Restoring Confidence in the Financial System

Fiona Muldoon, Director of Credit Institutions and Insurance Supervision at the Irish Central Bank, gave a speech yesterday in Glenties at the MacGill summer school (h/t John Gallaher). The topic of the speech was “Restoring Confidence in the Irish Financial System.” Ms Muldoon gave a fairly upbeat assessment of progress. I am less sanguine. The problem is not lack of international confidence in Irish banks and businesses, but rather lack of international confidence in Irish financial regulation. It is still not clear if the Irish Central Bank has the backbone for the tough tasks it faces in the current environment.

It is important to remember that the weak regulatory stance of the Irish Central Bank during the credit bubble period was one of the chief causes of the Irish economic crisis. The Irish Central Bank’s soft and timid approach, and its willingness to be swayed by political and business interests, was a major cause of Ireland’s economic disaster (for evidence, see my paper with Brian O’Kelly). Has the Irish Central Bank sufficiently altered its approach?

The Irish Central Bank has reformed enough so that if the challenges of 2002-2008 ever reoccur, it will be ready for them. This new resolve to block credit bubbles is not likely to be tested for many decades. The Irish Central Bank needs to have the strength and fortitude to deal with the very different challenges of 2013.

The Irish Central Bank showed no leadership during the fiasco of the 2009 Land Reform Act/Dunne Judgement. The previous government (perhaps deliberately) slashed a gaping hole in Irish financial contract law when it passed the flawed 2009 Land Reform Act. The flaw was pointed out by Justice Dunne, and the judiciary reasonably expected that such an egregious flaw (called a “lacuna” in legal parlance) would be fixed by amending legislation. However the legal flaw was politically convenient since enforcing mortgage contracts would have been politically painful at the time. Ignoring the Dunne Judgement and leaving the flaw in place was very poor practice in terms of restoring international confidence in the Irish financial system, but it was politically convenient for a domestic audience. The government did nothing at all about this legal flaw, despite the obvious impact on Ireland’s international reputation.

It took outside interference by the Troika to get this legal flaw fixed. The Troika repeatedly noted the unacceptable situation in their quarterly reviews, and when government action was still not taken the Troika demanded that the Irish government act by an imposed deadline or face a cut-off in national debt funding. Throughout this long, confidence-draining saga, the Irish Central Bank stood meekly by and said nothing. A stronger-willed central bank (US, UK, Germany, others) would have been screaming from the rooftops about the need to fix such a gaping hole in the country’s financial contracting law.  It is not to the credit of the Irish Central Bank that we needed Troika intervention to get this problem acknowledged and fixed.

The Central Bank’s response, or lack thereof, to the explosive growth in mortgage arrears is another case where its stance was timid. Even by late 2011 it was obvious to hard-headed observers that some substantial fraction of the mortgage arrears explosion could be traced to strategic behaviour by households. Mentioning strategic default is offensive to many people since it means acknowledging that some Irish people are acting dishonestly in their own self-interest against the interests of society. A few people were brave enough to mention the obvious (take a bow, Karl Deeter!) but none at the Irish Central Bank. Up until early 2013, the Irish Central Bank effectively had a ban on any mention of strategic default by any central bank spokesperson. This gave rise to some stilted presentations, where Central Bank senior spokespeople railed about the explosion in mortgage arrears without any mention of one of the key causal factors. This omerta was finally broken by Patrick Honohan in early 2013. That was too late in the process to be an international confidence-booster. A strong imperative by the Irish Central Bank not to cause anyone any offence is not a good foundation for building international confidence in Irish financial regulation.

On the positive side, the Irish Central Bank’s actions against Quinn Insurance were tough and bold. So the bottom line is that in terms of restoring confidence the Irish Central Bank has a mixed record over recent years.

Comments

comments

219 thoughts on “Restoring Confidence in the Financial System”

  1. Good post Gregory
    Leaving aside the ‘staff’ members, the CB Commission has
    A macroeconomist (of great repute) : John Fitz
    An ex commercial bank CEO Mike Soden
    a trades union official Des Geraghty
    a corporate lawyer Blaithnid Clarke
    A economics lecturer and ex advisor to a finance minister Alan A.

    No business men, few women, no financial lawyer, no sociologist/political scientist, no historian, no international experienced CBer…, no gadgfly contrarians…
    A much beefed up and expanded CB commission would be a welcome start. (no, thats not a job application)

  2. The speech mentions turbulent times ahead,how bout we are pleased to announce a return to normal.Its almost apologetic in tone,oops sorry but the ehm secured creditors want their security,sorry we delayed and kicked the can as long as we could but you know,ehm do you have that few bob you owe,sorry,sorry to have to ask again and all that.
    Anyway,strap on your seatbelts doors engaged we are about to take off,there will be plenty of inflight entertainment provided.

    There is one rather jarring comment in it too,regarding “staff” possibly a yank thing but we only have colleagues not the help or staff over here.I’m probably being pedantic,but at a senior level do you still refer to coworkers as “staff”,indeed Fiona I was only saying to the staff the other day…really !

    “Indeed, I often say to staff that it is a difficult job with little discernible upside and noticeable by the public only in its absence or ineffectiveness…”

    As an aside and before this descents into an admiration society,Gregory deserves some credit,bad pun intended,for courageously mentioning,posting and moderating many discussions on the 500 pound gorilla off irish mortgage default.It was made crystal clear that there were NO irish numbers available or cooperation forthcoming.As an exercise some US numbers were extrapolated with plenty of caveats,plus an offer to crunch the irish numbers if such data was made available,free too…yes free!
    As it would have been Milton Freidmans bday last week a better title for the paper would have been…”There ain’t no such thing as a free lunch”

    This linked article provides a quick summary and comparison,within an international context off recent regulatory reform and the impact on spreads and returns.Its quite interesting that the irish banking fiasco was so pedestrian and idiotic,nothing exotic or sexy involved,just dumb lending no highly esoteric off balance sheet liabilities,leveraged bets gone astray,rouge traders.
    http://www.voxeu.org/article/how-have-financial-markets-reacted-financial-sector-reforms-after-crisis

  3. Methinks a touch of the gamekeeper from the keepers of the financially efficient markets hypothesis ivory tower?

  4. for what it is worth – Des Geraghty warned about the dangers of a property bubble in 2000; not too many from the academic economics/financial community raised their heads above the parapet of said towers.

  5. Six years ago today I left Ireland and 6 days later news broke that the European Central Bank and the US Federal Reserve injected a combined $90bn into financial markets.

    The day began with BNP Paribas, France’s biggest bank, announcing big subprime losses and saying that it could not move money from two funds because of a “complete evaporation of liquidity.”

    Unlike the fortunate ‘Dr Doom’ aka Nouriel Roubini, there was no god who would send me manna in reward for my prescience!

    Six years later and the Irish banking crisis continues. It’s likely that the goal to return to markets at the year end conflicts with sorting the debt mess. As in many other countries, there maybe a reluctance to scare the horses.

    In the mortgage sector, the buy-to-let debt should be the easier to resolve but it’s not.

    AIB said this week that in the buy-to-let sector, the level of 90 day plus arrears rose from a ratio of 43.6% at the end of December to 47.9% at the end of June.

    Bank of Ireland said buy-to-let mortgages in arrears for more than 90 days rose to 26.01% from 23.36% at the end of last year due to the impact of borrowers on rising repayments as interest only periods come to an end. During the bubble, the bank’s interest-only period was typically 10 years. So loans issued in 2006, the craziest bubble year, will remain on an interest-only basis for 3 more years.

    Fiona Muldoon said last April that half of the €50bn debt that is due from the SME sector is impaired. She said many of these loans are interconnected with property deals.

    With so many loans non-performing, what economic scenario in the next 5 years will change the fundamentals?

    Muldoon said:

    “We believe that the banks now have credible credit assessment tools. We have overseen that operational skills and resources are improved and that appropriate external help is engaged where necessary.

    Policies and Key Performance Indicators (KPIs) are in use in the banks to measure their success.  The banks’ management teams must now be accountable for the implementation of the strategy and measured in terms of their success in that implementation. We receive regular updates from the banks management on their progress against plan.  In this way, restructuring and re-underwriting will continue to take place throughout the year.”

    Six years after the onset of the credit crunch management-consultancyspeak from the Central Bank isn’t very impressive.

    Progress against plan? – seems that the Bank woke up to this problem late and continues to have a passive role.

  6. The Central Bank’s response, or lack thereof, to the explosive growth in mortgage arrears is another case where its stance was timid.

    You’re ignoring the elephant in the room: Neither the Central Bank, the Government, and especially the banks themselves have the moral authority to chuck people out of their houses. This goes treble when the Central Bank is overseeing wide-ranging mortgage debt forgiveness by the banks towards persons connected to the Government and the State in general.

    Mentioning strategic default is offensive to many people since it means acknowledging that some Irish people are acting dishonestly in their own self-interest against the interests of society.

    It’s only offensive to the “wide boys” engaged in the practice en-masse, who put up such a show of moral indignation that their debts will never be pursued. The ordinary owner occupier is simply scared. He is going to be thrown out of his home, made bankrupt, and chased for money for the next ten years, all for the crime of not having networked and played golf enough with the criminal class that runs this country.

    I can see the collective body politic gearing up to tackles the mortgage arrears crisis. But the axe is not going to fall on the deserving “won’t pays” with 5+ house in the BTL sector. The axe will fall on the “can’t pays”, the “can’t pulls”, the “can’t bribes”. They have to pay for those who can.

  7. DoD
    Maybe Des G was prescient. Maybe he was lucky. Its not about him per se. Or any others. Its about a group of people that when you look at them WITHOUT PERSONALISING are pretty much dominated by insiders : the eminence grise of the semi official government economic service and son of an ex PM, the ex head of the largest bank, the ex head of the union congress, the ex advisor to the minister for finance… All fine people one and all but none exactly mad googley eyed contrarians. We need much greater diversity of opinion and backgrounds on all state bodies. I submit that we are unlikely to get same.
    We could play fantasy cb commission all we like : id like to see Peter McVerry on it for example and perhaps someone like Ed Harty (SME exporter world leader in area). But thats me. Lets get greater diversity in all areas. And gender balance.

  8. I am surprised that people are surprised at the level of ‘strategic defaulters’.
    I can remember Morgan Kelly saying (paraphrasing here) that people would wake up to the fact that they would be better off not paying their mortgage for two years, save the money, be evicted and then move into the repossessed house next door.
    Corporations and businesses do this all the time and nobody is screaming about how this is ‘offensive to many people since it means acknowledging that some Irish people are acting dishonestly in their own self-interest against the interests of society’.
    I say this as someone who has no loans and no axe to grind. I merely see it as a reasonable (albeit dishonest (who will cast the first stone?)) response to their situation.
    How many of the SME loans are also ‘strategic defaulters’? Are some ‘strategic defaulters’ more equal than others?

  9. What about default on pension obligations in the private or government sector? The issue’s not unique to Ireland, but this is one area that concerns me generally. The private financial system is still in intensive care world-wide, despite the fact that workers in their peak earning periods greatly outnumber retirees, and are still shovelling their earnings into that sector (as they have been for the last 10 years). What happens when that music stops?

  10. It’ll be easy to have a reasoned debate here on strategic default if social partnership veteran Jack O’Connor is setting the standard

    SIPTU president Jack O’Connor made the controversial link between Mr Duffy and Joseph Goebbels, who was Hitler’s minister of propaganda. “If Goebbels had that man (David Duffy), Hitler would have won the war,” Mr O’Connor claimed.

    He made the comments after Mr Duffy had claimed that one in five homeowners in arrears was “strategically defaulting”.

    http://www.independent.ie/irish-news/union-boss-stands-over-nazi-slur-on-aib-chief-29469341.html

  11. @Brian — I like your suggestions about broadening the Central Bank Commission but not so sure that strategic default rates are below 35% — maybe or maybe not. As you say there is limited Irish data so estimates are noisy. That is not the same as saying that the actual figure is low.

  12. I must have missed something,an ambulance passed by with a strategic defaulter or it may have been an irish developer kidnapping himself.
    Either way,the ambulance was going too fast I was trying to hand them a link to my web site,luckily I came upon a bandstand to jump on instead…..

  13. I would enjoy seeing this thread drift back toward the topic “Restoring Confidence in the Irish Financial System” but perhaps that will not happen. Go with the flow.

  14. @Gregory,completely agree,reread your excellent post can’t find any mention off 35%.But like gazpacho some dishes are best served…
    I tried some of the above links may be a us/yank IP thing, but when I enter shamelessplug.com it works,on the second link I just used google enter strategic default.The refuge off the new to a topic is a shotgun or scattered approach,link everything you can find,try to befuddle the reader…..

  15. @Brian Lucey

    Thanks for those posts regarding strategic default. Very informative.

    @Gregory Connor

    Given that two-thirds of your post here concerns strategic default in mortgages, it is a little unrealistic to ask that people just speak about “restoring confidence in the financial system”.

    I must take issue with your comment that mentioning strategic default is offensive because it means some Irish people are acting dishonestly. That some Irish people have and are acting dishonestly is apparent to everyone. The question is rather: what percentage of home-owners/mortgage holders who might falls into this category? (I will park the issue of whether this might constitute ‘dishonesty; or an efficient breach of contract for the individual in question).

    Most people, myself included, suspect that Mr. Duffy and others claim the number is high because they want to affect policy. In particular, a scenario that paints the banks as victims of unscrupulous debtors will most likely lead to a much more hardline policy towards debtors and much more leeway for creditors. The lack of evidence or research on the issue also provides good grounds to be sceptical.

  16. We also have AIB talking about not repaying the government €3.5 billion in preference shares (which should also incur a €0.9 billion late/non-payment penalty) and BoI talking about avoiding the late payment fee of €0.5 billion (and simply not discussing how they will come up with a further €1.8 billion):

    http://www.independent.ie/business/irish/aib-will-not-repay-35bn-cash-it-owes-to-the-state-29337833.html

    http://www.irishtimes.com/business/sectors/financial-services/bank-of-ireland-working-on-plan-to-avoid-paying-state-455m-fee-1.1483398

    Will the Central bank insist the people of Ireland get repaid or is the fault of the pesky strategic defaulters too?

  17. From the MacGill address

    [in 2016] There will be respect for the different roles and the reasons for those roles on both sides [regulators and regulated]; a respect that was noticeably absent in the replay of tapes from the era that got us to where we are today.

    Interesting that the tapes are mentioned not in terms of their substantive content, but in the perceived diss.

  18. A very interesting address, especially as the speaker does not appear to have been speaking from a prepared text but rather off the cuff and in colloquial terms.

    The nub of the matter is indeed the issue of restoring confidence in the banking system with none of the players in Ireland IMHO either individually or collectively being capable of doing so. The CB is no exception.

    The markets evidently believe that the government will deliver on the conditionality associated with the bailout, the only thing – despite the posturing – keeping a floor under the economy. One key element is self-evidently cleaning up the debt situation, especially in relation to buy-to-let mortgage lending. Action on this will hit the parties in government where it hurts. As either near outright owner or major shareholder on behalf of the Irish people, it should get on with it.

  19. “I believe the regulator will have some interests closely aligned with the well governed institutions that it regulates: these will be prudentially stable, well capitalised, conservatively run institutions. Should there be a problem with the rules that the regulator sets or the way that it applies these rules, there will be a reasoned, articulate, public interaction based on the facts and the issues and thereafter a working together to resolve the problem based on a common understanding of the objective of that regulation in the first place. ”

    Not objectionable on the face of it, but does this hint at an overly consensual, collaborative relationship between the Irish Central Bank and regulated entities? Perhaps the Irish Central Bank should switch to a more confrontational and hard-edged approach? “Working together” too easily morphs into regulatory capture.

  20. On the original topic : its hard to have confidence in a system that persists in not punishing any wrongdoing. For years I have noted in my undergraduate lectures that we have the most ethical financial sector in the world. We know this as the numbers of convictions for financial crimes, such as insider trading or dublin-minnow-coz-we-dont-got-whale type things is asymptotically zero.
    People got mortgages under fraud – of course they did the numbers in all senses were so high. How many convictions on both sides? Will we ever see anyone in Shelton Abbey for Cassoulet des comptes annuels? Will we see auditors (or even GASP economists) in the criminal dock … etc etc.
    We spent a decade and a fortune investigating planning corruption and we have how many convictions? And on and on and on.
    Meanwhile the banks puff and huff about getting tough on defaulters. Motes and Beams

  21. @Brian Lucey

    ‘… but none exactly mad googley eyed contrarians.’

    Strongly Agree. And I’m sure you are not referrin to the two CorpGov Profs from UCD how moved inside early in the crisis.

    ‘… Lets kill this meme of 35% strategic default ..’

    Strongly Agree. It’s a mere .. er .. opinion … with legs.

    @What Goes UP ..

    ‘The real way to restore confidence in the financial system would be to kill the zombies!

    A most astute suggestion .. if somewhat belated.

    @all

    With genuine_sov+financial_sys_toxic @ 180%GNP = 2 x 90 = 3 x 60

    and Personal @210% GNP

    THE “STRATEGIC DEFAULT” WOULD UNQEUSTIONABLY BE THE PRIORITY OF ANY “SANE” STATE; that said, do we have a ‘sane state’?

    Or to put it succinctly: Is the Irish State both BUST and INSANE?

  22. Lost me a little what on earth has the central bank gotta do with the level of successful prosecutions or otherwise for white collar crime?
    It’s there fault then….
    Here are the US numbers as a comp. assume above is anecdotal,compared to other jurisdictions or say overheated in a pub,a personal observation perhaps…unless of course there is a paper in progress…ok ok truce:)
    Great post Greg,the title of the speech is ridiculous how does one possibly define “confidence”….

    “When monthly 2013 convictions of this type are compared with those of the same period in the previous year, the number of convictions was down (-8.4 percent). Convictions over the past year are still much higher than they were five years ago. Overall, the data show that convictions of this type are up 6.9 percent from levels reported in 2008.”

    http://trac.syr.edu/tracreports/bulletins/white_collar_crime/monthlymay13/gui/

  23. If I owe millions to banks, go abroad, transfer all available assets to my wife and go bankrupt, is this strategic default, a criminal offence or just good business practice?

  24. @ All: “…its hard to have confidence in a system that persists in not punishing any wrongdoing.”

    This quote is from BL above, but it could just as well have been from Prof William Black. Unless (and until) our wrongdoers are punished for inflicting so much harm on so many – all else is a waste of time! But maybe that is the plan. Waste time!

    The global financial system is now a basically dishonest system (as is our national system) so any talk of ‘confidence’ is propaganda: [Which very nearly deceives your friends, without quite deceiving your enemies.*]

    * For a fuller (and amusing) explanation, see: Cornford, F M. ‘Microcosmographia Academica’, Cambridge. 1908. p5.

  25. @ John Gallaher

    As someone remarked, stupidity, of the plain vanilla variety, even if collective, is not a crime! What the establishment in Ireland is expert at is proving the truth of this adage.

    What we have now is silly season debate when the world and his wife knows that said establishment will sign on the – troika dictated – dotted line when push comes to shove. It has no credibility whether in Glenties or anywhere else!

    @ Gregory Connor

    If the members of the Executive of the ECB, from the President down, state that there is a limit to what central banks can do, why should the Irish CB be any different?

    For me, the most interesting sentences in the speech are the following;

    “Similarly there are many households in Ireland as in any economy who are net savers and there is still significant wealth in Ireland. There is €233.7bn in deposits (other than from credit institutions) in the Irish banks both covered and non-covered and €11.6bn in the credit union sector. That we have both borrowers and savers here in Ireland is obvious and that people can be borrowers or savers at different stages of their lives is also obvious.”

    Getting the two sides to do business again is the key. They may already have started!

  26. Given that so much of the Irish financial sector is in state hands, and the Troika are still in town, I suppose that ‘sensible’ talk is the norm these days. Musical parodies and foul language are definitely out of fashion.

    Ms Muldoon’s speech is eminently reasonable, and very clearly set out, but I am afraid it is not realistic.

