PrimeTime RTE1@9.35 - Examining the Property Pyramid Collapse

hinault

deadinterest wrote: »

It's one thing to review bankruptcy laws to make banks more prudent but removing peoples responsibility is one thing. I think the UK has a system somewhere bewteen ireland and the US.

Speaking from personal experience - I can tell you that when the banks were literally throwing money at people, I had an interesting experience.

I bought a house in 2006.
I went in to the bank with a deposit - yes a deposit - €35k.
(the deposit was not borrowed).

I had applied for a loan of €350k : the loan was approved within a couple weeks.
35k was my 10% deposit for the 350k loan.

The day I went in to the bank to confirm the loan/sign the documentation and lodge the deposit, the teller said that there was no need for a deposit given my impeccable financial record (and it is impeccable).
"Oh those days are gone you know......no one has to have a deposit these days" the bank teller said.
I suggested that I would like them to take the deposit.
The teller insisted that "No, Mr Hinault, we would like to give you €350k loan".

The ensuing tug of war, saw me pushing a cheque across the counter, and the teller pushing the cheque back to me.
This ritual went on for a couple of minutes.

Finally the teller accepted my point and took my cheque - with the words
"thank you, Mr Hinault, now that you have 10% equity in your house, would you like to take out a loan based on your equity?"

You see the problem here?
A financially careful person like me - was being pressured by the teller to not give a deposit.
And when I did give a deposit - I was offered a loan based on that deposit!

The banks were a part of the problem.

deadinterest

hinault wrote: »

Speaking from personal experience - I can tell you that when the banks were literally throwing money at people, I had an interesting experience.

I bought a house in 2006.
I went in to the bank with a deposit - yes a deposit - €35k.
(the deposit was not borrowed).

I had applied for a loan of €350k : the loan was approved within a couple weeks.
35k was my 10% deposit for the 350k loan.

The day I went in to the bank to confirm the loan/sign the documentation and lodge the deposit, the teller said that there was no need for a deposit given my impeccable financial record (and it is impeccable).
"Oh those days are gone you know......no one has to have a deposit these days" the bank teller said.
I suggested that I would like them to take the deposit.
The teller insisted that "No, Mr Hinault, we would like to give you €350k loan".

The ensuing tug of war, saw me pushing a cheque across the counter, and the teller pushing the cheque back to me.
This ritual went on for a couple of minutes.

Finally the teller accepted my point and took my cheque - with the words
"thank you, Mr Hinault, now that you have 10% equity in your house, would you like to take out a loan based on your equity?"

You see the problem here?
A financially careful person like me - was being pressured by the teller to not give a deposit.
And when I did give a deposit - I was offered a loan based on that deposit!

The banks were a part of the problem.

Why were you banking with John Cleese? Seriously, that's mad and banks should be punished for idiocy but people just walking away from debt is not a good thing imho.
I'd say people who 'released equity" are really kicking themselves.

hinault

deadinterest wrote: »

Why were you banking with John Cleese? Seriously, that's mad and banks should be punished for idiocy but people just walking away from debt is not a good thing imho.
I'd say people who 'released equity" are really kicking themselves.

John Cleese Lol:D


I take your point : both sides to the bargain have to be more responsible.


The problem with the banks between 2003-2006 was that they were loaning money willy-nilly because they were "securitising" all loans and the assumed that the "golden economic age" would roll and roll...........

Dannyboy83

ah, ignore

P. Breathnach

Dannyboy83 wrote: »

ah, ignore

I suppose that is what we should do with most posts here.

Dannyboy83

LOL:D

nesf

hinault wrote: »

John Cleese Lol:D


I take your point : both sides to the bargain have to be more responsible.


The problem with the banks between 2003-2006 was that they were loaning money willy-nilly because they were "securitising" all loans and the assumed that the "golden economic age" would roll and roll...........

The main Irish banks weren't securitising mortgages. That was happening in the US, it and sub-prime lending weren't prevalent here among the main banks. Some smaller financial orginisations dabbled in it but they weren't major players and weren't banks per se so they aren't covered the Government in any way and haven't and won't be bailed out by the State.

Sand

@Jmayo

Great idea

Thanks, i live for your approval.

Lets absolve every eejit who over borrowed, because they had to keep up with the jones down the road and never factored into their equations that they might fall on hard times.
You seem to think that it was all the banks fault, remember it takes two to have a mortgage agreement, the lender and the borrower.

No, im fully aware of it. I'm just more pessimistic/realistic than you are.

I assume every eejit who wanders in of the street and asks the bank for a 600K loan to buy a 2 bed down in meath is a fuking eejit. And I assume the bank is a cruel, heartless, capitalist monstrosity which cruelly discount this ****ing eejits madcap desire for a 2 bed down in meath and dispassionately assumes "Is this something we can make a return on?"

Of course, obviously a system where every eejit can wander in off the street and get a 600K loan for a 2 bed down in meath in the middle of a bubble from what are supposed to be the evil vampire squids wrapped around the face of humanity is clearly a clever, dispassionate capitalist system and we dont need to look at corrections.

Thanks, grand - clearly everything was fine. Thanks for clearing that up.

Seriously, I am 100% in favour of letting the ****ing banks burn. Burn. **** em.

Are you happy only to ensure that you pay for every loss so long as everyone who lost their job in the past year or two and had taken out a mortgage gets sentenced to life breaking stone down in Sligo or something?

If you allow jingle mail and people to walk away from their debts, then the banks are left carrying the can.

