Patrick Honohan on Household Indebtedness

The Governor of the Central Bank, Professor Patrick Honohan, delivered a speech to the Limerick Law Society in the University of Limerick this evening.  Both the speech and some accompanying slides are available.

33 replies on “Patrick Honohan on Household Indebtedness”


Ta for links.

There was an IFM paper some time, which I linked on this blog, also highlighting the excessive levels of household debt in Ireland (in comparison to the rest of the world) Wonder does that 1/20th rule apply to citizen serfs – who are more indebted than Greek state – and I note the increase in poverty for the ‘lower echelons’ …

“The topping-up to the banks’ balance sheets has given the banks enough of a capital buffer to absorb what can be clearly foreseen as potential losses for the next few years, but not enough for any broad strategy of debt forgiveness. That’s why we have been saying that the banks must husband their capital and work out their problem loans in a measured and realistic way that deals promptly and sensitively with the unrecoverable, but does not shrink from ensuring that affordable debts are properly pursued.”

It is almost one year since the banks were buffered for foreseeable losses. Buffered with real cash. Why have the banks not been dealing with cases of clearly unrecoverable debt.

Who is responsible for making sure that the banks get on with the job?

Found it: Take a look at Household Debt Graph – Ireland then in Gold Medal position – the legacy of the apocalyptic gang of four: mccreevey, mcdowell, ahern, harney …


Transcript of “Lost Decades: The Making of America’s Debt Crisis and the Long Recovery”
Washington, DC
Friday, October 14, 2011
GEORGE AKERLOF, International Monetary Fund
MENZIE CHINN, University of Wisconsin, Madison, Econbrowser
JEFFRY FRIEDEN, Harvard University
GAIL COHEN, Joint Economic Committee of the U.S. Congress
DIANE LIM ROGERS, Concord Coalition
SIMON JOHNSON, Massachusetts Institute of Technology, Peterson Institute

Transcript of “Lost Decades: The Making of America’s Debt Crisis and the Long Recovery”

Again he is looking at those mortgages as a asset to be saved – he gives a token effort towards understanding the national economy in a priestly manner with various moral judgements to be handed down from on high……….
I guess we need to call him Taoiseach now – a sort of financial Jack Lynch…….nice man.
But on a day(household expenditure survey) when such vast amounts of money is revealed to be expanded on dead assets he needs to get his head around the total money situation in Ireland.

Write off all those private debts baby – every last mortgage at least – no exceptions as on a holistic & large scale payments on these add nothing to the economy.
More money is then available to tax withen the economy.
You tax waste – specifically oil consumption – elimanate half the cars in Ireland and half your work is done – but zee Germans zee Germans !!!

Let the isolated houses rot into the ground – they are of no concern to a economy that no longer concerns itself with a return on dead assets.

YOU TREAT A NATIONAL ECONOMY AS A NATIONAL ECONOMY – not as a local bank manager would look at it.

Perhaps the good Governor can explain this piece –

Conor McCabe of has dug up a very interesting article entitled –

Presentation by Mary Cussen and Clive Jackson, Bank of Ireland: “Securitization in Ireland”
Go to the original power point presentation as it has a higher resolution – Working Party on Financial Statistics – OECD Conference centre, La Muette: 2-4 November 2009

I really am bamboozled by double entry games but the sudden reductions of Mortgages owed back to Irish Financial institutions or as “credit advanced” as seen on the Irish Central Bank bulletins periodically now may suggest people are not paying their mortgages back to Irish banks & therefore the state now. – but to other perhaps offshore entities.
So where is the mortgage debt going then if it is not back to Irish banks and implication to ourselfs or maybe the troika these days. ?

Please refer to exchanges between myself and E.Bond on the December 2011 archive – see –
The Irish Debate on the Single Currency
This post was written by Frank Barry December 1 2011.

Bond never answered my last question – if we no longer owe money back to Irish institutions but lets say 30% of those mortgages are still preforming where is that money going ?
Is this at least a partial explanation for the drops in the Irish money supply ?