    ‘Never again can we have the socialisation of losses and the privatisation of profits as the business model in banking’

    Bankers may not have guns, but they have power, and not all bankers are in the position that Irish bankers are in. We are currently witnessing a global bubble in financial assets, fuelled by printing from central banks. The US administration is deeply in thrall to Wall St., and leveraged speculation still rules. It will end in another bust, and the cost will again be socialised, with further massive damage to the US and other states. That is what you do when you have power. It is not reasonable but it happens.

    Gregory Connor rightly refers to the weakness of the Irish Central Bank. The CB cannot be stronger than the political system of which it forms part. The Governor is a political appointee after all. Since the political party system is deeply penetrated by private vested interests, and the pols have to get themselves re-elected, the state must cannot be strengthened. Others have set out on this board the Dail reforms required, but the crisis of our state will have to deepen very considerably before they are contemplated.

    Absent a healthier, better regulated state, we cannot expect to have better regulated banks. Ergo, the mortgage default issue will be fudged and dodged. As is shown by the absence of a proper enquiry into the credit boom/bust, we have world class can kickers.

  27. @DOCM

    Tut Tut Mac; the establishment ain’t stupid – [Ah shur dere only stupid!] and You should know – it simply feathers its own nest at the expense of the lumpen supine serfs … and it has proved to be extremely resilient at same. As you are!

  28. @DOCM,hi DOCM,I certainly would hate to see people jailed for mortgage fraud,so the income was overstated big deal.The mortgage broker or banker looked the other way,hardly worth prosecuting and jailing people for that.
    But they probably should downsize and sell….jail nah.

  29. @ John Gallaher

    My sentiments entirely! The question is: who is responsible for the unsustainable debt? As there is no facility for “jingle mail” in Ireland, this is the burning question! It is political rather than financial in nature. Just how sensitive is can be gauged from the failure to tackle the issue of buy-to-let mortgages which, it seems, is closely linked to that of SME debt.

    This can hardly be linked to images of historical evictions from the family home.

  30. @David O’Donnell

    A most astute suggestion .. if somewhat belated.

    It’s only belated if you think there is any hope of getting money back from the useless banks, otherwise they’re coming back for more – at which point you either throw good money after bad, or you accept your losses and take them behind the woodshed.

    Ps – I have been saying the same thing for almost 5 years, but it will probably take another €15-20 billion demand from the banks for people to decide the issue is not as belated as one thinks!

  31. .. just checking me notes and empirics on the Irish Financial System ..

    CorpGov pre-crash = CorpGov post-crash

    statsig *******************************

    That’s one hell of a ‘confidence’ stat .. er? Nuff said.

  32. @What Goes UP

    Of course they are coming back for more …. fully agree … the blathering spin from BOI and AIB this week would put DOCM to shame ….

    I’m on it for 5 yrs as well – but Mugabe is on his 7th five year … we heading the same way if we don’t wise up at a collective bolshie level and a second generation to be sacrificed …

    @Brian O’Kelly

    Any update on that ‘insider account’ from AIB?

  33. “Mentioning strategic default is offensive to many people since it means acknowledging that some Irish people are acting dishonestly in their own self-interest against the interests of society”. No, it is not offensive. It is part and parcel of a carefully constructed dirty tricks plan.

    It is sickening in the extreme to hear a procession of bankers throwing around these accusations, the very people who strategically maneuvered themselves into tens of billions of state funding dumping the burden willy nilly on the state.

    These same people defaulted on their fiduciary responsibilities, they destroyed their shareholders, their own banks and they incinerated vast quantities of peoples savings. For Ritchie Boucher, David Duffy and others to play tag team with Gregory O’Connor and the likes of Karl Dieter, bad cops good cops, as regards who will throw the next dirty snowball is treacherous.

  34. @DOCM,a lot of this is “new” legislation,untried it has been suggested on here that the banks roll out a pilot program,say targeted at a specific zip code oh like D4…regarding responsibility,that’s quite a moral question,I’ve always advocated and favored copying the UK BK system,big believer in second chances and fresh starts.
    Only in Ireland would the non payment of unsustainable debt become a moral morass,if the banks are under capitalized deal with it.
    It’s the responsibility of the CB to encourage strongly the banks to pursue higher value repo.’s or foreclosure on those with a viable resale value.
    No point in having too large an REO portfolio of lower end houses,BTL is simple grab the cash.Otherwise the situation will arise where rent is getting diverted to lawyers to fund legal challenges,will mistakes be made and errors by banks yes of course.
    @francis I will try track it down for you,Gregory has been the leading light,at the forefront on this issue.He has quite a few excellent academic and general postings on here regarding this,he has patiently and thanklessly moderated many discussions/comments,often from overly emotional and somewhat financially illiterate commentators.

    At times there is too much emphasis on strategic default,default is default.

  35. @ JG

    “It’s the responsibility of the CB to encourage strongly the banks to pursue higher value repo.’s or foreclosure on those with a viable resale value.”

    Absolutely! And I think that it is doing just that within its current mandate! But the fundamental decisions lie with the government.

    The issue came up indirectly on another thread in relation to whether evidence-based policy decision making would win out against the political forces pushing against it. My view is that it will not because of any Damascene conversion by the Irish body politic – it is incapable of reform with the present electoral system which populates the parliament with local government representatives – but because the harsh reality of the country being unable to pay its bills will dictate that it happen.

  36. @DOCM it’s probably a very unpopular thing to say,but the Troika will leave quite a legacy behind.Gregory mentioned closing the legal lacuna here for one,off top my head the property price databank about time.Modern or somewhat personal insolvency legislation,Fiona actually starts her speech with that very topic off expenditure exceeding income!
    As an aside,the Donal Ryan book you mentioned is not released in the states until October,however,just got a copy off The Spinning Heart looks great,going to read it in now,thanks for the recommendation.

    “The current task now is the necessary and difficult work of putting together a business model for Ireland Inc. that expands on those parts of the economy not built on buying and selling houses and development land to each other at ever inflated prices. (Even ignoring the interest payments on debt), the State currently generates a net deficit or in common language spends more than it receives in taxes”

  37. Ulster bank and the uncertainty over its future is pretty telling in terms of confidence in the Irish banking sector. It’s reasonable to expect its Irish management team have argued for its survival (ie in future we’ll write good business etc),but they don’t seem to be winning.

    In the Irish media and some commentary, many argue borrowers and lenders are equally responsible for losses. I don’t see it this way. For a credit system to work, protection must be weighed in favour of creditors. and preferably not at the taxpapers’ expense.

  38. The Zingales article doesnt put the number at 35%. It estimates it. A subtle but important difference.
    What is more, how it estimates is really worth looking at.
    “To identify the proportion of strategic default, we use two questions. One asks “How many people do you know who have defaulted on their house mortgage?” Those who know at least one are also asked “Of the people you know who have defaulted on their mortgage, how many do you think walked away even if they could afford to pay the monthly mortgage?” By taking a ratio of the two, we obtain an estimate of the percentage of actual defaultsthat are considered “strategic” by the defaulters’ acquaintances. ”
    Q: Have you deadbeat friends? If so How many….
    Id be really really really cautious about taking this as a figure for Ireland, the more so when the paper readily admits that strategic is an unobservable event. Its so unobservable that we dont have a definition for it.

  39. BTW – the question :do you know a strategic defaulter: elicited a 15% response rate. That tallies well with Gerardi, Kristopher, Kyle Herkenhoff, Lee E. Ohanian, and Paul Willen. 2013. “Unemployment, Negative Equity, and Strategic Default.” http://papers.ssrn.com/abstract=2293152.

    to repeat again : we DO NOT KNOW the percentage of strategic defaulters in Ireland. We should make some effort to find it out. Else banks and blogs will continue to quote figures in absence of hard fact.
    There are 144k defaulting residential mortgages : a survey looking at income and expenditure patters over the last year would be easy to do and easy to implement and within 6 weeks would give us some hard facts. I have offered to do it pro bono. Lets see.

  40. DOCM
    I think it does. I would also note that the research on behavioural and social aspects suggests, as I have linked to, that if we start repossessing a lot then the stigma of default will lessen and that will further impair the banks. As in so much we have as a state dillied and dallied and shillied and shallied in taking action.
    this is a socio political problem. By slipshod language about the extent and nature of types of defaults we run the real risk of a memetic bundling of all defaults into the wont pay category with lashings and lashings of lashing…
    En passant : we took on 30b of debt to satisfy the esoteria of the ECB . Imagine if we had taken on a third of that to clean the mortgage stables instead.

  41. @All

    Brian Lucy is 100% correct we simply haven’t a clue as to what is or isn’t a strategic defaulter and even more importantly we haven’t any sort of idea as to how many of them there are.

    So with the greatest respect to Gregory et al stop pretending this is one of the single biggest factors preventing a ‘normalisation’ of the housing and Irish banking markets, it isn’t – far from it in fact. As indicated here many times the single biggest problem we have is that we allowed some hair brained idea to seep into our being that most of the property deals struck between 2001/2 to c2008 ever made sense in the first instance.

    Why do we continue to believe that enforcing debt deals on consumers which the financial markets have indicated by their refusing to roll over liquidity financing and ceasing to lend on a longer dated basis to the banks that struck these deals when the going got tough, beats me. The market stopped believing, but many here continue the lie.

    The markets spoke in 2008/2009 – these mortgage ‘assets’ were not realistic, the metrics behind the lending were daft and the income assumptions required to maintain the vast majority of the these mortgage debt deals assumed a low interest rate environment forever and couples would continue to work in a two income household forever. Crazy.

    All the while more and more bank created credit feed into a market for the period under discussion where prices relative to cash income streams from the underlying asset became ever more bizarre by the passing year. All this against a regulatory background where those supposedly in control allowed institutions to run up almost too incredible beyond belief loan to deposit metrics where even the merest kink in the asset line would have all these institutions scrambling for additional capital. But it seems the CBI, Govt and many commentators here are still convinced that the legals behind these deals as contained in the credit agreements stack up. Something’s not making sense here. Logic has left the blog.

    So Gregory et al please face reality and stop peddling an argument that any sensible analysis would suggest is simply not credible against the hard facts on the ground. The house prices were wrong and as a consequence the lending attached was wrong – any basic yield, DCF or IRR computation would have told you so. Trying to cement in debt deals on the back of novice property consumers where all the facts were suggesting the deals were off the wall in the first instance is plain stupid, strategically speaking.

  42. @ Ahura Mazda

    ‘For a credit system to work, protection must be weighed in favour of creditors. and preferably not at the taxpapers’ expense.’
    We need credit systemss, but no system can work (in the general interest) if it is subjected to gross abuse by those who are running it. There is general problem with credit-based economic growth, but I’ll leave that one to BWSnr. As Robery Browne notes above, inancial institutions are riddled with principal agent problems. Stiglitz has provided a ton of empirical evidence for that fact, but his work is merrily disregarded by the vested interests. Bankers continue to corrupt governments right across the globe, while tut tutting about the likes of Putin. Plutocracy is not compatible wih democracy, and never will be.
    http://www.amazon.com/The-Bankers-New-Clothes-Banking/dp/0691156840

    Re the mortgage default issue, DOCM says above:

    ‘It is political rather than financial in nature. Just how sensitive is can be gauged from the failure to tackle the issue of buy-to-let mortgages which, it seems, is closely linked to that of SME debt’

    The Irish economy is a bit like a partially collpased mine at the moment. No one knows what has happened to the exit, and an unknown number of shafts are unstable. Attempts to clear some shafts are liable to cause others to fall in. Specifically, attempts to foreclose on BTL are liable to torpedo whole chunks of an ailing domestic retail and service sector. Failure to foreclose is liable to bring down the banks, and the state along with them. Damned if you do and……

    They say catastrophe happens silently. Who would have thought, before Fukushima, that Japanese nuclear facilities were so poorly regulated, or that there was such a web of mal-administration and conflicts of interest ? As Soros said, no one knows who is swimming naked until the tide runs out.

    Thanks YoB. The credit chicken has come home to roost here now, and the chicken handlers don’t know which way to run. To mix the metaphor, they were hoping the fog would lift, because they were never very good with a compass. It didn’t lift, and it isn’t going to lift anytime soon, so the poseurs are steadily getting found out. That is progress, of a kind I suppose.

  43. “It is important to remember that the weak regulatory stance of the Irish Central Bank during the credit bubble period was one of the chief causes of the Irish economic crisis. The Irish Central Bank’s soft and timid approach, and its willingness to be swayed by political and business interests, was a major cause of Ireland’s economic disaster (for evidence, see my paper with Brian O’Kelly)

    ICTU general secretary, David Begg was a director and member of the board of the Central Bank from May 12th, 1995 until summer 2010, a period of 15years. His tenure covered the period between 2003 and 2008 which is studied in the published paper referenced.
    David Begg was a very senior member of the board of the Central Bank. He was chair of its audit committee/audit and risk management committee on which three members of the regulatory authority also sat.
    Irish people and Irish trade unionists in particular are entitled to an explanation from David Begg

  44. I should note : I suspect (based on years of observing the Irish nation) that there is a significant amount of “true strategic” or “shag it I wont pay” defaulting, concentrated in the BTL market. In the residential I would be surprised if its 20%, but also if it was single figures. There, I suspect, its much more small-s strategic : not so much daddy or chips but mortgage or chips.
    (for the yoof… http://www.youtube.com/watch?v=aHA4-5N5AzA)

  45. So what have we here; a new sub-species of Homo hibernicus rusticus? Those that cannot understand and those that will not!

    Prof Lucey, Paul Q and YoB have, very eloquently, put the matter to rest. Its QED time on the chicanery and fraud (yes, fraud) in our global and national financial systems. Honesty, Integrity and Fair Dealing – the only foundation for your confidence, Gregory, have been abandoned – precisely because it is no longer possible to get that 8% return WITHOUT gaming the system. What does Hhr fail to understand here? A lot, it appears.

    There is no “or else” eventuality (in the financial world) anymore. Incompetent financial executives who wilfully mismanage their private companies no longer face any level of punishment – apart from a “tut tut” and a ‘request’ for their company to pay a pitiful ‘fine’. Worse, many senior executives are escaping criminal charges. Joe Taxpayer is simply ‘volunteered’ to pick up their bills, past, present and future. That works until it does not. And it will not! Because it cannot!

    At the very least I can asset that the top executives and directors in our financial establishment know, with 101% Certainty, that the Irish public in general, and some of our local academicals in particular, are a flock of cognitively-impaired sheeple.

    “If you are lying down and complaining about the ‘rain’ – then you are being p*ssed on!”

    Hi, Paddy. Its sort of irionic we have to meet up here. Cheers. Brian.

  46. John G
    thats the same paper reference as I have noted. Same caveats apply. note the definition : 90 plus on mortgages and current on other debt . Not a whole pile of use if you are using the credit card to buy petrol is it…

  47. @Brian,I do agree that there are significant difficulties in applying US numbers/studies to the irish situation.
    Has any work been done in say northern ireland at queens or in the UK,they experienced a similar boom/bust cycle,but have had more modern BK rules.
    The failure to implement modern humane fast track BK has contributed here,as has the fact the the banks were somewhat powerless to enforce legally binding contracts.
    From talking to people there is a prevailing feck the banks attitude,”we” bailed them out,I want some that bailing out too,or shur what can they do no fecking way they taking my house….
    Foreclosure is part and parcel off a modern functioning housing market,offers new entrants a bargain,the more financial savvy and emigrants who fancy a bit off the oul sod a buying opportunity…..
    The legislation and other tools just given to the banks are all quite new and legally unchallenged,make them target an area of higher influence and affluence,stand back and watch the court system get clogged up.
    The less affluent should not be targeted as they may offer less resistance due to numerous factors,insist the banks act commercially,same costs to foreclose on a 500 to 1mio gaff as a 100 to 350,000 one….so!

  48. There are numerous things the CB could be doing better,one suggestion is to seed a community bank or “new bank” try attract match up some more socially responsible capital,call Clinton’s bluff,the irish American fund,that noted philanthropist Ross…etc.
    The “foreign” banks want to cut and run,a few loan books have traded and “word” is many more are on the shelf waiting hit the street.They are trading at pennies in the dollar,empower people to cut deals.
    Hard to negotiate with a lender if you can’t execute via refinancing a principal reduction.The vulture funds will take the money cheaper more efficient than litigation,but there is currently NO refi options,fix it.

  49. For all those who believe the poor innocents in the banks are being tricked by the feckless, reckless strategic defaulters – three questions:

    1 – If you think 14% of the loan book in mortgage arrears is attributable to people conning the bank – when normally the alarm bells would be ringing if 3% of your loan book was in trouble – what does that say about the abilities of the people running the banks?

    2 – If you think, 5 years after they imploded (followed by massive government bailout) the losses announced this week indicate people in the banks don’t care about getting repaid (the loan book continues to deteriorate because they know they effectively have a government guarantee to fill the hole) – what does that say about the abilities of the people running the banks?

    3 – If the guys in the banks are too stupid or too incompetent to be running the thing, don’t you think it kinda suits their purposes nicely to suddenly find that these huge losses they continue to make are simply not their fault?

    Also – another thing to contemplate…

    AIB are trying to pawn off worthless shares in themselves to avoid paying back €3.5 billion in preference shares owed to the government, which should also mean they incur a €0.9 billion charge.

    BoI are trying to avoid paying €1.8 billion in those same state preference shares (the hope that Wilbur Ross will jump in is a complete fantasy) and a late payment fee of €0.5 billion.

    Both of those actions will be effectively writing off €6.7 billion – kinda put the “strategic defaulters” in the ha’penny place!

  50. It is interesting the Richard Boucher was the only bank CEO to voice doubt about the level of so-called strategic defaulters when he said something to the effect that he couldn’t get inside the head of alleged strategic defaulters and so judge them as strategic defaulters.

    What goes up rightly points out that the two pillars are engaged in attempted strategic default on contractual commitments to the State in seeking to avoid their obligations regarding preference shares.

    What’s the difference guys?

  51. @ WGU: Lovely!

    Re: 1: They are incompetent bankers.

    2: They’re ‘geniuses’ – of a very unusual sort. 😎

    3: Naturally!

    If only a real minister (not one of those half-arsed staties) would break ranks. Tell the truth (sky won’t fall). Then challenge their leader to fess-up or feck-off.

  52. Economic reports as PR are understandable given the need to return to the market. Ehat worries me is that they morph into some form of absolute truth within policy making circles and so become the means to ignore current reality.

    That Ireland is not aggressively in the market today when credit conditions are as favorable by some measures as they were in 2007 is extremely worrying. Insiders are, no doubt, aware at some level that time is running short. As OMF says, they are busy offloading their debt onto those who can’t pay and those who don’t have connections.

    The outsiders will do what they can. emigration and changes to US tax laws will leave these insiders with an empty sack of nothing. It’s too sad to even contemplate.

  53. Regarding BofI,and BEB most likely knows more,they are looking to retire them to avoid a step up or penalty?
    As far as I know they are current on all obligations to the state, simply good business practice to do what they are attempting,I read the transcript off the conf call,printed out the report,but was reading AIB’s numbers.
    I thought ulster had some numbers out too last week….
    Link to transcript,AIB has a nice glossy presentation or cheat sheets available,all reports at their sites.
    http://seekingalpha.com/article/1598792-bank-of-irelands-ceo-discusses-q2-2013-results-earnings-call-transcript

  54. @ BL

    a) I thought we reference papers typically by the first author, Guiso, 2011 in the “The Determinants of Attitudes towards Strategic Default on Mortgages” I mentioned here. Is that different at the TCD?

    b) How would you determine such a number of “strategic defaulters”, based on what data and what interpretation of them?

    c) would you organize this as a research project for one of your students in Ireland, on a timely basis, or would that violate the omerta?

  55. @Colm McCarthy

    “As if the Government’s debt burden was not enough to worry prospective lenders, the State has further off-balance-sheet liabilities both for guaranteed bank borrowings and for the borrowings of NAMA, the agency which bought the dud commercial property loans from the banks. It also has massive unfunded pension liabilities for State employees and the worrying prospect of further bank rescue costs if mortgage loan recoveries go badly.”

