We are now reaching the endgame. Few are in denial any more. The situation is dire and we need real leadership to get us out of this mess. Businesses across the country are going to the wall, unemployment is going through the roof and people who have been trading for years say this is much worse than the 1980s.
Cash, credit and demand have evaporated and the prospects look grim. This is a national emergency and we need a national plan.
The following is a six-point plan that would minimise the economic pain over the coming years, while at the same time ensure — and this is crucial — that Ireland can emerge from this chaos a considerably more profitable place to do business than it is at the moment.
There are aspects of this plan that need to be put in place immediately and others that could be carried out over time. Most of all we need to be decisive. While we hope for the best, we must prepare for the worst.
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The minister has to make sure that the banking system does not implode in the coming weeks.
While the falling share price tells us that shareholders have given up on the present management, it also implies that bank funding is drying up, meaning that the liquidity benefit of the “guarantee” is at risk.
At this stage, without massive writedowns, it is unlikely that a private White Knight will emerge to buy the banks even at these prices, so some public recapitalisation is necessary. But this does not just mean State money from the pension fund.
There is a way that we, the public, can fund some of this, to the benefit of hundreds of thousands of ordinary savers. However, before a cent of State or public money goes in, the minister must demand that the board and management of the banks resign immediately. Hopefully, some of the management will resign as a matter of principle. After all, if you preside over a 95pc fall in your share price, it is time to go.
Whether this happens, or whether there is a coup at the top of the banks is immaterial, the point is the people who got us into this mess in the first place are not the people to get us out of it.
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The recapitalisation should be democratic. By this I mean that the Irish people should be invited to participate.
There is plenty of money on deposit in Ireland — more than enough to finance the hole in the banks’ balance sheets. Therefore, the State could issue a convertible bond, which converts into equity in, let’s say, five years.
This could be offered to us, the citizens of this country so that we — not just some hedge fund from outside — can profit from the Irish banks’ recovery that will be based, after all, on the sweat of Irish workers in the future.
Any recapitalisation must also come with debt forgiveness for first-time buyers and the hundreds of thousands in negative equity.
There will be no recovery if an entire generation is burdened with enormous mortgage debts on houses that will not recover in value for years.
Many might argue that this penalises those who didn’t get involved in the property madness. This is true, but there are things that we must do in emergencies, however unpalatable.
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The new banks must be regulated more closely and instructed to limit property lending.
We have to make sure that we never again become beguiled by the idiocy that we can get rich by buying and selling overpriced houses to each other using other peoples’ money. The recapitalised banks will finance proper businesses.
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The Government must also avoid the trap being set by the bean counters in the Department of Finance. If the Government cuts everything now, slashing public spending across the board, the economy will shrink even more.
We must distinguish between good and bad public spending. At this stage, bad public spending is money spent now that doesn’t make the economy more productive in the future. So wages and salaries need to be frozen, public sector employment reduced significantly, but infrastructure projects and investment in education have to be accelerated. We should borrow to do this. The State needs to stimulate the economy, not contract it and offer incentives for the private sector to invest, not save.
By reining in “bad” spending and accelerating “good” spending, the State can make the best out of a disastrous situation. Infrastructure spending and education investment increase the long-term productivity of a country.
- We need to be smart in Europe. The beauty of EMU is that it allows us to borrow for the future, without the penalty of having your currency hammered. So we should try to co-opt some of our smaller neighbours who are having problems raising government bonds into a European EMU bond. This is where we lead the campaign for a EU sovereign bond market, whereby the combined Euro region issues debt together rather than as individual member states.
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Ireland should borrow quickly and if we are to do it, we should make sure we raise enough money now so we don’t have to go back to the market next year. The reason for acting swiftly is that if the global financial markets don’t recover, there is a real danger that the world’s bond markets won’t finance us in the future.
All plans are inherently risky, but we are facing meltdown. Ireland needs strong decisive leadership now. To borrow the minister’s phrase, it is his patriotic duty to act, not prevaricate. If he does so, we’ll stand behind him. If not, he and his party will not recover.
“debt forgiveness for first-time buyers and the hundreds of thousands in negative equity.”
What about moral hazard? Nobody forced all these FTBs and speculators to rush out and purchase overpriced houses and apartments! It would be nothing more than a reward for greed and ignorance, a kick in the teeth for the prudent who have been suffering the whims of landlords over the past few years.
