- Resource Insights – The debt bomb, net energy and ancient Greeks: In the 6th century B.C. Athenians gave extraordinary powers to one man to make needed reforms that would deliver Athens from economic stagnation and the gradual enslavement of the lower classes. That man, Solon, is believed to have forced the forgiveness of debts, forbade the pledging of oneself or one’s family members as security for loans, and freed all those Athenians who had been made slaves through such pledges. He also repealed the harsh code instituted by Draco (from which we get the term Draconian) and replaced it with more humane laws. After decreeing that his reforms remain in place for 10 years, Solon went abroad for a years-long vacation–probably so that no one could try to change his mind about what he had done.
Today, in the face of circumstances that Solon would recognize, the case for widespread debt forgiveness has only recently been made.
- CNBC – Consumer Debt Forgiveness May Be Needed; Roach: It might be time for something that hasn’t been done since the 1930s to get Americans spending again: national debt forgiveness, Stephen Roach told CNBC Monday.
… he prefers the more “direct approach” of coming up with “ways to forgive the excesses of mortgage, installment and revolving credit, as what was done in the 1930s, that will help consumers get through the pain of deleveraging sooner rather than later.”
The nonexecutive chairman at Morgan Stanley Asia and senior fellow at Yale’s Jackson Institute said… Debt forgiveness may hurt lenders… but “they’re the ones who wrote the bad loans and they’re the ones who had the free ride. There’s no gain without some pain and we have to decide who in society has to bear the brunt of that.”
At the same time, “politicians don’t want to inflict pain on any constituency,” Roach said. “We have a leadership deficit. People are unwilling to take the tough choices and say, ‘This is going to be painful for a while, but we’re going to come out the other side.’ ”
Give us this day our daily bread…
- Irish Central – Irish families starve their children in order to make mortgage payments: Irish families are going without food in order to meet their spiraling mortgage costs as the recession grips.
The reality has been exposed by a letter writer to the Irish Times who revealed the full torment of his family’s situation.
Writing as MP Mac Domhnaill from Tralee, the man revealed how the cost of a $120,000 mortgage has left his family with nothing to eat but bread and cereal.
The writer described his family’s predicament as a new torment as he struggles to pay his lender.
He wrote of the “anxiety and pain” as his $1,000 a month dole payment is used to fund the mortgage.
- Sunday Independent – Families in modern Ireland skip food to pay the mortgage; 70pc support debt forgiveness as Morgan Kelly shows how it can work: Responding directly to the claim made last week by the Tanaiste Eamon Gilmore, amongst others, that he had called for a “blanket write-off of mortgage debt”, Prof Kelly stated that the “purpose of debt forgiveness is not to eliminate negative equity, but to deal with the risk of people defaulting on smaller mortgages and losing their family homes”.
Referring to these troubled homeowners specifically, he said: “By identifying the people at risk and reducing their mortgages to manageable levels, or, in the case of the unemployed, renting people their homes as effectively council houses, the State can save itself huge losses on fire sales of foreclosed properties and end the anguish of many ordinary Irish families.”
Commenting on what he believes should be done to assist those in trouble with substantial boom-era mortgages, he added: “A few families with absurdly large mortgages will need to be given assistance to relocate to more affordable property, but they are a small part of the problem.”
Prof Kelly dismissed outright the introduction of any form of mortgage debt relief for those in negative equity, but who could still afford to pay.
“However, the large majority who can afford to pay their mortgages must pay every cent; regardless of how much they are in negative equity or may now regret their purchase,” he said.
His call for a targeted solution to deal with the issue of those at risk of losing their homes is supported by the vast majority of those who participated in our telephone poll.
While 72 per cent believed that many people would stop paying their mortgage in an attempt to avail of a forgiveness scheme, 65 per cent said it would be possible to restrict forgiveness to those genuinely in need.
- Irish Times – Mortgage arrears on the rise: Central Bank figures published today show 55,763 home loans, or 7.2 per cent of all mortgages, were in arrears for more than 90 days at the end of June. This compares to an arrears level of 6.3 per cent three months ago, and 5.7 per cent at the end of last year. At the end of June there were 777,321 private residential mortgage accounts held in the Republic of Ireland to a value of €115 billion.
- China Daily – Irish mortgages in arrears on rise: DUBLIN, August 29 (Xinhua) — Ireland experienced an increase of mortgages in arrears since March, according to official figures released on Monday.
