ONQ's proposal for Universal Debt Forgiveness

I've posted this recent article in this forum because this forum seems directly relevant to the subject matter.
This thread in the The bailout, the banking crisis and other economic issues forum also refers to subjects covered in the below article.
I've posted the article in full because it contains several links to other articles and talks which are relevant to the discussion and I have included the relevant hyperlinks to each.

ONQ.

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http://businessetc.thejournal.ie/writing-off-mortgage-debt-is-an-emergency-need-206457-Aug2011/

Writing off mortgage debt is an “emergency” need

THE ECONOMIST CONSTANTIN Gurdgiev has said that the number of mortgage defaults in Ireland has grown to “an emergency situation”.
He said that the Government needed to introduce reform to the bankruptcy system immediately. Speaking just a short time ago on [broken link removed], Gurdgiev said:

The bankruptcy law must be changed so that people can not be pursued for the rest of their life… In my view, a large quantity of mortgages were missold to people by banks and financial institutions. We have to recognise that this is an emergency situation.

He said that it was “complete ********” [my edit] that negative equity only affects householders when they decide to move home.

UCD economist Morgan Kelly claimed at an address to a meeting of economists last week that a mortgage debt relief scheme would cost between €5 billion and €6 billion, and that around one-fifth of mortgage holders were struggling to meet mortgage repayments. He told the Kilkenny Arts Festival two weekends ago that Ireland is now “insolvent” and that mortgage debt and unemployment were huge millstones around people’s necks. (Listen to his lecture here).

Gurdgiev said that while he agreed with Kelly’s overall proposal of mortgage debt relief, he thought such relief should be “staggered” so that it didn’t become a divisive social issue and foster resentment in those who don’t receive the relief.
Willie Penrose, the ‘super’ junior minister at the Department of the Environment, told Sarah McInerney in this morning’s Sunday Times that he thought the Government should discuss the idea of a mortgage debt relief scheme.

A debt forgiveness plan was mooted by several economists in [broken link removed] last December, including Gurgiev, Brian Lucey, Stephen Kinsella, Ronan Lyons, Karl Deeter, David Madden, Valerio Poti, Brendan McElroy and John D Masson. In the letter, they jointly argued that partial debt forgiveness would motivate people to spend more money and allow them to move forward in their own economic life, thereby boosting entrepreneurship.

Another proposal for reducing mortgage debt was suggested last February by the housing agency Threshold. They told TheJournal.ie that they wanted the new government to consider a “mortgage to shared equity” scheme. The proposal would see the State buy homes at a “significant discount” from financial institutions when a houseowner is in danger of facing repossession. The State would then rent the home back to the former owner, who could later repurchase the home when their financial circumstances improved.

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I already know of a married couple with children, with two houses and debts in the region of 500k between both properties. They are in negative equity but not massively so. They are paying their mortgage debt quite comfortably and both are working. They have substantial savings 70K+.

They are now thinking that they can get something out of this potential debt forgiveness scheme. They feel that there are loads of other couples in the same situation who will claim they can't repay their mortgages so why shouldn't they do the same?

So if a couple owe 300k on a house worth 150K do they get some form of debt forgiveness purely because they are in negative equity? And what about another couple who through living very prudently have a mortgage of 150K on a property worth 150K. What do they get?

This is going to be so hard to manage and administer. People will hide their savings and all that type of carry on to avail of this golden opportunity. I realise there are thousands of genuine hardship cases but how are we going to distinguish these from the tens of thousands that are going to jump on the bandwagon? Taxpayer beware again!

Look at this thread posted today. Looks like people are copping on already that maybe they are better off not to honour their loans. I think in the shorterm these debt forgiveness proposals could encourage bad behaviour from people which will make a bad situation even worse.

http://www.askaboutmoney.com/showthread.php?t=159486

I agree with Matthew Elderfield whe he says “must be careful that any approach doesn’t provide financial incentives for the arrears problem to get worse”.

