Mortgage Arrears Crisis deepens

To the surprise of exactly no-one the residential mortgage arrears problem has continued to worsen. The Central Bank’s Q1:2012 figures show that 116,288 accounts were either in arrears of over 90 days or had been restructured in some shape or fashion.

10.2% of private residential mortgage accounts were in arrears.

There are others, but right now two important (and updated) questions arise:

  1. at what point will this growth in arrears begin to slow appreciably? As Jagdip and Carson in the comments point out, the rate has fallen off but clearly arrears levels are increasing at an alarming rate.
  2. what projected effect will the proposed personal insolvency legislation have on these arrears going (ahem) forward?

By Stephen Kinsella

Senior Lecturer in Economics at the University of Limerick.

110 replies on “Mortgage Arrears Crisis deepens”

I think the actual rate of growth has slowed over the last two quarters, but it is still at critical levels. Almost 13% of loans are now 90 days or more overdue. It is growing by over €1 billion per quarter.

How many more quarters of deterioration like this can the banks sustain before they need more capital injections?

Hi Stephen,

The rate of increase of 90-180 days arrears was just 300 in the quarter, which is the lowest increase in record and presumably augurs well for future months.

And the rate of increase of arrears overall seems to have slowed to 9.5% in Q1, 2012 compared with 12.6% the previous quarter and indeed 9.5% quarterly growth is the lowest since records began.

It’s still frighteningly large, and each of the 116,000 accounts in arrears/restructured could represent a tragedy which collectively threatens economic recovery and indeed threatens additional recapitalisation of the banks. Action is long overdue.

@Stephen Kinsella

Good questions.

One I would like to find the answer to is: “How many more are in the pipeline i.e. how many are in the 30-89 days in arrears scale at the moment?”; “How many unemployed people are currently scraping by because some form of benefit is paying the interest on their mortgage (for now)?”; “How many are on the cusp but just managing to scrape it each month but could be knocked over by any sudden but relatively small increase in outgoings?”; “How many are currently destroying their savings to pay the mortgage?” etc.

I’ve been trying to find out but it seems to be closely guarded or unavailable info.

The effect of proposed personal insolvency legislation is currently open to lobbying and the banks appear to be winning. Anything that can be done to persuade legislators to remove mortgage debt from this or give banks some kind of veto on what debts are considered in it is being done with great gusto just now (I can assure you).

On the other side of the coin, I suspect that if mortgage debt can somehow be cleared via the proposed legislation (when we eventually get to find out what’s in it – end June eta?) then we will see an avalanche of applications. There are lots of people out there who feel trapped either through their negative equity or crippling monthly outgoings who desperately want to wipe the slate clean and start again – even if that means renting for the rest of their lives.

No doubt we will sort the problem by giving money to the banks and/or giving in to their demands. Fu*k the poor sod who lost their job through no fault of their own and now their savings have been destroyed because they’ve been trying to pay their mortgage while on unemployment benefits and didn’t qualify for some MIR payment.

It was always going to happen. Big spike in unemployment in a country with a high % of house owners with big mortgages. You could have probably done the sums on the back of a fag packet 2-3 years ago when we saw what was happening vis unemployment going up and house prices falling.

Prior to unemployment taking a hike up, everyone from the government, the banks and even family and friends were telling people to get on the property ladder before it ‘ran away from them’ and they would never be in a position to own their own house. It was bleeding obvious that a large chunk of those newly unemployed were going to have mortgages and were going to be in trouble with no obvious job creation schemes in place.

You didn’t need to be a prophet back in 2008-9 to see this coming and look how long it’s taken to still not have better insolvency legislation. TD’s should be ashamed of their pathetic lack of action on this front.

/rant over


“Nous sommes fucked”

Is that one of those technical actuarial terms?

Regarding question 2, I suspect that most of the effect of the proposed personal insolvency legislation on the growth rate of arrears has already happened. Any secondary effect on arrears when the legislation is actually passed and put into effect may be small or even work in the other direction, for example if the agreed terms for defaulted borrowers are more stringent than currently envisaged.

what projected effect will the proposed personal insolvency legislation have on these arrears going (ahem) forward?

It will place people who have been at the mercy of the banks for the last 4 years, into 6 more years of a legal enforcement of their existing arrangement.

They will be subject to a regular tribunal of their creditors, who shall hold full veto over the PIA at all times. The “trustees” empowered to act on their behalf will be former boomtime mortgage brokers and financial advisors. They can spend 5 1/2 years paying every shilling, and the creditors can still vote to take the house in the last review.

Think I’m making this up? Read the draft PIA legislation; it’s all there. If you think that particular bill is going to solve anything, you need to have your head examined.

If we had non-recourse mortgages—jingle mail—and proper bank resolution laws, this issue would have sorted itself out by 2010 and we wouldn’t all be sitting here, watching the Central Bank breaking into a panic over this issue, and discussing how the government is going sort it out with its usual bundle of sticks and twine.

I swear, this country is being run by primary school students.

Food arrears crisis deepens

Calls for help to the Society of St Vincent de Paul have risen by 83 per cent since 2009, the organisation said today.

The charity said that its offices in Dublin, Cork, Galway and the mid-west received 88,072 calls for assistance from members of the public in 2011, compared to 48,064 two years earlier.

These numbers refer only to the requests for assistance through the organisation’s main centres and do not include individuals who contacted the charity through other regional offices.

Almost a quarter of all calls the SVP received last year related to appeals for help in getting food, while a further 16 per cent sought assistance in covering bills and energy costs.

Volunteers with the charity made an estimated 150,000 visits to homes across Ireland in the run up to Christmas and the Society of St Vincent de Paul was forced to issue a new urgent appeal due to the “horrendous” increase in numbers requiring its support.


“If we had non-recourse mortgages—jingle mail—and proper bank resolution laws, this issue would have sorted itself out by 2010 and we wouldn’t all be sitting here, watching the Central Bank breaking into a panic over this issue, and discussing how the government is going sort it out with its usual bundle of sticks and twine.

I swear, this country is being run by primary school students.”

But you can’t retrospectively go back and make all mortgage contracts non-recourse. The banks would probably need another €60 billion dig out to cover the cost of that!

I agree with you by the way that most of our senior ministers are poorly qualified for their brief. I actually felt sorry for Brian Lenihan having been thrown into the Finance ministry a few months before the biggest banking crisis in 80 years with scant knowledge of the industry. Of course he should have declined the offer of the position due to lack of experience, but that is hardly how politics is done in this country is it?

From CBI in relation to the 77,630 figure:

“The figures published here represent the total stock of mortgage accounts in arrears of more than 90 days, as reported to the Central Bank of Ireland by mortgage lenders. They include mortgages that have been restructured and are still in arrears of more than 90 days, as well as mortgages in arrears of more than 90 days that have not been restructured.”

Happy for that clarification. I swear that up until this quarter I assumed that this headline figure DID NOT include the restructured mortgages which are in arrears.

FYI Update from the Bundestag & Taoiseach in Waiting

SPD Demands Growth Components

Frank-Walter Steinmeier, the center-left Social Democratic Party’s (SPD) floor leader in parliament, has made greater economic stimulus measures a precondition for his party’s support for the European fiscal pact agreed to in March by 25 EU countries that is still awaiting ratification in the Bundestag. “Without taxation of the financial markets, without a strengthening of investment power and without an expansion of the loan volume available to the European Investment Bank, the SPD will not go down the same path as the federal government,” Steinmeier told SPIEGEL. The comments marked the first time the opposition leader linked growth measures to support for the fiscal pact. Previously, he had fought other members of his party making that demand.

“I guarantee you, there will only be a fiscal pact if it includes complementary growth elements,” Steinmeier said. “If they aren’t in it, then the SPD will not agree to it.” The demand puts Merkel in a corner given that passing the fiscal pact will require a two-thirds parliamentary majority. The chancellor will need support from the ranks of the opposition.

