A MORTGAGE debt deal is the single biggest issue facing the country at the moment. Hundreds of thousands of our fellow citizens — brothers, sisters, sons, daughters, husbands and wives, friends and people across the room at work — are caught in a twilight world of too much mortgage debt and too little income.
There are 128,000 mortgages in arrears. This is 16pc of all mortgages. There are 710,000 mortgages in the country. In terms of those needing help, most of these mortgages belong to couples with children, so there are close to 200,000 people affected.
Not all need help right now but many certainly do. History suggests that when an economy is caught in a debt brace, things hold together for a while as people scrimp and save and then they unravel very quickly when something happens, such as the birth of another child, and the bills just don’t add up.
The heroine of my new book, ‘The Good Room’, is a 32-year-old pregnant woman and she is typical of dozens of people I have spoken to over the course of the past two years of research. She is a teacher, but as a young teacher she has no job security, is paid much less than her senior staff-room colleagues and, unlike the older teachers, she is carrying a large mortgage taken out in 2006 and now deeply in negative equity. This is the story of a generation.
Significantly, now that the housing market has tanked, these people are being described as reckless and the insinuation is that they were in some way cavalier with money.
However, when you think about it, many of the people who took out huge mortgages did so not because they were being reckless but because they were doing what they thought was the responsible thing at the time. They were bombarded by incessant financial propaganda by banks and estate agents, while at a more subtle, familial level, they were exposed to parental pressure urging them to buy because that is what “responsible young parents” do.
Now their financial hole is getting bigger because even if they are servicing all their loans — and many tens of thousands are — there is no money at the end of the month, so as one of the contributors told me on last week’s ‘Late Late’, he isn’t “a functioning member of the economy” because he has no money left after he pays his mortgage.
If he isn’t spending, then someone else isn’t earning and if that someone else isn’t earning, he in turn isn’t spending and you can see how the entire economy can grind to a halt because we are paying off too much bad debt. This is a recipe for economic stagnation.
Thus, in addition to giving people hope, we must appreciate that keeping thousands of people in a debtor’s prison benefits nobody. So it is in your interest that we lighten the immediate debt burden on our neighbours.
So how could it be done in such a way as not to bankrupt the nation again? This is where the principle of “co-responsibility” comes in, meaning that the bank and the borrower both shoulder the bad debt burden. Both parties are responsible. So how can this be done?
The bank can preside over a debt for equity swap. This means if you owe, for example, €300,000 on a mortgage but can’t pay it, the bank risks you walking away and losing everything while you lose your house. This is hardly the best way forward.
In the US in the 1930s they introduced a scheme whereby the bank and the individual did a deal. The person’s mortgage was reduced and the bank was compensated by being offered half of the potential equity in the house, so that when the house is eventually sold in 10 or 15 years, the bank get first call on half the value of the house.
Now the bank must be able to turn into money the potential equity, which it is now holding until the house is sold. So the bank will have to get someone to lend it money against the collateral, which is the future equity in the house. Who might that be?
This is where the ECB comes in. The central bank has to lend to the Irish banks against the collateral, which is the future wealth in the Irish housing market. This can be achieved by negotiation and this is where the ‘Good Room’ mentality described in my new book has to change. We have to front up and tell the ECB that large parts of the Irish middle-class are bust and if the ECB and the Germans want a success in Ireland, the bankruptcy of the middle-class has to be addressed with an imaginative and workable debt bargain.
We therefore have to define the world in Ireland to the foreigners as it is, not as we would like it to be or they would like to hear. To do this we have to get out of the ‘Good Room’ — a place where pretence triumphs over reality.
This is the most important challenge facing the country. Let’s roll up our sleeves and start talking straight.
David McWilliams hosts the world’s only economic and comedy festival this weekend in Kilkenny — www.kilkenomics.com. His new book, ‘The Good Room‘, is out now
If the gov’t can give money to banks directly, why not give it indirectly? Offer a scheme where the gov’t will pay down the principal of a residential mortgage to it’s current market value. Every sale of the house over that value (initially) or the previous sale value, the gov’t gets some percentage of the difference (say 75%) until it has recouped its subsidy. So, if the mortgage is €200k, a house is worth €100k, the gov’t pays €100k to the bank. When the owner sells the house 10 years later for €140k, they pay €30k for the subsidy (plus… Read more »
David,
They have not made any moves towards helping the struggling homeowners, as a matter of fact they are hindering them in the worse way, and as you can see from the last article ad my posts we the people have run out of patience and money, now we will make them pay attention in their arena, the Courts!!! nobody is helping the struggling homeowners so we MUST help ourselves!!
