Advertisement

We need your help now

Support from readers like you keeps The Journal open.

You are visiting us because we have something you value. Independent, unbiased news that tells the truth. Advertising revenue goes some way to support our mission, but this year it has not been enough.

If you've seen value in our reporting, please contribute what you can, so we can continue to produce accurate and meaningful journalism. For everyone who needs it.

Laura Hutton/Photocall Ireland

Damien Kiberd Michael Noonan wants house prices to rise so we can emerge from this cul-de-sac

There’s a hole in the balance sheets, dear Liza.

JUST WHY DOES Finance Minister Michael Noonan think that it would be good if house prices continued to rise?

Cynics claim it’s a matter of simple arithmetic, fiscal and political.

Firstly, the higher the price of houses, the more he’ll collect in Local Property Tax. Secondly, the recent strong recovery in house prices has been confined largely to The Pale. It has not yet permeated the districts where Fine Gael returns the greatest number of Dáil deputies. There’s a way to go.

Noonan is a very intelligent man. It’s not conceivable that his thinking on house prices is driven by such venal concerns. No, what he’s really interested in is the ability of licensed banks and of households to repair their balance sheets and get the country back to normal trading again.

The problem is clear. Despite an injection of €64bn into the main Irish banks by the Exchequer, along with other substantial amounts of rescue finance from RBS, Lloyds and others in the UK, the task of normalising the banking system still eludes us.

The banks are going to need more capital. Noonan/the State owns two of the biggest banks.  A rise in house prices will reduce the potential bill by curbing the level of bad and doubtful debts.

Year-on-year changes in asking price, Q4, 2013. Click here for high-res image Click here for high-res image

Shortfall

An important book published in recent days – ‘Plan B’ by finance expert Cormac Lucey* – highlights some remarkable numbers.

Buried within the 2012 results from AIB, Bank of Ireland and PTSB are two sets of figures. These reveal, in each case, the book value of the assets as set out in the balance sheet of each bank (net of provisions) together with the banks’ own estimates of the ‘fair value’ of these same assets. The latter value is the best estimate of the commercial value of these loans if they were sold today to a third party.

The difference between the two values is €9bn for AIB, €12bn for Bank of Ireland and €7.5bn for PTSB. That’s a hole of almost €30bn – equivalent to about 15 per cent of the book.

Worse still, seven years into the recession the big banks are still losing vast amounts, before provisions for bad debts. That hole in the balance sheets is getting worse, not better.

Ryanair Dublin Office Campus opens. Mi It's the ecow-nomy, stupid. Michael Noonan is a man of intelligence who has more on his mind than whether rural voters will plump for Fine Gael, writes Damien Kiberd. Laura Hutton / Photocall Ireland Laura Hutton / Photocall Ireland / Photocall Ireland

Rotten at the core

At the heart of this problem is the impossibility of recovering a proportion of the money the banks have already lent in home mortgages and in working capital and property loans to SMEs.

Official Ireland routinely claims that 12 per cent of the mortgages held by owner occupiers are toxic. These are the home loans that are in arrears for more than 90 days. A more brutal analysis of the numbers would show that the true figure for toxic debt is much higher.

If you include loans in arrears for less than 90 days and buy-to-let loans (BTLs) then the number in arrears exceeds 145,000.

Furthermore, almost half of the loans made to SMEs are in some type of difficulty. This chronic incapacity to repay exists despite the fact that base rates in the Eurozone – currently 0.25% – are on the floor.

Bloodbath

The results of these realities are rapidly becoming quite ugly.

When the bosses of four big banks were brought before the Oireachtas Finance Committee this past week they revealed that their banks have taken or are threatening to take legal action against 31,000 mortgage holders.  A legal bloodbath is coming: many of those with loans in default will have to decide between losing their property altogether or selling at a loss into a somewhat improved market.

On Thursday, the Department of Finance issued some new numbers for end-February. Some 80,000 mortgages held by owner occupiers had been restructured, along with 21,500 BTLs. That is over 100,000 restructured mortgages.

The ‘restructuring’ is often quite crude. These borrowers have most frequently been put on ‘interest only’, had their arrears added to the capital balance outstanding or else been given longer repayment terms.  The rate at which problem loans are ‘restructured’ is accelerating.

Many of the restructured loans are not technically categorised as being ‘in arrears’. It’s not possible to be completely precise but if you eliminate double counting there are well in excess of 200,000 mortgages in trouble. And that’s more than a quarter of the mortgage book.

Balancing the books at home

Just as the big banks are struggling to restore order to their balance sheets, the average Irish family is doing exactly the same thing.

Consumer confidence has not recovered in the wake of the 2007 recession. The net wealth of Irish households has dropped by €200bn, mainly due to lower house prices, and they are being salted by super-taxation with marginal tax rates of 52 per cent and 55 per cent. Noonan knows that the economy contracted again last year instead of growing by the 3-4 per cent predicted when the austerity programme began .

The economy is showing all the signs of Japanese-style debt deflation: prolonged decline in output, falling prices, contracting credit. We are legally prevented from either devaluing our currency or arranging a Keynesian fiscal stimulus. The Germans will probable prevent the European Central Bank from engaging in Quantitative Easing. We are in a complete cul-de-sac.

TheJournal.ie TheJournal.ie

Pumping up house prices might be the only way to lift the mood among consumers, supporting more jobs in services. That may explain the official tolerance for greater house price inflation. If you feel you may inflate your way out of arrears, out of negative equity, you might start to spend again.

It’s a forlorn hope but it may be the only hope available. Absurd house prices-and the related credit bubble- got us into this problem: the paradox today is that higher house prices are now seen as the possible trigger for recovery.

