Paying Paul and Robbing No One: An Eminent Domain Solution for Underwater Mortgage Debt

There is currently an active debate in the US about the use of ’eminent domain’ powers by municipalities to achieve debt writedowns on mortgages – a New York Fed article on this topic is here.

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153 thoughts on “Paying Paul and Robbing No One: An Eminent Domain Solution for Underwater Mortgage Debt”

  1. I’m thinking of organising a campaign group representing people who rent. We should all take out loans from the bank (say 10k each) and officially designate that as the money we will use to pay the rent. Then spend that money on a foreign holiday, and stop paying the rent. I’m sure that Pat Kenny, Joe Duffy et al will spend hours discussing how we have to be protected from eviction from ‘the family home’, and academics will spend years working out solutions to debt writedown. If someone asks me whether or not we were a bit irresponsible I’ll say ‘sure we all did it’.

  2. Ireland’s municipalities don’t have any of the finance options that their American counterparts have. Centralisation is a big part of the Irish problem- everything flows back to the Exchequer.

  3. The Irish solution will be run PPP toll motorways through ghost estates with large buyouts and doing deals with the toll operators to provide minimum traffic guarantees on said motorways.

  4. The idea of “eminent domain” hardly seems relevant in Ireland’s circumstances.

    The present hearings before the Dáil “finance committee” demonstrate that the only thing worse than having bankers continuing to run Irish banks is to have politicians attempting to do so.

    The blurb on the committee itself is interesting.

    http://www.oireachtas.ie/parliament/agenda/committees_list/fper-committee/

    It is to mark two departments, one of which is clearly superfluous.

    Weeks away from another stringent budget, the people’s political representatives, nominally in charge, are completely in the dark as to what it will contain including the cost to taxpayers of the forgiveness measures they see as best suited to getting themselves re-elected.

    This is not serious politics!

  5. @DOCM
    “The present hearings before the Dáil “finance committee” demonstrate that the only thing worse than having bankers continuing to run Irish banks is to have politicians attempting to do so.”
    From the Examiner
    “Banks were tasked with making sustainable resolution offers to 20% of distressed customers by the end of June, but Mr Lynch said the issuing of what AIB described as 5,894 “legal options” should not be included in the 8,600 “solution” offers claimed by the bailed-out institution. ”
    And apparently Ulster Bank have acknowledged today that they are at the same game with the imprimatur of the people in Dame street.

    So threatening letters are now “legal options” which satisfy the criteria laid down by the Central Bank for sustainable mortgage resolution. The mind boggles.

    I think you need to add central bank officials to the above…presumably they are not classified as ordinary common bankers…..

  6. @ Flj

    The whole exercise by all concerned is one of throwing shapes. The reality is too uncomfortable.

    http://www.businesspost.ie/#!story/Home/News/COMMENT%3A+lagging+tax+figures+may+limit+Budget+options/id/19410615-5218-5226-15d6-9104f9804692

    The comment is on the money – if one can be pardoned the expression – and to it must be added the risks in the external environment.

    http://www.ft.com/intl/cms/s/0/96c15af4-148c-11e3-a2df-00144feabdc0.html?siteedition=intl#axzz2dubejS00

    Under the present PR electoral system, voters elect TDs with the talents of county councillors. Given the latter’s track record at a local government level, what do voters expect of them at a national level?

  7. @ DOCM,

    “This is not serious politics!”

    Is it any wonder that Mr George Lee left in dismay?

    There is more intelligent discussion in cyberspace than in the entire Dail.

  8. Sporthog,
    Mr Lee reason for leaving is well known to insiders and dismay is not the word they use.
    Had he stayed he would be in the cabinet and influencing policy rather than doing the Alan Partridge shift on RTE.

  9. When oh when, will real reality descend? The main Irish residential mortgage lenders have been about for about 100 years? Or longer? And they were trundling along nicely until 1996 – 2002 approx. Five years later these institutions – and a few others as well, were insolvent basket cases. So who ruined them? The fairies? No, their chief officers and directors (if they had such). The borrowers caused nothing!

    Our venerable institutions shoved mortgages at many who could not possibly afford the repayments. Why? Stupidity? Well, gross negligence comes to mind. Some of the mortgage lending was of a commercial nature (the BTL sector). The remainder was principle private residence sector. Concentrate your analysis on this latter. The banks, if they had the legal testicles would have mopped up the BTL sector by now. They did’nt. For whatever reasons.

    The private residence sector needs to be triaged – again this should already have been done. Maybe it has: 1: those who can continue with their repayments; 2: those who have reduced incomes and could afford part payment; 3: those who are income zombies, but who could stay in the property and pay a rent. The bank becomes the landlord – something they will not like. Well, that is just tuff luck. Its category 2 that is the problem. What to do? Chuck them out? Good luck on that.

    Next, there is the Negative Equity problem. I doubt that Solomon could deal with this. Asset devaluations are the only real way to clear this. But that becomes a political matter. Expect little movement – if any.

    And then there are those little Trackers! My oh my: are’nt we in Shi*tsville!

  10. @ BWS

    Why make it that complicated? BTL was, and remains, a business investment. If it fails, the investor should carry the cost.

    As to principal private residences, it is by now incontrovertible that many homeowners in difficulties are gaming the system. To quote the head of Ulster Bank;

    “Living in a home costs money. Unless owned outright, this cost must be met through mortgage repayments, rent or by the state through social housing,” Mr Brown said.

    “There are some people who do not appear to accept this premise and are living in a home today without making any contribution towards its cost despite someone else advancing the money to acquire the property. Put simply, this is not fair.”

  11. @DOCM
    I don’t think it’s wise to quote bankers on “fairness”. Next they will be selling us the idea of a social contract between bankers and the citizen. You see, Richie has responsibilities to stakeholders (including himself) and he won’t be writing off any debt for distressed house owners. Off course, that didn’t stop him from writing off very large amounts for company debt restructerings…with a lot more coming down the line.
    Fair (bankers definition) is getting paid twenty times the average industrial wage to screw the last pip out of some poor unfortunates with no clout.

  12. If Amby is predicting a few threats to Europe’s “sickly and deformed recovery” the outlook can’t be great for the UK and Tull’s faith in George either.
    They’ll all fall together.

  13. @DOCM

    Not sure about balancing but the following gives a very stark view of the reality..
    “Mr Tilford says the elephant in the room is the rise in the debts of Portugal and Spain by 15 percentage points (pp) of GDP over the past year, by 18pp in Ireland and by 24pp in Greece. Italy’s ratio rose 7pp to 130pc of GDP, already at or near the point of no return.”
    Complacency? In fairness to Ambrose it seems he is merely pointing out the dangers. However, all will change post Sept 22. Unless that pesky constitutional court throws a spanner in the works.

  14. @flj

    re ‘Company Debt’ forgiveness.

    Neither the old blue bloods or the new blue bloods, on which the Irish banks have lavished debt forgiveness are getting a mention today, so well done for bringing it up.
    INM, with their poverty stricken O’Reillys and O’Briens, and the Examiner group, with the poverty stricken Crosbies, prepackaged receivership in tow, had a good innings today.
    Morgan Kelly was spot on in his observation that the best way to debt writte off was to buy a ‘decent’ party ticket.

    On a more general level, bank and state strategy has been all too clear for some time, notwithstanding some superfluous academic interventions from the Central Bank.
    The strategy, as Fintan O’Toole pointed out about three years ago, was and is to refloat the housing bubble, by limiting housing supply, forcing rents up and protecting the landlord sector and by extension the bank and the property landlords in government and elite circles, including our much vaunted PS.
    Six years into that strategy and no great results, but never mind, the real decision makers have no problem in continuing with this strategy for another six years.

    The key giveaway in all this was when the bank cheques were signed, all €64 billion or whatever. The money was not ringfenced by sector, Corporate, SME, BTL debt, mortgage debt. Not a bit of of it.

    One big large €ucking pot, for the banks to give ‘debt relief’/ moola to the best buddies, whether they be bank executives, old blue blood, new blue blood, political buddies etc.
    Today’s hearings are for the masses. Let them wallow in a bit of outrage.
    The banks and real strategist get on will allocating the moola. And it will not go the minnows, Johnny come latelys, or political non-friends, ie poor old Ivan, whatever his crime was!

    Ireland is now being ransacked by our plutocrats, Putinesque style. The hearings are merely Ireland’s version of a show trial, while the ransacking goes on in the back room.

  15. What % equity did the State banks get in INM and the Examiner as the quid pro quo of the large debt forgiveness handed out?
    Anybody?

  16. @Joseph
    I think the answer is zilch. I watched that programme on rte where some car dealer got debt forgiveness on some of his 18 million debt. He was very open until it came to the detail of how much he saved. But the interesting thing he had to say was something to the effect that he was told by head office bigwigs some time ago to watch out ” for the debt forgiveness train coming to a town near you”… And apparently it duly arrived. Good to see the guy survive.

    And the bankers continue on their merry way…
    http://www.spiegel.de/international/business/bank-reforms-needed-five-years-after-financial-crisis-a-919725.html

  17. @DOCM: “BTL was, and remains, a business investment. If it fails, the investor should carry the cost.”

    Agreed!

    “… that many homeowners in difficulties are gaming the system.”

    Good! They have learned their lessons well. They have been provided with both ‘good’ examples and ‘good’ teachers! Ahem ….

    Brown is blowing bubbles out of his ******** – the usual guff from the perpetrators – displace accountability, outsource blame. Shameful.

    His first statement is correct; its simply a statement of fact of long established custom and practice. But he charitably – for himself, forgot to mention something essential. Lenders have a fiduciary duty to their stockholders and others. They have (or should that be, had) a Duty of Care toward potential borrowers. The responsibility and accountability for these ‘duties’ rests with the senior executives and directors. In five short years these executives drove their own organizations into insolvency. How? No one seems to want to answer that one!

    Potential borrowers should only have been able to obtain a mortgage if they could show that they had the financial resources to service it. And whose job was it to verify that? – and say NO! – if the situation warranted it? And because the lenders said, “Yes, yes, yes”, they drove their own organizations into insolvency, destroyed shareholder value, then mendaciously arranged for the luckless taxpayers to pay for this reckless behaviour. Beautiful!

    And Brown accuses some, un-named and un-numbered, mortgage holders of ‘gaming’. Jesus wept! As I said the borrowers have had a good lesson, good teachers, and have learned well! More power to them!

    We’ll be back! Cheers.

  18. @ BWS

    You are tilting at the wrong windmill there as far as I am concerned. I am all for hauling bankers over the coals but that it is an issue unrelated to the problem of strategic defaulting. I agree that the latter cannot be quantified exactly but the evidence that it exists – from international comparisons on foreclosures to what bankers have been telling the Dáil committee – is compelling.