“Other conditions are that the concerns of the federal states need to be cleared up and that the question of parliamentary participation must be clarified,” he said, referring to the voice that would be given to the Bundestag in making decisions relating to the fiscal pact. Steinmeier also called for the creation of a European debt repayment fund. He said that euro bonds, which are currently being promoted as a way out of the crisis by French President François Hollande, could only be introduced “if they come with strict conditions and we have harmonized European economic and finance policy.”


The banks want us to be their bonded slaves. The ECB wants us to be the banks’s bonded slaves.

3.5 years on from the guarantee and we still don’t have proper personal insolvency legislation or proper bank resolution legislation. Both these things were flagged by the IMF as critical to our recovery.

The only conclusion one can draw is that the DoF wants us to be the bonded slaves of the banks.

Only elected representatives can stand up for the Irish people at this stage.

FF failed to get insolvency through as quickly as they should have.
FG and Labour have been worse again even though we have what should be a more competent Minister for Justice.

Sinn Fein will wipe the lot of them out at the next election the way this is going.

What is the attitude of the IMF towards the new insolvency bill? Rumour has it they are surprisingly close to the position of the Banks and to the right of the position of even the DOF. Reason, they have lent the state money and would quite like it back.

you have gone awfully close to the issue of Strategic Default there now. Be careful.


“I swear, this country is being run by primary school students.”

I thought it was primary school teachers?

I guess your average Irish Joe could always do what the wealthy Irish do? ‘Give’ everything of value to someone you can trust to give it back later (wink, wink), run off to the UK, pretend you’ve been living in poverty at an address there for four months and go bankrupt under their laws. It’s only just up the M1 or a hop over on the ferry after all…. unless you name’s Quinn of course.


Les banques sont une arnaque (con), des blaireaux (t*ssers), des charognards (vultures) et
des compacteurs de merde (self explanatory)

It also ties in with the fiscal compact

@ PR Guy

PTSB results this year actually gave some better than usual information on the sub 90 day arrears (you have to do a bit of maths, but fairly basic reasoning). I think it was almost 25% were in some sort of arrears, though obviously some of that can simply be someone missing one payment and then getting back on track next month, or someone forgetting to fund an account etc, or people in between jobs, waiting for social welfare entitlement to come through etc.


“BlackRock PCAR assumptions were for 90+ delinquency to peak this year at 14% (base) to 20% (adverse) ”

Ah yes, I had forgotten about those. Obviously, the back of their fag packets at BlackRock are ‘smart’ fag packets.

@Bond Eoin Bond

Thanks. You’re right I think. There could be any number of reasons for the 30 days in particular. At 50-60 days though I guess they would have to be a good bet to join the 90 day arrears numbers ‘ere long.


“I swear, this country is being run by primary school students.” No, its actually being run by primary and secondary school teachers. The amount of people I know who are planning an exit strategy is startling and most of them are in good, well paid jobs. Ireland has chosen its destiny and that destiny is a chaotic forced default after we have spent every cent we can borrow.

Trichet has suggested that a EZ state should if neccessary be put into bankruptcy and run by some sort of quango in Brussels. Perhaps that is a route some here might contemplate.

Then they could eductate the bureaucrats on the benefits of debt forgiveness. Experience up to now suggest hearing aids and trumpets should be provided.

Conclusion: our creditors do not do (much) debt forgiveness so any large reduction of the mortgage burden will have to come from another group in Irish society by some means or other.

Some 27,000 interest-only mortages have been restructured. These account for 34% of total restructuring.

I was told by the Central Bank in 2007 that no data was collected on interest-only mortages even though they were the rocket fuel for the buy-to-let market (many units were bought not to let but for a quick sale).

@ Tull

“Trichet has suggested that a EZ state should if neccessary be put into bankruptcy and run by some sort of quango in Brussels”

JCT has gone elsewhere. I presume that comment was before the market turned on Spain and Italy

That solution is a bit like a Greek exit. Italy would be what % quangoed. One in , 6 in.
Italy is too big to manage from Bruxelles. Monti is having a hard enough time doing it from Rome.


That is why the former minister for Agriculture is gone off shore with the parting shot that “the country was marinated in debt”. Be that as it may our various commissions have only hindered the solutions necessary.

Govt are flagging the way to deal with this is through Personal Solvency Reform. The problem with this is, see DeutcheBank AG link below, this will require another ¢5 bn recap for the banks. Link below to mortgage arrears advice also.

Delay in dealing with this is disastrous. This will further deter investors in Ireland.

Compare to Iceland, “Since the end of 2008, the island’s banks have forgiven loans equivalent to 13 percent of gross domestic product, easing the debt burdens of more than a quarter of the population, according to a report published this month by the Icelandic Financial Services Association.

The island’s steps to resurrect itself since 2008, when its banks defaulted on $85 billion, are proving effective. Iceland’s economy will this year outgrow the euro area and the developed world on average, the Organization for Economic Cooperation and Development estimates. It costs about the same to insure against an Icelandic default as it does to guard against a credit eventin Belgium. Most polls now show Icelanders don’t want to join the European Union, where the debt crisis is in its third year. ”

The question posed by the poster above is where exactly has the three years of austerity gotten us?

“Personal insolvency reform is also a key measure in the mortgage arrears resolution process. As Members are aware, the Minister for Justice and Equality published the draft heads of a personal insolvency Bill earlier this year. This draft Bill was submitted to the Oireachtas Joint Committee on Justice, Defence and Equality and its findings were published on 6 March 2012. Its views and those of other interested parties are now being considered by the Government in the further drafting and finalisation of the Bill. This will be radical and complex legislation. Significant detailed policy development and drafting work is being carried out at present by the relevant Departments in consultation with the Office of the Attorney General. It is accepted that the preference would have been to have produced a final Bill at this stage. However, the drafting of such a complex Bill gives rise to significant legal and drafting considerations that must be teased out fully and worked through in detail before publication. While this work will take longer than originally envisaged, it is necessary and will be to the benefit of the final Bill when it is published and accepted by both Houses of the Oireachtas. The troika is aware of the detailed work under way and has accepted the publication of a Bill will take a little longer than originally envisaged. The Minister for Justice and Equality has indicated the draft legislation will be published before the summer recess and Members of the Oireachtas then will have the opportunity to consider the full details of the Government’s proposals on this crucial proposed legislation.

It is fair to state the reform of the personal insolvency legislation will be the ultimate game-changer in respect of the resolution process. There is acceptance, from the troika to the Government and all parties in this House and elsewhere, that the real change which must occur to resolve the position of those who are in acute mortgage distress can only happen on foot of necessary changes in the personal insolvency legislation. That is, as I have described it, the game-changer because it provides the legal context within which the banks then will be able to resolve all these matters. I made the point earlier all this is notwithstanding the schemes the banks will bring forward. While some banks already have brought forward novel schemes in respect of negative equity loans, shared loans and so on, there must be further engagement with them. However, the crucial change must be the personal insolvency legislation, in that it tips the balance in favour of resolving many such outstanding mortgage problems, which ultimately is where one will discern fundamental change in this area.”


“Sinn Fein will wipe the lot of them out at the next election the way this is going.”

Wearing my political analysts hat for a mo, I think that the portion of the Irish electorate that does not get effectively sheltered by the government (at least by their own estimations anyway) are going to be very temped to vote for SF in droves on the basis that they and a small number of others including independents might, just might, actually intend to shake things up a bit – rather than just get a turn in office and be ‘guided’ by official Ireland so they don’t make fools of themselves. The ‘main’ parties are becoming a nebulous blob of functionaries in the public perception by comparison.

I won’t mention the constitution at this point, because that would make my previous comment look an excuse to make the same point again, and it wasn’t. So there.

“Several states are angry at plans to fine them if they breach the fiscal compact’s deficit limits. They say that such fines already apply under an existing deficit cap, and the legislation would “unfairly” increase those penalties. “…..

“Juergen Trittin, co-leader of the Green Party parliamentary caucus, said after meeting the chancellor that the next step was for Merkel to reach an accord with France, Spain and Italy.

Earlier in the day, Gabriel made his own concession, backing off demands for so-called eurobonds.

