Explain to me why borrowers are responsible for the current mess?

djpbarry

Carawaystick wrote: »

Because if the landlord has a niece or nephew he wants to allow live in the house, you are out on your ear, looking for somewhere else to live.

That's what a lease is for.

Carawaystick wrote: »

There is very poor security of tenure for renters in Ireland compared to continental Europe where renting is more common.

I'm not sure it's because renting is more common, it's because there is a different attitude towards renting.

Carawaystick wrote: »

Also after 25 years you will still be paying rent.

Possibly, but one has to weigh up how much rent they have paid versus how much interest would have been paid on a mortgage over the same length of time.

hedgeh0g

thebman wrote: »

The State probably could have discouraged it and introduced measures to make lending unreasonable amounts to people impossible.

Why the hell where people allowed to borrow this amount? The banks shouldn't have done it and the government/regulator should have put a restriction on the max allowed to be borrowed by someone (such as 3 times their salary).

Friend of a friend got a false p60 with loads of overtime on doctored pay slips etc. A broker would do the rest for you to get it approved (Ive heard loads of brokers knew the score and just wanted the %)

Dannyboy83

djpbarry wrote: »

That's what a lease is for.

Honest question, as I don't know:

A) How do you get a 25 year lease on residential property?
Would you have permission to put up a shelf on the wall or give a lick of paint if its a long term lease?
C) Itenerary?


[

djpbarry

Dannyboy83 wrote: »

Honest question, as I don't know:

A) How do you get a 25 year lease on residential property?

That's for you to agree with the landlord, although admittedly, it's very unlikely that either the tenant or the landlord would be willing to agree to such a long lease! But, as far as I am aware, there is no law against it.

Dannyboy83 wrote: »

Would you have permission to put up a shelf on the wall or give a lick of paint if its a long term lease?

Once again, that’s between you and the landlord, although most landlords won’t object to their tenants’ giving the place a once-over with a paint-brush! Saves them the trouble of doing it.

Dannyboy83 wrote: »

C) Itenerary?

I’m not sure what you mean?

Dannyboy83

djpbarry wrote: »

That's for you to agree with the landlord, although admittedly, it's very unlikely that either the tenant or the landlord would be willing to agree to such a long lease!

Again - just wondering what happens in these scenarios?
Some of them are relevant to the current market.

1. What happens if the lease is agreed, then the owner sells the house after 10 years?
2. What if the owner dies and passes it on to someone planning to live there?
3. what if the owner goes bankrupt and its repossessed?

But, as far as I am aware, there is no law against it.
Once again, that’s between you and the landlord, although most landlords won’t object to their tenants’ giving the place a once-over with a paint-brush! Saves them the trouble of doing it.

I've found most landlords object to it, even when its at your own expense.

Itenerary: I’m not sure what you mean?

Sorry, I mis-spelt it: Itenerary.
What happens here?

the_syco

djpbarry wrote: »

I don’t understand this mentality either. Why is it essential to own the building in which you live?

When you stop working after 40 years, owning the house will be nice, as you'll only need to pay the bills and food. Paying for rent + bills + food from your pension may not be possible.

Also, it can be seen as an investment: once you own the house, you live there rent free. You could even rent rooms to others, to suplement your pension.

asdasd

Governments adopted an expansionary monetary policy that involved holding interest rates too low, printing fiat currency, and creating a huge credit bubble that was passed along to the consumer in the form of mortgages,

Did Ireland adopt an "expansionary monetary policy" or was it the ECB. Still though Germany and France seemed not to boom so much, a point to get back to later.

This whole thing must be a bit distressing for the libertarian mindset. The problems in the US were caused by loose regulation, and (indeed) easy money and were driven by an ideology - the libertarian ideology of utter fruit basket and Ann Randian follower Greenspan.

Germany did not have a property boom with the same level of interest rates - because over strong government regulation on the amount people could borrow. Same with France. When banks were given their heads here - a factor of loose regulation and little government - we had a bubble.

i have to lol at the libertarian argument that "expansionary credit" caused by loose regulation is the same as governing too much.

Clearly for those of us with less warped ideological views the problem was too little regulation, not too much.

And what is the libertarian argument against "Fiat Money" printed by the nasty gubmint. If there is too much government involvement in the "printing of money" should we all get to print money? or just the individual banks? and if it the the banks who decides which bank currency is legal tender ( I suggest the government do that, and if so, it may as well print the damned money).