John, I’m 100% with you. I didn’t buy back in 2002 because I recognised that Irish property prices were (even back then) out of the sphere of realistic value based pricing. Prices rose for 5 years after that. If you couldn’t see it in 2006 or 2007, then the phrase “a fool and his money are easily parted springs to mind”. FTBs in general do not have the same financial awareness as the leadership of the various banks that inflated the bubble, but they provided the air which grew the bubble! If you advocate sacking the bank leadership, how can… Read more »
David, Point 1 > Agreed that the prople at the top need to change. But who do we replace them with? It’s still up to the shareholders to replace the boards, so maybe we could see something like this at future AGMs: http://www.ft.com/cms/s/0/33ef221e-b4f9-11dd-b780-0000779fd18c.html 2. Firstly, remember Eircom? Most people still do, and are unlikely to invest their nestegg in a ‘convertible bond’, especially one as risky as a bank bailout bond. I agree with John re the debt forgiveness. It would be a popular move to the minority in real financial trouble, but every euro ‘forgiven’ will have to be… Read more »
John & Fergal, you both make valid points but the main point is that by having a generation of people who are in serious debt for the next 15 years leads to other serious problems for the country. I don’t think wiping the large debt for FTBs is what is needed but, for example, if you lose your job and you are a FTB you will be near suicidal at the thought of where can you go. Governments should not allow this person to have debt written off but perhaps ease the pressure where it might be required, through whatever… Read more »
If you’re to offer an amnesty to the foolish who fell for this deliberate Ponzi scheme, then why not go the whole way and use this situation imaginatively to earnestly alter Ireland’s social and economic policy for the good by nationalising all housing now. The indebted banks trade all housing on their books to the State and in return the State recapitalises the banks. The state acquires all housing and rents or sells to the populace. The first time buyer generation gets to keep their house at fairer, more humane terms than with the chastened bank, having more spending power… Read more »
Here’s a nice little link if anyone’s interested:
http://www.youtube.com/watch?v=9cIeQp2zzhY&eurl=http://smashingtelly.com/
David, with your ‘debt forgiveness’ program, watch moral hazard and unintended consequences run amok. The rush to qualify for ‘forgiveness’ would be a sight to behold ; winners will believe in the tooth fairy and act accordingly ; losers will gnash their teeth and vow never again to do an honest days work for an honest days pay. Better to leave well alone methinks.
But at least you advocate that the fat cats walk the plank. Many of their underlings should follow them.
Le meas,
Paddy
David/Folks, The concept of a bailout for the FTB using taxpayers money is a tricky one. Either way, and this event has already occured, the banks/developers/investors mostly have pocketed the gains of the causes of this situation where people find themselves in negative equity. Free market economics dictates that people/investors win or loose and on an even keel. As they say in GAA, my heart says “yes” (i.e. to give assistence to FTBs) but my head says “no”. Ireland is a country where there is an expectation of getting something for nothing, and being a cute hoor’. Some healthy blood-letting… Read more »
Debt forgiveness? I didn’t spend the last 10 years forgoing joining in the hedonism and paying off the bulk of my mortgage to miss out on being immensely smug, swanning around with the bulk of my salary not being whisked away by debt, laughing at the indentured slaves. Never I tell you!
Sorry, but keeping up with the jones is a basic human instinct, muck with that and there will be a backlash. Anyway, New Scientist says we’re all shagged regardless.
[…] probably right. D’ya hear Maca The Red is recommending that all first time buyers and people with serious negative equity be let off a […]
David: I have a problem with your recapitalization suggestion, which I have written about before. Perhaps I have a basic misunderstanding about how banks distinguish between “their own” capital and deposits by individuals, pension funds and government tax receipts. I think we fondly imagine these sums languishing in bank vaults somewhere, although in reality they merely inhabit columns of figures as credit balances in the bank’s accounts. Actually there isn’t a huge pile of cash there– it has all been lent out long ago and a multiple sold on as bonds which proceeds appear in the accounts as “assets”. Therein… Read more »
Recapitalisation is required but I can’t agree with your idea on debt forgivness for first time buyers – anyone who bought a house over the last number of years were aware that prices were inflated.They were also aware that the quality of the houses being built was way below acceptable standard, were build in the wrong location, had no facilities arround them – but they still bought them. I feel sorry for people who will be caught in the negative equity but at the end of the day there will always be people who loose when the market turns. I’ve… Read more »
I also totally disagree with the idea of forgiveness for FTB. A quick look on property prices over the past 5-8 years around Europe or even the world and you could tell the whole property market in Ireland was an absolute scam, farce, call it whatever you want. FTB were fooled now they have to pay the price. However a mortgage house is the biggest investment in your life and you must think before you act! It is not a car loan?! Unfortunately a lot of people in Ireland thought so. The FTB definitely have as much a part or… Read more »
