A couple of weeks ago this column suggested that it would be a workable idea to freeze mortgage payments for a couple of years to provide some stimulus to the economy.
As is usual in our country, any suggestion of easing the burden on Irish mortgage holders is greeted with howls of derision from many sides.
Similar howls were heard a few years ago when an economist called for restraint. When considering new ideas, it is worth bearing in mind the mentality of the herd.
In the boom, the herd’s view of the economy could be aptly described as “expansionist”. Back then, the crowd contended that we could expand to a degree not seen before, because “this time it is different”. Well, it wasn’t different. The herd was wrong. Today, the same people who argued for infinite expansion and borrowing in the boom are now telling us that we can’t countenance any debt deferral for people who can’t pay. So the herd in Ireland has swung from wildly expansionist to crudely reductionist in three years.
Many people are against the idea of a mortgage amnesty. Their argument generally runs along the lines of: “I didn’t buy a house in the boom, so why should I have to pay for someone else’s bad decision?”
Others argue that an amnesty rewards “bad behaviour” and would lead to moral hazard. Maybe we should be less concerned by “moral hazard” and more worried about “real hazard”. Real hazard is when people — our neighbours, our friends, our families — begin to lose hope in the future.
On Monday there was another clear example of this when the very admirable (and desperately needed) www.newbeginning.ie was launched. New Beginning is a group of solicitors, barristers, economists and businessmen who have seen the gross inequality played out daily in the High Court where people are appearing in front of judges without any representation — because they can’t afford it. Bad enough that these misfortunates are losing their homes, which they can no longer afford, but down in our courts they are being harassed by legal teams paid for by the banks — and, of course, the banks use your money as it is your money that has bailed out these delinquent banks.
New Beginnning should be lauded for their excellent work in defending people who have committed no greater sin than to believe their government.
Remember the litany of politicians, so-called economists, and other “experts” from 2006 and 2007 telling us that “the fundamentals are strong”. These “fundamentalists” were the lads that brought you such fantasies as the “soft landing”.
The victims of this terrible advice can be seen daily in the High Court. In contrast, the people who dispensed that advice are shielded from the consequences of their actions.
It is worth reminding the people who hate the idea of helping those in dire straits what doing nothing could mean for the economy.
At last count there were about 36,000 people in the country who have not been able to make a mortgage payment in three months. This figure hides the number of people who are paying smaller amounts. It is easily possible that twice that number are in real trouble with their mortgages and are at risk of losing their homes.
So let’s say we do nothing to help them. It is fairly safe to assume that the majority of people in difficulty are under 40. In 2007, I wrote a book called ‘The Generation Game’ that focused on what would happen to this generation when the crash came. Most have young families. These people were Ireland’s “favourable demographic situation” that we heard would keep the property bubble inflated. These are the Pope’s Children.
If we do nothing, they are going to turn into our lost generation. Their children, born into the kind of poverty that comes with large unpayable debts, will be disadvantaged for years.
Simple analysis says that we had the party during the boom, now we have to suffer the hangover. In economics this is not hangover but an overhang or, more specifically, a debt overhang.
Some economists argue that we need to go through a type of cleansing period to learn the lesson and, therefore, people paying back debt and increasing their savings now is the only way forward. They argue that the savings in the banks will be borrowed by companies that want to invest. Therefore, the money which is now paid in mortgages will find its way out into the economy via funds for investment. I would go along with that view if the banks weren’t bust and incapable of providing credit to the economy. But the banks are the bottleneck and therefore, some other way of keeping credit going needs to be conceived.
The people who are shouting “unfair” and “moral hazard” are cutting off their nose to spite their face. By sacrificing their neighbours on the altar of “I told you so” they are ensuring their own demise, and more importantly, the demise of what is left of Ireland’s economy and, possibly, our social cohesion.
OF course, there is another way. New Beginning is a start. They intend to challenge some mortgages because banks did not take their duty of care seriously. It seems obvious to me that they are right, but Ireland’s contract law is as Victorian as our bankruptcy law, so perhaps we’d better wait and see.
What is really needed is a mortgage amnesty. I will not call it “debt forgiveness” because that implies a sin, and there are no sinners among the unfortunates in the High Court.
People made a mistake when they bought during the boom. They presumed that their well-paid jobs would last and that house prices would rise forever. They got caught up. By not helping them, we are all making a huge mistake that will prove costly.
