New Beginnings

Zynks

A new initiative that could potentially have a serious impact on where the housing crisis heads:

A new agency set up to provide protection for hard-hit homeowners in Ireland has been launched today.

'New Beginnings' is a group of lawyers, business people and concerned citizens set up to help mortgage holders who face imminent repossession orders but have no legal representation.

The body also intends to mount test cases which will establish whether lending institutions had a duty of care to borrowers and whether this duty was breached by excessive and negligent lending practices.

Barrister Vincent Martin, one of the drivers behind the group, said they were satified there was a "stateable case" for negligence

link

This could, if serious and well driven , potentially force a faster review of the bankruptcy law and, who knows, end up enabling the "drop the keys at the bank" practice so common in the US.

It may not be the best way forward, but something has to give at some stage. Otherwise this country might end up with a disproportionate number of long term bankrupts.

Sand

This could, if serious and well driven , potentially force a faster review of the bankruptcy law and, who knows, end up enabling the "drop the keys at the bank" practice so common in the US.

It may not be the best way forward, but something has to give at some stage. Otherwise this country might end up with a disproportionate number of long term bankrupts.

I think the "jingle mail" solution is useful in ensuring banks do take an objective view of the risk theyre taking on in giving someone a mortgage to buy a shoebox appartment for 500K. Individuals can and do make stupid decisions. They should pay for them obviously.

But banks arent innocents abroad - they are allegedly skilled and qualified financial experts, with the necessary distance from any deal to make an objective decision that perhaps the borrower doesnt have. If theyre happy to take the interest on lending someone 500K to buy that shoebox, they also ought to be willing to accept the risk that maybe that shoebox isnt worth 500K.

In the long run, jingle mail simply means the banks have to take the property and sell it to recover the lent amount. If they keep that in mind, theyll act to prevent bubbles because they will try to ensure the dont lend more than the property's recoverable value (offset by probability of default of course).

ei.sdraob

Zynks wrote: »

Otherwise this country might end up with a disproportionate number of long term bankrupts.

One has to wonder what all these people where thinking when signing on the dotted line?

Sand wrote: »

In the long run, jingle mail simply means the banks have to take the property and sell it to recover the lent amount.

No they will just dump it into a NAMA type vessel, "long term economic value" FTW

bmaxi

Sand wrote: »

But banks arent innocents abroad - they are allegedly skilled and qualified financial experts, with the necessary distance from any deal to make an objective decision that perhaps the borrower doesnt have. If theyre happy to take the interest on lending someone 500K to buy that shoebox, they also ought to be willing to accept the risk that maybe that shoebox isnt worth 500K.

In the long run, jingle mail simply means the banks have to take the property and sell it to recover the lent amount. If they keep that in mind, theyll act to prevent bubbles because they will try to ensure the dont lend more than the property's recoverable value (offset by probability of default of course).

Wasn't that the whole problem? No lateral thinking. Nobody looked at the guy across the desk and said "you're a builders' labourer and you want 500k for a 600 sq. ft. apartment, pull the other one". No it was, "here's your cheque, now where's my bonus"
I have to admit to being sceptical when I see lawyers, businessmen and altruism mentioned in the same sentence but it's a nice gesture.

johnnyskeleton

Sand wrote: »

But banks arent innocents abroad - they are allegedly skilled and qualified financial experts, with the necessary distance from any deal to make an objective decision that perhaps the borrower doesnt have. If theyre happy to take the interest on lending someone 500K to buy that shoebox, they also ought to be willing to accept the risk that maybe that shoebox isnt worth 500K.

That's the problem I have with this idea - the banks are not experts on property valuation nor could they possibly be expected to know what properties might or might not be in the future.

They are experts at lending money, and if the person demonstrated that they could repay the money then there is no negligence.

The only situation I could see where this could possibly work is if the banks deliberately fluffed the figures in the application. However, this is the fault of the agents who sold the mortgages rather than the banks themselves.

Sand

Well, I am thinking in the line of "Your profits, your failure" philosophy taken to banks. Certainly, not having jingle mail hasnt prevented the taxpayer with being stuck with the banks losses.

If were thinking of banks that I will be asked to bail out when they fail, but am not entitled to the profits...well, then, my self interest means that as a citizen of Ireland, but not a bank shareholder I dont want to see a single loan made by bankers because theyre incompetent, I get no gains, and I stand to lose out if the banks arent repaid.

