Taxing Banks & Taxing Risk

In the first clip, James Galbraith (son of the famous JK), economics professor at University of Texas, discusses whether a new tax on big banks is justified. Ken Bentsen, of the Securities Industry & Financial Markets Association, and Mark Calabria, of the Cato Institute, share their insight as well.

In the second clip Mark Walsh, of ‘Left Jab,’ and Dan Mitchell, of the Cato Institute, discuss taxing banks based on their risk to the system.

Read More

Are you getting your full tax relief?

There was an article in one of Ireland’s national newspapers last week describing the major issues surrounding the rescinding and subsequent re instatement of mortgage Interest relief. For those who are uninformed about this subject, mortgage interest relief (or TRS) was suspended pending the requirement for every person that previously claimed relief to re-apply for it. This was not a move intended to deprive anyone of their entitlements, more a housekeeping exercise to make sure that things are as they should be.

Thousands of Irish home owners had their tax relief temporarily suspended so that a general process of reassessment could take place whereby people would ascertain that whatever they were receiving in tax relief was correct. The Government spends millions every year on the TRS scheme, and with the exchequer being frightfully strained like Mary Hearney doing a triathlon, it was a necessary to ensure that the recipients of tax relief at source were indeed fully entitled to it.

Read More

Short selling, what is it? Why would a person do it?

When you’re bullish (think prices will rise) on the market or a stock, you go long (buy and hold, one day sell). When you’re bearish (think prices will fall), you go short, (sell and hold, one day buy). People often think you can only ‘buy and sell’ shares, well, you can also ‘sell then buy’ and that basically describes what happens when you ‘short’ a stock, often people think ‘short selling’ means you don’t hold the stock for long, as in ‘I bought Lloyds at 65p and sold the next day for 70p’, in that case you just didn’t ‘go long’, trading rapidly is not what short selling is, or is about (I only say this because it’s a thing I have been asked a few times).

Today we will take a look at how ‘short selling’ works.

1. In order to ‘short’ a stock you sell it first then buy it later. You do this in the belief that prices will go down, you’re hoping to …

Read More

Rent to buy: The pitfalls in practice

Rent to buy is not a ‘new idea’, one of my mentors is a man who built over 10,000 homes in Dublin (he retired in the 70’s having started his business in the late 40’s), but in talking to him he spoke of almost exclusively selling houses in staged payments and renting them out to prospective buyers as a way of paying for the property.

The resurfacing of rent to buy is not evidence of the wheel being reinvented but purely of the prevailing economic environment, however, unlike the way it operated over thirty years ago, today renting to buy is having obligations stitched into the contract that may not be possible to meet in the future and therefore it leaves the renter/purchaser in some slight uncertainty.

One of the primary issues is that of ‘loan offers secured’. When you rent to buy you are essentially (in most cases) saying you will buy the property at a point in the future for the market value at the time of completion of …

Read More

Drop in Fixed Mortgage Rates likely

In watching the movements of the Euribor Yield Curve we saw that margins were likely to increase on fixed rates, however, over the month of April we are seeing the yield curve drop below levels seen at the start of the month and that will likely result in a repricing of debt.

What we are seeing is the increasingly bearing outlook feeding through to interbank rates with the expectation of the May cut showing a strong likelyhood of going too 1%, that is why the 1 month money has actually dropped below that mark when earlier in the month it was slightly above it.

The yield curve is generally feeding the market information about inflation and it would appear that after the May rate decrease that the medium term outlook is depressed. The lines hold a tight margin until the two year mark at which point the earlier curve trends higher and today’s keeps that c.20bip difference. Fixed rates don’t always change with rate drops because they are priced off of …

Read More

New world currency, Euro hegemony in the future?

A commentator talks about the euro, dismissing euroskeptics and euro bashers, arguing that it will be (perhaps) the new world currency? Could be possible, but first we have to work our way through the Eastern economy issues (in the West Ireland is the way down), but that is likely to happen, and the euro will survive and prosper. The ECB can be bashed for not acting quickly enough etc. but the reality is that we shouldn’t face the problems down the road that the US and UK will face, Euro bonds are not failing at least [yet]. A prominent economist I had lunch with said he felt our drop in GDP would be closer to 12% than 10%, the same guy told me last September that rates would be 1% by Summer 09′ and I laughed at him! Let’s hope get is fallable at least some of the time.

Read More

The Criteria Crunch

We have just been informed that one the lenders we deal with are only getting through applications received by the 4th of March, that is a near 20 day delay on new applications they are considering. Why the backlog? Has the market suddenly recovered? Are they being flooded?

No, rather it is a case that in banks nearly everybody has been enlisted to work in ‘collections’ and the staff were taken from every other department, in particular the ‘new business’ section. The bank we are talking about today merged their direct channel with brokerage so even going via a branch makes no difference, the whole company has only four working underwriters.

So inasmuch as the credit explosion saw too many resources being thrown at lending and the expansion of same, the crunch is doing the exact opposite by overshooting the mark in the reduction of resources. For a publicly quoted bank to be 20 days behind means that the market is facing yet another hurdle in reaching its rational level. Lending hasn’t frozen, people are …

Read More

Valuations in property are currently meaningless

Free markets, or indeed markets in general, have a tendency to set prices, not through control, not by one person holding up a placard and shouting from the rooftops, but rather through the process of prices reaching a point at where they occur, where demand and supply are reacting with each other.

So if you look for €3 million for a three bed semi in Donnycarney your property will not sell, no matter how much you want it to. At the same time, if you were to list a property there for €50,000 it would sell overnight, and both of these extremes demonstrate a pricing being totally out of balance with the market. The interesting point now though is this: The market itself doesn’t know what is happening, so valuations are currently meaningless. By that I mean the people who go out and value property are not able to make accurate assumptions about property prices in this market, we are seeing this daily, and then dealing with the end result which is …

Read More

House prices in the near term: Robert Schiller

Economist Robert Schiller of ‘Case Schiller’ report fame says that he believes the housing market will fall further, confidence is everything in the property market and he says that confidence is at a record low and that is one of the primary reasons for his feelings on future prices. This makes for some interesting viewing, his book ‘The subprime solution’ and another called ‘Irrational exuberance’ are both excellent reads if you want to get a view on the current situation from a man who saw this coming. A vital point he makes is that avoiding additional supply is part of the solution.

Read More