 

2013 Image Selection.Banking Conferences in Ireland Michael Noonan pictured with the Vice-President of the ECB, Vitor Constancio, last year. Mark Stedman / Photocall Ireland Mark Stedman / Photocall Ireland / Photocall Ireland

Is this all a delusion?

Getting the economy to grow again seems hugely difficult, despite Friday’s optimistic noises from the ESRI.

There’s no wall of credit coming into the market. Anglo and Irish Nationwide have been closed down in stages, while Bank of Scotland and Danske Bank are running off their books. Despite the hype about the remaining banks being ‘open for business’ net lending for mortgages and SMEs is still dropping relentlessly by 5 per cent a year.

The banks themselves don’t have the staff with experience of how to assess business risk. The current workforce spent years shovelling cash into an overheated property sector followed by years acting as amateur receivers. There’s no conventional lending skill base left.

At national level we’ve pledged to continue the austerity programme until the end of 2015. After that we’ve agreed to cut the national debt to 60 per cent of GDP compared to 120 per cent today and to take the annual deficit down from 3 per cent of GDP to 0.5 per cent.  The national debt exceeds €200bn, the interest bill is heading for €11bn a year.

Even though deposit rates are tiny, households are still saving 10 per cent of net income each year. They are still scared and ‘de-leveraging’ like hell.

A lot of Irish assets are being sold to overseas buyers for big numbers. But that money will be used to pay off the debts of both NAMA and IBRC (in special liquidation), not to stimulate growth.

We’ve restored order to our budget and stemmed the cash bleed at the banks. But we have not created a functioning economy.

We may need something more dramatic to do just that. In his new book Cormac Lucey advocates an exit from the Euro followed by a likely devaluation along with a restructuring of the government debt (a coded expression meaning controlled default), though not necessarily in that order.

*’Plan B: How leaving the Euro can save Ireland’ by Cormac Lucey is published by Gill & Macmillan (€12.99).

Damien Kiberd: A new property bubble – but not as we know it>

Readers like you are keeping these stories free for everyone...
A mix of advertising and supporting contributions helps keep paywalls away from valuable information like this article. Over 5,000 readers like you have already stepped up and support us with a monthly payment or a once-off donation.

View 96 comments
Close
96 Comments
    Install the app to use these features.
    Mute David O Brien
    Favourite David O Brien
    Report
    Apr 13th 2014, 8:39 AM

    Thanks Damien for putting some perspective into the new Dublin house boom; a lot of commentators seem to think the Celtic tiger is back and we’re saved.

    374
    Install the app to use these features.
    Mute SeanieRyan
    Favourite SeanieRyan
    Report
    Apr 13th 2014, 10:38 AM

    House prices in Dublin are driven by a severe lack of supply in family homes.

    High house prices mean less jobs,less start up businesses.

    High house prices are economic cancer.

    159
    Install the app to use these features.
    Mute family guy
    Favourite family guy
    Report
    Apr 13th 2014, 11:12 AM

    Unless the government are going to subsidies building materials or lower wages and land prices, house prices have to rise as no builder is going to construct houses at present as there is no money in it. Prices have to rise to put the profit back for builders so they can start building again. I know people don’t want to hear builders or developers making money but if they can’t make money there will be no houses. Also government added new regulations recently which put construction rates up by 10 percent. They are not helping.

    50
    See 14 more replies ▾
    Install the app to use these features.
    Mute James Comiskey
    Favourite James Comiskey
    Report
    Apr 13th 2014, 11:39 AM

    would like to see the unemployment figures for just Dublin where we are experiencing the house price rises

    35
    Install the app to use these features.
    Mute The Truth Hurts
    Favourite The Truth Hurts
    Report
    Apr 13th 2014, 11:48 AM

    @family guy – take a look at the SCSI website … Rebuild costs wildly differ region by region with Dublin at the top. Don’t tell me that a developer couldn’t build houses for cheaper than the rebuild cost of a once off house (compared to the north west region for example; it being the cheapest) given economies of scale etc. Of course the developer has to buy land and pay levies to the council (a nonsense made up figure by councils to gouge money; they only end up shooting themselves in the foot) however there should be money to made. NAMA and developers are choosing to sit this one out.

    26
    Install the app to use these features.
    Mute family guy
    Favourite family guy
    Report
    Apr 13th 2014, 12:51 PM

    @ the truth hurts. I don’t get your point. The rebuild costs quoted on that site are mainly for insurance valuations and are drastically over valued. As you said if I was to buy a site at say 100k build a house at 2000 sq ft at say 80 euro a sq ft . Pay insurance, development charges, stamp duty, solicitors fees, auctioneer fees etc I’m at 300k before I add profit. Similar Houses in cork where I live are only making 250-300k. Your at a loss straight away. I know what I’m talking about as I’m in the trade. Built houses in the past and lost my shirt. You want profit of at least 20 percent before taking the risk.

    21
    Install the app to use these features.
    Mute Patrick Blood
    Favourite Patrick Blood
    Report
    Apr 13th 2014, 2:46 PM

    Any news about the Spatial Strategy?

    7
    Install the app to use these features.
    Mute Lex Luther
    Favourite Lex Luther
    Report
    Apr 13th 2014, 3:46 PM

    I have a very good credit rating with my bank and credit union. My bank is AIB. I’ve an outstanding loan of 12k from the credit union and I’m paying it @150 a week comfortably.