After months of appearing to support calls by Hollande and others for the 17 eurozone governments to raise money jointly with eurobonds on capital markets, Gabriel adopted a more cautious line.

He told ARD public television that eurobonds “in the general sense” of “debt guaranteed in common” would “definitely” not be acceptable to his centre-left party. He called instead for a treaty to pay down excessive debts.

“Let us mutualize only that part of the debt which exceeds 60 percent of gross domestic product and let’s pay that off over 25 years,” he said. “That is a form of eurobonds if you will, but with clear conditions.”

The Social Democrat said the European Union had $25 billion in unused funds that could be mobilized to promote growth. Merkel has also pressed Brussels to unlock its special funds. ”

Yet look North and you see a Nationslist socialist government implementing Tory cuts.
The limiting factor for SF is their policies down here. Up north they are FF in disguise.

But you can’t retrospectively go back and make all mortgage contracts non-recourse.

Says who? We retrospectively went back and made every bet ever taken by private banks to be publically backed up by the exchequer.

The banks would probably need another €60 billion dig out to cover the cost of that!

Or we could, I don’t know, as private institutions just, say, put them into liquidation instead. Crazy notion for a capitalist society I know. Crazy notion, yeah. Let’s just give them more free money instead.

Quote of the day…….

Kenneth Rogoff, Professor of Economics at Harvard University: “They are playing Russian roulette in Europe and I’m not sure how many bullets are in the gun.”

Rumor of the day….
Greece exit from the EMU is imminent, the bank of Tokyo Mitsubishi-UFJ has said in note. It said the market is filled with rumors that a “planned departure” will take place over the weekend of June 2 and 3.

Ken, at least three bullets in the gun!

Those Commie Canadians………..

2 to 1 leverage……..I guess we would have to set up a charitable foundation for newly impoverished bankers.

WE NEED BASE MONEY IN THIS JURISTICTION that some jokingly call a country with a domestic economy.

From a rational national economy perspective these mortgages or credit money is of little value to a national economy.
They are merely a mechanism for extraction at these leverage ratios.

I understand the broad outlines of the personal insolvency bill, here below. I understand some people want to give back the keys and this may suit them. But I can’t understand the delay to the vast majority of people who want to remain in their homes, surely they do not require a Personal Insolvency Bill to enable debt writedown in the manner of how this was dealt with in Iceland?

“In the case of Iceland the situation was more difficult, due in part to the much bigger proportion of the population that was affected, and to the wide presence of foreign currency mortgages.The government and the newly constructed Icelandic banks developed a template to be used in case by case restructuring discussions between borrowers and lenders. The templates facilitated substantial debt write-downs designed to align secured debt with the supporting collateral (i.e bring the loan into line with the value of the house) and align debt service with the ability to repay.

The IMF found that such case by case negotiations safeguard property rights and reduce moral hazard, but they take time. As of January of this year, only 35% of the case by case restructuring applications had been processed. To speed things up, Iceland has introduced a debt forgiveness plan which writes down deeply underwater mortgages to 110% of the households’ pledgeable assets.
It noted that only when a comprehensive framework was put in place and a clear expiration date for relief measures announced that debt write-downs finally took off.

As of January 2012, 15 to 20% of all Icelandic mortgages have been or are in the process of being written down.”

Coming To The Boil Underwater:

On the questions posed:

Q: at what point will this growth in arrears begin to slow appreciably?
It’s going to get a lot worse first! When the banks get their next bailout (sorry Mr Varadkar but there’s a lot more cents going into the zombies) they’ll start to flip the “extend-and-pretend” sub-90 day restructured deadbeats.

Q: what projected effect will the proposed personal insolvency legislation have on these arrears going (ahem) forward?
Minimal to none. The banks are being just as mollycoddled by Comical Mickey as they were by Comical Leni. At the end of this process, the pillock banks will have gone from 40% market share to 90% and they’ll have a nation of debt slaves. I reckon the banks will be very happy with this outcome.

Clearly the first capital injection(s) into the domestic Irish banks were used to offset mainly CRE losses but even these have yet to be properly provisioned….all banks in Ireland plus NAMA are still well short of where they need to be in writing down /off their CRE portfolios.

So now we come to Residential (and have yet to get to some other categories such as personal debt, etc). @ fravo Thanks for the Blackrock slides /analysis, although the US residential market is ‘apples and oranges’ in comparision to the Irish situation and there is little European precedent as Blackrock says (worrying that Spanish property prices appear higher than Irish prices in the slides!).

@ Tull “Conclusion: our creditors do not do (much) debt forgiveness so any large reduction of the mortgage burden will have to come from another group in Irish society by some means or other.”

From a previous thread: Tull ““I presume this means that NAMA won’t hit your hedge fund vulture’s ridiculously low bid. In refusing to do so is it not acting in my interest as a citizen and taxpayer of this country rather than your pal’s interest.”

Given the way the numbers are unfolding and the known, continuous decline of property values over recent years, do you really still think that telling PE /external investors to piss off over the last few years and the continuous kicking of the can down the road by the Govt /the banks /NAMA on Irish property has been the correct strategy?

Domestic disposition programmes should have started way before now, at what were in reality more favourable prices than can be achieved now. Despite being warned that it would cost more in the longer run, Official Ireland procrastinated. That was perhaps ok as an initial strategy (it happened everywhere), but it seems to have been adopted as a longer term strategy in Ireland based on the Troika funded, artificial “status quo” and path of least resistance /pain…..But now we begin to see the consequences (continue to) emerge in hard, cold stats.

@ OMF Liquidating the “pillar” banks would solve little at this point. The country needs a banking system. In any event, that wouldn’t fix householders’ balance sheets.

Again, reality will have to be faced. The money has to come from somewhere.

@ SK The only surprise is that the CBI is surprised and alarmed at the level of impairments. It is most unfortunate that Official Ireland has again underestimated /miscalculated. It’s perhaps a thankless job…..but in a real commercial bank context, senior management would get a real bollocking (if not fired) by a Board of Directors for such lack of performance, no matter what the excuse.


I have not voted SF until now. I still stuck to labour despite reservations up to and including the last election!
You see I thought it was Labour’s way, not Frankfurt’s way.
I admit that was naive for a 56 year old, but there goes.

But you need to place your comment below in a comparative context.

“The limiting factor for SF is their policies down here.”

As far as I can detect, consequent to the policies pursued ‘down here’ since about 2000 but more particularly since 2008, we are now hurtling towards a chaotic default, after we have burned the last of the cash. [Pat McArdle’s charts in today IT, show clearly when that runs out].

The only consolation is that much of Europe will also be in that train wreck. The decision of Spain to ‘bail out’ Bankia indicates that the Bourbon influence still runs through Spanish blood.

I am hoping however that Spain will come up with its own bank resolution fairly quickly and that the last people to be saved will the ECB’s favourite bondholders.
A robust Spanish bank resolution scheme may yet save Europe.

@Paul W
re “OMF Liquidating the “pillar” banks would solve little at this point. The country needs a banking system. In any event, that wouldn’t fix householders’ balance sheets.”

The country needs a banking system.

I agree. We should put one in place as soon as possible.
What we have now are debt collection agencies that happen to have responsibility for running a money transmission system.

@ Joseph I don’t disagree. My position is that there is a need for proper debt /insolvency resolution, at country, bank and then individual level. The country first and then the banks need capital to absorb /forgive individual losses. Can’t see how all that can be funded by the Irish taxpayer.

But the money has to come from somewhere. Ireland has rejected /denied reality on this up ’til now. That’s perhaps somewhat understandable (but the list of unintended negative consequences is too large to ignore). It is time to get on with solutions. The country needs a proper clearing mechanism in its property market (whatever level that may be). Given the size of that problem, it would be a good starting point. If our esteemed leaders don’t get on with it, the Troika /EU will begin to enforce in any event….


And I largely agree with you.
“Given the size of that problem, it would be a good starting point. If our esteemed leaders don’t get on with it, the Troika /EU will begin to enforce in any event….”

I do hope that before the Troika move on this that the prelude will be the removal of every senior layer in all of the Irish banks.
They need to be sent a message, if for ‘Moral Hazard’ reasons only.

