Have you ever gone to a gig so ridiculously funny that you can’t actually communicate with the person beside you? You are reduced to grimacing; words just can’t come out, tears and snorts, yes, but words, no. When I finally pulled myself together at Tommy Tiernan’s latest show in Vicar Street, it struck me that Tommy might not realise this, but he has a lot in common with mainstream economic thought.
Tommy Tiernan, Franklin D Roosevelt and the IMF have something in common: they all want the small homeowners to get debt relief of some sort.
Tiernan’s brilliant take on the present debt crisis can be seen on YouTube. It’s a pretty blunt form of permanent debt repudiation but, that said, it is not a million miles away from what the IMF suggested last week.
The IMF call for exploration of debt forgiveness for the average indebted household revealed that the IMF is miles ahead of the ECB. It may be time to begin the process of dealing with the IMF on its own, if that is possible.
The IMF, after all, has been dealing with bankrupt countries for decades, it has seen all this before and it is now helping the Icelandic government to implement debt relief. The results in Iceland are promising.
The IMF deal in Iceland is part of an established tradition in economic history. Debt relief after a credit boom is not radical; it is mainstream. What is in fact radical is the ECB position that debtors uniquely shoulder the burden, rather than creditors and debtors together.
It is interesting in this crisis how the radical has become mainstream and the mainstream is labelled radical.
At the height of the Great Depression, the great President Roosevelt, in his message to Congress, stated that it was his objective to “relieve the small home owner of the burden of excessive interest and principal payments incurred during the period of higher values and higher earning power”.
In the summer of 1933, he embarked on a most comprehensive programme of debt relief by setting up the Home Owners Loan Corporation (HOLC) to buy mortgages from banks. The government exchanged bonds for these mortgages. It then restructured the mortgages, writing off significant amounts of principal. In all, one million US mortgages – or one in five of all mortgages – were restructured.
Starting in 1933, the HOLC bought up mortgages and then it waited and, over time, as US conditions improved, it sold the mortgages back to the banks because they were now performing. As they got back on track, Americans who would have been kicked out of their houses, paid back their mortgages and the HOLC was eventually wound down in 1951.
The main reason to intervene to give debt relief to homes which have far too much debt and far too much negative equity is that it helps the economy to recover. Last week’s IMF study revealed what we all knew in our guts, which is: if you have too much debt, the economy won’t recover and the recession will go on and on and on.
The IMF study, which looks at episodes where other countries have got into a similar mess, shows that, in all cases, the two most significant elements that drag recovery is the debt-to-income ratio and the fall in asset prices. So we can see that the crisis is not the cause of our problems, but the consequence.
Ultimately, the more debt there is the faster the fall in house prices. This contracts demand, income and employment, and then defaults start.
Our debt-to-income ratio is among the most delinquent in the world at more than 100 per cent.
This means that, when things start to tighten, there is far too much debt to pay. Debt of more than 100 per cent means that the growth of the economy has to be at least as much as the prevailing interest rates, otherwise the debt ratio explodes. AIB’s website tells me that a personal loan would cost me 9 per cent APR (that seems very expensive). So with debts at 100 per cent of GDP and the economy actually shrinking over the last two quarters, the debt burden is not payable. The IMF found also that the fall in house prices makes us feel much less wealthy, and this has an impact on the willingness to consume.
Real house prices in Ireland have fallen faster and farther than anywhere else. Contrast the fall in Irish houses prices with that of Iceland and you can see that the introduction of debt relief in Iceland has cushioned the fall in house prices.
What is the upshot of all this? If there is no relief, arrears and defaults will simply rocket up of their own accord. The rate of default is now accelerating faster in Ireland than anywhere else in the world.
This column has argued for debt relief for years now.
Normally, the reaction of people who don’t have debt is to argue that it’s not fair if others are bailed out. That is the moral hazard argument. I am more concerned about real hazard than moral hazard, and real hazard is chaotic default all around the country by thousands of people.
This is what will happen if we don’t have debt relief.
But the question is: who pays?
This is where there is light at the end of the tunnel. But in order for a clean and relatively cheap programme of debt relief to be set up, we’d have to get the Central Bank to create the money. Can we do this? Surely we can’t?
Yes, we can. In fact, that’s what the entire promissory note palaver is all about. The dirty little secret that the ECB doesn’t want to share with us is that the eurozone is actually out of control. Because of something called “emergency lending assistance’, each country can print what it wants.
