What next for Europe?

The Euro rose against the dollar as the Fed introduced quantitative easing, this will be furthered by the new TARP programme due to be released later today, Bank of England are also engaging in quantitative easing along with a near zero interest rate policy – one matched by both the USA and Japan.

So what will be the outcome for Europe? Essentially we will be forced to follow suit, rates will have to drop further and we will need to pursue in quantitative easing – via bond/paper purchases or otherwise. Why? Simply put, we cannot stand as an island in the global economy, we can’t stand as a continent when every other major economy is going to zero and going through what amounts to devaluation with increased money supply.

If the Euro rises too far against the Dollar or Sterling it will make exporting difficult (we’ll leave Ireland’s plight with Sterling zone exporters out of this …

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Banks: give you an umberella when its sunny and take it back when it rains

Samuel Clemens (aka Tom Sawyer) brought us the quote which is the title of this post, ‘banks give you an umbrella when its sunny out and take it back when it rains’, his simply worded expression held as true in Missouri of the late 1800’s as it does today.

Recently we had a client who is on an interest only mortgage, their circumstances have changed right when their interest only period was about to run out, naturally we suggested that they ask for a continuance of an interest only period, while this won’t work down the capital amount owed it will keep their cash flow alive and if you have to chose between owing more and being unable to pay then the former is preferable. Sitting in a pot might not sound great but it beats the raw fire.

The bank were happy to comply and they sent out a letter, it was at this …

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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 …

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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.

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Why wasting the talent of 400,000 people is a mistake

With unemployment expected to reach 400,000 it tells you one thing instantly: among the group you will have a cross sector encompassing every facet of society. Scientists, builders, finance workers, bus drivers, fast food employees et al will stand shoulder to shoulder in the dole queue, likely with little or no interaction because, quite frankly, unless you’ve signed on before then you know not the frustrating depression that comes with it.

So what could we do? Does it even make sense to allow such a waste of talent? If we have a state that pumping money into the system so that we can be saved from ourselves then should this extend into how we think about welfare? I would say the answer is yes.

There are many people who have lost jobs who probably didn’t love what they did to begin with, obviously they love it more than the dole but if this is the case then why not use this juncture to help them pursue something that …

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Forensic Underwriting, when is it 'too much'?

Lenders will underwrite loans. That is part of the process, it is a natural and normal occurrence in finance, to underwrite, to ensure that you are researching the proposed deal to the extent that you can be sure that you are not taking a pointless risk, but when is it ‘too much’?

Traditionally an employee would be asked to give several forms of documentation as evidence of their position so that they could be considered for a loan. Normally this would have been a straight forward process, and one that generally works.

However, as of late we are seeing ‘forensic underwriting’ becoming more prevalent. The degree to which a lender wants to delve into a persons situation is rising beyond the traditional norms and in some cases we believe it is going well beyond the call of duty.

Let’s be frank, we need banks, who else will lend money to a stranger to buy an asset? Without banks it would only occur between people who have a lot of money personally …

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Forensic Underwriting, when is it ‘too much’?

Lenders will underwrite loans. That is part of the process, it is a natural and normal occurrence in finance, to underwrite, to ensure that you are researching the proposed deal to the extent that you can be sure that you are not taking a pointless risk, but when is it ‘too much’?

Traditionally an employee would be asked to give several forms of documentation as evidence of their position so that they could be considered for a loan. Normally this would have been a straight forward process, and one that generally works.

However, as of late we are seeing ‘forensic underwriting’ becoming more prevalent. The degree to which a lender wants to delve into a persons situation is rising beyond the traditional norms and in some cases we believe it is going well beyond the call of duty.

Let’s be frank, we need banks, who else will lend money to a stranger to buy an asset? Without banks it would only occur between people who have a lot of money personally …

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Deflation, the low paid, and expansion of the tax base

Here are some statistics (taken from the SBP) showing that contrary to assertions that the ‘rich don’t pay enough tax’ that in fact they pay more than anybody else. Half of all tax income is paid by the top 6.5% of workers. So about 1/15th contribute 50%. One third of all tax collected comes from the top 2.5% of workers, thus 1/40th are paying 33%. It means that things such as the new 2% levy are merely punishing those who already contribute the most! I wrote about this before when talking about the Laffer Curve and how Ireland may be driving high earners out of its jurisdiction.

Sources have said that the Irish tax base is too dependent on a small number of people, so what would happen if we were to drive them out? The implications are severe.

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