Once we create a system that allows the person to start again, we facilitate the return of hope.
On Monday night I went for a pint with an old friend who was distressed. His wife had just lost her job and that meant there was now no way they could pay the mortgage. There wasn’t enough money to go around and he explained it was now a case of “the bank or the family”. So he is going to stop paying the mortgage and try to negotiate with the bank to see whether he can reduce the monthly payment.
He is, like hundreds of thousands of others, juggling bills around to try to make ends meet. He said he can do this for a while longer, but he needs to see what the bank might offer to work out his next move. He hopes his wife will get another job soon, but the prospects are dim, at best, right now.
He is trying to keep the spirits up but what is freaking him out, as a 30-something man, is the prospect that the debt on the house — not a flash gaff — bought in 2005, might follow him around for the rest of his days.
Like me, he emigrated in the 1990s and, like me, came back in 2000 to an Ireland which looked full of opportunity for us to raise our families. There were over 200,000 of us who came back.
In fact, he was the subject of the final chapter of my 2005 book ‘The Pope’s Children’. He was the returned emigrant marvelling at the new Croke Park during the Dublin versus Meath game. And his story is particularly poignant for me because back then when we both went to Croker with our four-year-old children, he was filled with so much optimism.
For him and thousands of people like him, Ireland has become a large debtors’ prison with no payroll. There is no NAMA for him, no bailout.
In contrast, the delinquent banks have NAMA, the reckless bondholders have the IMF, but this guy has nobody.
No one is speaking up for him and, with the recovery in Germany in full swing, how long will it be before interest rates rise and he is tipped over the cliff?
That is what an economy is: it is only the numerical agglomeration of thousands of individual stories. Economics renders these stories sterile. It reduces them to numbers and when the weight of numbers gets too big, the financial system buckles, but until that point the default position for the establishment is that everything is “manageable”.
But at the end of September last, the number of mortgages in arrears or rescheduled stood at 70,000 out of a total of 788,000 mortgages in the country. So that is one in 11 mortgages.
Of this 70,000, some 40,500 were in arrears. For a mortgage to count as ‘in arrears’, there must have been no payment made on it in three months. These amounted to €7.9bn outstanding mortgages and the mounting arrears on these mortgages totalled €630m.
The general picture is that today there are over 200,000 mortgages in negative equity. Each one has a story.
In total, the figure is about €12bn and is the result of the 42pc fall in house prices, from the peak, which we have seen over the past three years.
If prices fall further, let’s say by 55pc from peak, the negative equity picture darkens to over 330,000 families — or about half of all properties bought since 2000. And this will get worse, if house prices fall yet further. So are they likely to fall further?
Yes. This is what typically happens when a bubble bursts. This is called “deleveraging” in economics. The people who have debts try to pay what they can and the banks try to pay back what they have borrowed.
The people who have money save and the leveraging or borrowing that fuelled the boom goes into reverse gear.
This means that the prices of all assets in the country keep falling as both the demand for, and supply of, credit dries up and the greater the original leverage, the greater the subsequent deleveraging.
And in Ireland the leverage was pretty outrageous. The loan to deposit ratio of the banking system was 160pc at the top of the boom, meaning that there was 60pc more loans out in the country than there were deposits in the banking system.
These loans are either now being repaid or defaulted on.
So what do we do about the hundreds of thousands of our friends, family, and work colleagues who are in negative equity now or will be in the future?
Any political party that is truly serious about tackling not just present but prospective problems in our society needs to address the ticking time bomb of negative equity and the certainty of mass default. Remember each one of these statistics masks a story — a story of dented hope, dashed ambitions and chilly insecurity. These are the people who need to be reassured.
A political party that changes the language of the campaign, the party that shows itself to be generous, forgiving and capable of empathy will make significant gains — and should do. Because this party will be putting the interests of the people first and the people need a break. We need hope.
On the issue of negative equity, a way forward would be to adopt the American system of non-recourse loans. This means that the loan is fixed to the house and not the person. So the person can hand back the keys and the loan doesn’t follow her around for the rest of her life. This means that the principle of co-responsibility is instated whereby the lender, as well as the borrower, is responsible.
If the bank made the mistake of lending too much to an individual, the bank pays. It gets the property and the individual is free to rent down the road or somewhere else. In this way, we do not penalise the person for his mistake indefinitely.
The person doesn’t get off scot-free either as they will not be allowed to stay in the house because it is the property of the bank and the bank will have to sell it.
But the person can start again and starting again is the essence. Once we create a system that allows the person, or the family, to start again we facilitate the return of hope. It is hope — the idea that tomorrow will be better than today — that gets us out of bed in the morning.