So the government here issued a promise – the promissory note for Anglo. It gave that to the Irish Central Bank. The bank gave it cash. Where did the cash come from? They made it up. They just printed it. The government then owes the Central Bank. For details on this, see this excellent occasional blog.
If this can be done for Anglo, why not for people’s mortgages?
Why not create a big promissory note to cover half the cost of debt relief? Let the banks own a share in the house, so they have equity. But it wouldn’t be the banks that own it really, it would be the state because we own the banks. Make the promissory note for 30 years.
In that ensuing 30 years, the price of houses rises eventually.
The punters sell the houses, the equity goes to the banks which owe the money to the government, which owes the money to the Central Bank.
Would the ECB allow this? If you did it, what could this institution actually do? Nothing. That’s the big lie. There is nothing it could or would do.
Maybe Tommy Tiernan was right after all.
+1
http://awakenlongford.wordpress.com/2012/04/16/bank-funding-ha-ha-ha/
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The same argument was used in the Tax amnesty in 1980’s those who did not own taxes said it was not fair, this argument will always exist and the people who do not have a mortgage are correct as are the people buried in debt so in short two rights can only make a right! Whats the holdup! The dogs in the streets know Debt forgiveness is the correct thing to, it is only the Bankers who are pulling the strings of our Public Trustee Puppets who are stopping implementation. No problems with IBRC writing off 100 million to push… Read more »
Debt can only be cleared by repayment, realisation of security or write down and write off. There are no other ways. Any other legal actions are about punishing the borrower not about repayment. We know clearly in a lot of cases repayment capacity is not there. We know security values have bombed. It only leaves writedown and write off But whiie the regulators, banks and legal profession continue to try and shut the door after the horse has left the country, we will engage in thousands of frivolous legal actions to obtain judgements against people who have nothing left, continue… Read more »
Interest = Usury = Wrong
Banking is a service industry, charge for the service provided, ie. setting up the loan.
Nationalise the Banks
Create the money as its needed, retire it as its being paid off, NO INTEREST!
Just think about it!
Just think about all the other things which could occupy our minds if we were not pre-occupied with INTEREST REPAYMENTS!
No need for Debt Forgiveness as no Debt (Death) spiral exists.
Borrowing Principle to repay Principle + Intetest, ad infinitum = Debt Spiral
apologies for spelling, fingers moving faster than brain, brain speed slowing down everyday, old age! LOL
All for debt forgiveness as long as the asset is not retained. If a person can no longer afford to live in their house then fine, write off the debt and give the house back. People can then buy the house that they can afford and property prices will reach their natural level. The idea of a person borrowed up to the hilt in a large house (that others realized they could not afford) getting debt relief and also being allowed stay in the house is plainly wrong. Another exmaple of Capitalism not being allowed to work.
@MICKEYG Again some citizens have more trouble with the write off to another citizen than to large unknown investors.
So write off debt remove asset or as some strange people call it home and what happens than state rehouses thousands of people ??
MickeyG, You are absolutely right in using the term ” Poor Little Borrower”, people were hoodwinked, the Banks, the Media, the Government all bar none, shouted from the rooftops “Get on the Property ladder at all costs”. I am delighted that you were a prudent borrower and I certainly would not call you stupid for that reason. But, the predominant word in “Debt Forgiveness” is FORGIVENESS! and nowhere in any dictionary is this word connected to Homeless, Psychological damage, family breakdown etc.. people who are not in a position to need debt forgiveness will always reject the argument, that is… Read more »
As a true capitalist Mickey can I ask have you ever employed anybody. Have you ever borrowed to grown yoiur business and create more jobs. Would you do so now.
Do you think capitalism which at its core is meant to be about wealth and job creation is about taking a hard line with ‘poor little borrowers’ while big investors and lends get bailed out bu the same poor little borrower and his friends and relatives.