I didn’t go mad in the boom, but I can see how my family’s prospects are related to my neighbour’s. Arguably, those of us who were vilified back then for predicting the crash should be the ones with the biggest motivation to see those who ridiculed us back then punished now. But societies don’t have to work that way.
When you look at history, you see that booms and crashes are always followed by a change in the way people look at the society and the economy. Roosevelt’s communitarian New Deal which followed the individualistic Roaring Twenties came with federal welfare, housing and work programmes, bank deposit insurance, prices and incomes policies, minimum wage legislation and mass debt amnesties. Ultimately, the US itself came off the gold standard and defaulted on its sovereign debts.
These moves were anathema to many who believed that the people who got caught in the share and property crash of 1929 had only themselves to blame.
However, the point is that by 1932 the world had changed and when the world changes so too do attitudes.
Who can doubt that our world has changed? Who can doubt that our attitudes will change too?
David Mc Williams hosts Ireland’s first economics festival from November 11. Details at: www.kilkenomics.com
…….The Budget is not meant to be fair, it is meant to be unfair. Hierarchical society is only possible on the basis of inequality, poverty and ignorance. This new version is the past and no different past can ever have existed. In principle the Budget is always planned to keep society on the brink of starvation. The inequality is waged by the ruling group against its own subjects and its object is not the prosperity of society, but to keep the structure of a society, which benefits the rich over the poor, intact……..
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If there was a debt amnesty then the banks would take the hit and when the banks take a hit they pass it on to the government who then pass it on to the people. You can’t simply argue for an amnesty without explaining that someone somewhere will pay for it. Why should a good borrower pay the debts of a bad borrower? In every country there are house repossesions , in Ireland they are very low and these people get repossessed deliberately they are happy to get rid of the debt. There is always the safety net of social… Read more »
Some recent reading has shown that the old cliche “the more things change the more they stay the same” is relevent and fresh, as are Davids ideas, here is a sample. 1.In the field of politics there is a most insistent demand for new leaders, a demand that indicates nothing less than an emergency. 2.The banking business is undergoing a reform. 3.Industry calls for new leaders. The future leader in industry, to endure, must regard himself as a quasi-public official whose duty it is to manage his trust in such a way that it will work hardship on no individual… Read more »
Freezing mortgage payments sounds like a good plan. But repeating this mantra that we have to stimulate the economy through consumer spending no matter what, is exactly what got us here in the first place. You cannot build a stable economy at the expense of sound lending practice. The mortgage forgiveness suggestion reminds me of the way the government allowed hundreds of drivers to get driving licenses without taking the test! No doubt some of the indebted had very bad luck. But a good few of them were spending money like drunkards, and some continue to do so even though… Read more »
In this article David writes the parable of ‘Prayer’ where the mantra is always ‘ ask and you shall receive’.
We need to learn more about how to ask and become better at it.My hunch is that it is profitable and there will be plenty to eat afterwards .And dont forget what you receive is ‘tax free’.
I go along with the idea of a freeze on mortgage repayments or better still a 20-25% write down of the mortgage for those who bought their primary residence at the height of the boom. Note the emphasis on their primary residence. I would have some difficulty with a write down for those that speculated on the property market and bought up a property or two in a buy to rent scheme. It’s been said here before,the property sections of the IT and Indo have to take a major share of the blame for hyping the residential property market to… Read more »
Questions.
Do you build a secure middle class through prudent savings and spending, or through accelerated savings fueled by borrowing?
Can you have a prosperous, slow growth economy based on prudent savings and spending?
Can you have a fast growth, secure society based on growing debt?
