Irish banks may need life-support as property prices crash

jetski

The Dublin government appears to be almost powerless to prevent a severe downturn. Ambrose Evans-Pritchard reports

The Irish banking system faces acute strains and may require a phase of temporary nationalisation as the property slump leads to a wave of defaults, according to a leading Irish economist.




Morgan Kelly, of University College Dublin, said the government is almost powerless to stop the downturn becoming a severe slump. "We're in a classic post-bubble recession, yet we can't do anything that a country would normally do in this situation because we're inside the eurozone," Prof Kelly said. "We can't cut interest rates, we can't devalue, and there is a lot less room for fiscal stimulus than people think. We're stuck.
"We have a domestic recession now colliding with a global recession. It is the state of the banking system that will determine how terrible this will be, and frankly that is looking very shaky."
Irish house prices fell 7pc last year. The pace of decline has accelerated so far this year. The damage is spreading to the broader economy. Unemployment jumped to an eight-year high of 5.2pc in February, from 5pc in January

"We are going to see banks on life-support with very big bail-outs. The precedent for this is what happened in the Nordic countries in the early 1990s when they had to take over the banks. We may have to do something similar," he said.
Two of Sweden's largest banks were nationalised before being nursed back to health and refloated. The Nordic rescue is seen as a model of how to tackle a banking crisis. However, Sweden succeeded only after it left the ERM's fixed exchange system and regained control of its monetary instruments.
The Bank for International Settlements said in its latest report that there had been a surge in euro bond and note issuance in Ireland in the third quarter to $35bn (£17.4bn), up from $10bn. This is a huge sum for a country of 4.2m people.
It appears to reflect a distress move by banks to raise money for use as collateral at the European Central Bank after the credit crunch hit. "The increase in net issuance came mostly from financial institutions, whose borrowing in securities markets had largely dried up," said the BIS. Irish borrowers built up $123bn in cross-border liabilities.
Ireland has been a star performer over the past 20 years, transforming itself from a high-tax backwater in the early 1980s to a free-market tiger. However, the country is the most exposed in the EU to both the dollar and sterling blocs, leaving it more vulnerable to trade and investment effects of the soaring euro.
Prof Kelly said Ireland had lost 20pc competitiveness against its trade partners since the launch of EMU.
Eurozone rates of 2pc in the early part of this decade fuelled a credit bubble that has gravely distorted the economy. Household debt has reached 190pc of disposable income, the highest in the developed world. Bank lending rose by 30pc annually. Construction reached 15pc of national income, with 280,000 employed there,
Matthew Taylor, a credit expert at Fitch Ratings, said 27pc of all outstanding loans by late last year were to property and construction, leaving banks heavily exposed. Irish Nationwide Building Society has been downgraded from A to A-.
"If the downturn proves more severe than expected, a wider range of rating actions on Irish banks may be required," he said. For now, the problem looks "manageable".
Over 55pc of all mortgage loans are at floating rates, with several banks offering 100pc mortgages at the top of boom. Interest-only loans made up 16pc of the total borrowing in the third quarter of 2007. Anglo-Irish Bank, Allied Irish Banks, Bank of Ireland and EBS, all have a big stake in the property sector.
The establishment has pretended it's business as usual. But the mood is now changing. The Irish Independent warned this week that the country is sliding into a serious slump.
"Look at all the signs: every single one is screaming that the economy is in big, big trouble. Housing market dead, new car sales dead, consumer confidence is dead, record job losses, exporters being killed off by a strong euro, fuel prices spike, housing repossessions increase," it said.
Ireland is the only country to hold a referendum on the EU's revamped constitution, now called the Lisbon Treaty. The darkening economic picture may greatly queer the pitch.







http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/03/11/cnirish111.xml

gurramok

I sincerely hope as a bear that none of the banks will fold.

It will be disasterous for the financial system here, if one bank fails, another and another will have runs on them due to lack of confidence, the ordinary joe and jane will be affected more than those that fuelled the bubble, i don't want the country falling apart.

