Where has all the money gone?

recedite

As the banks continue to bleed the taxpayer dry, it might be instructive to look again at where their money went. Has it, like Bernard Madoffs billions, gone to money heaven? Or can it be traced.....

Lets say Joe Bloggs deposits his meagre life's savings of €100 in a brand new bank.
On the basis of this, the bank lends out €900 to the developer. He buys a site from the landowner, who in turn puts the €900 back on deposit with the bank. So at this stage we know where all the money is.The bank has it but someone else owns it now.

Sadly, the market changes and the developer goes bankrupt. The ex landowner loses confidence in the bank and wants to move his €900 to an offshore account. Now the bank is in real trouble; it needs recapitalisation. It can't be allowed to collapse because poor Joe would lose his life's savings. It could hand the worthless deeds back to the ex landowner and make the debt disappear that way. But a deal's a deal and the landowner made a legitimate profit. It would be immoral and unethical to take that away from him. Instead the debt is assigned to Joe Bloggs. So now Joe owes €800 instead of having €100 for his retirement. If he dies before he can repay the debt, then his children must pay.

OK maybe a special tax could be created to claw back even a portion of the money from the ex landowner, but what if he no longer has the money? What if he made a bad investment himself and lost it?

Imagine this scenario; the bank organises a game called speculation.
To start off, each potential developer is given a loan to purchase a similar sized plot of land. Everyone then stands in a circle around a roulette table. Someone spins the wheel and if the little ball settles on black, the value of land doubles. If it settles on red, the valuation is halved.
After Round 1 the result is black, so each developer sells his plot to the man on his left. Each one pays off the original loan, takes the profit and lodges it in an offshore account. Our bank gives out new larger loans to reflect the increased valuations of the new purchases.
Round 2 begins, but this time the ball lands on red. However there are no losers in this game. Each developer declares bankruptcy and passes his debt to the bank. Now the bank is looking foolish, so it passes the debt to Joe Bloggs.
Its a great game to play. As long as Joe continues to honour his obligations, it can go on and on. Icelandic Joe may be complaining, but Paddy Joe bears it well. Perhaps he believes that even though he is being shafted in this life, in the next life he will be reunited with his cash in money heaven.

KerranJast

The bulk of "all the money" has gone to the middle aged land and home owners of Ireland which is too uncomfortable a fact for the media to latch on to.

Paulzx

KerranJast wrote: »

The bulk of "all the money" has gone to the middle aged land and home owners of Ireland which is too uncomfortable a fact for the media to latch on to.

Who then bought loads of bank shares which turned into nothing?

Am i being too simplistic? I know feck all about how the Financial system works

rugbyman

Paul, the person who sold the Bank shares now has the money

Rugbyman

oppenheimer1

The majority of the money has long left our shores. It was invested at bubble prices in shares, spent on importing overpriced luxury items. Rather few who made a windfall during the boom have it all still now.

Sizzler

Public service wage agreements took a nice wedge over the last 5 years. Have a read of Matt Cooper's book and he goes into the details.

recedite

Sizzler wrote: »

Public service wage agreements took a nice wedge over the last 5 years.

Yes but the fiscal deficit is a separate issue.
The media harp on about how many extra billion we have to pay every week or so, to replace the lost money. Nobody asks who has it now.
Some of it was frittered away on helicopters, luxury cars, overnight trips to Marrakesh etc. but that doesn't account for the vast sums involved.

KerranJast

My rough understanding is:
1. Landowner sold land at inflated price to Developer
2. Developer borrowed a crapload of money to buy land from Bank
3. Bank borrowed money from foreign money markets to fund loans
4. Price of property and land collapses. Developers assets suddenly near worthless but loans still exist.
5. Developer can't pay back Bank who can't then pay back foreign debt

So the original landowner made a nice wedge of cash and the foreign banks/investors/funds are owed a crapload of money. The bank needs bailing out to pay off its debts and the developer is bankrupted and loses all his assets.

