How criticism is meant to sound

In Ireland we are often publicly coy about saying what we mean, in particular as a person departs or dies the tendency is to wax lyrical when during their time or tenure the opinion a person held wasn’t in line with the following statements.

In our firm we tell it like it is, we say exactly what we mean, no matter what, that is why when you look at the critiques in this article by Colm Kelpie about the departure of Central Bank Governor Patrick Honohan you see that we stick to our guns.

There is nothing fluffy in this…

Karl Deeter, Irish Mortgage Brokers: “Whatever people say about his performance as a governor, on the consumer protection side he oversaw some of the worst regulation in the modern western world, particularly the ban on repossessions, the unworkable code of conduct on mortgage arrears, and the fact that Ireland has a persistent arrears problem unlike any other developed country in the world. They show an unwillingness to deal with some of …

Read More

Only 2,800 first time buyers would have been affected…

Patrick Honohan told the Oireachtas committee a few days ago that “2,800 mortgages issued in 2013 would have been affected by the proposed new lending rules”.

There are a few reasons why this is bad use of data. For a start, in 2013 in gross numbers there were 14,984 mortgages drawn down. If you strip out re-mortgages, switchers, top ups and investment loans to get an idea of the actual ‘home purchase’ group it comes down to 12, 875 which means 22% of all loans.

Secondly, 2013 is a low level year in lending, the charts below show the draw-downs and the number of loans, they are at anaemic levels and don’t show any sign of a credit bubble in a country that is still rapidly deleveraging.

How can this be interpreted as a rising risk? The rising prices are a separate issue, but that some wave of credit is ready to swamp down on limited supply denies the fact that most of the market is in cash …

Read More

Property Crash, Where to Now? RTE 1

We were delighted to take part in the making of Richard Currans documentary ‘Property Crash, Where to Now?’. It is the follow up to 2006’s ‘Future Crash’ in which he predicted the demise of the Irish property market.

The full version is available on the RTE player, we just posted the clip that we took part in (showing off for our loved ones basically!)

Read More

Regulation failure: Independent brokers unable to be ‘independent’

We were thinking of changing the way that brokers operate, by saying to our clients ‘our service comes at a price, we’ll advise you on any lender in the market and be totally independent, if we place your loan with one that pays commission you can set that against your fee, and if not then pay the fee’, doing so in the belief that totally transparent and independent advice is a good thing, and something that everybody wants, the broker, the consumer and the Regulator.

Sadly this is not the case, instead the Regulator (soon due another name change to ‘Central Bank Financial Services Authority of Ireland’) is relying on the letter of the law in the Consumer Credit Act of 1995 to ensure that brokers can’t give best advice. This is an example of total regulatory failure.

The actual portion of the code is S. 116.1.b which states ‘A person shall not engage in the business of being a mortgage intermediary unless— ( a ) he is the holder of an authorisation (“a …

Read More

Central Bank Reform Bill 2010

We all want ‘tough regulation’, I would argue it doesn’t need to be tougher, rather it needs to be more pragmatic and enforced, and of those two criteria enforcement being the greater.

The Central Bank Reform Bill 2010 is going to give God powers to the Central Bank/Financial Services Authority of Ireland. Essentially it sets out a framework whereby they can call all of the shots, right down to how companies promote people.

In Part 3 s20(2) they can determine either by their interpretation of title or their interpretation of a persons role, whether they have any controlling function, and if so they require CB/FSAI authority in order to do their job, this is an additional layer of HR activity that will be injected into financial services companies.

Part 3 s35(i) states that a function requires pre-approval if the CB/FSAI deem it to be so on grounds of ‘size or complexity’, yet they don’t state any parameters for same, meaning a mom & pop shop could fall under these rigours based upon the …

Read More

Why banks support bangers

There have been headlines about the way that AIB underwrote certain loans to Liam Carroll, judge Peter Kelly is of the belief that the security may not be correct because AIB essentially gave him the money in early 2009 on the back of a personal guarantee and some other minor security.

Why would a bank do this? Especially as they were curtailing lending to every other sector of the market? Especially when they were being saved by the taxpayer and had just been bailed out? This isn’t to defend the banks, but to explain the reason why they acted in such a counter intuitive way, any right thinking person would be correct in assuming that they should have been trying to rein in developers, but that is the reverse of what they did, rather they extended more credit to the developer.

Explanation for this is simple, Carroll had brought AIB too far down the rabbit hole for them to turn around and pull the plug, a bank gets to a certain point with a …

Read More

Who is really to blame for the crisis?

Today, buried on the inner page of the Independent Business section there was an article stating that an Oireachtas committee found that the responsibility for the financial crisis in Ireland was largely down to regulators and ratings agencies (the same agencies who down-graded Irish debt in 09′).

Sadly, it didn’t make massive headlines, nor will it… If you could get a picture of Sean Fitz, or some scandal element to tag on then it would be everywhere, but the humble work of one of the few independent studies done on the matter, lacking sex-appeal & scandal will be widely ignored by the public, meaning everybody will still only see ‘banks’ as the source of the problem rather than as the conduit, when in fact the source of the problem was the gatekeeper, the person with their hand on the tap of the conduit, who allowed credit to flow too quickly for too long.

I had coffee with a well known economist last April and we spoke about this matter, he felt that it was …

Read More

Controlling the fiscal cost of banking crises

this is an extract taken from Patrick Honohan and Daniela Klingebiels paper on banking crises which was written in 2000, its evidence is based upon the study of c. 40 banking crises throughout the world in both developed and developing economies.

Banking crises hit the budget with outlays that must be absorbed by higher taxes or spending cuts, and they are also costly in terms of forgone economic output (eg: every € invested in a bailout doesn’t go into creating a factory or school or something with a similar societal benefit). Certain crisis management strategies appear to add greatly to fiscal costs

such as:

unlimited deposit guarantees open ended liquidity support repeated recapitalizations debtor bailouts regulatory forbearance

Ireland is currently engaging in several of these even though their findings favoured a strict rather than accommodating approach to crisis resolution. In fact, an austere solution will (according to the paper) mean that the cost is limited to 1% of GDP, little more than 1/10th of what was actually …

Read More