As exxceptionally informed economic actors...jesus, that would be ****ing horrible. Systematic actors, forced to recognise and deal with their own risk. Jesus, the whole system of capitalism would collapse then.

Thus I don't want the banks in even worse sh**e, becuase Johnny and Mary down the road have handed back the keys and walked after borrowing 500,000 on a 100% mortgage to buy a property that is now worth less than half of that.

So? **** em. Let the banks burn. **** em. They ****ed up. They lost. Too bad, so sad. Why does the taxpayer have to be thrown under the bus to save the banks?

There is this assumption that we have to save the banks. Why?

Why should I (and my kids), and many others who didn't go nuts on the gravy train property ladder, be left carrying the can for the borrowers unresponsible actions and often greed ?
It is enough we are left holding the cr** loans and paying for the incompetence and greed of the bankers, the EAs, the builders.

Dunno - explain to me why the taxpayer is being thrown in front of the bank shareholders and bondholders? I dont recall being informed that I was a stakeholder in AIB, BoI, Anglo Irish, National Irish etc etc.

This type of talk and the talk of personal bailouts for buyers over the last few years is cra**ing down on those citizens of this country who acted responsibly and will thus ensure some people never learn.

****ing bollocks

You *assume* a ****ing bailout for the bankers. You make every judgement on the view that the taxpayer has to bailout the banks when the **** up.

I ask why the **** am I a stakeholder in AIB when I dont have any deposits there, never bought any shares in the company and never purchased their bonds? I dont see the link. I dont see the benefit I am getting as a taxpayer go guaranteeing their **** ups.

I repeat - **** em, let them burn. Best way to ensure they even grasp the need to measuring and controlling their risk is to ensure that they have to face up to their **** ups - a "jingle mail" bankruptcy law is the way to go to ensure this - If Irish banks had a real fear they would be forced to accept property at market value versus what they lent, they would act as a brake on bubbles as opposed to simply an accelerant.

I repeat - such a reform would be the biggest kick in the pants this economy could get. For all the unions talk of stimulus, we cannot afford 30 billion Euro stimulus plans - we got to work cheap, work effective. Reform of bankruptcy laws will force crystallisation of real losses upfront for next to zero cost. Assuminbg of course you lose the assumption that AIB and BoI bondholders are more important than Irish taxpayers.

gurramok

P. Breathnach wrote: »

I suppose that is what we should do with most posts here.

Why?

I find them very informative.

bangersandmash

Sand wrote: »

You *assume* a ****ing bailout for the bankers. You make every judgement on the view that the taxpayer has to bailout the banks when the **** up.

It's not an assumption. It has already happened. No amount of censored expletives will change that.

ei.sdraob

hinault wrote: »

John Cleese Lol:D


I take your point : both sides to the bargain have to be more responsible.


The problem with the banks between 2003-2006 was that they were loaning money willy-nilly because they were "securitising" all loans and the assumed that the "golden economic age" would roll and roll...........

i have an experience with banks close to you


they would ring me up offering loans, insurance, stocks .... you name it
more or less every 2 months for last few years

the manager asked if i want a mortgage only 2 months ago :eek: i asked if she was serious, she said yes, "banks have alot of money to lend unlike what they media say" quoting herself, told her its tempting but theres no need
the funniest was talking to an investment manager in august 2008, he was trying hard to push hedge funds and stocks , needless to say last i asked about him his not in a job after the events of 2-3 months later

so they are still at it, not as bad as before, but the banks are equally to blame for being "the devil" for "making an offer that they cant refuse"

murphaph

I have skimmed over the last few posts so apologies if I've missed anything.

I disagree with a relaxation of the onus being placed on the borrower to be cautious. The US (the home of sub prime lending that created this credit crisis) places almost all the onus on the banks to act responsibly, and they still didn't!!

Imagine if anyone with a bit of negative equity in Ireland could just throw the keys back to the bank. The banks would all go bust, and Ireland would never have any money lent to it again. Personal responsibility is a good thing.

Why on earth should we all pay the price of our nation being basically uncreditworthy for a generation because a minority of people are in negative equity (but most can still afford their mortgage). Allowing a US approach means you'd be mad to pay a mortgage on a house in negative equity, but a house is supposed to be a home, not an 'investment'. Irish people didn't know what negative equity was 20 years ago, despite probably having experienced it (unbeknown to themselves!).

We just need stricter rules wrt lending and to make sure they are enforced and not let get out of hand, banking regulator anyone?

jmayo

[

hinault wrote: »

Are you being deliberately mendacious?

Sand and others have suggested revising the law to ensure that the mortgage holder can, in future, hand bank the keys if they get in to trouble with their mortgage.

If this stipulation was enacted, going forward, it would might make the banks do their job and not extend credit to those who might not be able to repay the money borrowed.

You could just say lying or being untruthful, it's not the Dáil.
Sand appears to think as can be seen from his reply to me, that the banks can carry the can and be stuck with the debts.
Is he differentiating between future mortgages and existing ones ?
Why I am shouting is that people want to relax laws allowing people with exisiting mortgages to partake of jingle mail.

Check out how many threads have queries about just handing back the keys and legging it to Australia etc.
There have been a few of these queries on the Accomodation and Property forum already this year.
Most advice they receive is not to do it, since they will never be able to borrow again in this country and maybe even any other ones.
The media, together with political parties, are making noises about how people cannot pay back their mortgages, are in negative equity and facing eviction, also there are the odd murmourings about just leaving the keys back and walking away.
Certain people on these forums have been looking for personal bailouts for
mortgage holders.

