"Debt sharing will be good for the economy": nonsense?

Monty Burnz

Grumpypants wrote: »

Very simple scenario for you Monty explain this and i will quit the thread.

Take a person, they have worked and paid into the tax system €10,000 a year for the last 10 years. They now lost their job, they now have an income of 800 euro a month , they pay the bank 700 a month giving them 100 to spend a month. They have 1 asset the home, its worth 150,000 they own the bank 200,000.

Explain to me why paying 700 euro of tax payers money straight into the bank and letting 100 go into the economy is better than paying 800 euro into the economy?

Don't just say where does that money come from? that's been covered it comes from the tax intake.

I can't believe you are still asking that. It's been explained to you over and again. IT'S A ZERO SUM GAME. There is no new money going into the economy - you are proposing robbing Peter to pay Paul.

Can someone else have a go at explaining this point? I'm all out of ideas.

hmmm

Monty Burnz wrote: »

Can someone else have a go at explaining this point? I'm all out of ideas.

As he explained, the money comes from the "tax intake". He seems to think that taxes fall from the skies like Autumn leaves from the magic money tree.

Grumpypants

Monty Burnz wrote: »

I can't believe you are still asking that. It's been explained to you over and again. IT'S A ZERO SUM GAME. There is no new money going into the economy - you are proposing robbing Peter to pay Paul.

Can someone else have a go at explaining this point? I'm all out of ideas.

You didn't actually answer the question as expected.

Its never been about adding new money to the economy who said that ? Its about helping the economy by moving money through it. That was your initial question, that is your answer.

Suryavarman

Grumpypants wrote: »

Very simple scenario for you Monty explain this and i will quit the thread.

Take a person, they have worked and paid into the tax system €10,000 a year for the last 10 years. They now lost their job, they now have an income of 800 euro a month , they pay the bank 700 a month giving them 100 to spend a month. They have 1 asset the home, its worth 150,000 they own the bank 200,000.

Explain to me why paying 700 euro of tax payers money straight into the bank and letting 100 go into the economy is better than paying 800 euro into the economy?

Don't just say where does that money come from? that's been covered it comes from the tax intake.

If the person in question no longer spends €700 per month on their mortgage then that is €700 less that the bank has every month. If you use the money from current tax revenues to fund the losses then you have to take the money from other Government spending then another area of the economy will be at a loss. If you increase taxes to pay for the mortgage then that means that the people who pay the taxes have less money to spend. In that scenario you must take in more than the €700 as it cost money to collect taxes and then distribute the money.

No matter what way you work it, the best that debt forgiveness can do is have no impact on the economy. I think that any move towards debt forgiveness will have negative effects on the whole economy.

keith16

JimiTime wrote: »

In case you missed it, the crisis in the economic world is not a housing bubble, its a whole banking crisis which has crippled entire nations. So on top of a property colapse, we have austerity, wage cuts, very little light at the end of the tunnel and a currency and interest rate not controlled by our own country. I understand people are sick of paying for other peoples messes and greed etc. I don't like it myself, but myself, and many like me just wanted a place where our families could live. We have witnessed the main causes of this modern crisis walk away with golden handshakes and billions of euros pumped into the institutions at fault. WE are being hit too, only it is having a much bigger impact on us due to the boom time mortgages. I'm sorry you feel the way you do, but i can only say that me and many like me wish we had a crystal ball back in the day. We could have probably coped with the property prices dropping, but combined with everything else, its just like a merciless march against us.

i can only hope that people like yourself, if the anger subsides, that you realise that your anger is misplaced.

I get that, and I do feel for those who are genuinely struggling...and there is abolutely nothing wrong with wanting a place where you and your family can live.

But what I do take issue with is during the boom times, any talk of helping people get on to the property ladder with taxpayer money would have been rightly ridiculed...now we have the reverse situation...admitedly compounded by other factors...BUT society will always have problem with debt and poverty...this is why institutions like SVdP and MABS exist....the tax burden is heavy enough....

Poverty and debt are long term problems that need long term policy focus...not one off blanket forgiveness...what sort of fiscal responsibility would that encourage?

