“Current asking prices suggest that 200,000 households are in negative equity, the majority of 270,000 people who bought between 2005 and 2008. Figures from June show 36,000 mortgages were in arrears of three months or more, with collective arrears of just over half a billion euro. These figures do not account for tens of thousands who have renegotiated, switched to interest-only repayments or obtained a reduced repayment schedule for a period of time”
From a letter to the Irish Times by finance, economics and mortgage experts in November 2010
In the past two decades Ireland has implemented innovations that have marked the country out as progressive and ballsy. We banned smoking in bars and other workplaces in 2004, we introduced a €0.22 levy on plastic bags in supermarkets, in the 1990s we saw the potential for low corporate tax rates to provide a compensating boost to employment and wealth, in 1996 we set up the Criminal Assets Bureau in the wake of journalist Veronica Guerin’s assassination so that wealthy individuals without visible sources of wealth could face confiscation of ill-gotten gains. And for the most part, today we look back fondly on these innovations There have been a few less fondly remembered – in 2002 the government distributed iodine tablets to every household in the land so that if “the terrorists” got their hands on Britain’s Sellafield nuclear power station and there was a release of radioactive iodine which breezed over onto Irish shores then we could all take the so-called “stable” iodine tablets handed out by the Irish government to prevent thyroid cancers! The use of cheese as a means of combating poverty raised a few well-deserved chuckles last year. The jury is still out on the famous social partnership between government, employers and workers.
And now, as a nation, we face another problem articulated by the economists who wrote to the Irish Times last November, whose letter extract is shown at the top above. We have 800,000 mortgages in the State, an estimated 200,000-plus are in negative equity, 5%+ are in arrears over 90 days, another 5% have been restructured and are mostly on interest only repayments. Property prices have collapsed and are reckoned to be 35-60% less than peak prices, depending on which index you consult. And given our penchant for re-mortgaging during the boom, it wasn’t just actual purchasers of property that are now left nursing massive negative equity, it was practically anyone who re-mortgaged at the peak. And that released equity was largely blown; not an insignificant number of households became three-car families with an executive saloon, a sporty run-a-round and a jeep mostly bought on credit. Others invested in property abroad -Bulgaria,Cape Verde,Spain were popular. Or we invested in banks shares that were seen as blue-chip punts. And we spent – back in the 1990s, nouveau riche Russians used to ask shop-assistants in Moscow if they hadn’t anything more expensive to sell, in the 2000s in anonymous boutiques in Mullingar we were asking the same question. So for a mix of profligacy, recklessness but also conservative caution in not wanting to be priced completely out of the property market, for better or worse, we have this heavy yoke of debt around our necks, or to be more precise around the necks of a significant enough proportion of the country, that it affects us all to a greater or lesser extent.
There doesn’t appear to be a suggestion from any quarter that things are going to get better anytime soon in terms of property at least, in fact the betting is that things will get worse before they get better.
The problem is a financial one in that a significant number of people cannot afford to repay their loans. It’s also an economic problem because people are paying down debt which is not being matched with new lending by Irish banks which have colossal deleveraging targets, and because the whole mess is draining confidence from those who do have savings but are deterred from spending now. And it’s a societal problem with a large beggared section of society barely keeping their heads above water financially.
So will have spring another rabbit from the hat with an innovative Irish solution or will we wander off on a cheese and iodine tangent?
Morgan Kelly yesterday called for debt forgiveness for Irish mortgage payers and is reported to have said the cost of a program would be €5-6bn; I don’t have the speech but the Irish Times reports “in such a scheme mortgages would be reduced to a level “deemed affordable” while others would be allowed to leave their properties “without being pursued for outstanding debts”. In June 2011, RTE’s Frontline programme also explored debt forgiveness particularly for mortgage borrowers. Last November 2010 a group of finance, economics and mortgage experts wrote an article for the Irish Times in which they argued for some form of mortgage debt forgiveness based around an arbitration process. Perhaps because of the nature of the medium used, the proposals advanced so far lack detail, and are usually followed by reactive arguments about recklessness, profligacy, moral hazard and “I didn’t buy into the madness”. So these no-doubt well-intentioned contributions dangle the simulacrum of a solution before the eyes of many in this country who are in desperate straits, but without the detail of any proposed scheme, people are left confused, anxious and understandably enough, envious about a potential free gift for their neighbour.
But it’s worse than that, for those in desperate financial straits it’s just plain cruel.
It holds out the hope that there will be a gift from the Man, a no-strings attached free lunch, which will effortlessly transport those struggling with debt repayment to a Nirvana where the debt slate is wiped clean or debts will magically become manageable once more. It’s a lovely idea, up there with universal health screening, third-level education for all who want it and a crime-free country. Trouble is that whatever solution is advanced is (1) very expensive and (2) lacks meaningful detail.
But we really don’t need to re-invent the wheel in Ireland. Other fully functional economies have debt resolution mechanisms which have worked for decades if not a century or more. Importing a template from the UKor US and then making some minor modifications to fit the template into Irish legislation is not a Herculean task. And even in our own country, the Law Reform Commission has published what many people think is a sensible set of reforms to bring our bankruptcy laws into the 21st century. Instead of meaningful reform however, we have a half-hearted proposal to introduce some interim measures in 2012, the main feature of which revealed thus far is the reduction of the bankruptcy period from 12 to five years! When the IMF and EU/ECB troika are next in town for a review in October 2011, I do hope they are vigorously quizzed by the media as to their view on the pace of progress in reforming our backward bankruptcy laws, given that such reform is mandated as part of the bailout programme.
The basic principles of bankruptcy don’t seem to change much from country to country – property dealings prior to bankruptcy are examined to ensure the bankrupt is not defrauding creditors, property owned jointly with a spouse may become part of the pot to repay creditors but the spouse is entitled to protection of their share, property needed so that you can carry on a business is given a special status and may be protected depending on how much it’s worth, creditors cut the best deals they can, and basic pensions and family homes have limited protection. Unencumbered wealth is liquidated to repay creditors, in other words, your credit union deposits and your shares are sold to pay back the mortgage company. Someone is officially appointed to act as a referee between you and your creditors and to sort out your finances and ensure creditors are repaid on an equitable basis from the assets. Bankruptcy lasts a period of time during which the process of assessing your assets and repaying creditors takes place, and during which time, anything other than a basic salary is paid into the bankruptcy pot. And that period is typically between six months and two years. And that’s it. There’s no magic to it, it’s not rocket science, it’s tried and tested. It takes account of the needs of creditors and debtors and society. It doesn’t offer free lunches, it takes account of the indebted’s ability to pay, it doesn’t endlessly kick the can down the road, it’s humane and ultimately it supports a capitalist society where confidence can return generally, and where the indebted can quickly become economically productive. It seems we just need get our external bailout masters to twist arms in our government to implement the reforms.
There were nine (yes, nine, one less than 10) bankruptcies in the Republic of Ireland in 2010 (UPDATE: 23rd August, 2011. The figure of 9 relates to 2005. According to William Fry solicitors, the number was 17 in 2009 and 30 in 2010). That’s less than the number in a single working day in Northern Ireland which has less than half the population of the Republic. (the North recorded 902 bankruptcies PLUS 542 Individual Voluntary Arrangements in the FIRST SIX MONTHS OF 2011). No wonder property prices in Northern Ireland have dropped 44% from peak whereas the plethora of can-kicking measures in the Republic has meant that our over-supplied, badly planned, credit-fuelled mess of a property market has still only fallen 42% from peak according to the State’s main index from the Central Statistics Office.
That we desperately need a reform of our debt laws is unquestionable. There may additionally be the opportunity for an Irish innovation to recognise the colossal scale of indebtedness, particularly on property which has collapsed in value. But we should first quickly implement a standardised reform, be that a template from another country or the proposals of our own Law Reform Commission. Perhaps once those reforms are implemented we can look at extraordinary or emergency measures, such as those apparently being offered by Professor Kelly.
NAMA Wine Lake 
+1
This may not be up there with a “Plastic Bag” tax or a “Giving Smokers Pneumonia” law – but here’s a “novel” debt resolution scheme…
Kill the Zombies.
Revoke the guarantee. Stop pouring good money after bad into these failed, empty husks. Kick the bankster bums onto the street. Let the dead banks die
I know this sounds strangely like capitalism – but in this disasterous era of cronyism-gone-mad, it’s what passes for “innovative” these days!
+1
I agree with you on the lack of specifics in this debate. I also agree that dangling solutions is cruel when no implementation is possible ‘in the current climate’. I think it behooves us to think beyond the possible sometimes to start a debate. But that is at the level of national rhetoric and discourse, and not really connecting with what’s happening on the ground.
As part of newbeginnings I speak to those having their homes taken from them quite a bit. I spoke to a lady today going through a repossession and eviction. It is not easy when you hear these stories. The truth is that they don’t care what economists say in lectures to graduate students. The process for them is all that matters. And the process is unfair and outmoded, as you say.
@Stephen,
As one of the authors of the article on debt forgiveness in the Irish Times last November 2010, in addressing you I need to make it clear that I am not accusing you of intending to be cruel.
But the subsequent debate ignited by the article, accurately reflected in the comments on irisheconomy.ie site
http://www.irisheconomy.ie/index.php/2010/11/11/economists-propose-mortgage-debt-relief/
illustrated the confusion of what was intended. Meantime, apart from a protocol for dealing with mortgage arrears which many think kicks the can down the road for a couple of years, whilst residential property continues to fall in value, whilst unemployment remains elevated, whilst incomes remain tight and new taxes threaten take-home pay. And Minister Shatter has announced legislation for 2012 which appears to keep all the existing draconian bankruptcy terms but reduces the bankruptcy period from 12 years to five.
