31 thoughts on “Household Indebtedness – Rhetoric and Action”

  1. Extract “Fingers” by Tom Lyons & Richard Curran page 90

    “Fingleton himself rarely met the regulators personally,preferring to keep them at arm’s length and leave the official meetings to Purcell as well as the society’s internal auditor,its compliance manager and his other subordinates. As he occasionally mentioned at board meetings to employees,he preferred to spend time with their bosses in the Dail”

  2. Honohan’s speech was reported on RTE news, in the course of which the reporter made reference to the originally proposed requirement of a 20% deposit requirement, saying that there were fears that it would “make it difficult for first time buyers to get on the property ladder”.

    I had hoped that idiot lying phrase – and the idiot mentality underpinning it – had been consigned to history’s dustbin, after the painful lessons of the last seven years. Obviously not.

    I checked the Irish Times website for usage of the phrase in that paper, back to 1990. The results are below.

    1990-95 Nil
    1996 1
    1997 Nil
    1998 6
    1999 11
    2000 10
    2001 17
    2002 4
    2003 34
    2004 32
    2005 47
    2006 57
    2007 51
    2008 55
    2009 24
    2010 18
    2011 12
    2012 13
    2013 13
    2014 32 (to 8th Nov)

    Uh oh.

  3. I think the logic goes something like this:

    The higher we can get the cost of a house, the more confident borrowers will be.

    The higher we can get the cost of a house, the more demand there will be from borrowers.

    The higher we can get the cost of a house, the more confident banks will be in lending for house purchase and the easier it will be to obtain credit to buy one.

    Therefore, the higher we can get the cost of a house, the more affordable it will be.

  4. And of course, the next time a housing bubble bursts and we go cap in hand to foreigners the blame will not be focused on our own policy mistakes but rather the cheek of the foreigners for dictating terms.

  5. Except for one thing, Johnny: “we” are not our banks or our estate agents or our media or, increasingly, our government. Rather, we are the victims of all of the above as well as European institutions and interests for whom our welfare is almost literally the least of their concerns.

  6. This gives the impression to me that the Central Bank is suseptible to political and media pressure on this. Which doesn’t bode well for a scenario where property prices fall in the new year. The Central Bank policies will be blamed and more pressure will be applied to water them down further or have them dropped fully. Disappointing news.

  7. I don’t think the CB can do much, really. The Prof gave a speech at a conference at the IFSC in May 2013 and progress on restructuring loans has been very slow since. The cupboard is fairly bare .

    DOCM and others blame it on individual choice but a lot of marriages have been destroyed by negative equity. Nobody from the banks took the rap for anything.

    The banks really need a sustainable recovery but I think on the macro front we are more likely to see a global beggar my neighbour situation developing.
    The Yanks can’t really afford a stronger dollar and the EZ needs a weaker Euro.

  8. I have to wonder how true the following analysis by Patrich Honohan is:

    “Many of Ireland’s over-indebted individuals and families are in this position because they were caught up in a systemic event. It includes people who borrowed too much because they feared getting left behind, people who borrowed too much because they saw a profitable (buy-to-let) opportunity and underestimated the risk, people who borrowed an affordable sum but their income circumstances deteriorated unexpectedly because of unemployment, business contraction, health problems or other misadventures. ”

    In the case of owner occupiers, the vast majority simply did what previous generations had done; they attempted to buy the roof over their heads. Yes, there was and still is a recession for most people, in the sense that their disposable income is still reducing, but many of these people are still at work. Why can they not pay their mortgages?

    The answer of course is simple, the cost of housing had sky-rocketed in Ireland (and is doing so again in Dublin), to the point where people on average incomes could not afford to buy.
    Nobody had the honesty to tell them, or to make any attempt to reduce house building costs and in particular land profiteering.
    The government, the banks, the policy makers, the existing property holders, the land owners all figured that the next generation could be squeezed like lemons, to enrich the pockets of the haves.

    So I think Mr Honohan’s analysis is wrong. The majority (other than BTLs) were not caught up in a systemic event. They were simply going about their business as their parents had done, trying to put a roof over their heads.
    But they were utterly misled. Everything had changed. They could never afford what their parents could afford, because Irish society had decreed that their first task was to enrich a landowning and developer elite.
    When that task was completed, there would simply not be able to pay for the roof over their heads. Nobody told them, and nobody is telling them now either in Dublin.