20Cent

The Primetime about NAMA tonight is going to make mortgage debt forgiveness look like small change down the back of the couch.

Liam Byrne

Grumpypants wrote: »

I presume you have a job,
I presume that job involves a product or service,
I presume your employer sells that product of service to customers,
I presume those customers need money to buy that product or service,
I presume the less customers with money = less of that product or service can be bought,
I presume the less your boss sells the less money he makes,
I presume the less money he makes the less he can pay you,
I presume when it gets to the stage that he can't pay you he will let you go,
I presume this is common place in the private sector,

If we give the customers more free money they can buy your product or service,

If more people buy your bosses product he makes more money
You get a raise,
He hires a helper,
You both are working so that = double the tax income, never mind the VAT
More tax means we can pay for more health care etc.

Taken to its logical conclusion - give me €1,800,000 and someone else can have my job for life.....that's just directly "created" a full-time job, and I'll guarantee to spend that €1,800,000 in the local economy, creating more jobs as you outlined above.....well, most of it, because cars and TVs are imported, so that money will go to China, but sure the importer will have a job.

Now the fact that every working person in the country has to fork out an extra €1 doesn't bother me....but would it annoy you ?

WalterMitty

I love the way no one wants to share positive equity on the way up but are so eager to share neg equity on the way down!

hmmm

20Cent wrote: »

The Primetime about NAMA tonight is going to make mortgage debt forgiveness look like small change down the back of the couch.

TBH it's a pretty poor Primetime.

amk2

Monty Burnz wrote: »

Ok, the taxpayer is now paying a large capital amount to write off the debt. This amount is borrowed at an interest rate. Where does the money come from to pay this capital plus interest?

Can someone please explain to me how much money would have to be put into banks if we do implement this debt forgiveness? For example: say the bank had 400K in cash which I borrowed in 2007. It is now 2011, I have paid back 100K (plus interest), so there is still 300K left in my mortgage. I hand the keys back to the bank and walk away debt free. The bank sells the house for 200K. How much money would the taxpayer have to put back into the bank?

20Cent

hmmm wrote: »

TBH it's a pretty poor Primetime.

Agree nothing much new in it. But Morgan Kellys 6billion figure sounds small now. 3 NAMA developers owe 8.something.

20Cent

amk2 wrote: »

Can someone please explain to me how much money would have to be put into banks if we do implement this debt forgiveness? For example: say the bank had 400K in cash which I borrowed in 2007. It is now 2011, I have paid back 100K (plus interest), so there is still 300K left in my mortgage. I hand the keys back to the bank and walk away debt free. The bank sells the house for 200K. How much money would the taxpayer have to put back into the bank?

I thought that the money has already been put into the banks to cover expected losses on bad mortgages. Bank gets paid twice if they pay.

Monty Burnz

20Cent wrote: »

I thought that the money has already been put into the banks to cover expected losses on bad mortgages.

Two points:

1. The civil servants and the banks have underestimated every single problem for the last 5 years - sometimes by more than one order of magnitude.

2. We're not talking about a static system. If you change the variables (by introducing debt forgiveness, say) the losses will change. Look at it this way: if the government announced that mortgage defaulters will be forgiven a chunk of their debt and keep the houses, do you think defaults (and therefore losses) will go up or down? Conversely, if they announced that defaulters would be executed, what would happen?

Oh, and to answer amk2's question - you'd be eating up 100k of taxpayers' capital in the banks. At a certain point, the amount set aside for 'expected defaults' would be used up, and we'd be looking at another recapitalisation with more taxpayers' money.

earlyevening

No debt forgiveness (except for extreme cases at the margins).

The faster we resolve all of this and get to the bottom, the faster recovery and renewal can begin.

Some people will be hurt badly (but quickly - a short sharp shock) but endless intervention to soften the blow will just delay the inevitable at massive cost.

Zubeneschamali

I'll try a different tack:

Someone who took out a massive mortgage, went into negative equity and lost their job is a poor person. They invested in property, and they lost all their money, and more. They are now poor. There are a lot of poor people in this country, and there are various social welfare programmes to help them.