Why not give every household € 150,000 or € 200,000 - then can use it to write down their debt or spend it if they don't have any.

That would avoid the moral hazard

Giving people €200,000 for "nothing"?
Isn't that what got us where we are - the lure of easy money?

Let them take the money - €6Bn or so its estimated - and use it to set up a commercial lending bank to help stimulate indigenous jobs growth and the local economy.
With a fractional reserve of say 10% that bank could lend out up to €60Bn - a decent shot on the arm for our economy, according to what Professor Lucey of TCD told me after a Front Line programme last year.

ONQ.

onq said:

Giving people €200,000 for "nothing"?
Isn't that what got us where we are - the lure of easy money?

Let them take the money - €6Bn or so its estimated - and use it to set up a commercial lending bank to help stimulate indigenous jobs growth and the local economy.
With a fractional reserve of say 10% that bank could lend out up to €60Bn - a decent shot on the arm for our economy, according to what Professor Lucey of TCD told me after a Front Line programme last year.

ONQ.

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who is going to lend 50bn to an entity in a bankrupt country that has no consumer confidence facing cuts and hikes of 20bn by 2015, coupled with stagnating growth world wide?
Angela wont do it.
The National pension reserve has already been thrashed by the Labour party and its bearded cohorts in Liberty Hall.

Lucey, God love him, is in his ivory tower funded by the taxpayer, and well away from the real front line as is Kenny on his million plus from the taxpayer via RTE.

Debt forgiveness on a selective basis wont work because the non-recipients will stop paying their debts.

hastalavista said:

who is going to lend 50bn to an entity in a bankrupt country that has no consumer confidence facing cuts and hikes of 20bn by 2015, coupled with stagnating growth world wide?
Angela wont do it.
The National pension reserve has already been thrashed by the Labour party and its bearded cohorts in Liberty Hall.

Lucey, God love him, is in his ivory tower funded by the taxpayer, and well away from the real front line as is Kenny on his million plus from the taxpayer via RTE.

Debt forgiveness on a selective basis wont work because the non-recipients will stop paying their debts.

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Let me clarify a few things.
I didn't mention 60Bn in the context of lending to a singular entity.

Lucey said the economy needed about 60 Billion in lending .
I understood this to be the amount of liquidity our economy needs in order to function according to my understanding.

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I agree that selective debt forgiveness won't work.
I had a conversation with someone recently about this and came to the conclusion that it has to be universal debt forgiveness.

This is something most people cannot get their heads around, but its very simple.
Either the debt is forgiven and we re-write the rule book to benefit citizens, or the system will collapse.
And if we do not take a long hard look at the fractional reserve banking system and the way it charges interest we will miss the point.

We also need to seriously look at remuneration for the upper echelons of companies and debunk the myth that money buys quality.
Even these same heads of companies don't believe that, and their HR departments have this ground into their bones.
But its still peddled as justification for the outrageous salaries those in the "jobs for the boys" network pay themselves.

We need to really, really really put the markets under the microscope and put some controls in place because its quite clear vested interests are preventing this from occurring.
Finally we need to tax and regulate over the counter sales and micro-transactions to regulate this, not just with a Tobin Tax, but on an ongoing basis.

So to summarize -

- Selective debt forgiveness is divisive, universal debt forgiveness is what's required.
- We need to look at the entire money system and undertake a comprehensive reform along ethical banking lines and we could do a lot worse than take a hard look at how the the Islamic Banks do business.
- We need to tax and regulate the banks and shareholders need to take a long hard look at the scandalous levels of money top management are being paid - they're simply not worth it as the current debacle proves.

ONQ.

Slaphead said:

Im seriusly wondering why do i bother paying mine, bought in 2009 and havnt missed a payment. No i hear i could have bought a bigger house, paid less, or nothing at all and have a big chunk taken off it! Crazy stuff.

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Even in the context of the present thread I don't think that's on offer.

