A busy day for our grossly insolvent banks. Anglo has issued a trading update. In addition, the Minister for Finance has obtained direction orders from the High Court for Anglo and INBS to allow for deposits to be transferred and to enable other aspects of the restructuring plans. Nearly identical statements from Department of Finance and NTMA (with an FAQ here.)
Category: Banking Crisis
I’m not going to comment on this story but, needless to say, it will be of some interest to many of our readers.
Update: On The Frontline just now, in response to questions from Pat Kenny on the Danish bond haircuts and to the figure quoted of €20 billion in unguaranteed bank bonds (previously mentioned by Sinn Fein’s Pearse Doherty), Brian Lenihan said the following: “We put the €20 billion that Pearse is talking about on the table in the EU-IMF negotiations. The ECB ruled it out. But it’s still there in debate, it’s still there in discussion. And we’re pressing for a substantial discount there and for burden sharing.”
There are a number of good things in the Fine Gael banking document. However, the proposal that has caught the headlines – giving increased mortgage interest relief to the so-called “negative equity” generation of first-time buyers that bought during 2004-2009 – is a pretty terrible policy. Immediate comparisons with previous lamented FG proposals to compensate taxi drivers and Eircom shareholders are perhaps a little harsh but the policy makes little sense.
There are many people in Ireland today struggling to repay their mortgages. Many of these people are also in negative equity and this means that they cannot just sell their home and trade down to less expensive home with a mortgage they can afford. This is a genuinely serious problem and at some point the next government is going to have to work out how to deal with it.
To be fair to the FG document, it does contain some proposals aimed at dealing with the relevant problem of those who cannot pay their mortgages and are in negative equity, such as a new personal insolvency regime. However, the proposal to give every first-time buyer that purchased during this period is a blunderbuss policy that cannot be justified.
This proposal may help some people in negative equity but it will also help people who had lower loan-to-value ratios and are not in negative equity. Even to the extent that it does cover many people in negative equity, the idea that negative equity is, in itself, a problem is misguided. For those who took out a mortgage during this period, can still afford the repayments and don’t plan to move homes, the loss in value of their home has had an equivalent effect to losing money on an investment in shares: They are less wealthy but there is no good reason for the state to be compensating them any more than it should compensate those who lost money on investments in shares (Eircom or otherwise …)
In these straightened times, we simply cannot afford policies that arbitrarily hand out money to people who don’t need or deserve it. This idea should be canned and replaced by a more focused policy to deal with those who cannot cope with their mortgage repayments.
Although Simon Johnson is mainly writing about very large banks, this article is also of domestic interest.
The long-awaited Vanity Fair article is now published (but is not freely available online, as far as I know). Relative to the Greek and Icelandic articles, this piece is more of a straightforward account of the Irish crisis (but maybe that impression is just because Irish readers would be quite familiar with many of the anecdotes in the article). But lots of interesting material, with a very good profile of Morgan Kelly and a striking quote from Colm McCarthy among the highlights.
A Q&A with Michael Lewis is here.
Update: Article available in PDF here.