It is essential that we see economics through this prism. Economics and statistics are only the numerical aggregation of our stories and it’s the stories, not the numbers, that make our society.
All mortgages should have a “clawback,” that is, a penalty, with the proceeds shared with the borrower and the govt, provided the mortgage default is based on any of these three: … 1. Lending too much … 2. Accepting false information, not verified …3. If the interest rate charged is above 6%. … So, even if a person loses the house, in many cases he/she will get enough money to start over with a decent apartment.
This will force banks to be prudent, especially if the clawback is 20-30% of the loan’s principal.
Subscribe.
Makes total sense to me.
The only query I have.. would adopting this system cause the banks to end up grabbing more from the public purse to balance their books? It shouldn’t happen..but……
I also don’t want to see a situation where the banks won’t lend anything unless you’ve gold encrusted underpants either :) – that surely will kill the economy completely..
How to get a balance?
David I’m one of many like your pal who came back to bring up my kids here. I left here in the early eighties with a trade and some ambition and followed the well worn paths to Germany, Australia, The States and finally London getting a formal and informal education along the way before returning home. The ambition has’nt gone and won’t until I’m six foot under. I’m hoping that won’t be for some time yet.Burning the banks is a no-brainer. A non-recourse mortgage is a no-brainer. These banks and bondholders took serious risks along the way. Had these risks… Read more »
http://www.youtube.com/watch?v=SzeGbhulEfc&feature=related
I see the current Economist (w/c 15-Jan) has an article advocating the orderly and managed default of sovereign debt of a number of peripheral Euro nations including Ireland. It appears your proposed course of action to reduce burden on the Irish taxpayer and allow big boy investor & corporates to wear some of the losses is gaining momentum. Something has to be done to help us as a nation look upward toward possibility and not down in despair. Hope is not lost.
David.
Firstly, inflation underway now is due to the massive QE / money printing out of thin air catching up on itself.
Interest rates will be raised to counter inflation and your articles ticking bomb will be detonate n explode.
This is imminent as far as I am concerned.
And it is the final stage of the engineered property Ponzi bubble engineered by the private banking system in its boom and bust business model.
You know all of this of course.
So, the final stage is on the way.
It’s the stories, not the numbers, that make our society. Well said. I’ve always thought, since the beginning of this, and being a pass maths person that houses in general should cost about 2.5 times the average industrial wage. Or at most, 2.5 times E60,000. So there, house prices still have to come down more. Just saw Paul Sommerville and Peter Matthews on VB’s programme. David, you’re going to have to tell us soon what you’re going to do. You might find 5 years in the Dáil interesting. And I think you could choose any constituency in the country and… Read more »
Again common sense from David. I just hope he will join with other economists and try to negotiate with Europe or just tell them to stuff it… There will be thousands like his friend before the end of this year.
I’ll be honest and say I don’t understand how this and a lot of other protections that are easy to come up with (e.g. strong deposit and income multiple requirements) were not part of the existing economic framework of Irish society up to now. Ordinarily I wouldn’t support shifting the goalposts after the fact like this, but let’s be realistic and say that we are not living in normal times. The alternative for a lot of people is going to be to leave the house and the debt anyway while emigrating. Better to have them restart here than abroad if… Read more »
Hate to say I told you so, but I have been banging on about the importance of not divorcing humanity from economics for years on this site, you have got to question the numbers everytime whether they be in Chile, China, EU or US. What we need is a form of ‘social economics’, a socio-economic system that puts the interests of the citizen not the institutions that have lost all trust and credibility, at the heart of social, political and economic decision making in a new Republic. Neoliberal economists can go as much as they like about competitiveness, the need… Read more »
I’m no economist, nor banker, just someone who recognises too well the situation you describe. Surely, an option here has to be negotiation to reduce mortgage debt, in a similar way to what’s already happening with credit card debt (the next financial Tsnunami to my mind). Banks are already accepting 30 in the pound, or less, to buy off debt in total, in effect pay 300 wipe off 1000 of the debt. Why then, given this financial crisis is Bank created, as a result of their gambling and malpractice, can this not be used to solve mortgage problems ? Let’s… Read more »
“If prices fall further, let’s say by 55pc from peak, the negative equity picture darkens to over 330,000 families – or about half of all properties bought since 2000. And this will get worse, if house prices fall yet further. So are they likely to fall further? Yes. ” How correct you will be David, even though the RTE Pravda machine was hinting at a soft landing of price decreases in David Murphy’s bullshit report on the latest ESRI/PTSB Index. The house price index is being controlled by vested interests now. We don’t see the downward pointing graphs, the charts… Read more »