‘Where loan delinquency relates to pure investment type “buy-to-lets”, it is surely now past time for the banks to be dealing more proactively with the situation of overindebted buy-to-let borrowers no longer able to service the debts they assumed in order to take investment positions – now loss-making – in property’

‘Early engagement, fair procedures, tailored forbearance or rescheduling adapted to individual debtor circumstances and which respect the current and future ability to pay are watchwords in the development of a sufficient response. That has not yet been achieved by the bank’

‘ how to define “affordability” of a payment arrangement, in the short and in the long run (in particular whether it leaves the debtor enough to live with dignity)’

‘…. it is crucial that, in the process, the fabric of Irish society and the contractual underpinnings of our economy are protected’

‘Much also falls on the banks, whose role in ensuring a realistic and effective approach to loan recovery – in effect for the benefit of the State – must continue to be developed alongside the resumption of a less timorous approach to new loan approval, including for the newly approved negative equity mortgages for movers ‘

This is a well crafted but classically academic approach to the problem. The fact that the state has taken ownership of large banks does not guarantee that those institutions will act in the interests of the state. A management leopard which happily fed shareholders on merciless BS is not going to change its spots, and it is naive to imagine that entrenched principal-agent problems are going to dissipate of their own accord.

Senior bankers will defend their own corporate interests above all, since many key individuals will expect to transition Geither-style between public and private sectors. The interests of the state will, as always, come last, and the ‘contribution to the fabric of society’ will still be seen as a marketing exercise. A few more hurleys for the lads.

Fairness and affordability are extremely slippery concepts, where the lawyers will have a field day. It’s simply not in their corporate interests to foster accessible non-statutory procedures. Auditors and accountants will continue to do what suits. The numbers can be presented in lots of ways.

Internal and external conflicts of interest abound, as many bank employees are on both sides of the credit bubble. As many staff are in receipt of, or privy to, property deals, the micro politics of choosing who can be bailed out ‘respectably’ is a tricky one for current management. There is also the awkward business of increased EZ surveillance, as well as the entanglement of the political parties and their sponsors. Hence the ‘inexplicable delays’.

@Dork: “… he needs to get his head around the total money situation in Ireland.”

That degree of intellectual flexibility is no longer available. St Bernard stopped selling Common Sense some time back. But, the seeming lack of basic mathematical acumen is kinda worrying.

I guess its there, but its sorta like body odour and bad breath – you avoid mentioning it – lest you have to correct.

So, some New Math. You have less income: hence you need to spend more. Otherwise the economy goes negative (well more negative than now). Incomes comes from where? Ah yes. Lets skip this.

Sentimental Aside:

Temple Street Hospital are urgently looking for 250,000 for something or other. “Hey Dep Kenny, that’s your annual salary – thieved from us taxpayers – give it to the kids. You do not need it. You have all your expenses paid, including a free motor under your arse. Subsidized food and drink, and God knows what else.”

Back to the New Math.

We must be competetitive. Wonderful. So, some of us fortunate folk (who still have a wage income) have to accept less. And are being urged (as in Waterboarding) to accept less, and then being urged to spend more. That is, more tax spending. Hmmm….

Is this MMT or what?

Absent an adult decision about a debt Jubille, Ireland will regress economically to the 1930s – if we are lucky. Though with the slow rise in the value of arable land, rural life may become more attractive. We’ll see. It is already too late to avoid a general economic regression to the 1970s era (we are currently in the latter -half of the 1990s). Our progress (can you have negative progress?) of forward into our past is real, but invisible. Like the oxygen in the air around us.

But one day, one morning, you wake up! “Hey its raining!”, (it being Ireland and all) – but no, I’m being pissed on. And guess whose doing the pissing?

@The Dork of Cork

“if we no longer owe money back to Irish institutions but lets say 30% of those mortgages are still preforming where is that money going ?”

Are you suggesting that perhaps Irish institutions are setting up overseas subsidiaries and routing mortgage repayments to them?

Slide 2 shows levels of household debt between the EZ and Ireland and the UK and- surprise surprise- the insular property ownership fetish is manifested in the chart .

The buy to let disaster is related. Pensions that were to be financed by bricks and mortar . Broken dreams.

There are huge questions about what sort of paradigm is going to be work for the future. Will Sunday Indo man and woman join the dots ? Can they be weaned off their property fetish and towards productive investment for their assets ?

Imagine if even 20% of the approx E 130 BN (sweet Jesus) of property losses on slide 3 had been invested in the sustainably productive capacity of the economy.

The FT Weekend edition shows the top 10 or so Irish stocks on a page that rounds up stocks from all over the world sand what is most striking is the wipeout of the Irish financial sector alongside consistency from the likes of Kerry and Ryanair. But there is no company to replace to dead titans of finance. The money was blown on a mirage.

Every precious dream and vision
underneath the stars
You climbed on the ladder
with the wind in your sails
You came like a comet
blazing your trail
Too high
too far
Too soon

Too ****** expensive !

