AIB debt writedowns? What does it mean?

The Irish Times carried an article that stated that AIB would write down some mortgage debt. What does this mean though and who will be the beneficiary?

To begin with, the write-downs should be no surprise, that is what the provisions AIB have been putting aside for several years are for, in fact, to date it’s almost like they weren’t playing fairly because they were booking provisions but not actually using them for what they were for.

Secondly, there are 33,000 AIB mortgages with problems, of these about 10,000 are ‘unsustainable’ and for those mortgages there will be losses booked – that is the ‘writedowns’ they are talking about in the main, but on the end of whatever solution comes out of if the person may not be the owner of the home.

Several solutions are things like ‘split mortgages’ which require no writedown, others will be ‘mortgage to rent’ which will, because in that process the ownership will change and that means crystallizing the loss. How many of the 10,000 will come out …

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Debt relief without moral hazard.

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 …

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