    @ Flj

    AEP should brush up on his Spanish.

    http://www.ft.com/intl/cms/s/0/65c0e9fe-1556-11e3-b519-00144feabdc0.html?siteedition=intl&siteedition=intl#axzz2dyJsGrW6

  19. @Joseph
    Good point. Who decides if I get a write-off?Presumably a credit committee/risk officer plus approval by senior management or board of directors depending on amount.These large debt write-offs must be the ultimate benefit-in-kind for a selected number of bank debtors and yet there is no independent scrutiny or accountability. Suspicion will continue that the “insiders” will always get the best deal.
    Why not change company law to require all banks to disclose all individual debt write-offs over a certain amount. Bank shareholders are entitled to know how how their bank is managing these very expensive issues. The public is also entitled to see that fair play applies on a consistent basis across all banks.

  20. @Joseph Ryan

    “The strategy, as Fintan O’Toole pointed out about three years ago, was and is to refloat the housing bubble, by limiting housing supply, forcing rents up and protecting the landlord sector and by extension the bank and the property landlords in government and elite circles, including our much vaunted PS.”

    You had me until that last bit. Fact is, the only sector of society that has been called on to make sacrifices to rebalance the state’s books are PS workers. So, to say the least, it is galling to have jackasses in the media and on the internet continually insist that they are being “protected.”

  21. @DOCM
    In the immortal words of MRD…he would say that, wouldn’t he.
    Meanwhile, Bloomberg today reporting possible snags in the recovery in Spain..

    “German Finance Minister Wolfgang Schaeuble, campaigning ahead of this month’s national general election, has cited signs of economic recovery in Spain as evidence that Chancellor Angela Merkel’s prescription of forcing budget cuts on euro-area countries in exchange for support is bearing fruit. The unraveling of Spain’s consolidation program may undermine his case and jeopardize the 13-month rally in Spanish debt that set the spread with German bunds at a two-year low last month.
    “Probably influenced by crisis fatigue and criticism of European austerity policies, the European Commission has overlooked the lack of progress this year in some structural reforms and the deficit,” said Ruben Segura-Cayuela, a former Bank of Spain economist who works at Bank of America Merrill Lynch in London. “The key question is whether rating agencies will also look the other way.” He forecasts a 7 percent deficit this year.”

  22. @Ernie Ball re Fintan O’Toole

    Property bubbles are difficult to stop ,because they have a lot of supporters while they are inflating. Banks are making money from lending;estate agents are making money on property transactions,as are property valuers,and the broadsheet media property advertising revenues soar. Homeowners feel richer because their homes are apparently are worth more.
    The Irish Society of Chartered Surveyors are the Irish property professionals and are self regulated. They engaged in three practices which inflated the property bubble:

    1. The elementary property valuation error,valuing all 5 euro notes as if they were worth 20 euro.

    2. They administered the Irish feudal commercial property lease law on behalf of a cartel.

    3. Ninty five per cent of all property sold in the state is sold by agents and surveyors and they decided where the property advertising money was spent. Almost all of it was spent with the broadsheet media and the Irish Times ,the owner of property portal MyHome.ie, got the lion’s share. During the years the bubble inflated,the Irish Times main source of revenue was property advertising, and the surveyors were alloweed free rein with their puff pieces and property propaganda. Essentially this company became the largest property market in the state,with a newspaper bolted on.

    The third item was the fatal one; the “paper of record” became the “paper of property” and facilitated this propaganda.
    Fintan O’Toole works for the Irish Times.

  23. @ Ernie Ball

    Fact is, the only sector of society that has been called on to make sacrifices to rebalance the state’s books are PS workers.

    There were 477,900 on the Live Register and in activation programs in August. The CSO said the total number of employees in the public sector in June was 377,300.

    So all those who were forced out of work are just victims of bankers?

    This is how shedding jobs in the PS works…one worker in a state agency opted for early retirement and got an exit package comprising a lump sum of €437,000 and a payment of €68,000 annually for 6.3 years to bridge the gap to retirement.

    He then continued in work as a full-time consultant!

  24. @MH

    It is easy to test Ernie’s claim. A = the difference between the PS wage/pension bill in 2009 and 2012. B = the difference between the exchequer budget deficit in 2009 and 2012.

    Ernie is claiming that the A=B.

    Does anyone know the correct figures?

  25. @ FLJ

    “Probably influenced by crisis fatigue and criticism of European austerity policies, the European Commission has overlooked the lack of progress this year in some structural reforms and the deficit,”

    Possibly hoping QE had swept it under the carpet as well. When reality comes back into focus the spreads are going to go way out again. I saw a piece in the FT at the weekend- EM is bad now so Europe looks good again. WTF

    The EZcrats need to be against the wall thinking the Euro is going to fall apart before they’ll do the needful.

    At least now they have a better understanding of the markets. Just buy whatever crap they are desperate to sell and they’ll believe anything.

  26. @ Johnny Foreigner

    The deficit (ex Anglo support) was €19bn in 2009 and in 2012 was €12.5bn as it will be in 2013.

    The net pay & pensions bill (net of staff pension contributions and local authorities) was €18.7bn in 2009, €17.1bn in 2010 and €17.3bn in 2012.

  27. @MH
    So 21% of the contribution to “rebalance the State’s books” has come from the PS, not 100%.

  28. is there a ‘godwins law’ for PS…

    Ok the paper from above-its ‘interesting’ has a good personality but…
    Link here to the authors web site,decent links on there too,it is disclosed pg9 that he took a few bob,from the company charging 4,500 per mtg and splitting the refi proceeds-MRP-nothing wrong with that but optcally a bit…
    http://www.lawschool.cornell.edu/faculty/bio_robert_hockett.cfm

    They are called Mortgage Resolution Partners or MRP.
    http://mortgageresolution.com/

    One city to date has engaged MRP-Richmond,outside San Fran-small 100,000 working class/blue collar place-as a humorous aside the mayor is an x schoolteacher nuff said:)

    Many other cities/municipalities have engaged/discussed this but they first pull the trigger.As expected the ‘big guns’ have come out fighting,DB and Wells have filled suit as special servicers on behalf off the bondholders.

    Im trying get copy off that filing should have it today and will post a link later,it has been in the papers but the filing allows one to actually look at the mortgages selected etc.

    Pros/Cons
    -the losers-special servicers and bondholders not much sympathy for them,the special servicers and lawyers biggest losers under this plan NOT the RMBS holders,thats nonsense.

    -mission creep for eminent domain-BIG issue with this.

    One area that appears not to have not been addressed is the enhancement or improved situation of say second mortgage holders,also unsecured creditors,credit card holders,this is reducing secure lenders position.

    LA Times WSJ have decent coverage on this.

  29. @MH

    I’m not sure what you’re implying but those who have been made redundant are not in the category of those “who have been called on to make sacrifices to rebalance the state’s books.”

    @Johnny Foreigner

    I’ll leave it to the economists to explain to you why your reasoning is utterly specious (in multiple ways).

  30. ok you guys can get back to arguing/discussing those PS associates who just ruined,ruined the place…was interesting that no one asked about the bonuses and pensions at the bankers hearings oh well!

    From an ‘irish’ perspective the implications here is the acknowledgement that w/o principal reduction,modifying interest rates,extending and pretending is a waste off time.

    No idea if there were a lot of private RMBS in Irl-basically mortgages pooled together sliced and diced and sold to investors.The ‘key’ man in all this is the special servicer who is prohibited form modifying the loan terms w/o investors consent/approval-not happening.

    Can CPO powers be utilized in IRl to purchase mortgages or houses,no idea thats a legal question,from a financial perspective again my biggest issue is the unsecured lenders ending up in a better position,after charging higher interest rates.

    Last few links-great paper here,good comments.
    http://libertystreeteconomics.newyorkfed.org/2013/02/underwater-and-drowning-some-facts-about-mortgages-that-could-be-targeted-by-eminent-domain-.html?cid=6a01348793456c970c017c36da51f6970b

    If you want ‘deep’ here is a one half hour discussion…
    http://www.americanprogress.org/events/2012/12/20/48674/eminent-domain-as-a-means-to-reduce-principal/

    @seafoid ta ‘blue lines’ still one my desert island discs!

  31. @ john gallaher

    As far as I know, there was no onward packaging and sale of Irish mortgage debt.

    FYI a good item from the Guardian.

    http://www.theguardian.com/world/2013/sep/05/european-central-bank-chief-debt-relief-greece

    The luck of the Irish seems to be holding, the one thing that would shatter it being, of course, a monetary tightening by the ECB at precisely the wrong moment.

    P.S. Meanwhile, back at the ranch, or rather in St. Petersburg, Putin continues to run rings around Obama.

  32. in the interests of ‘fairness’ here are the Rolling Stone and Mother Jones pieces.

    basically its a ‘cramdown’ in disguise w/o BK-if the local authorities or govt. are concerned in Irl about negative equity,set up a community bank to buy the distressed loan portfolios.

    Oh its not going to work stateside either..just wont,the most dreaded words a banker can ever say to you are ‘trust me’…but it wont work.

    http://www.motherjones.com/politics/2013/01/eminent-domain-mortgage-gluckstern

    http://www.rollingstone.com/politics/blogs/taibblog/from-an-unlikely-source-a-serious-challenge-to-wall-street-20120720

    Back to those PS wage slaves,whats the hold up abolishing the senate,send a nice message to those in the trenches or on the front lines.

  33. @ John Gallagher, Hi John

    Always a pleasure to read you.

    While I am still waiting for Prof Lucey to present a single one paper of his 200, he is willing to stand for,

    Being aware of the need of deep structural adjustments, in the US and Ireland,

    to abuse “eminent domain”, something which is in principle a good thing, for these purposes,

    I find repulsive.

    This was not the way I read the Federalist papers.

    I became via this blog aware, how the “interstate commerce” clause was abused, and how folks in the EuroArea are now trying to abuse a similar clause for their sort of banking union.

    I resent that as well.

    “From my cold, dead hands” : – )

    http://www.americanthinker.com/2013/08/concealing_charlton_heston_denying_mlk.html

    This is not some gangrene creeping up from some fingers or toes, where you face decisions for deeper and larger cuts over time, but more like Alzheimer spreading from the brain, and ends terminally.

  34. @DOCM-tks for Guardian link,yes Putin is having a good run lately,can only imagine what Snowden has..
    http://www.washingtonpost.com/blogs/wonkblog/wp/2013/09/05/10-things-that-could-go-very-wrong-if-we-attack-syria/?hpid=z1

    @francis,hi francis Brian is one the ‘good’ guys he’s probably moved on.

    Its now commonly accepted that principal or debt reduction is only real viable solution in many situations,in above its impossible as the many parties often have competing interests.Its a interesting suggestion,but a non starter.

  35. @John Gallagher

    Back to the ‘Eminent Domain’ resolution.

    It is an excellent idea that a societal institution intervenes to prevent the destruction of local communities, homes, families and general societal stability. All of which will be brought about by allowing financial institutions, that recklessly and at times fraudulently created the mess, to impose solutions strictly for their own benefit.