@ Dork

if the mortgages were truly securitised, than yes, the money would be heading off abroad. However i assume a very substantial portion of these securitisations are actually self-held on Irish balance sheets. But they are no longer registered as “loans to households”. They are somewhere else on financial system balance sheet, statistically speaking.

@paul quigley

The B2L sector is riddled with ponzi style leverage arrangements – equity release piled upon equity release. That’s one reason the banks want to push resolution under the carpet.

Secondly, several dozen, perhaps many, of the great and the good in the professions and official ireland are bust in all but name due to property speculation. Quite a number of high profile property partnerships are well-under water. Some of these individuals had connections with the very banks that loaned them money to buy anything from shares, to a hotel, to an commercial office block (let’s not talk about conflict of interest now though, but it is at the root of the truth seeking difficulties bearing on many of Ireland’s economic problems).

It will always be easier for the banks to press Joe the lorry driver to deliver up the keys to his house on demand. Nineteenth century social values still prevail.

@PR Guy
Perhaps ……. we need a deeper understanding of this.

You assume and very substantial proportion etc.
I don’t know really – I have these visions of this dumb schmuck paying into a written off mortgage for 2 more years then expected and then blowing his brains out in his nice attic.
If his last few bob finds itself flowing into say a Caribbean island the national economy losses that money supply.
The Irish institution is deleveraged but the national economy is destroyed.

It may be another example of this strange thinking that the national economy is the banks and the banks is the national economy.
Fisher like thinking was required back in the day – “nationalise money & not the banks”

Its much harder to go back to 1987 , 1973 , 1935 because the culture and built envoirment designed around that energy density no longer exists.

Chaos looks like a good bet.

Thanks for this.
Link does not lead to any slides (actually it leads to a CBI error page). Any way of getting them?
Keep up with this great blog

Do we know how many Irish people have debts/mortgages against overseas property? Is it a significant number? I recall lots of people talking about buying overseas property during the ‘tiger’ years and always assumed they would do it by borrowing. This caught my eye this morning.

Property values falling, unemployment rising, GDP contracting, austerity all round, problems with t’banks, etc.
What’s the difference between ‘Ireland’ and ‘Spain’?
Not much it would seem… apart from the weather and the demonstrations.

@PR Guy

The point at which I felt the game was doomed was Christmas 2006 when my uncle held the room rapt with attention when he introduced the idea of investing in *Bulgaria*.

My father asked him what sort of house he would recommend and the uncle said forget about your houses. Build an apartment block with 4 retail units on ground level and 16 apartments above. Varna. We were closer to Barna at the time.

Ryanair inflight magazines were full of foreign property porn for the duration of the boom. Spain lived on Irish and UK money for a few years. I remember on Joe Duffy a few years ago a discussion about property in Hungary.

Most of the CEE and Spanish stuff will be very impaired.

According to BPs 2011 statistical review 25.6% of Bulgarian oil consumption was destroyed in Y2010.
From Y2001 : 92TBD / Y2009 : 124TBD(peak) / Y2010 : 93TBD
Me thinks it was Irish property prospectors finally giving up the ghost as they drove around in ever decreasing circles.

I’m struggling with this line from the Guv’:
“The last caveat is especially relevant in the present situation where, although the banks have been provided with enough capital to allow for loan modifications in respect of loans that are clearly unaffordable, unnecessary debt forgiveness could quickly erode that buffer, placing a further burden on the Government finances, which they are in no condition to absorb.”

More precisely, this bit: “although the banks have been provided with enough capital to allow for loan modifications in respect of loans that are clearly unaffordable”.

Is there a typo or is he extending the phrase ‘loan modification’ to include repossession?

That said, it’s good to see him push for action. In most EU markets there are two ways to lower arrears rates – 1. ‘cures’ – the borrower starts repaying again 2. ‘foreclosures’.

Honohan is being attacked by so many vested interests, from the banks through to property lobbyists, that he has most definitely and accurately hit a big nail right on the head.

Hopefully, he will have scope to comment on the exorbitant costs of rent supplement; another ludicrous property market support.

just to get into the mood for an ICB bulletin …. after Dear Lorenzon in the FT and his note on a 2nd Irish ‘loan’ …. and Flann O’Brien ‘hape o debt’

Tune of the Month – released on the Ides of March



Patricks Plan? Is that houses and apartments are to repossessed wholesale. This should completely sink the already gangrenous property market. Remember the concept of LTEV? What ever happened to that? Presumably, they can be used as social housing (lower rents of course) and the suckers who were persuaded to buy them with a raft of different government tax breaks and pathetically unregulated mortgage products will find themselves hounded to the gates of hell with judgment orders or outright bankruptcy. No short sales, no handing back keys as you get in the USA. So we have another smaller nama on the horizon. The properties need to be guarded so they are not squatted they need to be insured, repaired maintained etc all previously done by the invisible but broke landlord class but soon to be done by employees of the state on behalf of the tax payer. Notice how the catch cry of this recession has been “we are doing this for the taxpayer. We must get the best value for the tax payer” No, they are not.