    Too often ignored. I have never queried the necessity of fiscal adjustment. What I have constantly queried are the HOW and DISTRIBUTION of adjustment – far too regressive – with sundry corporates, stallions, land, the very highly paid, and other untouchables somehow outside the mix while the likes of Blind Biddy and her disability allowances and the education fund for Travellers and others constantly hit; this simply ain’t republican.

  56. WE need an INDEPENDENT Fiscal Advisory Council on the HOW and DISTRIBUTION of fiscal adjustment.

  57. BIS blame creditors?..
    http://www.telegraph.co.uk/finance/financialcrisis/10221869/BIS-blames-Europes-creditors-for-eternal-euro-crisis.html

    “The Club Med debtor states are now being forced to slash spending without offsetting stimulus in the creditor bloc. This creates a deflationary bias making it even harder for them to repay debts. “Widespread defaults would hurt lenders in surplus countries,” said the BIS.
    The watchdog called for “symmetry in adjustment between creditors and debtors” to avoid repeating the 1930s, warning that global recovery will remain stunted until the creditors chip in. It said there had been an “extraordinary explosion” of cross-border assets before the global crisis, due chiefly to the chronic surpluses of the creditors.”
    Interesting?

  58. @ Fiat: Part of that second para reads like something penned by Baran and Sweezy in 1966! Economic surpluses have to find a productive outlet (which in turn has to spin-off numerous associated enterprises).

    The mis-allocation of economic surpluses into financial ‘goods’ and services is a sure sign of an economic ‘flatline’ in productive growth. Productive growth is the substrate for financial growth. No the inverse.

    Baran, P. and Sweezy, P. ‘Monopoly Capital’.

  59. A MUST READ – Yves turns pessimistic on the € Confidence front ….

    Saturday, August 3, 2013
    European Pundits Starting to Give Up on the Eurozone

    We’ve been pointing out for some time that Germany has refused to budge from wanting contradictory things relative to the Eurozone. Germany wants to continue to run trade surpluses, which are now predominantly with other countries in Europe. That means it needs to finance its trade partners’ deficits. But Germany simultaneously does not want to do that, at least with other Eurozone members. The only way to square that circle would be if the euro were vastly cheaper, so that Germany’s trade surplus was more with the rest of the world than with its fellow Europeans, and that countries like Spain could come closer to a trade balance or achieve a trade surplus via trade with the rest of the world. No one has entertained that as a solution, since the required level of euro depreciation would be so large as to invite retaliation from Europe’s major trade partners (I haven’t seen good estimates, but early on, Wolfgang Munchau suggested between .6 to .9 to the dollar).
    […]

    Now something still has to break, but some of my correspondents who’ve just been in Europe now think that we will see a political crisis in Europe before we see an economic one, and that, like objects in your rear view mirror, may be closer than it appears.

    I was disappointed at the fact that (based on the thin comments) few readers apparently read an important interview with James Galbraith that we posted last week (Ambrose Evan-Pritchard saw fit to link to it from the Telegraph).

    JG: I think that ultimately the decision on the future of Europe will be made in Germany, and Germany has to decide, does it want it or not? If it wants it, it has to take minimal steps to stabilize it on the same principles on which they stabilized the East, and on which they built the Federal Republic in the first place. And if they don’t want it, well, it will go away.
    […]

    So, I admit defeat in my belief that ‘European policy-makers would come to grips with fundamental economics’. They seem incapable of that. All those ideas which aim at solving the Eurozone’s problems through generating aggregate demand or through a Modest Proposal (which otherwise sounds very interesting) are pipe dreams. They might work in the United States of America with a strong federal government but they are pipe dreams in a Europe of administrators, technicians and bureaucrats focusing on national interests, all speaking in different languages and different directions.

    RIP Eurozone!

    Read more at http://www.nakedcapitalism.com/2013/08/european-pundits-starting-to-give-up-on-the-eurozone.html#Yl9TAMAAO226UETA.99

    Well worth a carefuil reading, inc. the link to James Galbraith

  60. @Gregory Connor

    “Mentioning strategic default is offensive to many people since it means acknowledging that some Irish people are acting dishonestly in their own self-interest against the interests of society.”

    We made up the strategic default thing almost a couple of years ago, over a weekend. There had to come a day when repo’s would really kick off (soon now). Making out there are a load of strategic defaulters out there is an attempt to make the banks look less like the bad guys. I kid you not.

    At best, we don’t know the level of SD’s out there as nobody has any evidence. But as I know only too well, if you get the right people and media to keep saying there are, the majority of people will eventually believe it.

  61. @PR Guy

    As an addendum to that – “…some Irish people are acting dishonestly in their own self-interest against the interests of society.”

    Oct 24th 2008:

    Eugene Sheehy, the chief executive of Allied Irish Banks, all but ruled out going cap in hand to raise cash from shareholders or asking for State investment — even as the lender’s bad loan losses soar over the coming years.

    “We’d rather die than raise equity,” Mr Sheehy said in a presentation to about 450 well-heeled private clients of Goodbody Stockbrokers in Dublin yesterday.

    The banking boss said that AIB has a number of “options for self help”, which will not require the raising of fresh equity.

    http://www.independent.ie/business/irish/wed-rather-be-dead-than-raise-equity-says-sheehy-26487062.html

    Thanks to AIB putting €1 billion of the €21 billion they subsequently needed Eug is now 100% publicly funded in his retirement.

    If we’re going to start chasing people for “acting dishonestly in their own self-interest against the interests of society” – I know where we can start!

  62. @ Gregory Connor

    The BIS said European banks played a huge role in stoking the pre-Lehman credit bubble. They rotated $1.25 trillion into US debt alone between 2003 and 2007, greater than the combined purchases of Asia and OPEC.

    Banks funnelled money into southern Europe regardless of risk in “expectations of a bail-out” if any country got into trouble.

    So banks are able to act “strategically”, in this manner, with the sole intention of pinning the resultant bubble/bust on the taxpayer, while they walk away with the bonuses, salaries and pensions for blowing up their own banks, shareholders in essence creating zombies out of their own banks. AIB having the the bare faced cheek to put a billion plus of bailout money into their own deficit laden pension scheme?

    “European banks were negligent in assuming – and their regulators in allowing – such exposures.

    Over lending was as responsible for the ensuing crisis as over-borrowing.” That point cannot be over emphasised enough. If people are going to loose homes the least we can expect the quid quo pro is that those that the professionals who caused this are going to loose their jobs.

    The Club Med debtor states are now being forced to slash spending without offsetting stimulus in the creditor bloc. This creates a deflationary bias making it even harder for them to repay debts. “Widespread defaults would hurt lenders in surplus countries,”

    The watchdog called for “symmetry in adjustment between creditors and debtors” to avoid repeating the 1930s, warning that global recovery will remain stunted until the creditors chip in. It said there had been an “extraordinary explosion” of cross-border assets before the global crisis, due chiefly to the chronic surpluses of the creditors.

    http://www.bis.org/publ/work419.pdf

    Of course not much new here to the initiated.

  63. @ Robert Browne

    The BIS document is a ‘working paper’ by a staff member who points out in a cover note; “Views expressed are my own, not necessarily those of
    the BIS.”

    It would be nice to think that creditors and debtors could deal with one another on an equal basis but that is not the way the financial system works, as far as I can judge, either now or in past centuries. Not that I think that this undermines the argument advanced but seeing it rather as a question of coming to terms with a fact of life which cannot be changed short of radical reform of the current system.

    @ All

    I would submit that confidence cannot be restored in the Irish financial system without restoration of confidence in both government and economy and that process under the bailout will prove to be the decisive consideration.

    This table from Colm McCarthy’s article in the Sindo shows the hill to be climbed even on the present budgetary consolidation trajectory.

    http://cdn3.independent.ie/incoming/article29471363.ece/binary/table-600.png

    “So the Irish Exchequer will not have regained its fiscal freedom of action next January just because reliance on the EU/IMF financing has come to an end. Only when the debt ratio has been reduced substantially, after a period of surplus budgets and sustained economic growth, will the government have regained some freedom of action in fiscal policy.

    This could take a decade even if things go well. If things go badly, it may not be feasible to exit from reliance on official lenders for the foreseeable future, and there may have to be a successor rescue programme with further conditional emergency finance, or default. The scale of market borrowing required over the next decade is shown in the table above.”

    This is an unpalatable dish for politicians to serve up to the Irish electorate and they are doing their level best to muddy the waters to avoid doing so and present themselves individually in the best light possible. That’s politics!

    The current budgetary “system” in Ireland – as illustrated by members of the parties in government firing pot shots at one another through the pages of the newspaper of record – is not fit for purpose. Some compromise will, no doubt, be found regarding Budget 2013 but the need to change to a prior open detailed consideration of budgetary options is obvious, and not just by a Dáil committee as has been suggested (although this would be an essential element).

    With or without a Seanad, the future of the country depends on a clearer public understanding of the financial road ahead. This seems to be emerging despite the approach of the current crop of politicians; which is identical to that of its predecessors. Debate centred solely on the actions of one institutional player or another seems to me to hamper rather than advance this development.

  64. Somewhat positive numbers,apols off topic but,but…
    “Final Eurozone Composite Output Index: 50.5 (Flash 50.4, June 48.7)
     Final Eurozone Services Business Activity Index: 49.8. (Flash 49.6, June 48.3)
     German recovery gains momentum while downturns in France, Italy and Spain ease further”
    “The final Output Index reading of 50.5 confirms a welcome return to growth for the Eurozone economy at the start of the third quarter, raising hopes that the region can finally claw its way out of its longest-running recession. Granted, the euro area has experienced false dawns before, but the improvements in confidence and other forward- looking indicators warrant at least some optimism for the outlook this time around. Germany posted a return to expansion in July, while the downturns in the other big-four economies all eased.”
    http://www.markiteconomics.com/Survey/PressRelease.mvc/b6abc923913042d3b5cb3a57aa4bd32f

  65. @ John Gallaher

    Fingers crossed!

    As Michael Hennigan pointed out recently, German trade in 2013 with the other countries of the Euro Area is now in balance.

  66. DOCM,
    We are one downturn away from default with a debt/GDP ratio of 120 plus. So is Italy, so is Portugal and likewise Spain. Cyprus and Greece are beyond redemption. Sometime in the next 6 months we are going to have to confront the fact that the current EZ is not fit your purpose.
    Your call for another method of deciding budget disputes ina coalition govt. does not matter. What matters more is positioning the country for the sundering of the EU with the potential exit of some of at least on of its founder members.

  67. @ TMD

    To misquote Mark Twain, rumours of the demise of the EU and/or the euro are greatly exaggerated.

  68. @Tull,the Greek economy is one and half times the size off Detroit’s,Cypress wheres that again…..as even PK admits!
    “Sometimes the losers from economic change are individuals whose skills have become redundant; sometimes they’re companies, serving a market niche that no longer exists; and sometimes they’re whole cities that lose their place in the economic ecosystem. Decline happens”
    http://www.nytimes.com/2013/07/22/opinion/krugman-detroit-the-new-greece.html

  69. @ DOCM

    That is just “speak” the BIS want to say this, but want to adopt the softly, softly approach. If it was not a main stream thesis, and one that did not further his career prospects he would have reached very different conclusions. He is confident he is correct and in reality his is only stating much of what is already accepted mainstream.

    The “analysis” of the percentages in “strategic default” looks suspiciously nothing more than wild guesstimates. What category of research would you put the “research” that we have been treated into? Will we hear a few disclaimers shortly from NUIM?

    I have to say that I was amused to hear Karl Deeter on radio recently, refer to the two different categories of people who are in trouble with mortgages and debt as “The honest poor” and “The Rich Poor”. Karl’s clients, he informed us, come from the latter group, and he could not argue with many of them, that paying off their debt to banks made little sense especially since they were already hopelessly insolvent.

    That is the point. They are not people who “can pay, won’t pay” they are people who cannot pay because they are walking debt zombies. The bank refused to do what they should have done which was to recognise, admit, early on that they had made serious, serious, terminal mistakes, in risk models, valuations, and mortgage products including BTL. They borrowed long against short term lending with disastrous consequences. A double whammy, the collateral values overvalued to begin with, plunges and they are stuck having to pay unsustainable rates of interest on the money they lent out. Small wonder they like the mantra of “strategic defaulters”, anything to deflect from their own role and the fact that they are still at the helm.

    Karl has come round to the belief that the only way out is writing down debt. This has been a bit of damascene conversion for Karl. It took all those people coming through his door to realise what should have been done from the start and which will be done eventually under the guise of Personal Insolvency Legislation and 3 + 5 year bankruptcy, split mortgages debt write down and debt write off.

    Recapitalisation again beckons as a result of the unsustainable, overvalued loan books but again it has been decided that it is in the “national interest”to go into denial mode (we never left it) and try and fudge through.

  70. @Robert Browne,hi Robert,SD is a US term referring to a borrower who finds themselves in negative equity.
    They take a cold hard look at the numbers,puke the keys up to the lender and walk away….but not always-check out the link to the FICO paper above.
    It refers to borrowers who intentionally or strategically don’t pay their way in society and increase the costs for those off us who do,some off us have made poor or bad investment decisions,awful ones even,manned up paid the price.
    Others hit the road…notwithstanding their resources or future earning potential to pay for their mistakes,the US has quite a few off them !

    “Where the key driver for the behavior of traditional defaulters is affordability, the key driver for strategic defaulters is incentive. Strategic defaulters can afford to continue making mortgage payments, but they believe that it is not in their financial best interest, generally because they are “underwater,” owing more on their mortgage than their house is currently worth.”link above.

  71. JG,
    You cannot keep half the population of The EZ in a debtors prison indefinitely. Even the Germans know that 4 years is about the run rate.

  72. @ Robert Browne

    If this is the official position of the BIS, why does it not come out and say so? One way or the other, those referring to the paper cannot assume that it is (as has regularly been the case with regard to the IMF in similar circumstances).

    On your other points, I was referring solely to the concept of an equal level of negotiating strength between creditor and debtor in the event of difficulty. If there is a loan agreement stating this anywhere, I would be surprised. I am not denying that the debtor may also hold some cards (notably in Ireland at least – a political one when it comes to “evictions” from the family home).

    @ All

    Coincidentally, this comment by Tony Barber of the FT on constitutional changes in Ireland, Italy and Hungary.

    http://www.ft.com/intl/cms/s/0/54884ca2-f9e2-11e2-98e0-00144feabdc0.html

    In the case of Ireland it makes not one iota of difference IMHO whether the electorate retains or dumps the Seanad as, contrary to what the article suggests, it has NO powers in the budgetary area. To quote from the Oireachtas website; “Seanad Éireann can initiate and revise legislation but under the Constitution its legislative role is restricted in that it cannot initiate Money Bills i.e. financial legislation, and can only make recommendations but not amendments to such Bills.”

    The basic point that I am making is that, given the bleak outline of the country’s finances expertly set out by Colm McCarthy (and read by a much wider audience), there will be irresistible pressure on any government to set out an annual rolling “statement of affairs” rather than the usual budget, and the hype associated with it, and it is this that will change the political landscape or, rather, the public appreciation of what is politically acceptable in a reasonably just society; not fiddling with institutional changes.

  73. @Tull the chances of Ireland defaulting on its debts and exiting are about the same as me winning the 400 million powerball on Wensday.It does not mean I’m not going to buy a ticket,but the window to default/exit has closed.
    Is it possible that yields will blow out,of course it is but as off right now and for the foreseeable future it’s just not happening,you can still dream though!
    DOCM linked a great piece from Sindo,unfortunately and sadly that’s the reality you do NOT control your own destity,happens when you can’t balance your books…

  74. JG,
    Ireland is irrelevant.italy with a debt burden of 130% and no growth is the one to watch.

  75. @Tull in fairness France scares the s**t out off me….h/t Fiat.
    Off buy my lottery tickets 400 million and rising gotta love the yanks,lines outside gas stations,scuffles in 7/11 they still buying into the dream….

  76. JG,
    What ever you do, keep your 400 m in USD or buy a new set of golf club…Bunclody, Moyvalley, Palmerstown etc

  77. On the subject of “Money Bills” NAMA was piloted through the Dail as a non Money Bill even though it was dealing with 76bn of loans. It was then engineered that it be an SPV and impervious to scrutiny and not answerable to FOI and we are all supposed to believe it is for “the common good” if you don’t mind.

    Why is it that I am convinced, it was for the benefit, is for the benefit of a select few and has noting whatsoever to do with the common good.

  78. @Tull,thanks its a long shot but I have a system:)
    Oh regarding buying at home,I can’t compete with fishy Chinese money,dodgy ruski’s with capital off dubious origins…Ever try buy a golf course in China,well until one can they won’t be buying too many over here.
    But Ireland is indeed a great little country for business people with hot money,no questions asked the new landlords…Russians and Chinese.
    Great that Labour is all grown up gotten over any founding principals or morals,human rights ah go way out that,here anyone wanna buy a golf course cheap or a hotel,any change off a few bob then.

    Like WTF….we have established that Ireland Inc. and whatever influence it has,is for sale now we just haggling over the price like a two bit ho,shameless absolutely shameless…..

    “Gilmore noted that Ireland highly values the relationship with China and adheres to the One China policy. Ireland hopes to continue to expand and deepen bilateral practical cooperation and exchanges in the fields of economy, trade, education, agriculture and culture based on mutual trust and mutual understanding. Ireland is willing to continue to play a positive role to push for greater development of EU-China relations.”
    http://www.fmprc.gov.cn/eng/zxxx/t1063372.shtml

  79. @ Tull Mcadoo

    The euro will likely muddle through for up to a decade.
    Italy’s public debt servicing cost is about half the level it was in the early 1990s.

    For most if the big countries, growth has been falling every decade since the 1960s and there is a huge challenge to engineer sufficient growth to cover debt.

    http://www.finfacts.ie/irishfinancenews/article_1025984.shtml

    Lower standard of livings are inevitable in several countries.

    Spain, Portugal and Greece all have had recent rises in exports and depending on emerging markets, 2013 could be the first year since 2004 that we see a full-year trade surplus for the euro area when you exclude Germany.

    The fall in the German surplus with the EA 16 is partly due to austerity but From 2008 to 2013, German imports from the currency area are up 14% since 2008.

  80. Colm McCarthy says in the piece linked by DOCM above:

    It is bizarre that continued borrowing, which will add to this debt mountain, is routinely described as austerity…It is an illusion to presume that graduation, in January next, from the EU/IMF rescue programme signals the end of the financial emergency.

    On Friday the IMF said Spain’s jobless rate will be above 18% in 2020.

    The country desperately needs more than laundry lists of aspirations.

    Patrick Honohan warned earlier this year that too lenient an approach to the mortgage crisis could lead to an “intolerably heavy bill for the exchequer.”

    Indeed but the fear of a large number of strategic defaulters would only materialise if there is an official cock-up made of the insolvency system. That is likely to happen – if is there is not adequate legislative sanction for sharing of information between banks, card companies and the Revenue? In relation to BTL units in particular that be covered by residential mortgages, physical confirmation of who occupies the residence would surely be a requirement?

    This of course comes against a backdrop in a society where an Englishman remarked to me during the Haughey period that half the people in the country seemed to be on the make, from the prime minister down.

    In this emergency we have seen the official response in both panic and more traditionally on the slow boat to China.

    It’s justifiable for those that didn’t drink the soup to be outraged but people like David Begg who have done well through boom and bust needn’t worry about money. The euro will be around for sometime yet and that is the only real monetary worry that the men who run Ireland or not, need to worry about.

    Crony Ireland continues to prosper and Noel Whelan returned from its annual trip to Donegal exulting in the Irish Times on Saturday about the improved prospect of political reform. The bankrupt State spends about half a billion annually on legal fees and presumably Noel wouldn’t be too keen on reforms that would knock him off the top rankings for DPP fees.

    The official reaction and also from political parties on the end of the Mahon Tribunal was muted to put it mildly.

