# Sobering Morgan kelly article in today's Times . .



## michaelm

*If you thought the bank bailout was bad, wait until the mortgage defaults hit home
*

[broken link removed]


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## canicemcavoy

Nonsense - the country has turned a corner, and Kelly has never ever been right.


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## shnaek

That article is absolutely terrifying, especially considering it's source.


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## jpd

canicemcavoy said:


> Nonsense - the country has turned a corner, and Kelly has never ever been right.



I beleive that  he called the property bust correctly but was widely vilified at the time. 

Given his prognostics this time, I can only hope his current critics are correct, but I'm not so sure they'll have more luck than the last time.


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## canicemcavoy

> I beleive that he called the property bust correctly but was widely vilified at the time.


 
Didn't he says that it would be better to incinerate €1.5bn than to put it into Anglo? Wild nonsense.


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## Purple

canicemcavoy said:


> Nonsense - the country has turned a corner, and Kelly has never ever been right.





jpd said:


> I beleive that  he called the property bust correctly but was widely vilified at the time.
> 
> Given his prognostics this time, I can only hope his current critics are correct, but I'm not so sure they'll have more luck than the last time.


I think you can add a "" to the end of canicemcavoy's post.


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## Chris

shnaek said:


> That article is absolutely terrifying, especially considering it's source.



Terrifying enough to drive me drink, or at least finalise my family's escape plan. 

The only thing that surprises me in the article is that Kelly says he has no solution, which is quite a worrying thing to hear from him. In my opinion the only solution is default (or renegotiate to be pc) and let the banks fail, and then start from scratch.


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## z107

> Didn't he says that it would be better to incinerate €1.5bn than to put it into Anglo? Wild nonsense.


Why is it nonsense?

If briquettes were made from the money, at least people would get some heat from it. Anglo is just a black hole (just like the rest of the Irish banks)


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## shanegl

Its unfair to expect anyone to have heeded Kelly's warnings. He was too  sensationalist. Just couldn't take him seriously. How was I to know it  was foolish to fill my boots with AIB shares, or to believe that NAMA  would wash its face? Hardly my fault. In fact, when you think about it,  its really all Kelly's fault.


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## cml387

I've followed this website for some years but have hesitated to post.

Firstly, I think it's a pity there isn't a well defined "deeply ironic" smiley for the above posters to use.

Secondly, whereas other boards have been discussing Morgan Kelly's article to many pages,there seems to be a relative silence here on Askaboutmoney.

Why dat?


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## ontour

I disagree that we are on the verge of mass mortgage default.  A more likely path, but still astounding, is that there will be a shift of assets back from people in the 50-80 age bracket to those in the 25-45 age bracket.  The family unit will extend where part of a parent's pension will be paying part of the adult children's mortgage.  

I think that Kelly contributes significantly to the discussion however I think that the potential for a catastrophic economic collapse if the banks had been allowed to fail is ignored.  If the government had let Anglo fail we may have been commended for that decision or we may have been crucified, who knows?


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## canicemcavoy

cml387 said:


> I've followed this website for some years but have hesitated to post.
> 
> Firstly, I think it's a pity there isn't a well defined "deeply ironic" smiley for the above posters to use.
> 
> Secondly, whereas other boards have been discussing Morgan Kelly's article to many pages,there seems to be a relative silence here on Askaboutmoney.


 
That's you, isn't it, Morgan? Come to rub our faces in it. I reckon you should be tried for economic treason.


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## cml387

canicemcavoy said:


> That's you, isn't it, Morgan? Come to rub our faces in it. I reckon you should be tried for economic treason.


 

Wish I had his salary

When the bulldozers go in to the first ghost estate (or has happened Ross O'Carroll Kelly,empty apartment block) then we can get Morgan to predict the lottery numbers.