Even though developers owe a whopping €100bn to the banks plus huge the private individual debt, i am hoping that a way will be found somehow that we will not go back to 80's style bankruptcy.
Rumours this week about certain banks did not help matters either.

confuzed

of course picture looks gloomy but i would rather say economy is settling down. What do you want, growth @12% for ever. Most developed economy grow between 2-3% and now our economy is maturing. How much developer owe to bank, doesn't matter. What matters is defaulter rate and bankruptcy. WE haven't seen any big player owing millions to banks have gone bankrupt or thousands of mortgage defaulters.

SimpleSam06

gurramok wrote: »

plus huge the private individual debt

A further two hundred billion.

punchestown

confuzed wrote: »

WE haven't seen any big player owing millions to banks have gone bankrupt or thousands of mortgage defaulters.

not just yet but only a matter of time

DublinDilbert

gurramok wrote: »

Even though developers owe a whopping €100bn to the banks plus huge the private individual debt, i am hoping that a way will be found somehow that we will not go back to 80's style bankruptcy.
Rumours this week about certain banks did not help matters either.

IMO the banks are going to be very kind to the developers about paying back money, the last thing the banks will want to do will be to pull the rug out from under any developer.... if they did it could flood an already sinking market with even more property.... At this stage the banks are as much of a vested interest as the developer who owes massive amounts...

As the old saying goes "you owe someone €10,000 and you can't pay your in trouble, you owe someone €10,000,0000 and you can't pay he's in trouble!!!"

Pa ElGrande

confuzed wrote: »

of course picture looks gloomy but i would rather say economy is settling down. What do you want, growth @12% for ever. Most developed economy grow between 2-3% and now our economy is maturing. How much developer owe to bank, doesn't matter. What matters is defaulter rate and bankruptcy. WE haven't seen any big player owing millions to banks have gone bankrupt or thousands of mortgage defaulters.

Maybe you are correct it's the economy settling to rates of growth between 2 -3%, but the transition to that point cannot be orderly.

It's the old story, you owe the bank €100,000 you have a problem, you owe the bank €100 million the bank has a problem. Right now, cashflow for most if not all developers has dried up or reduced substantially and they are burning through their cash reserves in order to get some projects completed.

Several high profile developers have been forced to unwind their positions elsewhere in the economy in order to meet margin calls or commitments in their core business. Right now crisis meetings are being held weekly by the banks and special teams have been put together to manage mid to large developers with outstanding loans (the banks have taken control of the cheque book). There have been rumours about one particular major developer in serious trouble with several banks circulating since December 2007, so far the papers have not published his name in connection with this.

Some banks are also hiring people at the moment specifically to follow up with those who get behind on their mortgages.

The unemployment rate is beginning to skyrocket, gven the dependency on construction for employment over the past decade this is going to show up in mortgage defaults over the next 12 months. I have no idea how the court system will handle the surge in defaults over the next few years.

The destruction of credit and the resulting bankruptcies will now continue to burn for several more years, ultimately this leads us on a path similar to the 1930's, but that particoular discussion is beyond the scope of the accomodation & property section.

Pa ElGrande

DublinDilbert wrote: »

As the old saying goes "you owe someone €10,000 and you can't pay your in trouble, you owe someone €10,000,0000 and you can't pay he's in trouble!!!"

Great minds think alike, while fools seldom differ

is_that_so

gurramok wrote: »

I sincerely hope as a bear that none of the banks will fold.

It will be disasterous for the financial system here, if one bank fails, another and another will have runs on them due to lack of confidence, the ordinary joe and jane will be affected more than those that fuelled the bubble, i don't want the country falling apart.

Even though developers owe a whopping €100bn to the banks plus huge the private individual debt, i am hoping that a way will be found somehow that we will not go back to 80's style bankruptcy.
Rumours this week about certain banks did not help matters either.

Exactly that rumours and there are investigations under way. Here Anglo Irish has been targetted in its rise and in its fall. HSBC was also rumoured across the way. As they say stock markets know only greed and fear. IMO it's a bit of greed at work to cover short-term positions and to exploit the current volatility. Nor does it help that the ISEQ is so heavily weighted towards financials.