So from my perspective, the problems remain and are probably intensifying, and there is no sign yet of a proper bankruptcy process of the type that exists in almost all other developed countries – humane, effective, cheap, timely. And for people buckling under debt, the debt forgiveness innovations sound emancipating but with lack of detail, there is a feeling of being left to swing oftentimes with what might turn out to be unrealistic hopes of a helping hand.
As possibly the most prominent people associated with New Beginning
http://www.newbeginning.ie/ (worth a few moments of anyone’s time to check out)
no-one can doubt the honesty of your intentions to alleviate the grinding, hopeless plight of those buckling and buckled under debt.
But until we have a basic bankruptcy process, innovations on debt forgiveness, in my view have left those in most need dangling in confusion.
[…] Update: Jagdip has some thoughts on this debate on NamaWineLake. […]
I see absolutely nothing extraordinary about the measures being talked about by Professor Kelly. Quite the opposite it is extraordinary that these measures were not adopted 2 years ago as an alternative to NAMA which has shot gaping holes far bigger than anything Morgan Kelly is talking about. Have we not put 73bn to date into bailing out banks? Have we not decimated our NPRF. Our experts were idiotically boasting about being “fully funded to may 2011” back in september 2010 only to be told hands up! If you have that money it must be used to recapitalise your kaputt banks. Our lot still playing ‘snap’ when the Germans and French had moved on to serious poker.
As regards the jury still being out on Social Partnership, what jury? Who’s Jury? Social partnership is now widely recognised as being responsible for looting the public purse on both salaries and pension entitlements and Croke Park is its continuation. Only the most perverse thinking and logic would insist that one section of society be protected and that any gains from the deal be used to pay back the losses of the “lower paid’ public sector workers before a red cent would accrue to the exchequer. I find it ironic, but hardly surprising, that those that benefit most from salaries and pensions are invariably the most tardy when it comes to the issue of debt forgiveness. I suppose the jury is out when it comes to NAMA too? Again! what jury who’s jury. Listening to VB the other night I noticed that jury member Mr. Constantin Gurdgiev not only had found NAMA guilty of economic treason he seemed to want it hung, drawn and quartered. Finally, the alternative to MK’s proposal is non recourse, throw the keys on the table and if that is put to the banks i.e. ourselves since we own the banks I am sure we will opt for sensible regimes of debt and personal bankruptcy programs.
Apologies, I posted this earlier under the wrong thread:
I wrote some time ago, on this blog, suggesting several “debt for equity” swap scenarios (I can’t find the notes now) . At this point, because of the inactivity and inability of the government to deal with the problem a straight debt forgiveness strategy is IMO the best way to revitalise the economy and deal with the problem quickly.
I believe that the moral hazard argument is overstated. People generally pay their mortgages if they have the ability to do so. There will be more moral hazard in the number of mortgagees who will hand their keys back over the next six months and walk away from the property, if this issue is not addressed.
The banks have already made allowance for the mortgage losses in their books, it is time the benefits were passed through to the borrowers for the sake of the economy. Otherwise we will never have a recovery or the prospect of any growth.
There will be no NAMA for the little people.
@ bolshevik:
There may be no alternative. The banks are facing an avalanche of returned keys as homeowners decide that they have had enough and a one way ticket to Australia leads to a better future. A mortgage broker friend told me that this action (handing back the keys) has become established in the last month. The bankers are in a panic. He believes that it will become commonplace over the winter.
He also says that he is only processing one to two loans per month down from three to four per day! Changed times.
That is one of your best posts ever made. Reform your debt laws and don’t concentrate on low taxes for rich people; your debt laws are really reminiscent of the middle ages. If you adopt UK, US, or continental European law: Each of it will be an improvment for the overindebted people. Though Nama will go smoke, since they have to take a big hit. But it is better than to pretend, I mean this is really sick and one is three years into the crisis:
http://www.daft.ie/searchsale.daft?id=602712
I didn’t buy into the boom. I didn’t splurge on a credit card. I didn’t make a mad dash for the property ladder. I’m facing emigration as a result of those who did dive–naked and head-first–into the property madness.
But I still think that debt-forgiveness and restructuring is needed across the country.
The American model of throwing back the keys of the house is simple, fair, final, and effective. Losing the roof over their head is punishment enough for anyone. Burned home-owners can then move on with their lives, lesson learned, become a productive and positive member of society again, instead of wasting away under debtor’s house arrest for what remains of their working lives. The losses are justifiably passed to the bank, where they can be dealt with, by a bricks and mortar corporation which doesn’t have a life to lead or children to look after.
The potential for abuse in any debt relief scheme will come from the likes of the 10,000 “cup of coffee” mortgage owners who owe over €1 million each on crazy speculation schemes(Sites, apartments, villas in Spain, etc). These guys don’t need saving. They are far better off in a 3-5 year period of bankruptcy where they can go back to their day jobs and not get themselves or anyone else involved in any more crazy schemes for a few years.
Bottom line: We need to bail out home-owners, not speculators.
Of course knowing this country, we’ll probably end up getting that arseways as well.
Morgan Kelly addressed Irish style “Jingle Mail ” in this paper
Click to access wp09.32.pdf
“In addition to unemployment, Ireland has a uniquely large source of
default risk in emigration. Emigration is one circumstance where strategic default becomes
compellingly easy, and the possibility of walking away on a deeply underwater property loan
is likely to join unemployment as a compelling reason to make a new life overseas.”
Jagdip
I don’t think anyone is trying to be cruel. Just trying to give solutions absent any sensible moves from govt. The 3y bankruptcy time is good. Let’s get on with it. What’s stopping a recall of the dail and the passing I’d the bill? Nothing but a lack of political will.
@Brian
There’s no suggestion at all that you or fellow economists and experts intended any cruelty in taking the extraordinary step of jointly writing an article for the Irish Times last November 2010 calling for a resolution to the almighty debt problem that exists now. As professionals who have the dubious privilege of being at a hub that sees the day-to-day problems of people coping with debt and also the bigger picture of where money is being spent in the economy, you displayed initiative in highlighting the problem and promoting the national debate. No question in my mind about that honourable intention.
But as illustrated by the subsequent debate, and the comments on irisheconomy.ie at the time reflect the offline debates as I found them
http://www.irisheconomy.ie/index.php/2010/11/11/economists-propose-mortgage-debt-relief/
Emotions ran high as people struggled with moral hazard, “I didn’t buy into the madness”, neighbours being gifted no-strings-attached debt forgiveness, a NAMA for the little people. To me the debate ended up being very confused by the lack of detail in the article. That’s understandable, you were writing 1,000 words for the Irish Times, not a detailed piece of legislation. For the people in dire straits making real life decisions, the confusion seemed cruel to me, despite that not being in any way intended.
Around the same time as your joint article in the Irish Times, the Irish government agreed a Memorandum of Understanding with our bailout friends, the IMF and the EU/ECB and that agreement incorporates a term to reform our bankruptcy laws.
Since then there has been a new protocol on mortgage arrears which many think kicks the can down the road. Minister Shatter has announced legislation for 2012 which appears to keep all the existing draconian bankruptcy terms but reduces the bankruptcy period from 12 years to five. These are baby steps when we need a leap of the sort anticipated in the IMF agreement.
It has seemed to me that every time debt forgiveness is proclaimed by those in authority (and that includes you – people listen to what you have to say, have a high regard for your experience and opinions, mightn’t always agree but I think it’s fair to say you are treated as an authority), the debate distracts away from the pressing need for basic bankruptcy reform of the type described above, that is, no high falutin’ delicate innovations – just a humane, effective, cheap, timely process of the sort that exist ‘most everywhere else in the developed world.
Innovation for our special needs can be tacked on by changing the settings of the levers – what assets (if any) the debtor can keep, creditor/debtor mediation of the type you jointly advocated last year, a formal role for government in mandating debt forgiveness. Some or all of these might be needed for our circumstances but for Heaven’s sake, can we first get a basic process in place that will allow the thousands, if not tens of thousands and possibly the hundreds of thousands to deal with the no-solution nightmare currently suffered.
“The losses are justifiably passed to the bank, where they can be dealt with, by a bricks and mortar corporation which doesn’t have a life to lead or children to look after.”….
…. Yes, they will deal with the losses in a certain manner. ie. Cover those losses by tapping regular taxpayers and regular banking customers.
How about they cover the losses by tapping more specifically those who reaped big windfalls from the boom time property paradigm?
There were plenty who made out like bandits.
Can no one countenance or contemplate investigation and audit of records and transactions and databases in the various banks and state bodies? Or of creating the necessary legislation to specifically target the pockets made heavy by the later materialised losses. The benefits of the property boom were NOT distributed equally.
Or would that be too much of an affront to the market gods of our times?
I am not against debt forgiveness at all. There is no doubt that debt needs to be paid down and written down, the quicker, the better. But HOW it is done is the real challenge that should be faced up to with social and political courage and perspicacity.
“There will be no NAMA for the little people.”
This is because the big people got in first and highjacked the State’s debt forgiveness capability. To place this in context, a few thousand speculators are in the process of having tens of billions of their debts written off via NAMA. This includes individuals with debts running into billions. If MK is even half correct, then only a fraction of what has been set aside for these gamblers would address the debt problems of tens of thousands of mortgage holders across the State.
Given the absence of any moral hazard considerations for the few hundred developers, bankers, politicians, senior administrators, professional advisers etc. who created and fed the debt crisis in the first instance, it is weird to see moral hazard being being such a mighty concern in relation to the “little people”.
