Regardless of what hard right commentators, economists, senior bankers and regulators say about so called "moral hazard", it is simply unconscionable that genuine victims of the property burst should be left swinging in the wind, on a principle. Having published a DIY book, Debtbusters as early as January 2009 to help those in distress deal with the issues involved, I've been waiting for the inevitable blow up to begin. It's started. But what strikes me forcibly is that, invariably, those opposed to helping genuine hard cases have never had to sit down with adult couples who cry throughout interviews and where depression and thoughts of suicide lurk like dark shadows in the background. Neither have they visited sparse homes where all luxury items have already been sold, where parents are hiding the truth from their children and neighbours and where every waking hour is spent agonising over what is an insoluble problem. These opponents simply don't know what fear smells like and what continuous exposure does to families. They are many layers removed.
Hard-nosed commentators would prefer we continue to squeeze these people and even raid their pension funds, breaking open the trusts that ring fence these small assets in further punishment for not listening, for not being super consumers, the type of highly informed, well educated and financially trained set that didn't swallow the guff from auctioneers, solicitors, banks, regulators and Government that the bubble was a figment of the imagination of pessimists. Their sin is that they bought at the top and then lost their jobs. Their hard luck is that nobody represents them, no well financed pressure group, no barristers, no PR agencies, no economists, no on-line community because they are concealed from us and alone. Very alone.
It took nearly two years of crisis for this Government to acknowledge the scale of the social and economic catastrophe on its doorstep. When it finally did, this year, it's response was to appoint an advisory committee. But before the quango has reported, the IMF has waded in with a recommendation that something tangible is done. Immediately this has triggered the let-them-burn brigade. Hiding behind the moral hazard argument, the counter-intuitive notion that masses of Irish people will abuse any scheme as a financial planning tool, willingly making themselves bankrupt, is a very simple motive. It's called greed. Scratch most opponents and you'll find bank shareholders fearful of further recapitalisation and many others who simply want to pursue self interest. But ignorance and fear also plays a role.
Yet it's all really pretty simple. The money is gone. The money is never coming back. Whether this recorded now on bank balance sheets or in a few years is purely a matter for book-keepers. What's left are families on social welfare with creditors baying for cash they don't have. A work out, customised to their circumstances and operating within an agreed set of rules that bind both creditors and debtors, is the obvious answer. That, in some cases, this may include partial mortgage write offs, is the fear that stalks the hard right. But some kind of limited rescue scheme must be implemented. It makes sense too economically by helping these families restart their lives, paying back what they can and avoiding the inevitable cost of social breakdown which will be picked up for years ahead in bills needed to deal with the consequences of our inaction – ghettos, juvenile crime, drugs and social breakdown. We simply must act, we cannot stand by and let these families disintegrate.
The Essence of the Banking Crisis Remains Hidden
But Honohan scores heavily by nailing the propaganda spun by Bertie Ahern and Brian Cowen that, save for the yanks and their Lehmann collapse, Ireland was due a soft landing. In no uncertain terms it tells it as it is – the Irish economic collapse was home grown and was going to happen anyway. That it was exacerbated by the subprime debacle is a given but at its heart was the reckless political strategy of the last Government deliberately aimed at stoking property mania and buying votes. Banks, certain that they had the regulator compromised, did what banks always do when they are not controlled – they went bust. To find out what really happened Professor Honohan should examine how the green field financial regulator was strangled at birth. Then we’d really understand how we came into this mess.
At fifty years of age Ivor Callely, it seems, simply ran out of cash. So Ivor decided to dip deeply into his expenses, maintaining an unusual story that he travelled to and fro from Kilcrohane to The Senate for over two years at a cost in excess of eighty grand tax free. If you’ve ever been to Sheeps Head peninsula, just about the last thing you’d ever willingly do is to commute weekly to Dublin. It’s God’s country on a fine day, walking the spine that separates Dunmanus and Bantry bays. Ivor should have known better than defy the elements from here. The French fleet came to grief in Bantry bay and part of Irelands biggest cocaine haul was consumed by eels off the rocks opposite Ivor’s retreat.
The big bust didn't collapse the mortgage debt that supports property investment, the favoured pension plan for most Irish small business people and middle income earners. The bust was followed by the destruction of rental incomes which is why most property investment portfolios are upside down and under severe pressure. That means debt worth more than asset values for lots of people, also known as negative net worth. Meanwhile lower rents (if you can get rents) combine with big losses in normal earned income to crush people’s financial strength and sense of well-being.
Ivor Callely who cheered on a political class that brought Ireland to its knees seems to have dipped into public funds to bail himself out. Ivor isn’t depressed simply because he’s morphed from the Dail to the Senate. Ivor is sick because, in his fifties, his financial position has been undermined, his wife is going back to work and his former Fianna Fail colleagues are largely to blame for stoking up his property values, encouraging further borrowing and giving him an overbearing sense of omnipotence. It is an oily game called snakes and ladders and Ivor, is back at the bottom.
Guess which of the three roads political leaders in heavily indebted countries will take? That includes large parts of Europe, the US and UK;
So Irish house prices are undervalued? That’s according to Standard & Poors the same crowd that told banks worldwide US mortgage portfolios were top grade despite being infected with liar loans. Maybe the nice people at S&P are loading into Irish property themselves? Nah, read the small print. Prices are undervalued based on historical averages. Yeah, a bit like telling a patient in intensive care that if she were the average patient she’d feel better. There’s no chance of any price recovery until the excess on the market is cleared away and that excess is going to get worse as the bank squeeze tightens. So expect another dip in prices and little cause to celebrate until we’re a lot closer to the centenary of The Rising.
Comments
Post has no comments.