To be fair to your interpretation, its not perfectly clear exactly what's on offer.

ONQ.

onq said:

Even in the context of the present thread I don't think that's on offer.
To be fair to your interpretation, its not perfectly clear exactly what's on offer.
ONQ.

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yeah, i know its all up in the air, but you cant just reward people for their stupidity. Whatever is done it has to be fair to everyone, otherwise it'll just be open to corruption.

I think some people have had enough of the doom and gloom merchant Morgan Kelly.
Yet here he comes like the pied piper leading all the highly indebted rollers into the promised land!
But this is a minefield in more ways than one because its very clear there are several different kinds of people here.

Will the poor young couples who brought outrageously prices houses by the skin of their teeth be lumped in with the conspicuous consumers with their outrageous mortgages for in-your-face-houses, which included WoW-factor extensions and a BMW X5?

What about those who bought because they received incompetent or deliberately misleading advice from their mortgage advisers, or who were offered mortgages that any seasoned estate agent and lender knew they could not sustain by any rule of thumb?

Will such badly advised relative "innocents" be given priority treatment?
None of these scenarios sits very easily with me at the moment.
That's because favouring any one disenfranchises the rest!

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I have to say I was never impressed too with the parable of the Prodigal Son.
I was always more sympathetic to the hard working sons who didn't get a bonus.
I could understand they were upset when the wastrel who returned got the fatted calf!

So for me its either "Universal forgiveness" or "no forgiveness".
Its past time we took the yoke from around our necks that the money lenders have fashioned for us.

We have to look in debt at how we pay for goods and services and how those who run the money markets can be made accountable to sovereign countries
Its also past time we legislated to ensure that giving bad advice on borrowing and providing credit beyond prudent limits becomes an offence punishable by law.
That might give the dodgy estate agents an unscrupulous mortgage providers pause they next time they try to steer innocents into taking on mortgages they cannot sustain.

ONQ.

onq said:

- Selective debt forgiveness is divisive, universal debt forgiveness is what's required.

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Can you please explain what your interpretation of universal debt forgiveness is. Does this mean that every citizen in the country with mortgage debt on their PPR has that debt written off?

Or does it mean that those in negative equity get their mortgage reduced. Or does it only mean that those who cannot repay their mortgages get them written off/reduced?

Neither of these scenarios will work for the reasons previously outlined, ie other people jumping on the bandwagon, not paying their mortgages, giving up their jobs, hiding their savings etc in order to avail of this golden ticket.

I thought "universal" was a big enough word.

All debt is reset to zero.

ONQ.

onq said:

I thought "universal" was a big enough word.

All debt is reset to zero.

ONQ.

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Ok, let's try and bring some sense to this thread. What you are suggesting is that we wipe out all debt. Even if we just wipe out all mortgage debt on people's PPR and use Morgan Kelly's rather conservative estimate of 55billion euro where do you suggest we get that from? Why not wipe out all personal debt as well to be fair to everybody! I believe by universal debt forgiveness you actually are suggesting that ALL debt be wiped out. Money cannot just disappear so who pays the hundreds of billions required for this to happen? Do we just print the required money? Inflation?

Also from a moral and social perspective let's take this simple example. Mary and John "wanted" a 600K house in 2007 and bought it. They now can't afford to pay for it. Ann and Brian who had the same income bought a 200K house to live within their means and now have a very small mortgage on a modest house. Do you suggest we wipe out Mary and John's debt and leave them live in their fancy house just because they wanted it? So Ann and Brian as taxpayers end up paying for Mary and John's fancy house and all other prudent people who leave in modest properties will do likewise. NOT going to happen. I could give a thousand other reasons as to why this makes no sense but we'd be here for the day.