@Brian
Most developers have not had their debts written off. I know none that have. What I do know is that you cannot take €100 million from someone who only has €100 thousand. It is nonsense to think that you can.
When the developers first engaged with their banks, they were given the legitimate expectation by those banks that funds would be made available to complete developments. When NAMA entered the picture those expectations were removed, the property assets were discounted, warehoused and NAMA proceeded to examine and try to snaffle both the borrowers’ assets and WAG’s knickers. It’s like watching a dog chasing the wheel of a car, completely ignoring the truck that’s bearing down on them (and the occupants of the car).
NAMA’s raison d’etre was to revitalise the economy and the banks. It has failed miserably in both.
The banks have already taken the hit in their accounts, but the benefits have not been passed on and allowed trickle down through the economy. Without debt forgiveness for underwater mortgagors, we have no hope of ever recovering from this crisis in the short or medium term. It will only get worse.
@WSTT
“When the developers first engaged with their banks, they were given the legitimate expectation by those banks that funds would be made available to complete developments.”
To make the bubble even bigger or, at least, keep it inflated? You have to admit it but the most basic rules about supply/demand and prudent borrowing/lending were thrown out the window by essentially a small group of borrowers and lenders. In a perverse way, we must thank the collapse of Lehman brother for popping our bubble as the key participants had clearly lost the plot and were living in cloud cuckoo land. Many of these players have since moved to Namaland.
@WSTT
“Without debt forgiveness for underwater mortgagors, we have no hope of ever recovering from this crisis in the short or medium term. It will only get worse.”
Agree 100% with you (for a change, VBG). All efforts should be on developing and implementing practical solutions rather than debating the principle.
@Brian/WSTT, but a normal part of the bankruptcy process in other jurisdictions is some form of mediation between creditor and debtor under the auspices of an official.
Truth is we have debt forgiveness for the “little guy” at present with individual deals being struck by mortgage companies – I base that on statements by Dearbhail McDonald, the legal affairs journalist at the Independent, who reports on repossession cases in Irish courts. But that informal discussion should take place under more formal auspices so that there is more of a level playing field between the parties.
That is not an innovation though. It is part-and-parcel of bankrupcty processes throughout the world, and usually takes the form of the bank assessing how much they can realise in the distressed sale of a property and also assessing the borrower’s current assets and ability to pay, and then cutting a deal. If a bank is faced with a process which will fully release the borrower from bankruptcy after 6 months as in parts of the US or 12 months as in the UK or 2-3 years then there is a motivation to cut a deal.
@NWL
As I understand the proposed new bankruptcy legislation, the period remains 12 years unless all the creditors agree that one should be released after 5 years. Am I incorrect?
@WSTT, the press release from Minister Shatter gives an overview of the new provisions (http://www.justice.ie/en/JELR/Pages/PR11000097)
“Bankruptcy
The Bill provides for a number of amendments to the Bankruptcy Act 1988. The most significant amendment is to section 85 of the Act with regard to discharge from bankruptcy. The Bill will
(i) reduce the application period to the court for discharge from bankruptcy from 12 years to 5 years, subject to the existing conditions in the law being met, and
(ii) provide for the automatic discharge of bankruptcies on the 12th anniversary of the adjudication order. The discharge of these so-called “legacy bankruptcies” should affect more than 300 cases in the system.
In order for the court to consider an application for discharge from bankruptcy after 5 years, the bankrupt will have to have discharged the expenses, fees and costs of the bankruptcy and the preferential payments (which primarily concern outstanding taxes due from the bankrupt at the date of the order of adjudication, local rates, all wages or salary or accrued holiday remuneration in respect of services rendered to the bankrupt and any payments due by the bankrupt pursuant to any scheme or arrangement for the provision of superannuation benefits). The court will require to be satisfied that the estate of the bankrupt has been fully realised, all after acquired property has been disclosed and that it is reasonable and proper to grant the application.
The Minister has decided to avail of the opportunity in this Bill to introduce these measures so as to bring about some initial early reforms to the law on bankruptcy in the short term. This fulfils a key commitment in the Programme for Government to reduce the discharge time for bankrupts. Major reform of this area of the law will be effected through the Personal Insolvency Bill which is expected to be published in early 2012 and is being developed in the context of a commitment under the EU/IMF Programme of Financial Support for Ireland.”
http://www.justice.ie/en/JELR/Pages/PR11000097
The Act itself is here
Click to access a2311.pdf
And it is section 30 from page 24 that deals with insolvency/bankruptcy. I understood the provisions will commence in 2012, but I stand to be corrected on that.
Subsection 6 says
“(6) Where a bankruptcy has subsisted
for at least 5 years a bankrupt may apply to
the Court for an order discharging him
from bankruptcy where provision has been
made for the payment of the expenses, fees
and costs of the bankruptcy, and the preferential
payments, and where the Court is
satisfied that—
(a) the estate of the bankrupt has
been fully realised,
(b) all after acquired property has
been disclosed, and
(c) it is reasonable and proper to
grant the application,
the Court shall make an order discharging
the bankruptcy.”
Jagdip
Perhaps the title might best be described as provocative. Ad Stephen says, there’s a big difference between the rhetoric and reality. I see no political will to advance a solution, rather a willingness to keep that poor can a kicking…delayed released losses make the banks and Nama look better than the reality. So why not encourage debate? Anyhow, I think we are all in furious agreement on the need for a solution.
@Brian, the primary culprit for cruelty in the debt-forgiveness debate is the lack of political locomotion to enact a basic modern bankruptcy process.
Think about the numbers, the 902 bankruptcies and 542 IVAs in the first six months of 2011 in the 1.8m-population Northern Ireland. And there is less evidence of a housing bubble and credit-fuelled binge in the North. Its unemployment rate is just 7.3% compared to 14.3% here.
http://www.bbc.co.uk/news/uk-northern-ireland-14557415
And compare their bankruptcies to the quantum of just nine here last year.
And folks in the North are going through a 12-month process (with bankruptcy), deals are cut with creditors in some cases, debtors are made to pay what they can and any chicanery to defraud creditors is addressed. And people get on with their lives. The North’s residential property prices are down 44% from peak compared to 42% here, and I put that down to a the system of recognising losses and then getting on with it – not storing up problems and distorting markets and people’s lives like on this side of the border. You can store up problems if the causes are temporary but in our case, we’re looking at challenging jobs, property and credit markets for at least the next two years.
So the title is provocative but a side effect of there not being any basic reform to our laws is that any solution is jumped upon by the very many desperate people buckling under the burden of debt today. That seems cruel to me, but you can’t lay the blame on responsible people recognising the problem and suggesting solutions, the blame lays at the feet of legislators for not making the basic reforms.
@NWL
I know you are talking to the other Brian about “the blame lays at the feet of legislators for not making the basic reforms.”
Another key area where there has been a total lack of action relates to a bank resolution scheme which, if it had been introduced, might have saved the Irish taxpayer mega-billions of euro which were ploughed into defective banks. Remember that the run on Northern Rock occurred as long ago as September 2007 and Lehman the following year.
Just another Act in Ireland’s Theatre of Cruelty to its citizens.
I wouldn’t say our ideas totally ‘lack detail’
http://www.mortgagebrokers.ie/blog/index.php/2011/07/28/debt-forgiveness-an-outline-of-how-it-would-work-if-i-was-in-charge/
That was my attempt at a pragmatic solution
@Karl, I didn’t see that blogpost of yours which appears to be from July 2011. And unfortunately, it has frozen my browser twice and I can only see the first part of your work.
But I would say to you that the suggestion that the creditor solely has the right to initiate a debt resolution is flawed. There is a reason why in other jurisdictions, either debtors or creditors can initiate the process and for an official to referee between the two. Creditors typically want to kick the can down the road because eventually all debts might be fully repayable – it might require generations and indenture but in the end creditors can generally get satisfaction. Creditors, particularly banks in the present day, might want to avoid the crystallisation of losses.
If the UK or US bankruptcy system were imported then there would automatically be debt forgiveness because debtors and creditors would be encouraged to cut deals by the very nature of the process. Creditors who have recourse to limited value assets (a second hand car, chattels in a house, minimum savings and other investments) and for a period of just 6-12 months will cut deals, particularly if theyface the prospect of sitting on distressed property which will cost 5%+ per year in maintenance/opportunity costs. And that process shouldn’t frighten anyone. The people who didn’t buy into the madness still keep their premium car and investments and savings, whilst their neighbours lose everything bar the most basic possessions, shouldn’t have cause to feel aggrieved. Banks have made the provisions so these losses are already mostly in the system. If debtors can’t pay then they may be able to cut deals but they can expect to lose any exceptional assets.
We don’t need re-invent the wheel to get a tried and tested system which operates in the interest of society and protects debtors and creditors.
Innovations might be required for our particular circumstances but let’s get a basic system in place first.
I think that for a ‘personal insolvency scheme’ such as the pending IMF required bill due for publication in March 2012 – that the individual should be able to initiate such a move.
However, for a ‘debt write off’ I think there would be an inherent weakness in allowing a person to initiate this (btw: what browser were you using? I better sort out my blog if it is crashing/freezing!) – the idea being that a bank is in the best position to know when a write off is appropriate and in doing so the person then doesn’t have to go the ‘personal bankruptcy’ route.
Using this method utilizes some of the pro’s of the UK’s IVA style schemes along with some of the pragmatic aspects of chapter 7&13 in the USA. Effectively the individual can still go their own route but if the bank knows that it can either obtain a deal or get in line and enter the longer more expensive process of dealing with the bankrupt then it aligns the incentives correctly across both parties – borrower and lender alike
@Karl, typically use Mozilla latest version.