    This country (Ireland), should not allow the banks to remain in charge of the owner occupier arrears situation for one minute longer.
    The solution is very simple.
    The State buy all OO houses in arrears from the banks for 25% less than current market value. The State pays the banks with the money already given to the banks, in loans or shares. In the case of the State banks there should be no cash payments. There would be a small State cost in the case of Bank of Scotland.
    The OO becomes a State tenant paying rent, as many council tenants do.
    The bank is left with the now unsecured rump debt and all BTL (business) debts.
    Such a move would start to stabilize a society that has been cowering under the bailiffs threat for the past 6 years. Many would consider that it is only those in difficulty that are under the shadow of the bailiff. I would argue that under the present circumstances the ‘bank’ threat is causing angst, anxiety and disruption to the whole country.
    The fact that we have lived with six years of this nonsense and yet allow the same banks, with practically all the same individuals in the banks, to hold the sword of Damocles over this society, is a very poor reflection on our society.
    We should cut the banks out of this critical issue now, before they destroy more than they already have.
    The idea of an ‘Eminent Domain’ solution is not before its time.

  36. @Joseph Ryan,Hi Joseph one the issues/problems is the chilling effect on future lending if eminent domain evoked.
    It’s called “redlining” we actively do it here,in that no way we would look at certain markets,areas to invest in.
    Newark and Camden NJ are examples,but the lenders here have indicated that they won’t lend into communities that utilize it.

  37. JR,
    The discount you envisage would require even more cAsh to recap the banks above what we have already put in. No way could thAt be borrowed under current circumstances.

    Leaving the euro and the EU by extension raises interesting possibilities though.

  38. @Tull/ JG /DOCM

    http://www.centralbank.ie/polstats/stats/mortgagearrears/Pages/releases.aspx

    The Central Bank gives 95,000 mortgages, with a total mortgage value 18 billion in arrears >90 days, the arrears themselves being less than 2 billion. Of the total mortgage value of 18 billion, 8.6 billion (almost 50%) is BTL in arrears >90 days. BTLs are business loans and should stay with banks, for good or ill.
    Therefore Approx 9 billion is the total value of all OO mortgages in arrears over 90 days. Pay the banks ~ 50% of this = a total purchase price of ~ 5 billion.
    From recollection, the Blackrock worst case scenario was about 6 billion in respect of mortgages (all?). The Irish recapped banks have already got the money.

    Cutting the banks out, would not require any or very little additional payment.
    The important issue is to cut them out. They got their chance, and they got the cash to sort the problem. They blew it. Lets move on. Take back the properties, in consideration for the cash already paid.

    @Tull

    I am in agreement with you about leaving euro. It is the only long term solution. Germany is quite happy to see a full generation of peripheral Europeans sacrificed on the alter of her rather convenient inflation gheist.
    The euro has failed and brought nothing but despair except for Germany.
    It is time to ditch it.

  39. @JG
    re: Redlining by banks.

    I am plenty old enough to remember when banks never gave mortgages for homes. If they don’t want to again, that’s fine. Lets go back to community based savings and loans banks i.e Building Societies in this country.

    In any case, the situation here is that the banks have redlined so high, that virtually nobody is getting mortgages. They have left the field of play already.
    We should push them out altogether.

  40. @Joseph Ryan,should the neighbors then be “punished” for paying their mortgages.The withdrawal of credit from a neighborhood may result in a downward spiral, conversely too much easy credit has implications….

    Every modern economy requires/needs a functioning banking system.How,will building societies NOT exploit their customer base with usurious fees,rates.
    if they only game in town….the regulators,central bank will keep them in check,or would you prefer a healthy bit competition?

  41. @ JG: Re your 03:37 BST??

    Functioning banking (in respect of mortgages and credit) – yes, very useful, if only ….

    1: No private financial entity can issue notes, coin or credit. This is reserved a CB alone. If private entities wish to create any sort of Line -of-Credit, they first deposit cash (not assets) with CB, to the exact same amount. If they no likee – then quit banking.

    2: Mortgages for ones principle private residence are based on max of 3x confirmed salary, and absent any other debts. Its reduced in proportion to any existing debts. Mortgages are non-interest bearing (there is a regular administration fee), 30 years amortization, and a min of 20% (cash from savings) deposit. The deposit will be greater if applicants are either self-employed or non-tenured employees (contract, short- and part time). Property would remain in legal ownership of bank until 60% of mortgage was paid down. You miss payments – you’re out! It will be in black lettering in your contract. At that point you have so much ‘skin in the game’, that defaulting would be a very costly business indeed.

    3: All personal Credit Cards are banned outright. Debit cards only.

    If Regulators have the necessary equipment (like gonads!) then things should be Ok. We had a 10 week bank shut-down a few years back – and the sky over Ireland did not fall in – or if it did, no one noticed!

  42. @ DOCM

    From that FT link, it appears that markets are expecting a 0.25% ECB rate rise in 2015.
    Wow.
    At that rate we might be back to equilibrium sometime in the 2020s.

  43. @JG

    “Every modern economy requires/needs a functioning banking system.”

    Of course, but every functioning bank must recognize or be forced to recognize its losses.
    They should not be allowed to hold society to ransom, by proceeding piecemeal with loss recognition, or to attempt to recover those losses at the expense of further devastation of communities and families, as is the case with OO mortgages in serious arrears.

    Your point about the effect of redlining may have some validity, but on the scale of issues arising from this debacle, it is or should be far down the list of concerns.

    The banks were provided with capital to deal with the mortgage problem, a decision which is retrospect was another disastrous decision. In fact the very definition of the issue as a ‘mortgage problem’ was the wrong way to approach the issue. The issue should have been approached from the perspective of the encumbered person, with the objective being to bring that person back to financial health. If that means debt write-down, so be it.
    However in all cases, the State should take the equity, including that of Independent Newspapers and the private companies.

    It is a nonsense to leave a societal problem of this scale in the hands of people or organizations, whose raison d’etre is not to solve the problem, but to extract the last cent possible from every person, regardless of the effects on family, community or society.

  44. @DOCM
    cc Ciaran Hancock, Irish times

    re: Reality
    http://tinyurl.com/kdr6mze

    This is the link to the original PCAR. Page 9 shows 9.5 billion being allocated for the banks for potential residential mortgages losses.

    Are Ciaran Hancock (Ir Times) and your good self now suggesting that despite the allocation of 9.5 billion for ‘residential’ mortgages, we should now start evicting OO families onto the road, while Richie Boucher et all says he has no intention of giving debt write-offs. In effect, no intention of sorting the issue. So we just blew the 9.5 billion, so that the banks could trannsfer it to cover developer loan losses, BTL losses, and large corporate (INM & Examiner) losses.
    With respect, I think you need to reflect on why the citizens of this country allocated €9.5 billion to erstwhile and meanwhile privateers to ‘deal’ with ‘residential’ mortgages.
    The destruction of the OO structure and mass evictions is a dubious prize at 9.5 billion, unless of course one believes in the moral hazard theory, moral hazard for minnows, that is.

  45. @Joseph
    Re moral hazard for minnows….
    From IT..

    Debt burden
    Shareholders had earlier been updated on Independent’s financial restructuring, which Mr Buckley said would see its debt burden fall from €422 million at the start of the year to €118 million at the end, with debt maturities also extended.
    The reduction will be due in part to a €138 million bank writedown, but also to its plan to reduce employee pension benefits by 39 per cent and to the sale of its South African assets for about €170 million.”

    138 million of moral hazard written off….and they hope to get another 40 million from the gullible via a right issue. What can one say….

  46. The way I calculate it, as a fun finger exercise, from the more convenient

    http://www.bundesbank.de/Redaktion/DE/Downloads/Service/Bundeswertpapiere/Rendite/kurse_renditen_bundeswertpapiere_2013_09_excel.xlsx?__blob=publicationFile

    expected crossover to > 0.375% is actually February 2015.

    May I further draw your attention to

    a) it all fits on one page, you can read without a magnifying glass,
    b) a 2 year zero-bond with ISIN DE0001137420, and that
    c) even the 30-year yield is NEGATIVE after tax and inflation.

    When I told my debt abhorrent (mid-80ties) father to go 300 meter to his local bank, to ask for credit conditions to finance plastering the house with solar cells and a new mercedes, because his next holdings mature a little later, he just took the credit, independent of needed or not, because he was too lazy to go there again. And he does 15 km recreational walks on a weekly basis.

    This is how crazy this world has become.

  47. From IT article: c/o DOCM above.

    “If we do not recover the cost [of a loan] then we do not have the capital to lend into the economy.”

    Capital? When a loan is repaid (in part, or in whole) the credit money part of the loan is destroyed. So what ‘capital’ is Boucher talking about? Is he as clueless as he sounds?

    “We don’t have the income to reward the taxpayers.”

    Reward? Jesus the banks were given ‘free money’ – that will be taken from Irish taxpayers over the next … … how many decades? Not to mention the reduced services to the taxpayer’s dependents.

    “All of these things have to be taken into consideration.”

    They surely do! They surely do! And take care that they actually will.

    ” … write-offs were not part of his (Boucher’s) recovery plan as this would involve his shareholders having to bear the cost.”

    Pardon? His shareholders! That’s rich of Richie. Shareholders HAVE to bear losses – most especially if the bank was driven from solvency to insolvency (in less than a decade) by the senior officers of that bank! The man’s a cad!

    OK! So we pay good money to our banks. They then shag a lot of folk out of their homes – to be ‘fair’ to everyone! And the unfortunate Irish taxpayer (and dependents) picks up the tab again!

    “Giv’s a job, Richie.” This banking thing is terrific!

  48. @ All

    I would view the situation as follows;

    (i) banks ran amok because of a lack of regulation; there should be a detailed enquiry to hold those responsible to account and legal action against those guilty of wrong-doing

    (ii) the government of the day intervened to bail out the banking system – as an economy cannot function without one, as JG points out – it being open to question as to whether a blanket guarantee – to include all banks and their liabilities – was required (refer to (i) above)

    (iii) the government has been advanced the funds to (a) enable it to do so and (b) keep the country running; mainly by the other countries of the EZ but with some bilateral assistance (UK and Sweden), the funds under (a) being either advanced from the EU budget (EFSM) or raised on the market on Ireland’s behalf (EFSF/ESM)

    (iv) the more of the money that the government can recover from (iii) (a), the less the burden will be for the taxpayer, notably by having the banks, now largely in public ownership return to profitability; this approach cannot include dispensing funds to those gaming the system on the basis of a confused populist narrative inspired by opportunist or ignorant politicians.

    The hearings by the Dáil committee have had the welcome effect of puncturing some of the more obvious misconceptions.