Basically I agree with John and Fergal. Everything looks fine, but the point about the forgiveness. I’ll tell you more. I didn’t buy, so I have a good amount of savings. I would invest on those banks as you propose, but I would never do so if the lost the only active they have, that are those debts. From my point of view, you need a charity to buy the banks and that’s not possible. Keep the plan without that and you could probably save those banks and reward the people who did have the common sense to not run… Read more »
Here is my suggestion for what it is worth. FTB and negative equity holders to enter into an agreement whereby they become long term leasholders of their properties at a price that they can now afford.The asset transfers back to the balance sheet of the bank who in turn will be recapitalised by the taxpayer by way of government borrowing.Their is your equity bond by way of bricks and mortar.The houses continue to serve a purpose ie provide housing to the people who need it and at the same provide a vehicle for investment for the Irish taxpayer if and… Read more »
Ste – statusireland, first of all, an entire generation is not indebted. A minority chose the prudent step of not buying an inflated asset, while others were simply priced out of the market. Now, let uss imagine that the State will ‘reward’ one group over another to restore liquidity to the housing market. (I don’t agree that any individuals should receive direct subsidies, but let’s imagine.) Look what EU interference has done to farming – South American and African farmers can’t compete with European subsidies, and in Europe, small farmers have been almost wiped out. Individuals should never receive state… Read more »
“The value of your house may rise or fall” – the warning is there for a reason. Ignore it at your pearl. My wife and I were on the wrong side of negative equity in the UK in the 90’s and we recovered, so will current FTBs caught in a NET (negative equity trap). It’s a home they bought, not an investment. If it teaches future generations about our crazy obsession with the property ladder, then it might be a good thing.
Baling out FTB though…..OMDB (over my dead body:)
“Any recapitalisation must also come with debt forgiveness for first-time buyers and the hundreds of thousands in negative equity.” This point does not square with the following: – “The recapitalisation should be democratic.” How can using the funds to forgive the debt of the group who engaged in the reckless borrowing that caused our problems be democratic? They bought on the basis that there was a bigger fool following behind who would pay an extra 15% per year for their house. Either they are the biggest fool or we all become it! – “We have to make sure that we… Read more »
Dr. Nightdub, let those who bought (made a financial decision) on the basis of a “psychological return” suffer a psycholoigcal (as well as economic) loss. I understand your basic tenet that FTBs should not be rewarded, and clearly agree with you. I think your idea of rent stabilised apartments (as exist in Manhattan) is fantastic and to be applauded. Just one thing, let’s be clear, if you make a decision, you suffer the consequences. I really don’t care if the decision was economical, psychological or religious. The decision is the decision. You suffer the downside, or you reap the benefit.… Read more »
Greetings! Like so often, I agree with most of the points you make, David. However, there is one exception today: I strongly disagree with your suggestion to bail out house buyers through “debt forgiveness”. That would – as some others have pointed out already before me – indeed reward the foolish, gullible and greedy in our society, and punish the prudent and sensible ones. I could have bought several houses during the bubble and would not even have needed a mortgage, a concept I very much detest anyway, as it turns gullible people into long-term slaves of the banks and… Read more »
Both FTB’s and NBM’s lost …….we must now try to understand our basic tenets and ask why we must learn to forgive a sinner for everyone has sinned
Sort out the bank’s management – nice idea if you can find people outside the groupthink bubble. A few financial guys who just lost their job in the private sector would be my choice with an engineer at the top – preferably with entrepreneurial background. Give them 2-3 years at the job. Groupthink needs to be cracked apart. Public Service spending needs more rigourous management. Again, same methodology as above. The rest of the points will sort themselves out. As for FTBs – before anyone dumps David suggestion – It is not just another means of injecting money into the… Read more »
‘Death the Leveler’ – by this I mean we must nationalise all Pensions both Private and Public including Public Representatives – this will restore a dignified cohesive responsible society and empower The Nation .
I bought a place I could afford, because even as far back as 2003, I thought the figures did not add up, and there would be a crash (yes I got laughed at). Even though I was advised by a financial institution to buy a more expensive property, I went for the affordable one, thus, I now still get a full nights sleep. So, why should we reward ignorance, and greed, as the others here have stated ?.
I believe the FTBs will lose a lot more money than NBMs once the value of their property is slashed by half, as it wil happen. In addition to this they are stuck in Ireland as they cannot sell or rent and possibly emigrate. FTBs are to the irish economy the equivalent of the 30 year old irish living at home with daddy and mummy; economically, dead weight.