DMcW says:
“…many of the people who took out huge mortgages did so not because they were being reckless but because they were doing what they thought was the responsible thing at the time”.
Everyone in mortgage arrears I have ever spoken to believes they were not one of the reckless ones.
So are there any reckless ones?
If not, why doesn’t DMcW say “none of the people….”
If there are reckless ones among the many in trouble, who’s lying? Because they all say ‘I wasn’t reckless’ and ‘I didn’t party’.
Yes, let’s solve economic problems by sitting in moral judgement of one another. Or, we can consider the fact that people paying loads of money each month to banks that refuse to lend means that money is not going into the economy in any meaningful sense. For all intents and purposes every person paying off an underwater mortgage is setting money on fire – which on the current scale is hurting all of us. We should do things to stop that. Or we can wag our fingers and say they were reckless and that they partied. It won’t fix our… Read more »
David what I want to know is quite simple ,when is Ireland or when is the Irish government going to run out of money.
Can Ireland run out money or do we just keep borrowing money with bonds and to me it seems like Ireland will do just that. It’s like we have one sector that are like the 3 wise monkeys,they want to opt out of all this because there voice is not heard. The other sector wants the government to borrow like mad and let the mad tea party start all over again. The banks are being told by the government to sort out the mortgage mess on one hand and on the other hand there just is simply not enough money… Read more »
The Banking system is set up to deal with a few who will not pay not with many who cannot pay. So the Banks and their owners need to think differently from normal times. This is war time banking forget the normal rules. However for their main advisors particularly legal ones litigation is the only game in town, there is no conveyancing or tax planning and few can afford seperation so no work there. So they will advise the Banks on the slow torturous route case by case. And the same advisors have the ear of the government. If you… Read more »
Just came in from Kilkenomics and the event”Are we turning the courner in 2013. The introduction in the handout says in part ‘Some believe we are now beginning to turn the corner…”…..”or are the optimists just dreaming”… First off was a quickly reherst sketch that was a lot of fun. Eamon (DMW)Andrews hosted this is your life. The life of Ireland. Very funny and to the point too with Colm O’Regen and Karl Spain masquerading as ‘Ireland’. David left for an interview and Colm O’Regen took over as MC to the four panelists. PPinchas Laundau, Bill Black, Cormac Lucey, Damien… Read more »
At the risk of offending here I go. I am tired of the wailing and knashing of teeth. We know things are tough all over and it “wasn’t my fault”. Some people get bad enough in themselves and commit suicide. Too bad for their family. On one side of my family there is a depressive streak. Two boys, second cousins of mine did it. Their sister had a child who did it. 3 in one family. It was not poverty. My cousin was a brilliant girl. Had an oxford degree and married a professor. Had two lovely children. Around 60… Read more »
As usual I don’t get a notification when the new article comes through so I have to SUBSCRIBE
In the style of the malign youth – FFS. Rubbish, how difficult is it to configure this sort of this?
Talking of configuration, are we on for Saturday night David? Looking forward to seeing you, Tony, Colin and Philip.
I cant wait to read Davids new book, his publishing co are smart, always released before Xmas so I get something under the tree too. Every so often I go back and read about him on his polished up, used bike and his dad following him. Its a Norman Rockwell moment in story form, always warms my savage heart. I like the debt for equity idea, its a win win for all, even those who stand to inherit, i.e. children etc. BUT, it applies logic to where there is none. Its TOO good of a plan, TOO smart of an… Read more »
Banking is only about TIME not money .