Using your going forward idea, I do think there should be stipulation that if the bank does not properly stress test the borrowers capabilities to repay then they should be at fault.
Hopefully with that it cuts out the sh** where renting a room, work bonuses, rich aunty dying, etc are factored into the person's ability to repay.

Sand wrote: »

@Jmayo

No, im fully aware of it. I'm just more pessimistic/realistic than you are.

Seriously, I am 100% in favour of letting the ****ing banks burn. Burn. **** em.

So? **** em. Let the banks burn. **** em. They ****ed up. They lost. Too bad, so sad. Why does the taxpayer have to be thrown under the bus to save the banks?

There is this assumption that we have to save the banks. Why?

Dunno - explain to me why the taxpayer is being thrown in front of the bank shareholders and bondholders? I dont recall being informed that I was a stakeholder in AIB, BoI, Anglo Irish, National Irish etc etc.

****ing bollocks

You *assume* a ****ing bailout for the bankers. You make every judgement on the view that the taxpayer has to bailout the banks when the **** up.

I ask why the **** am I a stakeholder in AIB when I dont have any deposits there, never bought any shares in the company and never purchased their bonds? I dont see the link. I dont see the benefit I am getting as a taxpayer go guaranteeing their **** ups.

I repeat - **** em, let them burn. Best way to ensure they even grasp the need to measuring and controlling their risk is to ensure that they have to face up to their **** ups - a "jingle mail" bankruptcy law is the way to go to ensure this - If Irish banks had a real fear they would be forced to accept property at market value versus what they lent, they would act as a brake on bubbles as opposed to simply an accelerant.

I repeat - such a reform would be the biggest kick in the pants this economy could get. For all the unions talk of stimulus, we cannot afford 30 billion Euro stimulus plans - we got to work cheap, work effective. Reform of bankruptcy laws will force crystallisation of real losses upfront for next to zero cost. Assuminbg of course you lose the assumption that AIB and BoI bondholders are more important than Irish taxpayers.

Stop cursing at me, I don't agree with the bank bailouts/guarantees either as they have been setup.
But they have already happened so you can shout, curse, jump around all you want, but you can't change what has already happened. :rolleyes:
Sure you can say we go back on the deal but watch our borrowing and watch our government paper takeup.

We the taxpayers were made liable for the losses of the banks last autumn when the bank guarantee scheme was unveiled. :rolleyes:
Even worse we put in about 7 odd billion in recapitalisation to the big two, and it is very probably another 10 to 15 billion odd will need to go in the near future.
Of course that doesn't include the fine institution that is Anglo where 3 odd billion has already gone in, supposedly to be soon followed by another 7 billion.
And to cheer you up even more, all of that doesn't count the fact that we are paying way above the odds for garbage toxic loans and NAMA could lose anything up to 20 billion (accoridng to soem commentators) unless the property market doesn't recover to frank fahey's optimisitic 2006 levels.

You don't like being tied to them, I don't like being tied to them but WE ARE.
You can curse all you want but that is realism of the situation.

You keep shouting "let them burn", "let them burn".
Well if the banks burn, we all burn. :mad:

Thanks for that rests with our government.

IMHO the big two banks had to have been saved, because they are systemic.
A huge percentage of the population, a huge percentage of our businesses bank with these organisations and if they went under there would be huge upheavel in Irish economy.

The ones that really could have been left swing were Anglo and Irish Nationwide.
Both of these were niche players with the former being run as a bank for the connected developers.

I know people who are in trouble and they deserve some form of moratorium on their mortgage until they can somehow get back on their feet, but and it's a big but, there are a lot of people who were stupid and are now looking for an out and want to dump the cr** back to the banks.
In a normal economy this might be ok, since the banks would only be looking at low levels of bad debts and the banks were normal solvent commerical organisations.

But we are in an abnormal economy, where the banks have already huge bad debts, with huge number of potential future bad debts and they are technically insolvent.
And here is the kicker for you me and every other person (man, woman and child) in this country we are responsible for them and have to divvy up to cover their losses. :mad:

population

hinault wrote: »

Speaking from personal experience - I can tell you that when the banks were literally throwing money at people, I had an interesting experience.

I bought a house in 2006.
I went in to the bank with a deposit - yes a deposit - €35k.
(the deposit was not borrowed).

I had applied for a loan of €350k : the loan was approved within a couple weeks.
35k was my 10% deposit for the 350k loan.

The day I went in to the bank to confirm the loan/sign the documentation and lodge the deposit, the teller said that there was no need for a deposit given my impeccable financial record (and it is impeccable).
"Oh those days are gone you know......no one has to have a deposit these days" the bank teller said.
I suggested that I would like them to take the deposit.
The teller insisted that "No, Mr Hinault, we would like to give you €350k loan".

The ensuing tug of war, saw me pushing a cheque across the counter, and the teller pushing the cheque back to me.
This ritual went on for a couple of minutes.

Finally the teller accepted my point and took my cheque - with the words
"thank you, Mr Hinault, now that you have 10% equity in your house, would you like to take out a loan based on your equity?"

You see the problem here?
A financially careful person like me - was being pressured by the teller to not give a deposit.
And when I did give a deposit - I was offered a loan based on that deposit!

The banks were a part of the problem.