    Lawyers became multimillionaires and the corrupt land rezoning system cannot be reformed for fear of alienating farmers who want top-ups on their CAP welfare payments.

    Eamon Gilmore, deputy prime minister and Labour Party leader, would not be expected to make an issue of the land rezoning system that makes land scarce in a country that is 4% urbanised.

    Gilmore began his political life as a communist but after the fall of the Berlin Wall that became untenable. Nevertheless, he and his family have done well in the public sector. They were also among the lucky landowners who had land with development potential during the bubble. Gilmore’s wife sold a two-and-a-half acre site for a school near a village in East Galway for €525,000. Last year, Carol Hanney, who was chief executive of Dún Laoghaire Vocational Education Committee (VEC), was in the news again because a job had to be created for her in the Department of Education, despite a staff embargo, when the VEC was abolished, on existing terms.

    http://www.independent.ie/irish-news/gilmore-wife-got-525000-for-school-site-now-worth-just-100000-26695748.html

    I cite the foregoing, not because of any wrongdoing but as an illustration that bankers have not been the only ones who were or are benefiting from a very unfair system.

    Last November, when it was disclosed that 6 IBRC (successor to Anglo Irish Bank) executives earned annual salary packages of €500,000, with 36 other employees being paid more than €200,000 excluding pensions, in what was effectively a debt collection agency, Eamon Gilmore described the pay levels at the bank as “unacceptable” and said the Government has appointed consultants to advise on how wage levels at IBRC can be reduced. He said consulting firm Mercer was probing what action could be taken.

    Then in February 2013, the same individuals made a decision to liquidate the rump bank.

    Why was the malafoostering suddenly over?

  81. John G
    “It refers to borrowers who intentionally or strategically don’t pay their way in society and increase the costs for those off us who do,some off us have made poor or bad investment decisions,awful ones even,manned up paid the price.”
    Err no.
    It refers to borrowers who are behind (usually 90 days ) on the mortgage but are current on other loans. Thats all.

  82. @Brian L,laughing here thanks for that….well lets start with the stating the bleeding obvious part,yep 90 days is a prerequisite to be in default,so can’t argue with you there.
    What a lovely nebulous term “current on other loans” say like keeping the old plastic at a minimum for a rainy day,keeping the “whip” or wheels on the road.
    Not falling behind in say private school fees,can’t have that now can we.
    Brian,what type of society do you want to live in,one w/o any personal responsibility where the actions of others are used as an excuse..shur your man up the road hasn’t paid his mortgage…I’m not….oh the bankers are all wan*ers we bailed them out.

  83. @Brian — That is an unusual definition of strategic default is that from a particular paper? It is precise but less useful than the usual definition — not paying the mortgage when able to do so, in order to gain a short-term or permanent financial advantage.

  84. fyi … galloperin Inflation (for forlorn hopers)

    The ECB has a single mandate, price stability, which is tragic because price stability is killing Europe. Europe needs sustained 4-5% inflation if it is to recover from its five-year depression and reverse its rising debt ratios. But the ECB has defined price stability as inflation of less than 2%. And in addition, the ECB has ruled that a program of quantitative easing (QE) would violate the prohibition of “monetary financing”, i.e., deficit monetization. This suggests that the central bank should only buy the bonds of governments when they are running budget surpluses!

    Achieving 4-5% inflation would require the ECB to buy something (the policy instrument). The normal policy instrument is government debt. Unfortunately, Brussels issues no debt for the ECB to buy. So the ECB is forced to use the bonds of eurozone governments as its policy instrument. But the ECB has defined the purchase of government bonds by the ECB as “monetary financing”. If buying eurozone government bonds is verboten, then the ECB has no policy instrument, as Hetzel points out.

    The fact of the matter is that “monetary financing” is a legitimate monetary policy instrument in the pursuit of economic growth and full employment–even if the government in question is running a deficit, indeed, especially if the government is running a deficit, because inadequate growth causes deficits (and rising debt ratios).

    So Europe has thrown up two roadblocks to European recovery: (1) zero inflation; and (2) no QE. Europe lacks a coherent monetary strategy, as Hetzel says.

    Read more at http://www.project-syndicate.org/blog/price-stability-is-killing-europe-by-christopher-t–mahoney#essGUs2A6PdDJoh3.99

  85. @ johng

    ‘@Tull the chances of Ireland defaulting on its debts and exiting are about the same as me winning the 400 million powerball on Wednesday.It does not mean I’m not going to buy a ticket, but the window to default/exit has closed.
    Is it possible that yields will blow out, of course it is but as off right now and for the foreseeable future it’s just not happening, you can still dream though!
    DOCM linked a great piece from Sindo, unfortunately and sadly that’s the reality you do NOT control your own destiny, happens when you can’t balance your books…’

    Not controlling our destiny is the historic norm in Ireland, doesn’t mean a nation can safely be disregarded. You make it sound like default is an option, as opposed to an inevitable consequence of mis-governance. Property deals might happen, but that is only froth. Where is the engine of growth ?

  86. If someone doesn’t pay the mortgage so they can buy food, I suppose they are a “can’t pay”. But what if it is to pay the school fees or keep their BMW on the road? Is there really a clear distinction between can’t and won’t pay?

  87. @Paul,lost me a little the reference to property deals was a dig at comrade Gilmore,do you believe in coincidences,black cats crossing your path,don’t walk under a ladder types,..what a “stroke” of luck just as he was in China too..

    “The Fota Island Resort in Cork Harbour, built by Irish developer John Fleming at cost of over €90 million, has been sold on behalf of Nama to a Chinese hotelier family for an estimated €20 million.”

    A 70mil hit not a peep or a murmur…well done NAMA,way to go.

    http://www.irishtimes.com/business/sectors/transport-and-tourism/chinese-
    hoteliers-pay-20m-for-cork-s-fota-island-resort-1.1483466

    FYI breaking news here,Amazon/Bezos just bought the Washington Post,wow.

  88. Hi John G,

    a somewhat late big thank you for the FICO link about strategic defaulters. Very valuable!

    I smiled somewhat about “… identifying customers who may be considering such action and communicating with them as early as possible” . Show them the instruments, I would translate that.

    @ D O D
    just in case you missed it, the Fed adopted the 2.0 % PCE inflation target
    http://federalreserve.gov/newsevents/press/monetary/20120125c.htm

    And the Bank of Japan got that with Abenomics in last fall as well.

    http://www.centralbanknews.info/p/inflation-targets.html

  89. @francis,hi francis welcome back,terrific exchange with Veronica et all,on other tread.I haven’t a clue about that topic so stayed out,but excellent posts and paper,Tony Owens too,very educational and informative.

  90. @ DO’D: ” …monetary financing” is a legitimate monetary policy instrument in the pursuit of economic growth and full employment–even if the government in question is running a deficit …”

    True. But you have to have a widespread war for this to actually work – like a real shooting war with lots of material destruction. Can’t work in peacetime. We’re in a bad bind on this one.

    Capitalism has a bad propensity to ‘flatline’ – its an unfortunate inevitability which is built-in. We’re in flatline mode now again!. And I doubt anyone wants a real shooting war. We’re in a bad bind on this one.

  91. @francis,laughing way too much too comment,lotteries are just another way to rip off the poor.
    More a blackjack man myself,but partial to the odd game off poker,and I do actually have a blackjack system,it involves always playing two hands.A unit system is utilized could be a dollar or a thousand chip,maintain the same unit win or loose..if I tell you any more I may have too 🙂
    Does it work of course not,but it extends your playing time installs some disciple in how you play and is fun.

  92. Gregory
    Its based on the discussion on defining strategic default in the Guiso paper, cf Experian study. Part of the problem here is that we have no workable definition – you say permanent or transient financial advantage, but theres a large literature on the behavioral economics of default which throws many wrenches into that. Fuzzy definitions give fuzzy outcomes.
    Kevin
    It depends on the age of the beemer. If its a 10y old 520d that is needed to get to work coz you live somewhere (like, oh, I dunno, outside about three cities) that there is no public transport, then I think it may take priority. If its a 131 X wagon, no. Not really sure what your point is tbh.

  93. “A strong imperative by the Irish Central Bank not to cause anyone any offence is not a good foundation for building international confidence in Irish financial regulation.”

    This neatly summarises the core value which has damned our civil service, politicians and many independent regulatory bodies.

    “A strong imperative by the [INSERT ORGANISATION NAME] not to cause anyone any offence is not a good foundation for building confidence in [INSERT SAID ORGANISATIONS FUNCTION].”

    The fact of the matter is that we live in a small gossipy country and the penalty for regularly or intermittently offending people is substantial.

    ————-
    I agree with Gregory Connor that it was an appalling failure on the part of the Government and on the part of the Central Bank to allow the legal flaw surrounding the enforcement of charges of registered property to persist for so long.

    It was also deeply unsettling to see the opposition oppose the rectifying legislation when it was brought to the Dail. Just like the FG and Labour calling for stamp duty relief to keep the property bubble growing, this was a pretty criminal stance on the part of the opposition. Our political system continues to fail us.

  94. @ DOCM: I think that PR Guy should be asked to ‘translate’ that suggestion into ordinary speak. As for our government. I believe that they have little credibility left. They are neutered Tomcats spraying neutral p*ss on any available corner. Feels great for them. For us it just smells of p*ss.

    Confidence, whatever that means or however you might want to define it or to whomever it applies, departed as soon as the controlling executives of the financial entities decided that chicanery, fraud and the public socialization of private debt was to be their new Business-as-Usual mode. The rest of us had better take better care of ourselves from now on.

    Debt is a call on our future incomes, and these are not in jeopardy? No harm in spreading the slim around, though. 😎

  95. @Kevin Denny

    I expect “won’t pay” will be defined by anyone maintaining more than the basic living standards afforded to insolvent people under the personal insolvency regime.

    That will put a lot of people who have cut back on their lifestyle and expenses into the “won’t pay” category because you are left with a pretty poor and unpleasant standard of living under personal insolvency.

  96. Also, why would one subject oneself to the punishment of the personal insolvency standard of living without the reward of debt relief and sustainability at the end?

  97. @Brian L, “It depends on the age of the beemer. If its a 10y old 520d that is needed to get to work coz you live somewhere (like, oh, I dunno, outside about three cities) that there is no public transport…”

    Are they eh like say a volunteer….or working for free….coz if they gainfully employed why is the mortgage in default….

  98. BTW, how many of those who abhor strategic mortgage default defended Sean Kavanagh against Joe Brolly’s tirade on the basis that Sean Kavanagh played based on the rules of the game created by others and according to the norms which those rules engender?

  99. @MH

    “..Then in February 2013, the same individuals made a decision to liquidate the rump bank.

    Why was the malafoostering suddenly over?..”

    Michael the answer here is very very simple – the real reason to liquidate IBRC had nothing got to do with a Prom Note deal or anything of the sort. The fact that this story was touted at the time and TDs bought the line has to be one of the greatest political con jobs of all time.

    The ‘malafoostering’ stopped when the Quinn family added the Regulator and the Dept of Finance to their case on 28th Dec when the family first received the initial rump of information from the bank in early Dec following on from their discovery requests.

    The Govt were very slow to move here and the decision contained within the legislation to liquidate the bank which sought to preclude any third party from taking an action against the bank was subsequently challenged by the Quinn’s and the decision went in their favour meaning that claims against the bank if successful will have to be met. The Quinn’s argument was that if they were being requested to stop putting assets beyond potential control of the bank, as they were being alleged, then it would seem very unfair that the bank would seek to do likewise. The judge found in their favour.

    So all the hullabaloo about secret deals being done in Frankfurt regarding the Prom Note was nothing more than hot air. All deals could have done on the Prom Note without liquidating the bank. Liquidation of the bank was never a requirement for a Prom Note deal but yet the public were asked to buy this line and did. Many have since asked the real reason for the liquidation and thus far the CBI et al have remained faithful to the party line that a Prom Note deal required it so. This is a blatant lie.

    The Quinn’s, despite all the flack having being thrown their way, will have the last laugh here and in the intervening period will oddly do the citizens a real service and most likely unearth the real truth behind the goings on at Anglo and with it the State.

  100. Zhou
    Yes. Its going to be punitive time for the defaulting residential homeowners. Many will cheer. Meanwhile, NAMAd chaps who stiffed the taxpayer for hundreds of millions each will be retained on 6 figure sums and remain in if not clover some form of succulent grass.
    Lets recall : http://t.co/7AR7KNid3b

  101. @Brian L,apols not being annoying but genuinely the link does not work over here,most the NAMA chaps were dragged into NAMA kicking and screaming,some even resisted !
    They didn’t ask to have their loans socialized,most would have preferred to have taken their chances with the originator.
    I don’t think anyone is cheering about the possibility off a few repos and evictions,but the numbers in default/arrears have simply gotten way to big to ignore any more.
    The playing field needs to be level or leveled,utilizing the car analogy if the borrower is not paying a lease on it should they keep driving the car indefinitely ?
    Or does the lender have the legal right to repo it…

  102. @Brian L,working now,oh NAMA is only picking their brains,I know slim pickings,to get up speed on the various moving parts in complex deals.
    One could argue that Sean Muly. or Joe O’Reil. on 200,000 is a terrific deal for the state,wish there were a few more off them at that price.In quite a few situations NAMA requires that skill set and is paying below market for it….as unpalatable as that is.

  103. @Gregory well worth a..makes the NAMA chaps look like dumb paddies !
    “The people [on Wall Street] most responsible have suffered little or not at all,” said Dean Baker, co-director at the Center for Economic and Policy Research, “You would like to see that they paid some consequence, but they really haven’t.”
    http://www.publicintegrity.org/2013/07/31/13077/bear-stearns-mortgage-executives-have-plum-jobs-wall-street?utm_source=email&utm_campaign=watchdog&utm_medium=publici-email

  104. @Zhou

    It may be worth contextualising the politics of all this a bit…before we get set to hang and flog every politician within reach.

    First off, inference that the previous government might have ‘deliberately’ distorted mortgage contract law in the Land and Conveyancing Law Reform Act, 2009 is questionable. This highly complex modernisation of Irish land law, which included dealing with the remnants of statutes as far back as the seventeenth century and overhauling dozens of others from the eighteenth and nineteenth centuries, was initiated as a major Law Reform Commission project in 2003. The project was overseen by the Chairman of the LRC, then Judge Catherine McGuinness, and relied for its execution on the expertise of Professor John Wylie of Cardiff University, a well known authority on Irish land law. The LRC Report and template for the legislation, which also sets out in some detail the entire process involved, was published in 2005. http://www.lawreform.ie/_fileupload/Reports/rReformandModernisationofLandLaw.pdf

    The Government Bill was introduced to the Oireachtas in 2006. As it commanded ‘all party support’, it was hardly contentious and attracted very little by way of media attention or scrutiny at any stage up to its passage in 2009. Some legal observers at the time suggested that, inevitably, certain sections of the Act would be open to interpretation by the courts and that, in the normal way of things, flaws might be identified. In his press release at end-March this year, announcing the proposed legislative amendment to address the ‘lacuna’ identified in the Dunne judgement, which he described as an ‘unintended consequence’ of the 2009 Act, Alan Shatter states that, in this aspect, his reform Bill “does nothing more than restore the position intended by the Oireachtas when enacting the 2009 Act.” On the face of it, it would appear that the politicians (for once) are blameless.

    As for the delay between the 2011 Dunne judgement and specific proposals to remove the legal uncertainty, it’s difficult to assess the extent to which political motivation to avoid dealing with a thorny issue of accelerating property repossessions may have been a factor. An obvious reason for delay may have been the Minister’s intent to tack on a personal insolvency aspect to the reforming Bill and the requirement to secure the approval of his Cabinet colleagues for this, which all takes up time; and in our system, as we all know, if it ain’t an emergency, it can take a long time.

    As the Minister put it himself: ”In the course of preparing this Bill, I sought and obtained Government approval to include in the Bill a provision which will allow a court to adjourn repossession proceedings in such cases to see whether a Personal Insolvency Arrangement (PIA) under the Personal Insolvency Act 2012 would be a more appropriate course of action. The court may, in such cases, adjourn the proceedings to facilitate the drawing up of such an Arrangement as an alternative to repossession.” http://www.justice.ie/en/JELR/Pages/PR13000120

    As for the opposition’s voting against the reform legislation; well, a lot of things have changed since the modernisation of Irish land law project was first conceived and the non-contentious 2009 Act was winding its way through the Houses of the Oireachtas.

  105. everything you ever wanted know about deadbeats,sorry strategic defaulters but were afraid to ask..

    http://www.experian.com/decision-analytics/strategic-default.html

    “Borrowers with higher income showed a higher incidence of strategic default. At an annual income of less than $40,000, only 9 percent of mortgage default customers were strategic defaulters, compared with 30 percent of those making more than $150,000 annually. For those mortgage delinquents with an annual salary of between $100,000 and $150,000, 23 percent were strategic defaulters and 35 percent were distressed defaulters.”

    http://www.experian.com/assets/decision-analytics/reports/strategic-default-report-3-2011.pdf

  106. @Veronica

    “First off, inference that the previous government might have ‘deliberately’ distorted mortgage contract law in the Land and Conveyancing Law Reform Act, 2009 is questionable.”

    I did not make any such inference. The idea that any government would have intentionally rendered charges real property ineffective is wholly ridiculous to my mind.

    “As for the delay between the 2011 Dunne judgement and specific proposals to remove the legal uncertainty, it’s difficult to assess the extent to which political motivation to avoid dealing with a thorny issue of accelerating property repossessions may have been a factor.”

    I did not suggest that there was any political motivation for the delay in fixing the law. I would not give even give them credit for being that smart. The fact of the matter is that the CBI were useless in not insisting on this in public and the Dept of Justice and Minister for Justice were useless in taking years to fix it. It should have been fixed in three weeks.

    “As for the opposition’s voting against the reform legislation; well, a lot of things have changed since the modernisation of Irish land law project was first conceived and the non-contentious 2009 Act was winding its way through the Houses of the Oireachtas.”

    No offence but that is a pretty watery excuse for the opposition’s position on this. I appreciate that the opposition were right to oppose the rinky-dink (or whatever word Mattie McGrath used for it) personal insolvency legislation which provided an wholly unjustifiable veto for the banks. However, that did not justify opposing the correction of the error which rendered charges of registered land ineffective.

  107. @ YoB

    “The ‘malafoostering’ stopped when the Quinn family added the Regulator and the Dept of Finance to their case on 28th Dec when the family first received the initial rump of information from the bank in early Dec following on from their discovery requests.”

    The liquidation plan was initially put together in October 2012 i believe.

  108. @ Zhou,

    Apologies for any offence caused. Entirely unintentional!

    What I was getting at was the inference in Gregory Connor’s original post : “The previous government (perhaps deliberately) slashed a gaping hole in Irish financial contract law when it passed the flawed 2009 Land Reform Act…” and the argument that followed from that, which, on the facts, does not appear to be soundly based.

    I agree with you that if they had a mind to it, the lacuna could have been legislatively fixed in three weeks. Even within three days, if it was considered a priority to fix the immediate problem. A simple two line reform Bill would have gone through the Oireachtas on the nod.

    I’m suggesting that delay complicated things politically, as did attaching the element from the personal insolvency legislation to the reforming Bill which appears to have inflamed the perspective of the opposition that there was more to the Minister’s proposed legislation than a technical remedy to an exposed flaw in the 2009 Act. The current level of mistrust within the Oireachtas generally about the intentions behind any proposals of this government isn’t helping things either.

  109. @Veronica

    No offence taken. I have an excessively brusque writing style.

    I read Micheal Martin’s speech at the McGill summer school criticising the current Governments shameful record on political reform. H

    However, it struck me as somewhat ironic that Micheal Martin criticised the political system for had given rise to a dysfunctional opposition calling for worse economic policies (i.e. stoking the property bubble) rather than sensible opposition, while a few weeks earlier Micheal Martin opposed the closing of the loophole exposed by the Dunne Judgment.

