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

COYW · 06-09-2011 01:04PM

ilovesleep wrote: »

For the most part some people were too comfortable with their finances and it gave them a false sense of security. Accompanied with selfish, greedy lanlords and runaway, out of controlled banks, it encouraged people to go for a mortgage and to buy a home. Some got incredibly greedy - alison o riordan and 500,000 euro dublin apartment comes to mind. As someone who was able to see that house prices were scandalous and too expensive I'd be against this. The only thing for many people now is to lengthen the term of their mortgage so that they have less to pay back every month but over a longer period.

I think lengthening of the term is the best way to go. Apartments in the Grand Canal Dock area sold for €600,000 near the end of the boom. I remember reading an article about a young lady, who paid that for one and was complaining about being stuck with it for the rest of her life.

Monty Burnz · 06-09-2011 01:06PM

Grumpypants wrote: »

The bank takes the hit and in most cases that means the goverment/tax payer would pay as the major investor. That is pretty clear i don't think anyone is suggesting that its not the tax payer who pays.

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

Nody · 06-09-2011 01:06PM

JimiTime wrote: »

There being better alternatives was not the basis of your post. The basis of your post was about who's going to pick up the tap for partial debt forgiveness. The irrelevancy being, that whoever it is, is going to be picking up the tab for a FULL mortage default anyway.

Yes but there sure will be less of them if you know you're going to be pursued for the debt for 12 years then if anyone with a negative equity can hand over their keys and walk away for free.

If you want to offer the people who're really are in above their eyeballs (for what ever reason) then see the previous post, 6 years of austerity (and only count the years that they work, not if they are claiming social welfare or similar) and suddenly there is an option out but it is not something you take until you got no other option.

Monty Burnz · 06-09-2011 01:07PM

JimiTime wrote: »

There being better alternatives was not the basis of your post. The basis of your post was about who's going to pick up the tap for partial debt forgiveness. The irrelevancy being, that whoever it is, is going to be picking up the tab for a FULL mortage default anyway.

Yes, but if default entails losing your home, then there will be far fewer defaults to begin with. And the people who are paying for these defaults will now have the opportunity to buy properties at more realistic prices. A side effect will be lower housing costs, increasing our competitiveness.

Monty Burnz · 06-09-2011 01:10PM

COYW wrote: »

I think lengthening of the term is the best way to go. Apartments in the Grand Canal Dock area sold for €600,000 near the end of the boom. I remember reading an article about a young lady, who paid that for one and was complaining about being stuck with it for the rest of her life.

Most of those silly enough to buy during the bubble had to do so with the longest mortgage terms available. You can 'save' a lot of money monthly by switching from a 20 year to a 35 year mortgage. But there are hardly any 20 year mortgages out there - most of them have 30 or 35 year terms. The difference between a 35 year mortgage and a 40 year mortgage is chicken feed. The difference between a 35 year mortgage and a 70 year mortgage (we're talking generational mortgages here, of course) is quite small.

Examples:

Assuming a (low) 5% mortgage rate, per 100,000 euros borrowed, the monthly repayments are:

20 years: 660
25 years: 584
30 years: 534
35 years: 504
40 years: 482
50 years: 454
60 years: 439
70 years: 430

Note that extending your mortage by a decade from 60 to 70 years saves you the price of two pints per month, but you have to pay it for another 10 years.

This effect is even more pronounced (worse) if we assume interest rates are more than 5% in the long term.

JimiTime · 06-09-2011 01:25PM

Nody wrote: »

If you want to offer the people who're really are in above their eyeballs (for what ever reason) then see the previous post, 6 years of austerity (and only count the years that they work, not if they are claiming social welfare or similar) and suddenly there is an option out but it is not something you take until you got no other option.

There is another option though. Don't have a job. That way you get rent allowance, social welfare etc AND you get lots of time with the kids. Your suggestion basically says, 'Would you like to be a slave?'. It may be some kind of warped 'Ideal' you have, but not only is it a horrible line of thinking in such unprecedented times, but I don't think its practical.