As I have alluded to in my earlier post in this thread, this is more or less what happened to me also

Idbatterim

good point about the deposit! they shouldnt loan out more than 85%! Even with the current ultra low interest, if you borrow over 25 years, not the 35 years alot of the current lenders are offering, you are going to pay back the cost of property plus atleast atleast 50% i.e borrow 500k for 25 years, your looking at atleast 750k! thats assuming about 5% APR over the term and thats being on the very optimistic side! you could be looking at paying back up to 75% of what you borrow quite easily! madness! dont for a second think the banks are doing you a favour! The regulation is going to have to get alot stricter! You just cant expect the banks to act responsibly, knowing they will be bailed out every time!

Sand

@bangersandmash

It's not an assumption. It has already happened. No amount of censored expletives will change that.

It is an assumption that has led us to this current impasse. When the banks were squeling, they ran to the government to bail them out. Why?

Assuming that bankruptcy laws cant be reformed because its inconceivable that banks wont be bailed out is foolish. Banks are economic experts with a view of the entire economy, both national and international. They can and should spot bubbles, and risk, and manage their risk. They dont bother because they arent given reason to.

Reform of bankruptcy law would force banks to seriously look at their risk as theyd have to calculate if the price being paid was reasonable as they might end up the proud owners of a 600K 2 bed down in meath. And I would think that banks would or should be smart and dispassionate enough to wonder if they are willing to buy that.

@Jmayo

You could just say lying or being untruthful, it's not the Dáil....Stop cursing at me....Hopefully with that it cuts out the sh** where renting a room....dump the cr** back to the banks.

1 - Im not cursing at you.
2 - Make your mind up. Do you want people to cloud their views in neutral language or not?

Sand appears to think as can be seen from his reply to me, that the banks can carry the can and be stuck with the debts.
Is he differentiating between future mortgages and existing ones ?
Why I am shouting is that people want to relax laws allowing people with exisiting mortgages to partake of jingle mail.

I am not a lawyer, but contracts cant be rewritten except by agreement. Banks are not going to rewrite any contract that would inflict such losses. Barring any extraordinary, and probably unconstitutional, action by the government you can rest easy.

However - heres the disclaimer. In an economy where every eejit got a 600k mortgage for 2 beds in meath, and where 180K jobs have been lost in a single year: There are going to be massive, massive losses on those mortgages. A lot of economic activity is going to be wasted by being poured trying to rescue losses that have already been made rather than investing in something which offers the prospect of growth and return.

People are still going to walk on their mortgages even with bankruptcy laws as they are. Still going to happen. You cant get blood from a stone - if someone is pushed into unemployment and cant service their mortgage, then theres nothing that can be done really? Jail them? Send them to Sligo to break stone? Convert some of the NAMA properties into debtor prisons and workhouses?

But they have already happened so you can shout, curse, jump around all you want, but you can't change what has already happened.

I cant change what has already happened. Weve poured about 11 billion into the banks so far - wont see a penny of anything back on Anglo Irish, and the return from zombie AIB and BoI? Poor.

That 11 billion is gone, but the "bailout" is still not finished. Already Lenihan is considering just how much more money to throw at the black hole.

NAMA has been passed, but as far as I know it still hasnt actually carried out its portion of the bailout. It could simply stop tommorrow.

So, no, given the dawning realisation that NAMA is not going to be of any economic value and that the losses that are going to be realised on the bank "assets". I can still argue that we should recognise the 11 billion bailout so far as being a total and utter loss and waste of taxpayer funds and say that we shouldnt throw more money in, hoping it will do better.

You keep shouting "let them burn", "let them burn".
Well if the banks burn, we all burn.

No, we dont. Sit tight, remove the guarantee in September 2010 ( just 9 months to go) and then we dont burn. The bank bondholders burn. The bank shareholders burn. The bank executives burn. Ireland rescues its economic future.

The banks are not Ireland. They are not the state. Policy to this point has assumed AIB shareprice is more important than Irelands economic future: I think that when we are pursuing a stupid course of action, the first right move is to stop doing it.

IMHO the big two banks had to have been saved, because they are systemic.

Odd phrasing. The bank shareholders did not need to be saved. The bank bondholders did not need to be saved. The bank depositors needed to be saved.

Government policy should have been directed at forcing the bank stakeholders to face their losses, and to relaunch the banks under new private ownership ASAP with as little disruption to depositors as possible.

Govt policy to the banks has been retarded from the very start - the banks lost. They should lose, and the govt should only be concerned with speeding their recognition of their loss and ensuring it never, ever happens again. One of the biggest steps there is to reform bankruptcy laws so the banks are forced to properly assess the risk of their lending.

A huge percentage of the population, a huge percentage of our businesses bank with these organisations and if they went under there would be huge upheavel in Irish economy.

A short, sharp shock and then just a realignment to new growth with government policy directed at minimising it - bank staff would not dissapearr, nor would branch networks, or systems and process's.

Instead Ireland will sacrifice its economic potential for the next 20 years.

But we are in an abnormal economy, where the banks have already huge bad debts, with huge number of potential future bad debts and they are technically insolvent.
And here is the kicker for you me and every other person (man, woman and child) in this country we are responsible for them and have to divvy up to cover their losses

Only till Sept 2010 and we can simply stop shovelling good money after bad. Lets try to plan more than 9 months ahead.

Eliot Rosewater

So if I understand you correctly Sand your position would be do nothing whatsoever, with the exception of protecting depositors?

Do you reject the "too big to fail" mentality? The worry, as far as I know, would be that should the big banks fail, credit to businesses will dry up.

jape

Lol at the couple looking for a mortgage "rent is dead money", they nearly deserve a mortgage at this stage for not being able to grasp basic maths.