Hi David, Its a good idea to suggest a plan. > We are now reaching the endgame. No, I dont think we are reaching the end-game yet. The economic changes are still only taking effect. These changes may last 3 or 5 years yet. There are pains and problems which have not yet come to the fore. So, end-game it is not, using yoda-speak. > Few are in denial any more. There are many people in denial and also in ignorance. Not that they are stupid people, its just that they dont have the facts, the facts have in some… Read more »
David > “Any recapitalisation must also come with debt forgiveness for first-time buyers and the hundreds of thousands in negative equity. There will be no recovery if an entire generation is burdened with enormous mortgage debts on houses that will not recover in value for years.” This is turning out to be one of the most controversial ideas you’ve had for a while! But I doubt you’ve completely taken leave of your senses so I’ve tried to find where this could lead to economic benefits for the nation. When I think of debt relief I think of the Heavily Indebted… Read more »
We are past “moral hazard” aka moral outrage , when the Irish Times are looking for 30 heads BEFORE Christmas, to make it into 2009.
….so can someone arbitrate in a summary what should be done ?
If those seeking a bail out from negative equity were able to adequately demonstrate in front of a jury of their peers, their naivety, and that they were conned, I would have no problem with this. This judgement would then be entered on a publicly available register (ie. avoid doing future business with this person). For those not able to demonstrate such naivety, a good boot up the hole would probably be fairly in order.
That’s a great idea, inviting the public to buy convertible shares, didn’t we try something along those lines here before, Jasus I’m scratching my head here trying to think of why this sounds familar???……………………………………….. AAAAAAAARRRRRRRRRRGGGGGGGGGGHHHHHHHHHHHHHHH Eircom Shares!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! I didn’t buy them back then because I didn’t see a company like Eircom with a public sector mentality doing very well in the real world. As it happened I was correct. However at less than a Euro a share, I suppose there is only one way the share price can go! Brilliant idea David, only thing is that I doubt you’ll see… Read more »
How do we address management issues. MK1’s point on education is excellent and demonstrates unbelieveable mismanagement we all seem to resign ourselves to. And there was that recent engineering consultant’s report on the Ringsend Sewage plant – and the list goes on. HSE is just another example of it. It’s as though the guys in our public service know nothing about basic planning methods and plain people and contractor management. I have met public service guys doing MBA and Prince II project management courses you name it. They get courses funded courtesy of the taxpayer…unlike most Mr Job from private… Read more »
Here’s a fantasy, a virtual currency devaluation. We can’t devalue independantly, but if we had a one off across the board division of debt/salary/any other relevant number to 0.75 of it’s current number what would happen? Well in terms of our debt we would be in the same position we are now in, no worse no better. Imports would become more expensive and exports could drop in price thanks to a reduced cost base. Immediate stimulus to the local economy as exports rise and we choose to buy Irish due to the higher cost of imports. un-implementable, but one can… Read more »
I remember the tv adverts in the 80’s, pleading with us to buy Irish.
What a lot of people here dont seem to realize is that most FTBs had no choice the reason most of them payed so much for shit houses was becaues the had just got married and wanted to start a family, what should they have done, lived at home with their parents, or worse rent a house and pay off the mortgage of a property invester muppet, we all know the price of rent was based on the cost of the investers repayments So we have a huge number of people in their 20s and 30s who had no choice,… Read more »
I agree to a point but you did have a choice. You always had a choice and yet time after time we voted that pillock Ahern back into office for more of the sah,e The market went off the charts nuts and were of the opinion that we could have the rockstar lifestyle right here and right now. People had the loopy notion in their heads that money was cheap and in unlimited supply and that things could only go up and up. Buy it now before it got too expensive and you know houses are running out. Which was… Read more »
b I am not one of the FTBs or a property invester for two reasons 1 I could never afford to get on the property ladder 2 I could see that the prices were way too high and it was all going to end in a crash I am almost 30 and even with the present drop in house prices i still can’t afford a house. So people like me are watching all of this waiting for further drops and then who knows in maybe two years i might buy a house, if i still have a job I know… Read more »
Hey Dude, so you can’t afford a house – big deal. 90% of the worlds population is wondering where their next meal will come from. The comment “is it better to pay off my mortgage or my landlords mortgage” is a typically insane Irish comment. We put ourselves under enormous pressure, lose mobility and tie ourselves down with (in some cases) a 30 year millstone, but hey that’s better than paying towards my landlords mortgage. Do we raelly begrudge others their success that much? And by the way, by buying overpriced properties aren’t you just paying off the developers and… Read more »
