Question about recent articles by McWilliams

take everything

The last two pieces by David McWilliams (today in the Indo (and his site) and recently in the SBP IIRC) he was yet again banging on about how negative equity mortgages are the next major problem and wondering whether the ECB would take them off our hands. :pac:
Now i don't know much about economics but is he confusing the affordability of these mortgages and negative equity. Not everyone in negative equity can't afford their mortgages. Is he saying that anyone in NE will eventually abandon repaying the mortgages Surely they are quite distinct problems. Isn't negative equity a red herring here.

He talks about half of mortgages (can't remember the exact figure now) being "underwater". WTF does he mean by this exactly. That they are in NE? (OK but most of them of are still actually affordable i presume). I usually had time for McWilliams in the past but this reads like scaremongering.
Anyone care to comment on this.

20Cent

There is a tsunami of house repossessions in the post for the near future. Up to 80,000 in arrears at the moment. Many economists and commentators have highlighted it. Even Bill Clinton identified it as one a major issue facing Ireland.
Like the housing bubble those making the warnings are being ignored or mocked yet again. Something needs to be done or we will be bailing out the banks again in a few years time.

SBWife

I think in part he's extrapolating from international experience. In the UK in the early 1990s and over the past few years in the US there have been a significant proportion of those with NE properties that have either abandoned the properties to the banks or been foreclosed on. I don't doubt that foreclosures will increase here, but do think that differences in culture and the legal system need to be taken into account, and don't see much analysis of this in the recently published articles.

Godge

SBWife wrote: »

I think in part he's extrapolating from international experience. In the UK in the early 1990s and over the past few years in the US there have been a significant proportion of those with NE properties that have either abandoned the properties to the banks or been foreclosed on. I don't doubt that foreclosures will increase here, but do think that differences in culture and the legal system need to be taken into account, and don't see much analysis of this in the recently published articles.

mortgage-holders didn't get bailed out to any great extent in those countries. Why do people like McWilliams think that the Irish need to be rewarded for their stupidity unlike the rest of the world?

Large-scale rescue for mortgage-holders is not an option. There are two large groups - those who will never be able to pay back and those that don't want to pay back because it means no new car and no holiday. For both of these groups there should be no bailout, the first group should default/go bankrupt and the second group should just pay up.

There is a smaller group in the middle that comprises those who will be able to pay back in the future but can't do so now. A targetted initiative at that group is worth considering but it would have to avoid spillover into the other two bigger groups.

Scofflaw

Godge wrote:

mortgage-holders didn't get bailed out to any great extent in those countries. Why do people like McWilliams think that the Irish need to be rewarded for their stupidity unlike the rest of the world?

Because it's judged likely to be popular with his intended audience?

cordially,
Scofflaw

SBWife

Godge wrote: »

mortgage-holders didn't get bailed out to any great extent in those countries. Why do people like McWilliams think that the Irish need to be rewarded for their stupidity unlike the rest of the world.

They may not have been bailed out but less onerous bankruptcy laws and non-recorce mortgages allow many to escape some of the consequences of their financial stupidity, making the choice of foreclosure/abandonment to the bank more attractive. I think McWilliams may well be wrong in his estimation of the extent of the NE foreclosure problem by not considering the impact of affordability in combination with the cultural ethos and legal regime.

I do believe people must take responsibility for their own actions and was frankly disgusted yesterday when the head of the consumer protection authority said at an ESRI event that it wasn't the fault of the 2004 to 2008 first time buyers that they were in the situation that they now find themselves.

Lockstep

SBWife wrote: »

. I don't doubt that foreclosures will increase here, but do think that differences in culture and the legal system need to be taken into account, and don't see much analysis of this in the recently published articles.

As an aside, foreclosures cannot increase here much as foreclosures have been abolished in Ireland under the Land and Conveyancing Law Reform Act (apart from NAMA properties)

SBWife

Lockstep wrote: »

As an aside, foreclosures cannot increase here much as foreclosures have been abolished in Ireland under the Land and Conveyancing Law Reform Act (apart from NAMA properties)

Repossessions then.

Permabear

This post has been deleted.

20Cent

Godge wrote: »

mortgage-holders didn't get bailed out to any great extent in those countries. Why do people like McWilliams think that the Irish need to be rewarded for their stupidity unlike the rest of the world?

Don't know about "rewarded" or "stupidity" but maybe doing something now will prevent a much larger cost to the state in the future, kind of like how warnings about the banks and property bubble were ignored.

Godge

20Cent wrote: »

Don't know about "rewarded" or "stupidity" but maybe doing something now will prevent a much larger cost to the state in the future, kind of like how warnings about the banks and property bubble were ignored.