So we need to get real here and put a sensible argument together. For what it's worth I feel the only way any debt forgiveness scheme could work would be for it to happen through the courts and where people's incomes and savings would be scrutinised as they would be in a bankruptcy case. Also obviously somebody who can't afford to pay for a big fancy house can't have their mortgages wiped out and be left to live there. There would be two choices, hand back the keys or get a reduced mortgage but not massively so as this would not be fair to those who are living within their means in more modest properties. Another option would be to reduce the mortgage to a sustainable level but the property would have to reflect this new mortgage. ie if a couple can't afford to pay for a huge house, they should have their mortgaged reduced, hand back the keys and purchase a property worth the value of the new mortgage. This would improve the property market and solve the mortgage debt problem. We need some outside the box thinking like this to solve our problems. There is no blanket solution without serious consequences both financially and socially/morally.

We have to remember what has happened with the social welfare system in this country. It was originally setup to help the vulnerable. Now it's a lifestyle choice for people up and down the country in every town and village. Why? Because people have taken advantage of the generosity of the system. This will happen twofold if such a debt forgiveness scheme is introduced. As I already pointed out people are already anticipating such a move and starting to take advantage already! Will we ever learn?!

In other threads you suggest that people need to live up to their responsibilites. See attached. You need to keep a consistent argument here. Why should people live up to their responsibilities when you're suggesting that the most irresponsible move of all could be possible, ie "universal debt forgiveness".

http://www.askaboutmoney.com/showthread.php?t=159486

goingforgold said:

Ok, let's try and bring some sense to this thread.

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And that you have achieved, great post. I would be absolutely sickened by such a universal debt forgiveness; so much so that I would immediately pack up and leave the country. Any kind of debt forgiveness will reward making mistakes, and set a detrimental precedence for future generations. At the same time someone like me, who bought a modest house on a low LTV and sold when things started turning down and never accumulated any significant debt, i.e. did everything right, would be punished for having done so. This is like reverse Darwinism!

Your species of logic escapes me Chris.

Someone else getting assisted equates to you being punished? How?

ONQ.

Maybe we have misunderstood how you plan to fund the universal write-off/'all debt set to zero' - can you elaborate? I can only see two ways of funding the write-off of our 115B of mortgage debt (I think that was the number in a different thread on Morgan Kelly's $6B plan). Either the taxpayer picks up the tab or the banks somehow manage to use 115B of deposits to write off the debts. Either way, 'we' (tax payers/depositers) will be punished. Where does your plan envisage the money coming from for universal debt forgiveness?

Punishment is also not only the infliction of something bad - it can be the absence of something good. Why should some people who overstretched themselves with eg 500K of mortgage debt be given a house for free (they now own, free and clear, an asset worth a few 100K courtesy of your 'all debt set to zero' plan) while another person who didn't buy at all gets nothing?

goingforgold said:

Ok, let's try and bring some sense to this thread. What you are suggesting is that we wipe out all debt. Even if we just wipe out all mortgage debt on people's PPR and use Morgan Kelly's rather conservative estimate of 55billion euro where do you suggest we get that from? Why not wipe out all personal debt as well to be fair to everybody! I believe by universal debt forgiveness you actually are suggesting that ALL debt be wiped out. Money cannot just disappear so who pays the hundreds of billions required for this to happen? Do we just print the required money? Inflation?

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Debt is created when someone lends money to another.
Its the simple expedient of double entry book-keeping.

Debt was originally intended to be paid back.
We are living in a time when its rolled over.

The conventions of today are based on bootstrapping debt.
The bootstrapping is done by convention and can be cut.

People are tying themselves in knots over repaying debt artificially created by a system based on inflated values.
Artificial values fueled by virtual debts have led us to where we are today.

Seeing the rapid responses in the negative was expected.
I had hoped that leaving the ladder, someone might fall upward for a change.

The money system is as much a belief system as any philosophy or legal system.
It only works because we all agree it should work - but what if we challenged that belief?

Apart from some questionable moralizing already noted in this thread, is there no way to break the mental straitjacket that prevents us from seeing beyond the vale of Money?