I think some people are missing a the big picture that is represented in the article and previous articles. The economy needs to deal with the mortgage time bomb. Forget prsonal biases and look at the problem holistically. The economy cannot move on with Banks who are laden down with bad debts that erodes their capital on a daily basis. ( they have to fund non performing loans and the cost of that funding is met from their own capital reserves.)They have to use up now huge amopunt of capital in funding collection,litigation and reposession processes. This use of capital… Read more »
The first thing that should be done is make all new mortgages non-recourse to make the banks think hard before lending. What DMcW is sugesting on existing mortgages however is just another gamble on property values rising (the householders gamble becomes the banks/states gamble) which is exactly what got us in the hole we are already in. The last thing this state needs is the cost of taking on part shareholdings in 200,000 houses and hoping for rising values. The money to pay for this scheme is costing us at least 5% a year and I severely doubt irish hosuse… Read more »
So let’s take this one step on, and consider the position once the mortgages have been written down, written off, or the liability removed from the mortgagee in one way or another. OK, so initially, people wil mortgages will be much happier, and people who rented because they didn’t want to take part in the crazy casino wil feel like a right bunch of charlies. But then what? Economists make statements like ‘the economy will start to grow’. According the head of US Federal Reserve Bank, and the Head of the Bank of England, this will happen because people’s investments,… Read more »
“In the US in the 1930s they introduced a scheme whereby the bank and the individual did a deal. The person’s mortgage was reduced and the bank was compensated by being offered half of the potential equity in the house, so that when the house is eventually sold in 10 or 15 years, the bank get first call on half the value of the house.” The bank already has 50% of the value of the house. When it forcloses it gets to sell and recoup cash immediately and does not have the wait of 15-20 year of uncertainty. The homeowner… Read more »
You want to know more about what the insiders running the mafia banking system in Ireland really think – if u do check this Oreachtas committee on banking segement:
http://www.youtube.com/watch?v=k3YkCWJIMXE&feature=youtu.be
Banking is about TIME
There is the ……time before ……time now ….and …next time .
We can …laugh….cry …..and despair .
Time will not stop .
Where will you be ?
As mortgages are the biggest debt people generally have and thier house is the biggest asset , they have a disproportionate effect on how people spend the rest of thier money ( if they have any left over after mortgage payments). My point is that it is not JUST a problem about negative equity and mortgage arrears – it’s as much about how to get the economy moving again in the right direction and reduce unemployment and emigration.They are all interlinked. I do not expect any of the Banks to make any positive moves towards resolving the negative equity/mortage arrears… Read more »
Enjoy!!!
Brave aren’t you there hiding behind a computer screen?
C’mon lets be having you!
Any old comment will do!!!
David, Once again I have issues with this article from the point of view of how the economy actually operates. You insist that ‘If he isn’t spending, then someone else isn’t earning and if that someone else isn’t earning, he in turn isn’t spending…’ The fact that people save during a recession seems to be the only explanation offered by economics for why there seems to be less money during a recession. However I’ve communicated to you through various channels before that the main reason why there’s less money during a recession is because once a loan is repaid to… Read more »
Some straight talk from the U.K. : HALDANE INFORMS OCCUPY MOVEMENT ON BANK SEPARATION Nov. 3 (EIRNS)–The leading Bank of England (BOE) director and advocate of a Glass-Steagall reform came out in praise of the Occupy Movement, while informing it on the need for bank separation between investment and commercial banks. Speaking at a debate held by the Occupy Movement on Oct. 29 at Quaker House in Central London, BOE director Andrew Haldane said protesters were correct to focus on inequality as the chief reason for the 2008 economic crash. While not using the term “Glass-Steagall,” he did say the… Read more »
This looks ‘interesting’:
“Put Yourself on the Silver Standard.
Get the World’s only True Silver Debit Card.”
http://www.europacbank.com/index.php?page=silvercard
Not available to US citizens worldwide. Probably not available to anyone for long once the implications of abandoning Fiat money to buy petrol and groceries sinks in with Thee Illooominati, etc.
I don’t know, p2p lending, silver-backed debit cards: how can The Banks rebuild when this kind of carry-on is allowed?
Lol!