    As it’s been nearly 10 years since I took out a bank loan, I decided to test the waters 2 weeks ago and apply for e1500 over 1 year (that was the minimum I could apply for via AIB online). The money is for holiday money, but I probably won’t need it. The repayments would have been 146 a month. I could have made that very easily. However I decided to apply through an account I use simply for bill paying and no other reason. I don’t get paid into the account but I do lodge e200 a week, every week, into it for bills and rent. However it can clearly be seen on my statement that I transfer a few quid every week into my primary account and the bank can obviously see both accounts.

    I was shot down.

    I decided to contact the ICB (Irish Credit Bureau) for a copy of my credit report. They had no record of me. It turns out my credit union never registered me in the first place so my 20 year unblemished record (never missed a repayment and often paid off loans way ahead of time) has not been recorded.

    21
    Install the app to use these features.
    Mute family guy
    Favourite family guy
    Report
    Apr 13th 2014, 3:53 PM

    You could be damn sure they would have lodged a credit report if you missed payments. Get onto the credit union to lodge a Report ASAP

    16
    Install the app to use these features.
    Mute The Truth Hurts
    Favourite The Truth Hurts
    Report
    Apr 13th 2014, 4:07 PM

    Who in the name of god needs a 2k sq ft house? And as for 100k for a site well….

    8
    Install the app to use these features.
    Mute The Truth Hurts
    Favourite The Truth Hurts
    Report
    Apr 13th 2014, 4:11 PM

    Credit Unions do not have to register with the ICB. The question I would ask you Lex is where does your wages go?

    4
    Install the app to use these features.
    Mute Lex Luther
    Favourite Lex Luther
    Report
    Apr 13th 2014, 4:19 PM

    My Credit union is a member of the ICB, and when you sign the loan forms is written on the form that the info will be forwarded to the ICB. Once the CU are signed up to the ICB they are obliged to forward honest accurate info on repayments (or lack therof).

    13
    Install the app to use these features.
    Mute Thomas Dooly
    Favourite Thomas Dooly
    Report
    Apr 13th 2014, 6:44 PM

    Oh God, I feel so silly now , that I built a 2,500 sqft house and paid well over €100,000 for a site , that I could bore a well in !

    Must show my neighbour this thread as he has a 3,500 sqft property !

    7
    Install the app to use these features.
    Mute The Truth Hurts
    Favourite The Truth Hurts
    Report
    Apr 13th 2014, 7:07 PM

    If you want to go off and build a mansion off you go… But don’t expect to get back what you put into it. Most of us just need a semi d. That should be sufficient for an average sized family – parents & 2/3 kids.

    12
    Install the app to use these features.
    Mute family guy
    Favourite family guy
    Report
    Apr 13th 2014, 8:41 PM

    @the truth hurts. 2000sq ft is on the low side of average around here on detached houses on their own site in the country. Most are 2500sq ft. People want the space plus to make the most of the value of the site you have to build that. That’s the space that buyers expect. If you built less than 2000 sq ft they would complain it’s too small.

    7
    Install the app to use these features.
    Mute David McDonnell
    Favourite David McDonnell
    Report
    Apr 14th 2014, 9:34 AM

    Maybe it’s all these rural Ireland Fine Gael voters buying up the Dublin market. It wouldn’t be the first time.

    6
    Install the app to use these features.
    Mute Thomas Dooly
    Favourite Thomas Dooly
    Report
    Apr 14th 2014, 10:11 AM

    The Truth Hurts

    If I was building my home today as, in same size , same location , site price in today’s value , then I would get back what I would put into it and more ..

    Because I live in a greenbelt area and only people from the area can get planning , then the site is worth more than a normal site in the countryside , in fact , it’s probably worth 5 times more ..

    In saying all that , in hindsight , I would have built smaller , maybe , 1800 sqft ;)

    1
    Install the app to use these features.
    Mute Tom Kelly
    Favourite Tom Kelly
    Report
    Apr 13th 2014, 8:48 AM

    I would love to see my house price rise but only because I want to leave Ireland debt free. Don’t get me wrong I love Ireland but I feel there is no reward for the working man or woman anymore. I also feel that I’m working towards a life of poverty when I retire In 40 years and that ain’t right as I would have worked for about 50 years of my life.

    281
    Install the app to use these features.
    Mute Eilish Deegan
    Favourite Eilish Deegan
    Report
    Apr 13th 2014, 9:46 AM

    Absolutely right Tom ,I have worked for the past nearly 40 years and it has been a waste of time !I would have been better off on the dole ,council house ,and medical card ,when my kids could have got college grants ,Instead ,I worked (very hard) hense have back problems, have to pay for medication ,physio.etc,have my house ,that I paid a large deposit on and paid back for ,for years ,on the line ! I did all the (right) things we were advised to do ,Everything I have done for the past 40 years amounts to nothing!The biggest crime is that the people who could do something about it allow the people who have been pillaging us stay in power ,so yes u are right to go ,rather than stay for a big heap of nothingness .

    211
    Install the app to use these features.
    Mute Tony Duffy
    Favourite Tony Duffy
    Report
    Apr 14th 2014, 3:31 PM

    High taxes for the foreseeable future is all the Government has to offer. Noonan has not finished plundering our private pensions yet either ( He does not touch His own Public Sector Pension !) . If you add up ALL the direct and indirect taxes as well as the so called “Charges” which are taxes in everything but name you would find that up to 75 % of more of your Gross income goes to the bloated , overpaid , incompetent and corrupt Government/Senior Civil Service were have been burdened with since becoming a separate “State” in 1922. Just who’s “State” is it anyway ? It sure does not feel like “mine” or everybody’s – more like the Public Service State ?

    11
    Install the app to use these features.
    Mute Irish Revolution
    Favourite Irish Revolution
    Report
    Apr 13th 2014, 8:39 AM

    Spot on Damien. FG are the same as FF, inflating a property bubble is their only solution and policy.