    This radio interview by Pat Kenny with the head of AIB is also of interest.

    http://www.newstalk.ie/AUDIO:-AIB-Chief-says-his-bank-will-write-down-debts

  49. @Brian Woods Snr,keep a mind there were also a few ‘winners’ who took their chips off the table.
    Would not be much fun w/o a few marks to clip every now and then….

    @Joseph Ryan-there really is no ‘solution’ other than values returning to boom levels.Why address secured mortgage lending only,unsecured lenders who got rewarded by charging higher interest rates benefit ?

    The ‘idea’ above is fatally flawed in that it does not cramdown other lenders.I have advocated for a long time cut and pasting the UK BK situation.
    Moral hazard did not go away you know….

  50. @ JG: Yep, my neighbour (2 doors up) cashed out in 2006 with approx 2 mill surplus over his purchase costs. Lucky fella!

    @ DOCM:

    (i) Agreed.

    (ii) The blanket guarantee was an act of treachery against the citizens of this state. The insolvent banks should have been liquidated and the state set up three new ones (domestic, commercial and private mortgage loans only). The losses would have fallen on shareholders, bondholders, serving and pensioned staff – NOT the general taxpayer and their dependents. Presumably most mortgage loans would have been either written down or off. Later, the first two of these could have been offered for sale, the third being converted into a mutual. I still consider that the Irish taxpayer would have had to pay some costs, but hardly the obscene amounts being bandied about.

    Can our banks ‘return to profitability’ absent higher interest rates? I doubt it. So they ‘stiff’ us with more and increased charges in the interim. If, or is that when, interest rates rise – its Toilet Time!

    The only real (as opposed to rumour) evidence of ‘gaming’ is that of the chief officers and supporters of our domestic banks. I have no doubt that some individual customers are indeed ‘acting the maggot’ – but what did the bank executives think would happen, given that they gave such a public and brazen lesson in ‘gaming’ to the rest of us. Bend ourselves over the table, put a stick between our teeth and mutter a few Hail Mary’s?

    The ‘smoke and mirrors game’ continues apace. Its truly maddening!.

  51. Eamonn Hughes and Colm Foley of Goodbody said today: “We estimate the three covered banks have a €7.8bn stock of provisions against their residential mortgage portfolios. To date, they have only written down €0.4bn, but the restructuring process will close this gap markedly over the coming 2 years. We anticipate further provisions in FY14 and FY15, though at declining levels which will ultimately see AIB’s mortgage losses equate to c.13% and 9% for BOI which will ensure adequate provisions to cover mortgage write-offs in our view.”

    @ Brian Woods Snr

    About €30bn of the public bank support was a bailout of Anglo’s depositors and at that febrile time, it would have been a bit difficult to have given them a big PFO while maintaining confidence in the banking system.

    Another little detail is that you have not pencilled in any capital for the new banks, assuming it would not come like manna from heaven from the god herself!

  52. @ BWS

    Why not continue to points (iii) and (iv)?

    MH points out the weakness in your argument with regard to (ii).

    For what it is worth, I think that the famous night of the guarantee was the inevitable consequence of a process where an inadequate political class, having grabbed hold of the wheel of the ship of state, without any regard to normal democratic institutional requirements, ran it aground.

    The result? Only by buying in overseas expertise can the reputation of the country be restored!

    The political class in question is left to pursue irrelevant topics, the upcoming referendum on the abolition of the Senate being one of them.

  53. completely off topic, just in case

    Miroslav is writing history in Fussball

    Germania – Austria

    multiple displays of fairness with our “Schluchtenscheisser” brothers and sisters

  54. @Brian Wood Snr,as the fella once said I’d rather be lucky than good.
    I share your liberation views on substances,I would de criminalize the lot off them.Shur prescription pills are way more abused stateside than anything else.

    When the FDIC takes over or closes a bank here,the mortgages are still outstanding.Normally they are sold or taken over,but they don’t go away.So even if the banks had been wound down,the loan books would have been sold on.The new owners may have a different basis and be in a position to write off debt…kinda like if you got a govt. bail out 🙂
    The approach taken regarding mortgage debts outstanding,is somewhat dependent upon the expectation of getting repaid the money lent to the banks.
    Do you want it back or not,if you do then some people will have to downsize or rent going forward.

    It was not a coincidence that once the positive carry enjoyed by IRBC on the PN’s,went away,it was closed/wound down.

  55. @ francis
    Near zero rates are crucifying insurers and those who buy annuities. I saw a piece by andrew lo where he suggested interest rates were holding back the recovery. Higher interest would drive spending by pensioners etc was the argument. Low rates are also feeding property bubbles all over the shop.

  56. Miroslav, born in Poland, made history.

    „Sie wissen schon wie alt ich bin“, priceless. Laconic German work ethic and honesty at its finest.

    Ireland – Sweden

    We will never forget “Fields of Athenry” June 2012 in Gdansk (Danzig), Poland. Priceless as well.

  57. @ DOCM: I guess I probably decided that (i) and (ii) were more significant. I agree that we need an excess of borrowing over domestic tax revenues to ‘run’ the country. And that Plan A is to keep rolling over the debts and hope interest rates stay relatively low. Its this latter that bother me somewhat. How long can that ‘game’ continue?

    The Irish banks are insolvent – despite all the guff to the contrary. The taxpayers have been ‘volunteered’ to provide capital. For the life of me I cannot think how these institutions will ever be truly solvent again – barring some sort of financial miracle. Perhaps one will happen.

    Despite what I might say – there must be some technically competent persons here in Ireland capable of sorting out the mess. Its just that they might not be willing to take on such a dreadful burden. And they would be correct. Outsiders will have some initial success but eventually the locals will slowly grind them down to a standstill.

    As far as capitalizing ‘new’ banks. Sure all you need is a computer and bingo! – virtual money at your fingertips. Just pretend you have valuable assets. Isn’t that what our insolvent banks did? Give folks credit cards with very high limits. Anyways why would a new bank need capital at present? Who is borrowing? Its relatively small stuff by comparison to what went on. And I have this creepy feeling that the Growth Fairy has gone on an extended furlough. So what’s to lend for? If the prospect of a ‘return’ is so dim? We need a new banking paradigm – fast!

    @ MH: Thanks. But all confidence in western banking has been trashed. Well and truly! These out of control institutions will be fearfully difficult to rein-in. Better they are trashed. Start afresh. The alternative is a slow, grinding impoverishment of the majority. Poor folk hardly use, nor even need banks. Or is the cunning plan that they will have no alternative! Give them credit, then sweat them for the debt! Sounds about right.

  58. Ernie,
    You have to admit though that when ze Germans like Francis truly put their shoulder to the wheel in pursuit of a big idea they have over achieved in a manner of speaking.

  59. @Fiatluxjr no idea what he’s on about none off them filed “friends of the court” or “amicus curiae” briefs,the decision is under appeal,but…
    He is well aware of that too.
    http://www.reuters.com/article/2013/07/24/us-imf-argentina-idUSBRE96N02E20130724

    If borrowers want secured mortgage holders to take haircuts,they should also get similar or greater debt relief from unsecured creditors.Thats one the major issues with writing off mortgage principal,it benefits unsecured creditors.

  60. @DOCM,why upend the capital stack?
    In the UK,BK is simple and a year,all financial inst. are familiar with it.
    Personnel available,clearly a demand domestically.The Irish version appears awfully clumsy and complex….why ?

  61. @ jg

    I can only hazard a guess. The main reason seems to me to be the fact that the Irish business and legal community do not see themselves as operating in a competitive international financial world (leaving aside the back-office operations of overseas financial firms in the IFSC). Everything in Ireland is plain vanilla and dates from the high point of its use. Added to this is the fact that most Irish legislation was carried over from the UK (and is still a major element in the shared common law tradition of the two countries). The state has been very lethargic in updating and adapting Irish legislation to Irish circumstances.

  62. @ All

    Colm McCarthy spells it out!

    http://www.independent.ie/opinion/columnists/colm-mccarthy/banks-have-to-pursue-all-mortgage-defaulters-29561471.html

    The question is whether the general public has grasped the points being made by him. Probably yes. The arguments being advanced by Dáil representatives who owe their seats largely to a wave of justified righteous indignation are being seen for what they are. Their muted reaction suggests that they may be catching the wind of change in public opinion.

  63. DOCM,
    The logical conclusion to this excellent article is to stop servicing personal debts, withdraw deposits from Iris banks, structure your affairs to take rather than pay to the exchequer. Wait for the STHTF. Expect that other countries are dragged in and wait for the inevitable QE.

  64. @ Tull

    Even allowing for the extreme mediocrity of our elected representatives – for which the electorate itself must take a large share of the blame – I doubt if the scenario you outline will play out (although I note that CmC does not rule it out entirely). Voters will have the example of Cyprus in mind.

    The parties in government are clearly edging towards a budget cuts compromise acceptable to the Troika.

    The election campaign in Germany is not playing out according to the script set by Merkel. Again as CmC points out, a European banking resolution scheme is not on the immediate horizon. The views of Trichet, Schaeuble and Asmussen are relayed in the German version of the Sindo.

    http://www.faz.net/aktuell/wirtschaft/unternehmen/fuenf-jahre-nach-der-lehman-pleite-trichet-es-ist-noch-nicht-vorbei-12563731.html

    The limits to Merkel’s Alleingang are also being demonstrated in relation to Syria. How this will play out is in the lap of the Gods but the timing could hardly be worse from her point of view (and that also of the other candidates, it must be said).

  65. Never underestimate the enduring appeal of economic fantasy in Ireland.

    Colm McCarthy is one of the rare media commentators who delivers unpalatable truths to his audience.

    Fianna Fáil of course hasn’t changed and it’s challenge to an ineffective government is to plan a comeback similar to what happened in Iceland and Japan, while getting around obvious EU restrictions.

    Michael McGrath, the FF finance spokesperson, who is leading the campaign for debt forgiveness, is a constituency colleague of the leader and as we say in Cork, he’s no daw.

    McGrath followed a path similar to myself, getting a BComm at UCC and then qualifying as a chartered accountant at KPMG in Cork.

    The 37-year old’s life has been bookended by two FF-made economic disasters but the evolving political strategy is possibly a rerun of 1977.

    McGrath said last week:

    “It became abundantly clear during the committee hearings that the banks are heavily relying on voluntary surrender, threatening letters and legal proceedings for forced repossession to achieve the mortgage arrears resolution targets set last March. The fault for this lies with the government and the Central Bank for allowing the taking of the family home to be classified as a ‘sustainable solution’”.

    He said the week before:

    “I firmly believe the need for an independent mortgage resolution office is compelling. As part of the new Insolvency Service, an independent mortgage resolution office would have the power to impose a binding solution to a mortgage in arrears. We also need to consider introducing legislation to set out clearly what represents a sustainable mortgage solution including a legal entitlement for distressed borrowers who meet certain strictly defined criteria to be offered a sustainable long term solution involving a split mortgage or a debt for equity arrangement.”

