March 22, 2023

Default and be damned – Sunday Indo, Sept 5th ’10

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The following piece is the original unedited version of the article that was published.

According to the financial regulator (?), there are roughly 768,000 mortgage holders in Ireland and approximately €108 billion outstanding in residential mortgages. Consequently it is easy to work out that the average mortgage holder owes the banks approximately €142,000. What’s very interesting about this figure is that the actual amount that will be repaid to the banks over the period of the mortgage will equate to somewhere in the region of €300,000. It is primarily for this reason, that the banks are absolutely adamant that mortgages cannot be reneged on in any shape or form particularly by handing back the keys. There is a long term profit stream that they want to protect at all costs.

The banks effectively want it every way, full security against all monies that have been borrowed from them in the form of a personal guarantee from each mortgage holder and failing that, a state guarantee, notwithstanding the fact that they already hold the deeds of your property. But hold on, it gets worse. As a direct result of their utter incompetence, the banks lost all their capital reserves, then the equity (share value) thereby threatening all the depositors money which should then place all the bond holders at risk of loses as well. Yet they expect that these losses should be paid back in full by you the mortgage holder, tax payer or citizen or else we “risk damage to our international reputation”. The bondholders knew the risks (that’s their job) and individual investors and depositors should have too.

Personally, I don’t give a flying toss about damage to our reputation, at this stage. We are presently the laughing stock of the financial world. Well, they would be laughing except that they know that sooner or later Ireland is going to refuse to pay the bondholders back their ‘risk capital’ and the depositors for that matter, because simply we DON’T HAVE IT to pay!

Approximately 10% of the Irish population were in the very fortunate position of having a surplus of cash and many of these people whether of their own volition or on the advice of a “financial adviser”, decided to deposit their money into any one of the Irish banks that are now in trouble. If you are one of these people the actual reality is this, you placed your money in a financial institution that was trading or began to trade recklessly.

The fact that they are bankrupt is not actually your fault but the responsibility for absorbing at least a significant amount of those losses, is. Go sue your ‘financial advisor’ or take personal responsibility for your actions but whatever you do, don’t expect the rest of us to cover all your losses. Millions of us got little or nothing from the Celtic Tiger in the good times and I’ll be damned if you think that we are going to be there to bail you out now. In the good times you demanded and got lower taxes while the country should have been maintaining taxes in preparation for the proverbial rainy day. That rainy day is here but the money is gone.

Approximately 90% of the Irish population, that is 4 million people, did not have any surplus cash to invest anywhere. They were simply trying to get on with their lives, many of having taken out extremely high mortgages simply to put a roof over their heads. The bankers, financial advisor’s, independent mortgage brokers, estate agents, developers, and indeed the national and local press all advised that now was the time to buy.

Not being anywhere near as financially educated or informed as the aforementioned list of so-called professionals, people took the advice they were given, and paid through the nose for, and bought houses. What’s more they bought at massively inflated prices, as they were advised to do so. So how is it possible that the people who advised them have seemingly no responsibility whatsoever for the fact that their advice was absolutely totally wrong at best and more probably, purposefully inaccurate?

On the other hand, the very fortunate 10% or so of the Irish population who, for whatever reasons, had managed to accumulate excess personal wealth. They deposited money in or bought shares in Irish banks and now expect to be protected from any losses whatsoever. Many of these people, even if they were they to lose their entire deposits in Irish banks, would not see a substantial change in their living standards. They would not have to sell any of their cars. They will still be able to make the mortgage repayments. They probably still have a job and probably still have the house or apartment in Spain.

So, can somebody please tell me why the 90% of the population who are decent hard-working people simply trying to get by, should foot the bill for the financially and possibly politically well-connected 10% of the population? Although we could argue for a year and a day about the moral and ethical reasons why this should or should not be the case, the harsh reality of Ireland’s economic situation is this we are effectively bankrupt. What’s more, we are bankrupting our state and our citizens now and in the future in order to preserve the wealth and capital of a very very small minority of citizens. These are the very citizens who had more than anybody else to begin with. How did that happen? Well, that’s another story.

I, for one, do not believe that this is either a fair or just. In relation to the bankers, the developers, to corrupt planning officials and politicians I would like to remind them of a lyric from that great Christy Moore song relating to the company director who closed the factory down “…. he still drives his car and smokes a big cigar, but there is no work for anyone here today, no work today…”.