Colin, I couldn’t agree more with what you had to say in the last paragraph of your comment on DMCW standing for election in the coming General Election. If David were to stand in any constituency in the country he’d top the poll and be elected after the First Count in every one of them!! David, please do as Paul Sommerville asked you on VB’s programme last night and that’s stand for election and you’d make me and a whole lot of people very happy if were to ‘take out’ an FFer or a Green. Dun Laoighre would be ‘your’… Read more »
In Philadelphia in the US three mortgage rescue models were tested. The only one that worked reduced the principal, that is, the total owed, which in turn reduced the monthly payment. The reduction brought the principle in line with the market price, encouraging the householder to hang in (and making hanging in more affordable). BUT the national US plan chose to use one of the failed models, reducing monthly payments but nothing else (and prolonging the length of the mortgage). This has resulted in many more monthly payments before the defaults, the defaults resulting from financial need or the householder… Read more »
The “return of hope” can only be achieved if after the next general election the Dail ends up with a majority of conscientious, independently minded TDs. It is highly unlikely this will happen. A Fine Gael/Labour majority will hardly differ from the present puppets yet this looks like the probable outcome. Having great people like Shane Ross or David McWilliams elected may provide some temporary reassurance but eventually one’s faith will be destroyed by their inability to do anything. Just think of George Lee and his noble act of resignation from the Dail upon seeing the truth, or think of… Read more »
“Oireachtas” The old meaning is “A Meeting of The Hearts”
That’s bad news about your mate David and I hope the rumours about you standing for election are true but I would fear for you. There are straight people in Ireland and yourself and the likes of Shane Ross, who are a minority, keep some of us sane but after seeing the FF gang resort to type I think you would be in for one hell of a time if you entered the bull ring. You can always rely on our support when the going gets rough however and we will still be here because this blog is one of… Read more »
Joe Toes The Show :
Wobble Wally Wonkers receives a Blow Torch.
http://www.irishtimes.com/newspaper/frontpage/2011/0120/1224287944542.html?via=mr
The Vassal of My Vassal is not my Vassal ‘…..
……………meaning to have no responsibility for that vassal that is not my vassal.Meaning that NAMA and IMF have no remit to sort out the bad bank loans of the ordinary electorate .
We the Electorate with huge bank loans are not protected from the fall out of the incumbent Irish Government’.
Even in a circus act there is a net to catch the fall ….under insurance and public health rule regulations.
Subsribe
– ‘Like me, he emigrated in the 1990s and, like me, came back in 2000 to an Ireland which looked full of opportunity for us to raise our families. There were over 200,000 of us who came back.’…..‘For him and thousands of people like him, Ireland has become a large debtors’ prison with no payroll.’ Just a thought on the above excerpt from David’s article from this emigrant who returned in 2000 and who also knows what it is like to experience loss of a job in the course of a working life: The Marshalsea DEBTORS’ PRISON provided the backdrop… Read more »
David – I think it is far to say that even the coldest and most clinical of us feel for you freind, and his predicament. This is what happens when ordinary decent hard working people try to survive in a society where deceit is rampant. And I mean this concerning the way that business is done in Ireland. To buy in 2005 is a disaster, regardless of how small the house is. The way for ordinary people to survive is to be extremely sceptical of everything official and mainstream that gets circulated in public, and that the media gets paid… Read more »
By the way – a lot of people are opting to go to Canada or Australia. These are both economies that are in bubble phases, dependent on construction booms that will end when the financing system is overleveraged, or when there is excess capacity in the real estate sectors. Therefore my advice to those going there would be evaluate the medium term employment prospects. Going there for three months work is not justifiable. People – do your research – and get as many vocational qualifications as possible in advance, as you might have to make yourselves very flexible. A fall… Read more »
Full marks to Paul Somerville. He will presumably be taking a similar policy line to Senator Shane Ross. He is running in a four seater with against big well oiled party machines. David – in Dun L’re – Gilmore(ILP), Barrett (FG) and either Andrews or RBB will get elected on the basis of party machine strength. There is an opening for a non-party candidate. RBB is going for ILP/FF voters and represents a threat to Andrews and Bacik. But a non-party Independent could get a high first preference vote, across the board, before voters start reverting to party loyalty. There… Read more »
“Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist.” ~ Kenneth Boulding, economist
David
At the end of the “Pope’s Children” there is an expectation (or hope) that the returned emigrants would bring all the skills and experience acquired abroad to bear on transforming this closed shop of a country.