We are indeed moving towards the end game of a messy default & end of the Europena project and a move towards immediate primary surplus. This will be very painful and involve deep cuts in public expenditure and SW. It is the complete anthitesis of SF policy which still believes there is a fairy at the bottom of the garden that will lend is money at a low rate. At this point any sensible Irish citizen would move his money off shore as your deposits will be hair cut in rela terms.

Paul W
in these circumstances the last bid I would hit would be an outsiders bid. Assets are already below replacement value in many cases and most of the Irish wealth is now offshore and beyond the reach of the taxpayer. I would advise NAMA to hoard and hit the domestic bid on default.

You are believing Karls fairy stories of Austerity.

But bankers never define what austerity really means……(saving a stock of debt)

They will try it I guess… cutting the money supply /public exp.

But the waste is not in the money supply …… its the credit supply.

Most likely given the structure of global finance our currency will seriously devalue against the $

I keep telling people they should redirect what remains of the capital budget to rail.
I really don’t want to be proven right on this but I will me thinks.

They will keep filling those potholes in until they can’t – its a sort of deep county council programming I guess.
We have one of the densest road networks in the word but a relatively sparse population by western european standards.
Maintenance of all these dendritic networks is impossible.
Unfortunetly our defective monetary system / accounting makes it impossible for most people to see the inherent waste withen the system.
If they really do spend 2 billion on that Nama stuff I will eat a hat or something.

The personal insolvency legislation is designed to shackle and trap the small citizen. It has nothing whatsoever to do with assisting the ‘innovation economy’.

There is no effort, and no outrage, at cabinet level to deal with the big citizens who can stride off more or less miraculously to the UK and elsewhere and like the Phoenix return reborn after 12 months.

The current draft legislation is a total travesty and bears out the old adage: one law for the rich, and another for the poor.

I heard The Taoiseach on the radio mouth several senseless platitudes about the need for lenders and borrowers to get together, every case is different, etc. As long as the resolution is left with the banks, nothing substantive will happen that will help either borrowers in distress or the economy.

@ Tull Sure, let the external bid compete against the domestic default bid…..if the latter has any money /equity?! Far from certain that. But let the market function rather than try to massage values to reach desired points on the accounting ‘dartboard’ (let’s be honest, pretend values to sanitise Govt projections). New capital must be brought into the country. Let’s stop pretendiing re property values and get some /a good bit of the stuff sold.

@ fravo “BlackRock PCAR assumptions were for 90+ delinquency to peak this year at 14% (base) to 20% (adverse)”.
Well clearly nothing has peaked yet, so I won’t be surprised if actual vs projected is 20%+ (and rising). CBI’s alarm has clearly been growing….

@ Tull
Prepare to be amazed. The Irish were pragmatists before they were masochists.
1: Spain will scare the Germans
2: Irish yes vote will satisfy them
There will be a cleft in the Eurozone – but guess which side we’ll be on!


“At this point any sensible Irish citizen would move his money off shore as your deposits will be hair cut in real terms.”

And if the State were full of such sensible citizens, we would not have a State. In fact the first move I would make would be to implement capital controls.

But I take you point re there being no alternative to achieving a primary surplus much more quickly. We would however go about it in very different ways.

If Spain frightens the Germans then the facts change and I do a Keynes.
I think the Greeks are toast though.

@ Eureka Don’t bet that we’ll be on the ‘right side’…..Spain is far more important to the Euro than an Ireland, Portugal and /or Greece. @Tull. I sincerely hope that the Greeks will not be ‘toast’…..there go the Irish but (so far) for the grace of God.

@ Tull Remember also that, while the banks and NAMA are nowadays large physical property managers (Unbelievable that this is so) and there would therefore be a need for some physical property disposition, most of what would be for sale would be property loans. There are well tried and tested ways of dealing with large property loan portfolio dispositions e.g. auctions based on virtual data room (allowing international participants remote participation, lower costs, easy logistics, etc)…..efficient and allows for a certain amount of ‘mop up’ of the ‘c**p’ on the tail of better quality sales, etc. Importantly for Irish public servants, auctions would be transparent…..But probably a mix of sales’ methods.

There is no reason this shouldn’t already be happening bar politics and current fudging of Irish Govt projections.

Reality needs to be faced…..or it will be forced by external creditors. Simple as that. Do the Irish want to retain control of this, or will it be the Troika dictating the programme? Also, nama and the banks should in any event be disposing property /property assets to get cash in advance of any major EZ ‘disaster’….at least to mitigate against same. What will NAMA’s and the banks’ books be worth if the proverbial hits the fan? The article posted by SK already indicates a 5-6bn shortfall (and huge overruns in physical property management costs…..God Bless the Irish property sector, but they certainly know how to play all sides of a crisis! Never waste a crisis and all that.

Final point for now (gotta go), it’ll be interesting again to see the reactions of the Irish pro austerity economists and supporters when the real extent of capital shortfall is revealed in due course……Will then then still think that Ireland’s debt levels are sustainable!


most of the Irish wealth is now offshore and beyond the reach of the taxpayer.

Taxman, no ?

I thought all the wealth had been lost on apartment schemes in Bulgaria
And that all the wealth nouveau was in the PS now.

@ tull

I think we will see you in a Keynes outfit. Austeridad has been given 2 years and there is no growth. It is not rocket science. Spain and Italy are proper countries and they don’t want to be run by Basil Fawlty c/o Frankfurt.

The adults in places like Asia and the US are looking at the ideologues in Europe as the water floods the kitchen wondering WTF is going on.

I just wonder where it all leaves the UK.

@ Paul W
I think we can only wait and see.
You could be right. Wine makes me an optimist though.

Stephen didn’t you flag, to howls of derisive laughter from the commentatorati here, this issue back in 09? Calling for action,write offs, wrote downs, something? Top marks for head above parapet.

In the context of the title of this thread “Mortgage Arrears: The Crisis Deepens” nobody has mentioned Morgan Kelly…..wasn’t the huge scale of mortgage default which would follow the last of his Delphic utterances?

@ Eureka, PaulM

No to “wait and see”. Enough of that. The country /its leaders can actually do something positive and construcive, something other than ‘smoke and mirrors’ and political posturing, something real (before Morgan Kelly’s prediction of economic annililiation transpires). Is there any principled, real leadership in the bloody country?! I’m awaiting Patrick Honohan’s ‘rebirth’ or John McHale’s ‘enlightenment’. Colm McCarthy is also someone who can great…if only he can be more confident that he is right (most of the time). Others also.

@Paul W
It is certainly time for some action on the mortgage issue. The country has spent the last three years measuring the rise in the flood waters but no action. Not even a decent attempt to head off the crisis.

It is time for action on the mortgage issue.
A full blown mandatory State owner to renter scheme for mortgages in excess of 180 days. No exceptions.
A compulsory purchase by the State of all 60,000 houses with mortgages over 180 days for ~100,000 each. No individual valuations. No bank bargaining on price. No opt outs.

Banks to take whatever loss is above that.
All mortgagees remain in houses as tenants, paying rent.
State to finance deal with Troika bank money.

Cost to State 60K * 100K = 6 billion.
Annual rent 60K * ~6000 = 360M
Gross Return of Investment =6%

Occupiers get to remain in houses for their lifetimes.
Occupiers get a opportunity to buy back at market price less 20% of rent paid on time any time after 8 years.

It is time to remove the banks from the resolution of this issue.
They have failed completely to deal with it and as a result risk the erosion of whatever cohesion is left in the State.

It is time for the State to grasp the nettle and take control on one the most critical issues facing the country right now.

@ Paul W
We are not strong enough to make a stand. We are small and divided. Wait and see is a reasonable approach.

It’s too hard to call this but I think Europe will make a complete mess of the Greek situation. Long term it could be the beginning of the forging of a collective European consciousness. Europe will have to reinvent itself. All its structures will need dismantling and it could be run along the Canadian federal lines (but with a directly elected President). It will need to be simpler and tighter.