Patrick Honohan has made it quite clear, all along that his bread is only buttered on one side, his prerogative all along, has been to stress test and recapitalise and stress test and recapitalise and recapitalise, with the minimum amount of debt forgiveness for debtors. The stock banking strategy has been to plead for money from government. Take it, keep it, pass it on to nobody then come back for another helping. Eventually, when all the robberies and capitalisations are completed we will be given the good news that they can be sold back to the private sector for fractions of the money we have been forced to put into them.

It is a great Act II in, “The Great Irish Mortgage Tragedy”, as the impoverished souls are still expected to pay for NAMA, for Anglo promissory notes, service national debt then one bailout after another, plus the latest whizz scam, move the trackers to IBRAC. Yes they must pay for that too! After all, what is a government bond only a piece of paper, an IOU which the tax payer must pay interest on then redeem.

I honestly believe they have not got much of a clue as to what they are about. They are stumbling about in the dark, it is a journey with out maps ever since the late Brian Lenihan guaranteed everyone. We have heard it all before from the same experts, this is, “manageable”, banks are “fully recapitalised”, “the economy is growing”, “we will not require a second bailout” etc. They are going around in ever tighter circles towards the vortex of an eventual national default.

@Robert Browne

“Eventually, when all the robberies and capitalisations are completed we will be given the good news that they can be sold back to the private sector for fractions of the money we have been forced to put into them.”

Same as in the UK. Hester today calling for public stake in RBS to be sold as soon as possible… so that a handful of people can reap the benefits after the sale.

Prof Honohan is like all Public Servants who live in a charmed World where their salaries are ridiculously high and their Unfunded Pensions are paid by the rest of the taxpaying public. Prof Honohan should reflect on the E3.5 Billion of pension liabilities taken over by the taxpayer in 2009 in respect of his University and others in the Republic. We never hear anything about these subsidies which allow the good Professor to enjoy a fantastic lifestyle in his retirement. He is now prepared to let the dogs loose in the Banks on the Buy to Let Sector who right or wrong invested in these assets as part of their pension funding in a lot of cases. Any Governor who says to the Banks “have a go” does not live in the real world but then one comes to expect that from ivory tower Professors. It would be more sensible if he was saying that all Public Sector salaries be reduced by 50% and as a consequence reduce the Unfunded Pension liabilities the taxpayer has to cough up. E3.5Billion would be a nice tidy sum that could be used to deal with mortgage debt and Buy to Let
under stress.

Foreclosures on a large scale are out of the question. Between the people directly impacted and the ones who are financially insecure and indirectly threatened there is enough mass to tip the country into widespread unrest.

The number of people out there who did all the right things only to have the rug pulled out from under them, by what they would be absolutely sure was an incompetent at least and likely corrupt Gov’t is not to be underestimated. Even worse is the precedent set by bailing out the banks at taxpayers expense. Now the Gov’t is seen as aiding and abetting bankers as they stick it to homeowners in arrears. Bank failures would have rebounded on well upholstered foreign financial institutions. Which means failure to pay mortgages would be a problem for Geithner, Merkel, Cameron, Sarkozy and others not the Irish Gov’t nor honest Irish homeowners who were suckered into exorbitant debt.

It is of the utmost importance that mortgagors who are in default through no fault of their own, have their amount owed reset to the present market value of the mortgaged property. This would be confined to residential property which is occupied by the mortgagor. This is how markets are supposed to work and no amount of spin out of Kildare Street and environs is going to change that.

Not IBRAC of course, IBRC Irish Bank Resolution Corporation the ghost of Anglo who are all the time touting for new business and coming up new “ideas” to prolong life expectancy.

@ PR Guy
Exactly, but another consequence, is that even though the banks are “state owned” save BoI. The wide boys have there focus on the day when they will be going back to the private sector. That is why people keep saying, “but they are supposed to work for us?” In theory yes, but in reality no my friend as we have seen so many times already.