How do you see it now? Do you get the impression that the numbers are there and the ability? And if so, do they still form a consituency for change (and have not been re-assimilated by now into the old ways of doing things)?
[…] You may view the full article and add your own comments at http://www.davidmcwilliams.ie/2011/01/19/people-need-hope-for-a-better-tomorrow […]
I came across this a while ago and it is really brilliant. I think people are amazing. Have a look.
http://www.corkmedia.net/2011/01/solar-roadways-the-prototype/#respond
General Election 11 March?
What is the problem with the GP ? They did not want to see any of Ditherers cronies being replaced with new people in the Ministerial posts. Even if it was for only a few days it might make an improvement. Now we have rotating government ministers. This is an even bigger farce than the debacle this morning. Are they a bunch of control freaks ? I get the opinion that we are back in “the tail wags the dog territory” again. This the final gift of the GP to the Irish people – along with a Climate Change Bill… Read more »
I was told that the ILP wanted an election as soon as possible to prevent the only useful peice of legislation from the GP in four years – which related to political funding. It has been shelved numerous times.
The GP proposal prevents SIPTU providing slush funds for ILP electioneering. The bit that prevented political parties from taking money from unions was a big issue for GimmeMore….they are livid at the thought that the GP would think of such a thing.
ya its shameless,
and these ‘jobs for the boys’ health service managers respond to assertation of proper governance or the correct way of doing things is by bullying and personal manipulative criticism and attack because that’s the culture, a culture of gombeenism and inadequacy.
Nil aon gombeen mar do gombeen fein, ‘four legs good tow legs bad’!
I think it is unimaginable that David would want to be a politician, I think he will do us a far better service away from the political arena. Doesnt seem to be more than a vicious rumor to me.
You couldn’t make it up. Left hand not knowing what right hands doing. And now Conor Lenihan calling on taoiseach to resign. Well at least the effing effers have set a date. FF will still get a seat in most constituencies so approx 40 seats. They have a hardcore support which ultimately believes that they are the rightful heirs to Ireland – its in their bloody name – soldiers of destiny. Even in opposition they always had this belief that because they were the biggest party they deserved to be in government. It will be interesting to study the transfer… Read more »
I was just at politics.ie – I know its a bad vibe but curiosity makes me have a look sometime and this guy was anitcipating with pleasure that Ireland will have a sovereign default and the so called wasters will go to get their dole and there won’t be any money for them – seriously though what will happen if we default – can we expect the four horsemen of the apocolopyse and plague and famine like this guy is implying – how will the country continue to tick over?
Join up with the Guardian of ‘Moral ha(p)azard in Europe, Portugal’s profligacy and lack of enterprise economy is the architect of its problems also
All Irish shoud be his friend
http://www.facebook.com/pages/Jose-Manuel-Barroso/110107045169
The recovery should reach down to those suffering the most. Arguably those suffering most are those on high mortgages they can no longer pay back. Non recourse loans is one solution but the family get to lose their home and this is unfair. We need creative ways to ensure families do not lose their homes. Here’s a few ideas: Negotiate the buyout of the 70,000 homes facing arrears with the banks and cut a deal with the banks at a heavy bulk discount. This would be funded by a debt free Recovery Programme for Arrears (call it what you like)… Read more »
Censorship of the Week – Award goes to RTE Pravda At the wrap up of Brian Cowens interview on Six One News tonight with Brian Dobson, Cowen distinctly let it slip that the new appointments could have served their remaining eight months! Yes I’ll repeat that – serve their full eight months! It was just a slip and I said to the wife – Did he just say that? Eight Months? So we rewound on the old Sky Box and yes he did let slip 8 months! So tonight I go to the RTE Player to pull up tonights Six… Read more »
Yes he did say “Eight Month’s”
How to negotiate Haircut’s.
http://globaleconomicanalysis.blogspot.com/2011/01/irish-government-collapses-six-cabinet.html
With the first gasp of fresh air inhaled by all, with the Election set for March 11, relief, from utter despair, and hope, that wisdom will replace the madness of the past two years, are now possible. I hope voters will to people like David McWilliams to install the vital wisdom, compassion, and neck that will be needed in Leinster House and Merrion Street. It seems that David has already campaigned or presented his views, principles, morals, and credentials to Ireland in his editorials, documentaries, and in ‘Outsiders,’ performed recently across the country in towns and cities. If there was… Read more »
Possibly one of the strongest articles ever written against a politician features in today’s Irish Independent, p.27 in print edition or
http://www.independent.ie/opinion/analysis/bruce-arnold-master-of-contempt-cowen-leaves-chaos-in-his-wake-2505441.html
While John Allen should check out Kevin Myers’ article on p. 29 entitled: Falling Victim to the Dark Side of the Moon
http://www.independent.ie/opinion/columnists/kevin-myers/kevin-myers-falling-victim-to-the-dark-side-of-the-moon-2505552.html
While a politicial kite is being flown in relation to David McWilliams over at the Irish Times
http://www.irishtimes.com/newspaper/opinion/2011/0121/1224288008794.html
Meanwhile courtesy of Oireachtas News
“Barry Desmond, Dr.Maurice Manning and Dick Roche TD discussing ‘a more effective Dáil’ now at Leinster House seminar. Watch on-line”
You couldn’t make it up!