But in this, theres no particular benefit to not having jingle mail - if someone cant repay you, they cant repay you. Is there any point to pursuing that unemployed builders labourer to the ends of the earth for the remaining 450K hed need two left times to make? Maybe we should jail him?

I know a lot of individuals are fairly stupid when it comes to financial decisions, Id rather the banks had to accept some responsibility for the decision to lend to those individuals. They have the financial expertise, the economic experts on staff and the risk management. If a builders labourer comes in looking to borrow 500K for a 600 sq ft flat they *ought* to say "GTFO!". Financial regulation is also a part of this.

By posing the risk of jingle mail, you make them take that risk seriously - even outside systematic failure, banks will be loathe to lend out money that they cant recover from a sale...so no 100% mortgages, no lending into an overheated property market, no lending to support wildly overvalued properties.

jock101

Moral Hazard, anyone!:mad:

Zynks

jock101 wrote: »

Moral Hazard, anyone!:mad:

Not sure if you are referring to the banks or to the unwise lenders, but looking at the definition of moral hazard:

Moral hazard occurs when a party insulated from risk behaves differently than it would behave if it were fully exposed to the risk.

Up to now consumers haven't been insulated from the risks. Bankers though, have.

The draconian bankruptcy laws in Ireland haven't been a deterrent to people taking stupid risks, so its only value, as it stands, is in ensuring many people who are declared bankrupt will never be productive members of society again, with a black mark on their names for life - there is a register of current and former bankrupts of which their names will never be removed.

I even heard recently of a guy that has been legally bankrupt for 25 years. I think there is nowhere else in the world where something like this is possible.

I do agree with Sand that if bankers felt more exposed to the risks of the market, that they would be less likely to have bonus schemes purely based on volume of mortgage sales, and make staff take a more conservative approach.

Another example of moral hazard is stamp duty - I feel that if stamp duty didn't exist in its current format, the government wouldn't have been so happy about letting a bubble get so out of hand. They became dependent on stamp duty revenue just as an addict does on heroin - living as if there was no tomorrow.

But getting back to the subject, something will have to give in the next two years. Otherwise the number of capable members of society that might become trapped and become dependent on the state may be significant, and become a(nother) serious drain to the economy.

nesf

Zynks wrote: »

Not sure if you are referring to the banks or to the unwise lenders, but looking at the definition of moral hazard:

Moral hazard occurs when a party insulated from risk behaves differently than it would behave if it were fully exposed to the risk.

Up to now consumers haven't been insulated from the risks. Bankers though, have.

I think his point was that introducing jingle mail just reverses the problem. Instead of reckless lenders you get reckless borrowers, since they can walk away from any mortgage painlessly. This encourages fraud on mortgage applications and people to dive into the mortgage market with even less abandon than they did during the boom years.

Either way, you still end up bailing out the banks at the end of a housing bubble. It does reduce the pain on individual homeowners though.

Zynks

Well, fraud is fraud, to be handled in court. I question the suggestion that if there was a sense of less financial risk that then consumers would be more likely to commit fraud - they might become more "risk accepting", but that is a long way from criminal acts like fraud.

The current regulations obviously was not a deterrent to reckless borrowing, but if banks/bankers/bank staff were more exposed to the risks, I doubt there would ever have been 100% loans.

Leaving aside the past failures, my major concern is what is going to happen to all these people who are seriously stuck. We can point fingers as much as we want, calling them irresponsible fools, reckless borrowers, stupid speculators, whatever. But the fact is that many of these people are heading towards repossession, bankruptcy and what I would call a long lasting living hell, that will reduce their ability to contribute to our society/economy.

The country would benefit hugely from having them back in their feet sooner rather than later.

Many countries have recognised the benefits of 'second chances', but we are not very big at that here, are we?

As for your comment that "Either way, you still end up bailing out the banks at the end of a housing bubble", I don't think that we are bailing out the banks... the shareholders are f***ed, many top managers are gone (more to go, surely). We are actually paying to protect debtors from the bondholders because these debtors, in many cases, are individuals that could be defined as ".the establishment"

Yitzhak Rabin

Problem is, at the moment, for all intents and purposes, we are the banks. So if people default on the mortgage, then it is the taxpayers that bail them out. I'm not comfortable with the idea that I end up paying for some numpty who spent half a million on a two bed apartment, and a sensible person who didn't ends up paying for it. Its the opposite of fairness.