David: Debt-For-Equity Swaps between banks and individuals in the U.S.? You write: “In the US in the 1930s they introduced a scheme whereby the bank and the individual did a deal. The person’s mortgage was reduced and the bank was compensated by being offered half of the potential equity in the house, so that when the house is eventually sold in 10 or 15 years, the bank get first call on half the value of the house.” I never heard of such a U.S. “scheme” in the 1930s or any other time for that matter. Where did you pull that… Read more »
“Let’s roll up our sleeves and start talking straight” – hmmmm – who is that “US in Let’s” let’s lynch them, let’s revolt…wonder where the rabble rousers will be – making for the exit or watchinf the show….unfortunately, the paddies are like a bunch of wallflowers at a ceili dance…WE ARE ALL WAITING FOR SOMEONE TO SAVE US. We do not deserve to be a nation. A great contributer here (RR6 was it) in our midst has all so often mentioned the solution…he might even offer advice on same – maybe a part of this we site should be set… Read more »
THE PROPENSITY of the Irish political system to be captured by narrow vested interests rather than operating for the common good has been illustrated once more by the terms of the Personal Insolvency Bill which will allow people to write off debts of up to €3 million. The ostensible purpose of the Bill is to protect families in financial distress and ensure that they do not lose their homes. It seems, however, that our politicians are using this as a pretext to protect the interests of those who speculated in the buy-to-let property market. What other explanation can there be… Read more »
Here is a good story about the central banking system and why it should be closed. do not imagine this does not apply to you because it does, nomatter what you do or where you are.
Read the following carefully
http://www.thedailybell.com/28208/Anthony-Wile-Detlev-Schlichter-on-the-Nature-of-Money-and-the-Evolution-of-an-Inflationary-Depression
Let me see if I understand this mortgage debate:
“I like brick”
“I like door”
“I like driveway”
“I like lamp”
Everyone else should like these for me too!
“I like pints”
Accurate?
[…] spend a fair bit of money during the boom (and since for that matter)? … Read the original: Squeezed middle class families need banks to shoulder bad debt … ← The Delights and Dangers of Credit Card Jumping by Joseph […]
As @joeR posted above, homes should be for secure families with secure jobs.
Instead the banks sold securitized mortgages. Banker family values indeed.
Someone told me a long time ago something that I never forgot and it was this ” When you consider the alternative, growing old is not so bad”.lol I think you could equate that with mortgage debt in a way, or better still ask yourself the question ” what will happen if there is no deal done on debt”? My opinion for what its worth, and bear in mind that I am basing this on a lifetime spent reading finance and economics is this…Some deal will need to be done and it is just a matter of figuring out how… Read more »
Quotes of the day. Today the rigging continues and is more blatant than ever. A nuclear bomb could go off in downtown Manhattan and the markets would barely budge. It’s because they are run off computer programs in the basement of the US Treasury and the Federal Reserve with the help of The Plunge Protection Team. – Bix Weir The Europeans like to talk about their debt-to-GDP being 100% of GDP, but their pension fund liabilities are (a staggering) 350% of GDP. The French state pension fund, for example, is going to run out in 8 years. How do you… Read more »
Here is a report that says the Canadian housingmarket is in a bubble close to explosion. Is this report accurate. Will it prove that all those contributors at Kilkenomics were wrong about the strong banking system and the canadian economy.
http://www.bullionbullscanada.com/canadian-commentary/25801-canadian-housing-bubble-nears-implosion
Would you like to read the rest of the essays?
http://campaign.r20.constantcontact.com/render?llr=n7vdaxbab&v=001dXbC6UqaAI4p-lf1My7tGG46GogZYaN4ToAFYjJvxBnrTe-RWYL_Y5dxcyJ88yjTP4FWcOBTcqyggk_AIZROPpJvamkgF_eYr5G1SPzCxdC8Zi9Y5atN4XBmPg_pcmXM
Why don’t we get Ireland on track to monetize silver coin as well as Mexico et al.
http://www.321gold.com/editorials/price/price110512.html
Speaking at Kilkenomics, investment banker and founder member of the Rothschild International Privatisation team Kiron Sarkar urged the Government to take a more hardline approach to a bank debt deal.
“Your Irish government right now is not hard. You’re in a position to be able to extricate a good deal. Is your government able to do that? I don’t think they’re there yet,” he said. http://www.independent.ie/business/irish/ireland-told-to-get-tough-on-debt-3282176.html
The euro currency will be extinct within a decade, economists have claimed at Kilkenomics.