Amhran Nua

Eliot Rosewater wrote: »

The worry, as far as I know, would be that should the big banks fail, credit to businesses will dry up.

The real worry is that the banks go under and everyone's deposits with them vanish in a puff of smoke. Sand is actually correct, we need to reform the draconian bankruptcy laws in this country, but not yet, or at least not for those with currently outstanding loans. The reason is of course that if the banks can't chase their loans, they will become even more insolvent, then go under and everyone's deposits with them vanish in a puff of smoke. Their retail mortgage book is about all they have going for them right now.

Sand

So if I understand you correctly Sand your position would be do nothing whatsoever, with the exception of protecting depositors?

The governments priority ought to be protecting the depositors as much as is possible ( I would be wary of open ended guarantees). They should also then force the banks to face up to reality: appropriate markdowns, wiping out the shareholders, executives, and whatever bondholders can be dismissed and doing an equity for debt deal with the senior bondholders. Government should introduce appropriate legislation to do this, and act as a referee between the banks and the bondholders.

Alternatively, if someone is utterly convinced NAMA can be salvaged then there is a quick and easy solution that achieves NAMAs benefits, with none of their losses: allow the banks to carry the dodgy loans on their balance sheets at their NAMA determined LTEV, as opposed to their market value. Lenihan and the banks seem convinced LTEV is a good measure, so Im sure the markets will agree.

Do you reject the "too big to fail" mentality? The worry, as far as I know, would be that should the big banks fail, credit to businesses will dry up.

If an entity is too big to fail, then it needs to be broken up to ensure the security of the financial system. Moral hazard has to be eliminated - the banks have learned nothing, they have dictated the terms of their own bailout and the mindset and assurance that any significant loss can be socialised remains. We are going to see another banking crisis in a decade or two.

The real worry is that the banks go under and everyone's deposits with them vanish in a puff of smoke.

The governments only interest ought to be in either preventing any harm to deposit holders (which is unrealistic given state resources), or at least in minimising it at the least possible cost to the state and the economy as a whole.

thebman

P. Breathnach wrote: »

For years we (meaning Irish people in general, with a few exceptions) held as conventional wisdom that property prices would continue to rise. Then, when it became obvious that there was some kind of upper limit, the "soft landing" was invented. We now now that it wasn't very soft.

There was loads of media coverage on how unlikely a soft landing was given previous examples of property booms in other countries. Anyone that bought then has nobody else to blame as the media was saying that a soft landing was unlikely yet they bought anyway.

When should we stop feeling sorry for people that borrowed large amounts?

Seems like we are forever supposed to bail these people out like the government is bailing out the banks. That no matter when you borrow, its not your fault. It just doesn't make sense.

When you borrow it is your responsibility to ensure you can pay it back. Doesn't matter what anybody tells someone, they are responsible for the loans they take on, not anybody else but apparently they are on the poverty line, all of them and should be bailed out by the people that didn't borrow.

Its just silly IMO, I won't pay for people that borrowed for the craic without doing any sums on how they would pay it back. Its like saying someone shot themselves in the foot to see how much it would hurt, now we should all pay for that person to get their foot fixed since nobody told them it might hurt. Any rational person would point out how idiotic that person was and that they should pay for their own health bills since they weren't forced to shoot themselves but did it of their own free will.

Why should the people that didn't buy or have just come out of college pay for other peoples personal debts? Will we get a share in their house? I doubt it, the same people will tell us to stay out of their personal affairs if they are bailed out.

Its just selfish asking for a bail out since the same people will tell everyone to fook off if they come asking for their money back after they've been bailed out. They have no interest in anyone but themselves. Looking for a bailout with no catches, why should the taxpayer guarantee it? Makes no sense.

P. Breathnach

thebman wrote: »

There was loads of media coverage on how unlikely a soft landing was given previous examples of property booms in other countries. Anyone that bought then has nobody else to blame as the media was saying that a soft landing was unlikely yet they bought anyway.

When should we stop feeling sorry for people that borrowed large amounts?

Seems like we are forever supposed to bail these people out like the government is bailing out the banks. That no matter when you borrow, its not your fault. It just doesn't make sense.

When you borrow it is your responsibility to ensure you can pay it back. Doesn't matter what anybody tells someone, they are responsible for the loans they take on, not anybody else but apparently they are on the poverty line, all of them and should be bailed out by the people that didn't borrow.

Its just silly IMO, I won't pay for people that borrowed for the craic without doing any sums on how they would pay it back. Its like saying someone shot themselves in the foot to see how much it would hurt, now we should all pay for that person to get their foot fixed since nobody told them it might hurt. Any rational person would point out how idiotic that person was and that they should pay for their own health bills since they weren't forced to shoot themselves but did it of their own free will.

Why should the people that didn't buy or have just come out of college pay for other peoples personal debts? Will we get a share in their house? I doubt it, the same people will tell us to stay out of their personal affairs if they are bailed out.

Its just selfish asking for a bail out since the same people will tell everyone to fook off if they come asking for their money back after they've been bailed out. They have no interest in anyone but themselves. Looking for a bailout with no catches, why should the taxpayer guarantee it? Makes no sense.

In quoting some of my words as a launchpad for what you said, I wonder why you didn't include the bit about a compassionate tone.

I never said that anybody should pay the debts of another. You rushed ahead to that point. And then you added in a supposition that the beneficiaries of any rescue scheme would be ungrateful.