I see that the man closer to the purse strings, junior minister Brian Hayes is reported by the Irish Times today to be pouring cold water over the scheme for two reasons (1) moral hazard and (2) protecting the pillar banks. This comes after the weekend in which housing minister, Willie Penrose said the idea of debt forgiveness merited consideration. It seems that the Government had already set in motion an expert group to consider mortgage issues, headed by KPMG man Declan Keane is to report on initiatives at the end of September 2011.
To address your point directly, a traditional bankruptcy generally involves debt write off, and all jurisdictions I know allow the debtor or creditor, the borrower or lender, to initiate the process with an official referee there to ensure a level playing field, prevent abuses by either side and assess the positions of the borrower and lender.
Again, I dearly hope we get a basic bankruptcy process sooner rather than later. We don’t have one at present – there were 9 bankruptcies in 2010 which indicates the present process isn’t practical, and I don’t think there will be an avalanche of new bankruptcies with the baby-step amendment to the 1988 bankruptcy law introduced at the tailend of the last Dail session. I think a basic bankruptcy mechanism would solve many of the problems that as an economy and society, we’re trying to fix. And once we have that operating and we can get used to it, then maybe there’s a place for Irish innovations to deal with what is an exceptional debt burden after an economic crash.
My tuppenceworth from over at
http://www.irisheconomy.ie/index.php/2011/08/19/mortgage-balances-and-projected-losses/
Can some of the advocates of mortgage “forgiveness” have a go at a bit of a puzzle.
Say family A managed their finances reasonably prudently during the boom, perhaps they were even wise enough to not really trust the possibly bubbly property market. They took out a mortgage they were unlikely to had difficulty paying in most scenarios, but this meant they could only buy a modest house and not one near enough to the best schools.
Family B went for it. They stretched their imaginations to maximise all sources for a deposit, obtained the biggest mortgage they possibly could and bought a nice, big house that would give their children access to a really good school education.
Family A can still pay their mortgage.
Family B are having a lot of difficulty doing so, and are behind with the payments. The bank hasn’t foreclosed, and is not likely to for reasons most readers of this blog will be familiar with.
Taxes paid by both family A and B are used to recap the bank family B owes a lot of money to.
Should that bank “forgive” enough of family B’s mortgage to allow them to keep living in the nice big house, in the nice neighbourhood, while their children continue to go through school obtaining a superior education to the children of family A?
Now I know there are lots of cases where this sort of perverse situation doesn’t come into it, but that does not mean it is OK to just wave your hands around a bit, say we shouldn’t get too hung up about “moral hazard” and ignore this and similar questions.
Where are the details, the properly though through proposals on mortgage “forgiveness”?
By the way, what has been done so far by the “new” government so far about the rule preventing creditors going after family mansions? There was pre-election talk of an upper limit on the value of a “family home”. Anyone know where the legislation to correct that absurdity has got to?
@Grumpy
A basic bankruptcy procedure of the type available in the UK or US would cope with this situation you describe in a way which is fair to Family A, but shouldn’t leave Family B feeling punished for being prudent and now being able to afford its mortgage.
Let’s put numbers to the families.
Family A bought a fancy house for €500k at the height of the boom with a 100% mortgage. The house is now worth €250k. Mr A lost his job and the family is now unable to make repayments with only Mrs A bringing in a wage whilst Mr A gets basic social welfare. The bank is owed €450k.
Family B bought their house for €300k with a 50% mortgage. Their home is worth €150k now and Mr and Mrs B are still employed and are coping nicely with the mortgage and they even have some equity left in their home.
So the As file for bankruptcy. The official gets a statement of assets. The As have to sell the jeep and executive saloon but are allowed a basic allowance for a vehicle needed for Mrs A’s job. The As have to hand over the credit union deposits and prize bonds. Mrs A has a watch worth €2,000 second hand and that has to be handed over. The As have to hand over the income in excess of a basic living allowance for a period of time (6months – 2 years, would be my suggested range but that’s one of the levers in the bankruptcy process, 12 years is unacceptable and I would say five years is too long also). But all of these assets and extra income are only worth €20,000 so the bank is still out €430k on a property now worth €250k. The bank cuts a deal whereby €160k is “forgiven” on the loan, so the As now owe €270k on the house which they can afford with the wages/social welfare earned by the As.
So the As stay in their home, lose the bling, savings and price bonds, live on a basic income for a period of time, lose the holidays and private schooling, and have debt written down. The bank gets the benefit from the disposal of the bling and also gets a premium over what the house is worth today if it were to repossess and sell on the open market.
So far, so fair, I would suggest.
But what have the Bs lost? The Bs can buy the same house as the As today for €250k and if that’s what they want, they can go ahead and do that, and rent out their present house. The Bs don’t have to go through the bankruptcy process which is certainly no fun, they still have their savings and bling, they don’t have any restriction on how they spend their income for a period of time.
The only unfair aspect is that the Bs don’t get any writedown on the loan for their house, but the Bs can still afford to repay the mortgage. And that’s how bankruptcy in a society works. The Bs were cautious in buying a cheaper house with a smaller mortgage and were lucky to keep their jobs. The As were less cautious in extending themselves with a bigger mortgage and were unlucky to lose one income.
Now the settings of some of the levers in bankruptcy can be adjusted. You can force bankrupts to dispose of assets assessed to be worth more than a certain threshold, €50, €100, €500, €1000. And those losses along with confiscating any liquid assets and restrictions on income for a period of time is the loss that the bankrupts face, plus a few meetings which will not be fun at all.
The above example assumes the As will be able to afford a €270k mortgage with their existing income at the end of the bankruptcy process. If the As are not able to afford a €270k mortgage mortgage, then the bank may reduce its demands to €250k the present value of the home, or it may decide to enforce its contract, repossess and sell the property. The As may have to move to a cheaper property, a rental property or seek social housing.
But the above illustrates that you can’t get blood from a stone, the As get out from underneath unsustainable debt and can get on with their lives.
The point is that the above is a transparent, fair, quick and hopefully cheap process. It is logical, in that the bank will get as much back as the levers permit. The bank is already stress tested (in the case of the two pillar banks) for the loss. The As get on with their lives as ordinary members of society after what isn’t a fun process which will last a period of time. The Bs stay as they were, don’t undergo the bankruptcy process, keep their bling, don’t have their incomes restricted.
That’s how bankruptcy works in other developed countries. There’s no stroke being pulled by anyone in the above process. There’s no witchcraft or novel innovation deployed in the above. It recognises the realities, the dignity of citizens, the needs of society, the need for moral hazard, and given the stress testing should not place any exceptional strain on the pillar banks. It is a process available to all that cannot repay their debts. And who knows, Mr and Mrs B might lose their jobs next week and be in need of a similar process.
NWL, you can make these sound reasonable if you pick the right starting scenarios, but it depends on the circumstances. By the way your As and Bs are the other way round to mine.
You have A with a 100% mortgage and B with a 50% mortgage. What if B has a 90% mortgage.
You have Mr A loosing his job while Mr B doesn’t. What if they both just experience broadly similar pay cuts rather than the pay rises they were expecting? Mr A hasn’t been unlucky compared to Mr B in that respect anymore.
You end up with the As continuing to benefit from living in a nicer area, in a bigger house, having access to superior state schools (I note you brought in private education, I didn’t).
In what way is this not grossly unfair to the more prudent family. All the houses the people in the same boat as the As are occupying fail to come onto the market for the Bs to buy at a price they can afford.
If you want mortgages to get written off – and there is good economic arguments for that, you really have to do a lot of work to avoid thew obvious resentment from the rest of society that would occur in the absence of a really carefully worked out scheme.
Some people (I don’t meann you btw) are not helping the cause by simply waiving the question away with the sentiment that everyone not actively campainging for write-offs is simple mean. They need to get real.
@Grumpy, fair enough. I didn’t mean to pick figures which skewed the principle. Why don’t you provide what you think would be the most unfair example of the circumstances of Family A and B, so that we can illustrate the principle. I think you are addressing the moral hazard,/”I didn’t buy into the madness” argument which is fair enough – in principle, bankruptcy should not be that easy so that it leaves the rest of society (the majority) feeling they have been robbed.
I don’t think it is that helpful to come up with battling scenarios to argue over. The fact that the idea of unfair outcomes has not been addressed by those pushing the idea makes it an instant turn-off for many – and rightly. They need to do that and present some equitable proposals that are likely to command popular support. Just saying “write-off a load of mortgage debt” is a great way to get attention but not a great way to try to influence actual policy.
@Grumpy, wasn’t my intention to get battling scenarios, just the most extreme example so that we could see how applying a fairly standardised bankuptcy procedure would work. Also would be interesting to get your views on limited liability companies and whether directors/shareholders should assume liability if the company goes bust.
Isn’t that a question of personal guarantees?
@Grumpy, the question on the attitude to limited liability companies was to explore your position on financial collapse and who should bear the consequences. In retrospect it was a distraction.
Would still be interested to hear what you might consider the details of a Family A/B scenario which you see as being most unfair.
@ Brian
FG’s Peter Matthews, less than a week ago repeated that he wants NAMA wound up and the debts managed by the divisions set up within the banks to deal with NAMA.
Even Alan Dukes admitted that NAMA was the most ineffective and expensive structure imaginable. Of course he was not telling us that when he was pushing 100% for NAMA, I suppose now that it has been foisted upon us he feels that there is no harm in telling a little bit of the truth.
Of course NAMA is being used to feather nest those administering the loans, who even get to play god with developers, as long as the gravy train rolls along.