  9. If you are investigating a train wreck: you might find it quite interesting to identify which wagon left the track first, then second, etc. and have nice photos of the whole mess.

    Instead what you have to figure out – by asking searching questions and patiently insisting on meaningful replies is – where along the track the rail failed! And why?

    There is also the matter of the soundness of the train itself – especially the locomotive.

    Whose asking these questions? Anyone? Appears no one is.

  10. Neat exposition of The Aesthetic Behavioural Turn by The Guv’nor …

    Methinks there is a section of Early Medieval Brehon Law which would justify a case to the ECJ on seeking redress for the Citizenry from The Financial System.

    I’d settle quickly for 50 Billion!

  11. The Guvnor and the Guvmint really need a sustainable recovery .

    AIB is making an operating profit. But there’s a lot of older crap pulling the numbers down.

    http://www.rte.ie/news/business/2014/1110/658045-aib-trading-update/

    “In an interim management statement, the bank said the value of impaired loans on its books has fallen from €26 billion to €24.3 billion.
    AIB said the number of mortgage accounts in arrears is also down by 11%.
    The bank said that the country’s economic recovery is positively impacting asset quality and lending demand levels.”

    Asset quality is such a subjective notion.

  12. @ aimen
    +1

    The other one I hate is “starter home” the estate agents havent even got the intelligence or decency to think of new deceitful terminology and have just reverted to the old ones.
    @ Thats legal
    I cant think of any strong position the CB have taken that they haven’t been forced to row back on. Independent ppppfff!
    Id say Honahan made the 20% comments knowing he was issuing an opening salvo and was actually looking for 10-15%

  13. The speech seems to ignore the other people caught up in the Prof’s systemic event…. The people who didn’t buy a house and kept renting because they didn’t feel it prudent to buy at high prices or with uncertain employment. They’ve been right totally screwed and continue to be. It’s govt policy to screw the prudent. And apparently CB policy to ignore them.

  14. “The people who didn’t buy a house and kept renting because they didn’t feel it prudent to buy at high prices or with uncertain employment. They’ve been right totally screwed and continue to be.”

    Nope. No Neg Equity. No debt burden. You have to pay something to provide a roof over your head. What’s the Op Cost of a large mortgage debt? You can ‘walk’ without recourse!

    “It’s govt policy to screw the prudent.”

    Huh? I thought our government ministers were individually and collectively in-sentient – except when it comes to spending other peoples tax monies and borrowings.

  15. Simply moaning because the construction industry is at last finding a place in the sun is bonkers. Those working in construction and their families have rights too. That industry has experienced one of the biggest collapses ever. Between 2007 and 2013 its output fell 75 per cent. Because of falling prices (down over 50% for both houses and offices), its revenue fell even more. Over 150,000 construction workers were laid off. It was potty to think that this would continue forever, as many on here hoped.

    Now at last, construction is well and truly on the up, as the latest PMI shows.

    http://www.rte.ie/news/business/2014/1110/658049-construction/

    Thousands of unemployed construction workers are now being re-hired by the industry. Output is rising. Good news for the taxpayer as the rising construction industry generates additional tax revenue and less unemployment benefit has to be paid to unemployed construction workers. Long may the new construction boom last. Hopefully increased housing output will prevent prices rising too much.

    In all economic activities there is a cycle. Construction has had 6 years of the downward part of the cycle. Now its on the upward part. Demanding that, any time a business such as construction enters the upward part of the cycle, the authorities intervene to quash it is daft.

  16. @ Brian Woods Snr

    Property services can be consumed in two ways,by owning a property or by renting a property. In all euro zone countries lease lengths for residential properties and commercial properties are “say” three to ten years,with renewal rights and rents are reviewed annually with reference to increases in the CPI/inflation. At the end of the lease term,the rent reverts to market rent.
    France and the Benelux countries have 3/6/9 leases where the tenant signs a nine year lease,rents are reviewed annually by the CPI for the nine years and the tenant can break the lease at the end of year3,6 and 9. At year nine the rent reverts to market rent. The tenant has renewal rights.

