June 23, 2010
I was thinking of Druids the other night on the summer solstice — the longest day of the year. The weather was wonderful and the last light of the day was gorgeous. In ancient times, people used to celebrate the solstice by lighting bonfires on hills — generally have a bit of a night out, carousing and having the craic. The winter solstice seemed to be a more solemn affair and if you have been to Newgrange you can tell the significance of these events to the ancients can’t be underestimated.
Newgrange is a most magical place.
I am fascinated by how they did it. How did they bring all the stuff up the hill? On the hill, looking down, you realise that the huge slabs of stone must have been dragged uphill by some means to Newgrange. Meanwhile, the stones used for the cairn, which together would have weighed around 200,000 tonnes, were likely taken from the rivers between Newgrange and the Boyne. According to the guidebook, there is a large pond in this area, which probably was the site quarried by Newgrange’s builders to use for material for the cairn. The sheer manpower and organisation needed to achieve this 4,000 years ago is mindboggling.
However, my dreamy Celtic twilight vision was interrupted by a headline in this paper on Monday about the banks giving out “negative equity” loans.
This is apparently the latest wheeze from our banking geniuses. A negative-equity loan means that if you are in negative equity but want to move house because, for instance, the family is getting bigger, you can carry the old negative equity on to the new property.
This is supposed to help people. I can see how it helps the banks, but how does it help the citizen?
Quite apart from the bonded indentured nature of carrying debt with you for a house that you no longer live in, this proposal is only of any value to people who qualify for a loan. But these are the people who are not in financial trouble now, so they are unlikely to use it. The people who are in negative equity and can’t pay their mortgages can’t afford such a product; and the people who are in negative equity but can afford it are hardly likely to want it.
We know that the problem in Ireland is a bad debt cycle where far too much debt, which was taken out in the boom, can’t be paid. It is plain and simple: debt that can’t be paid won’t be paid.
An EU survey published yesterday reported that 29pc of Irish households believe that they might not be able to pay ordinary bills, buy food or other important daily goods in the next 12 months. The survey also showed that 35pc of households in Ireland are having real trouble paying for healthcare for their family. Of those with children who use childcare, 25pc said they had problems with the costs. This is the legacy of the past few years and these people will soon begin to default on their debts.
It really doesn’t matter what we do now, if we don’t sort out a way of moving on from the debts of the past we are going to sink under the weight of past mistakes and any recovery — which we all want — will be choked off.
As I pondered the Druids, I wondered what they would have said about debt. What did Brehon Law have to say about debt and repudiation?
Brehon laws on debt are interesting. There is no mention of debt forgiveness, but the laws did have an interesting way of forcing someone to pay his or her debts. If a creditor is owed money by someone, he can seize their property if they refuse to pay. The only property people had at the time was cattle. Cattle was also the currency.
A person’s house could not be seized if they had bad debts. The idea that your house could be used as a debt millstone around your neck was totally alien to the Brehons. The concept of eviction did not exist. It was brought in on a widespread basis after the destruction of social infrastructure of Gaelic Ireland after the Flight of the Earls.
Our ancestors did have some colourful ways of getting their cash back. If he didn’t want to go to the trouble of seizing cattle, a creditor might sit outside the house of the debtor and starve himself. But the starving creditor was entitled to prevent anybody getting in or out of the house, so the debtor would starve too.
Most debtors quickly paid up under such circumstances, not because of starvation, but rather because of the shame of having a creditor on their doorstep. (This practice still continues to this day in parts of rural India.)
Of course, in Brehon days, the only debts that could exist would be rents or fines from the Brehon courts, so there would be no debt agreement that could be entered into like today. But I do find the vision of Seanie Fitz starving himself outside the door of Bernard McNamara or Paddy Kelly an interesting one.
Under Brehon Law, a woman was entitled to hold property in her own name — even if she was married. This is something that modern developers seem not to be very keen on, as they tend to transfer all their assets to their wives these days only after they get into trouble, not before!
The Brehons used asset seizure and shame in the community as their major tools to try to recover debts. Later, as Brehon Law fused with Christianity, the teachings of the Bible and the concept of debt forgiveness were incorporated into practice. The Old Testament is quite explicit on the need for a Jubilee year where, after a 20-year cycle, all debts are written off and we start again.
When we see the huge debt overhang here in Ireland, it is hard not to see two paths for the economy — one involving “moral hazard” and the other involving “real hazard”. Moral hazard is where we give debt forgiveness to people in debt and risk encouraging further bad behaviour. This is what we are doing to the banks. The other is real hazard, where we compel the people to pay all the debts of the boom, and risk that the economy contracts further. I know which hazard I’d prefer to avoid — the real one.
We need to adopt the US model on bankruptcy here. The banks own the house, not the person. If the houses fall in value, the banks get the keys and the person moves on. This change, called co-responsibility — where the lender and the borrower are equally to blame — was brought into the US after the Great Depression, making it easier for the citizen to recover from bad debt. At the core of this is the realisation that the citizen, not the property, create wealth. Thus the citizen needs to be liberated to try again. This is the type of second chance thing we need here.