    @ DOCM

    Der Spiegel reported on Thursday on a post-debate poll on the German election: Support for the SPD has stagnated at 26% while the downward trend for the Greens has continued, with the party managing just 10%.

    It said: “second survey released on Thursday provided a potential clue as to why Merkel’s popularity refuses to come down. According to a representative poll taken by the R+V Versicherung insurance company, the ongoing euro crisis is number one on the German electorate’s list of fears. And Merkel is widely given credit in the country for having kept the worst of the crisis at arm’s length from Germany.”

  66. DOCM – you can’t be serious? If donkey names are the only ones on my ballot paper, what do I do? I gave my preferences to those candidates least likely to get more than 0.7 of a quota. Some other time.

    So, we now have ‘Bust’ – I have sixpence, but owe ninepence; ‘Bustier’ – I have sixpence, but owe nineteen shillings and sixpence; and ‘Bustissimus’ – I’m a well-managed- ahem!, Irish bank! I have ****all by way of actual capital (shareholder funds) and owe billions!

    Hold on! Let me recap. Once upon a time when banks went genuinely bust (someone ‘stole’ some funds) – the depositors were shagged. Bankers were lucky to escape with their lives. Somewhat later, we invented a Central Bank which gave a guarantee to depositors that in the event of a ‘bust’ – they would get their savings (well maybe not all) back. So far so bad.

    Bankers now realized that they were onto a winner. Legal insolvency was now a thing of the past. It was going to be Bustness-as-Usual. And what with this Fractional Reserve scam available; it was off to the races – the Galway ones! And that Tent!

    Somewhat later, and after the required donations were paid over, all real financial regulation was relaxed. Oh!, there was some there alright – but with Teddy Bears in charge. Now it was off to Ascot, Longchamp and Churchill Downs – by private jet, etc., etc. Why? Simple. The payee-of- last-resort was no longer the CB, but bank depositors, taxpayers – and their dependents. You could hardly make this up.

    And some folk want to ‘save’ our brave Irish banks? Ye have yer glue lads!

    Liquidate those Irish banks, fast! Seize all their assets. Dump the bank guarantee. Sort out the residential negative equity mess – then sort out the salvagable mortgages. The non-salvagable ones will have to be let go. Burn the BTLs! Though who will have the spare moolah to purchase those re-possessed properties?

    Now start over. The ‘capital’ is already available close by: existing depositors, and the Irish taxpayer! We need an entirely refreshed domestic banking model – fast! Else those payees-of-last-resort may metamorphose from just bust, to bustier! – which they will, if our current diseased banking model is left to fester.

    Did someone say that we were no longer a consumer society, but a debtee one?

  67. @ DOCM

    I think, it was seafoid who told me here, I should read bild more often, and so should you.

    http://www.bild.de/politik/inland/syrien-krise/syrien-krise-merkel-kritisiert-grosse-eu-staaten-32307246.bild.html

    It has an interesting twist to the declaration story. Germany waited for the EU meeting to get to a common position, whereas the others were going it alone.

    your figaro link also contains

    syrie-le-splendide-isolement-de-hollande

    @ Michael Hennigan

    The election is not over. The social democrats already tried a red-red-green, despite saying the opposite before the elections (“Ypsilanti”)

  68. @ francis

    Do you really think that the explanation given by Merkel as to why Germany was late in falling into line in relation to Syria – waiting for the agreement of all EU foreign ministers – is credible?

    I would repeat a number of basic points lest I be associated with any suggestion of Germany bashing;

    (i) Germany is a functioning democracy and this qualifies it to be treated with the same level of consideration and/or criticism as any other country in this category

    (ii) there are no goodies and baddies, heroes or villains, in this debate among these democracies (which do not include either Syria or Russia!)

    (iii) Germany, because of its economic weight and the existence of the euro, has a central to play with regard to the future of the EU.

    I happen to think that Merkel has been guiding Germany in its role exceptionally badly having (i) simply taken over the general policy established by Schroeder and (ii) playing to the gallery to maintain her popular level of support doing – as in the case of Syria – too little and too late to influence the course of events positively.

    The fourth point that I would add is that I am strong believer in democratic legitimacy i.e. “choices of society” can only be made at the level of the democratic society in question. A problem arises when these choices conflict with those of other countries in an organised relationship.

    That is the position that Europe is now in.

    The central problem emanating from Germany is the – probably unintended – consequence of the Hartz IV reforms i.e. the wealthiest country in Europe competing – or attempting to – on the basis of a low wage economy!

    http://www.irishtimes.com/business/sectors/technology/germany-s-working-poor-put-merkel-on-the-defensive-1.1518896

    http://www.ft.com/intl/cms/s/0/4f975822-1405-11e3-9289-00144feabdc0.html

    This is far the most important economic issue confronting Europe and can only be resolved by the countries concerned agreeing to do more than simply “coordinate” their economic and social policies. I believe that the demands of their citizens will force them to do so.

  69. @ MH

    That Merkel retains her popular level of support is no surprise. The question is whether this will translate into electoral gains. On past performance, it will not.

    More than incidentally, the latest trade statistics which confirm that trade between Germany and the rest of the EZ is in balance for July.

    https://www.destatis.de/DE/PresseService/Presse/Pressemitteilungen/2013/09/PD13_298_51.html;jsessionid=06E4E101EB2F31C92F4BB6B793DDC94D.cae1

    Bloggers may also be interested in this Wikipedia entry on Nord Stream.

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

  70. @ MH

    Coincidentally, this comment by Wolfgang Munchau on the complications of the German electoral process.

    http://www.ft.com/intl/cms/s/0/593fc3f0-1653-11e3-a57d-00144feabdc0.html?siteedition=intl#axzz2eKGHLkQV

    As he knows more than most with regard to this matter, one must take his assessment as being near to accuracy. However, I would disagree with his conclusion that the next four years will be very different under any new German government. They will be more or less the same as the alliance between government, business and organised skilled labour, which allowed the Hartz IV reforms to be implemented by Schroeder in the first place, shows no sign of weakening in any way.

  71. @Michael Hennigan

    “..Colm McCarthy is one of the rare media commentators who delivers unpalatable truths to his audience..”

    Pass me the bucket please.

    The single biggest problem with Colm’s argument is that he now believes those unable to pay should have their mortgages written down and those that are able to pay should be forced with repossession threats or else.

    Whilst today in 2013 this sounds reasonable when the same CMcC appeared on a Prime Time programme back in 2010 when this debate was gaining legs he was having none of it. Writing down mortgages was ‘unfair’ and unworkable and moral hazard was the catchphrase at the time. Time has an unfortunate ability in making even the cleverest in the classroom look very dumb. On this one Colm is backtracking despite all available evidence even in 2010 suggesting significant write offs were and still are the ONLY long term solution to this issue.

    Sorry to be harsh but in relation to this issue I’m not a believer in this gentleman.

    To me the writing was on the wall for the Irish mortgage market and the pending disaster when lenders believed lending money into property deals at rental yields less than 10 year German Bunds somehow made sense, and financing an ever increasing housing supply at about 4 times the required rate at the same time was sound. This was never going to work, and time has simply proven that to be the case.

    The problem Colm has is that a potential bank capital hole were the correct write downs actually to happen, is a bridge too far and collapse is likely. Based on the PCAR calculations however this realsitically shoudln’t be an issue given that the deleveraging losses incurred by the banks since March 2011 have been significantly less than expected and buffers were in built into the calculations in the first instance. So on almost any measure this is basic scaremongering by both Colm and the CEOs of the state owned banks.

    I mentioned here many times that the world believes now banks are only truly ‘safe’ with Core Tier I ratios north of 10% however for the best part of 20 years 4% was considered perfectly acceptable at a time when all the losses known to man were building up in the banking sector. I simply don’t understand the issue in taking the write down hits and cleansing the system of this property cancer and starting life with a Core Tier 1 at even 2%. The market will be lot more comfortable in knowing that the property disaster has been washed from the banking balance sheets. The cupboards will be clean and banks can return to being boring and utility like. Why is this such a difficult solution even to contemplate?

    What Colm is suggesting and many commentators like him the same, is that banks still have a devine right to collect their debt because thats what the credit agreements says. On the otherhand many distressed borrowers could equally argue that the additional costs they have had to incur in terms of taxes, job losses etc have had a direct bearing on their ability to repay a crazy lender driven mis priced property market debt which they are now been asked to bear costs (some unexpected) on the treble – namely their own debt, that of the bondholder and bank bailout and that of the costs of paying for public servcies whose costs it seems always rise at significantly above the rate of inflation. Even for a non economist this seems particularly daft.

  72. re: the Colm McCarthy article.

    “The discussion about the mortgage arrears crisis is beginning to lose touch with reality. ”

    Surely it is both Colm McCarthy and the banks that have failed to recognize reality, and for a number of reasons.

    1. Debts will only be collected from people who are in a position to pay them, regardless of whether this results in the double bursting of burst banks, or not. The sceptre of Cyprus make not one iota of difference to this fundamental reality.

    2. No mention has been made of the fact that the banks have been allocated capital of over 9 billion to deal with ‘residential property loans’. Can we not at least expect that the banks account for this money? Did the banks lie once again and is the money allocated being diverted from OO to BTL, property and other loans?

    3. Neither Colm McCarthy nor the banks appear to make any distinction between OO properties and BTLs. There is a clear financial, economic and societal difference between both. Under no circumstances should we not allow the emergence of the same ‘repossession’ solution for both categories. BTLs should be repossessed and sold, period. OO properties should be subject to legal repossession only, with a right of lifetime occupancy at standard income related rental payments.

    4. A further critical issue is not mentioned by Colm McCarthy and that is the question of obvious incompetence, demonstrated fully to date, of the banks in dealing with the arrears issue, both in the straightforward case of BTL defaulters and indeed in the case of OO properties. In the case of BTLs there is a strong suspicion, that bank decision making is overly and fatally compromised by the involvement of their own staff, and other influential decision makers in the BTL fiasco.

    5. Given such incompetence and deviousness on the part of banks, is it reasonable that they should remain in charge of the OO arrears issue, an issue critical to Irish society?

    Personally, I do believe that the banks probably have sufficient to cover loan losses at this stage. If they do not have, which genuine losses should be prioritized with available capital.
    The real question not addressed by Colm McCarthy or the banks is, in a crunch, whose losses will they prioritize?

  73. Typo in above
    “Under no circumstances should we not allow the emergence of the same ‘repossession’ solution for both categories.”

    Should read, (IMHO)
    Under no circumstances should we allow the emergence of the same ‘repossession’ solution for both categories.

  74. @ Joseph Ryan

    It is a sign of our general immaturity as a democracy that the public still accepts that persons in authority should have huge discretion and minimal accountability. The clan system casts a long shadow, as does the patronage system which the British put in its place. Cozying up to the Big Boys is still the ‘safe’ thing to do.