Is this right?

murphaph

rugbyman wrote: »

Paul, the person who sold the Bank shares now has the money

Rugbyman

True, and this person could be anywhere in the world. The money was also poured into rapidly depreciating assets like flash cars and plasma TVs, so Germany and South Korea has a lot of the money too.

murphaph

KerranJast wrote: »

My rough understanding is:
1. Landowner sold land at inflated price to Developer
2. Developer borrowed a crapload of money to buy land from Bank
3. Bank borrowed money from foreign money markets to fund loans
4. Price of property and land collapses. Developers assets suddenly near worthless but loans still exist.
5. Developer can't pay back Bank who can't then pay back foreign debt

So the original landowner made a nice wedge of cash and the foreign banks/investors/funds are owed a crapload of money. The bank needs bailing out to pay off its debts and the developer is bankrupted and loses all his assets.

Is this right?

Basically, but the original landowner may have thought he was being clever and invested it in now worthless shares too. The bulk of the money has left ireland for good. Feels like being mugged doesn't it? But what actually happened was that we collectively threw our money into a large fire.

recedite

KerranJast wrote: »

My rough understanding is:
1. Landowner sold land at inflated price to Developer
2. Developer borrowed a crapload of money to buy land from Bank
3. Bank borrowed money from foreign money markets to fund loans
4. Price of property and land collapses. Developers assets suddenly near worthless but loans still exist.
5. Developer can't pay back Bank who can't then pay back foreign debt

So the original landowner made a nice wedge of cash and the foreign banks/investors/funds are owed a crapload of money. The bank needs bailing out to pay off its debts and the developer is bankrupted and loses all his assets.

Is this right?

There are two slightly dodgy extra complications;
1 The banks are allowed to lend out money they haven't got as well as foreign money.(which they lost)
2 When "the developer is bankrupted and loses all his assets" it's his company that is bankrupt. He can have a huge stash of cash in another bank in his own name, or in the name of another company. He passes the debts on to us but he keeps the profits safely tucked away.

eoinbn

"Lets say Joe Bloggs deposits his meagre life's savings of €100 in a brand new bank.
On the basis of this, the bank lends out €900 to the developer."

You are missing the key point: the bank needs to borrow €800 to loan out the €900. It borrow's at 3%, loans it out and 5% and makes a profit. The problem arises when the 'developer' can't make the repayments.

MagicSean

recedite wrote: »

There are two slightly dodgy extra complications;
1 The banks are allowed to lend out money they haven't got as well as foreign money.(which they lost)
2 When "the developer is bankrupted and loses all his assets" it's his company that is bankrupt. He can have a huge stash of cash in another bank in his own name, or in the name of another company. He passes the debts on to us but he keeps the profits safely tucked away.

The whole concept of seperate legal entity should be scrapped. Too many people gettin away with thieving.

Slick50

Many developers, in their rush to make even more profit, gave 'personal' guarantees on their even bigger loans to buy more land.

The banks shovelled the money out the door to him, cause they knew him, without proper checks on his assets. Then shovelled huge mortgages out, so people could afford to pay the hugely inflated house prices, cause the site was so dear.

The whole thing snowballs for a while, and the banks, the developers, and even many new home owners are rubbing their hands, cause they'er so much "better off".

Then somebody realises this can't go on. The banks realise they are extremely vunerable and start tightening up on their lending. People can't get the huge mortgages they need to buy a house. The developer can't pay back the loans cause he can't sell anything. And the whole sh*t cake crumbles before our eyes.

The bankers have stashed their rediculous wages, and bonuses. Then demand that their pensions are topped up before they resign. The developer has stashed his obscene profits, declares himself bankrupt, runs to the high court for protection and declares he was only joking about the 'personal guarantees', (sure he said the same to all the banks, to get the money) and pays nobody. So all the money has been filtered out and stashed.

The origional land owner invests his huge profits in BANKS, STOCKS and SHARES which then become practically worthless.

Then the government, steps up and declares that WE'LL sort this out. And that's where WE come in.