David – I know you are trying to help people. But this country is heading for bankruptcy. The nature of the debt predicament forces everything. As Joan Burton commented when this crisis started “we are in this recession…because we have no money” We need a serious rational analysis of what is wrong with us a society that we allowed this cathastrophe to happen. That is something that we are deliberately being encouraged to ignore. Everybody in public life is assuring us that the lifestyle is fine. It is somebody else’s fault. The government are blaming Lehmans, the opposition are blaming… Read more »
The day the Irish Government divested itself of its land banks is the day they sold out the Irish citizen. They tried to soften their remissful irresponsbile behaviour by forcing the responsibility of social housing onto the private sector. Virtually everything Irish Government does and say is innane. It is an awful pity that Frank Hall is not around to hold up the Hall Pictorial mirror so that they can truly see themselves. Yes the Irish Government has a duty to assist those in our ‘society’ who are in trouble with their mortgages. It is their duty because they created… Read more »
I feel strongly that much of the mess can be traced directly to the supply side/”voo doo” economic theories made popular in the US twenty years ago during Reagan’s tenure. This insistence on increasing consumer spending, credit ratings be damned surfaced around this time. This core right wing mantra has gained unbelievable credibility in the politcal and economic spheres regardless of political persuasion in every developed country. Well it turned out to be the quick fix, suprisingly spearheaded by the staid Alan Greenspan, whose gravitas should have been to be utterly transparent when one considers his affiliation with that total… Read more »
“People made a mistake when they bought during the boom. They presumed that their well-paid jobs would last and that house prices would rise forever. They got caught ” Correct they made a big mistake,did people not think “what if I lose my job?” ,will I be able to get by on one wage or the dole?”…..Exactly it was greed and sheer, keeping up with the neighbours mentality,But , I blame the government they allowed this folly to grow .EVERY MEMBER of this current government should be marched out of the Dail and handed a P45 and stripped of all,pensions… Read more »
I am sure there is a much deeper strategy that is behind this debt amnesty that I am just not fully understanding. There are over 400 thousand people out of work and supposedly approx 25% of those are tradesmen. If there is an amnesty how long is it for..one year…three years….five years? Do the government have a strategy to get these trades people and the other 300 thousand back to work? Maybe people will…spend …spend …spend and get new kitchens, bathrooms and walls built to their properties to increase the value…..and the rest can go into the knowledge economy…or the… Read more »
Look at the contrast between being a member of the EU and being a country with it’s own central bank: http://www.irishtimes.com/newspaper/breaking/2010/1103/breaking11.html
Not quite the same thing over here when we are being charged 7% to borrow money. Anybody think we should leave this EU? Instead of NAMA spending over €3 Billion over the next few years on advice over toxic assets, spend it on advice on how to run the country. That kind of money could buy thousands of the best brains in the world, besides, the IMF might have to do it anyway! Just a thought.
David.
I completely agree with your contention on Newstalk interview (link on D’s site) ;
‘the transference of wealth from popes children to baby boomers must be reversed back.’
Brilliant and simple and the solution point blank
Red, good to see another Eng about the place. Less of the dialectic nonsense, more of the pragmatic.
David.
I reckon its a very straightforward solution.
The banks who made the loans are been bailed out of their sour loans by NAMA.
Purely on that basis alone the borrower can be bailed out too through their equivalent accord to the accord NAMA came into life on.
David.
NAMA was a debt amnesty for the banks.
x will be the debt amnesty for the dopes who took on bonkers mortgages.
David.
Isn’t it fascinating though how it is that the baby boomers own now such a massive % of the wealth of the economy.
In times gone by this general severe imbalance of prosperity precipitated a revolution.
Twelve months ago I would have disagreed with David since I didn’t buy property. However, I now agree because I can only now sympathise with the poor misfortunates who believed the Bertie bullshit. The chattering classes no longer discuss house prices at their dinner parties. The smug look of a first time buyer has been replaced with embarrassment. This is the penance. Its suddenly cool to say you don’t own property – the shame has been liquidated. This is the real moment of change. However, I know many young couples who own more than 1 property, and I’d like to… Read more »
In the classical crash model the next stop is political extremism. Just a reminder. I don’t believe that this idea will work as the money will not get spent/invested in productive areas. Sure, there will be a retail boom for a while, and China, Japan, and Germany will do very nicely. Tax revenues will rise and where will that money go? Just as the main problem with the US Healthcare system is nothing to do with healthcare (it’s a massive legal problem, and so can only be fixed with tort reform), debt is not a financial problem, it’s a legal… Read more »
Just a thought on NAMA since it owns most of the mortgaged property built in the last three years of the booooom. It was deemed at the time of inception not to be a money bill(definition here; http://www.taoiseach.gov.ie/upload/static/256.htm – to wit “Article 22 1. 1° A Money Bill means a Bill which contains only provisions dealing with all or any of the following matters, namely, the imposition, repeal, remission, alteration or regulation of taxation; the imposition for the payment of debt or other financial purposes of charges on public moneys or the variation or repeal of any such charges; supply;… Read more »
David,
I agree with you comments,
We need solidarity among us all.
This is our hour of need and the
only way of getting out of it is
by helping and forgiving thy neighbour
(But not those Fianna Fail BASTARDS!)