Zynks

yekahs wrote: »

Problem is, at the moment, for all intents and purposes, we are the banks. So if people default on the mortgage, then it is the taxpayers that bail them out. I'm not comfortable with the idea that I end up paying for some numpty who spent half a million on a two bed apartment, and a sensible person who didn't ends up paying for it. Its the opposite of fairness.

I am not comfortable either with taking the tab, but I question the assumption that just because banks are becoming effectively nationalised that the taxpayer becomes responsible.

Are banks not limited companies? The "limited" refers to limited liability, i.e., liability of shareholder restricted to the value of the company. I haven't come across any evidence that state ownership changes that.

Example: Aer Lingus almost went bust a few years ago. In spite of state shareholding, it was recognised that the EU would not accept injection of funds, so if the bankruptcy went ahead, creditors would have been screwed and the state's loss would have been restricted to the value of its shares. So why is it different for a bank, whether part owned by the state or not?

My argumentation may be flawed, I am not an expert, so I would like to hear where these views and assumptions may be incorrect.

nesf

Zynks wrote: »

I am not comfortable either with taking the tab, but I question the assumption that just because banks are becoming effectively nationalised that the taxpayer becomes responsible.

Are banks not limited companies? The "limited" refers to limited liability, i.e., liability of shareholder restricted to the value of the company. I haven't come across any evidence that state ownership changes that.

Example: Aer Lingus almost went bust a few years ago. In spite of state shareholding, it was recognised that the EU would not accept injection of funds, so if the bankruptcy went ahead, creditors would have been screwed and the state's loss would have been restricted to the value of its shares. So why is it different for a bank, whether part owned by the state or not?

My argumentation may be flawed, I am not an expert, so I would like to hear where these views and assumptions may be incorrect.

The problem is you can't leave banks collapse. Read about the Great Depression and the results of leaving banks fail for why it's considered such a bad thing. (and also the early bank runs and failures in the States)

Yitzhak Rabin

Zynks wrote: »

I am not comfortable either with taking the tab, but I question the assumption that just because banks are becoming effectively nationalised that the taxpayer becomes responsible.

Are banks not limited companies? The "limited" refers to limited liability, i.e., liability of shareholder restricted to the value of the company. I haven't come across any evidence that state ownership changes that.

Example: Aer Lingus almost went bust a few years ago. In spite of state shareholding, it was recognised that the EU would not accept injection of funds, so if the bankruptcy went ahead, creditors would have been screwed and the state's loss would have been restricted to the value of its shares. So why is it different for a bank, whether part owned by the state or not?

My argumentation may be flawed, I am not an expert, so I would like to hear where these views and assumptions may be incorrect.

I'm far from an expert either, but based on past form, if the banks lose money, then it will be the government (i.e you and me) who will be providing the "re-capitalisation".

I do feel genuinely sorry for people who paid too much for their houses, but they thought it was a fair price, and signed the dotted line, so its up to them to pay back the debt, not me. They certainly weren't offering to share in the profits when the 'value' of their home was on the up and up.

Zynks

nesf wrote: »

The problem is you can't leave banks collapse. Read about the Great Depression and the results of leaving banks fail for why it's considered such a bad thing. (and also the early bank runs and failures in the States)

I agree, the great depression is becoming a subject that needs better understanding for me.

Provided that "you can't leave banks fail" is correct, is that the same as "you can't let banks default on bondholders or call for restructuring of debt", or do you see a difference there?

The point of the question is that if banks can't be let fail, and bondholders must be protected, then why should any private institution be allowed to operate in the sector when the profits are pocketed by investors and losses are taxpayers problem?

Zynks

yekahs wrote: »

I'm far from an expert either, but based on past form, if the banks lose money, then it will be the government (i.e you and me) who will be providing the "re-capitalisation".

My previous post refers to this point. If these assumptions are correct, I see no benefit whatsoever in having private Irish banks. We are better off having either state owned (hmmm, maybe not) or foreign owned banks operating here, because as it stands, with privately owned Irish banks, there are only downsides for the tax payer. Example: in the best of years, if I remember well,
AIB was making just over €1bn in profits, which would attract €125m in corporation tax. The tab we are getting now is so out of proportion that it would take most of the 21st century of "good years" for the tax take to cover this cost.

yekahs wrote: »

I do feel genuinely sorry for people who paid too much for their houses, but they thought it was a fair price, and signed the dotted line, so its up to them to pay back the debt, not me. They certainly weren't offering to share in the profits when the 'value' of their home was on the up and up.