Well seeing as you don't know, here's a little education:

Getting free money and let off your debts = rewarded
Buying at the top of the market when lots of people were warning you = stupidity

20Cent

Godge wrote: »

Well seeing as you don't know, here's a little education:

Getting free money and let off your debts = rewarded
Buying at the top of the market when lots of people were warning you = stupidity

So if the people who ignored the housing bubble are stupid what are the people ignoring the upcoming mortgage crisis warnings?

stackerman

Wait and see what happens when interest rates start to rise, as they will when inflation starts to really take off ( which will be the end result of all this QE). Then see how many house holds start to default and struggle to pay their mortgages.
Then, as the country 'really' starts to go down the crapper, see if you think bailing out this large section of Irish society is a bad idea.
This is the problem in Ireland right now, it's a them and us mindset instead of us as a country. Be it public v private, this issue or others. This mess is only beginning, and if we act now (should have before this) we can reduce the pain which is surely coming. That is not 'talking it down', it's called the reality !
World economies endlessly trying to print their way out of a black hole, is only increasing the pain when it does come. There are only two ways all this debt can be sorted, 1 - Keep printing until you devalue your currency so much that the debt reduces, as the US has done for generations. Or 2- Let the economy crash. Medium term - it's going to get worse.
I'm lucky in that I am ok when it comes to this issue above, I can't see myself struggling, but I don't get any pleasure out of seeing a huge section of my fellow Irish men,women and children suffering. IMHO it will be cheaper to nip it in the bud now, then to try and deal with it when the problem is a whole lot worse.

take everything

Basically what i'm wondering is this:
If i'm not mistaken, the level of arrears is not dissimilar across the group of mortgage holders in NE and those not in NE. Something in the region of 10% IIRC.

So isn't NE largely incidental and secondary.
Yes there is a mortgage crisis but isn't it the 10% above that constitutes this mortgage crisis, not the (admittedly scarier-sounding and headline grabbing) more than 50% "underwater" that he bangs on about.

What am i missing here.
I can only infer from what McWilliams is saying that most of the "underwater" figure comprises people who paid over the odds for something and now resent having to pay it off (even though they can afford it).
In other words, a "can pay /won't pay" group.

Maybe i'm missing something.
If so i'd appreciate if someone would show me where i'm going wrong

If not, why is McWilliams pandering to this sentiment.

^ Edit: TBH answer to last question most likely answered in Permabear/Scofflaw posts :pac:

Idbatterim

you know what, I agree with moral hazard! but when only the big fish are exempted, I really start wondering...

daltonmd

20Cent wrote: »

Don't know about "rewarded" or "stupidity" but maybe doing something now will prevent a much larger cost to the state in the future, kind of like how warnings about the banks and property bubble were ignored.

This is the real issue here - we have got to stop getting caught up with "individuals" being "rewarded" and look at the bigger picture - alas this will only happen when it's too late.

MadsL

SBWife wrote: »

I think in part he's extrapolating from international experience. In the UK in the early 1990s and over the past few years in the US there have been a significant proportion of those with NE properties that have either abandoned the properties to the banks or been foreclosed on. I don't doubt that foreclosures will increase here, but do think that differences in culture and the legal system need to be taken into account, and don't see much analysis of this in the recently published articles.

^^

Can't help spot the echoes of 'ah, sure, Ireland is different' argument against McWilliam's points when he was warning about the bubble.

It's a terrible thing to be proved right in Ireland. Seems to get you despised.

What he's arguing for is not the 'mini-NAMA' but for a structured fast-drop and baseline of housing prices with some kind of ECB support/controls. At the moment he's right in saying

the banks aren’t foreclosing on mortgages because they can’t afford to, which means that the housing market won’t drop quickly but prices will continue to grind down relentlessly quarter by quarter. This makes arrears and defaults all the more likely, against which the banks do not have sufficient capital to protect themselves.

Another fine mess.

SBWife

MadsL wrote: »

^^

Can't help spot the echoes of 'ah, sure, Ireland is different' argument against McWilliam's points when he was warning about the bubble.

It's a terrible thing to be proved right in Ireland. Seems to get you despised.

What he's arguing for is not the 'mini-NAMA' but for a structured fast-drop and baseline of housing prices with some kind of ECB support/controls. At the moment he's right in saying



Another fine mess.

Not saying Ireland is different just saying any economist worth his salt includes all identifiable factors in their analysis.

MadsL

What "differences in culture and the legal system" do you see as having an impact...?

cast_iron

MadsL wrote: »

It's a terrible thing to be proved right in Ireland. Seems to get you despised.

By some people, perhaps. That doesn't make him a God. Nor does it make Morgan Kelly a God. Nor does it make them definitely correct now because they were then.

If anyone looked at the cold hard facts back in the day, they would have agreed with the Lee's/Kelly's/McWilliams of the day.

We can also look at the cold hard facts today and come to a differing opinion than them. That's not despising or a sense of hatred for him being right, assuming rational thought is used.

What he's arguing for is not the 'mini-NAMA' but for a structured fast-drop and baseline of housing prices with some kind of ECB support/controls.

He's been arguing for a Nama for the little people for years. A ridiculous notion if you ask me.

Godge

MadsL wrote: »

^^

Can't help spot the echoes of 'ah, sure, Ireland is different' argument against McWilliam's points when he was warning about the bubble.

It's a terrible thing to be proved right in Ireland. Seems to get you despised.

What he's arguing for is not the 'mini-NAMA' but for a structured fast-drop and baseline of housing prices with some kind of ECB support/controls. At the moment he's right in saying



Another fine mess.

McWilliams was the man who dreamed up the bailout for the banks and sold the idea to Lenihan at a late-night meeting in mcWilliams house when Lenihan was chewing garlic.

Given that that was the worst decision ever taken by an Irish government, forgive me if I never listen to another word out of that man's mouth.

JoeGil

Godge wrote: »

McWilliams was the man who dreamed up the bailout for the banks and sold the idea to Lenihan at a late-night meeting in mcWilliams house when Lenihan was chewing garlic.

