Author: Stephen Kinsella

Senior Lecturer in Economics at the University of Limerick.

McCarthy: Vote Yes to this Flawed Treaty

Colm takes a realpolitik look at the fiscal treaty in the Sindo today, and takes aim at the ECB and EU Commission towards the end. He argues that despite the treaty’s many flaws we should vote for it. From the piece:

Opposition parties appear to be limbering up for a referendum on austerity. There can be no referendum on austerity. The Irish budget deficit is far too big and will have to be reduced sharply, and soon, in any plausible scenario. That means more expenditure cuts and more tax increases.

Many voters will see the referendum as an opportunity to register a verdict on the behaviour of the ECB and EU Commission towards Ireland. They have done abysmally, culminating in the insistence by the ECB that a bust Exchequer should pay unguaranteed bondholders in a bank that has already closed.

No central bank has ever imposed such a burden on a bust sovereign anywhere in the world, to my knowledge. Fortunately, this negative verdict is shared by the International Monetary Fund, which called on Friday for a straightforward reversal of this extraordinary ECB policy.

The referendum should be supported. There will be later and better opportunities to reconsider the terms of engagement with the new Europe.

Pillar of Salt? Two reactions to the BOI Report

David McWilliams is out of the blocks describing the latest report from Bank of Ireland in less than stellar terms:

The report shows that only 14 per cent of Bank of Ireland’s total owner-occupier mortgage book is in such a healthy situation. When we examine its buy-to-let portfolio, we see that only 6 per cent of these mortgages are in such a healthy situation. In total, 12 per cent of mortgage holders have a ratio of less than 50 per cent.

Seamus Coffey has a longer study of the report. From his piece:

In total, the loan-to-value of BOI’s owner-occupied loan book is estimated to be a rather convenient looking 100%.  The negative equity of the €10,567 million of loans with LTVs of greater than 100% is estimated to be €2,474 million.  The aggregate loan-to-value of the loans in negative equity is 131%.  On the other hand the aggregate loan-to-value of loans not in negative equity is 81%.  Finally, here is the spread of arrears and impairment across the different LTVs.

Unsurprisingly, arrears and impairment are more likely amongst those loans that are in negative equity though almost one-third of those in arrears are not in negative equity.  The portion of the loan book that has a loan-to-value of more than 181% has arrears of 15.5% by loan balance compared to just 4.8% for all loans which are not in negative equity.

Overall, not great news. However, Seamus continues:

If the €2,474 million of negative equity on mortgages in BOI’s owner-occupied Irish mortgage book then, being 18.4% of the total market, this would imply that the level of negative equity in the residential mortgage market is around €13,500 million.  As BOI’s loan book is better performing better than the rest of the market, and also has loans from before 2002 that newer entrants to the market do not have, this is likely to be an estimate from the lower range.

Worth discussing on this site: if Bank of Ireland is the least worst bank we have, and the bank’s own estimates don’t look that credible, what does this mean for the banking system as a whole?

Eviction in Ireland in 2012: I stopped the sheriff

This is very much the business end of the mortgage arrears and/or debt forgiveness debate (which Seamus looked at in an earlier post).

It seems that a number of groups have gotten together to stop the enforcement of eviction orders, and in at least one case, two days ago, they were at least temporarily successful. NamaWineLake has the details. Be sure to watch the video as well.

What’s fascinating from watching the video is how reasonable everyone is, given the obvious tensions in the air. There is a discussion, and a withdrawal from the property of the authorities who came to serve a notice to quit. The circumstances of the borrower in question are also highlighted in a linked piece.

“We are not Iceland!”

Indeed. Today sees Iceland(!)’s sovereign debt return to the rim of investible as Fitch upped their rating of Iceland(!)’s debt to BBB- but stable. In other Icelandic news it looks as if a debt forgiveness programme mooted in 2009 is going ahead, their top civil servant in their department of finance is in prison, and, delving into the Icelandic stats a little the nation’s GDP is looking pretty healthy, too.

This OECD background paper gives an overview of the crisis and the Icelandic authority’s response to it.

So: we are not Iceland!

NTMA Presentation on Ireland

Worth looking at to see how Ireland is being marketed to investors, lots of good data here too. Of course there’s a little spin here and there, but overall an interesting powerpoint deck.