My friends have been passing this
around the office today.
http://www.youtube.com/watch?v=-REt8kCjCRo
Sad day for Ireland,
Masked men with dogs and sticks
beating our young into the ground
Fascism in all its glory.
At least, I now know that Fianna Fail are finished!
It all over for you Ahern, Cowen & Lenihan.
May you rot in hell (and prison!)
I really don’t get this . There is billions going into Anglo on a one way ticket . What is the figure again ? 34 Billion or something ? There are bankers walking away with massive payouts and pensions from failed and bust businesses . You can’t even count the number of pensions ex Ministers and TD’s have . They lose their seat and they get the consolation prize of a seat in the Seanad . The Seanad does absolutly nothing and yet costs a fortune . Yet the only time I hear of ‘ Moral Hazard ‘ is when… Read more »
David debt forgiveness, very well said!!! Although I wish it so, I think total debt forgiveness is going to be next to impossible, but given the fact that the Government pumped billion into Banks to save them, the least Government can do in behalf of the people whom they say represent is to demand from Financial Institutions that the Home mortgages be readjusted to the actual value of property, lets say for argument sake 50% less. Yesterday in “Ghost Land” the program that was shown in RTE many dramatic cases were highlighted about it. And a judge has to suspend… Read more »
All problems come back to a coddled, mismanaged, and politically protected Irish banking system. Ireland needs t look at what worked and did not work in Sweden, especially making it clear that bank shareholders and bond holders would not a government bailout at the same time that depositors would get a guarantee of getting their money back. In effect government protected labor and the middle class, not Capital (corporations and their owners). Learn more about the way Sweden disciplined their banks into prudent and effective management without taking on responsibility for the banks’ irresponsible risks: http://aiwauca.notlong.com To sober up the… Read more »
Quangoes’R’us. The great thing about having so many quangoes is that your relatives and pals can always be assured of a job….
http://www.independent.ie/national-news/cowens-brother-lands-dogs-job-2406939.html
The Taoiseach is starting to behave like Michael D. Higgins, when Higgins realised that he would no longer be minister and appointed three dozen acquaintances to state jobs in his final two weeks.
Henry Fonda in Twelve Angry Men trying to win over the jury. He’s convinced some of them but the hard cases are still acting tough. “Gimme a break, will ya? The kid’s as guilty as hell…”
How about just allowing them to default if they turn over the house? (they can rent like the rest of us).
Then NAMA puts all such houses, and all the other ones they own up for immediate public auction, so we reach a true bottom of the market in no time flat.
IRONY OF IRONIES Quote from today’s Indo Mr Bruton backed Finance Minister Brian Lenihan’s insistence that Ireland will repay its debt. “If this generation fails to repay its debts it would be a betrayal of the history of the country since the Act of Union in 1801,” Mr (John) Bruton said. John Bruton, former FG Taoiseach, must be thinking of the corn and wheat which was being exported from Ireland, during the Great Famine, to pay the debts of absentee landlords. Lord Rackrent would agree with you Mr Bruton. Mr Elderfield, this is another example of why we need clearer… Read more »
@pulmcd I saw the report last night and blogged on it here http://wp.me/pBbF3-ax : You may as well have it here in full, every news outlet should be asking how come Europe is now actively considering restructuring while our dark forces are campaigning against it? …………………………………. There was a gathering of 400 Irish chief executives in the National Convention centre last night reported on by RTE news last night, available here http://www.rte.ie/player/#v=1084039 Checkout approx 18:55 into the news. Given its drop jaw content I made an .avi recording of the relevant section of news reporting available here: http://www.cbweb.net/download/Bruton041110.avi The relevant… Read more »
Re David’s ‘mortgage freeze’ Those who got burned by their mortgage and can’t pay it back, they should be offered innovative solutions including restructuring, deferment, interest only, shared ownership, outright purchase and renting back, etc.
Our gormless politicos should be proposing a raft of solutions to help families in desperate circumstance due to mortgage arrears and unmanageable debt.