Given that that was the worst decision ever taken by an Irish government, forgive me if I never listen to another word out of that man's mouth.

Exactly what I was thinking myself.
McWilliams seems to be confused a lot lately.
Maybe if he had thought the whole thing through when he was coming up with the bank guarantee scheme we wouldn't be facing the issues we're facing now.

MadsL

Godge wrote: »

McWilliams was the man who dreamed up the bailout for the banks and sold the idea to Lenihan at a late-night meeting in mcWilliams house when Lenihan was chewing garlic.

Given that that was the worst decision ever taken by an Irish government, forgive me if I never listen to another word out of that man's mouth.

Except that is not the full story; McWilliams advised a bank guarantee AND swift and decisive action to deal with the banks. The Govt did the first part then arsed around.

Blaming McWilliams for the rest is like blaming your breakdown on a mechanic who advises changing the oil AND replacing the clutch; you then change the oil and blame him when the clutch seizes.

It is true that when he called out to my house – at his instigation not mine – I told him that in my opinion (opinion, not advice – advice is given by paid advisors, civil servants, paid consultants, paid central bankers etc) he should copy the Swedish banking policy of 1992. This would stop the bank run that was happening in Ireland at the time.

That was it. I assumed that they would do their homework – that is after all what these guys are paid to do. Remember the politicians had teams of civil servants, central bankers and personal economic advisors.

In contrast, I have never been inside the Department of Finance in my life to advise on anything. I was never asked to clarify the parametres of anything – re timing, scope etc.

Very soon it became shockingly apparent to me that the Swedish approach was not being followed. In fact, the opposite was occuring with devastating consequences. By early 2009, I thought it best – even at that stage – to rescind the guarantee and call the creditors into a room and tell them the game was up. I wrote articles to this effect.

In response to this stance, Brian Lenihan in April 2009, personally wrote a op-ed page for the Irish Independent. I am sure this is one of the first times such a thing has happened where a Minsiter of Finance writes a personal attack on an individual commentator.

http://www.davidmcwilliams.ie/2011/11/15/recent-inaccuracies-re-the-bank-guarantee

http://www.independent.ie/opinion/analysis/states-priority-is-helping-economy-not-the-developers-1716678.html

I note Lenihan went to the disingenuous trouble of trying to hang McWilliams out to dry for it, and I see a few here swallowed that line.

Scofflaw

MadsL wrote: »

Except that is not the full story; McWilliams advised a bank guarantee AND swift and decisive action to deal with the banks.

The Govt did the first part then arsed around.

Blaming McWilliams for the rest is like blaming your breakdown on a mechanic who advises changing the oil AND replacing the clutch; you then change the oil and blame him when the clutch seizes.

I'm not sure one can really say the government then "arsed around" - I'd say the problem was more that neither the government nor McWilliams had any idea at all how bad things were in the banks. Under those circumstances, the guarantee was an enormous gamble, and there's no sign that either McWilliams or the government factored that into their thinking at all.

cordially,
Scofflaw

K-9

MadsL wrote: »

Except that is not the full story; McWilliams advised a bank guarantee AND swift and decisive action to deal with the banks.

The Govt did the first part then arsed around.

Blaming McWilliams for the rest is like blaming your breakdown on a mechanic who advises changing the oil AND replacing the clutch; you then change the oil and blame him when the clutch seizes.



http://www.davidmcwilliams.ie/2011/11/15/recent-inaccuracies-re-the-bank-guarantee

http://www.independent.ie/opinion/analysis/states-priority-is-helping-economy-not-the-developers-1716678.html

Which is why economists and politicians are a dangerous mix!

McWiliams knew about the oil alright, just not the reasons why the oil needed changed. McWilliams put the wrong oil in the engine!

Nothing wrong with that, he didn't know the full facts, something he unfortunately shared with our "expert" mechanic, the late Mr. Lenihan.

Still though, international banks should still have fleed to the IFSC, regardless of our own banks problems. McWilliams did foresee this guarantee as making Dublin a major financial city of the world, champagne pouring, 1'000's of jobs etc. etc., internal national matters shouldn't really matter.

krd

Scofflaw wrote: »

Because it's judged likely to be popular with his intended audience?

I've been following him for a long time. He called the crash a long time before it happened.

Now, all the people who did buy at the top of the market, may be all ears now. But they would have been the same people who would have wanted him to shut his mouth while the bubble was growing.

Had he been a real audience pleaser. During "the madness", He would have, painted himself orange, and been on RTE property porn imploring us to get on the property ladder before it was too late.

And before you go calling the people who bought at the top of the boom stupid. These are the kind of people who are promoted into management at a young age. They are good solid decent Irish people. They're not weird or intellectual, or anything like that. Our middle-class. These are "smort" people. They wear smort suits to work. These are the people who run Ireland.

Thick as turnips.....But what can you do.


If you want to get really mad about something. There's a building around the corner from me (NAMA controlled of course - as is nearly every office block in the country). The building hasn't had a tenant in nearly a decade. It's in a central location, with no parking - zero, nada, nuffink. They can't get a tenant, because there are no tenants. And who will rent a building with no parking. The latest is they have men with thick arms, hard hats, and buckets and shovels, (you know builders; our favourite sons and daughters next to farmers - no nonsense men) from one of the companies of a NAMA developer, extensively redoing the interior. This I assume is a NAMA strategy to put this thick builder back in the black. Once that building has it's interior refitted, it still will not be able to find a tenant. Only an f'ing fool would think it would. There are many much better buildings around it, recently completed, that do have parking - and they can't find tenants.

