        Furrlugs,

        I agree, I took out a €300k mortgage in 2005 with my wife. We both are in the private sector and well educated. If things go too bad and we loose our jobs we will happily leave the keys in the front door and hop on the boat to somewhere civilised in Europe. Mé fein-ism got Ireland into this siutation and it is likely to keep Ireland in it, unless, as a nation, we start thinking of others. There are a lot of people in their late 20′s/early 30′s, who ain’t going to hang around to service a massive mortage for a box in suburbia. Here comes the brain drain…..

  43. Peter Duffy

    Why is Hurley left as Governor of the Central Bank by Cowen.

    To conduct the orchestra, as SS Ireland Inc sinks?

    • jim

      Because HE backed Cowen and Linehan when THEY wanted ANGLO included in the State guarantee even though certain people in the Dept.of Finance was against it.Thats how I heard it went.Maybe thats just a rumour wink wink.

  44. PaddyThePig

    1. What happens if prices don’t recover in 10 years … or even 20 .. or even the potential lifetime of the mortgagee? Joe TaxPayer picks up the tab.

    2. What happens if the price only partially recovers, and the partial recovery fails to cover the level of the deferral? Joe Taxpayer picks up the tab.

    3. Quote : “and the bank finances its bit out of its capital.” : Who is recapitalising the banks as we speak? Joe Taxpayer. So Joe Taxpayer finances a good bit of the bank’s writedown on this ‘deferral’?

    4. Quote : “It is not a debt write-off, it is just deferred.” The implication of a ‘deferral’ is that – in the rosy scenario of a recovery in prices – is that the written down amount (say 100K as per the example) will be added to the mortgage at some time in the future? So it’s postponing the pain till a future date, where people in their middle to old age will suddenly be taking on the lions share of their mortgage. Will they be able to pay it? Will there be sufficient time in their working life to work off the mortgage? This looks like more financial alchemy to me.

    5. Are you saying David that someone who overspent on a vanity home in a ‘good’ area shouldn’t have to move or trade down to a smaller home in a ‘lesser’ area, and should be blindly allowed qualify for your scheme. In my book, you cut your cloth to fit ; those who, based on their circumstances, cannot reasonably trade down any more should be the only ones protected.

    Paddy.

    Paddy.

  45. carthy (Living in Perth)

    Living in OZ for second time in 5 years, abondoned ship last feb knew the country was going down hill…makes me sad to read and hear how bad it is, and how worse it is going to get…

    your plan David is a good one, how it is implemented, I just cant see it happening ,govt and opposition just do not have an the slightest clue as to what is happening and how to go about reversing it…

    i hope Incumbent govt read your blog.. you seem to have the only sensible suggestions… if people who bought a house in last 5 years get a temp break…for the good of the country i am for it totally, i am still an Irishman !!!

  46. Malcolm McClure

    Its strange that there hasn’t been more discussion about the Family Home Act in the present context. An article in yesterday’s IT implies that even millionaire’s mansions are so protected, so why should any married first-time buyer need to worry unduly about repossession?

    See: http://www.irishtimes.com/newspaper/frontpage/2009/0127/1232923367343.html?via=mr

    “ANGLO IRISH Bank has brought High Court proceedings for possession of the home of former Smart Telecom CEO Oisin Fanning over his alleged failure to repay €8.6 million in loans and interest. Mr Fanning is opposing a court bid by the bank to gain possession of his home on 24 acres in Co Kildare.”
    “Mr Fanning (also) argues the house is protected under family home legislation because it was bought when he was married to Susan Fanning in 1995.”

    The mind just boggles at the sheer naked effrontery to natural justice that is implied if it protection does not also apply to FTBs.

    • Deco

      Strangely enough because ANIB is now owned by the taxpayer-it is in the interests of all of us that Mr. Fanning gets forced to hand it over.

      Besides – he will find out that the Courts take the view that the provisions in respect of housing are based on the need, and consider the scale of his current residence to be well beyond necessity – otherwise we would all be entitled to it.

      Methinks OF is in denial mode. Not so “smart” :))))

  47. Stephen Kenny

    The residential property market is a speculative market, it has almost nothing to do with wealth creation. I’m all in favour of state funded triage, but the idea that this will benefit the wealth generating areas of the economy is the same reasoning that got us into this mess in the first place.
    An economy that has residential property as a central focus is essentially the same as one that has tulips as a central focus, the only difference being that everyone keeps dry, rather than smelling nice.

    If you want to stop first time buyers from going under, then pay them a wage to take one of a number of training courses that will be of real use to the economy going forward. Look at the approach the US took in the 1950s after the Sputnik scare.