    It is increasingly difficulty to identify some responsible entity which is not riddled with croneyism and conflicts of interest. The behaviour of our professional classes in this context is has been educational, if not edifying, and the denial continues to be brass plated. As you indicate vis a vis the bankers, self regulation is no regulation.

  75. The total value of home loans in arrears of more than 90 days at end June was €27.2bn, which is almost a fifth of the total value of outstanding mortgage accounts in the country worth €142.2bn.

    About half of the €50bn in loans outstanding from SMEs are banjaxed to some degree, according to the Central Bank.
    Lenders reported repossessions in Q2 at 225 which brought the cumulative total to 2,228 repossessions since 2009. 

    There 97,874 principal dwelling houses in arrears of over 90 days and 30,000 BTL accounts.

    I would think that most people would see the wisdom of debt writedowns, or write-offs where there is no prospect of payment.

    However a case I cited sometime ago from the New York Times where a guy bought a house in Navan in 2008 for over €400,000 and expects an 80% writedown, while staying in the house, seems a little unrealistic.

    It seems at official level, that this whole shebang has been handled in a shambolic manner; 2 years to adjust legislation to respond to the Dunne judgement and so on.

    As for reducing the incidence of strategic default, surely in the arrears cases, banks can share information with other banks, credit unions, credit card companies?

    I was told last week, that BTL mortgages were usually issued without personal guarantees and in one particular case, rents on houses are being collected while mortgages are in arrears. The rents are used to pay down a commercial property loan which is subject to a personal guarantee.

    Given the history of plundering the public treasury, isn’t it a legitimate concern that people who are doing their best to pay their mortgage, could correctly assume that it’s a fool’s game.

    So if there is no BlackRock buffer left after mass writedowns of residential mortgages and SME loans, there will be no point heading to the nearest airport or airfield with a picture of Prince Philip or rosary beads while lamenting about being the Most Oppressed People Ever (MOPE).

  76. @MH

    In many cases (how many I haven’t a clue) but no doubt there are many where a basic calculation of 35% of net income to be allocated to servicing debt and the rest written off is a simple and effective way of dealing with most of the the OO arrears issues.

    I have mentioned here, sadly many times, a more sophisticated method which tries to rework the mis pricing into the system and deduct that from the mortgage loan but it seems that’s overly complicated for our banking friends to figure out.

    The fallout of the above calculation is anyones guess but I’d safely suggest the scale of the problem is well within the capital the banks currently hold. The exercise currently in vogue in calculating what represents a reasonable standard of living and anything above that belongs to the banks as is currently the position, is a sick joke. The assumption being is that the banks are entitled to one earnings over and above a prescribed limit simply because they say so is so bizzare given that most households have already commenced self service austerity over the past number of years only now to be told because you’re meat cut or shampoo type is ahead of the average you or your family need to redouble your efforts because the banks can’t weather such mortgage losses as the additional taxes you’ve been paying to compensate their bondholders is just not enough. Sorry TINA.

    This approach suggests, as I’ve always suspected, that ultimately ownership of the banks is what is actually driving the agenda and not the rectification of crazy mortgage deals as it correctly should.

  77. @ All

    It is clear that there is a hen and the egg aspect to the problem of mortgage debt, whether OO or BTL. Some realisation of bank losses is inevitable. The question is to what extent can it be limited so as not to put the banks in jeopardy. This is a tug-of-war between bank and debtor on an individual basis and it is hard to see any solution other than a slow grinding process with great hardship for individuals and families. But the majority of homeowners are meeting their mortgage payments or have no mortgage.

    The slow pace is the result of a mish-mash of conflicting interests e.g. extend and pretend on the part of the banks, failure to accept that BTL was an investment decision and if it went wrong, there is zero justification for the taxpayer to be involved in any bailout etc.

    However, the broad parameters of the problem are easily identifiable. It must be recognised that the banks were not “given money by the taxpayer” , they were given money “borrowed by the taxpayer”. The extent to which said borrowing can continue is the decisive factor. The idea that Ireland Inc. will exit the bailout and the clutches of the Troika and all will be well is a total illusion. The near farcical process of the preparation of the next budget illustrates just how illusory it is.

    As Seamus Coffey points out on his blog, two new acronyms will shortly enter the lexicon; PCCL or Precautionary Conditioned Credit Line and ECCL or Enhanced Conditions Credit Line.

    http://economic-incentives.blogspot.ie/2012/09/enhanced-conditions-credit-line.html

    The penny has yet to drop as far as both politicians and electorate are concerned; draconian budgetary analysis and control must be the order of the day for at least a decade to come. The current media debate on the current coalition tensions is but the small change of a parochial and blinkered national debate. While it continues, Ireland loses another generation to emigration.

  78. Alleingänge

    @ docm

    I first regretted my answer to you yesterday, as soon as i saw your reply. As e.g. shay has pointed out repeatedly, you have a very strong tendency to go completely off-topic, and then to the 2nd and 3rd … , especially to unrelated issues you have with germany, even, and I checked this, when I do not show up.

    Same with from thread topic eminent domain abuse for mortgages to that meaningless Syria declaration to who goes to set german minimum wages to who seems to can force germany to do something we are not obliged to or agree with.

    Europe was supposed to protect us from that and not the other way around, DOCM seem to prefer.

    What makes me respond tonight to DOCM is the following:

    a) you do not seem to care much any longer, with whom you gang up on what topic, in your intense desire to see it somehow lorded over to germany / merkel. These folks failed, first since 1782, to even convince a conservative majority in English parliament. You don’t seem to care that those are the tiny 5% war mongerers. I have not seen in your (supposedly pretty conservative) telegraph link one single positive comment for William hague. Maybe you find just one here, just as lucey shows here just one paper he is proud of? Conservative Le Figaro, showing blood lust? I don’t think I have seen that this time. In what kind of extremist corner does DOCM now go? Maybe

    Shay to comment on?

    DOCM, you are more and more becoming “his masters voice” for the FT, and a tiny 5% minority, baron münchausen represents in Spiegel.

    b) the endless repetition of the same nonsense in FT “the financial terrorist” and TE “the evil” of germany somehow failing soon, because of alleged failing invest in education or infrastructure, has become so blatant obvious, that the comments are full with vitriol, which was based on facts, and not on the completely unsourced allegations. They have both bankrupted their credibility, this summer.

    c) the open blood lust of FT and TE, not the first with Syria, without any proof, has bankrupted their character / law credibility as well. There was a time, I told people in germany about the provincialism of german news outlets, in comparison to wapo, wsj, nyt,ft, te. Gone 100% now, based on looking on a very long streak of hard evidence, not just feelings.

    d) the not just good, but really stellar ratings, germany / merkel has in international popularity, pew and bbc, hardly german propaganda” : – ) , whatever they are worth, shows we represent the will of the people.

    e) that I have no sympathy for assad, ghaddafi, mursi etc does not mean that I have to support war lies, terrorist, who have taken 2 times un soldiers hostage.

    That I don’t like the plague doesn’t mean I have to lay in bed with cholera.

    And that brings us back to the thread topic, and my first comment.

    Finding workable solutions to financial problems, does not mean to break the constitution and international treaties. I fundamentally reject this.

    Finally, to bind things a little bit more together, both docm and Corcoran, with his 16th fractions US cousins, reflect in certain ways,

    What Paul Quigley here today described as “Cozying up to the Big Boys is still the ’safe’ thing to do”

  79. @MH

    A correction. The figure you quote above of 27.2 billion, is the figure for total arrears for PDH ate June 2013. The figure for arrrears over 90 days is in fact 18.5 billion, although clearly the €27.2 figure is probably the more relevant one, in that it conveys the full scale of the arrears issue more forcefully.

    The case of the Navan person that you refer to, who wants an 80% write off, while living in the property and in effect paying only the equivalent of a much subsidized rent, is a proposition that most reasonable people would reject out of hand.

    @Paul Quigley /@ALL

    “It is increasingly difficulty to identify some responsible entity which is not riddled with croneyism and conflicts of interest. ”

    The full extent of the rudderless ship, and the buccaneering was laid bare this evening on the Liveline Program (RTE). The slot at about 5.50pm had one of the leading insolvency people in the country, Jim Stafford, expound a little on the new PIA system. The discussion with Mary Wilson got to the issue of what kind of houses, it was appropriate for people to continue to live in.
    The view was expressed that many of his clients were seeking, perhaps even demanding?, to continue to live in palatial mansions, and that a very different kind of house/mansion was necessary for an accountant and solicitor etc, that for a “paye” person.
    Bewildering stuff in this republic of ours, particularly when the “paye” workers will end up paying for the palatial largesse.
    We are in strange times.

    @Robert Browne
    “Shocking but true, Alan Dukes on Sunday Independent “Banks still clueless on cost of mortgage crisis””

    The banks may be clueless, but those advising ‘solicitors and accountants’, are anything but clueless.

    We seem to have less of a government at present and more of a ‘Junta for special interest groups’.

  80. @ Joseph Ryan

    How the government and the banks can preach to people and bring in mock solutions to their mortgage catastrophes is beyond me and I have studied contract law when at college.
    At the bottom of all the paper work it says “this mortgage product has been regulated by the financial regulator”. Surely, this is a ‘term’ of the contract and people were entitled to rely that it had been regulated and believe in good faith that the contract had been properly vetted. Not vetted by quaffing champagne with the guys at the bank. Properly regulated, properly vetted, risk analysis, sustainability, etc.

    When a “term” of a contract is broken, as has been done here the contract is entitled to be voided out. The whole legal profession are ignoring the elephant in the room. This issue is the semtex in the system. These mortgage contracts are as dodgy as all hell yet the banks want people to believe that everything was above board nothing is further from the truth.
    Chickens must come home to roost on this one.

  81. @ Joseph Ryan

    In other words, many in mortgage difficulties are still stuck at the “denial” stage!

    One of the conditions for a PCCL (cf. link to Seamus Coffey blog) is the following;

    “The absence of bank solvency problems that would pose systemic threats to the euro area banking system stability.”

    Either we get past the denial stage or what will be on offer is an ECCL, a considerably less attractive proposition.

  82. @DOCM
    “In other words, many in mortgage difficulties are still stuck at the “denial” stage!”

    No doubt that is true, but it is equally true that no effort has been made to tackle the failed investment of BTLs.

    re FT link you posted.

    Sir John Vickers has an inherent intellectual contradiction at the heart of his call for capital ratios of 20%.
    The simple fact of the matter is that if any bank even contemplates that a 20% capital ratio, is either desirable or necessary, the people in charge of should be immediately removed and the bank shut down.

    The admission of a capital ratio requirement is a de facto admission that a bank could lose 20% of it loan book. i.e that the bank is going something fundamentally risky. Why would bank regulators allow such a scenario?

    re PCCLs on Seamus Coffey’s blog.
    Draghi does his best, stymied at every turn, but why this as a condition of PCCL
    “The absence of bank solvency problems that would pose systemic threats to the euro area banking system stability. ”

    On the face of it, that could rule every country out!