So let the wheels turn. Let the lenders exercise their rights, and force the sale of homes, leaving individuals and families homeless and still carrying large debts. What happens next?

thebman

P. Breathnach wrote: »

So let the wheels turn. Let the lenders exercise their rights, and force the sale of homes, leaving individuals and families homeless and still carrying large debts. What happens next?

They won't force them to sell except as a last resort to get some money back. More likely they'll try to renegotiate repayments.

If they do, they won't be homeless, they can rent and then they can honor their debts. Personally I don't agree that the should still carry the debt after the bank has basically admitted they can't get the money off them. I think we need to rethink our system given whats about to happen.

jmayo

Sand wrote: »

Assuming that bankruptcy laws cant be reformed because its inconceivable that banks wont be bailed out is foolish. Banks are economic experts with a view of the entire economy, both national and international. They can and should spot bubbles, and risk, and manage their risk. They dont bother because they arent given reason to.

Reform of bankruptcy law would force banks to seriously look at their risk as theyd have to calculate if the price being paid was reasonable as they might end up the proud owners of a 600K 2 bed down in meath. And I would think that banks would or should be smart and dispassionate enough to wonder if they are willing to buy that.

The US bankruptcy laws throw your whole argument down the toilet.
Even with the ability of borrowers to walk away see how they still managed to create subprime.

IMHO it needs to be very stringent regulation rathern than banruptcy laws.
Again look at Spain, one of the biggest construction bubbles in Europe outside ourselves and look at the the strneght of their banks.

Sand wrote: »

1 - Im not cursing at you.
2 - Make your mind up. Do you want people to cloud their views in neutral language or not?

????

Sand wrote: »

I am not a lawyer, but contracts cant be rewritten except by agreement. Banks are not going to rewrite any contract that would inflict such losses. Barring any extraordinary, and probably unconstitutional, action by the government you can rest easy.
...
People are still going to walk on their mortgages even with bankruptcy laws as they are. Still going to happen. You cant get blood from a stone - if someone is pushed into unemployment and cant service their mortgage, then theres nothing that can be done really? Jail them? Send them to Sligo to break stone? Convert some of the NAMA properties into debtor prisons and workhouses?

The reason I am getting hot and bothered is there are some out there who would want to make laws retrosepctive and if the government affectively nationalises the whole thing then they woudl want the government to allow it.
What scares me is we are talking about ff who will do anything to not make the hard choices. :eek:
Yes I know there will be people who will have to walk away, there will be losses.
BTW what have you got against Sligo ?

Sand wrote: »

So, no, given the dawning realisation that NAMA is not going to be of any economic value and that the losses that are going to be realised on the bank "assets". I can still argue that we should recognise the 11 billion bailout so far as being a total and utter loss and waste of taxpayer funds and say that we shouldnt throw more money in, hoping it will do better.

Again read my posts dont' agree with the guarantees, NAMA,etc.

I think the bank guarantee was panic and all wrong.
The Dept of Finance, CB, IFSRA regulators did nothing and let the situation develop where they were getting pushed by investors dumping shares in Irish banks and ordinary depositors pulling their funds out because they were not adequately protected.
All through 2008 the above entities sat with their dumbs up their ar**s with theri heads in the sand hopig that if nobody mentioned the crud then it would disappear.
They trotted out with the line that the fundamentals were sound, and the big bank owned/linked stockbrokers Davy and Goodbody were still telling people in Ireland that the banks were good investments even when world markets were running for the hills.
They attacked joe Duffy fgor causing panic, when they should have headed this off months before.

The minister should have moved earlier to protect depositors and even back up the big two, a bit like was done with Northern Rock.
Yes I still think that they needed to be saved, but at a price to the investors and bondholders.

Sand wrote: »

No, we dont. Sit tight, remove the guarantee in September 2010 ( just 9 months to go) and then we dont burn. The bank bondholders burn. The bank shareholders burn. The bank executives burn. Ireland rescues its economic future.

If the big two go under it throws the whole economy into huge turmoil or maybe you want a 1929 disaster with mass queus outside banks.
Even good banks would suffer.
Do you think that if you lose 10 grand on deposit that the government could afford to pay it back anytime soon.
You would be given an IOU and would have join a queue.
You might get 20 cents on the euro back in the near future, but you would have to probably wait for years to be fully compensated.
What would that do to business, to personal savings, to pensioners savings ?

Sand wrote: »

The banks are not Ireland. They are not the state. Policy to this point has assumed AIB shareprice is more important than Irelands economic future: I think that when we are pursuing a stupid course of action, the first right move is to stop doing it.

Odd phrasing. The bank shareholders did not need to be saved. The bank bondholders did not need to be saved. The bank depositors needed to be saved.

Government policy should have been directed at forcing the bank stakeholders to face their losses, and to relaunch the banks under new private ownership ASAP with as little disruption to depositors as possible.

Did I ever say shareholders or bondholders needed to be saved ?
Again they panicked and included everything and anything.
The banks I believe should have been nationalised and sold off in the future.

Sand wrote: »

Govt policy to the banks has been retarded from the very start - the banks lost. They should lose, and the govt should only be concerned with speeding their recognition of their loss and ensuring it never, ever happens again. One of the biggest steps there is to reform bankruptcy laws so the banks are forced to properly assess the risk of their lending.

Again see American mess and tells us how lax bankruptcy laws prrevented the bubbel and wreckless lending over there. :rolleyes:
I believe in very strick regulation by non connected regulators with enforced laws with teeth.
If seanie fitz and fingers fingelton were worried about ending up where Bernie Maddoff did then they would think twice about caryrig out the sh** they did.