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## sunrock

ontour said:


> I disagree that we are on the verge of mass mortgage default. A more likely path, but still astounding, is that there will be a shift of assets back from people in the 50-80 age bracket to those in the 25-45 age bracket. The family unit will extend where part of a parent's pension will be paying part of the adult children's mortgage.
> 
> I think that Kelly contributes significantly to the discussion however I think that the potential for a catastrophic economic collapse if the banks had been allowed to fail is ignored. If the government had let Anglo fail we may have been commended for that decision or we may have been crucified, who knows?


 
So you are saying that parents in their 70s for example are going to help their children in negative equity to pay their mortgage. I think it is much more likely that the "children"will plead inability to pay and let the banks do what they will. Or maybe you think that the government will reduce the pensions to help mortgage holders.The greens and some backbencher fianna failers say they will vote against any cuts to pensions.
If the government had let the banks to fail we would be saved the huge cost of saving them ...at least 80e billlion+ The upcoming budget which is causing such anxiety is only 15 billion e over 4 years.The government was listening to the vested interests....an elite of rich stock holders,bondholders and bankers in trying the conjuring trick of saving them. The interests of the vast majority of irish people was openly ignored,as they will soon realise what the politicians really think of them as they are asked to pay for the mess.


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## ccbkd

cml387 said:


> I've followed this website for some years but have hesitated to post.
> 
> Firstly, I think it's a pity there isn't a well defined "deeply ironic" smiley for the above posters to use.
> 
> Secondly, whereas other boards have been discussing Morgan Kelly's article to many pages,there seems to be a relative silence here on Askaboutmoney.
> 
> Why dat?


 
I tend to agree, I find alot, but not all people here are tend to have a business/establishment perspective and lend towards a right wing philosophy...I have read posts where left wing commentators like McWilliams, O'Toole, Browne, Kelly have been lampooned and I even recall one thread by a guy called Turbo Tim calling Nobel prize winning economist Stigliz a buffoon for his critique on NAMA...everyone has their right to a logical critique but I do find that certain posters here just want to stick their fingers in their ears and whistle dixie everytime a left wing commentator unleashes the horrible truth!


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## cml387

The indebted mortgage generation (personal note - I am a 50's mortgage paid person) are very internet savvy. I can see a Facebook page along the lines of "We won't pay our mortgage".A mass movement of defaulters is much easier to organise nowadays.


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## orka

cml387 said:


> Secondly, whereas other boards have been discussing Morgan Kelly's article to many pages,there seems to be a relative silence here on Askaboutmoney.
> 
> Why dat?


I have popped back to this thread a few times today hoping that someone would have some good reasons why the article is wrong - still waiting and hoping...


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## jpd

It isn't wrong: 1 + 1 is still 2

But the political consequences of that are pretty awful and it's easier to stick your head in the sand and hope the pain will go away!


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## ontour

sunrock said:


> I think it is much more likely that the "children"will plead inability to pay and let the banks do what they will.



I think that what you say is the rational approach but Irish people are not rational when it comes to property.  The prospect that a person will not be able to get a mortgage for the next 5/10/15 years will lead to continued irrational action.  You will see revisions of mortgage terms to 40 or 50 years or even longer than life mortgages.  The government will try to placate homeowners by forcing the banks to allow customers to retain tracker rates when extending the term.This will stave off a further property crash.  I am not saying any of this is a good idea, only that I think it is likely.



sunrock said:


> If the government had let the banks to fail we would be saved the huge cost of saving them ...at least 80e billlion+


This is a bit like Enda's plan to save €5bn, it is half a story.  You assume that there would have been no cost to state if the banks had failed.  I do not know what the cost would have been but I do not think it is plausible that it would have been zero.


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## onq

orka said:


> I have popped back to this thread a few times today hoping that someone would have some good reasons why the article is wrong - still waiting and hoping...



I don't think the article is right - like most economists, Morgan Kelly misses vital points.
Morgan Kelly forgets the scenario that started all this - the crooked Banks having no money.
We could not let the lifeblood of the economy simply stop - we had to  face the facts of life and support the disastrously, incompetently run  banks because to fail to do so would have resulted in far worse  structural damage all at once.
With a budget overspend in the tens of billions we could not shaft the  bondholders, whose incestuous relationship with each other and our  European funders meant that we would be biting the hand that would be  asked to lend us money.
The solution is to agree to get our overspend under control and to start  thinking about unwinding interest added loans and debts and rewinding  them into a fixed added sum debt plus the capital amount borrowed.