And there are more buildings coming onto the market.

MadsL

K-9 wrote: »

Which is why economists and politicians are a dangerous mix!

McWiliams knew about the oil alright, just not the reasons why the oil needed changed. McWilliams put the wrong oil in the engine!

Nothing wrong with that, he didn't know the full facts, something he unfortunately shared with our "expert" mechanic, the late Mr. Lenihan.

Still though, international banks should still have fleed to the IFSC, regardless of our own banks problems. McWilliams did foresee this guarantee as making Dublin a major financial city of the world, champagne pouring, 1'000's of jobs etc. etc., internal national matters shouldn't really matter.

He suggested the Swedish model (cue jokes) and Lenihan only did half of it! Why are we now blaming McWilliams?? Who was running the fecking country???

K-9

MadsL wrote: »

He suggested the Swedish model (cue jokes) and Lenihan only did half of it! Why are we now blaming McWilliams?? Who was running the fecking country???

Who's blaming McWilliams?

20Cent

Surely the question isn't has McWilliams been right about everything ever or what his motivations are. Its is he an all the others warning about a mortgage default crisis right? Looking at the figures it is difficult to see how there won't be a huge increase in defaults which will result in the Banks needing to be recapitalised again.

The question is what is the bet way to tackle the issue, socially and economically. Ignoring it until it becomes a crisis and a decision has to be made at midnight in a panic obviously isn't the way to do it.

Calling people stupid etc isn't going to change that.

Godge

20Cent wrote: »

Surely the question isn't has McWilliams been right about everything ever or what his motivations are. Its is he an all the others warning about a mortgage default crisis right? Looking at the figures it is difficult to see how there won't be a huge increase in defaults which will result in the Banks needing to be recapitalised again.

The question is what is the bet way to tackle the issue, socially and economically. Ignoring it until it becomes a crisis and a decision has to be made at midnight in a panic obviously isn't the way to do it.

Calling people stupid etc isn't going to change that.

Don't think they are right. What Mcwilliams forgets is that the recapitalisation that has already taken place made provision for mortgage default.

I keep linking to Seamus Coffey articles, mainly because he makes sense and uses hard information to back up what he says. Look at this post:


http://economic-incentives.blogspot.com/2012/02/boi-insight-into-mortgages.html


A selection of quotes:

"There are huge problems in the mortgage market in Ireland but BOI is still in the position of having 17 out of every 20 mortgages being repaid on time"
"The banking stress tests from last March provided for €2,075 million of lifetime loan losses on BOI’s owner-occupied mortgage book in Ireland under the stress scenario with €1,115 million of those projected to occur in the three-years from 2011-2013."
"During 2011, BOI repossessed 90 owner-occupied homes"
"It is pretty clear that the level of owner-occupied mortgage losses in BOI is still significantly below the levels allowed for in the stress tests."
"The negative equity of the €10,567 million of loans with LTVs of greater than 100% is estimated to be €2,474 million"

So the stress tests provided for €2,075 million of lifetime loan losses and current negative equity is €2,474 million. Practically all of the loans in negative equity would have to default to cause a need for a further recapitalisation.

Actually, given some of the other analysis in that article and others, if I had money I would consider buying Bank of Ireland shares rather than worrying about it needing more money from the taxpayer..

We have given money to the banks to deal with the mortgage crisis. Let them get on with it and assess on a case-by-case basis what needs to be done.

20Cent

Godge wrote: »

Don't think they are right. What Mcwilliams forgets is that the recapitalisation that has already taken place made provision for mortgage default.

I keep linking to Seamus Coffey articles, mainly because he makes sense and uses hard information to back up what he says. Look at this post:


http://economic-incentives.blogspot.com/2012/02/boi-insight-into-mortgages.html


A selection of quotes:

"There are huge problems in the mortgage market in Ireland but BOI is still in the position of having 17 out of every 20 mortgages being repaid on time"
"The banking stress tests from last March provided for €2,075 million of lifetime loan losses on BOI’s owner-occupied mortgage book in Ireland under the stress scenario with €1,115 million of those projected to occur in the three-years from 2011-2013."
"During 2011, BOI repossessed 90 owner-occupied homes"
"It is pretty clear that the level of owner-occupied mortgage losses in BOI is still significantly below the levels allowed for in the stress tests."
"The negative equity of the €10,567 million of loans with LTVs of greater than 100% is estimated to be €2,474 million"

So the stress tests provided for €2,075 million of lifetime loan losses and current negative equity is €2,474 million. Practically all of the loans in negative equity would have to default to cause a need for a further recapitalisation.

Actually, given some of the other analysis in that article and others, if I had money I would consider buying Bank of Ireland shares rather than worrying about it needing more money from the taxpayer..

We have given money to the banks to deal with the mortgage crisis. Let them get on with it and assess on a case-by-case basis what needs to be done.

Hope he's right, article is just about BOI though.
Still sounds very bad.
"12.3% by loan amount are in arrears of 90 days or more with 5.4% also by loan balance having been restructured in some way and not in arrears. The figure for arrears under 90 days are not provided but it is likely that somewhere close to 25% of owner-occupied mortgages by balance have experienced some difficulty."