It seems inevitable that people will continually dredge up the 1980s. Things have slowed down, there are some problems with the property market, unemployment may get to 6%, but they are absolutely nothing compared to the problems, not just of the 80s but the 70s as well.

TBH I don't understand why that guy gets the oxygen he does. While he may know a thing or two about studies of property bubbles who's to say he knows anything about how the collective wisdom or stupidity of World Central Banks will ride this one out. Most of them seem to be guessing anyway. But at least their job is to attempt to maintain order, however badly, and not just throw out tabloid type headlines.

Note also that the original piece was delivered in the Telegraph, still an organ with less than fond feeling towards us.

stepbar

As a professor I'd have expected better from Morgan Kelly. The last article that I seen from him hadn't one reference or link to where he sourced his information from. I wouldn't pay much attention to him TBH.

johnnyskeleton

jetski wrote: »

The Dublin government appears to be almost powerless to prevent a severe downturn. Ambrose Evans-Pritchard reports

The Irish banking system faces acute strains and may require a phase of temporary nationalisation as the property slump leads to a wave of defaults, according to a leading Irish economist.

Sounds like rubbish to me. The government can't stop a downturn, but that's pretty obvious since no one could stop the downturn without a) using magic b) finding billions under their mattress and deciding to use it to fix the economy (and ultimately exacerbating the problem) or c) changing the rules of economics.

The idea of nationalising the banks is ridiculous, no matter what those crazy scandinavians did. If a major bank is in trouble, the government will give them free money to get back on their feet. There is no way the Irish government is going to nationalise any of the banks (unless they decide to re-acquire ICC and ACC).

As regards to the banks breaking down, the reality is that the larger banks (AIB, BOI and UB) are going to be able to take a large hit and they are not going to go under. The medium established lenders (PTSB, ESB, building societies etc) will probably be alright, unless there is a run on them or some other unforseen catastrophy. The sub prime and smaller lenders (RBOS, Smart, etc) might take a hammering, but that's the game they play.

Pa ElGrande wrote: »

Some banks are also hiring people at the moment specifically to follow up with those who get behind on their mortgages.

The banks have always had collections departments specifically employed for that purpose. Anecdotal evidence suggests that the major banks are not increasing their collections departments significantly.

Pa ElGrande wrote: »

The unemployment rate is beginning to skyrocket, gven the dependency on construction for employment over the past decade this is going to show up in mortgage defaults over the next 12 months. I have no idea how the court system will handle the surge in defaults over the next few years.

This is already happening, but it's a long process from default to repossession. A lot of the people who are selling at the moment are in this position or close on it. The courts historically have been unwilling to grant repossession orders to banks, but this is due to them being primary residential properties. I imagine there will be a wave of investment properties coming into the courts, and the courts will have no problem granting repossessions there. The most important part of this will be not be the actual mortgages that go into default, but rather the blow to consumer confidence in seeing other people losing their houses, and the further tightening of lending criteria by the banks.

Pa ElGrande

johnnyskeleton wrote: »

The banks have always had collections departments specifically employed for that purpose. Anecdotal evidence suggests that the major banks are not increasing their collections departments significantly.

They have never had to deal with the scale of defaults that are coming, they know this and are ramping up their staff.