  83. 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. Read this book ” The Bankers New Clothes: Whats Wrong with Banking and What to Do About It”by Anat Admati and Martin Hellwig. You will understand the economics. 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.

  84. @ Joseph Ryan

    On your first point, I do not see any connection; while agreeing that tackling the BTL sector is a priority. (There has been no action because such would hit many party political supporters across the entire political spectrum).

    On your second, you may be missing the distinction to be made between between bank equity and borrowed funding. John Corcoran makes the point ahead of me. Excessive reliance on borrowed funding or, rather, the resulting leverage, was the cause of the downfall of the Irish banks (and most other financial players internationally, not all of which were banks). As far as I can judge, there appears to be a growing consensus that this inherently enormously risky situation cannot be allowed to continue. The point is made in the FT article.

    On your last point, Draghi is not in charge of the EFSF/ESM.

    http://www.efsf.europa.eu/attachments/efsf_guideline_on_precautionary_programmes.pdf

  85. @ Joseph Ryan

    Many in mortgage difficulties are still stuck at the “denial” stage!

    Who is in denial? Is debatable. 5 years on and and ex finance minister and ex CEO of Anglo, who is no slouch on figures and who one of the first to tell us that the losses on Ango’s books were going to be in excess of 30bn says “Banks are still CLUELESS on costs of mortgage crisis”. Who is in denial? There are none so blind as those that will not see and there are none so blind as those that are paid not to see.

    What about my point that the Regulator was hamming it up but everyone was being told the Central Bank and Regulator have all this under control? When it is universally accepted that the opposite was the case.

    When they screw up there are ano consequences, but when the borrower screws up he is to be slowly roasted alive over a web of false solutions including a 20 year claw back. Unbelievable, but as you say instead of a government we have a junta catering for themselves and their buddies making sure that the gravy trains and false statistics continue to flow on time every time.

  86. The US has no recourse mortgages. Ireland can very quickly rectify the paralysed property market. Properties over due 180 days or more go straight to public auction. The owner/occupier is give the right of first refusal of the highest bid. The owner/occupier then makes payments based on the post auction value as determined by the highest bidder. The mortgage issuer eats the difference between the Celtic Tiger mortgage amount and what the property is actually worth presently.

    This would apply to properties worth 60% or less (auction price) of the average property in the county. Bring competitive markets back to Ireland and a dose of reality for the banks. The Gov’t must get out of banking immediately or more importantly the taxpayers cannot afford the dog and pony show on Kildare Street. By taking the overhang out of the market the buy to lets have a better chance of survival without the taxpayers getting involved.

    As to the “will not pay” or “cannot pay” issue, to use the privacy issue as an excuse for not being able to accurately determine whether the applicant for relief is lying or not is quite simply inexcusable. If the NSA have all the details of Bertie’s and Brian’s personal finances there is no doubt but the Government of Ireland should be able to compel the banks to cough up all relevant details when presented with a document signed by the O/O applying for relief.

    Of course underlying all this are the age old Irish prejudices, envy, loathing, begrudgery. We are a primitive lot under the thin veneer of civilisation and we continue to pay the price as do all backward peoples.

  87. ““Banks are still CLUELESS on costs of mortgage crisis”.”

    I presume Dukes is referring to each (and every?) current senior executive and directors of these ‘banks’. This begs the question as to why these individuals may be ‘clueless’ – and worse, continue in this state.

    Do these persons ever read anything of ‘substance’ in respect of this latest financial crisis (How many have we had since 1870? A dozen? More?) and contemporary mortgage lending in particular – rather than relying on media guff? And if they are catholic in their reading, are they able to ‘internalize’ the complexity of the Irish residential mortgage mess. Its not too difficult to actually read stuff, but altering your views, opinions, ideas (your belief system) is another matter entirely. Or is what we are observing just ‘committee wisdom’? ie: “For ****s sake, don’t rock the boat!”

  88. @DOCM

    Unfortunately your link is behind a paywall – but I appreciate what Vickers is saying in simple terms make banks safer by increasing capital levels. This is a truism which doesn’t require any debate.

    Comparing the Irish situation however with almost any other banking market is rather missing the point. We stuffed our banks full of capital on the premise that we had to make them safe for the train wreck of mortgage defaults and property black holes that we knew was in the system. We have already paid for the disaster. My argument is that the capital is already in the banking system to cover the write downs – but we are prevented from doing the right thing and actually cleansing the system because the Govt wants to protect the capital in the vein hope that selling the banks on at a future date with better capital ratios is in all our interests.

    To me this is wishful thinking because it assumes the systems recfies itself over time. There is zero evidence that time (and presumably inflation) will be nearly enough to get ahead of the problem. Hope is never a good strategy. I’d say to the banks fess up and take your losses becuase ultimately the overwhelming share of the error rests on your shoulders.

    Proclaiming as the CEOs of the banks did last week that their modus is to protect their capital to the detriment to almost everything else is a fools errand. The problem is the saturation of debt in the ordinary household with 90% of that debt in the form of daft mortgages – the banks hoarding capital will not solve that problem.

  89. There was a time in Ireland when only the drunks were paralytic now we have a government and banks that are both daft and paralytic.

    Thanks for the word daft Yield or Bust I haven’t heard it for years.

  90. @Brian Woods Snr,YOB,there is a fairly decent “system” it’s not perfect but been around a while too.Never been tried in Ireland.
    If you borrower money to buy something you can no longer afford or never could,the lender gets it….

  91. @MH,while recourse v nonrecoure is a factor over here at a state level,many institutions opted for “short sales”.Sell the house pay over the proceeds and they don’t pursue deficiency judgements in return for cooperation-non recourse if effect.
    Borrowers also have the ability file bankruptcy stymying collection/foreclosure efforts.But keep in mind judges can’t cramdown lenders on private residences.

    “The reason that we don’t have cram-downs is that the banks lobbied heavily against the 2009 bill. They said it would further destabilize home prices and that they would have to raise interest rates to account for the risk of underwater homeowners’ having their mortgages modified in a bankruptcy. They also argued that bankruptcy reform would create a “moral hazard” by rewarding irresponsible borrowers who took out mortgages that they couldn’t afford”
    http://www.thenation.com/article/164096/why-mortgage-cramdown-bill-still-best-bet-save-economy#

  92. @Robert Brown

    ‘Many in mortgage difficulties are still stuck at the “denial” stage!

    “Who is in denial? Is debatable.”

    The most egregious denial by far, is that of bankers, who by dint of saying there will be no write-offs, are in fundamental denial of the reality that there will be write-offs. probably up to the full amount allocated of ~9 billion.
    What are the reasons for their denial?
    Self preservation in holding onto their very lucrative pay and pensions. Definitely.
    Communal self preservation, in attempting to allocate any funds available to cover losses, to their business friends, their political friend (self preservation, again), their own social strata and if possible to their own acquaintances.

    Five years on and Ireland is still in nod and wink land, in attempting to allocate the bank losses to the weakest in society.

    @Yield or Bust / @DOCM

    A bank could have a 100% capital ratio and still go bust. The only difference the capital ratio makes is who suffers the losses.
    One should not put one’s faith in capital ratios.
    The Deleveraging Mantra has been an excellent propaganda weapon by bank creditors, They get their money back.
    However, deleveraging does not add one cent to bank value.
    If it did, the European banking issue would be solved by now.

    The health of banks is prima facie based on the health of economies as it is the health of the economy that decides the health of bank loan books.
    Deleveraging has been an unmitigated disaster and a fraud on the general populations of Europe.

    We should note that if Deutsche Bank, with a ‘real’ capital ratio of about 3% (2.7% actually) would need an injection of over 200 billion, to get to the current capital ratio of BOI.

    If German banks had to bring their capital ratios up to Irish banks levels, courtesy of the German taxpayer, the German Debt/GDP ration would probably rival that of Ireland or Italy or even Greece.
    So much for the level playing field.

  93. @Joseph Ryan
    The authors of “The Bankers New CLothes”, Anat Admati and Martin Hellwig achieve three things. First, they explain basic financial theory with simple examples that any moderately numerate individual can understand. Second, they show that these basic ideas apply, with modest differences, also to banking. Finally, they prove that, in opposing them, bankers and their apologists have spun intellectual raiment as invisible as the emperor’s new clothes.

  94. Regarding the ongoing case…is the Troika around ?
    Debt spiral,anyone wanna buy a house in Richmond,it’s gonna b a cash only mkt shortly,pity those people who actually paid their fecking mortgages!!!

    “Assorted challenges have mounted in recent weeks. The city may not be able to refinance its municipal bonds and is being sued by banks on behalf of mortgage investors. Further, the city can’t secure insurance protection to shield it from a potential court judgment if the plan is found unlawful.
    Last month, millions of dollars in the city’s bonds were inexplicably shunned by investors, leading some to speculate it was a fallout from the eminent domain plan.”
    http://www.contracostatimes.com/west-county-times/ci_24035711/both-sides-richmond-eminent-domain-plan-set-showdown

  95. @John Corcoran,yeah it’s pretty simple when ya think bout it.
    The tenant pays rent to the owner who pays the mortgage,now if the tenant say for two years refuses to pay say a Life insurance company said rent..
    Oh never mind.

  96. @JG

    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.

  97. @John Corcoran,is there a chapter on what to do when a tenant refuses pay any rent by any chance,that’s kinda a bit like ehm destabilizing to the system.

  98. @JG
    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.

  99. @John Gallagher

    “..If you borrower money to buy something you can no longer afford or never could,the lender gets it….”

    If I wanted the ‘Ann and Barry’ version of economics I would have asked for it.

    I suggested here before that your time spent in the US has perhaps blurred your version of events as experienced by the Irish citizens, particularly those who who bought houses in a credit fueled market whereby all manner of experts failed both the house buying consumers and the country as a whole. And equally where all the banks involved in the property market during the binge have either failed, left, being bailed out or existed. This is not the US property collapse, its 10 times worse.

    Perhaps you’re not aware but the bondholders who lent money to these banking institutions got their cash back in full despite the fact that in your black and white world they should have been told to politely get lost i.e. You made a bad bet now piss off. Sadly not so, and many thousands of house buyers had, correctly in my view, zero expectation of being passed the bill for these bond owners at the time of purchase. Unfortunately they were. So much for market economics !

    When these bond bailout decisions were made in the hope of maintaining the ‘system’ there was likely going to be fallout. The vast vast majority of those in difficulty paying their mortgages is as a direct consequence of being passed their portion of the bondholders bill and the Govt vast budget over runs.

    I would request that you move beyond the basics of the market rules. The market rules here were not enforced at the critical time they ought to have been and as a result the new ‘rules’ are being made up as we go along.

    I would dearly love to live in a black and white economic world but my friend no such thing exists particularly in the Irish property context.

