Sobering Morgan kelly article in today's Times . .

[Chris]

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.

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.

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.

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.

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.

 

[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

 

[Firefly]

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...

 

[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.

 

[Chris]

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.

 

[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.

 

[LittlePiggy]

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

 

[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.

 

[Mouldy]

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

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

M

 

[Chris]

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..

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.

 

[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.