    160
    Install the app to use these features.
    Mute Thomas Dooly
    Favourite Thomas Dooly
    Report
    Apr 13th 2014, 8:47 AM

    It’s the cash buyers / investors that are driving prices up ,and the poor auld first time buyers are being screwed by this .. It’s that simple . They just want to bleed you dry !

    140
    Install the app to use these features.
    Mute The Polar Bear
    Favourite The Polar Bear
    Report
    Apr 13th 2014, 8:49 AM

    Welcome to the capitalist market

    83
    Install the app to use these features.
    Mute Thomas O' Donnell
    Favourite Thomas O' Donnell
    Report
    Apr 13th 2014, 9:50 AM

    Except when banks go bust of course!

    74
    See 1 more reply ▾
    Install the app to use these features.
    Mute Sean O'Keeffe
    Favourite Sean O'Keeffe
    Report
    Apr 13th 2014, 10:11 AM

    “No politician ever gained power by not interfering in the market, and no special interest ever sponged off the rest of society by competing in the free market. That’s all the analysis you need to understand mercantilism.”

    31
    Install the app to use these features.
    Mute phunkyboy
    Favourite phunkyboy
    Report
    Apr 13th 2014, 8:41 AM

    Noonan is a very intelligent man lmao . I would like to see him in a private enterprise scenario to test that assertion. I assume that he would fail miserably without the facility to bully people. He’s a primary school teacher lmao.

    136
    Install the app to use these features.
    Mute 4u4a
    Favourite 4u4a
    Report
    Apr 13th 2014, 9:49 AM

    Dead right phunkyboy, If he’s that intelligent, you’d think he would have brought some new thinking to the table. Instead the only thing he can come up with is increasing property price’s. We’ve been here before.

    46
    Install the app to use these features.
    Mute My Views
    Favourite My Views
    Report
    Apr 13th 2014, 10:33 AM

    How is Michael Noonan increasing property prices?

    7
    See 4 more replies ▾
    Install the app to use these features.
    Mute Stephen Murphy
    Favourite Stephen Murphy
    Report
    Apr 13th 2014, 10:58 AM

    He is not, he is allowing it to happen and it’s his job to prevent these things from inflating too high!

    28
    Install the app to use these features.
    Mute GATHERINGYOURMONEY14
    Favourite GATHERINGYOURMONEY14
    Report
    Apr 13th 2014, 11:02 AM

    @ My Views.
    He’s the Irish minister for finance and he facilitates banks in falsely over-inflating the values of their mortgage books in every way he can.

    32
    Install the app to use these features.
    Mute My Views
    Favourite My Views
    Report
    Apr 13th 2014, 12:30 PM

    So the people buying houses and paying obscene money again, are fictional?

    What should noonan do to stop it?

    1
    Install the app to use these features.
    Mute My Views
    Favourite My Views
    Report
    Apr 13th 2014, 12:40 PM

    Why should it be stopped? If he stopped it you have people in negative equity shouting for his head?

    1
    Install the app to use these features.
    Mute Paul Roche
    Favourite Paul Roche
    Report
    Apr 13th 2014, 8:49 AM

    Yes.
    The effect of rising prices in this market is that once the cash buyers perceive that there is no longer any value in the market, the purchasing will stop. Prices will achieve a new equilibrium above the level which ordinary people can afford.
    So we have high taxation, property prices and rents, and a property owning elite that are market protected by government policy. It’s both a financial and social disaster, leaving us with a Japanese style economy for the next 20 years.

    124
    Install the app to use these features.
    Mute David Burke
    Favourite David Burke
    Report
    Apr 14th 2014, 12:22 PM

    Care to offer a solution? Or just bland complaints?

    1
    Install the app to use these features.
    Mute Paul Roche
    Favourite Paul Roche
    Report
    Apr 14th 2014, 4:36 PM

    David
    I’m happy to see that you have nothing to complain about, but many people in Ireland do. The only solution I can think of requires us to start with a Government that does not use taxpayers money to bail out failed enterprises, and one that has properly planned for when they do fail.
    My guess is the ECB can see what this Government doesn’t.

    9
    Install the app to use these features.
    Mute The Polar Bear
    Favourite The Polar Bear
    Report
    Apr 13th 2014, 8:48 AM

    Except he won’t collect any more in property tax, not straight away anyway. A lot could happen between now and end of 2016.

    103
    Install the app to use these features.
    Mute Pierce2020
    Favourite Pierce2020
    Report
    Apr 13th 2014, 8:46 AM

    He should go back to teaching seven year old’s how to do joined up writting

    94
    Install the app to use these features.
    Mute Niall H
    Favourite Niall H
    Report
    Apr 13th 2014, 9:37 AM

    Good grammar, well done, you didn’t make a fool of yourself at all there

    28
    Install the app to use these features.
    Mute Robert Zombies
    Favourite Robert Zombies
    Report
    Apr 13th 2014, 8:48 AM

    Good piece but please stop referring Noonan as an intelligent man. He’s far from intelligent.

    90
    Install the app to use these features.
    Mute The Polar Bear
    Favourite The Polar Bear
    Report
    Apr 13th 2014, 9:08 AM

    We are all intelligent people, Noonan is no more intelligent than the next person.

    37
    Install the app to use these features.
    Mute Stanley Groves
    Favourite Stanley Groves
    Report
    Apr 13th 2014, 8:50 AM

    And think, these people are running the country

    89
    Install the app to use these features.
    Mute Eamonn Connaghan
    Favourite Eamonn Connaghan
    Report
    Apr 13th 2014, 10:04 AM

    You spelt “ruining” wrong.