Agreed, but if they just can't pay (job losses or other reasons), then what? No point in saying that they "just have to pay". Next you repossess their house and chase them for the balance, but they still can't pay, so you take them to court and have them declared bankrupt. So their chances to pay gets even smaller, and they remain bankrupt for a minimum of 12 years - likely to be much more. In the meantime they are probably living from social welfare if they haven't shot themselves or left the country.

Is this what we want? Who benefits? I really don't understand...

Yitzhak Rabin

I sent them a short email. I'd be interested in their response.

Dear Sir/Madam,

Just a quick few questions, I was wondering if any of your members, are on the record before, say 2006, raising concerns about the lending practices of the banks?

Additionally, do you not feel that 'Your home is at risk if you do not keep up the payments on a loan secured on it.' standard in every mortgage agreement, is sufficient duty of care?

Finally, given that the banks are essentially state owned, and all recapitalisation funds will be coming from the taxpayer(something which I am apposed to), do you not think it is unfair, that people who played no part in the boom, and didn't buy property that they could not afford, would be forced to pay for the bad decisions of the affected homeowners.

For clarity, I have no involvement in the banking sector, and have no vested interests. I am simply a private citizen who is concerned at the thought that I would have to pay for the mistakes of others through my taxes. I certainly didn't hear anyone offering to share in the profits of their homes rising exponentially in value.

Yours faithfully,

xxxxxxxxx

Yitzhak Rabin

Zynks wrote: »

Agreed, but if they just can't pay (job losses or other reasons), then what? No point in saying that they "just have to pay". Next you repossess their house and chase them for the balance, but they still can't pay, so you take them to court and have them declared bankrupt. So their chances to pay gets even smaller, and they remain bankrupt for a minimum of 12 years - likely to be much more. In the meantime they are probably living from social welfare if they haven't shot themselves or left the country.

Is this what we want? Who benefits? I really don't understand...

I'll admit, my understanding of bankruptcy law is limited, and I haven't seen a cost/benefit analysis between our system and the american system. But if you look at the American system, some of the major tycoons were all bankrupt at some point. Like Donald Trump, he has filed for bankruptcy numerous times, and each time after his slate was wiped he has gone on to make billions/millions in property again and again.

I think a situation like that is unfair. It allows people to keep the money when they succeed, but pass the buck when they lose. I think if you incur debts, they are yours, you pay them to the best of your ability until they are either paid, or the 12 or so years have passed.

In a country like ours, property gamblers being absolved of their debt, does not make the debt dissapear, it just passes it to me and you. It punishes the sensible and rewards the reckless.

Yitzhak Rabin

yekahs wrote: »

I sent them a short email. I'd be interested in their response.

I received a very detailed response:

xxxxxxxx,

Thank you for your enquiry . I hope you understand we are limited in what we can comment on and im not sure we can comment on this.

Regards,

David Hall

:rolleyes:

nesf

Zynks wrote: »

I agree, the great depression is becoming a subject that needs better understanding for me.

Provided that "you can't leave banks fail" is correct, is that the same as "you can't let banks default on bondholders or call for restructuring of debt", or do you see a difference there?

The point of the question is that if banks can't be let fail, and bondholders must be protected, then why should any private institution be allowed to operate in the sector when the profits are pocketed by investors and losses are taxpayers problem?

Think of it this way. Do you stick two fingers up at the guy you'll be going to next week to borrow money from? That's the bondholder problem. You start screwing them over and they'll stop buying your bonds which when you've a record sized deficit requiring a large amount of borrowing is not the brightest idea in the world.

Rock. Us. Hard Place.

Zynks

nesf wrote: »

Think of it this way. Do you stick two fingers up at the guy you'll be going to next week to borrow money from? That's the bondholder problem. You start screwing them over and they'll stop buying your bonds which when you've a record sized deficit requiring a large amount of borrowing is not the brightest idea in the world.

Rock. Us. Hard Place.

The banks' bonds are not Irish state bonds, it is private business between bondholders and banks. Why should the state and tax payers pay for stupid private business? If Ireland continues to honour state bonds, why should the credibility of the state be affected by failed banks paying cents to the euro?

I have read all the argumentation in favour of covering the banks' losses, and I still am far from convinced.

johnnyskeleton

Sand wrote: »

Well, I am thinking in the line of "Your profits, your failure" philosophy taken to banks. Certainly, not having jingle mail hasnt prevented the taxpayer with being stuck with the banks losses.