He seems confident the banks can weather the storm thanks to the money already put into them. So long as the banks are ok then but what about the rest of society!

Permabear

This post has been deleted.

MadsL

Who's blaming McWilliams?

K-9 wrote: »

McWiliams knew about the oil alright, just not the reasons why the oil needed changed. McWilliams put the wrong oil in the engine!

Nothing wrong with that, he didn't know the full facts, something he unfortunately shared with our "expert" mechanic, the late Mr. Lenihan.

Still though, international banks should still have fleed to the IFSC, regardless of our own banks problems. McWilliams did foresee this guarantee as making Dublin a major financial city of the world, champagne pouring, 1'000's of jobs etc. etc., internal national matters shouldn't really matter.

You apparantly...

Scofflaw

krd wrote: »

I've been following him for a long time. He called the crash a long time before it happened.

Repeatedly, in fact. Would I consider that a comment on his predictive powers? Sure.

krd wrote: »

Now, all the people who did buy at the top of the market, may be all ears now. But they would have been the same people who would have wanted him to shut his mouth while the bubble was growing.

Had he been a real audience pleaser. During "the madness", He would have, painted himself orange, and been on RTE property porn imploring us to get on the property ladder before it was too late.

Not really - unique selling point is very important. McWilliams built himself a strong niche audience rather than being an also-ran in the property porn game. And he was both convinced that the bubble would burst and right that it would do so - just consistently wrong on timing until he eventually got lucky. For McWilliams the bursting was always about 6 months away, so he may never have expected to be in the wilderness for long.

As to "audience pleaser" - McWilliams is far from the only person to have predicted the bubble (heck, I can claim that myself), but he was one who used it as an audience-pleaser.

krd wrote: »

And before you go calling the people who bought at the top of the boom stupid. These are the kind of people who are promoted into management at a young age. They are good solid decent Irish people. They're not weird or intellectual, or anything like that. Our middle-class. These are "smort" people. They wear smort suits to work. These are the people who run Ireland.

Thick as turnips.....But what can you do.

Not publicly crying wolf so often that you actually wind up reinforcing the idea the bubble will be endless would help.

cordially,
Scofflaw

daltonmd

Scofflaw wrote: »

Repeatedly, in fact. Would I consider that a comment on his predictive powers? Sure.



Not really - unique selling point is very important. McWilliams built himself a strong niche audience rather than being an also-ran in the property porn game. And he was both convinced that the bubble would burst and right that it would do so - just consistently wrong on timing until he eventually got lucky. For McWilliams the bursting was always about 6 months away, so he may never have expected to be in the wilderness for long.

As to "audience pleaser" - McWilliams is far from the only person to have predicted the bubble (heck, I can claim that myself), but he was one who used it as an audience-pleaser.



Not publicly crying wolf so often that you actually wind up reinforcing the idea the bubble will be endless would help.

cordially,
Scofflaw

He wasn't consistently wrong on timing - he (among others) consistently warned about borrowing too much, he consistently warned about us becoming over reliant on one sector, property - economists like him can never know the when, they only know and point out that if we are in a bubble then it will eventually burst.
Which is exactly what happened.

cast_iron

daltonmd wrote: »

He wasn't consistently wrong on timing - he (among others) consistently warned about borrowing too much, he consistently warned about us becoming over reliant on one sector, property - economists like him can never know the when

I'm pretty sure he did claim to know the when - quite regularly. It's a bit of a moot point anyway.

...they only know and point out that if we are in a bubble then it will eventually burst.

Great insight alright.

daltonmd

cast_iron wrote: »

I'm pretty sure he did claim to know the when - quite regularly. It's a bit of a moot point anyway.
Great insight alright.

Care to post a link(s) where David McWilliams said when the housing market would crash?
It's nothing to do with insight - it's to do with analysing the market - which he did. In one of his articles he wrote:

"Unfortunately, the pendulum will not swing back in the event of a downturn because of the huge amounts of debt which young wage earners have incurred to get onto the property ladder. This is the other lasting legacy of a property boom — a second massive transfer of wealth from the young to the middle-aged. The young are in debt mortgaged up to the hilt, the middle-aged are in clover, sitting on a semi-detached gold mine. This demographic feature is not a recipe for economic dynamism. All financial models of spending patterns over our lifetimes point to serious spending from the ages of 18 to 50. If this cohort of the population is in serious debt, they will not spend enough and less spending means very little growth."

In another this:

"In a traditional US recession like 1980/82 or 1989/91, the central bank cuts interest rates aggressively and the economy responds. Normally, when the central bank moves, stocks rise rapidly in expectation of a full recovery. This time, stocks are not really moving. Last Tuesday the Fed cut interest rates and promised more in the pipeline but the markets just shrugged. When there has been too much investment, resulting in too much personal and corporate debt, lowering interest rates will not work. This dilemma is called a “liquidity trap” and, in an indebted economy, cutting interest rates has as little effect as pushing on a string."

And this:

"The borrowing and house price figures speak for themselves. For the past three years, personal borrowing rose on average five times faster than wages. Since 1998 — the year when a legitimate economic miracle turned into a credit bubble — Irish people have been getting into debt six times faster than the average European and three times faster than even the profligate Americans. As for houses, we all know what happened up to this year and what is now happening.