The world and Ireland is in a perilous financial state and we either get Chopra and IMF/EU colleagues and the banks to completely screw us, or we put people in government who have a grasp of what’s happening in the financial world, such as DmcW. For what it’s worth, here succinctly put by Steve Keen, are the issues our next government will have to deal with in managing our financial crisis IFC as well as our IFSC: (weekend reading nb) Steve Keen http://www.debtdeflation.com/blogs/ Interesting on Bernanke on Irving Fisher http://bit.ly/6TFr6i “Conversely, when deflation strikes, the real rate can be higher—much… Read more »
Well David, what does your friend think the utter disregard for the plight of irish people illustrated in Dail Eireann yesterday? …’Fevered representations began. In their distraction, the Fianna Fáil parliamentary party couldn’t care less who saw them. Astonished journalists crowded into the no-man’s land between that landing and the press gallery. They watched the unfolding drama from a few feet away. It was electrifying. Nobody went near the stricken politicians. For this was the moment when the party dropped all pretence of unity and cohesion. Discipline went out the window. Fianna Fáil was disintegrating in front of our eyes….’Miriam… Read more »
Many thousand of young Irish have left to foreign shores without any handouts or pensions and denied the right to vote abroad .They are disenfranchised and the new forgotten .They sit alone in corners of rooms wondering what happened and why they are where they are .They are lonely and broke and with little to feed themselves .They write home making up stories of how great things are and how the sun shines and their poor mothers know less and maybe it is better that it is that way.
The mask has well and truly fallen. I always said the FF would kill itself. Looks like an annihilation scenario Mar 11 or earlier. The mask is slipping in Europe as well. Joe Higgins has been laying into Barosso and Van Rumpuy and the rebuttal firmly placed issue at the Irish Institutional door fully siding with the European institutions. Barosso needs to watch his demeanour and realise that the recall of media very precise. We are witnessing the fall of the bumbling and overweight West as the dominant power. When the powers that be are more focused on their pensions… Read more »
The net effect of introducing jingle mail for existing loans in Ireland will, give or take, have zero net effect on boosting the economy. Those who can walk away will indeed be the better for it. The debt won’t go away, and the bank will have to recoup it by raising it’s charges, and it’s interest rates. So others will end up carrying the can for the defaulter. Their former pain will just be spread around a bit more, and will be passed on even to those who are in negative equity, but who choose to soldier on and keep… Read more »
Anybody know the total annual cost to taxpayers of current and past ministerial pensions calculated on an individual and a total basis?
Not bad the €140,000/annum pension for ministers dropping out of the cabinet.
OT..Joke…Brian Cowen was spotted in Ikea earlier today looking for his new cabinet…
Last year we had Bertie, Enda and others offering to give up their ministerial pensions. Then Lenny Wrong’s budget leaves these pensions virtually intact!!!
See this rather dated 2007 list, but notice the salary of the Norwegian PM, same population as Ireland
http://bit.ly/ct1DDk
I still don’t know why anybody has not picked up on the stupidity of having half ministers in charge of departments. It is absolutely absurd. It is a fudge. These are serious responsibilities, and we have ministers who are fighting to save their seats juggling responsibilities in the background.
Even more obscene is the pretenscious collection of wasters in the GP, who are lecturing the people continually concerning the GP being responsible, while they are required this stupidity from Cowen.
RTE Snooze seems to ignore this very important issue.
Sumo Harney’s resignation passed with minor comment. Last year Nell McCafferty on Newstalk, commented one of the longest running rumours in Ireland. Harney threatened to sue McCafferty. And McCafferty was banned from Irish airwaves. Now just think about that. McCafferty was shipping contraceptives on the train in the 1960s, to the obvious annoyance of the Catholic Bishops. The Bishops did not however silence Nell. I have a theory. Harney is most loyal person in the cabinet with respect to IBEC. Basically, IBEC have their plant in the government. In return the media are applying a “hands off” approach to Harney.… Read more »