Senior Lecturer in Economics at the University of Limerick.
Thanks to Patrick at Dublin Chamber of Commerce, here is a link to Mr Chopra’s address tonight at DEW Kenmare.
Click here to listen to the talk, it’s about 30 minutes long.
Here’s the text of the speech from the IMF.
And in other news, we may have another solution to Ireland’s economic crisis that takes full account of our constrained funding position.
Tonight’s TV seems calibrated for an IrishEconomy.ie audience. To keep you all away from reruns of America’s Next Top Model after the news, we’ve got Richard Curran’s Property Crash, Where to Now?, and then The Frontline, both dedicated to the national obsession. Let’s hope the programmes are informative and advance the debate people across the country are having about property and its role in the Irish economy, now and into the future. Let’s also hope against hope that those debates are evidence-based. In that spirit, a nice piece of accessible research on the duration of housing cycles has just come out from Phillipe Bracke at the IMF. Bracke surveys 19 countries, including Ireland, and finds that:
On average, upturns are longer than downturns, but the difference disappears once the last house price boom is excluded. In terms of length distribution, upturns (but not downturns) are more likely to end as their duration increases. This duration dependence is consistent with a boom-bust view of house price dynamics, where booms represent departures from fundamentals that are increasingly difficult to sustain.
Table 2 on page 9 of Bracke’s study is also very interesting. His analysis squares with the findings of Edward Leamer for the US economy, and those of Morgan Kelly in his 2007 Quarterly Economic Commentary piece on the likely extent of price falls in the housing market, and in his subsequent work on the Irish Credit Bubble.
The Infiniti conference has become a staple on the conference circuit in international finance because of the breadth of papers presented and the high quality of speakers it attracts, and the 2012 conference will be no different. Next year’s guest speakers will be Carmen Reinhart and Iftekhar Hasan.
Morgan Kelly’s comments (and research paper) last month on mortgage debt restructuring forced the government to come up with an expert group to recommend solutions to the problem of highly indebted households. The expert group’s report will be presented to Cabinet this week and has helpfully been leaked before that. Today’s Sindo carries a small piece by John Drennan on the content of the ‘Keane’ report that raises more questions than it answers.
In addition to really, seriously, and, like, really, advising people who can do so to pay off their mortgages, the report contains some specific recommendations. From the piece, then:
“Homeowners who can no longer pay the mortgage could negotiate with their lenders to hand back the property but remain on as tenants.
Banks who repossess homes will then lease them to local authorities to deal with housing shortages.
The timeframe to get discharged from bankruptcy to be cut from up to 20 years to just three years.
People facing bankruptcy will be offered a “non-judicial” route — meaning they won’t have to go through the courts in all cases.
The Money Advice and Budgeting Service will be beefed up with hundreds of “front-line” financial advisers who will deal exclusively with distressed mortgage holders.”
The most important part of the report is contained in a rather throwaway sentence–that banks “should engage in debt settlement“. The mechanics of this process (or processes) of debt settlement are very important and should be discussed on this blog and others when the full report is eventually published.
It looks like the group is taking a multi-pronged approach to the problem, which is welcome. It also looks like there is some attempt to deal with the issue of those who will never pay their mortgages via movements to local authority lists. That is not a simple process either, as NamaWineLake has recently shown.
It is important to note the timescales here. Right now, according to the government’s legislative programme, any bill to reform our bankruptcy laws is not even a twinkle in Minister Shatter’s eye, despite his assurances that the personal insolvency legislation would be substantially complete by Christmas or early 2012. That means the lynchpin of the strategy–that people can fail, and fail relatively cheaply through expedited personal insolvency proceedings–will likely not be in place before the summer.
Other questions present themselves, such as: when ‘negotiating’ with a bank on whether to hand the house back and/or rent it back again, will there be a code of conduct for these negotiations? Who will decide?
Third, the super-MABS body may only have an advisory role, rather than an adjudicatory role in the debt resolution process, meaning that the banks retain most of the power in the debt resolution process. Or not. We just don’t know.
The sooner this potentially very important report gets 100% leaked after Cabinet approval, the better.
Today is the third birthday of Ireland’s blanket guarantee of 6 banks’ assets and liabilities, and 64 billion euros later, let’s take the opportunity to reflect on all that has gone on in Irish public and economic life, to assess how much real change there has been within the institutions that helped bring about the crisis, and perhaps to look a little towards the future. So fire away in the comments.
One small(ish) point though, from something I’m working on with my UL colleague Vincent O’Sullivan. It is true that the late Mr Lenihan did guarantee the banks three years ago. It is not true that that is when State support for these banks began, and we shouldn’t mix the two up. Banks like Anglo were in trouble before that, and to a significant extent. These are not (well not yet anyway) historical curiosa, because we still need to understand and deal with the issues our Emergency Liquidity Assistance (ELA) raises.
To take Anglo, for example: The first mention of ELA which was the supported provided in March 2008 was in the interim accounts for 2009 of Anglo Irish Bank. From note 20, page 46:
“These deposits include €13.5 billion (30 September 2008: €7.6 billion; 31 March 2008: €3.6 billion) borrowed under open market operations from central banks and €10.0 billion (30 September 2008: €0; 31 March 2008: €0) borrowed under a Master Loan Repurchase Agreement (‘MLRA’) with the Central Bank and Financial Services Authority of Ireland. The interest rate on this facility is set by the Central Bank and advised at each rollover, and is currently linked to the European Central Bank marginal lending facility rate.”
In the 2009 annual report the amount lent by the CBI has increased to €11.5 billion. Collateral pledged has fallen to €12.49 billion, implying a much lower haircut of €990 million on €12,490 million, or 7.9%. See (d) on page 91 and Note 37 on page 104.
The 2010 interim report shows the collateral posted by Anglo Irish bank becomes mostly promissory notes issued to that bank by the Irish government and that the ‘MLRA’ agreement has, for the most part been superseded by a ‘special masterloan repurchase agreement (SMRA)’.
For more background information on what happened, Simon Carswell’s book Anglo Republic is excellent and highly recommended, though it doesn’t go into the ELA detail.