And when this is over it will be seen not as a sovereign debt crisis but as a failure of private banks. If the state is now having to lend money, guarantee deposits, and cover losses – why is there a private banking sector at all? The world cannot live with the current private banking set up any more. But Goldman, Zerohedge and all that bunch have been very good at deflecting the blame for this from their industry.

From crisis comes opportunity. Let’s just wait and see. Let’s gently steer this madness to a solution which involves major overhaul of private banking

It’s worth noting that it is impossible for everyone to repay their loans under the current system of money creation whereby the vast majority of money is created through loans.

This is because what’s in circulation is cash +’principal of every loan. What’s owed back is the principal + interest. We owe more than exists.

To resolve the mortgages arrears problem we could get the Central Bank to create some digital money for it’s Government providing the economy with some much needed debt-free money to replace the function of cash

So that’s 100,000 families under financial pressure. That means more divorce, more domestic violence, more suicides and more depression – at least studies have shown that in the past.

The current economic policies are ruining lives – literally.

Something to consider.

Where are you going to get 6bn from to fund this scheme. how are you going to pay back the billions you borrowed from the IMF to stick into the banks.

I am a Keynesian at heart and by education. However, our problem is that we have a debt GDP ratio of 120%+ & no one to lend us the money. So we will have to piggy back off other people’s Keynesian stimulus. No doubt some one will suggest defaulting on bank debt and then borrowing from the markets. Well they markets might wait to see the resulting legal action before helping us out.

Now as regards your second very good question on where the money went. Consider the following. The State borrowed billions to build the beautiful road network. Much of that money went on land purchases. The lucky farmer had three choices i) AIB/BOI ii) buy another farm on a P/E of 80+ iii) buy property overseas ora mix of all three. The Four Seasons Hotel (irish owned) in Budapest/Prague etc c. 2006-07of a weekend was generally full of Irish-you could tell by the county jerseys-all buying blocks of apartments, often from Israeli investors who were cashing out. The equity came from the CP money and the leverage from Irish and Italian/French/local banks. Very often the money was borrowd in swiss franks or yen. Now this trade has gone horribly wrong as the asset prices have gone south and the CHF or JPY has appreciated against the Euro. So the typical 1-5m that was ploughed in is probably worth -1m to-5m now.

Now consider option 2. I know 1 person who sold their farms in a midland town for 10m. Because of age and being suspicious about asset prices, he retired, paid his CGT and bought a small villa in Spain near a golf course. The residual cash is in AIB, where he has banked for 40 years. Or it was until he was advised to move it offshore last year. I don’t know precisely where it is-my suspicions are that a lot of it is in US Tbills and short dated bunds.

The above real examples show how the wealth has vanished to both money-heaven and offshore and is thus beyond the reach of RBB and SF.

Paul W,
Events are being dictated by the Troika now. The pace and shape of policy is heavily influenced by them. For example, the IMF has a real problem with govt proposals on mortgage/insolvency. It suspects a large element of strategic default. Baed on vast experience, it must know fairly precisely the relationship between mortgage arrears and unemployment. We are above the line. Recent experience suggests rising non complaince on taxation. So our overlords might be getting a bit frustrated here.

It’s also worth noting that someone with a small mortgage from twenty years ago is more likely to pay his debts than someone with massive borrowings from the peak of the bubble years.

So simply counting the number of mortgages in arrears substantially understates the scale of the problem.

The actual value of distressed mortage debt iin the country is more like 20% of the total oustanding.

Mind-boggling stuff.

Nous somme what-that-guy-said, indeed.

@ JR PE might back the 6bn, but they can get 6% return in Boston or Chicago. Now if it was towards 10 /11%, you might get your capital. EU debt ‘appears’ cheaper than capital if you are going to do it that way.

However, do you want Govt being the landlord and investment manager (upkeep, etc) of physical property in Ireland. I therefore favour PE, whether local or foreign….new capital, far more efficient (albeit a harsher, near-term reality). Also, avoids all the gouging and moral hazard that Tull refers to.

@ Eureka When the going gets tough, the tough get going. Seems to me as if the Troika are relatively non-plussed how the details are dealt with, provided the debt service continues. The problem with the current status quo is that it is unfair to so many, with politicians simply not rocking the boat….fear. Not one Man or Woman of gumption among them. Not sure how you move that….Seems to me though that it is the likes of Patrick Honohan who need to influence and direct them on this. So many of the pro austerity economists in particullar are not ‘Big Picture’ (Patrick Honohan in fairness is not one of these)….they seem very happy with their models and theories… one willing to do other than ‘comfort zone’. Not sure how one moves that either…except continue to try. In any event, economists do not rule the world.

I see that the polls today are showing the Y camp will win. If that is the final result, the FC will no longer be for debate in my view. However, there is still plenty to resolve – property resolution, deficit resolution, insolvency resolution, social justice & cohesion for starters.

Keyneian ideas were a compromise at best between the banks and the physical economy….. his ideas still orbit around debt as money.

Fisher was far closer to the mark ….. the BoC essentially followed those ideas during the war and post war period.

There has been a dramatic stopping of the flow withen Ireland and the rest of the periphery , partially because there is almost no place this debt can flow to as all investments withen this juristiction were bank credit (excess oil) related and indeed almost all fiscal investments have been to service these bank products.
France is a funny case , it has huge potential wealth withen its systems but is operating withen a almost German currency system.

Check out this little used rail line in the more rural area of the Paris basin….’Esbly_à_Crécy-la-Chapelle

it passes 5000 ~ pop towns and smaller but only reaches a normal max of 850 passengers a day…é-Sainte-Libiaireécy-la-Chapelle

at the most 300,000 passengers a Year I guess.
They have transfered some of the new surplus tram trains from Line T4 on it but could not justify further investment in the stations given the lack of passengers.
It is however a electric line , in the UK this would be a DMU service but with far more patronage.
If they somehow go back to the Franc the money will have somewhere to flow to….as they have excess capacity in non oil senstive areas while the true periphery such as Ireland will be in deep trouble as almost our entire transport system is road based given the flawed monetary system we have operated withen , especially since 1979
This video covers part of the line and gives a indication of the lines envoirment.

There is infact nothing of substance in the post 1970s periphery , its a leverage construct / core european excess oil dumping ground , a conduit for Arabian oil / interest revenue recycling mechanism / mercantile dumping etc etc etc.

@ Paul W
There is nobody in the political sphere capable of delivering on this. This is a private banking mess and nobody in power can take them on because they are beholden to them or appointed by them.
The real pressure on the system will come from
Greece, Spain, the UK and (if Romney runs riot) the US.

This is a problem of banking. Thats where reform must start

I can clearly see the Entire Paris Basin setting itself up to capture the new flow when it comes.
This is a no brainer.
We are bailing out the core , the longer we wait the more time they have to adjust.
At any given time there is a certain amount of wealth , they are now making bigger nets , our nets (roads) are full of large entropy holes
When they do release the stuff , we will be going back to a Angela’s Ashes like world while they have the infrastructure in place.
With the above example they changed the timetables and ended the bus service – they may now have perhaps 1000 people a day using a state of a art tram train on that route !!!
I can imagine Colm Mac having a Heart attack if he oversaw these figures……. but when the deleveraging happens…….. things (numbers) will change.

