Irish Mortgage Brokers Blog

The Banker has an excellent article on this in their Bank Trends section. A picture speaks a thousand words!

There were some excellent presentations at the EHES this year, where some of the worlds leading historians, economists and economic historians gathered to share their thoughts.

The first video is excellent, Bob Allen of Oxford talks about why the Industrial Revolution was (in his opinion) a result of high wages and lower energy costs - which lead to a preference for technical innovation. Deirdre McCloskey of Chicago University offers excellent criticism in the questions at the end. Apologies for the sound quality, Bob had a tendency to move away from the mic and I wasn’t using a remote one.

In the next video Branko Milanovic talks about income distributions in the Mediterranean countries 2,000 years ago, and using very sparse data creates a compelling view of income from that time, what I took from this one was that income inequality has always been alive and well, a Roman Senator made about 500 times the wages of a regular worker (watch the video!).

Then there is a Roundtable discussion featuring the ‘who’s who’ of economic history

Fascinating video (that takes some time but is well worth it). This video looks at the various issues surrounding growth.

One of the great things about the internet is the democratization of opinion (it is perhaps also the downside!), and this piece is an interesting one that one looks at the distortion of certain activities in the area of job creation.

Doing so in a quasi ‘Cat in the Hat’ style, agree or not I have to admire the creative approach towards explaining political/economic dilemmas.

Feasta and the Smart Taxes Network are holding a conference on the 22nd & 23rd of September in the Mont Clare Hotel in Dublin 2. The people who work in Feasta are ideologically diverse (that is one of the things I really like about them!) and a bright bunch, the delivery, debate and data are all sure to be excellent. Hopefully we’ll see some of our readers there! (details below)

It is sure to be a treat, there are great speakers from around the world, to name a few:

Marshall Auerback (Roosevelt Institute Fellow & global portfolio strategist for Madison Street Partners, LLC)
Prof. Charles Goodhart (member of the Financial Markets Group at the London School of Economics & former monetary adviser to the Bank of England)
Bernard Lietaer (author of ‘The Future of Money’ & international expert in currency systems)

And of course we have our home-side team of heavyweights too! Fergal O’Brien (Chief Economist – IBEC), Richard Douthwaite (Sustainability Economist and Author), Dan O’Brien (Economic Editor- Irish Times), Paul Sweeney (economist with ICTU), Prof Ray Kinsella (UCD, Michael Smurfit Business School.), Constantin Gurdjiev (Adjunct Prof. of Economics TCD) and David Korowicz (Physicist and Human Systems Ecologist

Panels will be moderated by David McWilliams (Economist), Peter Matthews TD (Banker and Fine Gael TD), Prof. Terrence McDonough (Economics Dept. NUIG), Karl Deeter (Irish Mortgage Brokers), Graham Barnes (IT Currency Consultant), Deirdre de Burca (Former Green Party Spokesperson on EU affairs) and Emer O’Siochru (Architect and Renewable Energy Developer)

Date:                Thurs & Friday September 22nd & 23rd
Registration:     1.00pm Thursday 22nd Sept.
Conference:     Thurs 2.00—5.30 p.m
Friday 10am – 4pm
Venue:              Mont Clare Hotel, Merrion Square, Dublin 2.
Conference Fee:  €80 full conference, €60 one day,
€250 Corporate Fee,
concessions for Feasta and IEN members.

Please submit enquiries to conference [AT] feasta.org. Advance booking is essential.

I put on my thinking caps last week and drafted a paper called ‘Designing a Debt Relief programme with minimal moral hazard to address the Irish household debt overhang‘.

We were every happy with the write up it got in the Sunday Independent via Carol Hunt.

There is far too much talk of ‘moral hazard’ in the public debate to date, instead we should be also considering ’separating equilibrium’ (which is kind of the opposite of moral hazard - it’s the ‘pain’ that comes with moral hazard ‘gain’).

To do this you have to create a programme which works within some of the parameters of the existing laws (new legislation must still take account of what exists before it), look at the operational aspects of the scheme (how it functions in real life), design a general algorithm of the process and most importantly have an ‘incentive alignment’ which means that neither party voluntarily makes an action to the intentional detriment of the other.

So I failed if you take every metric together, but what does come out of this is that you could have a somewhat prescriptive debt solution that works rapidly, uses established methods and that is fair to both bank and borrower.

The statement that we ‘can’t afford the cost’ is a legitimized fallacy, one that if you repeat it often enough becomes true. Contrary to that is the fact that loans that cannot be repaid will not be repaid - if you accept that then there is a cost, the question is whose lap does it land in? The banks via writedown/writeoff or the taxpayer via additional welfare costs?

An easier way to think about this is as follows: A cost is a cost, and the question is really about who bears it rather than whether it exists or not. This is just another example of the banking system hoping to offset their costs on other parties, it is the ultimate rent-seeking behaviour.

I am hopeful that a few people will read this and critique the heck out of it (please critique here or post a link to where we can find the critique), because this is HOW the subject advances, to date it has all been on subjective stances as to what is ‘right’ or ‘wrong’. On the cost front we used a simple comparative cost rather than a macro-economic one.