It has not achieved a single objectives outlined in the debates in Dail Eireann which presaged its existence. That is why it wants to morph, like a virus, to give itself a new life cycle before the drugs (reality therapy) kill it off.
I only wish that the State used the existing bankruptcy legislation and took action against many hundreds of those who failed to pay over their taxes by making them bankrupt.
During my own very long career with the Revenue I and many colleagues requested bankruptcy proceedings be taken on numerous different occasions but there was a complete unwillingness by a number of different Collectors General to agree to such action. Judgments were registered by the hat full but the next natural step was rarely taken.
Bankruptcy should be the natural reaction of NAMA against any developer not fully co-operating.
I must say I am personally strongly opposed to any further debt forgiveness. Taking the IBF figures, there was a total of €143,665M written in mortgage business in the years 2005-2010 inclusive. Approx 51% was for house purchase 22.94% for FTB & 27.76% for people moving house. The balance was buy to let, 18%, re-mortgage 17.17% & top-ups 14.14%.
While there may be some justification for assisting the first time buyer, I do not feel much sympathy for other groups.
However we do not have detailed figures for who is in arrears. Until such information is provided, then it is very hard to have a considered view, let alone estimate the cost.
It is quite a remarkable thing to see the magnitude of this mean-spiritedness upon the weak and unfortunate. I guess it would be too much of a cliche to say that Ireland’s bankruptcy law is Dickensesque. I think paraphrasing Gore Vidal does it best: “It is not enough that I succeed but that my friends must fail.”
We are not discussing law; it is all about punishment.
Texas, where I was born, it is not noted as a warm and fuzzy place when it comes to law enforcement. But, do take a few minutes to look over the exemptions to state bankruptcy law.
http://www.texasbankruptcylaw.com/exemptions.html
I am sure the powers that be in Ireland would go into apoplectic trauma at the mere thought of such a magnanimous give away.
All very well, Jake. I think if we had had bankruptcy law like that from the beginning we would have been no doubt better off. For example, it would have affected risk perception in the banks. And early on in the crisis it may have affected top level decisions that were no doubt swayed by the heavy consequences that stem from our existing bankruptcy laws.
But the bank guarantee changed the whole anatomy of creditor and debtor accountability and relationships. The real creditors to these debtors, including deposit holders of all hues, were let off the hook. Put it like this — creditor responsibility by and large was shifted from the old and the rich onto the young and the not so rich by this guarantee.
There is too of course an element of the irresponsible not being held accountable for their actions, and thus risking a repeat down the line. But I think most people are prepared to overlook this to address the much more serious problem of debt overhang and the economic consequences of that.
But I disagree what’s at the root of discussion like this is ‘mean-spiritedness’.
@Jake Watts
You called it just right. The Gore Vidal quote says it all.
And when one suspects that many of ‘no writedown’ calls come from people working in or close to the financial sector, the sector that was 100% responsible for the whole sorry mess, you have to reflect on the question of intellectual dishonesty in approoaching this issue.
Most of their employer banks should have been shut down and people handed their P45s (pink slip, I think in the US). Yet many still pontificate from well upholstered seats through moral hazard megaphones.
You are right:
“We are not discussing law; it is all about punishment. “
If Ireland had the same per capita bankruptcy filings as the state of Nevada (2010), there would been around 45,000 filings last year in the republic.
http://www.creditcards.com/credit-card-news/bankruptcies-per-capita-state-rank-2010-quarter3-1276.php
Mean spiritedness is rife here, as is smugness, self satisfiedness, jeering and general shaudenfraud. The vitriol “wtf should imply for them, they can still ear White mince ,’let them come back when they’ve ate the family pets” is enough to give one little hope for mother Ireland except as a litter eating sow
@Brian L (to differentiate from Brian F), in respect of the lack of political locomotion I wonder how much is mean-spiritedness and how much is ineffective resourcing in getting legislation tabled. Just what is holding up simple legislation to give effect to a House Price Database for example.
Regardless of the reason for the lack of reform, we now have external oversight which has its many downsides. But one of the upsides is that some reforms are written into the Memorandum of Understanding.
I admit to a shameful level of schadenfreude at seeing the property zealots being taken down a peg by reality. And I must admit, as someone who was skeptical of investment hysteria since the Telecom Eireann sale, I do feel a some satisfaction in being able to say “I told you so” to people who were contemptuously dismissive of every single warning they were given.
But I still think that this country needs to tackle the mortgage default beast before it ruins us all.
In a way, this mortgage default problem and the country’s response to it mirror the problems of the boom. We have a looming debt crisis, general denial or ignoring of the problem, no plans put in place to deal with it, and objections to any such plans from those with nothing to gain from putting them into motion. Once again, the county is running head first into disaster.
The difference between my sneering and the sneering at the decision making levels is that I am willing to look past my own prejudice towards beleaguered borrowers without having to be paid off with a cut of the bailout cake. I do not need a payoff or a sweetener to be persuaded to support a plan which is in the nation’s interests. Unfortunately, it appears that a great many vested interests in this country do. We’re still faced with a boom-time mentality in our civil service, unions, and civic institutions.
” Just what is holding up simple legislation to give effect to a House Price Database for example.”
I would say that it is “inbred political Nepotisim “.
What is the difference between our two main right wing Political parties?
Maybe we need to get the famous John O’Shea involved in this one! Would I be right in saying that the vast majority of the mean spiritedness, Brian L excepted comes from those suffering years of institutionalization or molly coddling by trade unions under social partnership? This is Alice in wonderland, where jobs are not too exciting, but last forever and ever? Remember the NPRF is effectively gone and pensions are being paid from a cash register that is barely working and that needs topped up everyday with borrowed money, rather than money accumulated in some imaginary pension fund. Before any more nonsense is spouted just remind yourselves that 40% of what you earn has been borrowed and as you spend it, take a look backwards, that vapor trail is one of debt servicing.
Ladies and gentlemen, we are about to enter a financial cataclysm. Nothing that went before can be taken for granted, Hence, it might be prudent to assume no further special status or glorified pleadings will be tolerated. No matter what psychologists say, It is only when hardship hits home that people suddenly learn to empathise. All, this worthy discussion about debt forgiveness may be totally academic by Christmas. Maybe, even November.
Robert Kennedy is quoted as saying that “It is not enough to understand, or to see clearly. The future will be shaped in the arena of human activity, by those willing to commit their minds and their bodies to the task.
Unfortunately we are not blessed by such people on our little island. We have men with little minds and little imaginations who go through life in little ruts, smugly resisting all changes which would jar their little worlds. Small minded individuals with no generosity of heart.
What we think determines what happens to us, so if we want to change our lives, we need to stretch our minds. Great minds discuss ideas; small minds discuss people. In this discussion we appear to be only interested in the people. As a race of people we have a revulsion in seeing anyone gaining a benefit or rising again after falling.
We are a mean minded people, formed and molded by our thoughts. We do not seem to accept the premise that those whose minds are shaped by selfless thoughts give joy, while the selfish ones just sow misery.
There is a lot of selfish thinking promoted on this subject by the begrudgers.
How much is a one way ticket to Nacogdoches?
@Brian F: You need to be careful, Brian. That’s twice we’ve agreed. Next thing you know we’ll be having a “hug-in” Who would I debate with then! ;-)
“When the developers first engaged with their banks, they were given the legitimate expectation by those banks that funds would be made available to complete developments.”
I was not arguing the societal or economic merits of this, just stating it as a legal fact.
@ WSTT
All is not love and roses in the Lone Star State. There were 17 people executed last year. You are just about twice as likely to put to death in Texas as you are to file for bankruptcy in Ireland.
However, Nacogdoches is a lovely piney wooded settlement. Not too far North of Huntsville State Penitentiary where we use to fry them in old smokey. Now we are much more humane and mainline them but sometimes it takes more than one “shot”.
@ WSTT
One further point regarding your impending move to Texas, with each passing day it looks like Gov. Rick Perry will be moving to Washington after the coming presidential election. This is very good news for Texas but I am not so sure about the world economy. Mr. Perry, not unlike the penultimate president, is not “into books”. He made a D in economics at Texas AM University. Good thing he did not have Professor Morgan Kelly. God knows what grade he would have received. However, he does seem to have a bone to pick with the Federal Reserve Chairman. From the sublime to the ridiculous.
http://www.huffingtonpost.com/2011/08/05/rick-perry-college-transcript_n_919357.html
@southofdub
“What is the difference between our two main right wing Political parties?”
Is this one of those trick questions?
A: neither of them is right-wing, they are both populist with broadly similar constituencies?
A: they are less right wing than Sinn Fein?
A: their constituency offices are on opposite sides of the town, but they can get you the same things?
Moral hazard is best described as: “…any situation in which one person makes the decision about how much risk to take, while someone else bears the cost if things go badly.”
It is conceived prior to a loan being made, not after. The bankers have already pushed the cost of these underwater loans onto the taxpayer. That was the consequence of the moral hazard of the banks’ profligate lending spree. All that is left to play out is the re-basing of these unrepayable loans with the borrower.
@yoganmahew
“Is this one of those trick questions?”
No tricks here.
The question I pose is that after voting out FF and voting “In” FG + Labour what has changed? In my opinion nothing.
Poor desperate people trying to pay bills and feed families don’t vote
They disengage from the political process.
BK laws desperately require reform and modernization but NO votes in it …
Moral hazard actually refers to “rewarding” excessive risk taking which to some degree can be blamed on lending practices but not completely.
Very complex situation keep in mind the US laws referenced have done little to assist the US housing market which remains very distressed and subject to boom bust cycles-Texas has oil.