    The long and the short of it is that as long as we have multi-seat constituencies with proportional representation, people will be afraid to focus on the national perspective. It is notable that when pointing to FF’s history of political reform while admitting its failures that Micheal Martin failed to point to FF’s previous efforts to reform the electoral system, which efforts were rejected by the electorate.

  110. I meant to say that I agreed with all of Micheal Martin’s criticisms of the current Government’s failure to propose any proper reform of the Oireachtas.

  111. @veronica

    Your second paragraph goes to the heart of the matter. And there is no prospect of change.

    There is an enormous variety of voting methods in use in various democracies. It is the perception – and the associated general consensus – of what constitutes an acceptable society that is the decisive factor. I venture to suggest that the need to balance the books will over-ride the voting handicap and change the electorate’s perception.

    The latest gimmick is the proposal to reduce the voting age to 16 (on the basis of the deliberations of a “Constitutional Convention” the parties to which have no discernible mandate). If it becomes reality, which I doubt, the change may come earlier than expected.

  112. @Zhou and DOCM

    Further to your respective arguments, you might find this paper on the ‘economic voter’, UK-style, of interest:

    http://ms.cc.sunysb.edu/~mlebo/Carey%20and%20Lebo%20PRQ.pdf

    As for our lot, they’re entering mid-point of the electoral cycle. So according to the theory, at any rate, the electorate begins to judge them in respect of their record/performance and achievements to date. References to appalling legacies left by the other crowd or ‘ the troika made us do it’ don’t cut it any more.

    Although there are a lot of other factors contributing to the current political malaise, I think the risk of making the ‘wrong’ call on the forthcoming budget is a key issue? In the game of sums, those who favour the ‘percentage’ option will, if they get their way, pay a huge political price in terms of political credibility if external factors and lack of growth and so on, derail ‘recovery’ of national economic sovereignty etc. It’s not much of a winning ticket for those who prefer to stick with the 3.1bn number either.

  113. So, its some politics now, is it? Nice. Please try not to ‘blame’ the voters – well not collectively anyways, there are (sorry, were) – 43 bunches of them. Each is a tad different from ‘t’others. Local parish pumps and all that. Kerry South v Dublin South – “Please try not to laugh!”

    There is certainly a case for changing (not reforming!) our electoral districts and formula. Its just that the case has to be made by ALL the legislators in the Oireachtas. Else the voters will correctly recognize any proposed change as a partisan move – and will reject it. And they have done so. Lets see how the Seanad move gets on.

    And we do not end up with a true proportion of elected reps. Its a tad biased. But whose counting? Apart from the Political Science folk.

    @ DOCM: Age of consent is what? Marriage age is 16? Criminal Responsibility is 16? Voting is 18! In sexual matters males = females under Irish law? Anyone like to clear this up?

    I’d love to hear the unctious, moralizing, nauseating, twaddle from our legislators, religious leaders and societal Do-Gooders as they sought to justify those little disparities. Or maybe I wouldn’t!

  114. @ john g

    ‘One could argue that Sean Muly. or Joe O’Reil. on 200,000 is a terrific deal for the state, wish there were a few more off them at that price. In quite a few situations NAMA requires that skill set and is paying below market for it….as unpalatable as that is’

    It is unpalatable. Billions have been mal-invested on the advice of these supposed geniuses. Notwithstanding the increased consumption which was associate with the works, the entire ‘development’ exercise was mostly money down a hole. As Michael H points out, there are other holes too, but the salaries these folk are being paid is part of a necessary attempt to limit the eventual costs to the state. We need new ideas.

  115. @paul quigley,its business or a commercial decision as it should be, the banks also on foreclosure and repo.’s. go after the ones with max. resale /recovery value.
    Given the objective is to recover as much as possible,its better,more efficient and cheaper in many cases than receivers.
    The above mentioned business men would have no problem raising a fund or finding JV partners,just because off a liquidity/solvency crisis their skill sets do not evaporate,their contacts and market knowledge is intact.
    One the issues/problems was too many from a ‘trades’ background became developers,every chippie,sparks,brickie and leaky was a RE expert….

    This was released today-

    “Alternatives to Austerity”-there are not too many !
    John Moran,MacGill Summer School

    “However, a fact which is often ignored is that more than half of the accumulation of debt over this period is not down to bank bailouts. Let us not forget that large underlying primary deficits (that is, the deficit net of interest payments and bank recapitalisation) have now been run in every year in Ireland since 2008. ”
    http://www.finance.gov.ie/viewdoc.asp?DocID=7768

    Fitch report on Irish mtg.’s is here also.
    http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=714956

  116. @ veronica

    The UK experience, I would suggest, is not relevant as the country is solvent, a fact not unrelated to its capacity to print its own currency (which is held in such esteem that it has a role, if diminished, as an international reserve currency).

    Irish politicians – and the commentariat general – still imagine that they are the intermediaries between the citizen and the latter’s everyday experience of economic life. My basic point is that the fundamental requirement that the state balance its books removes this role. Politicians may huff and puff as much as they like but the average citizen can no longer believe in the charade.

    The aggregate numbers are the decisive consideration. Constantin Gurdgiev had them in his Sunday Times weekly contribution. Three departments – education, health and social protection – are gobbling up 95% of the current tax take. The funding of the others is borrowed. As CMc notes, how this situation can be described as “austerity” is beyond comprehension.

    On another topic, what constitutes a “strategic defaulter” may be a fascinating issue in its own right, but a “new beginning” for the country does not, unfortunately, involve some fairy godmother wiping the slate clean for everyone.

  117. @DOCM

    Politicians function both as representatives of their constituents and legislators for the common good.

    In terms of political behaviour, we’re not unique – not that I believe we are unique in any other way either; we just like to think we are with the ‘great little country’, capacity to be a ‘world leader’ self-aggrandising rhetoric commonly deployed to mask mediocrity of actual performance.

    I take your point about the solvency of the UK, but it has its own problems. Social Welfare is by far the biggest spending department, but there’s a reason for that: unemployment has crept up a bit in the past five years and without a return to growth, it will remain chronic. Health, God help us, is a basket case, as is education for other reasons that have to do with political mismanagement. As departments they are hardly alone in this aspect.

  118. @ john g

    ‘The above mentioned business men would have no problem raising a fund or finding JV partners, just because off a liquidity/solvency crisis their skill sets do not evaporate, their contacts and market knowledge is intact.
    One the issues/problems was too many from a ‘trades’ background became developers, every chippie, sparks, brickie and leaky was a RE expert….’

    I wouldn’t want to personalise anything unnecessarily, and Namawinlelake unfortunately expired. The reason that so many tradespersons, and other amateurs became involved in development is that they were attracted by the feeding frenzy. Obscene returns. Some of the skills you seem to admire are ones that our society could, IMHO, better do without. We need an economy, not a casino or a bordello.

  119. @paul quigley,NWL has risen ‘phoenix’ like as a weekly sub. quite good,excellent in fact.
    It not a question of admiration,just cold hard business non emotional,bit more that go in handy in Ireland-its never personal for me, just business.

    Here ya go…sneak peek at Issue 9…..Inside this issue:

    “NAMA updates its foreclosure list
    KPMG given 1-month extension to file reply to fraud case
    Larry O’Mahoney ap- peals repossession ruling
    IBRC gets additional €50m bailout
    Irish bank results clearly show a strategy
    Commercial leases database still due “early August 2013′
    Personal Insolvency Arrangements now commenced”
    NAMAwinelake@gmail.com

    Paul,steady on there with casino and bordello references,had many a good night out back in the day,have i been exposed 🙂
    A few entrepreneurs be useful too,create a few jobs,pay some taxes….

  120. @john g

    Like most citizens, I don’t care much what people get up to in their private lives. I do care that the economy, and the state does not become a playground for insider trading. Without adequate regulation, big business tends invariably to be corrupted, as Karl Polanyi showed many years ago in his ‘Great Transformation’. They don’t call it filthy lucre for nothing.

    No doubt the winding down of the NAMA portfolio will go on for a considerable period, and some smart folk will still make a few bob, but the property/finance based ‘entrepreneur’ model is bankrupt from an economic development perspective.

  121. @paul quigley,enjoyed the exchange as always,I was a little “innocent” in my first job this was the unofficial code..
    Having navigated one or two cycles it’s always “different” the next time…oh they will be back….

    “There are strange things done ‘neath the midnight sun
    By the men who moil for gold.
    The arctic trails have their secret tales
    That would make your blood run cold.”
    Robert W. Service

    All best Paul,catch up on another one,many many thanks Gregory terrific post,as always.

  122. @ veronica

    The view that I am advancing is not posited on the idea that we are in any way unique in terms of political behaviour. The situation in which we find ourselves as an independent state is, however, unique. (I have no doubt that some of the same forces are at work in the three other countries that find themselves in a similar situation).

    The question is whether the financial facts will trump the capacity of politicians to continue to hoodwink voters into allowing their support to be bought with their own (taxpayer’s) money. I am convinced that they will.

    Who knows! Our TDs might even become legislators with a proper national rather than parish pump perspective as a result.

  123. @ veronica

    I should add, as an afterthought, that the situation of insolvency is not that unique in the history of Greece as an independent state. It is for this reason it is an outlier and will continue to be such.

  124. @pq. The property/finance based entrepreneur model is bankrupt only in Ireland. It is alive and thriving in other jurisdictions. The reason that it is dead in Ireland is primarily because the banks that operate in Ireland are bankrupt, as are the developers. The professional developers (there are some) have left for Canada, USA, UK, Middle East, China, Africa and Australia.

    The property industry in Ireland has been nationalised. Those developers, with a few “favourite son” exceptions, that foolishly built businesses here with the encouragement of the banks and cheer led by the politicians are not allowed to rebuild those businesses, nor purchase properties from NAMA at the same levels as the foreign private equity funds. That simple political decision in itself has deprived them of their legitimate constitutional rights. A reversal would allow them to make profits that could be used to pay down debts here. Instead of that, a generation or maybe two, has been wiped out from creating jobs and rehabilitating themselves in this country.

    Instead, we have the sale of the country’s assets to foreign carpetbaggers, whose sole intent is to sit on a nice fat yield and turn the physical assets back to the Paddies at a profit as soon as the banks have recovered enough to act as funders in the economy. And they will…… eventually. And they will lend to property again, because when they see others making money in that area and when the 23 year-old lending executives have no recollection of the bubble of the 2000s, they will compete again.

    In the meantime, this property shakeout still has a long way to go. The recovery will come from small beginnings – a pair of foundations dug by the a couple of 20 somethings, with no history. As I said, with very few exceptions, those with knowledge have been forced abroad. Their talents (and despite the excesses, there were some that were talented) will be utilised abroad. That is the result of short-sighted political expediency pandering to the media and the masses, but ultimately detrimental to the economy.

  125. @ Veronica: “The question is whether the financial facts will trump the capacity of politicians to continue to hoodwink voters into allowing their support to be bought with their own (taxpayer’s) money.”

    Correct question. My op would be that heroic PR efforts will be employed to continue the ‘hoodwinking’ – especially “THE SKY WILL FALL!” or, “THERE IS NO ALTERNATIVE” sort of guff. Chop off any avenue of discussion before it gets traction. Your average citizen (who actually does not exist!) is basically poorly informed or most likely mis-informed, so it will require a brave and heroic individual to breaks ranks – but they need the resources to persist. Think Hamburger Hill!

    I do not know the time-line on this one. But revenue income is directly correlated with taxable incomes. If these latter falter, and there is every chance they will, the game will be up. Borrowing for day-to-day spending merely makes the matter worse.

    But I am sure you do not underestimate the capacity of our domestic politicians to attempt to finesse this scenario.

  126. @WSTT,well hi there WSTT,speaking off who’s back phoenix like!
    What’s the story with strategic defaulters,all those “amateur” owners off BLT bout find out that leverage is a two way street!
    It a popular parlor game to demonise the developers but without feckless irresponsible buyers off BTL,the boom may not have gotten so boomy.
    It’s not like foregin or overseas buyers were a driving force,snapping up properties off the plans,flipping them like pancakes…
    Christ I used to be afraid to go for a quiet pint less some amateur “irish” developer overheard my accent,buttonholed me with questions about buying in New York,I kid you not!!!
    WSTT,will they go quietly into the night or do you expect some resistance,noticed that auction in Galway was also rudely interrupted,similar to the Shelbourne.

  127. @ Yields or Bust

    It did strike me as wishful thinking that claims in respect of Anglo could be easily negated.

    Richard Bruton at that time had defended his pension and that of former bankers as a property rights – a brass neck of course in relation to the experience of many citizens.

    It’s an interesting scenario that not only could the Anglo cases collapse, the taxpayer again would be called on.

    @ who_shot_the_tiger

    There is a danger in coming years that the potential of the construction sector will be second fiddle to small overseas web companies that add little local value added.

    Over the past 3 years as I have observed the rise of a 45 floor residential tower in Kuala Lumpur, I have often thought about the diverse economic activities that are impacted. In China, apartments are generally handed over as just shells, even without flooring (tiles/wood) but in KL, there is just a need do have internal decor done. However, still in terms of local impact, there is a big impact in terms of the business for many small firms.

    Given the limited local linkages of exports from many FDI firms and the large number of SMEs that do not export, why have public agencies just for exports?

  128. Money is still being destroyed. Debt that is. As it dies, margin calls mean the best investments are dumped. The Greatest SE crash has yet to happen, but it will, destroying even more money.

    Cash will be king. But, as deflation will continue for some time, alongside more emigration and fewer “jobs”, no one will use it, but they may accumulate it.

    There is no point in having confidence in the broken, dependant upon growth, money machine …. It is broken! Blow as much air into the balloon remnants as you wish, Gregory, but all you will get is a very appropriate noise!

    What happens when a pyramid scheme fails? In Ireland, TPTB borrow more! When it is obvious to most that the worst is yet to come!

    But, maybe the Bulgars and Romani will invest their considerable skills and capital, thus restoring the economy and faith in the CB? The profoundly racist Irish were wriggling like hell when the wealth drew in unwelcome gasterbeiter. Now that only a few, canny types have the cash, this must be an even bigger sting?

    Strategic thinking and the Irish…. clearly a very slim volume….

    I remind you all again: Economic history was a Leaving Cert subject… but it must have been too easy for some, eh? Ask who got rid of that, for the names of the 5th Column. The NWO looks good, but not as great for the Ireland desired by those who were the architects of the ongoing disaster that is economic confidence in the 26 counties.

    In similar times, USA and Republican France were formed. You are living in interesting times! Enjoy!

  129. @ BW Snr,

    That was DOCM in response to my previous remarks! But it is a good question; though the answer is perhaps not so simple as one might think. What we have are the two parties of government engaged in a high profile, noisy, public argument over what, in the overall scheme of things and cumulative cuts over the past five years, appears as a relatively paltry sum of money of a few hundred million euro. The problem is that everyone knows where this money is supposed to come from – the social welfare budget – and the Minister for that Department won’t have it.

    To do so would be the last straw, possibly, in that party’s political credibility with its own electoral base. That the government itself is at the mid term point in the political cycle, with all which that implies, is a further important factor that affects both parties of government in separate ways. But there is another side to it – nobody really knows what taking the slash hook to a raft of SW programmes would do. There’s no ‘representative consumer’ model of SW programmes at this point in time and, so far as I know, there is precious little data either on how these programmes operate within the economy. Alternatively, the argument is that coming in below the percentage target and thus accelerating closing the deficit is the right policy option for all sorts of excellent reasons, including reputation with prospective lenders, boosting investment and so on; and in any case, the whole business is being financed by borrowing which is unsustainable.

    From the ordinary citizen’s point of view, there is validity to both sides of the argument. Most people have more to do with their time than be concerned with the minutiae of such political disputes. However, voters are not blind to the individual suffering and hardship that goes on within their own communities. The lack of imagination that characterised last year’s Budget offering was less than inspiring to behold. The government could blame that one on the Troika. Not this time, though; and no amount of spin, or posturing or invented distraction will cover for it.

  130. @ veronica

    The problem with regard to reducing the cost of social protection is not that complicated. The obvious place to start is by scrapping the universality of a number of benefits, most notably child benefit. The guff about the means-testing required is just that; guff! If Revenue can deduct the household tax from pay and pension slips, they can equally readily establish the income limit for receipt of universal benefits. The row is not about doing it but about which party will pay the political price. We can no longer afford them the luxury of this behaviour because we cannot afford the cost.

  131. @JG, Hi John. I’ve missed your NY insight since NWL went digital. The property and development industry in Ireland is now in the hands of NAMA. Some developers (Chris Bennett and Sean Mulryan) have been favoured with partnership status, the majority will be allowed to survive pro tem to service NAMA’s E1.2 billion per annum income portfolio (costing it E300 million p.a. in interest). A no brainer for NAMA to keep milking for as long as possible. We’ll know when it’s all over because NAMA will then move to scrape the bottom of the barrel and soak up any personal assets that may remain with the debtors. That’s the final act. Until then, deception and lulling the suckers into a false sense of security will do nicely. Real resistance will come not from the NAMA “debtors” but from underwater homeowners when the banks move to repossess. Then, at last, we may see some of the passion for which the Irish are famed. Up to now we have demonstrated all the courage of subservient pussies.

  132. @WSTT,missed you too,you are too kind,ramblings more like!
    One wonders how tall,they will erect that Chinese wall internally or is KW no longer a bidder for assets.
    But agreed some rather strange announcements lately,still amused by that hasty QIF nonsense,whiff of desperation at getting usurped,again.
    So this puts KW firmly ‘inside’ precludes them for like buying…ah go way out that its Ireland,for the record WTF has KW ever built…
    http://www.bloomberg.com/news/2013-07-26/nama-seeks-to-revive-u2-tower-project-that-was-shelved-in-2008.html
    This may amuse you….JP has been on some run lately…mother of god everything he touches,talk about reverse midas.
    “John Paulson’s hedge fund, Pauson & Co, has disclosed a new position in Green REIT (LON: GRN). Green REIT recently raised 320m euros via a public offering in Dublin and London. According to a disclosure made on July 22nd, Paulson & Co hold 12.92% of the voting rights.”
    http://www.marketfolly.com/2013/07/john-paulson-discloses-green-reit-stake.html

    Pints lots of them next time you in NY,oul Sean getting a rough ride up the way from me,best to himself and the always charming and very witty misses.
    All best WSTT,heading to a meeting.

  133. fwiw VinBrowne is having a debate on strategic or tactical or opportune or whatever default this evening….

  134. @JG, Hard to believe, but a friend in Wicklow, buying a €75,000 house from NAMA this week had to sign numerous documents swearing that he had no relationship whatsoever at any time with the builder (who was a NAMA “debtor”). The whole thing has taken over a month to clear. The fact that the politically and media expedient requirement is quite clearly unconstitutional does not seem to bother our kangaroo court third world legal community at all.

    When the media complain about the NAMA debtors leaving the country and not facing up to their responsibilities, the question must be “How can they stay?” They have been illegally excluded from participating in the economy and from any chance of making future earnings here that can be used to settle their affairs by flawed and politically inspired legislation and NAMA’s wrongful execution of that policy.

    Cheesus Crust…. it just gets more like Zimbabwe every day..

  135. @Greg,it was 10 tranches today in six pools-link here not sure if the links work,you may have to have an AC,or be a registered user or something but.

    “Fitch Ratings-London-07 August 2012: Fitch Ratings has downgraded 10 tranches from six Irish RMBS transactions and affirmed a further 29 tranches of the remaining nine transactions. The downgrades only affect Celtic 11, Emerald 4, Kildare, Pirus, Lansdowne 1 and 2, as many of the more recent transactions benefit from higher levels of credit enhancement.”
    http://www.fitchratings.com/creditdesk/press_releases/detail.cfm?pr_id=757497

    This was yesterday-assumptions linked above-worth a..