The fact is that we as a nation simply cannot afford the cost of the bank bailout nor can we afford to continue to overspend by €25 billion every 12 months, on the day to day running of our Country. The situation is completely untenable. We already pay over 100% more in interest to borrow money than many of our European friends and neighbors, like Germany. The old adage of “a friend in need is a pest” springs to mind. Lisbon Treaty anyone? The closer the bankers and unscrupulous developers are to the Government and politicians the closer the final bill will be to the taxpayer, if we let them get their way.

Talking of interest rates (e.g. profit margins), how is it that banks get away with charging a 400% profit margin on their loans? You read that right, a gross profit margin of 400%+. For comparison, a supermarket makes about 6%, if their lucky. But then again, there is REAL competition on the grocery sector.

The solutions to the problems in Ireland are not going to be simple in their execution but are extremely simple to identify. Firstly, the government allows the bank guarantee scheme to lapse at the end of September as originally planned. Secondly, the bondholders and the depositors accept that they placed their “risk capital” in a privately owned financial institution and the management of that private company have lost all or their money.

I, as a citizen of Ireland, do not feel any obligation whatsoever to either you the bondholders or the depositors who made mistakes with your investments. I, as a citizen of this country, do not feel that its future and that of the generations to come should be compromised and threatened by the need for you to preserve your capital. Please take responsibility for your actions and do not expect the rest of us, who are simply trying to make a living or get a job, to support you. Yes, it will be difficult for you but not I suspect, nearly as difficult as life will inevitably become for the other four million of us who didn’t have any money on deposit in the first place.

It is time for a fundamental rethink of the type of society we are constructing and the values by which we choose to live. We are now at the stage where people that we have never met, running companies the names of which we do not know can dictate to our sovereign government as to how they should run this state. Somehow unknown people who can force us to cut social welfare, education spending, health care provision and yet none of these people have ever been elected by any of us.

Instead of trying to figure out how we got into this mess what we need to do collectively as a nation is decide how we get out of it and what type of country and society we build in the process. The real elephant in the room is the pension issue and no one has had the neck to even mention it so far. It makes the demands of the banks seem almost reasonable!

3 Comments on Default and be damned – Sunday Indo, Sept 5th ’10

  1. Your article is right on. After two years we should be realizing closure at least by facing up to the realities. Heads of the ECB , Banks, Government, Bond holders and Brussels etc. need to be bashed together.

    There is a window of opportunity for the Irish people to get some sort of orderly program out of this mess and yes the Euro could be at risk, that is reality.

    We apparently have sufficient funds until well into next year which gives a breathing space to do this.

    Vote down the next Budget and lets see the fear in their eye’s in dealing with reality. Some sort of default is inevitable. At present all those so called good people lending Ireland money are just laughing at the thought of Irish taxpayers giving them a good income for the foreseeable future.

    Many people will lose their nest eggs but at least they have them to loose and most seem ill-gotten anyway.

    The utter inequity to the average Irish tax payer who is already struggling and had little responsibility in causing this debacle is currently expected to bail out these institutions and the Euro for the rest of their working lives.

    I do earnestly hope the Euro will survive but not at an unfair and undeserved cost to the Irish taxpayer of tomorrow.

    Iceland seems to be doing OK and is now looking positively to its future so why is’t Ireland?

  2. Agree with the main theme of the article, but feel you are well wide of the mark when bracketing depositors with investors. Surely it is clear that depositors never entered into a risk-based transaction, unlike investors who did (albeit unknowingly in many cases). I think you hugely underestimate the impact of failing to protect ordinary investors. If we can’t believe our hard earned money is safe in a simple deposit account, people will have no choice but to deposit money outside the country. In a later article you argue in favour of a ‘minister of banks’, so you must understand the importance of protecting the safety of the simple deposit account?

  3. When one was growing up the pillars of society were the priest, the law and the Bank Manager. Why should many thousand citizens of Ireland who had faith in their Bank and bought their shares have to be subject to misery while faceless institutions from abroad, foreigners who play with money, gamble be looked after. A Government is supposed to look after its people, not foreigners. I will never invest in a share again and I expect ordinary people of Ireland will not either. It started with a FF Government luring people into buying shares in Eircom and they losing a lot of money. Obviously financial advisors should have advised people to invest in Bonds (if they could) rather than shares, but then joe public trusted their pillars

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