Why should a special programme be brought in to help this one segment of the poor, to the tune of 6 billion or whatever? Why treat them as a special case?

The only reason I can think of why these people think they are special is that they haven't realised they are poor yet, they still think they have some unique NAMA/banking crisis/political problem. Nope: you are just broke, like lots of other people.

Godge

20Cent wrote: »

I thought that the money has already been put into the banks to cover expected losses on bad mortgages. Bank gets paid twice if they pay.

Yes, but that was expected losses on bad mortgages assuming no policy change in relation to debt forgiveness.

If you introduce a debt forgiveness scheme i.e. something new, then the projections of bank losses change for the worse and more money is required.

If you don't want to increase bank losses, just leave things as they are and let banks repossess, sell on the property and chase those who don't go into bankruptcy for the rest of the money which is what is happening at the moment, albeit at a slow pace.

jester77

Grumpypants wrote: »

Very simple scenario for you Monty explain this and i will quit the thread.

Take a person, they have worked and paid into the tax system €10,000 a year for the last 10 years. They now lost their job, they now have an income of 800 euro a month , they pay the bank 700 a month giving them 100 to spend a month. They have 1 asset the home, its worth 150,000 they own the bank 200,000.

Explain to me why paying 700 euro of tax payers money straight into the bank and letting 100 go into the economy is better than paying 800 euro into the economy?

Don't just say where does that money come from? that's been covered it comes from the tax intake.

How is this fair? So you let this person who has wracked up debt get off scot free and have an extra €700 a month to spend, whereas his prudent neighbours will have to contribute this €700 leaving them with less money to spend.

Whichever way you look at it, there will still be the same money going into the econonmy, it's either this person spending €700 taken from the neighbours or the neighbours spending it themselves.

And what happens to a neighbour who didn't get caught out with property and is renting a place for €700 a month, has paid €10,000 a year for the last 10 years in tax and suddenly become unemployed with only €100 left to live from once rent is paid? Should he also get this €700 paid for from the state?

earlyevening

Its completely unfair but probably if the irresponsible were bailed out, they'd be more likely to blow their extra 700 euro and thus return the cash into general circulation.

The prudent, if allowed keep their 700 euro will probably save most of it and not allow it circulate through the economy.

Thats the downside of not forgiving the reckless of their debts. I still dont think we should do it though.

Monty Burnz

earlyevening wrote: »

Its completely unfair but probably if the irresponsible were bailed out, they'd be more likely to blow their extra 700 euro and thus return the cash into general circulation.

What makes you think that? Surely these people would be more likely to try to get on top of their debt (by paying more of it down) and try to save some cash for the next emergency?

Whereas the people who didn't get caught in the bubble are more likely to feel able to spend their money in cafes, restaurants and local businesses. I know that's what I'd do, anyway - although I'm sure many of the debt bunnies (you know, the type who regard unused credit as 'income' :rolleyes:) wouldn't bother saving a cent, knowing that they'll be bailed out again if they cock up again.

Monty Burnz

Monty Burnz wrote: »

What makes you think that? Surely these people would be more likely to try to get on top of their debt (by paying more of it down) and try to save some cash for the next emergency?

This, from the other mortgage thread:

AltAccount wrote: »

Friends A: These friends are currently missing morgage payments. They've spoken to the bank and gotten a "deal" on reduced payments, but missed payments on the "deal" and so now are getting letters from the bank.
Same friends have been to Glastonbury and Electric Picnic as well as travelling to the continent for a break this summer. Obviously paying the mortgage isn't that high of a priority.

There was another one as well about a couple in severe arrears using a dig out their parents gave them to go on holiday instead of paying off debt

Monty Burnz

bluewolf wrote: »

There was another one as well about a couple in severe arrears using a dig out their parents gave them to go on holiday instead of paying off debt

Yes, these are the types that come under the debt-bunny category:

although I'm sure many of the debt bunnies (you know, the type who regard unused credit as 'income' ) wouldn't bother saving a cent, knowing that they'll be bailed out again if they cock up again.

Those types should never be allowed access to credit ever again - not even a credit card, never mind a mortgage.