Debt forgiveness for mortgage holders in heavy negative equity (First time or not). There is clearly a very strong argument in favour of this – in terms of the national economy it is undoubtedly important to reduce the debt burden of so large a proportion of the population. The problem of moral hazard, and moral outrage, are both equally important, and real. The goal of debt forgiveness isn’t, actually, to forgive the debts, but to make the people concerned more flexible, and enthusiastic, consumers. One possible solution is for the state to take on a proportion of the debts, and,… Read more »
Paul People have to live somewhere. I don’t fancy living on the streets, so i can do the one of the following 1. Live at home with my parents, @ almost 30 this is not good for me, and not fair on them 2. Rent form a landlord OK if you are single but the price of rent in Ireland is tied to the cost of the landlords mortgage. Do you know anyone married with children renting a 3 bed house because I dont 3. buy a house If we lived in France Germany ect we could all rent but… Read more »
The FTB debt forgiveness are not dig outs. I think many are failing to grasp just how serious the situation is. Questions of how idiotic people may be given the stupid situations they placed themselves in etc. are not appropriate. see parable… A man went to the Buddha insisting on answers to these questions, but the Buddha instead put a question to him: “If you were shot by a poison arrow, and a doctor was summoned to extract it, what would you do? Would you ask such questions as who shot the arrow, from which tribe did he come, who… Read more »
Dude (I love that moniker), The price of a house to buy or to rent is tied to one thing only; and that’s what people are willing to pay for it. I’m renting a three bedroom at the moment for €1,000. If I were buying it, the repayments would be a lot more. I am renegotiating the rent because the laws of supply and demand being what they are, I can drive the price down.right now. But here’s the best bit. The price of the apartment I’m renting was €250,000 a year ago. It’s now valued at €220,000. The landlord… Read more »
How quickly we forget what it means to be prudent. What recent graduate needs to buy a house worth 300K+; If you lived with your Mammy in your early 20’s for a few years and saved for a deposit wouldn’t have negative equity but you are way to cool for that FTB. The previous posting’s give delightful insight to the psyche of the FTB; full of excuses such as “we had no choice” hey, remember what your parents told you, ‘if everyone was jumping off a cliff…” You do realise that if you did not buy into this ponzi scheme,… Read more »
Philip, nice parable and you put forward a good argument but one based on false logic. Firstly, nobody has died here. More of a kick in the nuts that an arrow through the heart. If you’re stupid enough, you probably deserve a kick in the nuts. If most people are panicking because it’s because it’s in their nature to panic. If enough people panic, the stampede becomes the problem rather that the event that caused the stampede. There’s still a lot of money out there. Some sectors are dead, but my philosophy is that if your market is dead, find… Read more »
To “The Dude”, Nobody was forced to buy. Buying is an active decision. One chooses to buy, rent or live with one’s parents, or to emigrate. One chooses to marry or not to marry. One chooses to have children or not to have children. Those poor FTB’s who “got married and wanted to start a family”. Oh, the poor dears. IT WAS A CHOICE. Wear a condom or go on the pill until you can afford children. With social pressure like that, maybe people wouldn’t have kept voting in Fianna Fail, with their legacy of Haughey corruption, Ahern Dig-outs, Builder’s… Read more »
Fergal – well put……/ that reminds me if the government reform the bankruptcy laws the first time buyers would have a choice ….if they are technically bankrupt…..thus then they can avoid …’ Slavery ‘……./ …David…take note !
Hi everyone been reading the above comments and here’s what I think: I think that getting married and having kids etc is a thing of the past, the world can only accommodate a certain population and that’s it. I think it is going to become alot more common for 30 and even 40 somethings to live at home with parents. Not because of choice, but because of economic reasons like “the young paying for the old pensions and healthcare etc” People who do get married will live in bigger houses with both sets of parents for synergy reasons and will… Read more »
the Dude returns In the article above David said that FTBs in negitive equity should be helped. Like everyone else in here i don’t really like this idea, but all i am saying is that there is a difference between a FTB who bought a house to live in, and invester who was only out to make the fast and easy money one group I laugh at, the other group I feal sorry for In the real world we can all see the the number of FTBs in negitive equity is far too large now and since we are such… Read more »
juicylucy – i agree…/….summary of expenses …time to live……and a…time to die ……thus money is…Time
Well i am slightly surprised at some of the above comments with regard to the attitude towards the FTB, but not really that surprised either as it is this selfish attitude that has us where we are today both economically and politically stuck in a vacuum and sliding down wards . David is just putting forward a mere suggestion and most of you should know it was not the FTB’s of the last two years with the 100% morgage which have caused this recession , these were individuals who were sucked in by a over hyped system with General Media… Read more »