Well the people who took out the loans were just as greedy for the profits as they banks were. I see no real difference between a bank stupidly lending and a punter stupidly borrowing if both of them were imagining massive profits somewhere down the line for doing very little work.

nesf

Zynks wrote: »

The banks' bonds are not Irish state bonds, it is private business between bondholders and banks. Why should the state and tax payers pay for stupid private business? If Ireland continues to honour state bonds, why should the credibility of the state be affected by failed banks paying cents to the euro?

I have read all the argumentation in favour of covering the banks' losses, and I still am far from convinced.

We control the banks, so any action by the banks will be taken to be an action by the Irish Government and rise ire in that fashion. We can't get out of it by waving our hands and claiming they are independent financial entities. They're not.

Zynks

nesf wrote: »

We control the banks, so any action by the banks will be taken to be an action by the Irish Government and rise ire in that fashion. We can't get out of it by waving our hands and claiming they are independent financial entities. They're not.

We are shareholders of the banks. The banks lied, we were trapped, but our liability is limited to the value of the shares.

Those loans were made to private banks, not to state companies. The investors knew there were inherent risks - and in many cases, if not all, these investors are insured against these risks.

I think you may be overestimating their expectations and our liabilities.

nesf

Zynks wrote: »

We are shareholders of the banks. The banks lied, we were trapped, but our liability is limited to the value of the shares.

Those loans were made to private banks, not to state companies. The investors knew there were inherent risks - and in many cases, if not all, these investors are insured against these risks.

I think you may be overestimating their expectations and our liabilities.

I disagree. The main bondholder problem is with Anglo and we directly control it. AIB and BoI aren't issues here bond wise.

Zynks

nesf wrote: »

I disagree. The main bondholder problem is with Anglo and we directly control it. AIB and BoI aren't issues here bond wise.

Fair enough. So let's agree to disagree, nothing wrong with that.

Amhran Nua

Zynks wrote: »

The draconian bankruptcy laws in Ireland haven't been a deterrent to people taking stupid risks

While this may be true of the housing market, it has prevented a great many people taking other and perhaps justifiable risks in terms of starting productive businesses. At least with property you have something at the end, but given that you'd need in the high tens of thousands to start any kind of business, who would want to take that chance? You not only get to declare bankruptcy for fifteen years, you aren't entitled to welfare assistance if it fails, as the majority of them do.

nesf wrote: »

Instead of reckless lenders you get reckless borrowers,

Borrowers can't force the banks to lend though. If the banks feel the person across the table is reckless, they can and do show them the door. An easing of the bankruptcy terms at least for enterprise debt is essential.

nesf wrote: »

I disagree. The main bondholder problem is with Anglo and we directly control it. AIB and BoI aren't issues here bond wise.

But last time I checked we can't borrow anything on the markets anyway. The shell game shenanigans didn't work. What do we have to lose by ditching Anglo at this stage? And indeed withdrawing the guarantee for certain classes of liability? I mean its not like the reputation of the place could get much worse.

Zynks

Amhran Nua wrote: »

While this may be true of the housing market, it has prevented a great many people taking other and perhaps justifiable risks in terms of starting productive businesses. At least with property you have something at the end, but given that you'd need in the high tens of thousands to start any kind of business, who would want to take that chance? You not only get to declare bankruptcy for fifteen years, you aren't entitled to welfare assistance if it fails, as the majority of them do.

You are so right there. That is a huge issue that must be addressed as soon as possible.

nesf

Amhran Nua wrote: »

But last time I checked we can't borrow anything on the markets anyway.

We can borrow, it's just at a rather high rate of interest. But even then we don't know for sure since we're not trying to borrow at the moment. The real test will come early in the new year when we return to the market again.

Zynks

nesf wrote: »

We can borrow, it's just at a rather high rate of interest. But even then we don't know for sure since we're not trying to borrow at the moment. The real test will come early in the new year when we return to the market again.

I think you mean unsustainable rate of interest.

http://www.bloomberg.com/news/2010-11-02/ireland-may-have-just-one-month-to-stave-off-bailout-danger-euro-credit.html

nesf

Zynks wrote: »

I think you mean unsustainable rate of interest.

http://www.bloomberg.com/news/2010-11-02/ireland-may-have-just-one-month-to-stave-off-bailout-danger-euro-credit.html

Pretty much.

Zynks

Guys, I need to revive this thread to invite, actually ask, you to watch this Russia TV program by Max Keiser pretty much focused on Ireland. I think we have to find a way to get every single Irish person to see this (the second half includes an interview with Dave McWilliams:

https://www.youtube.com/watch?v=EBbgVZz7_YM