Slick50

murphaph wrote: »

Basically, but the original landowner may have thought he was being clever and invested it in now worthless shares too. The bulk of the money has left ireland for good. Feels like being mugged doesn't it? But what actually happened was that we collectively threw our money into a large fire.

I didn't throw any money in the fire, neither did anyone that I know.

Japer

Sizzler wrote: »

Public service wage agreements took a nice wedge over the last 5 years. Have a read of Matt Cooper's book and he goes into the details.

The real winners of the boom ( and bust ) are those who were and are paid by the government, and who have the security of same, and guaranteed pensions from same.

Most of the original landowners paid taxes on their gains, and reinvested the balance in shares and more development land / commercial property ... now worth much less that the loans they used to buy it with.

Most of the developers have loans far in excess of what their assets are worth.

Many people who bought second or third properties done so because it was their pension, they took out loans to do so and were encouraged by section 27 and section 50 laws by the government. Their "pension " is now worthless, or worse.


Most self employed people are making less than the minimum wage and cannot qualify for the dole.

Generally speaking, The most well off large group of people are those with income guaranteed by the state. Even during the boom years, ask any auctioneer who was their main customers for holiday homes. The public service.

There are some low enough paid public servants but most are still overpaid and underworked. Time to bring their pay and conditions more in to line. Sack them if they do not accept it.

A lot of things contributed to the boom + bust ; poor government, too low interest rates, poor regulation, poor work by the central bank etc , but the biggest beneficiaries of the boom were those who fed at the trough of money gathered by the government through property taxes ( eg stamp duty @ 9% etc ) etc on borrowed money. Eg if a big developer bought land for 100 million, he had to give 9 million to the govt....no wonder the government were awash with money years ago, and spent it on themselves and their employees. It is not there to give anymore.

MagicSean

Japer wrote: »

The real winners of the boom ( and bust ) are those who were and are paid by the government, and who have the security of same, and guaranteed pensions from same.

Generally speaking, The most well off large group of people are those with income guaranteed by the state. Even during the boom years, ask any auctioneer who was their main customers for holiday homes. The public service.

There are some low enough paid public servants but most are still overpaid and underworked. Time to bring their pay and conditions more in to line. Sack them if they do not accept it.

What a load of crap. The public sector are the winners? I'm sure they all have second houses and foreign bank accounts. You've just made up a whole load of stuff with no evidence just to put a dig in on the public service.

Japer

k_mac wrote: »

I'm sure they ( public servants ) all have second houses and foreign bank accounts.

I never said or suggested such a thing. In fact I wrote "There are some low enough paid public servants". Please get your facts right.

MagicSean

Japer wrote: »

I never said or suggested such a thing. In fact I wrote "There are some low enough paid public servants". Please get your facts right.

You clearly said that public service workers were the biggest customers for holiday homes. I'm sure the public service workers are better off with guaranteed jobs but I would hardly call them the winners of the economy downturn. I doubt many, if any, of the folks in the passport office have holiday homes.

IrishTonyO

k_mac wrote: »

You clearly said that public service workers were the biggest customers for holiday homes. I'm sure the public service workers are better off with guaranteed jobs but I would hardly call them the winners of the economy downturn. I doubt many, if any, of the folks in the passport office have holiday homes.

You seem to forget that these 'low' paid workers chose those jobs, even when the economy was booming. If they were so unhappy at their 'low' pay they could have got another job, so why didn't they? And you cannot expect someone with no skills to get a wage comparable to someone who has trained in a specific area. If they had qualifications or skills they could ahve chosen a different job.

MagicSean

IrishTonyO wrote: »

You seem to forget that these 'low' paid workers chose those jobs, even when the economy was booming. If they were so unhappy at their 'low' pay they could have got another job, so why didn't they? And you cannot expect someone with no skills to get a wage comparable to someone who has trained in a specific area. If they had qualifications or skills they could ahve chosen a different job.

I never said any of that. I said they cant be considered "winners" in any of this. They just haven't lost as much.