Propaganda, there’s no other word for it, is coming thick and fast from RTE. Marion Finucane had a reporter, I think it was Fergal Keane, lengthy summary of political events during the past week. In closing remarks groomed his audience by remarking this was not a good time to use your vote to give a thumbs down to the government. How biased and propagandistic can one get? Irrespective of your views on this, its certainly not his role to be grooming the electorate towards a Y vote. RTE chicanery of this kind is a regular occurrence and becoming increasingly
apparent. Having said that, in spite of endemic cojoling in favour of a Y vote by RTE, its both edifying and surprising to see so many intending to vote No. Coverage of the Referendum campaign and the issues involved has been haphazard by RTE. Intellectual discussion of the issues involved has been stymied by a barrage balloon of members of academia trotted out to defend the status quo of Y at all costs with many excruciating efforts made to give mathematical substance to unfortunate projections on growth no one believes. Some academics on the No side however have done very well in defending their position; the Y campaign has truncated efforts to probe the dark depths of the FC preferring to make act of faith, exhortations based on shallow arguments on banal assumptions re stability and growth without much evidence on their side to redeem these arguments. Yet, their remains a dogged and persistent No campaign willing to debate deeply matters the Y campaign would like to bury and hide from. There could be surprises ahead 🙂

@Kevin Lyda

“So that’s 100,000 families under financial pressure. That means more divorce, more domestic violence, more suicides and more depression ”

Talking to a lady who works for a ‘well known counselling service’ she tells me they are totally swamped with couples breaking apart due to money problems. I know her well enough to know that she’s objective so when she says, “it is ripping Irish society apart,” I take her seriously.


“It said the market is filled with rumors that a “planned departure” will take place over the weekend of June 2 and 3.”

Ooops. I hope that wasn’t the rumour I started on another earlier thread about it potentially happening over the next Greek bank holiday. I kinda question why EU politicians would force it before they knew the results of the next election there and I can’t see anyone in a position in Greece right now who could actually legally make it happen from their side of the fence as I don’t think the current interim government has the executive powers a standard government would have. One thing I do know about Greece, the Greeks are very very unhappy about this one:

Thanks tull. I still think about the tiger gains in terms of waves. The last wave of bets were lost but were the previous iterations all reinvested in property? I wonder what % is now on deposit, how much in bonds and where, how much went to equity where, to hf etc. Re the arrears what level corresponds to honohan’s stuffing the banks with capital. Aib has enough for what level? What is the demographic of the typical arrears? Sub prime and unemployed and what else and what % of the demographic is on the arrears radar and has the worst case shifted since the banks were stuffed? Does anyone have a feel for it? I just don’t see enough info to make a call on I

other than that the level of individual suffering must be immense.

@john corcoran

The mortgage arrears problem started with one house–Leinster House.

Indeed, and one thousand tribunals could sit, make findings of endemic corruption (stating the obvious to the average citizen),, run up bills the size of bank bailouts and absolutely nothing would change in Leinster House.

My understanding as someone straddled between tow countries is that the government parties promised significant changes before getting into power…

The primary unstated objective of the current proposed personal insolvency legislation is to ensure that enough small actors are shackled to compensate for the big players who gain a certificate of bankruptcy in another jurisdiction.

@ JC “The mortgage arrears problem started with one house–Leinster House.”
The elementary property valuation error;

John What the f**k? You keep posting this old-news BS (so what?!…we are in a different world right now), without any forward view it seems (are you purely a trying-to-be property historian?….). Have you a brain /idea in your head that can address, potentially, a way forward?

Move on. Use your head….and help. Join this world.

@ Dork
Trying to understand that. Is EU money supply showing the same? (with all that oil usage contraction, reduction in sale of cars and rolling stock, etc).



@ Dork
What’s on my mind is how markets are likely to move given what’s going on. It’s chaotic of course. However, V Barrett asked yesterday whether one should short oil for instance? Suppose you need to make such a daily decision…..

Then there is euro fx, etc, etc.

I would be very interested in whether you could (more concretely) translate your analysis to a ‘forward basis’…your provision of current stats is fascinating (the Italy and Spain oil consumption charts from yesterday were ‘awesome’). How does your forward translation work /look?

More bluntly, you have say Euro 1,000 (or even better, say Euro 100k of your own money) to invest and need to perform…you may lose all /go hungry otherwise (I trust not). How do you generate say [10]% pa (?) return in this world? Or even,how would you protect capital value? Open floor. Go anywhere you want or need to go.

Oh…the company /you have max. 6 months’ savings /buffer.

Part of this is how does Ireland /you invest Euro 1,000 /Euro 100k and help itself /yourself?

Open floor to anyone else also. I myself have no answers here….but this the kind of situation business is really facing every day. No choice….but make a decision.

@Tull 11:28

” No doubt some one will suggest defaulting on bank debt and then borrowing from the markets. Well they markets might wait to see the resulting legal action before helping us out. ”

There would relief from the markets with respect for common sense and wonder we did not go down this path earlier in spite of objections from Frankfurt. ITs a capitalist path proven time over time most recently in the case of Iceland.

We would finally get to play our debt writedown card. Legal action would be built on the principle of ability to pay. IT would not be built on the principle of acquiring a further loan to pay back debt when clearly the first loan is unpayable.

Its quite simple. The experiment with the euro simply hasn’t worked. The experiment with euro bailout has been a fail. Maybe we can rejoin at a later stage if the euro is built again as a viable concern. The euro right now does not have stability going for it, its in deep crisis and its days are numbered.

Its time to go. Hanging in there at 120% + debt/gdp without debt writedown, hoping for a further bailout from ESM, to pay back the first bailout that has failed,
with all the added legal and austerity conditionality, is both reckless and mindless.

International courts will give us a less embarrassing deal than we’ve got so far from the Troika, which, in spite of the prospects of a No vote, has not sweetened on our odious ELA/PN debt obligations.

They want every penny extracted out of here that they can get their hands on. FG/LB unwilling to face reality and blinded by fairy tales and fantasy, are leading the Irish horse to the ESM glue factory.

Good song from Sweden, I hope we can remain members of the EU, but outside the euro.

@ Colm

I am not sure about these polls?

Meanwhile, the EU is frozen in the headlights once again as they wait for yet another election in Greece, the problem festers. What result are they hoping for in Greece? That a pro bailout coalition will be elected and that they will be able to impose impossible austerity measures, collect Greek taxes and bring the capital, and bank deposits that have fled the country? So their best case scenario is impossible, implausible and totally unrealistic

For years, they have avoided letting banks in Europe go bust by letting states go bust instead.. They denied they were insolvent, then did a series of bogus “stress tests” which amounted to nothing more than illegal cover-up’s for false trading. Now, the truth can no longer be denied and the truth is that the EZ is a busted flush and beyond repair. Ireland’s marching of it’s electorate out to vote for another bailout is window dressing that will become irrelevant but it will hasten the end game of default.

This ESM if it comes about will indeed prove to be the “bailout” that will totally sink the country and I am glad to report that all the usual suspects are on board, many with happy go lucky, student type economic theories and formulae based on 4% + growth complete with beggar thy children attitudes so that the pretense of successful lifestyles can be subsidised for another year or two.

@Paul W
(I am not into investment advice, I am a but a Dork)
But in my opinion if “they” don’t change the international monetary system to a final settlement system then all remaining value will flow to the $…the reserve currency.
All reserve currency systems , even the classical Gold standard was in reality the Sterling exchange standard… the final anylasis it will flow to the superpower of the day.

The question is always who will be the superpower of tomorrow.

I see that Russia has now become one of the safe haven countries for deposits leaving the EZ. Belgium and France are now entering the same league as the PIIGS in the eyes of depositors

China’s building boom is now bust with far reaching repercussions on commodity prices and EU exports.

Growth world wide appears threatened. For Ireland treading water is the best we will do for the next couple of years. Unless we vote No which will put the kibosh (caidh bhais one of the few Gaelic words in general use in English) on further advancement.

@Paul W

In 1999 David McWilliams ,live on the Late Late show told the Irish Government, all the professors and lecturers in economics in all Irish universities, and the Irish electorate that there was a massive property bubble in Ireland and when it bursts hundreds of thousands of Irish households will be in negative equity. He was laughed at, vilified and ignored.

The rest is history.

@Paul W

Wealth and worry go hand in hand. To maintain one’s real capital, one must be vigilant,skilful,bold and lucky.

Vote No.

@Robert Browne

“nothing more than illegal cover-up’s for false trading. Now, the truth can no longer be denied and the truth is that the EZ is a busted flush and beyond repair.”


When you get Christine Lagarde mocking Greece with innuendo against anti austerity parties, there is a clear agenda on foot in EMU to stamp out all opposition to austerity and cuts. They want a military style police state to impose austerity. This is not a direction Europe should be taking.