Problem was, then, up to now not too much government, but too little. Libertarians needs a new worldview, but since that would involve independent thought, we should hold our breath.

ednwireland

to the person who thinks that they've wasted 30-40 k in rent in the last 5 years, if you had bought a house that was worth 350k and its now worth 250k (or worse still you cant sell so its worthless ) you've actually saved 60k. i'm really lucky in that i bought my 2 houses in 97 (long story it wa stoo difficult to split the deeds) so they're probably worth what i spent on them.
as to france and germany there is a lost less property ownership (as in much of the eu) there any many reasons for this bank lending being one of them. but protection for long term tenants regulated rents hence minimising the rents moving. if you get a flat in austria (mother in law) you have to put in sinks baths etc or buy them from the previous tenants.

asdasd

you've actually saved 60k

The general point is correct, but:

What he has saved, over his lifetime, is the mortgage replayments not the difference between the original cost and rent, but the difference in overall mortgage repayments on the house he could've bought then, and the cost ( plus) interest of the same house now minus rent.

I.e. if he saved 100K on the house by the time he buys, he really saves the 100K and mortgage term interest over the lifetime of the loan. Which could be as much as 200K for a long term loan.

( of course, he may just end up buying a much better house for the same original price, but he is still better off).

The Corinthian

Dannyboy83 wrote: »

2. How are homeowners to blame for the current drama sweeping through our banking sector?

Homeowners are not 'to blame'. My parents bought their home in the eighties, so you can hardly point the finger at them.

More correctly, those who purchased property, leveraging themselves financially to a dangerous degree, within a market that was clearly overheating share the blame with the banks, et al.

Think of it this way. There has been a tendency in the US in recent years to blame fast food chains like McDonalds for rates of obesity. Certainly, one can argue that people were misled as to the health implications of gorging themselves on fast food on a regular basis, or that certain additives make the food 'addictive', but this does not exonerate people from overeating junk food and continuing to do so long after the effects of this over eating are apparent.

The same goes for the property market. Historically, we like to own our homes. However, we went beyond this, and many bought more than one property for investment purposes. It was the road to fast capital appreciation, outpacing all other forms of investment, and when the margins in Ireland began to tighten, we started to buy in eastern Europe.

Even in Ireland, we jumped on the investment bandwagon, and there have been numerous budding property developers (often groups of friends who clubbed together) who built or restored a few houses and sold them on at obscene mark-ups.

And the banks didn't sell this notion to us. We did. In pubs we'd hear how such-and-such had made a killing on a land deal, and how another had bought for 200k and sold a year later for 270k. We all wanted a piece of the action.

Of course, the banks were irresponsible. Giving away 100% mortgages was crazy - even if you limited it to professionals (imagining that a solicitor who specialized in conveyancing had a secure job was the height of idiocy). And less said about some of their other shenanigans.

However, it does not change the fact that many of us scrambled to jump onto a property bandwagon, even long after it was obvious it was a bubble that was going to burst. Not all of us did so for the noble purpose of buying our own homes either, many bought for purely investment purposes - look at all the shoe boxes that were built in the cities, how many of those are owner dwellings?

Personally I had a business that drained any resources that could have been used to purchase a house, up until around 2005, when I closed it down and just became a mercenary. But by the time I had capital again, I looked at the market and the time to buy had passed, as far as I was concerned - the bubble was already overextended, and it was only a matter of time before it would pop. So I held off and am very glad I did.

People are big into rights, but tend to forget that with those rights come responsibilities, and that is largely what we're seeing now. It was no secret that we were in a bubble. We've been discussing it for years. But people were still buying with 100% mortgages or off the plans up to the end.

And now they're angry, and frightened and financially screwed and want to blame someone else. But the reality is they played a part in it too. Banks loaned stupidly, but home owners borrowed stupidly too and you cannot escape that fact.

Caveat emptor.

djpbarry

Dannyboy83 wrote: »

Again - just wondering what happens in these scenarios?
Some of them are relevant to the current market.

1. What happens if the lease is agreed, then the owner sells the house after 10 years?
2. What if the owner dies and passes it on to someone planning to live there?
3. what if the owner goes bankrupt and its repossessed?

I suggest you have a read of your rights and obligations here:
http://www.citizensinformation.ie/categories/housing/renting-a-home

Dannyboy83 wrote: »

Sorry, I mis-spelt it: Itenerary.
What happens here?

Sorry, I still don’t know what you mean?

the_syco wrote: »

When you stop working after 40 years, owning the house will be nice...

Hey, I’m not saying it would not be nice to own a place (I would if I could), but it would be nice to own a nice car and a nice big TV too, but none of these things are essential. They’re certainly not worth sacrificing your financial wellbeing.

Boggle

I don’t understand this mentality either. Why is it essential to own the building in which you live?