LookBehindYou

Japer wrote: »

The real winners of the boom ( and bust ) are those who were and are paid by the government, and who have the security of same, and guaranteed pensions from same.

Most of the original landowners paid taxes on their gains, and reinvested the balance in shares and more development land / commercial property ... now worth much less that the loans they used to buy it with.

Most of the developers have loans far in excess of what their assets are worth.

Many people who bought second or third properties done so because it was their pension, they took out loans to do so and were encouraged by section 27 and section 50 laws by the government. Their "pension " is now worthless, or worse.


Most self employed people are making less than the minimum wage and cannot qualify for the dole.

Generally speaking, The most well off large group of people are those with income guaranteed by the state. Even during the boom years, ask any auctioneer who was their main customers for holiday homes. The public service.

There are some low enough paid public servants but most are still overpaid and underworked. Time to bring their pay and conditions more in to line. Sack them if they do not accept it.

A lot of things contributed to the boom + bust ; poor government, too low interest rates, poor regulation, poor work by the central bank etc , but the biggest beneficiaries of the boom were those who fed at the trough of money gathered by the government through property taxes ( eg stamp duty @ 9% etc ) etc on borrowed money. Eg if a big developer bought land for 100 million, he had to give 9 million to the govt....no wonder the government were awash with money years ago, and spent it on themselves and their employees. It is not there to give anymore.

I think that the developers had a way of avoiding (putting on hold) the stamp duty, until it was developed and passed on to the buyer of the property. Maybe someone else has more information on that loophole.

Liam Byrne

k_mac wrote: »

I never said any of that. I said they cant be considered "winners" in any of this. They just haven't lost as much.

So relatively speaking, they're winners.

And in addition, they were the ones who took massive gambles; they knew the risks.

People who just wanted to make a living have been screwed.

Japer

k_mac wrote: »

You clearly said that public service workers were the biggest customers for holiday homes.

I actually wrote "Generally speaking, The most well off large group of people are those with income guaranteed by the state. Even during the boom years, ask any auctioneer who was their main customers for holiday homes. The public service."

Teachers + third level lecturers bought most of the holiday homes during the boom. That much is well know. Go and ask any auctioneer or caretaker of holiday complexes in the state. Not many people are buying property now because of rising property taxes, falling property prices, uncertainty etc. Why would people buy now if they thought prices may be 20% lower still in a year or two ?

k_mac wrote: »

I'm sure the public service workers are better off with guaranteed jobs but I would hardly call them the winners of the economy downturn.

Even with their higher incomes, longer holidays, shorter working hours and gold-plated guaranteed pensions ?

It is clear to most people I think that the biggest beneficiaries of the boom were those who fed at the trough of money gathered by the government through property taxes ( eg stamp duty @ 9% etc ) etc on borrowed money. After all, the government was awash with money years ago, and spent it on themselves and their employees - lavishly. Bertie was one of the highest paid politicians in the world, and our consultants in backwater country hospitals were paid more than the president of the US. Even today the UK govt can employ 10 consultants in N.I. for what it cost our govt to employ 4 consultants a few miles away, south of the border here. That position is unsustainable.

Japer

Liam Byrne wrote: »

People who just wanted to make a living have been screwed.

In the Public Sector, nobody has lost their permanent job. Because of falling prices, purchasing power is practically as good if not better than it ever was. Pensions are still very generous and guaranteed.

In the Private sector, hundreds of thousands have lost their job. Hundreds of thousands more are on or close to the minimum wage. Many are not even getting that but cannot claim the dole as they may have a spouse working and are self-employed. Many pensions have been decimated, esp those who borrowed to invest in govt section 23 / 50 type properties as their pension, not to mention those who invested in commercial property or bank shares as their pension.

recedite

eoinbn wrote: »

It borrow's at 3%, loans it out and 5% and makes a profit. The problem arises when the 'developer' can't make the repayments.