JimiTime · 06-09-2011 01:33PM

Monty Burnz wrote: »

Most of those silly enough to buy during the bubble

indeed. Hindsights a wonderful thing. Its just a pity that such hindsight is delivered with such harsh intellectual criticism. You predict the banking crisis too?

Do you have a solution in mind that you'd be satisfied with btw?

Grumpypants · 06-09-2011 01:38PM

Monty Burnz wrote: »

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

Im struggling to see how you are finding this so difficult to understand

the tax payer pays it, either in a up front lump sum from the tax take of that year, or it is borrowed and the tax payer pays that back and the interest. The tax payer pays it.

Lots of tax payers would need to avail of this, whether than be the working poor as outlined above, self employed people who after paying hundreds of thousands of euros in tax can't get social welfare and as such have no income to pay the mortgage debt anyway.

Zubeneschamali · 06-09-2011 01:43PM

Grumpypants wrote: »

If you have no house you do not have a free house nor do you pay mortgage for the non house.

But I have no debt, and can get a new place at the now reduced market price.

Maybe I can get something a bit bigger this time...

Grumpypants · 06-09-2011 01:45PM

Zubeneschamali wrote: »

But I have no debt, and can get a new place at the now reduced market price.

Maybe I can get something a bit bigger this time...

Exactly you can buy a new house !! Buying a house does not = free house.

JimiTime · 06-09-2011 01:48PM

Zubeneschamali wrote: »

But I have no debt, and can get a new place at the now reduced market price.

Maybe I can get something a bit bigger this time...

Yeah, because the banks will be queueing up to give you credit.

Zubeneschamali · 06-09-2011 01:52PM

JimiTime wrote: »

with the 5 rate rises since may

Even with those rises, rates are amazingly low. I believe my variable rate was 12% when I took it out, in 1992.

jester77 · 06-09-2011 02:14PM

Grumpypants wrote: »

Im struggling to see how you are finding this so difficult to understand

the tax payer pays it, either in a up front lump sum from the tax take of that year, or it is borrowed and the tax payer pays that back and the interest. The tax payer pays it.

Lots of tax payers would need to avail of this, whether than be the working poor as outlined above, self employed people who after paying hundreds of thousands of euros in tax can't get social welfare and as such have no income to pay the mortgage debt anyway.

The tax payer doesn't have money to pay for it. There is already a ~ €20 billion deficit per annum. Do you want to deprive a nation of health, education & other services just to pay back other peoples debt?

Mr. Presentable · 06-09-2011 02:21PM

JimiTime wrote: »

I can understand the mentality in relation to speculation, but there is a societal concern when it comes to a residential home. The fact is, in this country, if someone wants a secure home, then the only thing on offer is a mortgage. Secure tenancy does not exist unless you are lucky (or unlucky) enough to qualify for council accommodation.

In such a system such a cold approach is not justifiable IMO. The lender should always share the risk in relation to peoples homes. Such a risk share may have prevented the Banks bad practice too. Of course, you would have a point if secure tenancy was an option, but until then I don't think your position is just. In saying that, the law is unfortunately on your side. But then, law and justice have a tendency to avoid each other quite often.

But I am not the Lender. This is my entire point. I am not the Lender, why should I be at a loss for someone else's risk?

Grumpypants · 06-09-2011 02:29PM

jester77 wrote: »

The tax payer doesn't have money to pay for it. There is already a ~ €20 billion deficit per annum. Do you want to deprive a nation of health, education & other services just to pay back other peoples debt?

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

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

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

JimiTime · 06-09-2011 02:32PM

Mr. Presentable wrote: »

But I am not the Lender. This is my entire point. I am not the Lender, why should I be at a loss for someone else's risk?

Then your issue, is with the whole bank bailout system. Unfortunately, it has occurred already though, Ipso facto, now the taxpayer IS the lender by proxy

Actually, Off topic, does anyone know what would have happened to the mortgage books if the banks had been left to sink or swim?

Monty Burnz · 06-09-2011 02:33PM

Grumpypants wrote: »

Monty Burnz wrote: »

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

Im struggling to see how you are finding this so difficult to understand

the tax payer pays it, either in a up front lump sum from the tax take of that year, or it is borrowed and the tax payer pays that back and the interest. The tax payer pays it.