Real economic growth and better financial education would help …perhaps some of the soon to be unemployed bankers mortgage brokers estate agents would volunteer to teach a course or two before less financially educated people make the biggest financial decision of their lives-the “game” was completely stacked against the less fortunate and somewhat uneducated borrowers-it was predatory lending at it’s worst.
Perhaps we should not be conflating different segments of mortgage holders. There’s quite a difference between buying a cheaply built starter home in an estate next to a motorway to get on the ‘property ladder’ and the trophy purchase mortgage segment morgan kelly highlighted in his talk.
Indeed. And then former is the one to whom I’d direct any initiative.
There are implications there too for how we frame moral hazard issues
‘ The basic principles of bankruptcy don’t seem to change much from country to country – property dealings prior to bankruptcy are examined to ensure the bankrupt is not defrauding creditors, property owned jointly with a spouse may become part of the pot to repay creditors but the spouse is entitled to protection of their share, property needed so that you can carry on a business is given a special status and may be protected depending on how much it’s worth, creditors cut the best deals they can, and basic pensions and family homes have limited protection. Unencumbered wealth is liquidated to repay creditors, in other words, your credit union deposits and your shares are sold to pay back the mortgage company’
I would guess that the delay in progressing BK proceedings, and BK law reform may arise in part from the need to conceal the levels of speculation, private wealth accumulation and associated tax aviodance which occurred.
People who are seriously interested in wealth don’t give it up unless they absolutely have to do so. The whole mess reflects very badly on the government and the professions, so it’s heads down all round and mums the word. The main strategy at the moment is to sihft things around a bit and let time go by.
It will take time for asset transfers to spouses and family members to be laundered. When that is done, the BK dance music will be allowed to start. The big boys and their associates can then queue up along with the rest for the write downs.
Sounds funny maybe but then Irelands a funny old place.
@NWL / others
A technical question, somewhat related if I may.
How much does mortgage interest supplement paid by the Dept of Social welfare (on behalf of people who cannot pay their mortgages) cost the country each year?
Is this money recouped from the banks?
Should it not be considered a subsidy to the bank? i.e
@Joseph, it’s about €65m a year and in 2010 there were some 18,000 families in receipt of it. It comes up from time to time in Dail questions but this is sourced from the Independent in January 2011
http://www.independent.ie/business/personal-finance/property-mortgages/state-mortgage-aid-up-fivefold-in-four-years-2517542.html
@hughsheehy
“Kill the Zombies. Revoke the guarantee. Stop pouring good money after bad into these failed, empty husks. Kick the bankster bums onto the street. Let the dead banks die”
Bravo Sheehy!
Control Fraud and the Irish Banking Crisis by Professor William K. Black
http://neweconomicperspectives.blogspot.com/2011/06/control-fraud-and-irish-banking-crisis.html
.
.
@Cearbhall O’Dalaigh
Poor Hugh getting tainted with such coarse thoughts – they were mine!
Funny you should mention Bill Black – here’s a comment (it’s still awaiting moderation) I made on the IrishEconomy:
http://www.irisheconomy.ie/index.php/2011/08/19/mortgage-balances-and-projected-losses/#comment-162617
The Mortgage Forgiveness/Bankruptcy Reform/Debt Relief package needs to recognise two things:
– A proper solution for the here-and-now and for the way forward.
– A settling of scores for past sins.
On the proper solution – from 2 years ago:
http://www.thepropertypin.com/viewtopic.php?p=324624#p324624
Banks should be incentivised to deal with their historical mistakes. It was their job to make prudent loans. If they advanced monies without appropriate checks then they mis-sold. For this they should pay. So any mortgage since 2001 becomes eligible for review and can be submitted to a complaints procedure.
For those who borrowed above and beyond their means the job of servicing this debt leaves them facing a default. Defaulting on a loan in negative equity is no solution. Defaulting on a loan that is performing at the moment but could become impaired is a dread – why continue to carry it when the outcome looks inevitable and by which time the loan could be in negative equity?
Two things have to happen in tandem to offer some hope to the lender and the borrower.
Firstly, the bankruptcy law is changed to allow defaulters to be cleared of all debt after 5 years. Secondly those who have existing mortgage contracts with the bank are offered an optional upgrade. They can stick with their existing loan which isn’t covered by the new bankruptcy law or they can switch to an upgraded loan which forfeits the right to a mis-selling application but benefits from being covered by the new bankruptcy law – but only after 5 years of servicing the upgraded loan. Any new loan application is automatically covered by the new law.
New loans being covered puts prudence back in the system and allows lending, and house prices, to adjust to a new market level with the risk priced in. Loans which are upgraded give the bank the comfort of knowing they are getting customers committing to at least 5 years of continuous performance, enough time for both parties to start to put their houses in order. Old loans can and should be subject to a review for mis-selling. The lessons of the past should be learned and doing this whilst operating new loans under harsher conditions highlights why the new system requires a return to proper risk management.
People who borrowed now have a choice – they can role the dice and seek redress or they switch in the knowledge that there is an opportunity to meet their obligation but that if things go wrong they can default at some point in the future without too onerous a consequence. Banks will get a handle on their cash flows but will also be forced to cleanse the system.
On the settling of scores for past sins:
Bill Black explains the institutionalisation of fraud:
And how should this be dealt with in Ireland? Well… since you asked (expletives tweaked for the more sensitive eyes round these parts):
http://www.thepropertypin.com/viewtopic.php?p=495264#p495264
What needs to happen is people need to think about things in a 180-degree way.
Currently the commentariat will bang on about moral hazard, saving the banks and debt forgiveness – with all the focus on the here-and-now.
This is completely the wrong way of looking at this.
F*ck the banks – they’re not part of the solution.
All the damage was done in the bubble years. This is just the fallout.
What we need to do is start jailing f*ckers for the damage they did in the bubble years. Accountability for the damage inflicted.
Start doing that and all the poisonous, illegal stuff will start to be revealed – and those who were criminally defrauded can start to seek retribution.
We’ve had a massive fraud perpetrated on the population through a housing bubble. Any efforts to seek some small relief from the fraud only ends up legitimising it.
F*ck the banks.
Let ‘em die.
Jail the corrupt.
Learn from our mistakes.
Grow up.
Joseph
Why is that a subsidy to the banks?
Just an announcement that Dr Constantin Gurdgiev (who makes a contribution to the personal debt debate in today’s Sunday Independent – link below) along with Paul Sommerville and Jill Kerby will be discussing this topic on the Dunphy radio show on Newstalk from just after 11am.
You can listen/view the studio discussion online here – http://www.newstalk.ie
Dr Gurdgiev discusses debt forgiveness here
http://www.independent.ie/national-news/mortgage-debt-plan-will-save-economy-2853846.html
@Brian Lucey:
The State is paying interest to the banks on behalf on creditors that would not otherwise pay it. In my book that is virtually a direct subsidy to the banks. And should be recouped from the banks.
If I were Joan Burton, I would pencil that in as my number one saving in 2011 and after.
You will note that it does not seem to appear anywhere in the analysis of mortgage arrears produced by the Financial Regulator.
Click to access RESIDENTIAL%20MORTGAGE%20ARREARS,%20REPOSSESSIONS%20and%20RESTRUCTURES.pdf
The mortgage brokers tell me that Bank of Ireland currently get valuations, deduct 20% and then lend (very selectively) on a LTV of approximately 60% on the lower figure. So they obviously think that there is a further fall in values to be factored in.
For what it’s worth, their track record as oracles hasn’t been that great to date. The point is that there’s no point in having “debt forgiveness” without a properly functioning mortgage market – and if we are going to need a phase 2.
It’s dangerous to idealise the US (and to a lesser extent UK) mortgage laws. The changes in US mortgage laws in the 1980s were a major contributory factor in a huge expansion in consumer credit (=bubble). They also led to the emergence of vulture companies who purport to help debtors negotiate with their creditors (in return for an up-front commission). Similar features have started to emerge in the UK. Whenever you create a new law, you have to think mainly about its potential perverse effects.
Debt forgiveness seems necessary, but it is possible to imagine more focused measures than “easy bankruptcy”. The key measure is not negative equity, but actual mortgage arrears. Most people in negative equity make every effort to keep paying – they want to keep their house. This corresponds to both international and Irish experience.
There appear to be about 40k households with serious mortgage arrears. Here’s a “straw man” proposal (for owner-occupied properties):
1. Transfer of the arrears loans to a “NAMA 2” (with appropriate haircut for the lender to crystallise the loss)
2. Negotiate a revised mortgage re-payment based on reduced book value and fixed-rate mortgage over 25 years max. (Long run fixed rate mortgages are common through out the Euro area – just not “anglo-saxon” practice).
3. If that won’t work for an individual, take ownership and convert into rental agreement.
4. Funding from National Pension Fund, to match conservative reasonable future cash-flows.
This would help keep good productive earners in the country, avoid further “ghost estates”, reduce bank balance sheets and (possibly) help smooth the transition to a mix of public-private housing in the future.
I’m sure there are snags with this, but it’s a starting point.
@Credit Scorer, well-made points that there are imperfections with other jurisdictions’ bankruptcy procedures. But the fact remains that their bankruptcy processes are tried and tested and have been shown over decades to work for the economy, the debtor and the creditor, and society generally. Some drawbacks, sure, but advanced developed countries consider the drawbacks to be offset by the advantages overall.
With respect to your proposal, what happens with someone with other assets, a holiday home for example.
That is why the tried and tested bankrucptcy processes should be imported. They balance the needs of debtor, creditor, society and the economy.