Because how can you establish a life in a property deal when the owner will not negotiate a long term lease and even when he does, he can kick you out on a whim to "sell the property".

I have had several landlords over the past 10 years and of all of those, only one was professional in how he acted (everything above board, required maintenance carried out and due respect afforded the tenants).

So, how is it wrong for someone to want a little stability in their life??

asdasd

So, how is it wrong for someone to want a little stability in their life??

I agree with that but we could reform the laws.

SkepticOne

The Corinthian wrote: »

Think of it this way. There has been a tendency in the US in recent years to blame fast food chains like McDonalds for rates of obesity. Certainly, one can argue that people were misled as to the health implications of gorging themselves on fast food on a regular basis, or that certain additives make the food 'addictive', but this does not exonerate people from overeating junk food and continuing to do so long after the effects of this over eating are apparent.

The difference, though, is that the fast food chains are not looking to the State for help to continue in business. The situation with the banks is that even if we assign full responsibility for borrowing on the borrower, the banks should not lend to the extent that they can no longer continue in business.

If I lend €10K to a wino under a bridge and subsequently need it for my business I can't go running to the tax-payer for help when the money is not forthcoming. Yet this is what the banks are doing.

karen3212

Because we should know by now that bubbles are part and parcel of the economy if left to it's own devices completely and that people do have a tendency to get carried away with the crowd, no matter how intelligent or high up the expert chain they are - even rating agencies have humans working for them, the same with banks.

Hopefully this generation have learned by experience from the car crash, that it would have been better to have forced people to wear seat-belts, but will we let the next generation go through the same experience? It's very difficult to find just the right measure of restraint, but other countries are not doing as badly at the moment so we can look at what they did differently.

But it is up to us, as we know the government we elect will represent the majority of us and our sentiments pretty well. They reflect our thinking back to us, human too it seems.

djpbarry

Boggle wrote: »

Because how can you establish a life in a property deal when the owner will not negotiate a long term lease and even when he does, he can kick you out on a whim to "sell the property".

Well, that’s not entirely true – there is a legal minimum period of notice with which the tenant is to be served in the event that the landlord wants to sell the property (or whatever else they want to do with it).

Boggle wrote: »

I have had several landlords over the past 10 years and of all of those, only one was professional in how he acted.

How long did you tolerate the unprofessional landlords? That’s a big part of the problem – people simply put up with the unprofessional (and in many cases, illegal) behaviour. It never ceases to amaze when otherwise sensible people tell me that, for example, they pay their landlord in cash and have no record of their rent payments; they’re setting themselves up for a fall.

Boggle wrote: »

So, how is it wrong for someone to want a little stability in their life??

Nothing at all, but as asdasd says, if people want the laws changed, it’s up to them to see them changed. But the first step is people educating themselves on the existing laws.

The Corinthian

Boggle wrote: »

I have had several landlords over the past 10 years and of all of those, only one was professional in how he acted (everything above board, required maintenance carried out and due respect afforded the tenants).

As I said, we like to be home owners historically. As such we tended to buy as soon we 'settled down', while on the continent people rent until much, much later in life, and often never actually buy. As a result, regulation (and enforcement) of the rental market is far more mature in counties such as Italy, Germany or France than in Ireland, where quality-related regulations, for example, have been introduced only fairly recently - which is why, apartments built in the first half of the nineties tend to be made of cardboard.

SkepticOne wrote: »

The difference, though, is that the fast food chains are not looking to the State for help to continue in business.

Not yet, but as with the auto industry, they could chance their arm on the basis that there are jobs to be protected.

Of course, this does not condone the help the banks are getting from the government, I personally don't think the government should in a number of cases - although then you would have to consider the consequences of not doing so.

But ultimately, that banks are getting bailed out now, does not mean that the consumer is blameless. The former might be wrong, but it does not absolve the latter. Don't confuse the two.

If I lend €10K to a wino under a bridge and subsequently need it for my business I can't go running to the tax-payer for help when the money is not forthcoming. Yet this is what the banks are doing.

All those people who bought overpriced apartments to rent out are also looking for help from the government though. And getting it, or did you think that all those measures to stop repossessions ATM are for family homes alone?

Seriously though, it could be worse. Feel sorry for the 60% of Polish mortgages that were taken out in Swiss Francs because of the Franc's low inflation rate. A year ago, the Zloty got you 0.45 CHF, today it's worth 0.32 CHF. That's bound to hurt when translated to repayments...

SkepticOne

The Corinthian wrote: »

But ultimately, that banks are getting bailed out now, does not mean that the consumer is blameless. The former might be wrong, but it does not absolve the latter. Don't confuse the two.