As far as I’m concerned, the most telling statement in this article is: “The IMF found also that the fall in house prices makes us feel much less wealthy, and this has an impact on the willingness to consume”. At the moment, the western world’s governments are desperately spending all our tomorrows trying to maintain this propensity to consume less when houe prices fall. In my view, until this is changed, the problem of the outstanding debt is of secondary importance. Income, not capital, is should be the key to higher consumption. (For the pedants, I suggest that the degree… Read more »
All I am hearing here is money, asset, money, asset, jeez people this is much bigger than money, to the detractors of debt forgiveness I say, when you have raised a family in a “home” it is not a house or and asset it is a HOME! filled with memories, christenings, birthdays, christmas, births, deaths, communions, confirmations, exam results good news, bad news etc… between my last home and the one I live in now (since 2001) I have raised four children and all my memories and theirs are in this home, and I am expected to simply regard this… Read more »
Speaking of taking inspiration from comedy, last week I was driving home after a long grueling meeting where yet again I was promised I would be paid “”next week”. I had about €55 in my pocket for the weekend, reserve light on the fuel gauge, shag all in the fridge and bills to be paid. The usual. I turned on the radio for some escapism only to bump into the news. Our “Government” had announced a €150m Small Business Loan scheme. €150m I thought, for fu** sake, that’s €15,000 each for 10,000 business, on successful application. BUT, then there’s the… Read more »
Hear Hear…….
Hear Hear, again. Maybe, just maybe more people are copping on to what is going on.
David, I bit confused here. Tell me, or anyone else for that matter, where I’m going wrong . Is the policy that you’re describing not what NAMA does already?. From what I understand the way NAMA is structured is the government, through NAMA, issued 10 yr. bonds to the banks in exchange for non-performing loans with a 30% discount. The banks in turn used these bonds as collateral to obtain newly printed cash from the ECB which was then promptly funnelled to their unsecured creditors, leaving us, the tax payers, to guarantee the NAMA bonds. I should also mention that… Read more »
OK, I’m done here as people are obviously not reading what I am saying fully. Here is my summary; people chose to buy a house at a given price. They were not forced to buy and could have rented if they wanted to. It was THEIR decision, tehy were grown up adults. They now unfortunately find themselves in financial dfficulties and are looking to have their debts forgiven by some percenetage. I am OK with thsi as long as they do not continue to benefir from the assets tehy bought with thsi debt. My view is that the debt should… Read more »
Afternoon all Cancel all debt NOW including your own rich,poor,struggling,whatever.This is a criminal financial system and a puppet Government.We need to take back our power and realize we have a right to our OWN Government. Ireland is Bankrupt and poorly ran and managed. People are worth more than faceless Corporations so people come FIRST. Banks lied,cheated and yet get bailed out for failure while men and women around the Country have to fend for themselves.NO MORE. Banks and Bankers continue to get rewarded for failure.WHY ? Do a budget,put your family first,slash your Bank debts to 10% of payments,contact MABS… Read more »
Well said RR6
Look if david projected where we will be in 4/5 years from now with the present government,
We would be out on the streets in force now,because we would be starving poor without a pot to piss in.
Grey Fox RR6 banksterhill Bamboo Phoshus Hibernian66 The Irish spent money like tap water during the boom. Now that most of the Irish public is in debt, you start watching YouTube videos by G Edward Griffin and Bill Still about fractional reserve banking, fiat currency and the fact that credit money “doesn’t exist”. When the Irish were spending it, it existed. But now that the Irish owe the money back, it “doesn’t exist”. Nice philosophy! Phil Hogan will win in his household charge battle, after a long campaign. The water rates battle will be won by the government. The Croke… Read more »
Apologies, Slightly off topic. Water meters…. The Taoiseach said householders would definitely have to pay for the meters but not the cost of installing them. So the meters cost is €300 a pop. With more than 2 000 000 houses in the country, the manufacturer will make more €600 000 000 for this exercise. Is it the case that you can buy a water meter on eBay for less than €300 and get it installed for free? I’d open a shop selling only water meters. I definitely try and get only 1% of this business which gives me a tidy… Read more »
MickeyG and C21living, I salute you both for bringing a well needed dose of reality to this site. You are the voice of the quiet, prudent, law-abiding citizens of Ireland. I support you 100%. You are rightly outing the inconsistencies, hysteria and outright selfishness of many of the posters here. Keep up your good work.