@Credit Scorer & NWL it should also be noted that specific State related debt such as taxes & education loans are not forgiven within the US model.
May I also suggest Prof. Elizabeth Warren’s book “The Two-Income Trap” as required reading for those suggesting changing the bankruptcy model?
However has any other society ever had so much household debt concentrated as is the current position in Ireland?
@ Joseph Ryan NWL Mortgage Interest subsidies paid by Dept of Social Protection are available in the Department’s Annual Statistical Report, Table H1 each year.www.welfare.ie
The figures for the past four years are as follows
2007 €12.197M
2008 €27.675M
2009 €60.885M
2010 €65.654M
Joseph I agree with you that they are a huge additional subsidy to the banks. However they are tiny when compared to the subsidy provided in respect of mortgages. On 19th July last, Eric Byrne [20817/11] was advised by the Minister, “…. that the cost to the Exchequer of mortgage interest relief for principal private residences by way of tax relief at source (TRS) in 2009 and 2010 was €486 million and €375 million respectively. The cost for the full year of 2011 is provisionally estimated at €400 million.”
The prospect of foreclosures looms and with it the possibility of serious civil disobedience. And that’s putting it nicely. What happens when the interest rates increase further? There HAS to be a change in the payment obligations of homeowners.
I wrote here about a year ago that I believed insolvent mortgages would best be addressed by either voluntarily swapping debt for equity, or in the alternative a restructuring of the debt obligation (technical default / write off).
A full debt-equity swap could involve the write-down of the mortgage principal, while at the same time giving the lender an equal and offsetting claim on the future appreciation of the home – a property appreciation right (PAR).
Suppose a €400,000 mortgage is in default, a reasonable mortgage restructuring might be to cut the principal of the mortgage to €250,000, and to create a €150,000 property appreciation right. The homeowner would agree to pay off the PAR out of future price appreciation on the existing home or subsequent property. The maximum PAR obligation would be based on the value of the home and the income of the homeowner.
This formula could be tweaked whereby the lender would receive not a direct claim on any particular homeowner, but a participation in a DoF NAMA2 “PAR fund” which would pay out proportionately from all PAR proceeds received by it.
Thus, there would be a limit to the “free lunch” at taxpayer expense and a subsequent reduction of the much ballyhooed “moral hazard”.
If the homeowner was to eventually sell the home and not purchase another, the obligation would become an interest free, or low interest, loan obligation and would eventually become a claim on the estate of the homeowner, with an initial exclusion at low income.
@ Brian L:
Why the discrimination Brian? Have the losses and pain of the citizen who bought a more upmarket home to house his family any less merit than those of the one who bought a lesser home? You surprise me.
As quoted in the Irish Times:
“Mr Hayes, however, said there were “two huge problems” with the proposal.
“With any debt forgiveness, it will raise questions of fairness for people paying 100 per cent of their mortgages who are not getting any help from the State. It’s a huge issue for that group, who are already straddled with huge mortgages and who have not sought debt forgiveness.”
If the they don’t need it Brian – they don’t need it. And it is not a “huge” issue with them. What is unfair is to continue to burden people who can’t pay it. And if they can’t pay it – they can’t pay it. Mr Hayes’s argument is nihilistic and self defeating. Structured properly, there is no reason why most people woild find it unfair. All that Mr Hayes displays is the lack of political will and intelligence that pervades the so called leadership.
“Secondly, the Government has put huge store behind the two pillar banks. To introduce debt forgiveness totalling €6 billion at a time when the Government is bringing those banks out of the A&E wards would be very difficult to justify,” he said.
Create a fund, dummy, and make the debt for equity swaps tradable.
@WSTT, whilst not taking any political position I would have to agree that Brian Hayes’ rejection of the principle of debt forgiveness is weak. And I don’t think I understand the second point, in the sense that the pillar banks have been stress tested to absorb significant mortgage default. That’s not to say that there can be an unsupervised give-away but it dilutes Brian Hayes’ position, which the Irish Times says is close to Enda Kenny’s and the official position of the government.
What is a little concerning about the comments is that a proper bankruptcy regime needs to allow debt forgiveness – it has to, because practically all bankruptcies are at their heart cases where a debtors assets are worth less than their liabilities. So some element of the liability is “forgiven”.
Again, that’s why I would advocate the introduction of a basic bankruptcy process so that society can get used to the principles. Going straight to pure stand-alone debt forgiveness in a country that has the most draconian bankruptcy process in the developed world that I have seen might be too big a step, though it may well be a necessary innovation given the level of debt and the scale of the collapse.
@who shot the tiger
“Create a fund, dummy, and make the debt for equity swaps tradable.”
So the government (via the zombies) takes equity in a house and then sells this equity on to a third party.
WSTT – I don’t know if you noticed this, but our housing market is going only one way.
And to say ‘don’t worry because debt forgiveness will stimulate the housing market and make the equity stakes profitable’ is crystal ball gazing.
@l’ennui
“And to say ‘don’t worry because debt forgiveness will stimulate the housing market and make the equity stakes profitable’ is crystal ball gazing.”
So is saying that the market will continue to fall over the medium term. The market will rise when the banks are lending into it and there is liquidity. Not before. To get to that point they have to rebase both themselves and those homeowners in negative equity.
It is necessary for the recovery of the economy to act quickly on mortgage mitigation. Establishing a DoF conduit to administer (but not guarantee) property appreciation rights on restructured mortgages would encourage voluntary restructuring by the banks, by using the DoF conduit as a coordinating mechanism only.
The Property Appreciation Rights would be tradeable, since they could be based on a single pool of cash flows. I accept that they would certainly trade at a discount to face value. Assuming that the PAR obligations are fixed and don’t increase at some rate of interest, then even if home prices were expected to take about 15 years to recover, the PARs would still trade at more than 50% of face value (IMO). Given that recovery rates in foreclosure situations are unlikely to be running above 50% of the entire loan, it is clear that this sort of approach would be preferable to foreclosure in most cases.
It’s fairly obvious, without even looking at Leaving Certificate results that the mathematical resources of our politicians and civil servants, not to mention our bankers, do not match those of the Hindu people,
A plan to rearrange the deck chairs and hope that that keeps us from hitting the iceberg does not cut it. The recognition that this problem can be addressed without a massive waste of public funds is not even on the radar of our leaders.
In short, attempting to avoid the need for mortgage restructuring increases the likelihood that the current economic downturn will be prolonged. We have already placed a massive claim on our future generations in order to transfer our nation’s wealth to the bondholders of mismanaged financial companies.
Any nascent recovery will be cut short by deflation pressures. We are nowhere near the completion of this deleveraging cycle.
It’s about time we started making quality commercial decisions, instead of playing the “cute hoor” card (as in blanket guaranteeing the banks). It has not stood us well.
If anyone owes 200,000 to AIB ask for the “Garret”..interesting that FG is vehement against Debt Forgiveness.. it wasn’t that long ago that the x party leader embraced it…………..
‘Those dealings involved a significant indebtedness and the ultimate settlement of those indebtednesses on a basis which involved a write-off.’
http://www.moriarty-tribunal.ie/asp/index.asp?ObjectID=310&Mode=0&RecordID=363
Former Taoiseach Garret Fitzgerald has confirmed that AIB and Ansbacher wrote off debts of almost £200,000 that he owed them six years ago.’
http://www.rte.ie/news/1999/0217/fitzgerald.html
Debt for Equity Swaps.
An extract from :
THE DEBT HANGOVER
A Speech given by Andrew G Haldane
Executive Director
Financial Stability
Bank of England
27 January 2010
“If a borrower has a large debt overhang, there is a case for restructuring the
claim from debt into equity – a debt-for-equity swap.
In some cases, such swaps are no more than recognition that an impaired debt is, in substance, an equity claim. But more than that, debt-for-equity swaps can potentially benefit both lender and borrowers by airlifting a debtor to the safer side of the debt Laffer curve.
A number of global banks have begun putting such a strategy into practice. Around a hundred debt exchanges were carried out by global banks during 2009, typically converting debt instruments into equity or retiring debt below face value, so reducing leverage in the financial sector.
That these swaps were voluntary and market-based is evidence of their benefit to both lender and borrower.”
who_shot_the_tiger
“A number of global banks have begun putting such a strategy into practice.”
This is not banks who will be taking an equity stake under your scheme. It’s the taxpayer! The same taxpayer who has funded NAMA and the recapitalisations. And of course normal things like roads and hospitals. Not banks. Why gamble the taxpayers’ money on another hope that things will improve in the next ten years. No more NAMAs.
Reform the bankruptcy laws and start behaving like a normal country. If private banks want to do debt for equity swaps (and I think they’d be mad to in this country), let them. Totally unfair on the taxpayers to take a chance on this debt for equity scheme. Let’s be conservative with taxpayer’s money and spend it on things that will actually benefit the people – schools, enterprise centres etc. Enough of this nonsense.
I would hope the EU/IMF would shoot down this hairbrained idea if it ever got to their table.
Really sick of reading these ‘innovative’ solutions dressed up as “making quality commercial decisions”. It’s just taking a bet with money. And to accuse those against it of ‘cute hoorism’ is just perverse.
Eh… The money’s already gone. The taxpayer is already on the hook. Debt for equity swaps are a way of recovering some of it. I was suggesting the method as a concession to those who were claiming that a straight debt write down was a moral hazard.
I didn’t accuse those opposing solutions of “cute hoorism”. I was laying that charge against our previous Minister for Finance when he thought that it was a great “stroke” to fully guarantee the banks in September 2008.
With respect, you really should read the post before you shoot from the hip.
