New trends in underwriting and credit

It is 2009 and one of the things we need to look at (at least from the mortgage market perspective) is the availability of credit. Many associations such as ISME and politicians such as Joan Burton have voiced strong opinion on the need for credit to be extended to small businesses. The same credit contraction is happening in lending for property.

While our firm, and almost everybody involved in the mortgage market accept that we are not at market clearing levels, the unavailability of credit for those who do wish to buy and are capable repaying their loans is going to cause an unnecessary distortion which will drive prices down further than is rational. Without getting too deeply into the reason for the credit contraction/deleveraging process which we have covered many times here before, the point of interest is the new brand of underwriting we are likely to see.

In the past people within the financial industry were looked upon favourably, not only due to the fact that they normally represented a …

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Bond market news from the USA

Bond yields in the USA are at historically low yields, the ‘flight to quality’ we are seeing is that there is a wholesale flight from the private credit markets into the public based bond market, this is driving up the dollar as a result it will make exports more difficult, so it seems we’ll see what role the M3 supply increases by and more importantly where will inflation go as a result of this!

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Automakers bailout is a mistake

Banks, in my opinion, should not have been bailed out, they are a business like any other and when people talk about the ‘systemic risk’ a failure represents they should remember that up until recently banks historically did fail and the world didn’t end. During the Great Depression many banks failed, if depositors are protected – and the FDIC was created due to the lack of deposit protection- then that is about all one can reasonably hope for. To falsely prop up any business that has failed is generally a mistake and will only lead to further bailouts down the line . On the same note: IndyMac failed and the world didn’t end, Lehman Brothers failed, the world didn’t end, Fannie Mae and Freddie Mac ultimately failed and the world didn’t end, the idea is to sell enough fear to justify a bailout at any expense.

Automakers in the USA are a good …

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The Irish Tax System

Suppose that every day, ten men go out for pint and the bill for all of them comes to €100. If they split their bill the way we pay our taxes, it would go something like this:

The first man (the poorest) would pay nothing, [he’s unemployed] The next three would pay nothing  [they have jobs but don’t earn above the minimum threshold of c.€18,300 for tax.] The fifth man would pay €1. He does pay some tax when he passes the minimum threshold. The sixth would pay €3. (lower industrial wage earner) The seventh would pay €6. (average industrial wage earner c.€35,400) The eighth would pay €12. (above average industrial wage earner – more than c.€35,400) The ninth would pay €30. (earner who is well into the 41% tax band) The tenth man (the richest) would pay €48. (spends almost all of their tax paying time in the 41% tax band)

So they split the bill in this way, satisfied that they were all paying to their …

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How falling interest rates hurt banks during a liquidity crisis

The falling interest rates are heralded by consumers of Irish mortgage companies as a godsend – well, for the clients of the Irish banks who actually pass on the full rate cuts that is! However, at the same time it creates a rate compression which damages the bank and this is what we will consider in this article.

Banks have two sides to the operation roughly speaking, on one side there is the lending function which we are all aware of, mortgages, car loans, personal loans etc. on the other side is the deposit taking function which provides part of the money they lend out. There is of course the interbank market which supplements (and often surpasses) deposit funds for lending, but to keep things simple we will focus on a world where deposits roughly equal lending.

When

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Deflation or Inflation? What to expect in 2010

We have felt for quite some time that the risk of deflation will be met by monetary and fiscal stimulation to the point where it will give rise to several strong years of inflation. This extract is by James Grant of ‘Grants Interest Rate Observer‘. The question of ‘when’ the scales will tip in favour of inflation away from deflation is likely to be at some point in 2010.

This is why we are letting our clients know that we are watching the long term bond yields and when we see a divergence either in short to long or medium term to long we will be encouraging people to consider a longer term fixed rate. When the five year and one year cross that might be a good time, meanwhile, because more rate cuts are expected in 09′ it would not be the time yet for this kind of move.

We don’t have a crystal ball but we are keeping our eye on the bond market so that we can try to gauge …

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The weight of compliance

Compliance is set to become a core area in financial services because one result of the current financial crisis is that people will want to prevent another similar disaster from occurring and the method used to fight this will be (likely) regulation.

After the Great Depression there was a wave of compliance and regulatory measures brought in and it was during this time that the FDIC (Federal Deposit Insurance Corporation) was created, thus guaranteeing depositors funds were safe.

Basel II which was seen as the ‘new’ answer to how risk was mitigated will probably be replaced by some other form of guidance, we’ll call it Basel III for the sake of prediction, or Basel II 2.0 or whatever you like. The fact is that the burden of compliance is set to rise but if not done correctly it could actually happen with little or no benefit to clients or the broader economy.

If compliance becomes weighted heavily in a process rather than principles based approach then it could hamper innovation and the creation of …

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‘Thrift’ and why it will be the next fashionable trend

If the Celtic Tiger brought the fashion of consumption and SUV’s then certainly the polar opposite will come true in a downturn, and that will be the emergence of ‘Thrift’ as a way of doing things. Today we will look at some popular thrift websites, as well as how recycling will come into play in the way we do things for the coming years.

The older generation must be secretly laughing at us, they were frugal and appreciated the value of money, I have heard this said on radio, the television, and even on the streets. I suppose it never hit me too much personally because I’m not a flash type of guy, I own a car but I cycle to work (partly due to my feelings on environmental responsibility and party because its faster than sitting in traffic), I could afford nicer clothes but I don’t feel the need to be impressive in that department so my banged up civvies will suffice (as far as I’m concerned). …

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'Thrift' and why it will be the next fashionable trend

If the Celtic Tiger brought the fashion of consumption and SUV’s then certainly the polar opposite will come true in a downturn, and that will be the emergence of ‘Thrift’ as a way of doing things. Today we will look at some popular thrift websites, as well as how recycling will come into play in the way we do things for the coming years.

The older generation must be secretly laughing at us, they were frugal and appreciated the value of money, I have heard this said on radio, the television, and even on the streets. I suppose it never hit me too much personally because I’m not a flash type of guy, I own a car but I cycle to work (partly due to my feelings on environmental responsibility and party because its faster than sitting in traffic), I could afford nicer clothes but I don’t feel the need to be impressive in that department so my banged up civvies will suffice (as far as I’m concerned). …

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Mark to Market valuations.

This is an exerpt of Steve Forbes talking about mark to market valuations and some of his feelings on the markets as well as where we are set to go from here. He makes the argument that mark to market is a bad idea and that we should use traditional methods of cost & depreciation because the market skews valuations to strongly at a time like this.

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