When everything is relative, putting a price on a thing at a point in time and expecting people to pay that price even when relative values fall results in perceived hardship.
Is there an argument whereby the level of a debt should relate to the current value of the good or service?
Is there an argument that focuses on the rate of interest as an issue which in and of itself causes problems?

We need to think outside of accepted conventions to better understand and address the issues.

We have seen debt forgiveness in the case of odious debt in Third World Countries.
I have posted in relation to Odious Debt before now.

It is quite clear that values hyped by unscrupulous estate agents and mortgage lenders have saddled people with debts based on unsustainable house prices and interest rates.
It is my firm belief and assertion that this amounts to a form of odious debt, based on a racket run by the aforementioned "professionals" to line their pockets at the house purchasers expense, that it is unsustainable and must be forgiven.

Where the cut off point comes from I do not know.

Trying to protect the banking and financial edifices which are not properly monitored, regulated or controlled and which led to this debacle is not a credible way to deal with the current problem.
However issues of fairness arise in how its dealt with and this raises issues in relation to how all debt is dealt with in the current system.

Is the system itself inequitable or intrinsically unfair?
Is it open to systemic and widespread abuse?
Is it mirrored by other systems e.g. trading?

Then something needs to be done before a world of seven billion people declares itself bankrupt because of monies being taken out of the system by corporations and interest rules for the benefit of a small minority of individuals to the detriment of the greater good.

We can start with Universal Debt Forgiveness to wipe the slate clean.
And believe, me, given the forms of theft and graft that have gone on, that's being very generous to the perpetrators.

For the record, I don't have debts in the millions range or a huge mortgage and am not in negative equity - yet!
I make this post as fair comment on a system which has it has been shown has fostered corruption, runs largely unmonitored and unco-ordinated and needs complete revision or abandonment before it destroys human endeavour.

I believe its that serious.

ONQ.

goingforgold said:

We have to remember what has happened with the social welfare system in this country. It was originally setup to help the vulnerable. Now it's a lifestyle choice for people up and down the country in every town and village. Why? Because people have taken advantage of the generosity of the system.

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I have already posted in relation to social welfare abuse but you remarks go far beyond that.

They appear to amount to a gross defamation of the current generation sponsored first as an unfounded soundbyte by Minster Joan Burton.

Furthermore, they appear to amount to a gross defamation of most of the half million people receiving state benefits, the majority of whom were working profitably three years ago.

Please withdraw your remarks above or post proof instead of invective.

ONQ.

onq said:

It is my firm belief and assertion that this amounts to a form of odious debt, based on a racket run by the aforementioned "professionals" to line their pockets at the house purchasers expense, that it is unsustainable and must be forgiven.

Where the cut off point comes from I do not know.


ONQ.

Click to expand...

With universal debt forgiveness there is no cutoff point.

That's why it can't work. Every debt would have to be forgiven. I believe the only option is as per my thread above. Very selective forgiveness through the courts. We cannot just wipe the slate clean. You are effectively arguing that capitalism has failed, which is true, but we cannot just start all over again. The consequences would be catastrophic.

onq said:

Is there an argument whereby the level of a debt should relate to the current value of the good or service?
Is there an argument that focuses on the rate of interest as an issue which in and of itself causes problems?

.

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In general no there isn't. People bought into this capitalism view of things and now they want the rule book changed because things haven't worked out. There was no such call when prices were on the up an up. By your argument why weren't those who didn't buy a property in the boom times given 200K to give themselves a chance of buying and getting on the "ladder"!

As other posters along with myself have pointed out, your suggestion would not only punish prudent people but it would also reward reckless people by giving them a free valuable asset and leave others with nothing. I'm sorry but this just can't work.

I despise myself for even bothering to continue to read this thread never mind respond but anyway...

ONQ, so the morning after the universal debt write-off, who has taken the hit? One day there was 115B in assets on corporate and bank balance sheets; the next day, all gone... So who takes the hit? Who has lost 115B in assets overnight?