Clearly Lagarde is not in favour of a similar form of austerity for the levers manipulating the european financial system; or for the shadowy figures behind it.

“the left-wing Syriza party, wants to abolish Greece’s international bailout agreements”

Time to send the ‘unexplained phenomenom’ of the banking sector which is grooming the Irish Y, a message of independence 🙂

A future of debt peonage in a vassal police state stamping out efforts to save democracy and public services from the banking sector, is not a future that will bring stability.

Today’s SBP/Red C poll contains grim reading for the Lefty side of the No Campaign. It shows that they might actually win given the magnitude of the swing against the Yes campaign but interesting not against the Governing parties…go figure.

Since no one yet has succeeded in redeeming the laws of maths and since we should believe what is in the Treaty, prepare for the day of reckoning here. I would expect the next budget to show unveil a new policy departure-Austerity- a closing of the deficit within one year.

This will involve eliminating the 45% mark-up that public servants enjoy over the Private sector. It will also involve reducing some social welfare rates to Europena norms. Cormac Lucey reports in the SBP today that “gross government expenditure” has rised by about 10% since 2007.

Sovereign Default and Exit from the Euro will also probably be a by-product of this Vote. I have a crate of Sam Adams…Boston’s finest on hand for Friday to celebrate the slaying of the Beast. Tea will also be served.

@ John Corcoran,

“In 1999 David McWilliams…”

He made a good call there, but he got it badly wrong re ‘the guarantee’; he mitigates criticism on this by suggesting he was advocating a ‘temporary’ guarantee to allow banks time to breath only. However, we all know how the temporary can morph into the permanent. In reality, Ireland spooked even Christine Lagarde, French Finance minister at the time and certainly spooked Alistair Darling, UK Chancellor for Exchequer, who rightly feared a run on English banks that were under pressure around the same time. Properly, the ECB should have been handed the problem; the Irish state should have been buffered from the consequences of unilateral action, that would later come back to haunt it. If ECB could not defend the state, the state should have set a ceiling beyond which it would not go to do so, but that would be asking for leadership beyond what apparently is available to us.

Colm Mc Carthy is telling another fairtytale on Marion. In the face of all evidence to the contrary, he’s putting out the 2 reasons for voting Y as; 1. getting access to ESM; 2, when Spain goes, we may piggy back on their problems and there will have to be a bank resolution scheme our banks may retrospectively benefit from. The latter reason, with a longer queue looking for bailout, that we would jump the queue in this way, is plain nonsense. How long do we have to wait before some people understand that No, is No. Greece has benefited already from default on its debt. This has not been extended to us. Hoping that Spain will precipitate a better deal for Ireland on the evidence of our deal so far, is blinkers……

“1. Each ESM Member shall appoint a Governor and an alternate Governor. Such appointments are revocable at any time. The Governor shall be a member of the government of that ESM Member who has responsibility for finance. The alternate Governor shall have full power to act on behalf of the Governor when the latter is not present.

Board of Directors
1. Each Governor shall appoint one Director and one alternate Director from among people of high competence in economic and financial matters. Such appointments shall be revocable at any time. The alternate Directors shall have full power to act on behalf of the Director when the latter is not present. ”

Note the Board of Directors will be the main decision makers and will likely be from the banking/financial services sector.

Decisions, unfortunately for the periphery, will be made on the basis of qualified majority.

When faced with a choice between the inexorable logic of Colm & the random meanderings of Colm, I believe Colm.

@Paul Q
Here is Steve from Virginas answer to who the question of who really “prints” the money at least in the Anglo world…….he is a $ bull and expects the Euro to implode.

“Lending to the government is no different from lending to a customer buying a car or a house. What matters is the creation of new money. That is … credit added to the existing supply of credit. Central banks cannot lend more than what they accept as collateral.

Any loan becomes collateral once the IOU changes hands, (this is a purpose of the primary dealers). Sales of Treasury securities (lending to government) has central bank as a conduit to private sector lenders. Loans to governments are considered ‘risk free’ because governments can simply issue currency to retire loans if they have to.

When there is a credit expansion, finance makes unsecured loans by way of fractional reserve lending. This unsecured credit is new money: the private sector balance sheet expands.
When the private sector makes fewer loans credit contracts. There means less funds are available to refinance maturing loans. The outcome is an increase in non-performing loans which in turn reprices all similar assets. This repricing/diminished lending is the shrinking of private sector balance sheets.
During credit expansions there is no need for the central banks to make loans because the private sector requires no help. (There is technical reserve lending but this is not a factor during credit expansions.)

When credit expands, almost any loan is ‘money-good’ collateral. During expansions, loans are pyramided on top of relatively small amounts of collateral (which also happens to be loans).

When the private sector balance sheet contracts, the central bank expands its own balance sheet to compensate. The same loan that represents a balance sheet contraction in the private sector becomes a balance sheet expansion on the part of the central bank. At issue is the amount due to be repaid by the original borrower, not the markets’ ‘opinion’ about the worth of the loan: this opinion in a contraction is a liquidity trap.

Let’s say you lend $10b to a company. Others lend $10+ billions to similar companies. You lend, the borrower is set to repay you, his promise to do so — his IOU — is a commodity because it can be bought and sold.

When the economy slows the borrowers cannot meet their obligations. Some of the lenders sell their bonds for less than the $10 billion price (to repair their own balance sheets). You have a choice: you can hold onto your bond and let the borrower repay regardless of its price, you can sell your bond on the market or sell to the central bank.

If you hold on, the other borrowers’ failures will set the price of your bond which (adversely) effects your own balance sheet … even though your borrower can repay. The effect of others’ failures on your balance sheet is the same as if you sell the bond. If everyone decides to sell at the same time there are no buyers — no lenders — and your $10 billion bond is worth 50 cents.

The central bank can pay the face value of your bond, no questions asked: $10 billion (minus a small fee or ‘haircut’). The central bank will collect the $10 billion (plus interest) from the borrower. You will collect the $10 billion credit from the central bank rather than from the borrower. The borrower will still owe the same $10 billion: nothing has changed except the custody of the loan and its duration. You get money at once instead over the original repayment schedule. Of course, if the swap was done with a repurchase agreement, the loan can be sold back to you sometime in the future.

The central bank’s balance sheet has expanded in the amount of your loan while your balance sheet has contracted the same amount.

When people talk about ‘Fed Printing Money’ they ignore the shrinking private sector balance sheets. They fixate on the Fed’s making a loan ‘out of thin air’. What is ignored is that you already made the loan ‘out of thin air’ in the first place. If you made the loan with re-pledged (or no) collateral your original $10 billion loan is new money.

By taking your loan at face price the central bank re-affirms the face price for other, similar loans. Instead of a horde of panicked investors dumping their loans on the market for nickels and dimes, lenders hang onto loans because the central bank demonstrates their worth with a real transaction. The central bank assures repayment by advancing funds against the promise of the original borrower.

The assumption the central bank makes is that the vast majority of the loans are money-good and that borrowers can/will repay: that the issue is a temporary shortage of liquidity rather than a system-wide inability to repay. The funds extended are credits to lenders’ reserve accounts at the central bank.
The ‘print money’ concept assumes central banks are making unsecured loans. That is, what goes out the front door in the form of loans is greater than what is taken in as collateral. However, logic insists that central banks cannot leverage their collateral and remain central banks. Because central banks are collateral-constrained, they cannot create new money. Only banks that make unsecured loans or leverage deposits (which are unsecured loans, BTW) can create new money.

For instance, you can offer your $10 billion bond as collateral to a finance company and gain a $9.5 billion loan. That company can then offer your collateral — hypothecate it — to another finance firm (or itself) for another $9 billion loan, then another and another … up to 25 or 30 times. Your original $10 billion loan becomes $200 billion in loans. Any amount over the original $10 billion is ‘new money’ and is added to the money supply.