    78
    Install the app to use these features.
    Mute Dave O Halloran
    Favourite Dave O Halloran
    Report
    Apr 13th 2014, 9:34 AM

    What can stop another bubble ? , every auctioneer is just waiting for the good times again , every builder is waiting for the time he can watch people lining up to buy sub standard houses off plans again , even I can’t wait to get the ridiculous price I paid for my house back , difference with me is though first moment I can off load my mortgage I’ll be out of this country faster than rats off sinking ship . This country is screwed if idiots can see this cycle coming , comment all the way through it and then blame someone else for the damage afterwards .

    85
    Install the app to use these features.
    Mute me so harney
    Favourite me so harney
    Report
    Apr 13th 2014, 8:57 AM

    That’s a good and informative piece, thank Damien. The arrears problem is, without doubt, much bigger than the official figures suggest.

    With looming public target deadlines, within the next few months, banks will start moving against borrows who may have very low or no arrears. Many will probably be incentivised to hand back the keys rather than slug it out in the courts.

    The operating profits of the main baja ate also far too low to be attractive for shareholders so lending needs to begin again. Of course, with up to 200,000 mortgages in trouble and, assuming that 50% are joint mortgages, this means 300,000 blacklisted borrowers. To this, you add the struggling SME’s and others who maybe only are struggling with unsecured debt.

    Chances are, there are 400,000 to 500,000 that lenders will not consider for loans. This out of a working population of 1.9m. Without some method of drawing a line in the sand, the figures do not support a functioning banking sector – we’ll not in the traditional guise anyway.

    85
    Install the app to use these features.
    Mute me so harney
    Favourite me so harney
    Report
    Apr 13th 2014, 9:05 AM

    ‘baja ate’ – seriously Harney -WTF?

    *banks are – ‘operating profits at the main banks are …’

    The fingers you have used to type this comment are too fat, please try again …

    58
    Install the app to use these features.
    Mute Noel Flannery
    Favourite Noel Flannery
    Report
    Apr 13th 2014, 8:42 AM

    Great – more expensive housing for people who can’t afford to pay or maintain the homes they already have not to mention those trying to get on the ladder..
    Good for revenue and a softening for the greedy landlords who over extended..

    76
    Install the app to use these features.
    Mute Tracey Nally
    Favourite Tracey Nally
    Report
    Apr 13th 2014, 9:27 AM

    Leaving the Euro is the only solution if Ireland is to survive as an entity. Otherwise we will always remain a barren outpost whose multinationals will only remain for as long as our labour remains cheap relative to the rest of the world. Germany has benefited hugely from the euro cheapening the exports from its power house economy and its own fall out from reunification. Effectively it transferred the cost of it to the rest of Europe.

    56
    Install the app to use these features.
    Mute Rory J Leonard
    Favourite Rory J Leonard
    Report
    Apr 13th 2014, 9:07 AM

    Ireland’s Government needs to up the ante with their German Overlords: Allow ECB to introduce QE stimulus or Ireland exits the Euro. Plain and simple.

    Otherwise, outside of main cities, Ireland becomes an economic wasteland and our population depletes by tens of thousands more over next decade.

    Cormac Lucey’s Plan B might be only viable option if Germans hold the line regarding QE.

    55
    Install the app to use these features.
    Mute Peter McGlynn
    Favourite Peter McGlynn
    Report
    Apr 13th 2014, 9:05 AM

    Noonan might be intelligent but outside investors are not stupid – they’ll recognise the bubble for what it is. So, is he really that smart?

    53
    Install the app to use these features.
    Mute Sean O'Keeffe
    Favourite Sean O'Keeffe
    Report
    Apr 13th 2014, 9:44 AM

    Once you understand that Noonan’s primary objective is reelection it makes sense.
    This government has indulged in bubble economics for the purpose of creating the illusion of a recovery. When the wheels come off they will blame external factors such as consumer sentiment or the weak global recovery.
    Lucey is correct about leaving the Euro. The ECB will never enact monetary policies that benefit Ireland unless they happen to coincide with German interests.

    59
    Install the app to use these features.
    Mute Stephen Murphy
    Favourite Stephen Murphy
    Report
    Apr 13th 2014, 10:55 AM

    Sean, the dinosaurs in government right now. They will be retiring, they are doing the ground work and we are doing the heavy lifting. They have their pensions sorted, they won’t care If not re-elected and we’ll still be here doing nothing about it!

    31
    Install the app to use these features.
    Mute Niall H
    Favourite Niall H
    Report
    Apr 13th 2014, 9:39 AM

    Nothing will change with regard to economic growth in this country until either the euro collapses or we decide to leave the euro.

    48
    Install the app to use these features.
    Mute Mark Fitzmaurice
    Favourite Mark Fitzmaurice
    Report
    Apr 13th 2014, 9:55 AM

    So depressing. I really want to believe we’ve turned a corner in the economy but I know deep down its a sham. Reading pieces like this highlights all the uncomfortable truths. Leaving the euro might well be the most viable solution but the pain involved for everyone would be enormous. Might wake the Germans up though.

    41
    Install the app to use these features.
    Mute The Polar Bear
    Favourite The Polar Bear
    Report
    Apr 13th 2014, 11:02 AM

    Based on one article you read?

    3
    Install the app to use these features.
    Mute Eilish Deegan
    Favourite Eilish Deegan
    Report
    Apr 13th 2014, 9:56 AM

    According to B.O.I. a young couple (bith working)trying to buy a house ,have to have saved the deposit ie 10% with them for over at least a period of 3years, Can’t see any rush on sales with them !!