Paul Sommerville says Ireland is being shut out of the bond markets now. He’s on Newstalk now.
irish bonds now stand at 7.8% this morning there is no sign of this going on the lower trend
The World wont loan Ireland money. The Dail is in a shambles as could be heard around the world today. The Unions ensure none of their Public Service members bear any of the upcoming load. The traitors of Fianna Fail wont call elections without the intervention of the Courts. That twit Jackie Healy Rae subordinates the abject needs of his Nation to those of his backwater constituency. Violent revolution anybody??? I nominate yours truly as your Benevolent Dictator…
If there was a fund that I could buy into to take a punt against this country right now, I’d take half my dole every week and take a punt against this place, and I say that as an Irishman. This country is the most backward, dysfunctional, smarmy, “I’m grand so f*ck you Jack”, despondent place on the planet, David referred to his friend on the dole recently who is dreading another 10% cut in December, well that’s where I’m at. I wouldn’t mind if the mentality was if you have some sort of an idea where you can take… Read more »
The regular bolgger might be a bit tired of me pointing out again that Housing is a basic human necessity and so like basic food, clothing and social services should not be used to make excesssive profits. It is a key factor again in this argument. People have said to me ‘aren’t the people who bought in 2005 etc just dumb and they deserve their commupance’. I always say, look they don’t really have much of a choice, they need shelter both houses and rents are exhoborant, what can they do? So the people who bought out of neccesity, i.e… Read more »
And the only ones that are doing an effort to think, and brought to the table practical ideas that could have an immediate effect are the guys from Sinn Fein, but the media is ignoring them completely, they are more interested in watching the other Parties masturbating. If they are going to save us I don’t know but at least they make a bit of practical sense. According to the economic plan Sinn Fein have announced if we cap the salaries at 100.000 euro for Politicians and Public Sector, and we reduce the fees of solicitors and accountants by 25%… Read more »
We need to fix the failing private sector jobs market. It is as simple as that.
I read an interesting comment over on Simon Johnsons blog. I wonder if David is an acquaintance of Simons.
Anyhow he says thats its funny how the Obama adminstraion bailed out the finance industry, then the finance industry used the same bailout money to contribute to the republicans campaign and to their recent election success. All because they’d be lighter on financial regulation.
I wonder what kind of candidate the Irish financial industry will be backing/contributing too for the next election.
Hope the greens get to pass their legislation on capping contributions.
Maybe we should all just move down to Kerry and let Jackie Healy Rae and his little runt look after us, I wouldn’t be surprised if he is asking for his constituents to be protected from dole cuts.
Folks, Alarming but accurate piece in Telegraph about how bad things are.
http://bit.ly/95EylH
Was wondering when part II would show up……………
Leading economist who predicted housing crash says now is time to buy
http://www.independent.ie/business/irish/leading-economist-who-predicted-housing-crash-says-now-is-time-to-buy-2405035.html
The students were protesting yesterday on the streets because the Government is threatening to increase the fees. And at the root of it are another bunch of overpaid academics with huge pensions, four-month holidays in the year, and many other perks, whom we have to support. I wonder how much would they be earning in other EU countries? Probably half? These exorbitant salaries paid in Ireland have distorted the value of money completely, and fuelled a hype that has cost us billions, and leaves them in a privilege position, while most of the people have to pay extremely high prices… Read more »
NEW BEGINNING BUDGET – 6 BILLION EURO ADJUSTMENT IN ONE YEAR
This would be equivalent to the UK, with a population of 60 millions, taking all its 4-year proposed adjustment of 81 billion sterling in JUST ONE YEAR!
David, Posters on the site Paul Sommerville on Newstalk lunchtime today, about 25 mins into the lunchtime programme @ ca.12:25. What he says is what we knew was happening [a maust-listen]: The bond markets have shut Ireland out, interest at 7.7% and rising Ireland’s Government has lost all credibility and the country will not be able to borrow the money it needs [20 b?] when it goes to the market in Feb 2011 The only way to have any chance of not going cap in hand to the Stability Fund or IMF before Feb is by having a general election… Read more »
Folks, take a look back to May, here:
http://www.davidmcwilliams.ie/2010/11/04/brian-lenihan-on-economic-forecasts
I think somebody had a headline “Ireland running out of time”. Maybe you might give the link again.
I think that this is the most description of the current situation.
I suspect that time is running out very fast. Very fast indeed.
BrianC it’s exactly as you describe it. What baffles me is that Sinn Fein presented the only sound economic proposal, and people and commentators keep ignoring it, and don’t even want to take it seriously, don’t take the trouble to analyse it, and point out to others the benefits and faults. Absolutely absurd!!!
Folks, in case you have not seen this yet:
http://bit.ly/aPUuJM
REALLY helping people in default, with @Stephenkinsella and @brianmlucey