    If residential property prices in these countries become too high you have an option to rent,with renewal rights and some certainty about your future rent. Residential property lease law in all these countries is the same as commercial property lease law.

    In Ireland we have very different commercial and residential property lease law–commercial property leases are very long say 25/35 years with no break clauses and residential leases are very short say one year leases with no rent controls and no renewal rights.
    In Ireland the residential tenant and the commercial tenants are serfs to be exploited. The state actively colluded with these landlords and wrecked the economy.
    All Haughey’s bagmen are state landlords.

  17. @ BWS

    John Corcoran nails it in terms of the factual situation. However, to his description must be added the fact that Ireland, previously part of the UK, inherited (i) the common law system (ii) the same pattern of commercial and home ownership (iii) the same method of mortgage financing e.g.variable rates, low deposits, varied time periods etc. and (iv) the same loose criteria with regard to both commercial and domestic leases.

    http://www.leasingbusinesspremises.co.uk/

    Continental practice, like the metric system, would do wonders, and is on the way, but it takes time; despite the best efforts of the ICB to speed matters up.

  18. @DOCM

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

  19. I’m not sure of the relevance of the Blake quote….but you’d probably find a number of alternate proverbs to suit any purpose.

    Meantime, we could add a number of thoughts to Brian Woods. If the imprudent hadn’t all driven prices to loony levels the prudent might be half way through a sensible mortgage by now. And living with the minimal protections to the “family home” that so excite so many people in Ireland.

    Finally, on JTO’s point….there’s no need to “quash” the construction industry, although a number of govt policies do help keep it down. Development levies. VAT on housing, the “pillar” banks charging twice the interest that could prevail, etc., etc., etc.

  20. And here’s Brian Hayes MEP to tell us that the Central Bank proposals are “unfair.” Unfair to whom? Well, they are certainly all those who have an interest in another bubble developing: estate agents, newspapers, bankers, politicians (for whom every price rise is a “good news” story), the landlord class, the wealthy and the propertied. They are also “unfair” for those who “want to get on the property ladder” not because they prevent them getting on the first rung of the ladder but because they represent the first steps toward doing away with the mythical ladder altogether.

    But good luck convincing middle Ireland that the property ladder isn’t the exact, metaphysically-determined way that things ought to be and not some rigged ponzi scheme.

    The Central Bank proposals will be dead in the water by Christmas.

  21. @JTO

    “Thousands of unemployed construction workers are now being re-hired by the industry. Output is rising.”
    Most reasonable want more construction, and have for a long, long time. But there are powerful forces that want to mange house prices and land prices to their own advantage.

    Output is not rising as fast as it should be or could be.
    http://www.finfacts.ie/irishfinancenews/article_1028346.shtml

    Consider the following two comments by Brenda McDonagh, quoted on the Finfacts link.

    “He added that NAMA is engaged in preparatory work on a group of sites in the Greater Dublin area which are currently in the planning process or where additional planning work is required. “If all of these sites were to be developed, it is estimated that they could deliver over 27,000 units in the years after 2016.””


    News : Property Last Updated: Oct 24, 2014 – 4:13 PM

    NAMA expects surplus of less than €500m – it’s not a profit; 88.5% sales to US investors
    By Michael Hennigan, Finfacts founder and editor
    Oct 23, 2014 – 8:43 AM

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    The National Asset Management Agency (NAMA), the Irish public toxic property loans agency, expects to have a surplus of less than €500m on the troubled loans it acquired from the country’s banks by the time it shuts shop in coming years but this surplus is far from a profit. Meanwhile 88.5% of assets that have been put on the market have been acquired by US investors.
    Click Here!

    Brendan McDonagh, chief executive of NAMA, told the Oireachtas Joint Committee on Finance, Public Expenditure and Reform on Wednesday about 100 of its 800 debtors have so far exited its system since the agency began its work, while the geographic breakdown of its asset sales in the past 18 months, show that 88.5% have been to US investors. Domestic buyers accounted for 6.9%, Germans were at 3.5% and UK investors at 1.2%.

    “Yesterday our June 30 accounts were published and we did an assessment at that stage… we’ve always taken a prudent view of this; if the conditions maintained as they were then we would probably see a somewhat less than €500m surplus at this stage,” he said

    By the end of 2011, a total of €74bn in loans had been transferred to NAMA by the five participating banks and building societies and €31.8bn was paid as consideration to the institutions – an overall discount of 57%.