    “The growing difficulties associated with repossessing properties have also assisted in increasing the percentage of loans in a very late stage of arrears. With the exception of the two non-conforming transactions, cumulative repossessions are yet to exceed 0.4% of the initial collateral balance in any transaction, whereas the proportion of loans in arrears by 12 months or more often exceeds 4%.”
    http://www.fitchratings.com/creditdesk/press_releases/detail.cfm?pr_id=798803

    @WSTT-watching the Anglo/IRBC resolution,should be fun assume the debtors there are lining up some PE funds to bid for their assets,the preclusion off NAMA’d developers from bidding/buying makes no sense,they often will know the asset best and pay the highest price…

  136. VB Show

    “Alison: Why is the United States so different Brian?

    Brian: It’s a different country.”

    Luv it! Case rested.

  137. fyi – shur it couldn’t happen here …

    Free Man: Court Releases Whistleblower from Psychiatric Ward

    Was it a conspiracy or a miscarriage of justice? Either way, politicians and legal experts alike are welcoming the release of Gustl Mollath from a psychiatric institution. The 56-year-old had revealed illicit practices at a Bavarian bank.

    http://www.spiegel.de/international/germany/court-releases-whistleblower-gustl-mollath-from-psychiatric-ward-a-915240.html#ref=nl-international

    Picture This: Where’s Angie? [or the remake of Hitchcock’s The Lady Vanishes, 1938]

    http://www.spiegel.de/international/a-915239.html#ref=nl-international

    .. not long now to the infamous ‘After the German Elections’ … and the next Irish budget from the neuBundestag!

  138. @Who Shot The Tiger Says;
    on February 17, 2011 at 2:30 am who_shot_the_tiger

    One paragraph says it all. He states that we will become Zimbabwe (without sun, of course) if we legislate retrospectively for short term political gain. He is correct. Our credibility, gravely damaged as it is, would be completely gone with international investors and funds. Just when we need all the investment from outside that we can get.

    If it happens, there will be nobody left in employment in the country to turn out the lights – no matter what the retailers say.

    We have no money. We need inward investment. That investment will bring liquidity. The liquidity encourages credit. With liquidity and credit we get growth and that brings jobs.

    The politicians, once again, are showing their financial naiveté and ignorance and are playing with fire.

    Goodnight NAMA and the Banks – not to mention IPUT (the Irish trade union pension funds), life policies and economic recovery.

    Well when things get worse still, then you tear up contracts with both and rebuild, starting with caring for society, instilling democracy and earning sovereignty.
    Not quite the approach we are witnessing.

    on February 18, 2011 at 2:19 am who_shot_the_tiger

    Very well put, sf ca writer. It is so true. The issue is much bigger than money, banks or the economy. Our pygmy politicians just don’t understand that. I doubt if they ever will.

    on February 18, 2011 at 1:25 pm NamaJew

    Sf Ca

    You may have won post of the year on Nama Wine Lake!

    The blog on the rent review question and the excellent comments by all may be the most important issue that
    has ever been addressed on the site.
    We are where we are, but now we are discussing a new government policy which could lead to the total collapse of the Irish economy and Irish society.
    We all need to make contact with senior figures in the Fine Gael party and try to explain the consequences of the proposed rent review legislation.

  139. @ wstt
    Thanks for the response.

    I don’t know much about property or the property business, but Brian O’Hanlon has made interesting, thoughtful, posts about the blind, fevered, atmosphere which prevailed within the trade during the bubble. Otherwise intelligent, experienced people became detached from reality. A sort of mass hysteria which mostly gripped the professionals involved.

    I recognise that many developers have been ruined financially, and some have even committed suicide. I am sorry about that, but this is an economics board, where issues have to be addressed.

    This is a complex scenario, with a lot of different economic and political actors. My core point is that property development was never going to be an engine of economic development. While some good stuff got done, mostly we are looking at a process of mal-investment, and mis-selling to a naïve Joe and Jane Public. Michael H and the Dork of Cork can put it better than me, but the signs of poor urban planning are everywhere. Path dependency matters, and we are going to pay a high price for our car centred, extended suburbia, thinking.

    Of course we need jobbing builders, hammering and banging away in the bumpy world of SMEs. Property development is something else. It is about building financial and political credit, and inter-mingling the two to build a power base. A lot of time and thought goes into building up land-banks, establishing all the necessary political connections, priming the planning system, gathering a stable of loyal, tame professionals, and setting up the deals. That stuff has very little to do with bricks and mortar, or work as ordinary people understand it. Like all high finance, it is basically gambling and scheming.

    Not even the most astute of the developer/gamblers anticipated the flood of credit chips which would be unleashed under the euro system. It was raining euros, so there were no longer any barriers to mal-investment. A one way bet, so they bet the house. The house, in this case, was the state, that is our state, which had been captured by developers and their banker cronies. We didn’t know that was the deal, but the bill came in on 29th September 2008, and the Minister duly put his squiggle on it. How many zeros ?

    You seem to feel that Ireland is at a loss because most developers have been shut out. They are bankrupt, which is reason enough, but this is no ordinary bankruptcy. It is a bankruptcy of a set of property/banking enterprises which were corruptly allowed to get a grip on the state finances. While FG has strong property connections, the FF party rightly stands indicted for its economic management. The other lot are in now, so the FF cronies have lost their connections to state power.

    There have been no meaningful enquiries into the property collapse, although the journalists have been pretty good at highlighting the various golden circles involved, not least the privately owned MSM. One of the GUBU features of this shambles is the way in which the notion of celebrity was used to sanitise the corruption involved. People who were glamorised as models of social success couldn’t possibly be ‘guilty’ of anything when the sh1t hit the fan. Sentenced to a more modest lifestyle, or to the same lifestyle but somewhere more discreet. How awful.

    On your analysis, it sounds like we, the Irish, have failed our developers, and are foolishly forcing them to take their talents elsewhere. They are of course, the ‘carpetbaggers’ in their new jurisdictions, because what goes around comes around, and the locals there will be resenting them too.

    I am sorry, wstt, but these folk had their chance, and they screwed it up in some style. I wonder what assets have been sequestered abroad, to provide seed capital for another property game. I doubt they will be keen to talk about that. Sure why would you give a stupid failed state who doesn’t appreciate you any of its money back ?

    On balance then, I think, ‘professional developers’ have made a net negative contribution to our economic development, corrupted our society, and contributed to the destruction of our national finances. We need, IMHO, to get over our property fixation, and learn more about goods and services.

  140. @PQ. Thanks for the comment.

    Developers develop – that’s what they do. Irish NAMAed developers are precluded by law from purchasing assets in Ireland and elsewhere from NAMA, which has a dominant and uncompetitive position in the Irish market.

    I am not sufficiently naive to seek sympathy for developers. They don’t expect it, nor do they need it. Property development is not about building financial or political clout, it is about building commercial assets as infrastructure to facilitate job creation in the economy as well as being a considerable job producer itself. Property development created the Hermitage, Beacon and Blackrock Clinics as well as the new Conference Centre. It is not all about building 3 times the number of annual residential units that the economy needed. That was stupidity – encouraged by the media and politicians and facilitated by local councillors by way of the proverbial “brown bags”.

    I am not saying that the Irish have failed the developers. Many of the developers are big boys and are fit to look after themselves – although the majority have no cojones at all and are utterly servile and obsequious in the presence of NAMA. I am saying that the Constitution has been thrown out of the window and those that are debtors of NAMA have been excluded from purchasing assets from NAMA, a discriminatory action and a blatant infringement of their rights as citizens.

    Any developer worth his salt does not need assets sequestered abroad to provide capital. All he needs is a skillset and the ability to raise capital. To complete a development it takes knowledge and capital. The capital is always available if the deal is right.

    No need to re-write history… its all in the the Honohan and Nyberg Reports:

    Patrick Honohan wrote a 177 page report: The Irish Banking Crisis; Regulatory and Financial Stability Policy 2003-2008.

    http://www.rte.ie/news/2010/0609/honohan.pdf

    Nyberg:
    http://www.bankinginquiry.gov.ie/Documents/Misjuding%20Risk%20-%20Causes%20of%20the%20Systemic%20Banking%20Crisis%20in%20Ireland.pdf

    Like “Find the Lady” – Find the blame on the developers in either?

    Let’s start with the Honohan report:

    Page 7: “….the major responsibility lies with the directors and senior managements of the banks that got into trouble.”

    When the Irish government issued a guarantee in September 2008 it was done to calm the market. The hope was that this was enough to save the banks. As the Honohan report points out it is ‘conceivable that, had international financial markets remained calm, the two main banks (AIB and Bank of Ireland) might have been able to manage their emerging loan-loss problems without Government assistance … But, given what has now been revealed about the quality of their loan portfolio … it seems clear that at that point Anglo Irish Bank and Irish Nationwide Building Society (INBS) were well on the road towards insolvency.’

    The root of the Irish crisis lies within the banks. Yes, regulators failed and politicians were naive but the banks were the instigators and the actors.

    As the Honohan report points out the Irish crisis wasn’t the fault of anyone except the respective banks. ‘Mortgage brokers and similar intermediaries, incentivised to generate mortgage business, probably played a part at the retail level. It may also be the case that auditors and accountants should have been more alert to weaknesses in the banks‘ lending and financial position. While these aspects have not been independently researched for this Report, they merit further investigation.’

    Yes, indeed.

    As a sign of the banks’ sound standing and that no one could have known what was coming the Honohan report points out: “… during the first nine months of 2008, Anglo paid out €0.14 billion in dividends, Bank of Ireland €0.39 billion, and AIB €0.72 billion – of which €0.27 billion was paid out as late as 26 September 2008, four days before the guarantee.”

    Does that tell us that these banks were in a sound state – or that their accounts were done in a clever way?

    To be fair there are missing answers – even questions – in the report. What about the contacts between politics and business in Ireland and the importance of these relations in creating a property bubble?

    And as to the Irish banks saved that were saved at the time by the Irish taxpayer. The Honohan report points out (prior to the release of the Anglo tapes, of course) that “Even executive directors of Anglo Irish Bank seem to have had no inkling of the problems to come if we are to judge from the fact that three of them acquired and held sizeable blocks of shares in the Bank close to the peak of its share price in 2007.” … Hmmmm, we know a bit more about that now! Market manipulation?

    Was the Anglo Irish “loan” to the “golden circle” of ten businessmen to buy shares from a shareholder who obviously couldn’t find a buyer on the market a singular event? I doubt it. And I wonder if this really is the only such arrangement – or is this just the only loan that has surfaced?

    The managers of the banks that the Irish state had to bail out end of January 2009 will have known for some time what was coming. Whose interests were they acting in and in whose interest did they use this information?

    €65 billion is a lot of money to lose. The government wrongly in my opinion decided that it was going to save these w*nkers at the expense of the Irish taxpayer. Having had no choice in the matter, the Irish taxpayer should at least be adamant that this money is used to get the banks up and running to serve society, not to bury their past sins.

    Then came the Nyberg report – and to my mind, he missed the fact of fraud in the Irish banks. Fraud in the Irish banks hasn’t been tackled at all yet – but it’s coming down the pike – in New York to be exact. However, at this point in time, it’s a disgrace to the Garda Bureau of Fraud Investigation (even Judge Kelly pointed this out). In the end, the initiative will come from a private source- not from the Keystone Kops and is likely to cost the Irish taxpayer another billion euro or more.

    Anyway, back to Nyberg. The title of the Nyberg report indicates the major flaw, the misjudging of risks, to be at the centre of the Irish banking crisis. Indeed, a headline for the failings of international banks in judging risk related to individual lenders and whole countries like Ireland, Iceland and Greece.

    The Nyberg report, makes it glaringly obvious that German banks lent recklessly all over Europe, wrecking havoc from Iceland to Greece.

    Quoting from it (in the main):
    The Report explores what the Commission considers to be the most important policies, practices and linkages that contributed to the financial crisis in Ireland. A very large amount of documentation was analysed and many relevant people were interviewed. In explaining the simultaneity of the failures in Irish institutions, the Commission frequently found behaviour exhibiting bandwagon effects both between institutions (“herding”) and within them (“groupthink”), reinforced by a widespread international belief in the efficiency of financial markets. Based on this, the Report finally offers some lessons that could help avoid future similar occurrences in Ireland and elsewhere.

    Contagion

    The willingness of banks to accept higher risks by providing more and shockingly larger loans primarily for commercial property deals was an important reason for the gradual increase in financial fragility in Ireland. This willingness occurred because of the emergence of strong foreign and domestic competitors within both the residential and commercial property lending markets.

    Consensus

    One of the striking features of the banks, the political class, regulator and public authorities in Ireland in the years up to the crisis was the consensus that the banks could do no wrong, that there was nothing to question.

    A minority of people indicated that contrarian views were both difficult to maintain during the long boom and unhealthy to present to boards or superiors. A number of people stated that had they implemented or consistently supported contrarian policies they may ultimately have lost their jobs, positions, or reputations. Other signs were also noted pointing to sanctioning of diverging or contrarian opinions as well as self-censorship because of this. The apparent strength of these expected sanctions is difficult to judge, but the absence of opposition, barring only a handful of identified vociferous contrarians, may have made it easier for institutions to accept toning down the application of vital, tried and traditional prudential practices.

    The Commission suspects that this conformity of views and self-limitation of responsibility would have tended to reduce the perceived need for monitoring, checking and thinking about what was really going on. There would have been little appreciation – both domestically and abroad – of the fact that Irish economic growth and welfare increasingly depended on construction and property development for domestic customers, funded by a growing foreign debt.

    Flawed lending: Anglo and INBS

    Anglo and INBS are important for the wider crisis because they were both seen as highly profitable institutions to which other Irish banks should aspire. As other banks tried to match the profitability of Anglo in particular, their behaviour gradually, and even at times unintentionally, became similar. Accordingly, when the crisis broke, large losses were realised not only in Anglo and INBS but in other banks as well.

    Following the strong example, this was the unavoidable consequence:

    The Herd: Other Banks

    Bank management and boards in some of the other covered banks feared that, if they did not yield to the pressure to be as profitable as Anglo, in particular, they would face loss of long-standing customers, declining bank value, potential takeover and a loss of professional respect. The few that admitted to feeling any degree of concern at the change of strategy often added that consistent opposition would probably have meant formal or informal sanctioning.

    The Silent Observers: External Auditors

    The auditors clearly fulfilled this narrow function according to existing rules and regulations. They did not, however, generally report excesses over prudential sector lending limits to the FR. Even if they had, it appears unlikely that anything would have been done about it as in general the FR was already aware of such limit excesses.

    The Enablers: Public Authorities

    The CB was not powerless; it had the right to direct the activities of the FR and it could advise the Government. There are, however, no records of such direction or advice or even efforts at such. These institutions worked separately and their respective independence was repeatedly stressed; however, this was counteracted by their partly common board members. Until the crisis, many of the staff of the CB and the FR apparently did not cooperate in a sufficiently meaningful way in assessing financial stability.

    Policy with Insufficient Information: the Guarantee

    The logical but catastrophic consequence of all of this was that when the Irish Government gave the blanket guarantee to all the Irish banks on September 29 2008 the Government didn’t have the proper information, knowledge and understanding to give this guarantee.

    The lack of suspicion and the absence of sufficient information on the underlying quality of the banks’ balance sheets is likely to have had a significant impact on the alternatives that were considered reasonable on September 29, 2008. Proper information is a precondition for any crisis management based on reality. As it turned out, decisions were made on the erroneous assumption that all banks were and would remain solvent. Only on that assumption could the decision to simply provide a broad guarantee be understood.

    If accurate information on banks’ exposures had been available at the time it seems quite likely to the Commission that a more limited guarantee combined with a state take-over of at least one bank might have been more seriously contemplated. Indeed, on the basis that such information had been available, banks could have been directed to raise substantially more private capital well before end-September 2008. As it turned out, however, the Government was advised that banks’ insolvency risks were small relative to liquidity risks and it was eventually decided not to consider nationalisation. This proved to be only a temporary reprieve, however. After a series of insufficient government actions and initiatives, Anglo was nationalised on January 19, 2009 following the disclosure of significant governance failings. Shortly afterwards, the solvency implications of several banks’ excessive property exposures started to emerge.

    Some Lessons

    The lessons that Nyberg draws refer, not surprisingly, to the regulator but also to the governance of the banks, the level of vigilance and scrutiny and the need for a robust discussion of policies and directions, both in public and private institutions. Last but not least: the incentive structure:

    Finally, it appears to the Commission that little seems to argue against policies to markedly limit (even properly structured) bonus and pay for management in both banks and authorities, in Ireland and internationally. A consistent message of the bankers interviewed by the Commission has been that money is only part of their work incentive. For people serious about professional public service, money should be even less of an incentive.

    BTW, in my humble opinion, the taxpayers were not obliged to bail out the banks. The money should have been used to set up a new clean bank and the insolvent ones should have been liquidated. Just as is happening now with IBRC, and will inevitably happen to NAMA when it is forced by the government and market forces to auction its loan portfolio.

    I also acknowledge that the reports produced so far are far from telling the whole story.

    But to blame the developers for the guarantee and the destruction of the national finances? …… Naw, there were bigger and greedier catalysts. The developers are just a convenient scapegoat for the masses. Find the blame on them in the reports and I’ll buy you a pint!

  141. In his book ” Breakfast with Anglo” the diistinguished Irish developer Simon Kelly states “Banks believe valuers, which always amazes me because valuers don’t buy buildings. Some time ago, a system evolved whereby a valuer’s word was absolute, and a valuation was almost as good as money.”

    Below is the link to the elementary property valuation error that bankrupted Ireland;

    http://www.independent.ie/opinion/letters/bubble-values-3034584.html
    Professor Neil Crosby’s online response to this Irish Independent letter
    “Bubble values” 29th February 2012

    “The analysis may be simplistic but unfortunately it is not flawed.
    Banks ask valuers to tell them what the market value/exchange price is
    at a point in time and then lend vast amounts over time based on that
    simple number. The surveyor gives them that simple number and do not
    think it is their job to tell the banks that the question they have been
    asked is stupid on its own and what they should have asked for is the
    underlying value. It was obvious in 2005 and 2006 that prices in the
    property market were higher than could be sustained by any rational cash
    flow analysis. But in a culture that rewards individuals for short term
    performance rather than longer term perspective, it was in neither the
    bankers’ nor the valuers’ interests to stop it. I cannot see anything in
    what the UK regulatory authorities have proposed that makes me think
    they understand the role of property valuation in driving asset bubbles
    and will prevent it all happening again sometime in the 2020s.”

    Neil Crosby
    Professor of Real Estate and Planning
    University of Reading

    John Corcoran – Neil Crosby is quite right to point out the critical and corrupting role of valuers and banks in the property bubble. RICS and other property related professionals should hang their heads in shame for not raising the alarm bells and not challenging landowners, banks and homeowners about the outrageous rise in property valuations which had no relationship with reality or ‘underlying value’. Their role is similar to that of ratings agencies which were paid to sign off triple A ratings by their clients for junk.financial instruments most of which related to property assets..Sadly it does not require a university professor to point this out.

    Anyone with a modicum of experience in property and development knew we were headed for trouble and I am sure I was not the only person to flag it up.
    http://www.youtube.com/watch?v=rRfMO6agqGQ

    If these so called professionals had been held to account by their so called professional bodies ( as the General Medical Council regulates doctors) half of them would have been struck off. Their primary responsibilty should have been to the reputation of the valuation profession and not their commission. In many countries property is taxed and valuers are independent or are part of the state.

    Radical reform is required or we will surely revisit this crisis again in the near future.

  142. @ wstt

    I am not going to dissent from your pungent views on what went on in our banks, or on the state of banking more generally. As it stands, the sector is a hazard to the global public. It stinks. I recommend Hellwig and Adnati’s ‘Bankers New Clothers’ for a succinct, impeccably researched guide to what needs to be done. Many millions of our money is still mis-spent on denying the truths therein.

    I further agree that a whole slew of individual and corporate professional bodes have failed to self-regulate. In a similar manner to the institutional sex abuse, key stakeholders, both private and public sector, wrestled with their consciences and won. For every professional who threw away their integrity, and their standards, there were another dozen who knew about it and kept silent. The dozen are still keeping mum, but respect for the professions is not going to recover until some of the truth is aired. Given that the global cartellisation of accountancy, the discovery process is not going to be easy.