    39
    Install the app to use these features.
    Mute Alan Ryan
    Favourite Alan Ryan
    Report
    Apr 13th 2014, 10:33 AM

    Three years! That’s nearly half a recession.

    24
    Install the app to use these features.
    Mute Sean Mckevitt
    Favourite Sean Mckevitt
    Report
    Apr 13th 2014, 10:28 AM

    FGer’s can’t even offer a counter argument to the Article……..hence they resort to red thumbing all comments .

    the article is as real as it gets ……..except the bit about noonan being very intelligent , his policy on this housing issue is straight outta Bertie’s arse pocket.

    34
    Install the app to use these features.
    Mute Michael Fehily
    Favourite Michael Fehily
    Report
    Apr 13th 2014, 10:38 AM

    Sean the FGers are narrow minded and extremely parochial ( rural based and anti Dublin ). However I think we have to admit that Noonan is quiet bright , despite being an FG er …

    7
    Install the app to use these features.
    Mute Paul Roche
    Favourite Paul Roche
    Report
    Apr 13th 2014, 8:14 PM

    If Noonan was bright we would have seen a seismic shift. We have not and we will not, at least not one in out favour… He’s a schoolteacher negotiating with bankers.
    Poker analogy – if you look round the table and can’t spot the sucker, it’s you.

    13
    See 1 more reply ▾
    Install the app to use these features.
    Mute Tony Duffy
    Favourite Tony Duffy
    Report
    Apr 14th 2014, 11:12 PM

    Paul – I agree 100% . Himself (Noonan) and Kenny are ex primary school Teachers – trained to deal with kiddies in the classrooom ! The calibre and qualifications of our top Politicians and Mandarins is abysmal compared to the heavy – weights that Germany , France , UK etc put out there to represent their peoples vital interests – all our Ministers and Mandarins are good at is putting out the begging bowl and then looking for a “Big Gig” when they “retire” ie lose the next election ! Noonan is totally outclassed as was Lenihan ! That’s a big part of why we got stuffed with a 64 Billion “Odious debt” representing 42% of total EU monies used to bail out the Banks and save the Euro. The other part is the ingrained Catholic guilt we feel and admit to when anything goes wrong and we are blamed for it !

    4
    Install the app to use these features.
    Mute One-Off Ireland
    Favourite One-Off Ireland
    Report
    Apr 13th 2014, 10:33 AM

    Once again the narrative is that the exchange value of housing is more important that the use value. Sad… and around and around we go..

    26
    Install the app to use these features.
    Mute Garry Coll
    Favourite Garry Coll
    Report
    Apr 13th 2014, 11:50 AM

    I think the most important fact contained in this article is that this banking crisis is now seven years old and that the banks that remain have lied repeatedly over those seven years as to the true extent of their problems.
    If Mr Kiberd is correct in his statement that they have understated their exposure to the tune of a further €25 billion then Michael Schumacher seems to have a better chance of a future than these zombies.
    What are the options?
    Those being suggested involve exiting the Euro and perhaps form some alternative link with sterling seem to be the most popular.
    But there is still the elephant in the room which are the banks themselves.
    That would seem to be the real reason Noonan puts such emphasis on the rise in house prices, it allows him to pretend that the banks problems are fixable, when the experience of seven years of Banksterity, lies and deceit proves they can’t.
    It allows him to do nothing which is his speciality.
    He is a perennial loser who needs to be replaced so that someone with a bit of mettle can act today and put us in a position when Mr Kiberd won’t be repeating this article again seven years down the road.

    23
    Install the app to use these features.
    Mute Paul Roche
    Favourite Paul Roche
    Report
    Apr 13th 2014, 1:04 PM

    Remarking on Schumacher is in bad taste. Thankfully, the most recent news I that he is showing signs of recovery. I hope it is a full one.

    10
    Install the app to use these features.
    Mute Paul Roche
    Favourite Paul Roche
    Report
    Apr 13th 2014, 1:13 PM

    Apart from that,
    I agree with much of what you have said. If the banks are insolvent to the tune of €25bn then they are bust. Insolvent banks won’t fit in with the new ECB grand design. Insolvent Irish banks won’t damage the Euro and it’s doubtful that any bond holders exist that were not fully aware of the risks in holding Irish banking bonds.
    If this Government has no strategy for a banking collapse, we’re screwed. But I suspect Honohan has a plan.
    My belief is that Prom Night was the actual event that sank this Country.

    10
    Install the app to use these features.
    Mute Taramariebee
    Favourite Taramariebee
    Report
    Apr 13th 2014, 11:56 AM

    I have a friend working in Federal Reserve we were chatting about Ireland he was shocked the foreclosures had not started they are the problem never mind the banks what about all the struggling familes property owners who will end up in the streets dark days coming with the mortgage crisis dark dark days ya right the property values are going up when over 200,000 are in distress the market is going to double dip lets start being honest its only the estate agents and the media who are putting prices up they will keep shouting the same tripe they did in the celtic tiger

    23
    Install the app to use these features.
    Mute Coddler O Toole
    Favourite Coddler O Toole
    Report
    Apr 13th 2014, 10:37 AM