True, and how convenient is it, that whenever there is a huge hole in your pension fund that it gets transfered to the tax payer? Thus “unfunded, contingent pension liabilities” suddenly become funded contingent liabilities. Where does this money come from? Well certainly not taxes as they are miniscule. Bailouts, that is where the money is coming from and that is why the ministers main focus, if not obsession, is to make sure that we have access to bailouts above and beyond any other considerations. That is why the codicil was signed to make sure we all got the message that a “No” would mean “No Bailout” this coming from the same minister who only recently told us that talk of a bailout was “ludicrous”. Public Sector unfunded contingent pension liabilities must now be in the region of 130bn. Obviously, it is not a favourite topic.

Strange, that the most “educated and privileged members of society who were running the financial affairs of the country or at least trying to run them, forgot to make provision for their own pensions. When the NPRF was set up around 2000 it was to try and fill the alarming “gap”. The NPRF was not supposed to be touched until at least 2025. Where is it now? it was not ring fenced from government, Hence it was raided and plundered at every available opportunity. When the Troika came they demanded it be added to the 67.5bn to bulk up the bailout fund to 83bn. It is now another unfunded contingent disaster waiting in the wings.

test #2: MH and RB. Attempted to post a response to both of you. Getting Error 404?

@ Mickey Hickey

The most important paragraph from the above link!

“Which brings up the question of exactly what the Eurocrats think is the commitment and obligation of the elected government of Ireland? To set policy and deliver services to the Irish people for the betterment of their lives, or to guarantee that the international lenders of funds to commercial banks, even the unsecured ones , get their money back ?”

So far, the Irish government have not acted for the good of the country they have acted in the interests of a cabal who are in power, who used to be in power and who are doing very nicely indeed from the disaster. For those who have managed to guarantee their incomes would only be altered in a token fashion the reality is their buying power is increasing by as much as 10% per annum since this crisis began.

@ Mickey and Robert

You didnt per chance both get ‘suckered’ into buying a residential property?


@ Rich

No! But I know a lot of people who did and who now wish they had lived in social housing and waited for the inevitable upgrade. Playing a blinder they are.

@ Rich
Well, we are in good company, Morgan has been accused of being too gloomy. Now, I’m only an ordinary mortal but still remember Brendan Keenan’s infamous display on “Prime Time” with Morgan. BK, “We know what the losses (on the Irish banks property portfolio) are going to be, it is is going to be 1% the value of their loan book”. The Business editor was in wonderland in group think mode.

Then we had Bertie wondering out loud about why certain people did not commit suicide?

Last month Michael Noonan was telling us, that those talking of second bailouts were out of order and that it was “ludicrous”. Then, yesterday, he was talking about “Rockets” taking off. I find this, economics by ridiculous sound bites, rather sad. It reminds me of the late Brian Lenihan’s predictions about turning endless corners and having the cheapest bailouts in the world. Mind you, he did say, “so far”. Governor Patrick Honohan’s was equally wide of the mark in 2010 when he said our banks had been stress tested and were well capitalised “this is manageable” was his prediction, a few months later he was ringing up RTE to request an early Morning Ireland slot to announce to the nation that he “fully expected a deal to be done with the EU/IMF for 10’s of billions” that was some flip flopping. By all means, live in a fools paradise of sound bites and media spin. I am sure it must be very cosy! I am well aware of the fact that this government have already spent over 100,000 on coaching their own TD’s for media “performances” but what is the real bill after one year in office I wonder for all the PR guru’s. Terrible having to pay for that on top of everything else, really adds insult to injury.

In the IT today, Enda Kenny, is inviting the diaspora to party with him in 2013 to celebrate Ireland regaining its financial independence. How this can be asserted when we will owe 200 thousand million is beyond me? At the same time, well almost, we hear Lorenzo Bin Smagi in the FT last week, telling us that Ireland will probably need another 85 bn bailout end of 2013? Bin Smagi as executive council member of he ECB has access to a lot more data than even Michael Noonan would have. Small wonder I and others don’t get the joke. Why are AIB actively trying to get rid of trackers to the ghost of Anglo IBRC? Why does Honohan want to initiate a purge of the BTL’s ‘who took investment positions that did not come off’? Does he really think this could happen without driving property prices down by another 20% to 25%? not to mention starting a sort of nama beag. Most likely, taking NAMA down with it, not that I would worry too much about that. Two years ago, on this site, I’ll have to search for it, I said that the BTL would take down what was left of the Irish banking system. I still hold that view but I think all these bailouts are going to take down the country. BTW 7,000,000 people have been removed from US statistics on unemployment simply by re classification but that always happens in election year.

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