Irish banks call in UK bad debt specialists

Three major Irish banks have contracted a prominent UK arrears services firm to make housecalls on borrowers who are at risk of defaulting or repossession as deteriorating economic conditions start to squeeze heavily indebted homeowners.
The banks, including Irish Life and Permanent, have brought in Swindon-based company, White Horse Mortgage Services (WHMS), to help borrowers clear arrears.
WHMS already has 40 staff working across all counties. It is in talks with six other lenders and plans to nearly double its Irish workforce by the end of the year, according to chief executive Richard Lay, who said Ireland is heading for a "significant downturn" and the days of record low levels of credit impairment in Irish mortgage lending are over.
Lay said a rise in bad debts was a "macro-economic certainty" as overall growth slowed in the economy and unemployment increased.
"Arrears are not so slight, actually.
From what we see, they're becoming quite a problem."
Lay expects his WHMS counsellors . . . who work on behalf of client banks . . . to process nearly 4,200 arrears cases this year at a rate of 80 per week. He didn't say how much the banks were paying for the service.
The counsellors' work can involve anything from arrears and voluntary arrangement advice . . . essentially budgeting and debt management . . . to pre-eviction and repossession services. According to Lay, 86% of borrowers counselled by WHMS make a full recovery.
Michael Culloty, social policy spokesman for the Money Advice and Budgeting Service (MABS), expressed skepticism about the banks' motives in bringing WHMS into the Irish market and questioned the ethics of giving loan data to third-parties without first clearing it with the customer.
"The banks are using [WHMS] to try to create a veneer of helpfulness and bring the lender in as a priority creditor, " he said, adding that he knew of at least one contact between WHMS and a MABS client.
Irish banks have been very reluctant to admit any increase in nonperforming home loans over the past year -most report fewer than 1% bad debts . . . although a number of circumstantial indicators suggest the number of borrowers with impaired credit is rising.
Repossession cases . . . still an extreme rarity in the Irish property market . . . have increased dramatically from 134 actions in 2004 to 465 in 2007.
Only last year, sub-prime lenders were expanding . . . suggesting opportunities were emerging in questionable credit . . . as incumbents Start and GE Money were joined by newcomers Nua, Springboard and Stepstone in a market estimated at 4bn.
On Friday the Central Bank revised its growth estimate for 2008 downwards by 0.5% to 3%, while the CSO reported a 4.4% rise in the unemployment figure for January - the highest level in nine years and the sharpest monthly incline in two decades.

Here's how the banks might go about repossesion - Let's say you are Mr. J Ryan, a bricklayer during the boom, who now can't get any work, you fall behind on the mortgage payments, their advice councillors follow up with you, but rather than move against you directly they pull your credit, resulting in you not being able to pay other bills or creditors. Those creditors then instigate court proceedings against you for non-payment of debt, since the bank has first charge on your house they get the proceeds, any remaining debt is sold on to debt collection agencies who chase you for the next 12 years.
The banks appear with a clean sheet in court, they tried to help you and it's not 'their fault' your other creditors moved against you.

johnnyskeleton wrote: »

This is already happening, but it's a long process from default to repossession. A lot of the people who are selling at the moment are in this position or close on it. The courts historically have been unwilling to grant repossession orders to banks, but this is due to them being primary residential properties. I imagine there will be a wave of investment properties coming into the courts, and the courts will have no problem granting repossessions there. The most important part of this will be not be the actual mortgages that go into default, but rather the blow to consumer confidence in seeing other people losing their houses, and the further tightening of lending criteria by the banks.

I agree with you, however the Irish courts have never had to deal with large scale defaults (probably since famine times or the land wars). I don't think the courts will have much leeway this time unless the government urgently reforms the bankruptcy laws.

johnnyskeleton

Pa ElGrande wrote: »

They have never had to deal with the scale of defaults that are coming, they know this and are ramping up their staff.

That company seems to be a counselling service rather than an increase in arrears collections staff. I hate to play this card, but that's from the sunday tribune and so I would be sceptical of it's contents. I also doubt that Mr. Lay has better knowledge of the Irish banking system than the banks do. For a start, his company will only be called in for the most serious cases. Plus, he has only recently come into the Irish market so he might be a bit too quick to make such judgements.

Pa ElGrande wrote: »

Here's how the banks might go about repossesion - Let's say you are Mr. J Ryan, a bricklayer during the boom, who now can't get any work, you fall behind on the mortgage payments, their advice councillors follow up with you, but rather than move against you directly they pull your credit, resulting in you not being able to pay other bills or creditors. Those creditors then instigate court proceedings against you for non-payment of debt, since the bank has first charge on your house they get the proceeds, any remaining debt is sold on to debt collection agencies who chase you for the next 12 years.
The banks appear with a clean sheet in court, they tried to help you and it's not 'their fault' your other creditors moved against you.