HivemindXX

If it's good for the economy to clear the debts of people who are in negative equity based on the idea that they'll have money to spend then surely it's good for the economy to clear everyones debts. I can easily pay my own mortgage but I guarantee if someone was kind enough to clear it for me I'd spend the extra money each month on something.

If a person can keep paying their mortgage but simply doesn't want to any more then too bad. I don't see any economic benefit in letting them walk away from a bet they lost that wouldn't also occur if the government simply gave that money to me.

If a person actually cannot pay their mortgage then pursuing them through the courts for decades trying to reclaim pennies here and there is a waste of money. They should be able to declare bankruptcy, forfeit every single one of their assets and start again. Due to the culture of deceit in this country typified by the Drumm and his ilk care should be taken to ensure that people declaring bankruptcy aren't actually sheltering assets. This would cause the banks to lose money on bad loans which might actually ensure they take a bit more care when authorising loans in the future which would at least slow down any future housing bubble.

I suspect a lot of people who favour 'debt forgiveness' whatever that actually means think they personally will get some free money and be able to maintain their current lifestyles with substantially less debt. I think a hell of a lot less people would be lining up to declare bankruptcy if it meant losing every asset they had to free them from that terrible millstone around their necks.

Zubeneschamali

Zubeneschamali wrote: »

I'll try a different tack:

Someone who took out a massive mortgage, went into negative equity and lost their job is a poor person. They invested in property, and they lost all their money, and more. They are now poor. There are a lot of poor people in this country, and there are various social welfare programmes to help them.

Why should a special programme be brought in to help this one segment of the poor, to the tune of 6 billion or whatever? Why treat them as a special case?

The only reason I can think of why these people think they are special is that they haven't realised they are poor yet, they still think they have some unique NAMA/banking crisis/political problem. Nope: you are just broke, like lots of other people.

Nail. On. Head.

JimiTime

Zubeneschamali wrote: »

Nope: you are just broke, like lots of other people.

And is this your desired outcome?

Zubeneschamali

JimiTime wrote: »

And is this your desired outcome?

No, I hope those people find work and get back on their feet soon.

dabestman1

The country cannot afford to bailout people who stupidly overpaid for their houses. Why shouldn't the government cover the losses of people on horses and football. I know if i made a bad investment, i wouldn't go running the government for a handout.

earlyevening

Monty Burnz wrote: »

What makes you think that? Surely these people would be more likely to try to get on top of their debt (by paying more of it down) and try to save some cash for the next emergency?

Whereas the people who didn't get caught in the bubble are more likely to feel able to spend their money in cafes, restaurants and local businesses. I know that's what I'd do, anyway - although I'm sure many of the debt bunnies (you know, the type who regard unused credit as 'income' :rolleyes:) wouldn't bother saving a cent, knowing that they'll be bailed out again if they cock up again.

I dont neccessarily think so. Society's consumer will continue to consume if allowed to do so. Those who were cautious with their spending will similarly remain so.

Some in society save prior to purchase, others want to acquire as much as possible and satisfy every whim immediately.

If the consumer/materialist/credit addicts are bailed out, I say a sizeable portion of them will go out and carry on spending as before.

If they're not bailed out, I'd expect the prudent ones with the money to spend, will remain cautious and not spend immediately.

Indeed, the savings rate is rising and I think its those with the cash to spend who are saving and notthose who might get bailed out.

JimiTime

Zubeneschamali wrote: »

No, I hope those people find work and get back on their feet soon.

And what of the people who ARE working, but can't service the debt?

JimiTime

dabestman1 wrote: »

The country cannot afford to bailout people who stupidly overpaid for their houses.

It also couldn't afford the bank bailout. Yet we hear how bonuses etc are contractual entitlements etc in such institutions. Good for the goose.....

I know if i made a bad investment, i wouldn't go running the government for a handout.

Again, using cold financial terms like 'bad investment' etc does not portray the story. Such terms seek to isolate the sufferers as some kind of greedy speculators. The fact is, that many, I'd say most, are people who just wanted to have a secure place for their family to live.

dabestman1

To a lot of people buying a house was an investment as opposed to a home. Now they expect the taxpayer to bail them out.