The bank keeps lending out the same money over and over again, collecting the interest difference each time. Its called the fractional reserve system. Unfortunately this leveraging increases the risk of losing all the money, as well as multipliying out the profits. Our new central bank governor Mr Honahan belatedly wants to increase the reserve requirement.
But I agree the problem only arises when the borrower can't pay.

k_mac wrote: »

The whole concept of seperate legal entity should be scrapped. Too many people gettin away with thieving.

Its a big problem. Money is no longer tied to gold as in "I promise to pay the bearer... ". It only represents somebodys promise to repay a debt.
At the same time, that promise isn't worth a crap if they are hiding behind a limited company or corporation.
But a debt always has to be paid by someone, so it falls to the taxpayer to pick up the tab. This IMO is the root cause of all our problems.

MagicSean

Japer wrote: »

Even with their higher incomes, longer holidays, shorter working hours and gold-plated guaranteed pensions ?

It is clear to most people I think that the biggest beneficiaries of the boom were those who fed at the trough of money gathered by the government through property taxes ( eg stamp duty @ 9% etc ) etc on borrowed money. After all, the government was awash with money years ago, and spent it on themselves and their employees - lavishly. Bertie was one of the highest paid politicians in the world, and our consultants in backwater country hospitals were paid more than the president of the US. Even today the UK govt can employ 10 consultants in N.I. for what it cost our govt to employ 4 consultants a few miles away, south of the border here. That position is unsustainable.

The private sector workers did just as well as the public sector workers during the boom.

IrishTonyO

k_mac wrote: »

The private sector workers did just as well as the public sector workers during the boom.

Yes and now they have taken pay cuts, redundancies etc. Whereas the PS just want to bury their heads in the sand and say "No you can't cut my pay, give it back"

Cool Mo D

recedite wrote: »

The bank keeps lending out the same money over and over again, collecting interest each time. Its called the fractional reserve system. Unfortunately this leveraging increases the risk of losing all the money, as well as multipliying out the profits. Our new central bank governor Mr Honahan belatedly wants to increase the reserve requirement.
But I agree the problem only arises when the borrower can't pay.

This is a bit of a mischaracterization. Banks do not lend out money they don't have.

Basically, banks have two sets of money. They have their deposits, which is money given to them by customers, which they pay interest on. The customer can generally take this out at any time.
Banks make money by lending out their deposits out, with a fixed repayment schedule. They make money by charging borrowers a higher rate of interest then they pay to lenders.
There is an imbalance here, as depositors can take all of their money back at any time, but borrowers do not have to pay the bank on demand. This means that if all depositors want their money at the same time, a bank cannot pay, as the money is with the borrowers, causing a run on the bank. Banks have no defense against this.

The other thing that can happen is that the borrowers cannot pay back their loan - causing a loss for the bank. This is where the fractional reserve comes into it. Banks are required to hold an amount of capital equal to a defined fraction of their deposits as insurance. If borrowers cannot pay back loans, they dip into their capital reserve to make up the difference. They then top up their capital from profits made on loans if necessary.

If a bank cannot pay back a depositor, because their capital is used up, under a free market, they would fold, and the depositors would lose whatever money the bank owed them when they went out of business. This element of risk is what a depositor is taking on in order to make a return on their money.

Because banks have been so stable, this element of risk has been forgotten about, and it is now seen as unacceptable for a depositor to lose money if a bank folds. This is one of the reasons the banks were bailed out.

Slick50

The bankers threw their own guidlines out the window, in order to jump on the money-go-round, and grab as big a portion of the action as they could. They borrowed vast sums of money from abroad, in order to lend it out, because they where getting a commision on what they lent. No one seemed to ask how do we get it back. Our then financial regulator was in cohoots with them and turned a blind eye, and the guys who employed him, our government put both their hands over their eyes because they didn't want to see, when everything was going so swimmingly. Don't forget, Bertie had history to make, before he ducked out and avoid defacts.
Brian Cowen's first press conference, (after he'd finished celebrating his "victory") along with Brian Lenihan, was to tell us we're all screwed. At least they had the decency to look somewhat sheepish about it. Bertie seemed to think we should all just go hang ourselves, if we thought it was that bad.