I don't believe I'm confusing the two. I believe there's a distinction to be made between poor business practice (the banks) and uwise borrowing (some borrower). If I borrow money then I'm responsible for paying it back, nothing more. I'm not responsible for the overall banking mess.

This is true notwithstanding the assistance to borrowers now being extended by the State.

There is responsibility on both sides but the responsibility is for different things.

bonkey

SkepticOne wrote: »

The difference, though, is that the fast food chains are not looking to the State for help to continue in business.

If I understood ***** correctly, his point was that there is a degree of personal responsibility from the consumer.

This, as a response, seems to suggest that this responsibility is somehow absolved if the system tanks and goes to the wall.

Put into the fast food analgy...if I'm a fat ****ard because I live off McDonalds, TC's point is that I carry a certain burden of responsibility for my own actions. If, however, the fast food industry collapses and McDonalds look to Uncle Sam to bail them out, you seem be be suggesting that I'm somehow relieved of that burden...that it becomes someone else's fault.

The situation with the banks is that even if we assign full responsibility for borrowing on the borrower, the banks should not lend to the extent that they can no longer continue in business.

I guess it depends on what you mean by "no longer continue".

If I, as an indiviudal, find myself in a situation where I've amassed a stack of debt that all materialised at the same time (unexpectedly), I can look to the bank for loan restructuring to help me out. I end up paying back more, over a longer period of time, but restructured in a way that I can afford it. It would make far more sense for everyone to allow me this restructuring rather than have me declare personal bankruptcy because I found myself in a short-term tight spot.

If I, as a business owner, find my business in a situation where there is a temporary-but-significant shortfall of cash in an otherwise sound business, then it again makes sense for a bridging or restructuring loan to be used, so that I can continue in business, rather than let if fail.

In both of these cases, its not a question of whether or not I cocked up. Its a question of whether or not it makes more sense to let things fail, or to restructure things somehow to prevent them from failing.

The banks cocked up. That doesn't mean that their business is no longer tenable...they just need short-term assistence. Due to fantastic timing, this comes at a point where they can't just be bought by a bigger bank, or where investors are lining up. That still doesn't mean that their business is no longer tenable. It doesn't mean they can't continue.

If I lend €10K to a wino under a bridge and subsequently need it for my business I can't go running to the tax-payer for help when the money is not forthcoming. Yet this is what the banks are doing.

No, but you probably could go to the bank or an investor (private equity) and point out that your otherwise-profitable business is in dire straits because you did something stupid. You'd almost certainly find someone willing to take a share of your business for the cut-price deal you'd offer to keep it afloat.

This too, is what the banks are doing.

The concept of "lender of last resort" isn't new.

I admit, the government aren't likely to act as lender of last resort for your theoretical business, but that would be most likely because the collapse of your theoretical business wouldn't have enough of an impact on the national economy.

bonkey

djpbarry wrote: »

That's what a lease is for.
I'm not sure it's because renting is more common, it's because there is a different attitude towards renting.

In my experience, its mostly because there's a completely different set of legislation.

Boggle

asdasd wrote:

I agree with that but we could reform the laws.

As I said, we like to be home owners historically. As such we tended to buy as soon we 'settled down', while on the continent people rent until much, much later in life, and often never actually buy. As a result, regulation (and enforcement) of the rental market is far more mature in counties such as Italy, Germany or France than in Ireland, where quality-related regulations, for example, have been introduced only fairly recently - which is why, apartments built in the first half of the nineties tend to be made of cardboard.

I accept wholly what you have both said but I would say that, both presently and historically, these laws are what they are and people know that and because of that they know that if they want a stable home they have to purchase.

By all means reform the laws but don't blame people for lack of political will.

The Corinthian

SkepticOne wrote: »

I don't believe I'm confusing the two. I believe there's a distinction to be made between poor business practice (the banks) and uwise borrowing (some borrower). If I borrow money then I'm responsible for paying it back, nothing more. I'm not responsible for the overall banking mess.

By the same logic neither are any of the individual banks responsible for the overall banking mess. No single bank created this mess, after all.

Collectively they are responsible however. By that same logic, the borrowers collectively share responsibility.

There is responsibility on both sides but the responsibility is for different things.

Of course it is for different things, but overall the mess was not created by the banks on their own, different groups acted irresponsibly like greedy lemmings and together created it. That's why I said borrowers share responsibility - I'm not even suggesting the bulk of it.

Otherwise you are suggesting that borrowers were duped by the banks who knowingly deceived them and created the mess. That didn't happen.

We all, banks and consumers, deceived ourselves.

SkepticOne

bonkey wrote: »

If I understood ***** correctly, his point was that there is a degree of personal responsibility from the consumer.