Some argue that borrowing is no big deal and point out that with interest rates as low as they are, more debt can be serviced. But servicing token amounts today on a massive principal is only part of the problem.

The view that debts don’t matter is based on the premise that interest rates will always be lower than after-tax wage increases. So your wages will always cover your interest payments. This view implies that there will always be full employment and every year wages will rise. This is hardly a defensible position as it is founded on the idea that there is no business cycle."

And this:

"Now, the economy booms, a lid is kept on immigrant and domestic workers wages (particularly in manufacturing), interest rates remain low, credit continues to gush in. The prices of non-traded goods, such as houses, go through the roof and the process continues. This is how a bubble forms. There are no warning lights in the guise of higher interest rates. The system loses its self-correcting qualities and we get a balloon waiting to burst."


These date back to 2001, now you may not like him, you may think he is a media whore - you could be right.

But everything that he said would come to pass has. He didn't give a date, he simply said if we continue to do X then this road will lead to Y.

Scofflaw

daltonmd wrote: »

He wasn't consistently wrong on timing - he (among others) consistently warned about borrowing too much, he consistently warned about us becoming over reliant on one sector, property - economists like him can never know the when, they only know and point out that if we are in a bubble then it will eventually burst.
Which is exactly what happened.

"Borrowing Bubble About To Burst – David McWilliams, Nov 11, 2001 (Ten Years Ago!)"

Things started to go wrong for this country when we started to believe our own propaganda. That was back in early 1999 when people began to borrow phenomenally, and that was the time to sound the alarm. JP Morgan, the legendary US investment banker, once said, “Nothing so impairs your financial judgement as the sight of your neighbour getting rich.” Nothing could better describe the nonsense in Ireland than that : jealousy of rapid riches among neighbours. The media were in for the ride, because the boom, particularly in houses, paid bills. It was also boom time for glossy magazine pullouts about posh Danish kitchens or “once-in-a-lifetime-opportunities” in half-built Spanish golf resorts. Such dross probably crescendoed in the Irish Times property supplement, which tried to persuade us that a three-bedroom semi in Clontarf was worth as much as an eight bedroom restored chateau just outside Paris on 25 acres.

This is when it all started to go wrong — not in the past nine months. And if people, particularly investors, were worried back in 1999 about calling the peak too early, they should be reminded of another great expression from JP Morgan: “Nobody lost money by selling too early”. The bubble emerged back in 1999, and the existence of this borrowing bubble at the peak of a business cycle is the reason why, what we have seen these past two months, is just the tip of the recessionary iceberg. The downturn will be long and drawn-out here because we will have to pay back all the debt. Whether we pay it back or not, the overhang will dictate the tone of the economy over the coming years. We have not seen any real layoffs in the domestic service sector yet. This is the sector that absorbed most of the gains in employment in the past few years, and it was sustained almost exclusively by yesterday’s pay cheque and the feel-good factor about tomorrow.

McWilliams wrote that in 2001 - he was calling the crash right then and there. In 2003, he spoke in a Primetime debate entitled "Is the housing bubble about to burst?", where he argued that it was about to burst versus IIB's Austin Hughes, who argued it wasn't. In 2006, he hosted a Leviathan gig entitled "When Will The Property Bubble Burst?", where he again argued it was imminent - and was finally closer to what he had been saying was imminent since about 2000.

I'm sorry, but the revisionism in respect of McWilliams' record doesn't ever stack up.

cordially,
Scofflaw

20Cent

But what would he know?

http://businessetc.thejournal.ie/theres-no-silver-bullet-to-address-mortgage-arrears-says-elderfield-banking-lending-borrowing-371538-Mar2012/

FINANCIAL REGULATOR Matthew Elderfield has said that Ireland’s mortgage arrears problem remains one of the biggest challenges of the financial crisis.

krd

20Cent wrote: »

Surely the question isn't has McWilliams been right about everything ever or what his motivations are. Its is he an all the others warning about a mortgage default crisis right? Looking at the figures it is difficult to see how there won't be a huge increase in defaults which will result in the Banks needing to be recapitalised again.

There effectively is a huge default at the minute. It's over 80,000 people in arrears. In reality it could be a lot more.

There's also something else. I believe the banks have to mark their "assets" (mortgages), to the market price. Already, you can buy houses in Dublin that were changing hands for over 200 grand a few years back, for just over 50 now. In the second half of this year, you're going to see property go to f'ing nothing. The mortgages banks have on their books will be far in excess of the value of the underlying property value.

There's already jiggery pokery going on. I know some arseholes - people who gave up their jobs to become full time property speculators. They own a shocking amount of properties - all bought at the peak of the boom. Most are empty, and have never had tenants. The bank have been letting them f around for the last couple of years - emphasise YEARS. Also at the height of the boom, since this husband and wife team of geniuses were going to be millinaires - the banks lent them a massive amount of money to live the high life in advance of their property "investments", "maturing". NAMA for the little man, indeed.

The question is what is the bet way to tackle the issue, socially and economically. Ignoring it until it becomes a crisis and a decision has to be made at midnight in a panic obviously isn't the way to do it.

This is Ireland. It will done in a midnight panic.

Calling people stupid etc isn't going to change that.

Yes.........But if I'm going to have to pay for the stupidity of other people. At the very least, I should be allowed to call them stupid.

I didn't buy property during the boom. But I had nearly every arsehole rubbing their "investments" in my face. Cock of the walk builders, looking down their noses at anyone who was fool enough not to drop out of school.