The figures published by Ireland’s Central Bank showed that 55,763 residential mortgages were in arrears at the end of June for more than 90 days, accounting for 7.2 percent of all Irish mortgages.
Of these, 15,723 were in arrears between 91 and 180 days while 40,040 were in arrears for more than 180 days.
Compared with 49,609 cases at the end of March, the figures at the end of June marked an increase of some 6,000 mortgages in arrears in the three-month period.
- Irish Times – Kelly says cost of mortgage forgiveness ‘not enormous’: A DEBT forgiveness scheme to relieve homeowners in mortgage distress would cost “in the region of €5-€6 billion”, UCD professor of economics Morgan Kelly has said.
In a keynote address to the Irish Society of New Economists in Dublin yesterday, Prof Kelly delivered what he described as some “good news”… Prof Kelly made his estimations based on 20 per cent of people having difficulty paying their mortgages. This was the default figure in Florida where there was a similar housing bubble, he said. He estimated that mortgages would need to be halved on average.
And Forgive Us Our Trespasses…
- David McWilliams – Without debt forgiveness our economy can’t grow: If some people spend less and save more because they spent too much in the past and saved too little, the money they now save will be used by other people who will borrow the saving to spend on new investment.
This smooth transfer of cash from one section of society to the next presupposes that the banking system is functioning. But in Ireland, it is not.
The banks are now largely safe-deposit boxes for the ECB. This gradual disappearance of money from the system is called “deleveraging”.
The banks, having blown the balance sheet of the country by their recklessness, are no longer trusted by anybody.
But now something odd that might be called “the law of unintended consequences” occurs. In order to make sure that they don’t go mad again, the new regulator raises the amount of capital the banks need to discipline them. The banks now have to keep much more capital on their books. All the while, the banks have also to pay back the money they lent because Irish bankers ran out of our savings in 2005 and started to borrow to keep their bonuses.
Now we have come full circle; whereas we had too little regulation in the boom, we might have too much now… ANOTHER aspect of the deleveraging process is that the old banks hold on to deposits like they are gold. Deposits are the cheapest and most stable form of capital a bank has and so now they are king. All our banks need to attract more deposits. This leads to a deposit war as they push up deposit rates to get cash. Ultimately, they don’t lend.
All the above basic economics means that the “normal” laws of economics don’t apply in Ireland. The banking bottleneck is preventing saving being recycled. Therefore, the more the generation who got shafted in the boom pay back their mortgages — despite their balance sheet being decimated — the less money they have to spend on something else and the more the tax base shrinks. If the money they save gets stuck in the banks and doesn’t find its way to people who would like to use this money profitably, the economy will shrink more.
Thus, coming back to debt forgiveness, restructuring or whatever you are having yourself, the arguments are less to do with morality, moral hazard or bailing out the profligate and more to do with how demand and employment are generated.
- Reuters – UPDATE 1-Irish mortgage arrears worsen in Q2: More than one in ten Irish home loans are not being fully repaid and the situation is deteriorating as the rate of unemployment remains stubbornly high and house prices continue to fall, marking a three-and-half year decline… Ireland’s Credit Review Office also said on Monday that Allied Irish Banks and Bank of Ireland , the country’s two main lenders, were unlikely to meet a government target for them to each lend 3 billion euros in new and restructured loans to small and medium-sized businesses this year due to week demand.
As We Forgive Those Who Trespass Against Us… (i.e. Reform Bankruptcy Law in Ireland in line with that of the USA)
- Mish’s Global Economic Trend Analysis – Walking Away Goes Mainstream; Yes It’s OK; Moral Obligations Yet Again:
- Yahoo! Finance: Tech Ticker – Yes, It’s Okay To Walk Away From Your Mortgage: The reason is that you and your lender engaged in an arms-length transaction in which both parties balanced competing interests and spelled out their obligations in a clear, signed contract. And unless that contract states that you have a “moral obligation to pay,” you don’t have a moral obligation to pay.
You, meanwhile, also made a business decision. You decided to borrow money to buy your house even though it meant risking your equity, home, and credit rating.
And now it turns out that both of you made a bad decision.
Fortunately, you don’t have to fight about what happens next. The contract between you spells everything out: If you stop paying, the lender gets the house. That’s it.
- The Guardian – Ireland turns to bankruptcy tourism; Bankruptcy in Britain offers a way out for Irish entrepreneurs crushed by debt from heady property boom [but why should only the wealthy be able to avail of bankruptcy?]