MagicSean

IrishTonyO wrote: »

Yes and now they have taken pay cuts, redundancies etc. Whereas the PS just want to bury their heads in the sand and say "No you can't cut my pay, give it back"

Of course they want to fight to keep their money. Who wouldn't?

Liam Byrne

Japer wrote: »

In the Public Sector, nobody has lost their permanent job. Because of falling prices, purchasing power is practically as good if not better than it ever was. Pensions are still very generous and guaranteed.

In the Private sector, hundreds of thousands have lost their job. Hundreds of thousands more are on or close to the minimum wage. Many are not even getting that but cannot claim the dole as they may have a spouse working and are self-employed. Many pensions have been decimated, esp those who borrowed to invest in govt section 23 / 50 type properties as their pension, not to mention those who invested in commercial property or bank shares as their pension.

I wasn't making a public vs private point (although looking back I may have misinterpreted the post I replied to, thereby making it look like that was what I was saying).

Many people in both scenarios just wanted to make a living.

And in both cases its the highly-paid gob****es at the top that screwed up; some private enterprise became blinkered re profit over sustainability and customer service, while the government screwed up in so many ways that it's not possible to list them all again.

And both caused prices to rise to the point where Ireland was uncompetitive.

Now, lots of things have dropped to realistic levels, but unfortunately the financial sector (banks, insurance, etc) and the "government" controlled or regulated sectors (taxes, electricity, broadband, phone, road tax, petrol) have gone up.

So there is an argument to be made for getting the government to cop the f**k on and take some of the pain, that's for sure.

But it's not the average Joe at the counter who's still milking it from our taxes; it's the [mustn't say "scum" because some will dismiss the whole post] at the top.

irishh_bob

k_mac wrote: »

The private sector workers did just as well as the public sector workers during the boom.

the majority in the private sector didnt do as well out of the boom as the public sector , the public sector unions would have us believe that sean dunne was typical of a private sector worker during the boom and mary who works as a clerical officer in the dept of agri in port laoise was typical of the public sector

btw , guards were the biggest purchasers of second homes during the boom but then again guards were land lords long before the tiger arrived to theese shores

Paulzx

irishh_bob wrote: »

btw , guards were the biggest purchasers of second homes during the boom

Have you got a special list of everybody that bought a house in the last 10 years along with their profession? Wow thats pretty impressive research.

I know plenty of guards and they all only own ( along with the bank ) one house i.e the one they live in.

I vaguely remember you making the same claim before about teachers. That they were in fact the biggest purchasers of second homes.

Pick whichever PS profession suits you. you seem to hate them all equally

irishh_bob

Paulzx wrote: »

Have you got a special list of everybody that bought a house in the last 10 years along with their profession? Wow thats pretty impressive research.

I know plenty of guards and they all only own ( along with the bank ) one house i.e the one they live in.

I vaguely remember you making the same claim before about teachers. That they were in fact the biggest purchasers of second homes.

Pick whichever PS profession suits you. you seem to hate them all equally

so believing a group were purchasers of property means you hate them ???

Paulzx

irishh_bob wrote: »

so believing a group were purchasers of property means you hate them ???

Ah. So now you believe they were the biggest purchasers of property. Thats not quite the statement of fact that they were the biggest that you created earleir

Thanks. You've cleared that up for me

irishh_bob

Paulzx wrote: »

Ah. So now you believe they were the biggest purchasers of property. Thats not quite the statement of fact that they were the biggest that you created earleir

Thanks. You've cleared that up for me

nice dodge , i used the word believe in the context of countering your accusation that i hated teachers and guards , i doubt thier are statistics showing which demographic were the biggest purchasers of second properties during the boom , i also doubt thier is official documents showing that banks , developers or whatever public sector hate figures ,brought us to where we are now , most commonly held views are not backed up with offical concrete facts and figures , if that were not the case , the likes of boards or other media outlets would be dormant

recedite

Cool Mo D wrote: »

This is a bit of a mischaracterization. Banks do not lend out money they don't have.