    It’s really only the Eurozone countries that are required to borrow their own currency in the market at an interest rate determined by the market. Fiat currency issuing nations like the U.S and U.K do not need to obtain their own currency in the market to finance a budget deficit for example. When they do choose to issue government bonds the primary objective is to implement monetary policy, not as a necessity to raise revenue. In addition, when those countries do ‘borrow’ in the market, they effectively decide what the yield/interest will be unlike the Eurozone nations subject to the tender mercy of the speculators.
    If they wished, the Federal Reserve and the Bank of England could simply create as much money as their host nations require by pressing keys on their central bank computer. In practice, they are a little more discrete in their money creation. The usual mechanism is that the government will issue new bonds and ‘sell’ them to the commercial banks etc. A government selling its bonds reduces the total money supply, and so tends to increase the market interest rate, as the central bank reserves (base money) held by the commercial banks are exchanged in return for the government bonds.
    In the reverse transaction, the central banks ‘buy’ the previously issued government bonds in return for central bank reserves in an asset swap. This has the effect of increasing the money supply and so reducing the interest rate to try and stimulate economic activity as has been seen in the massive Quantitative Easing programs of the past few years.
    The central bank reserves are created electronically at will on a keyboard by the central bank as necessary to maintain liquidity in the interbank market. In this way a sovereign country can never really default on its own currency denominated debts as the central bank can always ‘buy’ back that debt with newly created central bank reserves which every commercial bank requires to function.
    In contrast, the Euro single currency was deliberately designed to allow speculative financial capitalism to profit massively from member state sovereign debt as monetary policy is now in the hands of the ECB who impose destructive neo liberal economics on the citizens with the assistance of member state puppet governments including our own FG/Labour quislings.
    However there is an option open to Ireland even under this neo liberal straitjacket. In the short term, as part of the Euro, my own proposal (not AAA policy) would be that Ireland borrow directly from the commercial banks to finance any budget deficit and implement a substantial stimulus program. The commercial banks create most of the new money in circulation today when they extend credit. In issuing credit, banks simultaneously create brand new electronic deposits in our bank accounts. The central banks create around 3% of the total volume of money in circulation in the real economy, that is the physical notes and coins. (They also create central bank reserves which are not in circulation).The remaining 97% approximately of money in circulation is created by the commercial banks when they issue credit. A banking licence is literally a license to create money.
    This capability of the commercial banks to create new fiat currency money by just pressing keys on a computer can be harnessed by Ireland if we chose to do so. Governments borrowing directly from the commercial banks is not prohibited under the current treaties of the EU. In addition, the banks should value this approach as loans to governments would be classified as the highest class of risk weighted asset under Basel 3 and so would help the banks meet higher capital adequacy ratios.
    The credit to the Irish state would take the form of long term loan contracts to be repaid over period of say 30 years. The terms and interest rates payable would be very favourable they would be ‘negotiated’ with the almost entirely state owned but nominally still private banks like AIB and PTSB and so much cheaper than the yield demanded by the sovereign bond markets.
    In the medium to long term, If Europe continues down the destructive neo liberal path as seems likely, Ireland may have no choice but to exit the Euro at which point the commercial banks can be nationalized and the government loans can be “restructured” i.e. written off.

    22
    Install the app to use these features.
    Mute Michael Fehily
    Favourite Michael Fehily
    Report
    Apr 13th 2014, 10:58 AM

    Coddler are our main Banks not already Nationalised. ? . Interesting theory that that if we borrow from our own banks we could write off our Debt by Nationalising banks. However , in the event that we did that , what state would the “nationalised” banks be in if we simply defaulted on loans of almost €67.5 billion . These banks would surely have had to borrow this €67.5 Bln from other sources leaving them having to default on their borrowings . The “key board” theory , or money creation theory , would work on a monopoly board where the money doesn’t actually exist . However , the newly “created ” money would actually exist and would be needed to pay civil servants and other state expenses in real money . Therefore that “created ” money would become a “real” debt and not just a paper debt . That debt , without the assistance of a legislative ” human ” influence would surely leave us , the people , totally in the hands of the most ruthless gangsters in the world ( apart from solicitors ) , ie; the banks. At least in the current environment we have a political input to process of paying back debts which is creating some protection for the citizens. I think if we were totally at the mercy of banks we would be in worse trouble than we are now .

    1
    Install the app to use these features.
    Mute Coddler O Toole
    Favourite Coddler O Toole
    Report
    Apr 13th 2014, 11:54 AM

    Michael,

    We’ve nationalized the debts of the banks but not the banks themselves. We’re still maintaining the illusion that the commercial banks are viable when they clearly are not as the article outlines.

    We need to understand that modern fiat currency electronic money is created at will on a keyboard.
    When a loan is repaid, the money which was initially created when the loan was issued is being extinguished/uncreated.
    A government writing off its debt to a nationalized bank would in effect be refusing to un-create the Euros which were initially created when it borrowed the money. The money does not have to be replaced from anywhere as it was created from nothing in the first place. In reality we would be telling the ECB to take a hike as we exited the Euro.

    Here is a series of 4 video lectures from Professor Mary Mellor (Northumbria University) which clearly explains the nature of modern money.
    https://www.positivemoney.org/2012/12/understanding-money-prof-mary-mellor-videos/

    13
    See 6 more replies ▾
    Install the app to use these features.
    Mute The Truth Hurts
    Favourite The Truth Hurts
    Report
    Apr 13th 2014, 12:04 PM

    All of the above requires exports to rise ab nausium. Interesting how that would work if we were out of the euro on our own. I genuinely think we need to take on the currency of our nearest trading partner… And create a ‘British & Irish’ trading bloc… Ireland on its own is far too small to have any power within international circles. The UK is already talking about leaving the euro… We should too but only if we can link up with the UK. The goodwill is there.

    11
    Install the app to use these features.
    Mute Eric Davies
    Favourite Eric Davies
    Report
    Apr 13th 2014, 12:55 PM

    @ ‘the truth hurts’ you mean the uk is talking about leaving the European union, the uk does not use the euro as its currency but I agree with you about starting and british/irish trading block, just so long as it’s not called anglo irish!