It is those guys I would have breaking rocks not in Sligo, but out in Achill.

Sand wrote: »

A short, sharp shock and then just a realignment to new growth with government policy directed at minimising it - bank staff would not dissapearr, nor would branch networks, or systems and process's.

Instead Ireland will sacrifice its economic potential for the next 20 years.

Only till Sept 2010 and we can simply stop shovelling good money after bad. Lets try to plan more than 9 months ahead.

I have a worry about what will happen in nine months

macraignil

skelliser wrote: »

pfft! it was lehman brothers........stupid!

Just wondered if anyone thinks the affordable housing scheme could have helped prevent the countrywide property pyramid scheme of the last few years? If builders had to sell these homes at true cost prices and earn their profits on the rest of their development would our market have been more rational?

The affordable homes built near my parents house were to be sold for 230,000euro and I have seen the costs of another builder working nearby on better houses that in total cost just over 100,000euro to build. I read some builders openly paid off local authorities to be allowed not include affordable housing in their development. The cost of building a house even with new stricter regulations is a small fraction of the normal asking prices and the site costs for many developments do not justify this. Should the local authority have insisted on the cost price of houses being transparent? Will this ever happen?

I would like to build my own home but the regulations in place at present make finding a suitable building site unaffordable. I even found out recently that I could not use the wall bricks (widely used on the continent) I would have liked as the only supplier approved by the irish agrebond certificate is gone out of business and so homebond would not insure the structure which means I could not even get a mortgage to cover the building costs. If Irish beurocracey continues to work like this finding a home will be unaffordable to a generation of Irish people. Some like me could not afford "affordable housing" as it was run. I have heard of someone who could not get planning on a site they bought because growing up two miles away did not make them local enough to have a right to build there. FF have inflated the pyramid and they won't want it to crumble too much.

gcgirl

hmmm wrote: »

More "rent is dead money" merchants interviewed who are desperate to buy into a falling market. You have to wonder.

I think when you have a more broad mind and look at other European countries they might thing differently and tbh i think any bank giving a mortgage to someone earning 25,000 per yr should be shot!
I detest Ireland's attitude to house ownership and i'd class it as an obsession and an unhealthy one too!

Sand

The US bankruptcy laws throw your whole argument down the toilet.
Even with the ability of borrowers to walk away see how they still managed
to create subprime.

Bad banks got involved in sub prime, good banks like Goldman Sachs won. Hence why they are inducing rage in the US for being...successful and stuff. The US situation is far more complex than the Irish situation - loans were given out by ex pizza sales men, but they didnt have to worry about the risk because they sold the loan almost straight away to one of the big US banks who didnt have a ****ing breeze whose loan they were buying but liked the return they were seeing - not to mention most of those securitised products were rated AAA, as good as sovereign debt when they were actually junk.

Hence the sheer terror that siezed the banking system when it dawned on these morons that they had no idea who owed what, when, where or to whom.

Irish banking is and was far more straightforward: a lot of the commercial loans were given on almost a friendly, face to face basis.

I dont argue that incentivising banks to manage their own risk will prevent any and all banks from failing - but it will mean bad banks die, and good banks succeed. By a process of darwinian selection, they system will improve because bad banks wont remain part of the system for long. Shareholders will look to invest in the strong banks with the strong risk control, the same for deposit holders.

Letting a bank fail is not costless, but pain upfront is better than simply storing up another, even bigger problem 20 years down the track by convincing them that the government is ready to throw the taxpayer under a bus for them.

IMHO it needs to be very stringent regulation rathern than banruptcy laws.

I've dealt with regulators.

Here are the insiders...the banks. Way back there, miles and miles and miles behind them are the regulators. Way back there...that little speck. Thats them. Thats how far behind they are.

Regulation plays a role. We definitely need regulation. But we always have to assume the bankers are smarter than the regulators, that they know more than the regulators, that they can hide what they want, and deceive the regulator. Because they are, they do, they can and they do.

Remember, the regulator colluded with Anglo Irish in deceiving shareholders with their little swaperoo on their balance sheets with Irish Permament. They were bleating to everyone who would listen how well capitalised the banks were...

What really needs to be done is to give the banks every incentive to regulate themselves:

Step one is removing moral hazard: dont bail them out in the unquestioning fashion that have been bailed out. That means bankers being led out of Anglo Irish in handcuffs, stakeholders who accepted risk being wiped out, investigating the links to Davy and Goodbodys who were relentlessly, almost politically fanatical about bank stocks and so on.

Step two is forcing them to ask if they are lending money sensibly: allowing "jingle mail" style bankruptcy forces banks to consider if they would consider the property to be worth enough to cover their loss on a bankruptcy. If banks believe the property prices are sensible, then its no real loss if they get "jingle mail". They just sell the property at market rates and cover their loan, possibly even make a profit. But if theyre lending money into an overheated market...then they will have to refer to their risk teams, their economic analysts, their strategists and start considering if they would be happy to buy the same property at the price their borrower is willing to pay. Its actually not too far away from Islamic banking principles on mortgages, which most banks could learn some lessons from.

I think most Islamic banks remains relatively strong, if you need a positive example.

And I understand the desire to crucify borrowers. As they have sowed, so shall they reap. Great.

But the average individual is a moron who can barely spell economics. Banks have all the systematic information, the number crunchers and the analysts on big pay packets for being so smart: the best incentives will work on their side.