If nothing else, this paper will cure insomnia!

Our regular piece on The Morning Show with Sybil & Martin was about debt forgiveness this week, great conversation in an easy to interpret manner.

I had a wonderful debate today on Newstalk where we discussed the rental market, Threshold sent in their Chairperson Aideen Hayden. The debate was very informed, in particular Aideen was very sharp in the area of tenancy laws, I learned a lot during this interview.

Naturally there are always a few corrections - she corrected me twice; once on sub-letting and again on a statistic that I took from the PRTB annual report (going so far as to mention that she is on the board of the PRTB and that therefore I was wrong).

Alas, I have to offer a correction in return to a PRTB board member & chairperson of Threshold who is currently undergoing her PhD in Housing and who has a degree in Economics (all of these things were mentioned to me in backing up her argument [on and off air]); see the graph below - taken from page 33 of the PRTB 2009 annual report.

This is not advanced mathematics, just add up the Green and Blue parts of the chart and you get the 65% that I mentioned that I mentioned where part or all of the deposit was kept by the landlord. At the same time her take on the matter was that I was wrong/inaccurate and that in fact in over 70% of cases the deposit is refunded in full or in part.

This is merely taking your figures starting at different ends of the number line.

I did mention this after the show and she still insisted I was giving misleading information and that due to holding a degree in Economics that she didn’t need to converse on the topic any further. My impression of her is that I was both highly impressed with her encyclopaedic knowledge in her field of expertise but dismayed at the lack of engagement when challenged on simple numbers by a practitioner - because the point made was both fair and accurate depending on which side of the fence you read it from - I actually tried to raise this as we were leaving studio (about the blue part of the chart being a crossover in both stat’s) but it was not taken up.

The other correction was when I said that you can’t just sub-let a property, I write this condition is written into leases based upon my interpretation of the 2004 Act. Aideen said that this was not true that you could sublet if you wish. Which brings us to (2004 Act S16 sub section k)  Tenant may not assign or sub-let the tenancy without the written consent of the landlord (which consent the landlord may, in his or her discretion, withhold).

My interpretation was that this had to be written into the lease as a clause for them to be able to do it automatically [or they would need permission] - in this case (quoting law) it shows that you cannot just go ahead and do this without consent.

I have to admit, I don’t often walk away from such debates disappointed, in fact they are often a great education (even if it comes at the expense of being wrong a lot of the time!), but Aideen’s statements that my points are wrong/invalid simply do not hold when challenged, and as both a board member of the PRTB and Chairperson of Threshold I would have expected more.

We were delighted to help out again on The Morning Show on TV3 with Martin King & Aisling O’Loughlin who was sitting in for Sybil Mulcahy. We spoke about credit cards and then ran a live ‘twitter personal finance clinic’ afterwards.

David McWilliams hit an interesting point in today’s piece in the Independent about having ‘too much regulation’, and how it may repel new banks from coming here.

in late 2009 I was picked as part of a team that approached PostBank with a view to turning it into an SME business bank - our proposal never even made it as far as board meetings because they were determined to close down rather than continue, we found the whole process perverse at best.

Instead the same investor group will be setting up in the UK, meaning SME’s in Ireland lose out on funding.

It isn’t that new banks don’t want to come here, it is that they are routinely put off from doing so via the Central Bank and the way in which we grant banking licences in this country.

The other regulatory issue is Basel III.

Asking a bank during a time like this to hold more capital makes sense from a risk perspective, but from every other angle it is a noose.

Banks are being asked to deleverage (have fewer loans versus deposits), market forces are making them pay more for deposits than is healthy, they have huge tracker mortgage books that even when they perform create a loss and at the same time we want them to lend.

Simply put, these are not compatible objectives.

Banks HAVE to become zombies in order to continue because it is only with huge liquidity & capital injections at low prices that they could hope to work normally again - and we have already spent all of the money we have on saving them; so their alternative is to grind along trying to make whatever money they can and in a very very long time they will eventually be breaking even (think Japan)

That is the true tragedy of the crisis, if we had let Anglo close (I argued for this here) and only tried to save a few good banks (even though AIB is a banger it is still the owner of half of the payments system that the likes of EBS sit on top of) then we could have had a chance - it would have also required going right down the order of liabilities as follows:

Sharholders - wiped out
Preference Shares - wiped out
Mezz & SubOrd - wiped out
Senior bonds - turned into new equity
Depositors - saved (in order to maintain confidence)

Then we could have given 25bn in low cost money to the banks to make them healthy. Naturally hindsight is 20:20, we are never so prepared for anythin we are for yesterday!

But the new point is clear - regulation in itself is actually a risk, and a systemic one. Regulatory Risk will be a common word in banking vernacular of the future.

The entire justification of regulation and the bearing of its cost on the financial system (which ultimately gets built into consumer prices) is the avoidance of the systemic risk it is meant to mitigate. It didn’t and it won’t in the future so why is more of it now the solution?

Mainly because it sounds good…