David McWilliams is probably one of Ireland’s best known and well loved columnists, he seems to ooze intelligence with smooth talking economic lingo and fast insights into what happened Ireland’s “Celtic Tiger”, a phrase which he himself developed to describe the roaring economy which lead to the advent of the breakfast roll, decentralisation, and buildings like the Convention Centre.
At the beginning of the month he wrote in the Times;
“The Irish crash of 2008 was not a surprise to anyone with their wits about them and a passing knowledge of economic history.... once the banking system ran out of Irish deposits and began to borrow abroad to finance the property mania at home, the collapse of the debt-fuelled economy was not a matter of if, but when. The banking crisis didn’t start with the bank run of 2008 but with the over-lending in the early- to mid-2000s.”
This is a fact everyone is now aware of, we know the Banks over lend, we know they didn’t have the capital reserves to survive the squeeze, we know we bailed them out, and we know all about negative equity traps now that we got burned by the Government nationalising the Banks debt.
What’s happened in the last few years is there has been a complete lack of supply of housing by the Government. Fine Gael keep telling us they are proponents of the ‘Free Market Economy’ and the market will provide the housing we need.
You could give an entire day challenging this lie as clearly demand is out stripping supply at present and the Government are holding back ways of increasing supply.
Secondly the lack of supply has driven prices back up if not above 2008 prices, this has resulted in the landlord classes who support Fine Gael recovering their equity. It also makes the market more attractive to foreign investors who are buying rental properties in bulk.
The worst part of this spin is not only are the Government manipulating the market with inaction but they have doubled up with interfering in the market by offering a Government Backed Mortgage called the Affordable Mortgage Scheme. Under the scheme a person can borrow up to €320,000 @2.00% if they’ve been turned down by their Bank.
Adding more money to the inflated market is literally adding fuel to the fire. It is wreck-less and dangerous and need I say, it is not the solution.
Further still anyone who accesses these loans means they’ve already been turned down by their Bank, they will be lending outside Central Bank guidelines, the definition of Sub Prime Lending without the Sub Prime rate. The fact that the person will be on a rate of 2.00% means they will find it very difficult to remortgage also and most likely be stuck in a negative equity trap come the next crash, and the next crash will be twice as hard and twice as long.
The low rate of 2.00% also has huge implications if the Government ever want to sell their new State Backed Mortgages to let’s say a real Bank that knows something about what they’re doing....I know hard to think of an example right!
But let us say the Government one day want to sell all the mortgages together in one bundled up loan book. Do you think any CEO in their right mind would buy a Sub Prime Book without the Sub Prime Lending rate, take on all the risk without the benefit of higher interest rates? There is zero chance folks. So one day, and this will happen, the Government will sell this mess to an investor, but they will sell it at a discount to make up for the risk of default and on top of that they will also guarantee the mortgages. This sounds too good to be true but in effect this is what happened in the States with the sale of CDO’s on Wall Street.
So if you’re still with me what’s happening here is that the Government are creating a Bubble by inflating the economy with easy money while holding back supply, but to ease pressure on over heating the Banks similar to what happened in the 00’s the Government are going to lend the money themselves and when the economy inevitably crashes in a few years time they won’t have to deal with bailing out the Banks or nationalising the debt because the debt will be national debt to begin with.
And who do you think will be left to pick up that bill?
“Banks go bad from the inside out and the easiest way to rob a bank is to run one.” David McWilliams
At the beginning of the month he wrote in the Times;
“The Irish crash of 2008 was not a surprise to anyone with their wits about them and a passing knowledge of economic history.... once the banking system ran out of Irish deposits and began to borrow abroad to finance the property mania at home, the collapse of the debt-fuelled economy was not a matter of if, but when. The banking crisis didn’t start with the bank run of 2008 but with the over-lending in the early- to mid-2000s.”
This is a fact everyone is now aware of, we know the Banks over lend, we know they didn’t have the capital reserves to survive the squeeze, we know we bailed them out, and we know all about negative equity traps now that we got burned by the Government nationalising the Banks debt.
What’s happened in the last few years is there has been a complete lack of supply of housing by the Government. Fine Gael keep telling us they are proponents of the ‘Free Market Economy’ and the market will provide the housing we need.
You could give an entire day challenging this lie as clearly demand is out stripping supply at present and the Government are holding back ways of increasing supply.
Secondly the lack of supply has driven prices back up if not above 2008 prices, this has resulted in the landlord classes who support Fine Gael recovering their equity. It also makes the market more attractive to foreign investors who are buying rental properties in bulk.
The worst part of this spin is not only are the Government manipulating the market with inaction but they have doubled up with interfering in the market by offering a Government Backed Mortgage called the Affordable Mortgage Scheme. Under the scheme a person can borrow up to €320,000 @2.00% if they’ve been turned down by their Bank.
Adding more money to the inflated market is literally adding fuel to the fire. It is wreck-less and dangerous and need I say, it is not the solution.
Further still anyone who accesses these loans means they’ve already been turned down by their Bank, they will be lending outside Central Bank guidelines, the definition of Sub Prime Lending without the Sub Prime rate. The fact that the person will be on a rate of 2.00% means they will find it very difficult to remortgage also and most likely be stuck in a negative equity trap come the next crash, and the next crash will be twice as hard and twice as long.
The low rate of 2.00% also has huge implications if the Government ever want to sell their new State Backed Mortgages to let’s say a real Bank that knows something about what they’re doing....I know hard to think of an example right!
But let us say the Government one day want to sell all the mortgages together in one bundled up loan book. Do you think any CEO in their right mind would buy a Sub Prime Book without the Sub Prime Lending rate, take on all the risk without the benefit of higher interest rates? There is zero chance folks. So one day, and this will happen, the Government will sell this mess to an investor, but they will sell it at a discount to make up for the risk of default and on top of that they will also guarantee the mortgages. This sounds too good to be true but in effect this is what happened in the States with the sale of CDO’s on Wall Street.
So if you’re still with me what’s happening here is that the Government are creating a Bubble by inflating the economy with easy money while holding back supply, but to ease pressure on over heating the Banks similar to what happened in the 00’s the Government are going to lend the money themselves and when the economy inevitably crashes in a few years time they won’t have to deal with bailing out the Banks or nationalising the debt because the debt will be national debt to begin with.
And who do you think will be left to pick up that bill?
“Banks go bad from the inside out and the easiest way to rob a bank is to run one.” David McWilliams
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