dangers of discussing debt writedowns or forgiveness.

[JoeB]

Hi

I was watching Midweek last night, where they discussed possible debt writedowns.

This is very dangerous in my view. People who could otherwise afford to pay their mortgage may stop paying if such things are discussed too often.


Our government needs to make clear that no pain free debt writedowns will occur. The alternative is to incentivise people to stop paying their motrgage,.. this would be very dangerous.


For example, a friend of mine last week mentioned he was considering increasing his mortgage payments.. I advised hom not to, as debt forgiveness may be around the corner. I would now consider advising people to stop paying completely, as it's likely that only people in arrears will get debt forgiveness. Clearly this is very dangerous, and wouldn't even be considered in a 'normal' situation.. but the fact is that this isn't a normal situation, and our government may actually consider debt writedowns.


If it comes to pass I believe that a huge number of people will stop paying, and the country will descend into chaos. I feel that quite strongly.


Hence I believe that our government should say that debt forgiveness will never happen.


I agree with debt deferrment... (i.e portions of mortgages are placed on hold, with the interest paid by the state)

I also support NE mortgages where the people can satisfy onerous rules on income and job security.

I agree with debt for equity swaps if that helps.


I cannot agree with pain free debt writedowns, I think it'd destroy the country. I also think it's socially devastating to hang huge debts around peoples necks.. so much debt that they have no incentive to ever work again.

But the pain is necessary, in order to prevent everybody jumping in (by refusing to pay, claiming they cannot). The pain need not even be related to the debt.. i.e physical pain, or forced community service.
(I accept that saying 'physical pain' is outrageous, but pain of some sort is required, and it appears that some people will have nothing else to offer.)

So bankruptcies must increase. Many people, unfortunately, must be forced to lose their homes, and to start again from scratch. This is horrendous, but there's nothing else for it. Any pain free debt forgiveness will create chaos, pain is essential.

I think our country is in serious trouble and we must default. I'm saddened that our new government doesn't appear to be trying hard enough, in many respects. We are in a truly life or death situation, and outrageous things need to be done now, in order to prevent the certain collaspe of our country.

These are just my views.. pain free debt forgiveness must be completely ruled out, as it will result in chaos.

I'll just add to that and say that I believe that a certain number of non-performing mortgages now actually could pay, but the people involved are anticipating debt forgiveness and so are refusing to pay.


We must rule out a NAMA for the people, and try to row back on NAMA for the banks.

Many many people are really struggling, but their sense of responsibility is forcing them to reduce all expenditure except their debts, and they continue to struggle and pay their debts... if these people see their neighbours getting pain free debt forgiveness, .. ie. getting rewarded for sitting around (as they'll see it), then performing loans will stop performing. I think that's virtually certain.

There must be pain, even if this pain is token, and unrelated to the debt.

 

[NorfBank]

IF debt forgiveness occurs, hopefully it will be strictly assessed.

It will not be as easy as stopping paying your mortgage and then putting the hand out.

There will be a thorough investigation into your finances looking at payslips, P60s, savings, expenditure, what you had for breakfast.

 

[Commercial]

Norfbank I agree. Debt forgiveness is happening and will happen, but only in cases where there is a thorough investigation. BOSI for example are allegedly doing "deals", but only after getting certified copies of all the borrowers details, such as income details and net worth statements.
Many people are now putting themselves first and the banks lower in the pecking order as the fear of non payment has reduced siginificantly.
I agree that there may be a flood of people not repaying home mortgages, but I would consider this extremely risky for people with families and other responsibilities.
However, for commercial properties I have clients who have not paid in over 2 years as they see no way forward and are keeping the rents to themselves. In these cases there will be no debt forgiveness, only judgements and bankruptcies which leave the borrowers with no way of raising debt in the future.
The best thing to do is be as open as possible with banks, put a plan in place and pay back what you can.
Internally banks have rated all loans based on the possibility of getting paid the full amount back. In most cases they have taken provisions on the debt.
For home loans, debt forgiveness is extremely unlikely and not to be expected unless in exceptional circumstances.
In commercial loans it is different as there is less attachment to commercial properties by the borrowers, banks such as BOSI, ACC and Anglo are potentially going to do deals as it is the only way they can move forward.
Deals have been done and will be done on commercial or investment properties. I am not sure about home loans

 

[JoeB]

There is also the issue of nationalised banks still apparently making their own policies.

For example, can AIB decide to write down debts?, even if that means they'll then have to come back to the taxpayer for more money?... the danger here is that AIB may decide, cynically, that the Irish state is in a better position to pay the debts than are the original borrowers, and so they'd prefer to transfer loans to the state.


This should be resisted. I think AIB and all nationalised banks (is that all of them?) should be prevented form making their own policy. They should not be allowed to write down debts unless they intend to pay them themselves, which I don't suppose they will be intending, so they must be prevented from writing down any debts. This should have the force of law, and be a criminal offence to circumvent. The standard of proof should be low, and the CEOs should be personally responsible if it happens.. ie. if debt writedown oocurs then no further evidence is required, the CEO gets a mandatory prison sentence.

Do people think that's too tough? Our experience shows us that the banks will squirm and wriggle to avoid doing what's right. For example, the salary cap has been ignored several times, for bad reasons. I don't think this would have happened if it meant a mandatory prison sentence, for the CEO, the payroll executive, and the individual involved. What would be wrong with rules of this type? They are known in advance, and the banks promised to observe the salary cap, so where's the problem?

So criminal laws must be put in place, which will result in bankers being jailed if they ignore the direction of the government (thier owners!)


Does our government have majority voting rights within these nationalised instituitions? If so why doesn't our government use those rights to veto any decision they don't like, and to remove incompetent staff? How has the salary cap been exceeded if the government has majority voting rights? Contractual reasons.. I know, but our government doesn't seem to know, so is that more incompetence?

The ripping up of existing contracts should have been a condition of any aid. That's the incoimpetence right there, that that didn't happen.



edited to add.
Yes, of course any debt forgiveness needs to be assesed in great detail. The only Dept with this experience is social welfare. Incomings and outgoings, of all types, must be considered. Revenue cannot do this, so tax solutions will not work fairly in my view.
People who want help must suffer the indignity of having their finances opened to view, and for their privacy to be impacted. The alternative is no aid.
People who genuinely need aid will be prepared to comply with all requirements, whereas chancers will be less likely to apply, if the rules are strict, and there is no corruption.

The benefits payable, and the type of people and circumstances that can be helped must be very transparent. We don't have the money as a country to have a giveaway for all, perhaps just for the most needy. But as many people will struggle and receive no help the ones who do receive help must be reduced lower than that... to poverty essentially. But our country is broke, and so it should be no surprise that we will have people in poverty. Food and shelter is all that's guaranteed, and even the shelter may have to take the form of refugee camps. Food would communal food camps, or food stamps, for a basic, cheap but sufficient diet.


Too strict? Any other solutions? If there are no other workable solutions then we must follow the ones we do have, even if they are barbaric and result in massive hardship. Or of course we can continue to live in the clouds until the whole house crashes down, and there is no money to pay the police, and crimiinality and warlords come to rule the country.

I'd love if things were different, but we are now a third world country in terms of what we can afford, and so poverty must increase. To say otherwise is to live in the clouds imo.