C21 You miss the point that economies and states should not fe run by threats that are used to maintain a flawed status quo. I believe you choose where you live and I chose to come back to Ireland a few years back. I thought it was a modern fair capitalist country. But it is not now. It socialises large debts, bails out bad investments by the mega rich i.e socialism. On the other hand it preaches pure capitalism at the rest of society. And then if people and the Irish people have behaved incredibly benignly even dare to suggest… Read more »
Surely it was the banking system that “spent money like tap water”. The flood of money originated with the banks. Would the banks have been more careful if there was only non recourse loans available?. ie – if everyone who could subsequently not afford to pay, simply handed the Keys back to the bank then the banks would be a lot more careful in doing the investment homework before turning on the money tap. The following would be capitalism – ? 1. Banks do not get bailed out if they fail 2. Only non recourse loans for homes 3. A… Read more »
@C21
please listen and learn
http://www.youtube.com/watch?v=gX5RHhX8E2k&feature=player_embedded
Folks, Debt relief is simply deleting numbers on a computer screen sitting on a bankers desk in an office. I agree with D’s analysis overall. But, how ’bout a faster, quicker more scintillating solution…. The 30 billion govt claw back from taxpayers how about instead of passing it to Central Bank to burn into pile of ash how about giving it to every household in ireland. In fact, how about instead of debt relief for those in debt, how about printing it and giving it in cash instead of relief to everyone so as those who avoided debt will be… Read more »
I never said that the new bankruptcy laws won’t apply to me.I said we don’t need them,the tools to help people are already their…………… I or any of my financial mismanagement buddies on this site as you call them never,looked,wanted or sought a white knight to save our asses,we are all grown up and understood to take the good with the bad and understood our responsibilities ………….then along came the Bank bail-out………..Forget about it C21,I will send you a box of crayons…… figure it out for yourself,do some more research and learn some humility…………. I wish you and yours well… Read more »
Put 200,000 people thru bankruptcy, no even less say 100,000 people and what we think is bad now will seem like a walk in the park, have you, C21 though of the social consequences? Whats the point of bankruptcy, the bank doesn’t get anything anyway, apart from a house it can’t sell and the state has the additional burden of rehousing the 100,000 people (no sorry, possibly 300,000 people as only one person presumably will be declared Bankrupt in each family, or maybe the plan is to bankrupt both parents, just in case they get any notions about getting on… Read more »
I know I am off topic, but I want to express this here. From the Sunday Independent April 15 2012 “THE Minister for Education Ruairi Quinn has warned that the absence of any consequences for those against whom findings have been made by tribunals could affect the good name of the country. He said that potential foreign buyers of State assets earmarked to be sold will look at Ireland and say: “These adverse findings, and they’ve had no consequence!” I support the rule of law…but there is a much darker issue here. It is beyond belief how appalling his tirade… Read more »
Well C21 you really are making lots of friends today. Before you try and label me another crybaby I will make clear that my mortgage was very luckily paid off a number of years ago. That does not give me the right to label young couples crybabies who are stuck in this negative equity trap that was 90% a creation of the banks, the politicians, the media property circus and most of all the ridiculously low interest rates that were imposed on Ireland from the ECB from 2000-2005 after we joined the Euro. Near zero interest rates are a speciality… Read more »
Dirty little secret – The ECB magic the money out of thin air. Hand it to the stupid politicians and enslave a nation paying tax so as to pay interest to the elitist globalist banksters on “money” they created out of thin air at no cost to them!!! Wake up people….
Rotten!
The answer to avoid this ever happening again is by introducing nonrecourse mortages-buyer and lender beware!
But alas no! as with everything done by this government and the previous the intention is to maintain the staus quo by any means possible.
David,
Do you think it’s acceptable to pay interest on money created out of thin air? Who is the interest going to be paid to? who benefits?
Do people not see through what you are saying..
The dirty little secret, which is so obvious, yet most people don’t see it.. i blame the TV, people are in a trance or something
NO TO BIG GOVERNMENT, NO TO MONEY CREATED OUT OF THIN AIR. NO TO SERFDOM
I wonder whether the increasingly acrimonious mood on this board is representative of any broader mood? Just a short point on this question of “money from thin air”. The difficulty is that money that is borrowed, whatever it’s source, is spent by the borrower. Were it just borrowed from a bank and then hidden under a bed, and no one told (otherwise it might be collateral), then it could be taken back by the bank, burned, and no harm done. Once it’s been spent, the borrower owes it to the lender, and it’s out there working it’s way through the… Read more »
The IMF are a great bunch of lads. Re-read the works of Naomi Klein you sap. Debt forgiveness is a smokescreen to soften the humiliation of future water privatisation and further austerity budgets. It is all a sick joke and as usual you don’t venture anywhere near the real truth Get the mugs to pay for the water meters and the government will pay for the installation costs (out of the pension reserve fund) and then sell off the water infrastructure to vultures who will screw you for life First rule of life – never believe a word the government… Read more »
Evening Pauldiv
Hope you had a great day.