There is but my point is that it is a very specific responsibility, namely to pay back that loan.

If go back to the opening post and the thread that this one branched off, the 'mess' we're talking about is these bailouts and nationalisations of banks, not the individual difficulties of borrowers.

If I am in the lending business it is my responsibility to lend in such a way that my business is sustained. If I overlend and my business fails I can't blame my customers.

I think you may not have fully taken on board the point about separate responsibilities.

The Corinthian

SkepticOne wrote: »

There is but my point is that it is a very specific responsibility, namely to pay back that loan.

Then the banks only have a responsibility for their own bank's problems, not for the credit crisis.

SkepticOne

The Corinthian wrote: »

By the same logic neither are any of the individual banks responsible for the overall banking mess. No single bank created this mess, after all.

Collectively they are responsible however. By that same logic, the borrowers collectively share responsibility.

If the "mess" under discussion was the fact that there's a lot of people who owe a lot to the banks and some of whom are having difficulty then I would agree with you.

But the mess we're talking about is different. This mess involves the tax-payer bailing out failed banking businesses.

In Britain in the early 90's you had the situation where there were a lot of people who could not pay their mortgages and faced repossession, but the banks for the most part did not require bailouts or nationalisation. The banks had not failed as businesses and if they had, then they could not blame the borrowers for the simple reason that borrowers.

SkepticOne

The Corinthian wrote: »

Then the banks only have a responsibility for their own bank's problems, not for the credit crisis.

That is true, but Irish banks due to their business practices are facing much greater problems than, say, those in France.

bonkey

SkepticOne wrote: »

There is but my point is that it is a very specific responsibility, namely to pay back that loan.

So you don't think, for example, that the property developers are at all to blame for this mess, other than that individually they each failed to pay back the loans they had from the banks?

Similarly, you don't think that the (collective) pattern of (individual) borrowing had anything to do with the house prices...that they rose of their own accord, or were driven there by the banks?

"The current mess" is a collection of issues.

Collectively, the banks, the property developers and the property-purchasers all contributed to a situation developing. If the borrowers hadn't loaned as they did, we wouldn't be there...that's true. If the property developers hadn't developed as they did, however, we also wouldn't be there. Similarly, if house-buyers didn't borrow as they did, we still wouldn't be there.

One could go further, and say that if the world financial market hadn't behaved the way it did, then there are good chances that the "lender of last resort" wouldn't have been needed at all, and we wouldn't be there either.

The point is that there is no single player who could have caused this mess without the collusion of the other players. They all were necessary to produce the end-result.

Its a bit like people getting all mad about our elected government. Individually no-one put the government in power. Collectively, the people made that bed.

The Corinthian

SkepticOne wrote: »

If the "mess" under discussion was the fact that there's a lot of people who owe a lot to the banks and some of whom are having difficulty then I would agree with you.

But the mess we're talking about is different. This mess involves the tax-payer bailing out failed banking businesses.

All of which came about because of stupid borrowing and stupid lending. This 'mess' could not have happened without consumers borrowing cretinous amounts of money, any more than it could have happened without irresponsible lending strategies by the banks.

SkepticOne wrote: »

That is true, but Irish banks due to their business practices are facing much greater problems than, say, those in France.

Please see above.

SkepticOne

bonkey wrote: »

So you don't think, for example, that the property developers are at all to blame for this mess, other than that individually they each failed to pay back the loans they had from the banks?

They are the wino under the bridge in my earlier analogy. The banks should have known that they were lending into an unsustainable situation yet they continued and not only that but accelerated their lending and lobbied against regulation. The developers should not have borrowed money towards the end of the boom and should now be obliged to pay it back. But they did not cause the banks failure. They had no power to force the banks to lend them money. If the banks felt (as they should have) that it was unwise to lend to Irish property developers then it was fully in their power to refuse.

Similarly, you don't think that the (collective) pattern of (individual) borrowing had anything to do with the house prices...that they rose of their own accord, or were driven there by the banks?

Again, if I borrowed money to buy an overpriced house at the top of the market, I can't blame the bank and am fully responsible for my debt. But similarly the bank can't blame me for its business failure. Two separate responsibilities.

I think what you are talking about in your post are impersonal causes or factors contributing to the current situation whereas I (and I think it is what the thread is about) am talking about responsibilities.

SkepticOne

The Corinthian wrote: »

All of which came about because of stupid borrowing and stupid lending. This 'mess' could not have happened without consumers borrowing cretinous amounts of money, any more than it could have happened without irresponsible lending strategies by the banks.

Please see above.

I think this also is down to the distinction between impersonal causes and responsibilities.