Lots of tax payers would need to avail of this, whether than be the working poor as outlined above, self employed people who after paying hundreds of thousands of euros in tax can't get social welfare and as such have no income to pay the mortgage debt anyway.

I assure you, I understand what you are saying very well - I'm trying to walk you through it so that you understand it too.

Ok, so you take loads of extra cash from the taxpayers and send it out of the country to pay these debts. The taxpayers who aren't the beneficiaries of debt sharing now have much less money to spend for decades to come. How, precisely, does this benefit the economy?

johnnyskeleton · 06-09-2011 02:36PM

RichardAnd wrote: »

Putting that aside, the logic behind that claim that sharing debt is that if person A's debts are shared out between persons B, C and D then A will have more income to use and thus, have more economic freedom. The incomes of B, C and D will be reduced but not to the same extent.

How can you increase A's income by decreasing B, C and D's income to a lesser extent. It's a zero sum game, so you would have to take say €100 from each of B, C and D's income in order to increase A's income by €300, all other things being equal.

Of course all other things are not equal, and you have to consider the effect on spending (and consequently earnings) by B, C and D when their taxes are increased to decrease the taxes or subsidise A. To calculate this, you have to have an idea as to what A, B, C and D's respective marginal propensity to consume is, and their position on the laffer curve.

In laymans terms, if the scheme means that A's increase in spending per euro is greater than B, C and D's decrease in spending, then there will be a net increase in spending. However, I believe that a person in A's position is less likely to spend (being still in debt and in any event once bitten twice shy) than B, C and D (presumably solvent / prudent individuals) per euro. I also believe that if A is given a handout, he is less inclined to work and earn an income and if B, C and D are taxed more they are also less inclined to work and earn an income.

So on an intuitive level, the net effect of a debt forgiveness scheme will be to dampen overall spending and possibly also result in a net decrease in taxes / earnings in the economy. I may be wrong, but it would take an impirical analysis or at least some anaylsis based on existing statistics to show otherwise.

The question therefore is who to believe? Am I right that it will negatively affect the economy, or are the commentariat right that it will somehow magically benefit the economy?

Well, neither of us are inherently right. But they are the ones proposing the scheme and because they are proposing it, it is for them to prove that it will either help the economy or at least not damage the economy. That they haven't done so to date is not due to mere ommission, it is because they know that an impirical analysis will almost certainly prove that it is a bad idea.

RichardAnd wrote: »

Remember, in a democracy, 51% of people can vote to enslave the other 49%. This isn't going to go away.

Thankfully, the EU and IMF will put manners on the greedy majority. At the risk of quoting Maggie Thatcher, socialism works well until you run out of other people's money.

Grumpypants · 06-09-2011 02:38PM

Mr. Presentable wrote: »

But I am not the Lender. This is my entire point. I am not the Lender, why should I be at a loss for someone else's risk?

But you are already at a loss, i know i am, ive taken pay cuts, seen tax hikes, fuel & insurance prices rise and its going to get worse.

Why do you want to continue to suffer just so someone doesn't get let off a debt. Its a very bizzare situation that people will fight to drag themselves into a worse situation just so someone else has to pay back their debts.

It makes so much more sense to take a short term hit for long term gain rather than just long term loss.

Zubeneschamali · 06-09-2011 02:38PM

Grumpypants wrote: »

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

This would work if the Government could just print the money, at the cost of inflation and devaluation of the currency.

But we are in the Euro, and can't print money, so we'd have to use EU/IMF bailout money for this scheme, and pay it back with interest, a net loss to the domestic economy.

Grumpypants · 06-09-2011 02:51PM

Monty Burnz wrote: »

I assure you, I understand what you are saying very well - I'm trying to walk you through it so that you understand it too.

Ok, so you take loads of extra cash from the taxpayers and send it out of the country to pay these debts. The taxpayers who aren't the beneficiaries of debt sharing now have much less money to spend for decades to come. How, precisely, does this benefit the economy?