Please don’t go looking for Colin,we already have Mr C21Living……..
RR6
What do we have at the moment? A lot of people fighting against each other, and very demoralised. An internal market that is totally depress, with high unemployment, and a horrible social crisis. And that feeling that whatever is being done by the Government, is too little and too late. And it has no real positive effect in the economy, or in social cohesion. They keep thinking that by robbing Paul to pay Peter, we can get anywhere. . The FG and Labour Government has done the same mistake than the previous FF and Greens, they have put the cart… Read more »
***robbing Peter to pay Paul
“Tommy might not realise this, but he has a lot in common with mainstream economic thought.”
I hope not. Tommy is funny…but although mainstream economic thought may be a laugh; it isn’t funny.
Mainstream economic thought isn’t right either. It’s as wrong today as it was back in the early noughties.
C21living I don’t know about individual bankruptcy. That’s a matter for individuals to decide for themselves. I don’t think taking that road would be quite as simple as you suggest; it would almost certainly have consequences that would extend beyond three years. I can understand people being unwilling to take that extreme choice. Most people in negative equity and mortgage arrears in Ireland are not speculators or ‘Celtic Tigers’. They are ordinary working people who found themselves with very few options. We all remember the intense media propaganda about getting on the ladder before it’s too late; and the intense… Read more »
David Yet another contentious writing that succeeded in getting the the bloggers at each others throats. People should be treated humaimely or they should bear the consequences. I have hesitated to get involved as toes are bound to be trodden on. “Tiernan’s brilliant take on the present debt crisis can be seen on YouTube. It’s a pretty blunt form of permanent debt repudiation” Nothing of the sort. Tiernan mentioned nothing about repudiation. He was full of scorn and mockery. He left a hanging question as to whom the money was owed to. no mention of people, just states and the… Read more »
Krugman Endorses Exit from Euro April 16 (EIRNS)–In one of his rare moments of lucidity, Paul Krugman titles his Sunday comment, yesterday, “Europe’s Economic Suicide.” After noting the heartbreaking stories of “suicides by economic crisis,” he says it’s not just individuals, but the whole continent which is on the edge. You would have thought they would have learned from the failure late last fall, he says, “but they didn’t,” and rather “doubled down” on the same program. After describing some of the details of the Spanish crisis, he says the prescription of further austerity “is just insane.” Just as in… Read more »
Water meters to cost 40 euro a month for twenty years….. excluding charges
“they can pry it from my cold dead hands”!
Argentian president “takes back” Oil from Spanish company Repsol
We should do likewise………
“do not pray for easier lives,pray to be stronger men”.JFK
Morning,
I pointed already to Wolfgang Streeck in a reply to Pauldiv above.
Dr. Dr. h.c. Streek is MD at Max Planck Institute for the Study of Societies, Cologne, and Professor of Sociology, Faculty of Economics and Social Science, University of Köln.
He is also chief Editor of Oxford Journal SER, http://ser.oxfordjournals.org/
Democratic Capitalism and Its Contradictions
http://www.mpifg.de/pu/mpifg_dp/dp11-15.pdf
Good Morning,
Hope all is well. Can we chill out a bit on the insults flying around?
Best
David
There is a complete clash between those who realise the current systems of goverment , banking and commerce are fundamentally broken down with way too much imbalance in favour of those on the inside. I firmly hold this view. Then there are those who see compliance with the status quo as the only way. This is despite the fact that the current system has thrown up major financial crisis, recessions and depression, huge unemployment, transfer of wealth fom citizen to corporate, social unrest, huge incease in suicides, emigration , personal wealth and well being deterioration, protectionism of the worst kind… Read more »
Michael Hudson on *Debt Restructuring* using historical law.
*Fradulent Conveyance law*.
http://www.nakedcapitalism.com/2012/04/michael-hudson.html
Well worth a look.
An excellent legal remedy favoring the debtor who is being loan sharked by a English Sharpee loan shark from City of London trying to grab assets.
Good post Tony Brogan I am not sure about scrapping the central bank. I would nationalise it. But managing the currency directly from treasury would amount to the same thing. The principle is that the currency be issued and controlled by the people through their legitimate representatives; not by private bankers. End all private currencies. It is a scandal that the global reserve currency is essentially a private or plutocratic currency. What were they thinking? Also, not convinced by the principle of tying the value of the currency to a commodity. The fact is, as we are finding out today… Read more »