American lawyer and former bank regulator Bill Black last night agreed the euro currency would not exist in 10 years’ time. “The euro is the biggest threat to peace and prosperity in Europe in modern times,” Mr Black warned before a packed house at the Ormonde Hotel, Kilkenny.
http://www.independent.ie/national-news/kilkenomics-festival-hears-euro-will-be-extinct-in-10-years-3281220.html
Cleeres on the BBC!
Best pub in Kilkenny!
http://www.bbc.co.uk/news/business-20207064
There is a fundamental issue this blog, kilkenomics etc all suffer from – not sure if there is a single word for it – The diagnosis is correct, the cure is obvious enough, but the nature of the patient (Irish people) makes it impossible to administer Prof Black in on the ball about the Irish blaming themselves. I find myself doing it. It’s bonkers. No amount of rational or sensible thinking obviates the fact that bankers had a role to play (there!! I am at it again!). We find every other sophisticated excuse that avoids us going up and saying… Read more »
It is always middle Ireland you pander to. You never talk about the soup kitchens. Maybe another day. Not. “They were bombarded by incessant propopaganda” We all were but some of us didn’t take out mortgages and bank loans. Some of us (including some of your regular posters) knew that the incessant propaganda was complete brainwashing. To any thinking person it was insane and unworkable. You knew it was unworkable and I was glad you were around at the time to cry wolf. That is why I started to read your work. I trust dissenters more than yes men but… Read more »
‘They believed that the price of houses would continue rising. Why wouldn’t they?’ Because you are licking the populist arse as usual to shift books. What an statement. Is it not obvious and in direct contradiction of your teachings since 2003? Do people really pay you for courses? F^&3 me. They must be really dumb Surely they’d be better visiting public libraries and doing education and improvement the old way instead of this silly American model of expensive education and student debt (lunacy because anyone who feel the need to pay is not aware that education is a basic human… Read more »
Goldman Sachs, Barclays: Sandy Was a Good Thing Nov. 6, 2012 (LPAC)–With a typical logic that defies reason and morality, Goldman Sachs and Barclays have issued reports that {Forbes} has endorsed under the headline, “Despite $50B In Damages, Hurrican Sandy Will Be Good For The Economy, Goldman Says”. “At the end of the day,” writes Forbes, “Sandy may end up being beneficial for the U.S. economy, pushing indicators like construction spending, industrial production, and retail sales above their pre-disaster trend-lines over the next few quarters, according to Goldman Sachs…. “In terms of GDP, both Goldman and Barclays expect the effect… Read more »
David I wonder if you have overlooked Pat Flannery’s question above? “You write: “In the US in the 1930s they introduced a scheme whereby the bank and the individual did a deal. The person’s mortgage was reduced and the bank was compensated by being offered half of the potential equity in the house, so that when the house is eventually sold in 10 or 15 years, the bank get first call on half the value of the house.” I never heard of such a U.S. “scheme” in the 1930s or any other time for that matter. Where did you pull… Read more »
http://www.thedailybell.com/28247/Ron-Paul-The-Economics-of-Disaster
Thoughts on Sandy and the moral hazard of government insurance programs where the private sector will not venture.
Join the Ballyhea protest. It is something you can do to get involved.
http://thechatteringmagpie14.blogspot.ie/
usawatchgreghunterdog.com The President can legally order the execution of any U.S. citizen without due process. The President did just that last year when he ordered drone strikes in Yemen that killed three suspected American born terrorists. Relatives are suing the U.S. government for wrongful-death. According to a New York Times story, “The killings violated fundamental rights afforded to all U.S. citizens, including the right not to be deprived of life without due process of law,’ the complaint says.” (Click here for the NYT story.) There was not a single question asked of either Presidential candidate by the MSM about Presidential… Read more »
http://www.davidicke.com/headlines/75091-big-story-irish-childrens-rights-referendum-will-make-children-property-of-the-state-us-legal-expert-
Vote the children’s rights bill down.
It is an attempt to gaincontrol over your children. Children will be seized by the state from their parents and it will be months if at all before you can regain them as you have to go through the hoops to prove your innocence.
http://dollarvigilante.com/blog/2012/11/8/alice-in-waterland.html
NYC conditions after Sandy passed by