What nonsense. You bracketed the blanket banking guarantee in with resistance to wholesale debt forgiveness, thus try to smear the latter, which is in itself a type of cute hoorism. Keep your respect.
Portraying debt for equity swaps as a way of recouping the taxpayers money is risable. It’s another gamble on the property market and another bailout for the banks.
I wrote on Saturday last that there would be no NAMA for the little people. It has been an interesting debate since.
In reply to WSTT
The thought of someone having to take this action gives me a sickening feeling. To actually have to do this must be truly awful and absolutely soul destroying. But there may be an alternative. If we had a proper debt restructuring process in this country which could be completed in a timely manner then a lot of people would not need to buy a one way ticket. ( http://www.imf.org/external/pubs/ft/spn/2009/spn0915.pdf pages 6 & 7 )
We need to separate those who wo’t pay from those who just can’t pay and start doing something about the problem. There is a lot of mean-spiritedness and begrudgery about people being given forgiveness on their debt but that is not a reson to not start doing something about the problem.
The Government have done their sums and know that they have more to gain by not instituting some form of debt forgiveness/restructuring so there will be no NAMA for the little people.
Wot is NAMA for the little people?
The bill still has to be paid, and it will be paid by the little people.
Ireland should default on its external liabilities, denominate all internal debt in a new currency, and wait for the people to adjust.
One of the main problems here is the useage of the phrase “Debt Forgiveness”. The perception is that many of those who speculated in the housing market and lost are now to be alowed to walk away from that loss with the burden to be borne by the tax payer. However, bad debts are a commercial reality and write off of irrecoverable debt is a recognition of a loss that has already been provided for. Historically banks have always applied this strategy when alternative options are not considered to be effective. The difference now is the fear of consequences if this strategy is seen by borrowers as a type of “loss compensation” programme rather than a pragmatic recognition of irrecoverable losses. Almost all of those with relatively high mortgages are struggling to make the repayments. If there is a public perception that “debt forgiveness” is being considered by Banks how many of those who are now meeting full repayments will look upon this as an alternative option? Even if it was viewed as only applying to clients in negative equity the housing market is currently in such turmoil that applying an appropriate value to properties would be difficult and somewhat subjective. The only way such a strategy would work in the current climate would be to sub divide the loan. The portion that equates to the percieved current value of the property to be retained on a full service basis (Some will pay full P&I on this portion and others may only be able to cover P&I or interest only initially). Balance to be effectively written off in the Bank books (should already have been provided for so no new losses to the banks). However recourse against the property to be retained for the full debt for a limited period (eg. 10 years. If the property is sold in the interim and market value is below the full debt the balance will not be repayable. However if the sale price of the property is above the total amount due the Bank to receive the net proceeds with the rest written off. This solution should work as it would give most people a potential exit strategy without being seen as a “free lunch”.
@l’ennui
You stated”
“This is not banks who will be taking an equity stake under your scheme. It’s the taxpayer!”
Except for Mr Ross and a few lost souls, the banks are the taxpayer.
Then you said:
“It’s another gamble on the property market and another bailout for the banks.”
No it isn’t, It’s a solution for the mortgagors, the banks and the taxpayers and a acknowledged method of revitalising economies that have found themselves in similar situations. Do some research.
BTW, It’s not my “hair-brained” idea. The extract quoted is from a speech by Andrew G Haldane, Executive Director of Financial Stability, Bank of England
Haldane advised this in 2009 as well.
Everything the BoE advises leads to a bailout of the bondholders. Have you never visited the City of London, never realised how much it means to the UK?
Pay no attention to the politburo. Otherwise, buy gold.
Well, here is the reality that is going to become the norm.
http://www.irishexaminer.com/ireland/lenders-agree-to-write-off-home-loans-165258.html
@Robert,. indeed it wouldn’t surprise me if several hundred million euro was being forgiven per annum at present. Dearbhail McDonald, the legal affairs journalist for the Independent who covers repossession cases says that lenders are taking a pragmatic view on loans and there is in effect loan forgiveness. The concern at this stage must be that lenders are forgiving selected debts and not others, and there is the potential for all sorts of shenanigans. Also there is the potential for the state-guaranteed banks (AIB, Bank of Ireland, EBS, Permanent TSB) to reject debt forgiveness for political reasons whereas the non-guaranteed banks like Ulster, National Irish Bank, KBC might be more pragmatic.
Personally I don’t see debt forgiveness as feasible outside of a proper bankruptcy regime, but if someone pulls at the thread of existing debt forgiveness, I can see some initiatives being introduced before bankruptcy reform which in my view would be putting the cart before the horse. But that’s firmly the government’s fault for failing to act quickly enough to bring in new legislation.
That’s not what I’d call loan forgiveness, because the borrower doesn’t retain ownership of the asset.
The lender is effectively calculating that the borrower is insolvent, and choosing not to waste any more time pursuing the balance. The loan ends up non-recourse US style.
Mind you, devil is in the detail – would be interesting to see one of these agreements and figure out if the balance may rear its head in the future.
debt forgivness and short sales go hand in hand, no market even for distressed property is a probelm.
Some loans (california) are settled ” but not for full amount”, there is no negative credit score effect (in some cases)as the loan was settled. It is then up to the next lender to decide what to do about it. It might seem like passing the buck, but, for somebody in a bad situation, who engages the bank in debt forgivness and a short sale, this can be the difference between being able to go rent a new place to live or not. Complicated I know, but it has helped many people in the bay area, where landlords look at credit scores but turn a blind eye to “settled but not for full amount” . A bit of human touch in a mathematical world. Ireland could learn from that.
There’s a lack of detail in the Examiner article.
“The unprecedented deals reached between lenders and lawyers acting for distressed borrowers have so far amounted to write-offs of more than €2.2 million for just seven borrowers.”
Assuming these 7 borrowers had 1 property each, then the average wrtie-off is 314k (a bit higher than the range of write-offs listed further down the article).
I wonder if the article is confusing write-off amount with the mortgage amount at default? The write-off amount should be the mortgage amount + unpaid interest + foreclosure costs less recoveries. The recoveries being proceeds from the sale of the house and any additional recoveries from the borrowers other resources (if any) at this point. What the lenders should be writing off is persuing subsequent recoveries on the resulting deficiency from the foreclosure. 2.2m on 7 borrowers seems a bit high for this.
Either the Examiner has it wrong or the ‘7’ mortgage amounts were jumbo. Let’s hope the Examiner is wrong or the banks will need more money.
We have a template for the reform of the treatment of all personal debt with the examinership provisions of the Companies (Amendment) Act 1990 which was amended in 1999, and the Personal Insolvency Trustee proposals 2010 LRC reforms to the issue of personal insolvency go some way to adopting this template.
The above debate seems to be dominated by the break that may be afforded to someone who bought a house during the credit madness and now cannot afford to pay for it. The reality is that the collapse of the economy means that many tens of thousands cannot afford their loans, not necessarily because they over reached themselves (albeit that many did), but that the financial premise for their buying their houses is now fundamentally different.
The debt is not limited to houses. Lets consider the thousands of company directors forced to give personal guarantees to secure company loans. It is inconcievable to suggest that these are not given any assistance. Similarly, those who have become unwaged, or who find themselves the victims of cost cutting, or whose households are afflicted by illness or other adverse event must get help in the form of debt relief.
Equally, we need to stop playing the blame game. If we replace the phrase “bank bailout” with “economy reset”, that reflects the current position more accurately. Further steps need to be taken to get the economy moving again, and in this regard the banks are not nearly sufficiently trustworthy to drive this aspect of reform. There are three steps required;
1. The connection between the amount of a loan and the security held by a bank to ensure its repayment must be severed, with the bank only being entitled to recover the security element of any facility,
2. The bank cannot oppose any proposals for a personal examination unless they are being “unfairly prejudiced”, or in other words that they would do better if they were allowed to rely on their security, and
3. The insolvency process must deal with the moral hazard argument by insisting that the debtor pay an amount that is independantly ajudicated as being sufficient to “participate in a meaningful way in society” (the Vincentian Order’s test) having regard to their personal circumstances (including the nuimber of kids, whether there are medical exingencies etc., over a period of time.
In my experience the SME sector is bearing the brunt of this recession. This is the wealth and employment creating sector. There is no way out of the current awful situation without dealing with the issue of problem debt in a transparent and forseeable manner.
I don’t need to be bailed out of my property if the bank would stop forcing it’s salves to make my money less and less valuable.
I don’t need debt forgiveness if I’m not raped by my government who is supposed to shield me from such predatory shenanigans.
I don’t need a write-down on my mortgage if the economy isn’t getting mauled repeatedly by the IMF insisting on new and terror-inflicting taxes on the middle and lower classes.
I don’t need anything at all to pay my bills if you would just stop putting your hand out for mistakes YOU make.
An excellent article.
I would suggest a long hard look at the Icelandic model which has written down the value of the properties and loans to reflect market value. Rather than engage in a long winded debate about ‘moral hazard’, (the biggest beneficiaries of which have been the banks) the Icelandics have taken practical view of what it will take to get the economy moving again. The PIA is an unworkable miserable sop which gives the banks a clear veto. A more sensible approach would be a one year bankruptcy period as in the UK USA etc and the introduction of ‘jingle keys’. Once the property is sold the banks have no further recourse and cannot chase the individual for any balance remaining on the original loan. This would ensure co-responsibility in the lending process.
Unfortunately as this would be a practical approach and would allow Paddy & Mary Citizen a chance to rebuild, no Irish Government will do it. They much prefer bullying and throwing their citizens under a bus whilst tugging their collective forelocks in front of the Banks and Troika.