Every time I see a builder, I have to resist the urge from shouting "come here ya big fat thick - I'll give ya a luxury apartment" grabbing their shovel, and chopping their stupid heads off with it.


GET ON THE PROPERTY LADDER BEFORE ITS TOO LATE

ITS TOO LATE


ITS TOO LATE

ITS TOO LATE

STUPID

K-9

MadsL wrote: »

You apparantly...

Apparently indeed. I did say he was a big proponent of the guarantee, taking credit for it in his book after all. I did say He didn't know the full facts which is exactly why pop economists shouldn't really be heeded as guru's.

krd

Scofflaw wrote: »

Not really - unique selling point is very important. McWilliams built himself a strong niche audience rather than being an also-ran in the property porn game.

And he was both convinced that the bubble would burst and right that it would do so - just consistently wrong on timing until he eventually got lucky. For McWilliams the bursting was always about 6 months away, so he may never have expected to be in the wilderness for long.

Timing is a real trick in economics. You have to remember, every internal actor, from property speculators, to the banks, to Fianna Fail, to nearly anyone with an interest in property, were doing their best to keep the bubble inflated. Even parents were throwing their own kids to the dogs, in an effort to keep the price of their own houses up - get on the ladder before it's too late!!!

Every time it began to lose steam, there was a little fudge. Had it not been for the credit crunch, the ponzi scheme could have been rolling on til today. NAMA, is effectively a scheme to keep what's left of the ponzi scheme rolling. They pissed away 160 million on Sexy Johnny Ronan's crock; Treasury - make your own mind up about what they were at. A dead horse is a dead horse. The situation is really awful - There are just no tenants - to bailout treasury, twenty, fifty, god knows how many, new government departments would need to be created, and rent space from Johnny....I think that was Johnny's business model

As to "audience pleaser" - McWilliams is far from the only person to have predicted the bubble (heck, I can claim that myself), but he was one who used it as an audience-pleaser.

I was at a dinner party type thing - it could have been 96. I had a conversation with a member of UCD's economics staff.....we both predicted that there would be a crash, the IMF and the Germans getting involved, the bailouts, everything that has happened - it's just, effectively, the way everything was being done, there was no room for a "soft landing" - all the speculators were massively over leveraged - the mortgages stopped making sense by the mid/early 90s - buying in the 90s, some people got lucky, but it was just luck. Everyone else at the gathering looked at us in shock, like we had two heads. I asked him if there was anyway to stop this, and he said no - simply, the people who run Ireland are just too greedy and stupid - like the "smart and ballsy" Brendan O'Connors - they think they're the ones who won't get caught out, but they will and always do.

Timing was the thing. When.....We know when now.

Not publicly crying wolf so often that you actually wind up reinforcing the idea the bubble will be endless would help.

People weren't listening. And people believed stupid things, like all you needed to do was "talk the country up". Of course, people may realise now, that bull**** is not a sound economic strategy.

If I brought up the subject in the pub - I have people nearly wanting to punch me in the face to shut my gob. I'd have people rolling their eyes in their heads, and giving the "he's cracked" nod to each other.

Well........I wasn't "cracked".

20Cent

krd wrote: »

If I brought up the subject in the pub - I have people nearly wanting to punch me in the face to shut my gob. I'd have people rolling their eyes in their heads, and giving the "he's cracked" nod to each other.

Well........I wasn't "cracked".

Are those warning of a mass mortgage default and new bank bailout now cracked?

daltonmd

Scofflaw wrote: »

McWilliams wrote that in 2001 - he was calling the crash right then and there. In 2003, he spoke in a Primetime debate entitled "Is the housing bubble about to burst?", where he argued that it was about to burst versus IIB's Austin Hughes, who argued it wasn't. In 2006, he hosted a Leviathan gig entitled "When Will The Property Bubble Burst?", where he again argued it was imminent - and was finally closer to what he had been saying was imminent since about 2000.

I'm sorry, but the revisionism in respect of McWilliams' record doesn't ever stack up.

cordially,
Scofflaw

In 2001 there was a housing market slow down.
In 2003 there was also a slow down.
In 2002 tax returns were down, commercial property was down, reduced overseas investment and all sectors were down, but then we had government intervention.

"Minister for Finance (Mr. McCreevy): The Government interventions in the housing market over recent years have been designed to increase supply, reduce pressure on house prices, and afford greater access to the housing market for first-time purchasers. It is clear from a variety of indicators, including house completions, price data and new house grant applications, that these interventions have been effective.

The Central Bank's Winter 2000 Bulletin indicated that the mortgage repayment burden as a percentage of average household disposable income stood at 28% in 2000 compared to 33% in 1992 and 49% in 1982. This reflects a number of complex components such as average size of mortgage, obviously related to house prices, the rate of interest charged which has fallen substantially in recent years as well as disposable income which has also improved considerably during this Government's term."


It's simply too easy to blame people because you feel they got the timing wrong. It's too easy to ignore that it was "what" he was saying was 100% correct. Nobody can predict the top of a bubble much like they can't predict the bottom - but we know it will come.

It's the same for the mortgage crisis that is heading our way - it will come, it's only a matter of time.

Even those who "can" pay at the moment will get to a point when they see their incomes falling, the cost of living rising, where they will say - enough.