    The Irish State bailed-out Irish financial institutions at a cost of €64bn and the value of the NAMA surplus + funds raised from selling the public stakes will eventually indicate the extent of the losses.

    McDonagh said the agency had redeemed €15.1bn in senior debt since its inception — 50% of the €30.2bn issued by NAMA to acquire loans from the financial firms.

    He highlighted that “as part of its contribution to address emerging residential supply shortages in the Greater Dublin area, NAMA established a dedicated Residential Delivery team in April 2014. The team’s purpose is to co-ordinate and drive the delivery of NAMA’s commitment to facilitate the completion of 4,500 new residential units in the period to the end of 2016 and to assess the scope for delivery of additional units thereafter. Of the end-2016 target, it is envisaged that 1,000 units will be delivered in 2014, another 1,500 units in 2015 with the residual to be delivered in 2016.””

    Draw your own conclusions as to why house prices are rising in Dublin, and who or what is holding back construction.
    The housing market in Ireland is rigged, utterly rigged. NAMA is hoarding land and thereby reducing supply in order to make as much profit as it can, and pay (hush, hush) bonus payments to NAMA execs.
    How long does it take to get planning permission for 20,000 houses when you own the land?
    Answer:
    As long as it takes to enhance your bonus, and help the appearance bank ‘balance sheets’ for those who simply do not understand bank balance sheets or what underpins them.

  22. I messed up the the second statement Brendan McDonagh (from the Finfacts link). Here it is.
    “He highlighted that “as part of its contribution to address emerging residential supply shortages in the Greater Dublin area, NAMA established a dedicated Residential Delivery team in April 2014. The team’s purpose is to co-ordinate and drive the delivery of NAMA’s commitment to facilitate the completion of 4,500 new residential units in the period to the end of 2016 and to assess the scope for delivery of additional units thereafter. Of the end-2016 target, it is envisaged that 1,000 units will be delivered in 2014, another 1,500 units in 2015 with the residual to be delivered in 2016.”
    So land for 20,000 houses. But NAMA can rise to:
    “it is envisaged that 1,000 units will be delivered in 2014, another 1,500 units in 2015 with the residual to be delivered in 2016.”

    Well done, NAMA. What ambition.

  23. Hi, Hugh. Imprudence, on the part of borrowers, has nothing to do with the residential mortgage issue: its how much the lenders want to earn on their loans. More loans, more income. But …. Its the ‘but’ bit that the intellectually challenged cannot grasp. Or maybe they can, but choose otherwise.

    The train came off the track – so look for where the rail failed. Ignore the wreckage. Simple, but exceedingly tedious. Better just contemplate the wreckage – although it tells you nothing about the cause.

    Ernie – using the emotive “unfair” is a well-known diversion tactic. That mythical ‘property ladder’ is another.

  24. If you think that imprudence is nothing to do with the Irish mortgage crisis from the borrower side then you were talking to different people than I was in the period – say – 2002 to 2007 in Ireland.

  25. Hi Hugh, apologies for the delay in getting back to you- domestic pressures, and all!

    Look, its simple. Lenders are in charge: past tense, present tense, future tense. They are the adults in the house? – past tense I’m afraid! They decide. They know what the default risks are – again, past tense. They are loyal to their institution? Yeah, sure. They support its philosophy and policies? – again past tense. They are thoughtful about their customers? – sorry, the dopey suckers that have accounts with them? They are really thoughtful of their shareholders? – like f… they are!

    So what did they do? Well, since lots of the salaries and bonuses depended on lending more and more and more, they endeavoured to persevere with their in-place prudent lending practices? Sure they did!

    Get the movie?

    Sorry Hugh. But the folks who were instrumental in initiating, maintaining and sustaining our residential mortgage mess have yet to have their individual feets held to the fire – to encourage a full and fair public accounting. Will they ever? Seems unlikely!

    To attribute group or collective whatever, whilst it may be interesting and psychologically releasing: is simply irrelevant.

    Our Godzilla-like debt horror movie show is set to run and run and run. In Japan its been running for near-enough 25 years and they have just released a sequel! Surely we can do better? We’re trying! We’re trying!

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