A tax system doesn't single out a single person and reward them on how much they pay or not.

I am one of those tax payers that will have to pay, i would rather see my neighbour being able to spend some cash in the local shop, buy milk from the local farmer, hire the local plumber, go to the local pub than give all their money to a bank which goes directly out of the economy. Explain to me hwo this method is better for the economy?

Zubeneschamali · 06-09-2011 02:57PM

Grumpypants wrote: »

i would rather see my neighbour being able to spend some cash in the local shop, buy milk from the local farmer, hire the local plumber, go to the local pub than give all their money to a bank which goes directly out of the economy.

Why do you think payments to the bank disappear from the economy? Do you think they just set fire to them?

Monty Burnz · 06-09-2011 03:09PM

Grumpypants wrote: »

A tax system doesn't single out a single person and reward them on how much they pay or not.

What?

Grumpypants wrote: »

I am one of those tax payers that will have to pay, i would rather see my neighbour being able to spend some cash in the local shop, buy milk from the local farmer, hire the local plumber, go to the local pub than give all their money to a bank which goes directly out of the economy. Explain to me hwo this method is better for the economy?

I've tried to explain this as simply as I can. Let's cut out the emotive nonsense about being able to afford milk - nobody will starve in this country, whatever happens.

But you seem to think that your neighbour will have extra money that appears magically out of the air. He won't. The money will have appeared out of your wallet. You seem to think that this does not matter and that you want your neighbour to have extra money. I admire that view, but I don't share it.

Fortunately a system is already in place to help you help your neighbour: pick up the phone, and give St. Vincent De Paul a chunk of your salary every month - they will see that it gets to your neighbour. Meanwhile, I and others will try to do the best that we can with our salaries. That sounds fair, doesn't it?

JimiTime · 06-09-2011 03:11PM

Zubeneschamali wrote: »

Why do you think payments to the bank disappear from the economy? Do you think they just set fire to them?

No, they line their pockets, fill their holes, pay off their staff, give themselves bonuses, invest it recklessly etc etc. You are talking about organisations that are completely broken, so yes, as far as we are concerned, they burn it.

Monty Burnz · 06-09-2011 03:18PM

JimiTime wrote: »

indeed. Hindsights a wonderful thing.

Hindsight for some, Jimi. Foresight for others. I have to laugh though at how half of those caught out by the bubble tell you they knew it all along, and the other half tell you nobody knew. Different coping mechanisms, I guess.

JimiTime wrote: »

Its just a pity that such hindsight is delivered with such harsh intellectual criticism. You predict the banking crisis too?

Calling people silly isn't all that harsh, to be fair. And they were very silly indeed.

Regarding the banking crisis - I honestly didn't expect it to be as bad as it was. I didn't have a few important numbers - the breakdown of how much they had lent to hopeless developments, BTLs etc, and the extent to which those loans were often granted on the back of thin or no security at all, or 'personal guarantees' that every Tom, Dick and Harry would try to wriggle out of, or the sheer volume of loans where the security was other property/property developments. And of course we didn't know quite how far property would crash.

If there was better reporting, it would have been easier to figure out. And of course if there was anything resembling regulation by that moron Neary and his crew, then the bubble would never have gotten so big and the banks would never have been allowed to become so exposed. But that's another thread.

JimiTime wrote: »

Do you have a solution in mind that you'd be satisfied with btw?

Yes. For extreme hard-luck cases (say families where both parents lost jobs) allow a few years of grace. If they can't get back on their feet, then they go bankrupt and lose the property. Everyone else - give them a year's grace if they are genuinely trying to pay, then bankrupt them.

It's fair, it's workable, and it allows some wiggle-room for the unlucky.

JimiTime · 06-09-2011 03:19PM

Monty Burnz wrote: »

What?

I've tried to explain this as simply as I can. Let's cut out the emotive nonsense about being able to afford milk - nobody will starve in this country, whatever happens.

But you seem to think that your neighbour will have extra money that appears magically out of the air. He won't. The money will have appeared out of your wallet. You seem to think that this does not matter and that you want your neighbour to have extra money. I admire that view, but I don't share it.