The reason I am getting hot and bothered is there are some out there who would want to make laws retrosepctive and if the government affectively nationalises the whole thing then they woudl want the government to allow it.

Restrospective cant and shouldnt happen. You cant rewrite a contract with the banks. Moral hazard works both ways. I have said as much when people propose a NAMA for borrowers. I'm sympathetic to the eejits who bought a 450K 2 bed down in meath, but moral hazard is moral hazard.

You are right, if the govt nationalised the banks, there might be political pressure to do so as the govt would then *be* the banks, but given a lot of the stakeholders in our banks are Germans Id really really doubt the government could do so without attracting the ire of the the EU in general, or Germany in particular. It would be Cuban style stuff. Letting the banks live or die on their own merits, with knockon effects for the guys who lent them money is one thing as we retain plausible deniability, but actually taking over the banks and rewriting contracts to force losses on the guys who lent the banks money...I wouldnt be one to go looking to piss ze Germans off tbh.

That said, people will still walk away from their mortgages if they have lost their jobs and cant pay their debts. Thats just inescapable, regardless of bankruptcy laws. If you borrowed 500K and are now on the dole, whats to be done except declare bankruptcy? Whats the penalty? Cant have a bank account or a loan for 10 years? No real penalty if you have no money to put in it. They chase you for 500K? No real penalty if youve got no job and no real hope of getting one for the next 4 or 5 years. Probably would cost them more to hire lawyers to send you threatening letters than theyll get back.

Remember, bankruptcy is not a easy writeoff. A judge has to be convinced that you lack any reasonable ability to repay before he will award protection from creditors - It doesnt matter if you are in negative equity...so long as you have the ability to repay, then the judge will force you to pay. The judge will also want to be convinced that the person claiming bankruptcy has made serious efforts to address their loans. Someone showing up shrugging their shoulders saying "Ah shure, just cant be arsed paying the mortgage anymore seeing as the house is not worth what I paid for it" will not get court protection.

However, Id prefer to keep bankrupts in the official economy rather than incentivise them into a cash in hand/black economy where the government gets no revenue.

Jingle mail is for future contracts either way. Its too late to incentivise the banks on their current loan book - that milk has well and truly been spilt. But we need to do everything to prevent it happening again.

BTW what have you got against Sligo ?

Its fairly grim and foreboding. And its a bit conventional to slag off Leitrim.

If the big two go under it throws the whole economy into huge turmoil or maybe you want a 1929 disaster with mass queus outside banks.
Even good banks would suffer.

This is the second time we have bailed out AIB. I absolutely guarantee that if we bail them out again, especially on these terms, that we will have to bail them out again in the nest 20 years, at an exponentially higher cost. You are very worried about the moral hazard of borrowers, you ought to be more worried about the moral hazard of systematic actors, those entities "too big to fail".

Yes, letting the current stakeholders in AIB burn will not be painless, but govt policy ought to be focused on minimising this pain, not in rescuing the current stakeholders. I recognise you dont agree with rescuing the stakeholders, but thats the assumption of the current govt strategy. If anyone was to ask me whats the next step, it would be stop doing the dumb stuff thats being done right now.

Do you think that if you lose 10 grand on deposit that the government could afford to pay it back anytime soon.

If I lost the 10K: It would hurt, very badly until my next pay cheque hit. After that though Id rebuild that money fairly quickly. Far more quickly than I will work off the losses on NAMA.

Think about it like this: theres 4.5 million people in this country. Maybe what, 2 million workers? The government is effectively "borrowing" 54 billion to fund NAMA, with a total predicted cost of 65 billion with fees and interest. Given its a government tender, its going to be vastly more than 65 billion.

But at 65 billion, the government is borrowing 32,500 euro in my name to "protect" a 10K desposit? Given the realistic losses on NAMA, Id rather get a kick in the balls now as opposed to several kicks in the head later.

Plus its also a given I wont just get several kicks in the head from that, I'll also get another few kicks when the same bank screws up again and of course the mantra of "too big to fail" is trotted out.

Again see American mess and tells us how lax bankruptcy laws prrevented the bubbel and wreckless lending over there.

See above - securitisation of sub primes, plus a ready market of banks who had no idea what they were buying but bought the AAA credit rating is the biggest factor in the US troubles - the lenders sold their risk, the big banks didnt know what the risk was. This is not the general practise in Ireland.

Also, it has been US government policy for many years to incentivise banks to lend money to high risks they normally wouldnt.

Incentivising risky lending + percieved riskless securitisation = utter disaster.

It is those guys I would have breaking rocks not in Sligo, but out in Achill.

Agreed.

hinault

nesf wrote: »

The main Irish banks weren't securitising mortgages. That was happening in the US, it and sub-prime lending weren't prevalent here among the main banks. Some smaller financial orginisations dabbled in it but they weren't major players and weren't banks per se so they aren't covered the Government in any way and haven't and won't be bailed out by the State.

Sorry?

The main Irish banks weren't securitising loans?
Do you know this for a fact?

aphex™

hinault wrote: »

Sorry?

The main Irish banks weren't securitising loans?
Do you know this for a fact?

They were under the Asset covered securities act 2001, updated 2007. They're called Covered Bonds IIRC and a quick Google says AIB and EBS were into it.

hinault

aphex™ wrote: »

They were under the Asset covered securities act 2001, updated 2007. They're called Covered Bonds IIRC and a quick Google says AIB and EBS were into it.

Thanks for that.