I said it at the start of my posting history here and I'll say it again -  Christ threw the money lenders from the temple for a reason - paying  interest to speculative moneylenders results in crippling debt.
We need certainty on the amount, an extended timeframe in which to pay  it, and reduced payments per month/year to allow us to do so.
It is simply not good enough to let people default and cause problems for others who are managing to repay their debt.
This applies to all debts that cannot be repaid.

And if someone says "this goes against all the banking rules" I say fine! This is the only workable solution!

(well, the only one I can think of anyway)

The banks and the finance houses - either national not international -  have no moral ground to stand on, and a bankrupt Ireland leaving the EU  is the alternative.
No doubt this would bring a tear of joy to some people in the finance  houses in in America and Germany, but only until the first car bomb went  off.

Oh, and yes, we must undo with the Croke Park Agreement
The private sector is decimated, with people not having to face wage and salery cuts, but no profitable work and unemployment.
 It seems clear to me at that particular coal face that at this stage  the "social partners" have to see reason - they are a rope around our  necks.

ONQ.


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## Chris

onq said:


> I don't think the article is right - like most economists, Morgan Kelly misses vital points.
> Morgan Kelly forgets the scenario that started all this - the crooked Banks having no money.
> We could not let the lifeblood of the economy simply stop - we had to  face the facts of life and support the disastrously, incompetently run  banks because to fail to do so would have resulted in far worse  structural damage all at once.


What do you base this assumption on? Iceland is now a perfect example that you can successfully send the bond holders packing and life goes on. This structural damamge you mention sounds an awful lot like political PR, just like "systemic importance". If there is structural damage due to the banks, the the best thing you can do is get rid of them. Propping up the very institutions that are unsound does not make the structure future proof.



onq said:


> With a budget overspend in the tens of billions we could not shaft the  bondholders, whose incestuous relationship with each other and our  European funders meant that we would be biting the hand that would be  asked to lend us money.


The whole idea of renegotiating debt and balancing the budget would be to not borrow more money, rather than go looking for more.



onq said:


> The solution is to agree to get our overspend under control and to start  thinking about unwinding interest added loans and debts and rewinding  them into a fixed added sum debt plus the capital amount borrowed.


I agree, Ireland has to renegotiate on the terms of its debts which are unmanageable, i.e. partially default.



onq said:


> I said it at the start of my posting history here and I'll say it again -  Christ threw the money lenders from the temple for a reason - paying  interest to speculative moneylenders results in crippling debt.


No, borrowers (individuals or organisations) who do not know how to control their credit addiction cause crippling debt. Moneylenders also have a responibility over the funds lent, and they should pay the price for giving out too much risky money. This doesn't make the moneylending part of the economy an evil thing.



onq said:


> We need certainty on the amount, an extended timeframe in which to pay  it, and reduced payments per month/year to allow us to do so.
> It is simply not good enough to let people default and cause problems for others who are managing to repay their debt.
> This applies to all debts that cannot be repaid.


Allowing people to default does not necessarily cause problems for those that do not default. This is only a problem now because government has decided to put the taxpayer on the line.


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## Mouldy

For the vast majority of people reading Mr Kelly’s article this morning, the question on their minds wasn’t how Ireland would sort out its long term fiscal correction, it was “What the hell am I going to do now?”

The events in the article, if they come to pass, will result in a much broader group of property owners losing all of their wealth – the price of their property will collapse far beyond current levels and any other assets they have will not be equal or greater to the liability of their property.

Not being able to sell you home usually means not being able to move. Renting the property out is not an option for a lot of people because the rent won’t come close to the mortgage payments. So that person/family are stuck where they are. This in turn will lead to a skewing of skill sets – in a possible recovery, the professionals required in say, Galway, would be stuck in Dublin and vice versa, unable to move to take a job.