Fortunately a system is already in place to help you help your neighbour: pick up the phone, and give St. Vincent De Paul a chunk of your salary every month - they will see that it gets to your neighbour. Meanwhile, I and others will try to do the best that we can with our salaries. That sounds fair, doesn't it?

oh right, so we want to bring fair into it? So how is it FAIR, that billions upon billions of tax money, and then government borrowing get thrown into people that were supposed to be professionals etc. People like Fingleton etc can walk away having screwed the system etc, while the same crisis hits the borrower and he's just got to suck it up?

The sooner we give over this idea of FAIRNESS, the better. Its not about fair, its about taking into account the whole picture, economically AND socially.

Monty Burnz · 06-09-2011 03:25PM

JimiTime wrote: »

oh right, so we want to bring fair into it? So how is it FAIR, that billions upon billions of tax money, and then government borrowing get thrown into people that were supposed to be professionals etc. People like Fingleton etc can walk away having screwed the system etc, while the same crisis hits the borrower and he's just got to suck it up?

The sooner we give over this idea of FAIRNESS, the better. Its not about fair, its about taking into account the whole picture, economically AND socially.

Yes Jimi, that's why I started this thread. I wanted to see if a debt-sharing advocate could come up with any economic argument to back up the (I think ridiculous) claims that taking money out of the pockets of 90% of the public to benefit 10% will somehow boost the economy.

I've yet to see anything resembling a coherent argument that it would be economically beneficial.

Zubeneschamali · 06-09-2011 03:36PM

JimiTime wrote: »

No, they line their pockets, fill their holes, pay off their staff, give themselves bonuses, invest it recklessly etc etc.

Think it through: what happens to the money after a staff member gets it? How is that different from what happens when the dude who got debt-forgiveness has it?

JimiTime · 06-09-2011 03:43PM

Monty Burnz wrote: »

Hindsight for some, Jimi. Foresight for others. I have to laugh though at how half of those caught out by the bubble tell you they knew it all along, and the other half tell you nobody knew. Different coping mechanisms, I guess.

Nobody KNEW. Just like the stock market (certain exceptions of course). The people who KNEW, didn't buy houses in 99 and flog them in 2005 etc. they simply kept saying, 'Its gonna crash, its gonna crash' and eventually it came to be, triggered by something that probably had nothing to do with why THEY thought it was going to crash. I was one of those people in 2000, telling people that spending 150,000 for a 2 bed in ballyer was nuts, only to see it double in value in a few years etc. Ones forsight is tested in such times. The government were actively encouraging it, and economists were regularly flounting figures like, 'the average house price in Dublin will be €400,000' by the year 2015 etc. Unfortunately, my timing for needing a family home came at the time it did. Believe me I wrestled with the mortgage scenario, but the alternative was private rental which is too unstable in terms of giving children a settled home (two friends of mine did this, and they had to move a total of 5 times between them on the whims of their landlords). Anyway, we bought our house at €40,000 under the market value, so this gave me a little bit of easing. Now its value is €150,000 less than we paid.

Calling people silly isn't all that harsh, to be fair. And they were very silly indeed.

Yes it is harsh, in that it ignores the system in place back then. I would see it as silly to release equity from a home to buy an SUV etc. However, someone who needs a secure home, planning for a future etc, its a combination of many things, INCLUDING mistakes sure. We must never forget the part we as consumers played in all of this.

Yes. For extreme hard-luck cases (say families where both parents lost jobs) allow a few years of grace. If they can't get back on their feet, then they go bankrupt and lose the property. Everyone else - give them a year's grace if they are genuinely trying to pay, then bankrupt them.

It's fair, it's workable, and it allows some wiggle-room for the unlucky.

While thats certainly more welcome than 'Tough sh1t', I think there are more socially responsible ways to do things, though if the bankruptcy lobby wins the day, I will accept that.

ei.sdraob · 06-09-2011 03:54PM

Taking money from the prudent and giving it to the reckless

Yes I can see how that would work out great (points at the banks too) :rolleyes:

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

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