  100. @YOB,lets quantify it what are we talking bout 6% off households in the state impacted,certainly making plenty noise about downsizing or renting !
    When they can no longer afford the gaff…it’s black or white why complicate it ?

  101. Non-recourse mortgages

    I have here 4 different lists, I took january 2009, wiki, Bloomberg, helobasics, mortgagereliefformular.

    There are different definitions, apparently.

    The reason we have here against this feature is, that it enables fraud, even during normal times. That increases the risk for the loan giver, who has to raise his rates accordingly, for everybody.

    Joseph Ryan,

    We had it in this blog repeatedly, that the German banks fulfil all international basel capital ratio rules.

  102. @ All

    FYI

    http://www.ft.com/intl/cms/s/0/a0e95652-1960-11e3-83b9-00144feab7de.html#axzz2eKGHLkQV

    The central point is not so much he extent of the Basel reforms but their implications for an Irish banking system that is confronted with a major bad debt problem.

    Absent a fairy godmother, tooth fairy or whatever, Irish banks have little choice but to be ultra conservative if they are to retain, or rather regain, the confidence of investors, whether in their equity or bond issues.

  103. @YOB-indeed the oul eyesight gets a bit blurred at times,beer goggles !
    Thankfully the reading is still ok…hows yours ?

    “With regard to achieving burden sharing with subordinated bondholders in all of the banks including the Bank, I draw the deputy’s attention to the fact that total capital generated from burden sharing with bond holders since 2008 is in excess of €15bn.”
    http://www.sinnfein.ie/contents/22739

  104. @RB
    Interesting Alan Dukes’ saying that the banks don’t have a clue re the extent of their mortgage losses…The dogs in the street have known that for some time. However, before elevating him to Sage, we must recall that Alan’s record at Anglo /IBRC is not without taint…..(there are some nasty details lurking behind the decision to liquidate as well).

    @YoB
    Strange viewing Ireland from afar these days. Papers are full of “soft waffle” and distraction. An occasional kite from Ms. Burton….and I had a good laugh today to read about Gilmore’s “outrage” at the Troika and the need to cut 3.1 bn in the budget. Chuckled too at Labour being concerned about Ruari’s “image”….full steam build up to the next election it appears.

    All rather predictable, boring and “cartoon like”….Albeit that I was surprised at CMcC’s Sindo article re sticking it to the (distressed /stressed) mortgage holders….The money has to come from somewhere, but Stephen Kinsella’s most recent article was more to the point…..People being sacrificed while banks and Govt continue to do their debt collection jobs. Much more empathy from Stephen. Good man. on the other hand, Colm came across as aligned with the Jim Staffords of this world. That was disappointing (I’m being polite).

    A good laugh too re the bankers running rings around the politicians at the Oirechtas Committee. Predictable….much ado about nothing.

    Hopwever, when are Mr. Moran’s “important” economic Sept. data to be issued? Reading Honohan’s most recent IT article, all seems under control and going to plan!! However, what will the hard facts say? Can’t wait to get back to some debate.

  105. @jg
    What’s the name of that Soho food & watering hole again? I’ll be in that area on Friday. Might catch you for “stool hour”.

  106. I shouldn’t have left out Ivan Yates and his “unintentional innovation” – possible solution for the indebted masses of Ireland….Take a year off in the UK with the cousins or friends. What a hoot.

    Didn’t see any comments on this one from anyone senior in Official Ireland though…..Might also have prompted Colm to do his chase the mortgage-holders piece (not that they aren’t being chased already)?

    In short, very difficult not to be cynical about the country over the last weeks.

  107. @ DJ

    The issues are not as unrelated, it seems to me, as one might think.

    http://uk.reuters.com/article/2013/06/25/uk-europe-banks-stresstests-idUKBRE95O0TL20130625

    @ Paul W

    I agree! The financial data will decide. And about time!

    However, in relation to the banks, one cannot both have one’s cake and eat it. Politicians pandering to understandable populist sympathy for families in debt difficulty – and free riders surfing on it – are an unavoidable part of the landscape. CmC has done no more than point out the inescapable consequences of giving in to it.

  108. @DOCM
    EH points out that 50% of the population is on welfare of some sort. The mortgage distress figures are off the charts…..and all of us know of people there who have been restructured to interest only or whatever but who are still in terrible trouble (to come). Not included in the statistics. The ones without mortgages are generally older, with pensions. Real unemployment running at 24% it seems.

    That doesn’t leave room for many strategic defaulters, I agree. The strategic default item is a load of boloney…..

    One should also point out what you terms as the “inescapable consequences of giving in” to the likes of the “solution” pursued by Ivan Yates and the [richer] others….I look forward to Colm’s article on that.

    The money must come from somewhere. Nowadays, much of the money in the country comes from the EU /Troika anyway….Can’t be that hard to track it. As I said before, they are already including very extensive data collection in various forms (tax returns, etc).

    Money that is not from the EU /Troika is largely held by the richer in society. Still amazing to see the richer being protected e.g. grants for farmers’ kids, ringfencing of farm land, retention of planning permission advantages for midland developers, etc, etc. It goes on and on and on. Unbelievable to watch….but it has always been there. All that seems to be happening nowadays is open acceptance of these practices and behaviours. There is no (or at least little) “moral authority” in Irish governance these days. So how dare anyone condemn anyone else there (in the moral sense).

  109. @Paul W-Hi Paul,its a long list off bar stools…normally a quiet civilized jar or two here say btw 5 to 7.
    http://www.balthazarny.com/

    Link above is an amici curiae from the SIFMA,Securities Industry and Financial Markets Association and the Chamber of Commerce of the United States of America-the “Chamber”.

    Two outstanding court cases-link a little later too ALL docs filled in Wells Fargo Bank,National Association V’s City of Richmond.The docs have to be downloaded and hosted on a web site.h/t the ‘help’.

    Unless required or requested as going to skip linking bank of Bank of New York case-but will review and provide it if important.

  110. @ Paul W

    On your last points, I have repeatedly argued for a top-down analysis of expenditure on the basis of an evidence-based review of equity, benefits and costs, using the example of Sweden’s institutional and budgetary control response to its banking bust – much smaller than Ireland’s – in the 1990s.

    I am convinced that the dimensions of the Irish banking bust will force it upon us.

    Meanwhile, in Sweden, increasing evidence that no solution ever really lasts. Human nature will out!

    http://www.businessweek.com/news/2013-09-10/swedes-urged-to-cut-record-debt-loads-in-new-bank-oversight-plan

  111. It seems that those with means will get looked after first:

    http://www.independent.ie/business/personal-finance/latest-news/thousands-wont-be-able-to-afford-debt-deal-fees-29565771.html

    While one may say that it has always been so, the point is that so many people in Ireland get welfare of some sort…..and even the wealthy get extremely generous child benefit. Ask them to redistribute this though and its “screw my neighbor”…..despite SC & co. posting here occasionally re how “generous” the welfare system is in Ireland, they always exclude those in Ireland receiving pay or payment from the state, directly or indirectly (including most economists who post here).

  112. @DOCM

    I agree with Fergus Finlay’s statement this morning that:

    “There will be those, of course, who will argue that the financial services sector has no choice now but to recover its financial strength at any cost. But the Oireachtas Committee that interviewed all the top bankers last week showed us that the pendulum has swung too far — from the reckless abandon of the recent past to the miserable stringency of pretending that threatening legal letters are some kind of reasonable solution.”

    http://irishexaminer.ie/opinion/columnists/fergus-finlay/an-inhuman-system-has-taken-over-and-its-playing-with-peoples-lives-242463.html

    The last few weeks in Ireland have been depressing to watch, simple as that. The country is losing its moral compass on the mortgage-distress “rock”. The mortgage debacle is demonstrating more clearly that it is everyone for his/herself……and that only the “fittest” will be assisted to survive.

  113. @Paul W-the old media in ireland is a bit hysterical at times,the banks don’t want repo ‘poor’ peoples homes.No equity or spread,only crystalizes losses.Some nice spreads on a few gaffs in leafy Dublin suburbs with market demand….

  114. @jg
    As you well know, the banks sh**ing themslves over the remaining, large capital gap(s). If enough of the peasants don’t stay around to pay the bill, the consequences will reach those leafy suburbs.

    There will be a need for repo and resale, etc. Market won’t settle without it. The current, artiicial propping of the market only increases the problem over time. Limiting supply is not a LT solution.

    Yes, there is a balancing act, but it doesn’t look as if it is going in the right direction.

  115. @Paul W,there is always some bleeding heart hearsay/anecdote involving a ‘bridget’,look she got her long term disability back,the rest of us are paying for it via increased premiums-get well soon love hopefully back to work too….a bit vague on the nature off this disability.. migraines and rest it would appear.
    Is FF still trousering 120,000 over at that charity-if he’s so concerned take the avg. industrial wage,pop by Bridget’s give her a dig out if she not sleeping.
    http://www.irishexaminer.com/ireland/politics/shedding-light-on-the-pay-of-charity-chiefs-168676.html

  116. @jg
    Agree that there should be repo and resale. Would have preferred thge US way. However, it’s Ireland’s way there. You get the sanctimonious “reality check” people espousing the shafting of “Bridget” while many of them are doing very well on the EU (welfare) teat..even if they don’t see it that way.

    So in Ireland, you have a huge number of people on that teat who require those of lesser “status” to maintain them in tge style to which they have become accustomed.

    So, no, not soft. Far from it…far too much capitalism in me. However, the moral “inequality” of the Irish gets in my craw….Honohan’s article for instance is one from a soft-padded old man who is completely out of touch with economic reality for many.

    On the train. See you on Fri.

  117. @Paul W-Great,ask at the door i will be at the bar-FT under my arm or as beer mat-no offense DOCM !

    on a lighter note-doing the rounds.
    http://www.nakedcapitalism.com/2013/09/help-kickstart-world-war-iii.html

    Everything you ever wanted to know or read about eminent domain,resi mortgage backed securities,but cant be bothered to read is here-enjoy!
    Back to evicting a few deadbeats collecting some rent….
    http://s3.amazonaws.com/siteninja/site-ninja1-com/1378846817/original/Package_WF_vs_City_of_Richmond_opt_opt.pdf

    @DOCM,Ray is a great builder,will be back fully capitalized banging away if not already-wow 1 cool mil in just over a year quite the eye!

  118. @JG
    Excellent link.
    Best summed up in final line.
    “But Wall Street will have gotten a lot closer to stamping out the threat.”

    ‘Stamping out the threat’ of buying underwater houses at market value!
    Threat to whom?
    These people clearly do not like the market when market values go against them.

    This idea will run and run. This simple reason it will run is that it makes sense. Sense for society (it still exists, you know!).
    But in stymies banks, with charges on underwater property, from gambling by holding those properties on the off-chance that values will improve.
    Meanwhile destroying neighbourhoods and communities will be boarded up and destroyed while the banks/ investors live if far off luxury, far from the destruction they have created.

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