The reason why all this new money does not cause generalized inflation (above a certain level) is that the excess money is channeled toward finance assets such as real estate and stocks or overseas, where price increases aren’t considered ‘harmful’.
Central banks cannot leverage like commercial banks for several reasons. One is because the banks lack the infrastructure to determine borrower suitability, they cannot underwrite. Commercial banks have the tools to do this: there are multitudes of them, they have loan officers and staffs, analysis departments and rating services. They can also play favorites: some lend to agriculture, others lend to IT services, others to Wall Street investment, governments, college students, bankers’ close ‘friends’, etc. Commercial banks can measure risk and have institutional means to do so (not necessarily well).

Central banks must act in the moment. The central banks will lend against the face-price of an asset and no more. Best way to think of a central bank is of a pawn shop. They will lend you the $500 but you have to leave them with the Rolex watch. No Rolex, no $500.

They also won’t lend $5 million against the watch, either. Why? Because making unsecured loans is risky, it causes losses.

Central banks cannot play favorites. If the central bank lends you $100 billion against your $10 billion loan, there will be an outcry from those limited to $5 billion against the same collateral. Discounting collateral and playing favorites is why banks get into trouble in the first place.

The balance sheet structure of central banks is different from commercial lenders. As long as they have assets equal to liabilities central banks have little need for capital. The ‘face’ price, dollar-for-dollar, what the instrument promises for repayment is held against the same amount of central bank credit. The accounts in the central bank are always in balance.

Once the central bank is perceived to be making unsecured loans it becomes another commercial bank … with the same problems as the banks it is charged with supporting.

The real issue is credibility: imagine instead of the Fed and Citibank there are two Citibanks, Citi-1 and Citi-2.

Citi-1 is insolvent b/c it has $400 billion in non-performing loans on its $5 trillion balance sheet. When time comes to put these assets on the market it can trade them to Citi-2 … but that bank is also insolvent because Citi-1′s bad assets set the price of Citi-2′s assets! Both Citi-s are unable to lend.

Why is Citi-1 insolvent? Because it made unsecured loans, a percentage of which are nonperforming. Lacking sufficient capital it must dump assets or borrow which is why it is at Citi-2′s door.

However, if ‘Citi-2′ is the Fed, it is solvent because it hasn’t made unsecured loans. It can lend to Citi-1 taking Citi’s bad loans as collateral (or buy them outright). What is poison on Citi-1′s balance sheet is just another loan on the Fed’s. It doesn’t matter to the Fed whether the loans it takes on are performing or not. The reason is because the Fed isn’t subject to commercial pressures and will not go out of business. The ASSUMPTION the Fed and other central banks make is that the loans it takes on as collateral are really good loans and that the markets’ opinions about them are wrong.

Once the Fed makes unsecured loans it becomes Citi-2 and is insolvent for the same reason as Citi-1. This is the problem in the Euro-zone. Both the ECB and ELA national central banking systems have been making unsecured loans. Why? Because there is little in the way of collateral available: ‘good’ collateral is ‘not for sale’ (no desire to borrow against it) leaving none- or defective collateral. There is no credible lender in the EU as a consequence, all the banks are versions of ‘Citi-2′. The outcome is bank runs which are gaining steam.
The loans the Fed takes on from the Treasury are good loans: here, the Fed is conduit between the US and the private sector. Private lending to the Treasury is balance-sheet positive to the private sector. Finance is like a hat store that must sell hats to stay in business. It must make good loans, right now, loans to the Treasury are ‘sure things’ compared to equivalent loans to private sector.

The problem now is that repayment is dependent on new-money loans that the private sector is unwilling (unable) to make. Finance has been lending hand over fist for decades. The inter-temporal balance sheet is a disaster: the resource liabilities are massive, finance assets are falling worthless. This is the real problem.”

Never fear to negiotiate-and never negiotate out of fear. When you are losing the argument introduce fear. Play the ball not the man.

I think Steve believes the very act of saving fuel will drive down the price of the stuff which will keep the stuff in the ground as it will be unprofitable to extract…….so lets say the price could plateau at $90 dollars a barrel as many people simply will not have the tokens in their pocket to drive the price higher….as we remain withen a never ending deflationary depression.

Anyway something really weird is happening in France.
We hear alot about all the sexy High speed & tram train stuff but there is fixed capital money going into the unsexy basic rail infrastructure as well , for the first time really since the war.à_Montereau
I am trying to get a overall picture of the amount of money going into these projects but it can be quite difficult to gauge.
What we are witnessing is a recent drop in French diesel demand (commercial activity ?) which not unlike Germany was robust during 2011.

However Like everywhere else is the eurozone total products demand is tanking as Gasoline , Home heating and Kerosene use nose dives.

But are we getting effective good substitution in France ? , I don’t think so as they are operating withen a non optimal currency area.
Like everywhere else in the eurozone they cannot use the internal wealth of the country to its most effiecent extent because of a lack of token / base money withen people pockets.
So even “rational investment” itself is a sort of misallocation of resourses if persued withen a money vaccum.

I am voting No. I agree with the McCarthy analysis that a no vote means no guaranteed funding. I am also in the same page as Cormac Lucey. A new policy will be implemented here post No vote. It will be called Austerity.

@ Tull
I can see you’re committed to the cause.
Reform never happens through poverty. A no vote will se those with money move it completely out of the country and they’d follow it.
A no vote in a turbulent post Spain Bank bailout world could leave us extremely vulnerable.
Our generation has not known real poverty. It would be good to keep it that way.


“When faced with a choice between the inexorable logic of Colm & the random meanderings of Colm, I believe Colm” Lol, Dat be Colm Mc logic vs Colm B meandering, or visa versa, or both for each, or both for one of 2?

Logic is missing in that sentence unless you have some paradox in mind whose meaning is lost in translation .

Perhaps you can identify the logic you refer to ? Didn’t know yu were signed up to
the Y ESM hope of a second bailout to write down bank debt. Good luck with that.

I did think I was quite clear in arguing for a No vote 🙂

@ Tull

Re ” I am voting No.”

I believe Colm Mc is voting Yes. Well you’ve answered that then. There will be more meanderings from me before Thursday.

Watch out for An Taoiseach a desperate man address the nation as he tries to make sense out of calling this Referendum for Thursday and not postponing it.

Decisions do have consequences 🙂


A policey of austerity (debt austerity) cannot be implemented in a rational national economy…. although Ireland is not a rational place so….

We were a semi national economy up to a point in the 70s ,early 80s.
We became a full market state entity and a part of a wider market state Soviet post 1987….. this in reality meant physical taxable trade balances were not important until the crash.
Post 2007 /08……we became a national economy again – bailing out international banking operations and their market state bets.
Post 2012…… in a national economy will mean most of the “private jobs” are net extractive as they have developed to farm bank credit money.

When their input costs of driving to work are higher then their output costs…….
Yee guys really have to get over the PD programming file….. it was merely a moment in time….. a moment when consuming liquid fuel and turning it into grot & “services” appeared rational for purely global monetary reasons.

The modern market towns of Ireland were products of narrow gauge lines… the first suburbs the products of tram lines.
Unless we can link them together while burning the minimum of precious liquid fuel we will be going back to the dark ages.

There are plans to extend the Lyon T3 line 40 Km east of that city to link the medival town of Cremieu…émieu

Just saying like…….

Perhaps the property journalists in the Irish Times, the paper of record, might like to contribute some advice to households in mortgage arrears?

PS … correction , we became a sort of national economy bailing out international banks – as Karl has stated we did indeed print to bail out these entities.
But we did not print a national currency… which meant I guess the debt was not devalued.
This is perhaps the end of the European ideal (Bullshit) me thinks…..if not we will have a Europe gone back to the Dark ages anyway.
From a technologist perspective at least it looks like its a choice between the 19th century or the 9th century.

Fichier:La ligne du CFEL au niveau de Saint Romain Barens.jpg

@ Tull

I admire your conviction but this mess has gone far beyond the days when it was an Irish problem.

JCT made a hash of things. We are where we are.

They’ll go to the edge of the cliff and come up with a Euro compromise.

@ Dork

Interesting as always. Many thanks. Today’s stockbroking fun and games are indicative of what’s still under the carpet. Of course the pile has always been fairly deep in D2.

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