Given this scenario, and against a backdrop of asset-less individuals defaulting on their mortgages and sailing off into the sunset, albeit with a court order for the outstanding liabilities against them, most sensible people would consider a strategic default – quietly converting assets into cash and leaving the country, then informing the lender that they now were the proud owner of Number 123 Nowhere St.

The lender will huff and puff and the court orders will be made, but will anyone realistically chase the defaulters? And even if a debt collection agency buys the liability, they would probably settle for a smaller % of the amount and close off the debt.

These are the thoughts going through my head at the moment and I’m not in any financial difficulty although I do have a huge mortgage. There above thoughts are not a recommendation, but they represent a thought process that debt entrapped people may choose to take rather than spend their lives sitting in an estate watching daytime TV and waiting to die.

M


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## Firefly

Mouldy said:


> For the vast majority of people reading Mr Kelly’s article this morning, the question on their minds wasn’t how Ireland would sort out its long term fiscal correction, it was “What the hell am I going to do now?”
> 
> The events in the article, if they come to pass, will result in a much broader group of property owners losing all of their wealth – the price of their property will collapse far beyond current levels and any other assets they have will not be equal or greater to the liability of their property.
> 
> Not being able to sell you home usually means not being able to move. Renting the property out is not an option for a lot of people because the rent won’t come close to the mortgage payments. So that person/family are stuck where they are. This in turn will lead to a skewing of skill sets – in a possible recovery, the professionals required in say, Galway, would be stuck in Dublin and vice versa, unable to move to take a job.
> 
> Given this scenario, and against a backdrop of asset-less individuals defaulting on their mortgages and sailing off into the sunset, albeit with a court order for the outstanding liabilities against them, most sensible people would consider a strategic default – quietly converting assets into cash and leaving the country, then informing the lender that they now were the proud owner of Number 123 Nowhere St.
> 
> The lender will huff and puff and the court orders will be made, but will anyone realistically chase the defaulters? And even if a debt collection agency buys the liability, they would probably settle for a smaller % of the amount and close off the debt.
> 
> These are the thoughts going through my head at the moment and I’m not in any financial difficulty although I do have a huge mortgage. There above thoughts are not a recommendation, but they represent a thought process that debt entrapped people may choose to take rather than spend their lives sitting in an estate watching daytime TV and waiting to die.
> 
> M


 
This is a very good post IMO. You only have to look at the thread(s) re: moving deposits off-shore...


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## Duke of Marmalade

There is no doubt Morgan Kelly told us so. You gotta hand it to him. Watch this clip from September 2008. Poor Brendan Keenan is swallowing the official line, as many of us did. MK is adamant the banks were insolvent. Remember at this stage David McWilliams was positively drooling at the the master stroke of the blanket guarantee and was really onside the official line.

Whilst we have to give MK huge credit for his diagnosis back then and even earlier, was he correct in his proposed solution? He wanted us to simply let the banking system collapse. We would surely be in a far worse position now than we are if we had let that happen. 

Again he is repeating that this September we should have switched 75Bn of bank debt for bank shares, "solving the banking crisis at a stroke". Do people really think it would have been that easy?

In summary, MK has been brilliant at diagnosis, way ahead of the rest, but his "solution" would have produced a far worse disaster.


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## Chris

Duke of Marmalade said:


> Whilst we have to give MK huge credit for his diagnosis back then and even earlier, was he correct in his proposed solution? He wanted us to simply let the banking system collapse. We would surely be in a far worse position now than we are if we had let that happen.



I think you are jumping one step ahead of what Kelly actually suggested. He suggested letting banks go bankrupt. The conclusion that this would have resulted in a collapse of the banking system is your own, which I personally disagree with. I do not remember Kelly suggesting that letting banks fail would result in a failure of the entire banking system, but I am open to correcion.