    I accept that property development is not a political exercise per se. It belongs to the sphere of business. What I am saying is that it was, and is, essential to acquire some political clout in order to be able to progress one’s business ambitions. We spent a fortune on tribunals, but we scarcely scratched the surface of corrupt payments to politicians and political parties around planning decisions. Not many holds are barred in the lobbying game, and the Galway Tent has become a catchphrase for crooked politics and crooked development.
    Business is business remains true, but so does the principle that the polluter pays.

    I doubt that the building of private medical clinics is a always, or even usually, a productive investment. The US leads the world in such developments, with a profoundly negative impact on healthcare costs and insurance systems, associated with perverse incentivisations for clinical practice.

    Healthcare is no ordinary good. Less is sometimes more, but the sector is largely provider driven, and the public is, in many respects, a sitting duck. Medicare, and its associated entitlements, will sink the US state finances as surely as foreign wars.

    Any private hospital development which facilitates fast-track access to Irish public beds or other clinical resources must damage an already creaking public system. Insofar as the developments in Ireland open channels for ‘special’ access to public hospital facilities, or redirect resources form the public healthcare system, that can only put additional pressure on an already creaking infrastructure.

  143. I wonder what the Central Bank bond risk premium will be when equilibrium returns, assuming it does .

  144. @PQ, Thank you for the response. “Pungent”?….. You’ve got me there – I’m not sure that it’s complimentary 🙂

    In many decades in the construction industry, I have given politicians a wide berth. So have most sensible participants in the property industry. Many years ago, during the Haughey era (Come back Charlie, all is forgiven) I watched written petitions being passed to handlers – one still maintains a virile profile today :-). They stuck them in their pockets with the promise that they would receive full consideration and attention from “the Boss” later. The reality was that they were opened as a source of entertainment, read out to the inner cabinet to laughter, torn up and binned. That was how much influence the great unwasheds’ lobbying had. I have retained a healthy cynicism for the political class ever since.

    As bad as many claim Haughey was, he would have seen the European bankers and bondholders coming a mile off and would have known how to treat them. Who has replaced him? …… a secondary school teacher, a primary schoolteacher and a trade union official. Jesus wept! My cynicism has proved to be well founded.

    In relation to the development of private healthcare hospitals; they have all become Ryanairs. Anyone with any private insurance at all can access them. The Blackrock Clinic, the Hermitage and the Galway Clinic are all profitable. That is down to competitive and streamlined management. The Hermitage has just provided the only stereotactic radiotherapy Cyberknife in the country at a cost of over €4 million. It is the cutting edge (forgive the pun) of technology in neurosurgery and cancer treatment in the world. The Beacon loses money because it is too top heavy with management. Think HSE. It is a disgrace that our public health service does not provide the best – that it is left to the private sector to do it.

    The truth is that the HSE is top heavy, inefficient and the service is rationed in order to save money. They even brought forward €400 million of the 2013 charge for private beds in public hospitals to 2012 in order to balance the budget last year. What will they do this year?

    All our citizens are entitled to access public medicine – we have all paid for it through our contributions. And I agree that the public hospitals should not be facilitating privileged “fast-track” access to the public system – that is warped policy thinking.

    Private medicine exists here because because the public version is inadequate. If the public system worked as it should, we should not need a private sector. But it doesn’t and we do. There would be no Cyberknife or state of the art medical infrastructure at all in this country without it.

    In the USA, Medicare and Medicaid already cover US citizens. And “Yes” the hospitals and the doctors abuse the system. That is a combination of seeing the infrastructure as a profit centre and fear of the negligence claims from the patients if every test that could possible be relevant has not been carried out on the patient. Obamacare will not help in this regard. Many doctors are already opting out because, like our property sector, the medical service in the USA is about to be nationalised. Like Ireland, it can only lead to second rate healthcare.

    You have only to ask yourself “Why do the Canadians currently cross the border in droves when they need to access the best medicine?” Answer: “Because nationalised healthcare is bad healthcare.” It’s top heavy and inefficient. Too much money spent on old f*rts filling in forms instead of providing the state of the art technical equipment that’s needed to save lives. NAMA has already managed to give the kiss of death to a new paediatric clinic at the Hermitage because of its prevarication in responding to Form A requests. Disgraceful should have an expletive as an adjective to describe it.

  145. @WSTT

    All Mr Haughey’s bagmen are sovereign landlords.

    The eurozone is a group of seventeen countries with a combined
    population of three hundred and thirty million citizens. All member
    countries have the same currency,the same central bank,the same
    interest rates and the same commercial property lease law except one,
    Ireland.Ireland has very different commercial property lease law to all other eurozonecountries. The three components of all countries commercial lease law is the length of the lease,the rent determintion process and lease exit strategies/break clauses. In all other eurozone countries lease lengths are short,say three to ten years,with break clauses, and rents are indexed annually to changes in the consumer price index. In Ireland lease lengths are long,say thirty five years,with no break clauses and rents are reviewed every five years using the ratchet upward-only rent review process. This review process used the highest rent as evidence against all tenants and was open to malpractice and corruption.

    Irish commercial property lease law was a twinheaded monster which incentivised the over-renting of tenants and more damaging,it was the rocket fuel for the commercial property valuation model which created the monster commercial property bubble. When this bubble burst it destroyed the entire Irish banking sector. Reckless Irish banks lent tens of billions
    against these ruinous leases,not against the properties themselves. If Ireland had had regular eurozone commercial property lease law it would have been impossible to have had a commercial property bubble.

    The reason Ireland had this feudal lease law was because the corrupt
    Irish politicians organised sovereign leases for their bagmen pals. The sovereign,the best covenant in the country,by signing these feudal leases legitimised them and copperfastened them for all commercial tenants . All Mr Haughey’s bagmen, and all the corrupt Irish politicians bagmen, are sovereign landlords.
    It was institutionalised political corruption.

  146. @JC,
    Hi John, The reason Ireland had these lease laws is because we inherited them from our English masters. Our leases came from the English, not from the central europeans.

  147. @WSTT

    All Mr Haughey’s bagmen are sovereign landlords.

    The payment of rent is governed by the provisions of the lease. US leases are of varying lengths but rarely for longer than ten years and often for 3-year periods; Australian leases of grade A and premium office appear similar to the US. Leases in the Far East are often shorter still. The tendency in the UK is towards 5,10 or 15 year leases, but it is now not uncommon for industrial and office leases to include breaks,normally timed at 5-year review date. In continential Europe 3-10 year leases are very common.

    The regularity with which rents may be increased also differs throughout the world. While in the US,Hong Kong and Singapore the 3-year lease is usually at a fixed rent and the Australian office and retail leases include annual fixed or consumer-price-index reviews, the continental European leases often have rents indexed annually. Longer North American leases may have rents tied to the rate of inflation or,more often, to tenants turnover; this is rare in the UK. Change to the UK commercial leasing regime has been one of the most important property market issues since the UK PROPERTY CRASH OF 1990

    No other government in the world would sign these ruinous leases, and waste billions of it’s citizens money.

    All Mr Haughey’s bagmen are sovereign landlords.

  148. @JC. Ah John, Charlie Haughey may have had a few faults, but he did not invent the Irish lease. And I’m not sure what you mean when you state that a “bagman” is a sovereign landlord. Other than being a cliche, what does that mean?

    Many US leases have upward only reviews, only they are not described as such. They are just noted as increasing on the basis of “3% per annum” etc. They also include “turnover” percentages, so that when a tenant’s turnover reaches a certain level an excess rent kicks in. You must know this.

    I am not justifying the Irish leases. Retrospectively, they are what they are – legal contracts. The only way out is the same as the way in – by mutual agreement…. Or, in the final analysis by bankruptcy.

  149. A Preliminary Report on the Source of Ireland’s Banking Crisis ” by Klaus Regling and Max Watson-page 6:
    “This was a plain vanilla property bubble,compounded by exceptional concentrations of lending to property-and notably commercial property”

    When the commercial property bubble burst it bankrupted the entire Irish banking sector,which in turn bankrupted the sovereign.

    Reckless Irish banks lent billions against the feudal leases i.e. upward-only rent reviews tied to long leases,not aganist the properties themselves ,and created the greatest commercial property bubble in the history of mankind.

    The reason Ireland had these ruinous leases was because the sovereign signed them.
    All Haughey’s bagmen are sovereign landlords.

  150. @ wstt
    ‘In many decades in the construction industry, I have given politicians a wide berth. So have most sensible participants in the property industry’
    That second sentence flies in the face of the historical record. The property sector successfully lobbied for a while range of tax incentives. This was massively profitable for the sector, but killed the Golden Goose. Both major parties were captured by property interests, leading to gross mal-investment. Haughey was personally corrupt, and set set the tone for subsequent administrations.

    I agree that efficient management is important in any enterprise, and that private healthcare has a place, but the record shows that the focus on profit tends to lead away from, rather than towards, better health care. Much medical investment is mal-investment, and most of the cost is socialized, through escalating insurance and clinical cost inflation. Canada has a far better record than the US in containing these problems.

    ‘None of these studies have shown any general survival benefit over conventional treatment methods. By increasing the accuracy with which treatment is delivered there is a potential for dose escalation, and potentially a subsequent increase in effectiveness, particularly in local control rates. However the studies cited are so far limited in scope, and more extensive research will need to be completed in order to show any effects on survival’

    http://en.wikipedia.org/wiki/Cyberknife

  151. @WSTT
    In Ireland the interface between private property and the public sector is
    where much political corruption occurs.Two examples are the planning process and state/sovereign commercial leases. The findings of the Mahon Tribunal were “Corruption in Irish political life was both systemic and endemic”. In the Moriarty Tribunal the findings were ” What was attempted on the part of Mr Dunne and Mr Lowry was profoundly corrupt to a degree that was nothing short of breathtaking”

    Ireland has the most draconian anti-tenant commercial property lease law in the world i.e. ratchet upward-only rent reviews tied to long leases,some as long as 65 years e.g Carrisbrook House, Ballsbridge,but usually 35 years. This feudal lease law was organised by a cartel.
    Former Taoiseach Mr Haughey required a minimum of a million pounds per
    year,to finance his lavish lifestyle. Many of Mr Haughey’s bagmen are
    sovereign landlords-this was the pay back. Many Irish politicians families,friends and bagmen are sovereign landlords. This is
    institutionalised political corruption. The sovereign should be a lease
    maker not a lease taker,because of it’s risk free unbeatable covenant. These sovereign leases are sovereign bonds with the notorious ratchet upward-only rent review attached. Sovereign landlords have bled the state dry using this feudal lease law and have wasted billions of Irish citizens money. We are alone in the eurozone with this feudal commercial property lease law,where lease lengths are 3 to 10 years and rents are reviewed annually in line with inflation

    The state,by colluding with this cartel and signing these feudal
    leases,legitimised them and copper fastened them for all commercial tenants. Reckless Irish banks lent tens of billions against these feudal leases,not against the properties themselves,and created the greatest commercial property bubble in the history of mankind. When this bubble burst it bankrupted the Irish banks and the sovereign. No other government in the world would sign these feudal leases.

  152. @WSTT

    Ireland–A Democracy or a Propertyocracy?

    In a democracy power comes from the ballot box. Politics is like war,there are three things you need to succeed. The first is money,the second is money and the third is money.
    The people who provide the vast bulk of money which finances Irish politics are ,the cowboy builders,the cowboy developers and the constuction and property interests. They own almost all Irish politicians. The payback for this financing is — a corrupt planning system,no residential rates,mortgage tax relief,section 23/24 etc tax breaks, tax relief schemes for –urban renewal,multi-story car parks,students accomodation,buildings used for third level education,hotels and holiday camps,holiday cottages,rural and urban renewal,park-and-ride facilities,sports injury clinics and child-care facilities, and BES schemes. Feudal commercial property lease law i.e. upward-only rent reviews tied to long leases,which the sovereign signed up,on behalf of the taxpayers,were available to all the politicians friends.
    Many of this group are alumni of The Galway Tent School of Economics. The politicians look after themselves first-then their property interests. The public interest is irrelevant to the politicians.
    When Fine Gael and Labour did their u-turn on on their promise to grant all commercial tenants in existing upward-only rent review leases ,a rent review in 2011 –they were merely being consistent–looking after the interests of their bagmen. Follow the money it always leads to Leinster house.

    Welcome to Europe’s only Propertyocracy,home of the greatest bank and property crash in the history of mankind

  153. @WSTT-terrific posts,the medical stuff very very good.Lets not leave out the great and the good “Garret” if memory serves he was not adverse to a oul bit debt forgiveness himself.One wonders was AIB ever paid back…ah go way out that!
    If you are thinking about doing or investing in a REIT read the ‘deal’ or arrangement btw. the managing company and the asset holding one or REIT-for another day but take a close look thats where the fun and frolics are.
    http://taxpolicy.gov.ie/wp-content/uploads/2013/06/E3_DeirdreDonaghy.pdf

  154. PAUL QUIGLEY

    It is fitting that the University of Limerick should honour Paul Quigley, distinguished public servant, businessman and in a real and practical sense, patriot. In his career, in his public and in his personal life he has always pursued and has created development – at regional, national, and international levels. He has done this on the basis of personal service, commitment, and dedication from himself, and the motivation of idealism and commitment in others.

    Paul Quigley was born in 1923 and qualified with an honours degree in Civil Engineering at University College Dublin in 1942 when he was 19. But even before that his sense of service to society and to the nation came to the fore. He interrupted his university studies and enlisted in the Irish Army in 1940. After basis training, he was released to continue his engineering studies; on qualification, he returned to the Army. He was commissioned, assigned to the Corps of Engineers, and posted to the School of Military Engineering.

    During his years with the School, he developed a lasting interest in education, an interest which was to manifest itself in various forms throughout his distinguished career.

    There followed a series of important appointments which spanned over 40 years and which saw him contribute to corporate, to regional, and to national development in many different ways.

    Paul Quigley joined Irish Ropes in 1946 and during the next 7 years pioneered the first applications of both scientific management and work study in Ireland.

    In 1953 he became the first Director of the newly formed Irish Management Institute and held this position until 1960. Under his management and direction, the IMI’s position in Irish business life was developed and consolidated. Its premises were acquired, changed, and enhanced; its operational style of annual management conferences and management development courses was created and took shape; its important Management journal was launched. In short, the foundations of the Irish Management Institute were firmly established and the operations of the Institute were launched soundly by his vision, his zeal, and his commitment.

    From 1960 to 1985 Paul Quigley devoted his professional career to the Shannon Free Airport Development Company – first and early on as General Services Manager, and then as General Manager for over 24 years. His talents, sense of public service, and sheer professionalism knew no bounds in this role. Innovative development in the Shannon and Mid West Region; targeted developments in tourism and for small, medium, and large industry; the linking of aviation, tourism, and town building; cooperative endeavour for regional development; industrial and clustered industry linkages – all of these and many more were carefully orchestrated by the man, Paul Quigley, who could and did – with seeming consummate ease – operate at the regional, national, and international levels, but always to a clearly focused goal.

    Paul Quigley was then, and is, a man of vision, of leadership, and of service. It is not surprising that a man with these qualities was asked to take on other public and international tasks. He served as Chairman of the National Institute for Higher Education, Limerick, as Chairman of AnCO (now FÁS), the Industrial Training Authority, as a member of the Public Service Advisory Council; and he undertook many consultancy assignments for agencies of the United Nations in fields as far apart as Iran, Sri Lanka, Egypt, and Costa Rica. One could give details of the important contribution made by Paul Quigley in each of these roles; suffice it to say that his contribution shaped, for the public good, the destiny of all those activities with which he was associated.

    In honouring Paul Quigley today, we honour a man who has contributed much to our society, and to the economic and social well-being and welfare of our country. It is fitting that the University of Limerick should honour this man by awarding him an Honorary Doctorate of Economic Science

  155. APQ.
    I cannot disagree with your assessment of the effects of interference with market forces by politicians and ill-advised lobbyists in the property industry. It has been disastrous, even when the incentives have been initiated with the best of intentions. Anyone with anything between their two ears could have seen from the outset that it would end in tears. I have never seen one politically inspired taxation incentive that hasn’t.

    What we have now is something completely different from the almost “naive” brown bag culture of other days. That came from a culture that paid priests for masses and saw the clergy collecting dues by auctioning the dead at country funerals. It has been replaced by a sophisticated cabal of the professional class that is raping the country with the assistance of NAMA. The “chosen ones” set up REITs that can be fed by NAMA; the large legal, valuation and accountancy firms have prostituted themselves to NAMA to the detriment of their existing clients, and NAMA itself has moved into the development space to prolong their own longevity and jobs. Contrary to all the rules of the EU competition policy a monopoly and a new elite is in course of creation.

    We must be the butt of ridicule of those sophisticated in the world’s financial and banking community. We toast Bank of Ireland’s stock price rise from 10 cent to 21 cent and accept it as the resurgence in our banking industry. Wilbur has to be wondering if there is “one born every minute” in Ireland and is it time to get out yet, or can he squeeze just a bit more before he makes that move. He will know that the reality is that Bank of Ireland has a gross loan book of €105 billion. €82 billion of that is lent to the home mortgage market, the buy-to-let market; and for development sites, commercial development and construction and property related loans. It has reserved €7 billion (approximately 6.5% of its loanbook) for bad debt……. But not to worry, it’s going to make €1 billion in 2015. Just buy the shares! There’s a new more sophisticated gang being born, feeding off the corpse of the celtic tiger. It may be as urbane as Charlie aspired to be, but it is already sowing the seeds of the scandals that will come from within NAMA. And the pot is far more than a few brown envelopes. Consider…. Why was the most iconic site in the whole USA (the Chicago Spire) sold for $35 million? CBRE valued it at $350 million a year ago.

    On the healthcare front, the HSE provided St. Luke’s with a number of conventional linac radiotherapy machines. This third world cheap option means that the patient has to visit the hospital for treatment over many months because the “leaves” that protect normal cells from radiation allow too much damage to healthy tissue and time has to be allowed between doses to enable the cells to recover – it also allows the cancerous tissue to do the same thing. Hence many hospital visits over long treatment periods. A false economy and a total waste of time and money. That’s what I mean by inefficiency in the public healthcare system.

    The private system is buying the latest technology. Hermitage has the only Cyberknife in the country, others are going to install the Novalis system. As you say, both direct high doses of radiation at cancerous cells with fine tuned accuracy that limits to a very minimum any damage to healthy tissue. It means that the cancer cells are killed effectively with very few visits to the hospital (sometimes only one is necessary) and with minimum disruption to patients’ lives.

    I leave it to you to decide which healthcare treatment (and system) is better for the patient and for the taxpayer …..

  156. @JG, Thanks for the link, John. It makes entertaining reading. The next bubble in course of formation. I see that Blackstone wants to sell the commercial property in the USA that it has bought over the past seven years, because they now consider it overpriced. Interesting. My head not fully out of Ireland yet – but it’s on the way.

  157. @jg. With cap rates at 4.5 to 6% and 30 year interest rates rising, that’s a very bullish position. They must be running out of options for the money. As Wilbur, Kennedy Wilson have “favorite son” status here, Blackrock must be feeling miffed. (Wilbur handed a billion by the Irish taxpayer, compliments of Minister Noonan) Hence the “Ireland’s overheated” remark – but it’s not as overheated as the US multi-family market. At least – not yet.

  158. @wstt home ownership over here at a 16 year low,money still tight for those w/o pretty good credit-so they rent,putting pressure on rental rates,with that expectation cap. rates are getting compressed-that old inflation hedge !
    Limited new construction last few years across most sectors,link below.
    Had pint or two with a chap from their shop recently, they getting their fair share,Eircom !
    Perhaps,WR will retire some those preff. shares with his winnings,hope you good its dead here,august everyone away will pick up in a week or two.
    http://realestateresearch.frbatlanta.org/rer/2013/08/recent-trends-in-bank-construction-lending-and-sentiment.html?d=1&s=tw

  159. @ wstt

    I’ll buy some of that post, but I’d spin it very differently.