    I would also suggest that this obsession with keeping all our financial services companies alive is badly misplaced. Just take a pace or two backwards, a couple of deep breaths, and consider what we actually need from financial services. Put aside the somewhat hysterical innuendo of recent months, and just make a list of the core functions that we actually need form ‘financial services’:
    - High street retail and business banking,
    - Trade finance
    - Stock market
    - Insurance
    - I’ve probably missed something, but not much

    Most of the implicit arguments that we’ve accepted as part of this recent financial services mania are contradictory.
    For example, personal investment, pensions funds, etc.
    We have been led to believe that this vast, and incredibly expensive, industry is ‘worth it’ because they give us higher returns. But just a few moments thought and you realise that this is completely misleading. If this is to be available to most people, then on average the (stock or bond market) investments cannot grow faster than the economy at large. If it does grow faster then it is either (a). a mania, so will fail, or (b) investing in only the top performing companies, so is therefore too small an investment pool to generally available.

    The industry was created when only a very small % of the population had direct or indirect investments, so (b) above was true. Today, with so many stock and bond linked investments, it’s just not true.

    The bottom line, as I see it, is just let the banks go, and save the savers by transferring their money to another bank. The fall back argument to this: ‘ah, but there’re a whole load of complex interlocking contracts, deals, etc, that would get held up in bankruptcy court for ages’. What? You’re the government, you create the laws, create a special bankruptcy law that can be invoked ‘in the national interest’.

    This system doesn’t work. Actually, it never has, it just looked like it for a couple of decades. We need a serious reorganisation. If we fail, all we will achieve is a sudden widening of the disparity in wealth, with the inevitable result that the majority (at the bottom) will vote for some lunatic opportunist with an armband and a good logo, who claims that he’ll use a flame-thrower to make it fair, because at the moment it isn’t.

    And do you know what? The irritating thing is, at the moment he’s right.

  48. Don

    Hi Karlos,

    1) No. I am suggesting that we trade Anglo as a bank (surprisingly) and lend to businesses etc. in the normal fashion. Not (what’s the opposite of “cherry pick”?) continue a practice of lending without criteria to establish ability to repay.

    2) The government are talking about introducing a tax on property owners. Originally set at 200 Euro but now, before it is implemented, they are talking of hiking it to 1000 Euro. And that’s per property. And it doesn’t apply to foreign property, so I am not affected (yet). I think the concept is wrong and unfair.Please try not to read too much into things. I was not crying foul as a result of being a “victim”. Indeed, i am not a victim!

    3) Most people have “all their eggs in one basket”. It’s their payroll deducted pension. For those that do not have such a position, an acceptable alternative has always been a “property pension”. That’s all.

    4) No problem. Just that this was being aired on the radio yesterday as if rent was not being taxed. It’s begrudgery.

    In short, all taxes should be equitable. The problems arise when one section think that another is somehow better off and, once it doesn’t affect them, taxing the other guy excessively is fair game.

    It is just me or is it getting HOT in here?

  49. John ALLEN

    I am meeting people all the day every day who wont read the newspapers anymore or listen to the news because it depresses them as they try to service their commitments and have begun to forget how to smile again .Its very Sad and those that have work know they are doing it only to pay bills , to exist and they have lost motivation .
    Democracy left Ireland before Christmas when we needed serious debates in D Dawl .The actions of our government to commit the €50bn debts of Anglo to each and every Irish Citizen is Treason and commited us to Slavery for a lifetime .I am reminded about the Movie: Greyzone where paid up Jews in Concentration Camps deceived their fellow Jews to Death without remorse .I would now shudder to know what could happen if we were under Lisbon Agreement .It is time to leave EU and join EFTA and pair our new punt with …just anything .
    There are Irish House of Commons attended to by Muslims in Ireland with their own Sharia laws and they operate under veil and effectively .Their dreams are growing and becomming closer to actual open market transparent democracy .Unless we as indiginous Irish be seen to be real we lose everything and we are losing and we dont seem to care .
    Should our political leaders act as such they will have to reform from the TOP down taking the Big Cuts first before expecting others to follow and accept reform of their other benefits across the bord .

    They MUST show example

  50. John ALLEN

    In France there is in operation a form of property tax to be paid for by a) the owner and b) the person living in it whereby the owner pays about 60% and the occupier pays 40% .The amounts vary and are assessed to size and market value .Benchmarking an average Dublin home say €500,000 would give a French equivalent of total anual amount of €2,000 .

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