Basically, banks have two sets of money. They have their deposits, which is money given to them by customers, which they pay interest on. The customer can generally take this out at any time.
Banks make money by lending out their deposits out, with a fixed repayment schedule. They make money by charging borrowers a higher rate of interest then they pay to lenders.
There is an imbalance here, as depositors can take all of their money back at any time, but borrowers do not have to pay the bank on demand. This means that if all depositors want their money at the same time, a bank cannot pay, as the money is with the borrowers, causing a run on the bank. Banks have no defense against this.

The other thing that can happen is that the borrowers cannot pay back their loan - causing a loss for the bank. This is where the fractional reserve comes into it. Banks are required to hold an amount of capital equal to a defined fraction of their deposits as insurance. If borrowers cannot pay back loans, they dip into their capital reserve to make up the difference. They then top up their capital from profits made on loans if necessary.

If a bank cannot pay back a depositor, because their capital is used up, under a free market, they would fold, and the depositors would lose whatever money the bank owed them when they went out of business. This element of risk is what a depositor is taking on in order to make a return on their money.

Because banks have been so stable, this element of risk has been forgotten about, and it is now seen as unacceptable for a depositor to lose money if a bank folds. This is one of the reasons the banks were bailed out.

I agree with all this, but when the borrower spends the money it will generally speaking end up being deposited back at the bank again by someone else. Then the bank lends it out again (less the reserve amount).
This is repeated several times. If the borrowers are mostly high risk as with say Anglo Irish developer/speculator type customers, someone in the chain might make the decision to default.At that moment the money has gone up in a puff of smoke and the bank no longer has it, although that won't stop them lending it to someone else.

recedite

This thread is not about PS worker bashing. If a Garda bought a holiday house or otherwise spends his money in our economy and honours his debts, he has helped stimulate the economy. Maybe at the wrong time, but that's another story.
The problem we are looking at here seems to be caused by the people who decided that the taxpayer was going to pay off their loans, while they continue to enjoy the high life.

maninasia

recedite wrote: »

The bank keeps lending out the same money over and over again, collecting the interest difference each time. Its called the fractional reserve system. Unfortunately this leveraging increases the risk of losing all the money, as well as multipliying out the profits. Our new central bank governor Mr Honahan belatedly wants to increase the reserve requirement.
But I agree the problem only arises when the borrower can't pay.


Its a big problem. Money is no longer tied to gold as in "I promise to pay the bearer... ". It only represents somebodys promise to repay a debt.
At the same time, that promise isn't worth a crap if they are hiding behind a limited company or corporation.
But a debt always has to be paid by someone, so it falls to the taxpayer to pick up the tab. This IMO is the root cause of all our problems.

I think you wrote this quite clearly. However debts don't always have to be paid, at least not fully. This is what has been lacking in the NAMA debate, i.e. we didn't actually need to pay off the foreign debtors of our banks.

Paulzx

irishh_bob wrote: »

nice dodge , i used the word believe in the context of countering your accusation that i hated teachers and guards , i doubt thier are statistics showing which demographic were the biggest purchasers of second properties during the boom , i also doubt thier is official documents showing that banks , developers or whatever public sector hate figures ,brought us to where we are now , most commonly held views are not backed up with offical concrete facts and figures , if that were not the case , the likes of boards or other media outlets would be dormant

To use your own words, nice dodge;)

ixoy

I know three people who bought a home in my circle - one public sector, one semi-state and one private. Nobody I know (in my immediate circle anyway) was anywhere close to buying a second and we're all in the 30/31 age range.

The only thing I did note about public sector purchasing houses was recently on the Frontline. A few weeks back they had representatives from the Irish Property Council who worked for those who invested in property under 5m. When asked what sort of people invested, besides professional full time property speculators, he said that his group consisted of "retired guards, teachers". It's not to say there weren't any other professions in there ("biochemist" wouldn't have the same ring) but it was interesting nonetheless.