    Many of the same professional advisers who benefited from the bubble are also benefiting from the bust. A cosy cabal, feeding off the corpse of the Tiger. Business is business, after all, and the divil looks after his own. If the developers and lenders hadn’t torn the a55 out of it, of course, there would be no NAMA. The tax incentives were the result of hard lobbying.

    There is a lot more to health care investment than buying the most expensive kit. The way to decide on investment is by objective analysis of patient outcomes. But that sensible and scientific approach wouldn’t be good for the health care business and the global monopolies which control it. Much better to show pretty pictures of big machines and serious looking men in white coats.

  160. @PQ. There should never have been a NAMA. The banks should have been left to fend for themselves. Nor should there have been tax incentives. It was like throwing petrol on a fire. Every Tom, Dick and Harry wanted to be a property developer. The current pillage of the economy is on a scale that puts the “penny ante pocketing” of previous generations in the shade.

    Frank Dunlop spoke of giving a couple of grand for rezoning votes. We are in a different league these days.

    Short of time at the moment, but I will write more fully about the healthcare issue and patient outcomes. The point really is not the use of the most expensive equipment – but the use of the most effective and best. A Rolls Royce is not the best car. Our public hospitals have third world facilities. If you are ever in the USA, go see the new cancer center at Duke University in North Carolina. It’s an education in what cancer treatment should be. Ours is in the Victorian era. I will expand on it later. Got an 8,000 mile plane trip – nothing else to do :-).

  161. @ nwst

    My feet are still on the ground. I am sorry for anyone who has cancer themselves or in the family, but it is just one type of disease among many, and cancer treatment provides no basis for planning healthcare more generally. The links between the institutes/researchers and the industry are not always very healthy, and are often concealed.

  162. @ PQ: Bill Black’s commentaries would make your blood boil and chill, with equal measure.

    Some of the less informed commentators on this site (wrt: mortgage arrears, negative equity and the chicanery of our bankers) might benefit from reading Bill Black’s commentaries, even though they refer to the US situation. Might it be an inconvenience to point out to these naive commentators that our banks were themselves ‘borrowers’ – of other folks’ monies? And how did those same borrowing-bankers represent themselves to their lenders – I wonder?

  163. @Gregory

    I read the interview and have to say if you’re still of the belief that 30% of the defaulters in the system fit this category of defaulter then I’m smoking the wrong stuff.

    First up this individual has 6 investment properties – I can count on no hand anybody I know who ticks that particular box – perhaps I ran in the wrong circles during the boom times but I simply don’t know people with 6 investment properties. I doubt I’m unique.

    The individual does however make a very important point – the process of repossession by the banks is pretty futile given the likely losses if the same properties were to appear back on the market following such a move . I think I read a report during the week which made this point in the case of recent repossessions by AIB.

    The interview also highlights the fact that the individual is horading cash which could be going to the banks to help reduce loan repayments – again I’m of the view the vast majority of those who are in bother with their mortgage don’t have the luxury of hoarding cash because its simply not there to hoard. So I respectfully suggest that this individual is not representative of your standard mortgage distress victim, far from it in fact.

    I have made the point here for a long time that the real stupidity of the whole sorry saga is the belief by many, most especially the Govt, that vast swathes of these loans can and should be repaid simply because that’s what the credit agreement states.

    Notwithstanding the fact that the prices on the houses were completely and utterly off the walls and the illogical belief that the debt can remain intact despite the fact that the credit supporting the prices has drained away from the system like snow on a ditch. This is a stupid belief, as the prices charged were basically wrong and with no credit to support prices the pricing error is now being felt by novice property consumers.

    Well what do you know, it now seems our own Central Bank have come to pretty much the same conclusion regarding house prices during the infamous period. Please find attached a recent piece of research from the CBI which confirms what I’ve been suggesting for years – the error was in the house prices from the early part of the noughties. Fix the prices, write down the debt and move on.Simples.

    http://www.centralbank.ie/publications/Documents/04RT13.pdf

    From the report…

    “The fundamental equilibrium house price then moves with rents adjusted for the equilibrium nominal interest rate and the rates for maintenance and depreciation. To illustrate, a monthly rental income of €1,500 (for say a suburban semi-detached house) with a nominal equilibrium mortgage interest rate of 6 per cent and a combined half of one per cent for annual maintenance and depreciation, would give a fundamental house value of
    18,000/0.065, or €276,923. Stated alternatively, in this scenario, households should be willing to pay approximately 15 times the market rent to purchase the house.

    Given uncertainty regarding what the equilibrium rate of interest is for Ireland, we calculate estimates of the fundamental equilibrium price based on a range of estimates of the equilibrium interest rate. The results are presented in Chart L. Using this asset pricing approach, all models indicate undervaluation in house prices up to the late 1990s. The exercise suggests that prices became overvalued from the early years of the last decade
    with the extent of overvaluation reaching its peak in late 2007…”

  164. @ YoB

    ‘Fix the prices, write down the debt and move on. Simples.’

    Your perspective is sound, but insufficiently broad, from an economic and social point of view. The process which you recommend has serious consequences for the lenders and the state which has guaranteed their liabilities. Your recipe may be right, but it is not going to be simples, except in the sense that the guillotine is simple.

  165. @ BWS

    I knew you would like that one 🙂

    ‘Might it be an inconvenience to point out to these naive commentators that our banks were themselves ‘borrowers’ – of other folks’ monies? And how did those same borrowing-bankers represent themselves to their lenders – I wonder?
    That’s the nub of it. Our bankers behaved like borrowers, while retaining all of the gravitas of lenders. Should have been on at the Abbey.

  166. @Paul Quigley

    At one level you are correct of course that my solution, being the impact on lenders and the social impact, will potentially have wide reaching ramifications.

    However when both these are actually assessed I’m not that convinced we can really do an awful lot about the consequences of required solutions as opposed to what’s currently going on.

    In many respects the die has been cast, the error was made both at the initial mortgage origination point and at the point where the Govt guaranteed the banks debts with outright ownership, or near as makes no difference following. Both errors will in time will have to be reversed or more correctly ‘worked through’ as they say in political circles. So despite believing the solution is complicated its actually not so.

    What is complicated manically complicated in fact, is the effect of the errors on society generally. That much I’ll grant you but fixing the mortgage problem is a house by house, crazy mortgage after crazy mortgage recalculation. Fixing the ownership and guarantee mess is a more politically charged exercise but it never ceases to amaze me that the Govt is so fixated about telling us the great present value deals its getting on the Prom Note and extension of liabilities from Europe generally, but is still stuck in dogma mode when it comes to allowing the public seek similar wins from their mortgage banks.

    You’d nearly be forgiven for believing the Govt had a stake in the outcome of these mortgage deals – oops there I go again. Silly me.

  167. @PQ, I selected cancer and the example of the Cyberknife because there is an unacceptable delay in the public healthcare service to receive radiation treatment for cancer cells. A few years back a friend was told to go home and enjoy Christmas, that there was no available treatment in Ireland. I sent him to Professor Paul Okunieff , the Radiation Oncologist at the University of Rochester Medical Center. He treated him successfully with Novalis radiosurgery which provided fast treatment delivery, more flexible treatment scheduling and a higher level of patient comfort. This was in total contrast to the third world service provided in Ireland. If he had waited for the HSE he would be dead before he could have received treatment.

    I am happy to discuss the wider healthcare industry. An area that has been the graveyard of many an aspiring politician. None of whom managed to effectively face down and overcome the many conflicts of interests and protected positions therein. That merits a much lengthier post later.

  168. @PQ, BTW, I agree that the links between the institutes/researchers and the industry are not always very healthy, and are often concealed.

    But that is not the source of the biggest scandal, which is the “bribery” that is practiced by the wider drug industry (including equipment suppliers) and the purchasing departments in the healthcare industry. This extends to consultants and surgeons, who will insist on using only their “preferred” brand rather than the most economical or effective one.

    In the USA, the “drug dealers” conventions for their clients are like bacchanalian feasts, with golf and the wives handed credit cards and sent to the boutiques to indulge themselves.

  169. @ YoB

    Concur.

    ‘In many respects the die has been cast, the error was made both at the initial mortgage origination point and at the point where the Govt guaranteed the banks debts with outright ownership, or near as makes no difference following.’

    Different kinds of folk made different sorts of errors. From a national governance perspective, the fundamental error was allowing private bankers to get de-facto control of the DoF and CB. That allowed them to neuter the regulator, collude with capital market players to loot their own institutions, and dump the inevitable losses on the taxpayer. Looting became so pervasive that it came to be seen as perfectly normal. That’s treason really.

    Any way you run the numbers, the ‘working out’ is already painful, and going to be a lot more so, because the growth is not going to kick in. The state, the households and the SMEs are all going to be under increasing pressure, with ‘necessary’ debt reduction in one sector impacting the other two. A negative spiral, which is going to test our constitutional and civil order, IMHO.

  170. @ wstt

    There is connection between those ‘Bacchanalian feasts’ and the size of the private healthcare industry in the US. ‘Not for profit’ may be taken to mean ‘not for profit in the usual way’. As Pierre Bourdieu, there are many kinds of capital, and many routes by which one may profit, with a straight face.

    http://en.wikipedia.org/wiki/Pierre_Bourdieu

    It is one thing to say that a particular practitioner, technique or technology is superior. That is true of all crafts. It is another thing to assert that private medical care is everywhere and always superior to publicly provided healthcare. The evidence does not support that view, and we have public roads, water supply, police etc. in every state. The particular management problems of the HSE can, and should be addressed by the relevant authorities. Some attempts are being made to do so.

    It is another thing again to argue, as you appear to do, that private health care construction and investment is a vehicle for economic development and recovery. One of the key questions is the externalities, and the hidden subsidies which may be provided, wittingly or unwittingly by the public healthcare sector. The use of public hospital beds for private purposes, or the double jobbing of PS consultants, with consequent negative impact on public healthcare, are well known problems.

  171. @PQ “It’s the way you tell them” as Frank Carson might have said.first of all we are all entitled to use public hospital beds – whether insured or not. We have all paid taxes and PRSI that entitle us to do so. The double jobbing allegation could equally be directed at some public sector consultants. It is just the other side of the same coin. I don’t understand your reference to “externalities”. Could you define, please?

    I don’t know where I argued that “private healthcare construction is a vehicle for economic development and recovery”. It isn’t. We have sufficient private hospitals. What I was arguing is that the Irish public healthcare system is inefficient, uncompetitive and of third world quality.

    I am fully aware that “not for profit” does not mean what it says on the tin. It is merely a way of raising charitable donations from others who do not understand that the Directors and Officers line their pockets, rather than those of the shareholders. A rose by any other name…….l.

  172. @PQ. To support my contempt for the efficiency of the HSE, the public healthcare system in Ireland generally and the politicians and mandarins that run it – just some extracts from the Sunday business Post article entitled “Ireland’s Organ failure” (It’s behind a pay wall)

    “The number of organ donations and transplants taking place in Ireland pales in comparison to the number achieved by many of our nearest neighbours.
    In 2011, 42.7 people for every million in the population received a transplant here. Patients were twice as likely to receive a potentially life-saving transplant in Norway or Spain.

    The 2011 figures for Ireland do not represent a blip. We consistently perform below par compared with our nearest neighbours, although our ranking improves when central and eastern Europe are included.

    European data for 2011 showed that Ireland was the fourth-worst performing nation out of 28 European countries for heart transplants. Ireland was ranked fifth from the bottom for lung transplants. We were mid-table for liver transplants, and in 12th place for kidney transplantation. Fewer transplants were carried out in Ireland in 2012.

    If Ireland were to match world leaders like Spain and Norway fewer patients would die. It is that simple.

    Thirty-one people died while on waiting lists for transplants in Ireland in 2010. A further 15 died in 2011.

    The figures should be interpreted cautiously however, as they do not include the number of people who are delisted. This happens after patients have become too sick to be considered viable for transplantation.

    “There is a saying: Nobody dies, they just get re-coded,” said Mark Murphy, chief executive of the Irish Kidney Association.

    “People get off the transplant list because they are too sick, so they are delisted.”

    “Everyone agrees that Ireland is not carrying out enough transplants to meet current needs and that people are dying on the waiting list as a consequence.

    At the end of 2011, 460 people were listed as waiting for lung, liver, heart, and kidney transplants. Some will die on this waiting list. Some will invariably die as the system will never find a match and demand outstrips supply. But with better infrastructure, fewer patients would die.”

  173. @ wstt

    http://en.wikipedia.org/wiki/Externality

    My point was about double jobbing by public sector consultants. Exactly as you say. Everyone is entitled to use public sector beds, just as everyone is entitled to sleep under bridges. The question is who gets to be first in the queue and what system of selection is in place.

    If private medical consultation provides a fast track or lower cost access to public facilities, then what we have is an undisclosed de-facto subsidy to private care, at a cost to the public sector and its other users. The true costs, or relative efficiency, of private care, cannot be ascertained without reference to processes of that type. The current changes are intended to redress the problem at least partly, and in the interests of the Irish state and its citizens.

    I can’t argue with your transplant figures from the SBP, but I don’t know enough to be able to address the background in any detail. What I do know is that management systems certainly need reform, but there is no place for contempt. It is much more useful to focus on the play of vested interests, both domestic and global, and their relationship with public sector management systems. As many commentators here have argued, the state gets a poor deal from private contractors, and this state of affairs is deeply embedded in the political party system, and the executive dominance in Dail Eireann.

    I am sorry for anyone who needs a transplant, or has a close relative who needs one, and is stuck in queue. There will always be a much greater pool of potential candidates than slots available, because more previously fatal diseases are treatable, and people are living much longer, so more organs are wearing out. The intervention criteria include a great many obvious considerations, such as age, and others not so obvious.

    Some clinicians, institutions and healthcare systems intervene more widely than others, and for a whole variety of reasons. As a general principle, interventions tend to follow resources, and money talks. Poor people sell their organs in many parts of the world, but I doubt if there is anything free about that particular market. Less said the better about what goes on in China.

  174. @PQ, Thanks for the link to externality. Not being a student of the dismal science, to me it looks like a buzzword for “cause and effect”.

    In relation to universal healthcare coverage, my question is really “What is the government doing in health insurance, whether it’s the VHI or public healthcare?”. Governments should legislate and govern and get out of trains, planes and banking, property development and healthcare insurance.

    The Swiss system should serve as model for the Irish system. Health insurers are required to offer coverage to each citizen without considering their age or medical history, while each citizen is required to purchase health insurance. Popular with the public, it encourages competition and is low on regulations. Switzerland has the fourth best life expectancy rate (81.7) in the world.

    Then there is France. According to a survey conducted by the Commonwealth Fund, 42% of French patients with chronic diseases could secure same-day appointments — and thus the the lowest rate of deaths that could’ve been prevented with the presence of basic health care. Routinely praised for its overall performance, France’s system has been ranked No. 1 by the World Health Organization for over a decade.

    We have closed minds and too many vested interests to achieve the anything like the best.. Maybe like the rugby coaches, we should import a few French healthcare professionals.

  175. @Gregory Connor,hi Gregory i have in my grubby little hands on copies as PDF”s Anglo/IRBC US BK filing from yesterday,as you are the ‘man’ on here for real estate related stuff,was wondering if any interest in them?
    Going figure out how to ‘post’ them somewhere-whiteboard ?-and provide a link,you were terrific by the way on the radio other day.
    Waiting for the tech chap get back to me,regards as always.I can email them too or provide you with a ‘log in’ to the court doc.’s.
    If you swamped or otherwise occupied not to worry i get them up here somehow.

  176. Allowing such important businesses to operate with almost no equity cushions encourages dangerous conduct. Banks are not special, except for what they are allowed to get away with. The problem is bigger than that banks are “too big” or “too interconnected” to fail. It is that they are so complex and so grossly undercapitalised. The model is intellectually bankrupt. The reason that this is not more widely accepted is that bankers are so influential and the economics are so widely misunderstood. You will then understand the economics. Read this book ” The Bankers New Clothes: Whats Wrong with Banking and What to Do About It”by Anat Admati and Martin Hellwig. Once you have done so, you will also appreciate that we have failed to remove the causes of the crisis. Further such crises will come.

  177. In the long run,the value of an asset must be linked to the income that can be obtained from it,rent in the case of property and dividends in the case of shares. Some assets may shoot up in price,because some residential areas may become very fashionable and companies can have very successful products,but in aggregate,property and share prices are constrained by the growth rate of the economy. Rents cannot rise faster than incomes for long before no one can afford to rent,and similarly if house prices outstrip GDP,more and more of a home buyer’s income must go to service the mortgage.This is not sustainable.

    In the short run,changes in interest rates,lending practices,etc can cause property prices to overshoot. Property bubbles are difficult to stop,because they have many supporters when they are inflating. Banks are making money from lending,estate agents and property valuers are making money from property transactions,and the broadsheet media property advertising revenues soar.

    Property has two prices,the price you can get for it i.e. the transaction price/market price,or the present value of it’s future rental income i.e. the investment price.If a 5 euro note was auctioned on Grafton Street and an unwise person bid it up to 20 euro,then a valuer would value all 5 euro notes as 20 euro.Likewise if an unwise person paid 2 million euro for a house with a present value of 0.5 million euro,then a valuer would value all similar houses at 2 million euro. Almost all of the Irish banks reckless lending was done using surveyors/valuers valuations. These valuations were as good as money. This is the valuation error that created the property bubble and bankrupted Ireland.

  178. Alan Greenspan’s doctrine held that bubbles cannot be prevented and that government’s task is merely to clean up afterward. Greenspan practice was to foster one bubble after another,until finally came along one so vast that it destroyed the financial system on the way.
    At it’s source,the global crisis was an American housing crisis,and not one of too little housing but of too much.
    The Irish financial crisis was a function of a plain vanilla property bubble, compounded by exceptional concentrations of lending to property-and notably commercial property. Below is the link to the elementary property valuation error that was the source of the global financial crisis and that bankrupted Ireland;
    http://www.independent.ie/opinion/letters/bubble-values-26826609.html

  179. The attached FT article dated 31st August 2009 explains that the ratchet upward-only rent review lease clause was a bomb waiting to explode. The UK escaped the full impact of the explosion because soon after their property crash of the late eighties/early ninties,their economy boomed and the crisis was averted. In Ireland`s case the explosion destroyed our banks,which in turn bankrupted the sovereign. Ratchet upward only rent review tied to long leases, just didn`t destroy the tenants, it massively inflated the commercial property pricing model which created the monster commercial property bubble.

    UK commercial rents

    Published: August 31 2009
    | UK commercial rents

    Most industries are suffering from falling prices. Not UK commercial property. Property trusts such as British Land and Derwent London have reported relatively upbeat earnings figures; in spite of continued falls in property valuations, rents have generally remained strong. This is largely due to “upward-only” contracts, whereby rents rise through the life of a company lease, whatever the state of the broader market. However good this industry norm might sound for landlords, it also represents a potential timebomb.

    As Nomura’s rent-free move to a new London headquarters shows, the problem comes when contracts, typically for five years, but sometimes 10 or more, expire or otherwise lapse. If market rents drop in the interim, leases are renegotiated at lower rates. That is what is happening now, after vacancy rates doubled over the past two years. By March, new rental contracts in the City had dropped by more than a third. This has re-focused minds on the remaining life of property companies’ leases. At Land Securities, about 22 per cent of lease contracts will expire or can be broken by 2013. At Derwent London, it is almost half.

    Upward-only rents have come under pressure before. In 2004, the government considered banning them. That initiative fizzled out in the boom, but now tenants have become increasingly vocal; Ireland banned such contracts in July after retailers complained they gave an unfair advantage to new entrants. Meanwhile, high street heavyweight Philip Green, owner of the Arcadia Group, is seeking other concessions. Landlords have successfully argued in the past that upward-only reviews keep overall rents down by providing certainty of returns and ensuring a stable supply of new properties. The recession, and property surplus, are putting paid to that. Meanwhile, the timebomb ticks on.

  180. How did Nyberg miss the elephant in the room:
    Commercial lease lengths in Finland 3 years
    Commercial lease lengths in Ireland 35 years

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