I think the reality is more that if someone is in that situation, the bank will tell Mr. Ryan to get another job or sell his house. I don't think they would try to squeeze someone like you mentioned - after all the banks don't want property they want money, so repossession is their last resort.

I'm also not fully clear on how the other creditors thing works. I know for example, that this can be used against a company that is insolvent and an action can be taken to have it wound up. However, if a company (say ESB) moves against someone, they will get a court judgement, and if the person can't pay this they will try to enforce this in a number of ways, one of which is a judgement mortgage. A creditor with a judgement mortgage of, say for example €1,000 is very unlikely to get a repossession order, so the bank will still have to go in and seek repossession in their own right.

Pa ElGrande wrote: »

I agree with you, however the Irish courts have never had to deal with large scale defaults (probably since famine times or the land wars). I don't think the courts will have much leeway this time unless the government urgently reforms the bankruptcy laws.

I think the reason the courts have been unwilling to grant orders for possession for primary residences is that they will be ejecting people from their homes. More often than not they will be ejecting families (as they are the ones who can't just sell the house and be damned) or people with serious sob stories (e.g. recovering from an illness, lost job due to recession etc) and above all, Ireland has been scarred by the land war and ever since judges have been very unwilling to evict someone.

That situation is probably reversed however, if Mr. Ryan goes into default on one of his many residential investment properties on which he has been supplementing his income quite nicely over the last few years.

On the subject of bankrupsy reform, what would you suggest? It's a pretty rum deal at the moment, but on the other hand people shouldn't be allowed to declare bankrupsy and then walk away scot free.

Pa ElGrande

johnnyskeleton wrote: »

That company seems to be a counselling service rather than an increase in arrears collections staff. I hate to play this card, but that's from the sunday tribune and so I would be sceptical of it's contents. I also doubt that Mr. Lay has better knowledge of the Irish banking system than the banks do. For a start, his company will only be called in for the most serious cases. Plus, he has only recently come into the Irish market so he might be a bit too quick to make such judgements.

Mr. Lay is entering the market because there is demand for his companys services, the 4,200 numbers is most likely a projection based on numbers supplied by Irish banks. Here is yet more evidence garnered from an interview with David McWilliams and Matt Cooper last November.

[Matt Cooper] David McWilliams is as as well author of "The Generation Game". Good evening to you David.

[David McWilliams] Good evening Matt. How are you?

[MC] Very Good. David you have a subject, your chapter in your book called 'subprimal scream', You anticipated this problem, How bad do you think it could be?

[DMW] Well, the problem, we know that the market, there are €600 million worth of mortgages in sub-prime in Ireland and a Davy Stockbroker report last year before the market collapsed suggested this might rise to €4 billion in the next two or three years, which would be a growth rate of about 75% per year. That has been knocked on the head because of this, ah, sub-prime crash in America which affects the ability of sub-prime lenders to finance and that's something we might come onto in a minute. But, there was a chapter in, chapter 11 of 'The generation game' is called the debt collectors ball, and I'll just paint a picture for you, because this is a very important thing to understand.
On Thursday the 26th of April, this year 2007 in the Hibernia room of the four seasons, I attended a get together which was, really a debt collectors ball. Now, I was present there and there was fine New England lobster and crab and fine sancerre to wash it down, but the issue was, this is what a new debt collector looks like, what is happening is the banks are lending out to people they shouldn't be lending to, to an extent people themselves should realise, my God I mightn't be able to pay this, but when, things go wrong, the banks themselves don't necessarily collect the debt, they roll up all the bad debts to a bespoke specialist debt collector. Now, he's very different from the guy who used to around with a couple of truncheons around to people and terrorise them in the old days. The new debt collector probably is from an outfit you know called 'Columbus finance' or something.