This can, like the bubble, is being kicked down the road by those who should know better.

take everything

I'm still trying to reconcile the difference between the 10% of mortgages in arrears (some of which in need of genuine assistance) and the over 50% "underwater" that McWilliams mentions.
Who are making up the difference?
People not in arrears but who just refuse to pay presumably.

krd

take everything wrote: »

I'm still trying to reconcile the difference between the 10% of mortgages in arrears (some of which in need of genuine assistance) and the over 50% "underwater" that McWilliams mentions.
Who are making up the difference?
People not in arrears but who just refuse to pay presumably.

I'll put you in the picture.

I knew someone, earning little over 20k. Supporting a wife (who did not work) and children. They bought a house for themselves, a new car(BMW), a new car for the wife(smaller BMW). Two investment properties, on top of the house they'd already bought. If you saw these people, you'd assume they were doing very well out of life.

Any idea how they were stretching the 20K to lead the high life?

I'll explain....four credit cards...And with every property a "home improvement" loan. The Beamers were on credit too.

The two arseholes I mentioned in a post earlier. They took out a massive loan, and went on a trip of a life time around the world - places like Bali, etc. They come back to Ireland - the money gone...And they can't get the dole, because on paper, they have too many "assets" .....So, they've been funding their life style with rent from tenants, in houses they haven't and can't pay for.....Money that should be going to the bank to service the debt.

SBWife

Underwater refers to negative equity, the value of the mortgage is greater than the value of the property. The mortgage payments may or may not be up to date.

Arrears the mortgage payments have not been made. The value of the mortgage may be greater then the value of the property (negative equity) or may be less than the value of the property (positive equity).

krd

20Cent wrote: »

Are those warning of a mass mortgage default and new bank bailout now cracked?

No...They're not cracked.

But it's not all doom and gloom.......I didn't buy a property at the top of the boom. If it's any consolation to anyone who did.

We're not completely screwed. There was a really interesting piece in the Indo last weekend by a Finn Gael TD - I can't remember his name. Basically, on how the debt owed to our central bank could be written off.

But screw NAMA for the little guy. The way some people would want it - they'd want everyone else to bail out property speculators, and let them have a profit, while the rest of us are forced to eat grass.

daltonmd

take everything wrote: »

I'm still trying to reconcile the difference between the 10% of mortgages in arrears (some of which in need of genuine assistance) and the over 50% "underwater" that McWilliams mentions.
Who are making up the difference?
People not in arrears but who just refuse to pay presumably.

He's referring (I believe) to the amount of mortgages where the house price is worth less than the o/s loan. In negative equity but not in trouble - yet....

take everything

krd wrote: »

I'll put you in the picture.

I knew someone, earning little over 20k. Supporting a wife (who did not work) and children. They bought a house for themselves, a new car(BMW), a new car for the wife(smaller BMW). Two investment properties, on top of the house they'd already bought. If you saw these people, you'd assume they were doing very well out of life.

Any idea how they were stretching the 20K to lead the high life?

I'll explain....four credit cards...And with every property a "home improvement" loan. The Beamers were on credit too.

The two arseholes I mentioned in a post earlier. They took out a massive loan, and went on a trip of a life time around the world - places like Bali, etc. They come back to Ireland - the money gone...And they can't get the dole, because on paper, they have too many "assets" .....So, they've been funding their life style with rent from tenants, in houses they haven't and can't pay for.....Money that should be going to the bank to service the debt.

Aren't these just part of the 10% of people having trouble servicing their mortgages.

Or are you saying among the 90% of people who ARE servicing their mortgages, there is a sizeable number doing it at the expense of these other loans?
Are you saying there is a hidden tsunami of non-mortgage debt out there (holidays, cars etc) which will, when push comes to shove, impact on the servicing of mortgage debt and bring the figure up to the 50% "underwater" figure McWilliams goes on about?

I would have thought the "underwater" stuff was still made up of close to 90% of people who COULD actually service their loans (whether mortgage or non-mortgage) but who are just pissed off about NE and maybe cutting back a bit.
The impact of non-mortgage debt surely couldn't reduce that 90% figure of unimpaired mortgages that significantly, could it?

JoeGil

MadsL wrote: »

Except that is not the full story; McWilliams advised a bank guarantee AND swift and decisive action to deal with the banks. The Govt did the first part then arsed around.

Blaming McWilliams for the rest is like blaming your breakdown on a mechanic who advises changing the oil AND replacing the clutch; you then change the oil and blame him when the clutch seizes.

I note Lenihan went to the disingenuous trouble of trying to hang McWilliams out to dry for it, and I see a few here swallowed that line.

McWilliams is however prone to changing his mind and indeed the occasional bout of revisionism. Whereas in his more recent articles as quoted in the post above, he says the meeting was not at his instigation,

It is true that when he called out to my house – at his instigation not mine – I told him that in my opinion (opinion, not advice – advice is given by paid advisors, civil servants, paid consultants, paid central bankers etc) he should copy the Swedish banking policy of 1992

when he was plugging his book two years earlier the completely opposite background was portrayed. His opinions tend to change to suit the mood of the time.

Driving home from RTE that evening, McWilliams decided the situation was so serious and the bankers in such denial that it was time to call the minister.

http://www.independent.ie/entertainment/books/david-mcwilliams-the-night-lenihan-banged-on-my-front-door-1930001.html