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## Duke of Marmalade

_Chris_, I listened to his words again. He actually said that the "retail" banks should be saved, I suppose he meant AIB, BoI and ILP.  Other banks should be let go, presumably Anglo, INBS (EBS?). He was for the 100K guarantee.  Could it have been that simple?  Anglo owed lots to AIB/BoI.  I suppose, given the horrors we are in now, dumping Anglo and INBS might have been a better option.  For most of us that is with hindsight.  For MK it is vindication.

But he is now of the view that we should have ditched AIB and BoI as well - I mean swapping 75bn of bonds for shares is simply walking from them.  This is based on a view that the game is up.  2 years ago, it was ghost estates and developers/builders that rightly concerned him but now he seems to have no faith in the capacity of the economy to pay any of its debts.

If he is again right, well it hardly matters what we had done and that includes saving Anglo.  He fundamentally believes that Ireland Inc. is down the tubes, even admits he has no solution.


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## LittlePiggy

Mouldy - Are you me? I had this same thought process last night.


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## cml387

Then there's the "run out of money in 60 days" report from Bloomberg.
(Sorry,can't link)

It has been dismissed as "mischevous" by the NTMA.

It really doessn't matter what the NTMA say now anyway,the market commentators belive we're sunk, and perception is reality.


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## Mouldy

LittlePiggy said:


> Mouldy - Are you me? I had this same thought process last night.


 
Yes. And everybody's out to get us!! 

M


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## Chris

Duke of Marmalade said:


> _Chris_, I listened to his words again. He actually said that the "retail" banks should be saved, I suppose he meant AIB, BoI and ILP.  Other banks should be let go, presumably Anglo, INBS (EBS?). He was for the 100K guarantee.  Could it have been that simple?  Anglo owed lots to AIB/BoI.  I suppose, given the horrors we are in now, dumping Anglo and INBS might have been a better option.  For most of us that is with hindsight.  For MK it is vindication.
> 
> But he is now of the view that we should have ditched AIB and BoI as well - I mean swapping 75bn of bonds for shares is simply walking from them.  This is based on a view that the game is up.  2 years ago, it was ghost estates and developers/builders that rightly concerned him but now he seems to have no faith in the capacity of the economy to pay any of its debts.
> 
> If he is again right, well it hardly matters what we had done and that includes saving Anglo.  He fundamentally believes that Ireland Inc. is down the tubes, even admits he has no solution.


It would be interesting to get Kelly to clarify about the retail banking. In my opinion it would have been possible to split retail banking from investment banking with AIB and BoI during a liquidation process. Not sure if this is something Kelly had in mind. 

As I already said, what worries me most about Kelly's article is that he seems to be of the opinion now that there no longer is an organised way of solving this. I also agree with Kelly about Ireland's ability to repay its debts. I have said it here before that between public and private debt, Ireland so far in the doodoo, that defaulting is the only option.

I disagree with you though about that it hardly matters what we did if he is right. Bailing out the banks will end up costing tax payers, regardless of whether they took part in the credit binge. If the banks hadn't been bailed out then the strain on the tax payer would "only" go as far as the balancing of the budget excluding costs of servicing the bailout debt and losses made onthe bailouts.. 



cml387 said:


> Then there's the "run out of money in 60 days" report from Bloomberg.
> (Sorry,can't link)
> 
> It has been dismissed as "mischevous" by the NTMA.
> 
> It really doessn't matter what the NTMA say now anyway,the market commentators belive we're sunk, and perception is reality.



Saw the Bloomberg clip on the news last night. It seems like almost on a fortnightly basis that I am pulling out the old saying: "Don't believe anything until it has been officially denied!" Whether 2 months is pessimistic or 8 months is optimistic doesn't really matter. Ireland is going to run out of money, and it will be happening soon enough.


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## ontour

On mature reflection, I now think that the coming budget may have to be so harsh that it will significantly cut social welfare payments.  This cut in social welfare will trigger a spike in the number of mortgages that are not being repaid and next summer when we need to go looking for money there will be a significant jump in the number of mortgages in defaults causing round 2 of the banking crisis.


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