[MC] {interrupts} Careful, just in case there is a Columbus finance out there

[DMW] It's probably Magellan or discoverer of some class, you know like Columbus, or you know I was about to say, St. Brendan finance or whatever, right, and the idea being that this is a broad sweep and its historic reference, but, ultimately they go down and they buy the debt off the bank which is non performing, which is actually now not performing, the bank want to get it off their balance sheet, the debt collector buys it. Let's say for example, the debt was worth 10 quid, or 100 quid, the debt collector says to the bank I'll give you 70 quid for this, OK, you write off 30 and I'll look after it.
Suddenly all the bad debts get moved and this debt collectors ball, which was in very, very swanky, was anticipating a great year this year and next year, and that was a subject of the chapter, because I had seen alot of offerings from some of the prime , the subprime characters. The mortgage guys, one of whom decided to close for business this morning, and I'd seen where they were raising money, how were they raising money how they intended to get out of this if there was a problem and it struck me when I was writing the chapter last year, this was going to be a serious issue and now it's beginning to unravel, because again as the two other gentlemen were saying, you know 2 or 3% interest rate is a huge amount of money when you are strapped on massive mortgage. And people simply can't pay, so, what I call them, these should be called 2 28 mortgages, right, which is two years of pleasure and twenty-eight years of pain.

[MC] It might even be thirty. Micheal Dowling hasn't these subprime lenders stopped yesterday they've actually stopped lending in the Irish market

johnnyskeleton wrote: »

I think the reality is more that if someone is in that situation, the bank will tell Mr. Ryan to get another job or sell his house. I don't think they would try to squeeze someone like you mentioned - after all the banks don't want property they want money, so repossession is their last resort.

Get another job is easier said than done, in boom times he might have been able to walk straight into another job, maybe even within a month at most. In a recession it can take a year or more to find another job and it will not be as rewarding, so servicing a mortgage based on previous income is tough going.
The banks have also packaged a lot of mortgage debt to foreigners (pension funds, banks, hedge funds) , they only act as collection agents for the mortgage debt, it's not on their books so the investors in these securities will demand they move quickly to recover any bad debts.
There were an estimated 286,000 people employed directly in construction during the peak (2006), residential housing output peaked at 93,000 units (2006) and has since dropped back substantially, the latest homebond registrations indicate output will be a lot less than half the 2006 output this year. Mr. Ryan willl have to seriously consider emmigrating, since there is unlikely to be any work for him in his current profession.

johnnyskeleton wrote: »

On the subject of bankruptsy reform, what would you suggest? It's a pretty rum deal at the moment, but on the other hand people shouldn't be allowed to declare bankrupsy and then walk away scot free.

Irish bankruptcy laws are amont the harshest in Europe, the key reform I would like to see is that any debt secured on an asset is discharged when that asset is seized and the debtors credit record is marked for ten years afterwards. This would ensure the risk is priced properly by the banks and investors and loaded on their balance sheets. It would also give the debtor a chance to start again and get back on their feet, instead of being harrassed for twelve years afterwards.

PERSONAL BANKRUPTCY – IS IT TIME TO CHANGE THE LAW?

johnnyskeleton

Pa ElGrande wrote: »

Mr. Lay is entering the market because there is demand for his companys services, the 4,200 numbers is most likely a projection based on numbers supplied by Irish banks. Here is yet more evidence garnered from an interview with David McWilliams and Matt Cooper last November.

I accept that there are problems with the sub prime lenders (for obvious reasons), but I don't think that the entry of that company into the Irish market marks a change in tactics, more likely than not it just represents that company moving in to take over from domestic Irish companies doing the same job.

People have always gotten into arrears with their mortgages - this happened in the boom too. There probably will be serious problems in this area in the next few years, but so far it hasn't really happened in my view.

Pa ElGrande wrote: »

Get another job is easier said than done, in boom times he might have been able to walk straight into another job, maybe even within a month at most. In a recession it can take a year or more to find another job and it will not be as rewarding, so servicing a mortgage based on previous income is tough going.
The banks have also packaged a lot of mortgage debt to foreigners (pension funds, banks, hedge funds) , they only act as collection agents for the mortgage debt, it's not on their books so the investors in these securities will demand they move quickly to recover any bad debts.
There were an estimated 286,000 people employed directly in construction during the peak (2006), residential housing output peaked at 93,000 units (2006) and has since dropped back substantially, the latest homebond registrations indicate output will be a lot less than half the 2006 output this year. Mr. Ryan willl have to seriously consider emmigrating, since there is unlikely to be any work for him in his current profession.

Yes but while there might be a few Mr Ryans in this world who had no savings and who can't find another source of income, or are not prepared to sell their investment property, a lot of the people who have lost their jobs in the construction industry are resourceful and go on to do other things or find a way to keep the mortgage ticking over. It's only when there is a mass exodus of tenants that there will be wholesale repossession cases.

Pa ElGrande wrote: »

Irish bankruptcy laws are amont the harshest in Europe, the key reform I would like to see is that any debt secured on an asset is discharged when that asset is seized and the debtors credit record is marked for ten years afterwards. This would ensure the risk is priced properly by the banks and investors and loaded on their balance sheets. It would also give the debtor a chance to start again and get back on their feet, instead of being harrassed for twelve years afterwards.

PERSONAL BANKRUPTCY – IS IT TIME TO CHANGE THE LAW?

It's based on the strong sense of personal autonomy in Ireland, and reform has never really been necessary with the leniency of the Irish courts towards debtors in unfortunate circumstances and the other protections in Irish law (e.g. the family home protection act). I do agree that there should be a way for heavily indebted people to extricate themselves in a humane manner, but I'm not sure that bankruptcy laws should be changed - it is after all a nuclear option for someone in debt, and shouldn't be available for people to just shrug their debts. While on the one hand I have a lot of sympathy for a couple who have to buy a house to raise their child, then loose their jobs or get sick, and end up selling their houses and being saddled with a large personal debt for their efforts, but on the other hand I don't think someone who, as say for example a developer, takes out millions in loans and when it goes pear shaped can simply get out of it by declaring bankruptcy.

jdivision

http://www.independent.ie/business/irish/banking-collapse-economist-was-just-spouting-off-1318359.html
Banking collapse economist was 'just spouting off'

By Tom McEnaney
Saturday March 15 2008


Morgan Kelly, the UCD economist who rocked the market earlier this week when he said Irish banks may have to be nationalised, has dismissed his own comments as "just spouting off".


Professor Kelly's comments formed the basis of an article in the Daily Telegraph last Tuesday and a lead article in the Irish Daily Mail on Wednesday.

He said: "We are going to see banks on life support with very big bail-outs. The precedent for this is what happened in the Nordic countries in the early 1990s when they had to take over the banks. We may have to do something similar.''

Following the article, Mr Kelly was contacted by Barry O'Connell, an analyst at banking giant UBS, who was compiling his own research on Irish banks. According to the e-mail exchange, which has been seen by Irish Independent Business, Mr O'Connell said: "I read the Telegraph article referring to your research today and was wondering if it would be possible to receive a copy of the piece."
Mr Kelly's response was: "I was just spouting off: I have not had a chance to work on it systematically. The best analysis by far of Irish banks is the report by Ross Curran of UBS."

When contacted by Irish Independent Business about his original comments Mr Kelly said: "I am not interested in discussing Irish banks right now."

Contacted subsequently in relation to the e-mail exchange where he dismisses his own comments, Professor Kelly said: "Who wudda thunk it: my e-mails in print. Celebrity at last!"
Mr Kelly was not alone in dismissing his comments. Jim Power of Friends First described them as "ridiculous" pointing out that Irish banks are very well capitalised.

By contrast, in Norway a sharp oil price fall in the beginning of 1986 led to a run on the Norwegian krone and a devaluation of that currency. Private business and individuals responded by concentrating on debt repayments instead of spending, prompting Norway's greatest recession since the end of the second World War. The resultant loan losses wiped out the capital of many banks.

- Tom McEnaney