    7
    Install the app to use these features.
    Mute The Truth Hurts
    Favourite The Truth Hurts
    Report
    Apr 13th 2014, 1:41 PM

    Yes, I meant the Euro being Eurozone not the currency.

    3
    Install the app to use these features.
    Mute Coddler O Toole
    Favourite Coddler O Toole
    Report
    Apr 13th 2014, 8:48 PM

    Irelands exports really have nothing to do with Ireland borrowing directly from our domestic banks. Neither should we be handing control of our currency to the U.K who along with the U.S have spearheaded the deluded neo liberal economic model which has wreaked havoc on our society since the 1980s.

    4
    Install the app to use these features.
    Mute Christopher Gardiner
    Favourite Christopher Gardiner
    Report
    Apr 14th 2014, 9:37 AM

    Coddler good luck trying to tell that argument at the gate on the way into the polling booth. I’m sure 1 per cent of the population will have grasped it all. If people like you who seem to understand all this cannot break this mumbo jumbo down into simpler examples then its pointless because the ordinary man on the street would never understand that. And why should he. Its all financial gobbledegook.

    1
    Install the app to use these features.
    Mute Coddler O Toole
    Favourite Coddler O Toole
    Report
    Apr 14th 2014, 11:49 AM

    It’s not that complex Christopher. Most countries have the power to create money from nothing electronically on a computer in their central banks. The commercial banks also create money from nothing when they issue loans. The Eurozone countries have forfeited the power to create money to the ECB. However the commercial banks including our own almost entirely state owned banks can create money in response to loan requests. Therefore Ireland can borrow directly from AIB and PTSB who can create as many Euros as the country wishes to borrow in order to fund a massive stimulus program for example.
    It is no accident that the majority of the general population have no real understanding of where money originates from. This is incredible when you consider the central role that money plays in our lives. The vested interests want you believe that monetary and banking systems are beyond your comprehension. They are not. The majority of people will understand the monetary & economic concepts that we’re discussing when they are clearly presented without the jargon and propaganda that is used by the vested financial and political insiders to exclude people from the debate on the future of their own society.
    Mary Mellor explains the topic much better than I at the link above.
    Even the mainstream media is belatedly beginning to tackle the topic as per the 2 articles below.

    http://www.theguardian.com/commentisfree/2014/mar/18/truth-money-iou-bank-of-england-austerity

    http://www.independent.ie/business/personal-finance/banks-dont-work-the-way-you-think-but-they-should-30150400.html

    1
    Install the app to use these features.
    Mute Tony Monks
    Favourite Tony Monks
    Report
    Apr 13th 2014, 11:53 AM

    If the base eurozone lending rate is 0.25% why is there €11 billion interest being paid annually on €200billion debt? Should it not be €0.5billion interest? Who is making the profit from our austerity?

    20
    Install the app to use these features.
    Mute Patrick Blood
    Favourite Patrick Blood
    Report
    Apr 13th 2014, 2:36 PM

    In part – the Irish Central Bank.

    10
    Install the app to use these features.
    Mute Patrick Blood
    Favourite Patrick Blood
    Report
    Apr 13th 2014, 2:18 PM

    Fantasy Island’ economics………every time I hear Noonan’s name, since the Prom Note deal. Magic Beans, Pot’s of Gold at the end of the Rainbow…………all predicated on income from Property & Water Charge’s and a muted EU/IMF.

    Pay a Property Charge to replace Gov funding to Local Authorities……..who’s function’s are being reduced Eg. No new Social Housing (which consequently is a cause for the ‘perceived’ new property bubble) closures of certain Town Council’s around the Country and the break up of the water treatment workers! Of course all this surplus money in the coffer’s will act as a ‘second bailout’, that he decided we didn’t want & take the pressure off demanding tough budget measures aligned to the Public Service.

    17
    Install the app to use these features.
    Mute Patrick Blood
    Favourite Patrick Blood
    Report
    Apr 13th 2014, 3:54 PM

    The picture say’s it all……. “It’s the ecow-nomy, stupid”! Like his Policies…….on closer inspection it’s actually (a) Bull.

    13
    Install the app to use these features.
    Mute Michael Fehily
    Favourite Michael Fehily
    Report
    Apr 13th 2014, 9:29 AM

    Interesting Comment that Noonan is intelligent and not interested in collecting rural votes. I totally agree, Michael Noonan is clearly a very bright man. It appears that he is finishing out his political career and wants to go out on high note. Hopefully ( for all our sakes ) he will. A pity his FG colleagues don’t have the same attributes . A pity also his FG colleagues are purely focused on rural votes , at any cost.

    16
    Install the app to use these features.
    Mute Colm McDonagh
    Favourite Colm McDonagh
    Report
    Apr 13th 2014, 8:55 AM

    That’s seven year olds Pierce.

    16
    Install the app to use these features.
    Mute Philip Cooper
    Favourite Philip Cooper
    Report
    Apr 13th 2014, 9:23 AM

    All I know is people are spending money again.

    They had stopped and now they’re spending again.

    14
    Install the app to use these features.
    Mute Liam
    Favourite Liam
    Report
    Apr 13th 2014, 11:06 AM

    People are spending again building work has restarted in areas around the country maybe in isolated pockets so far but its definitely picking up – i was asked just on friday to price up a house where the owner fancied changing all her sockets from plastic to polished chrome – thats not a lie and not something she needed to do the quote from the suppliers alone was over €750 and she is going to get it done they were ordered yesterday – first time buyers are also getting mortgages too , my partner and i managed to secure one just before christmas and a colleague i work with also managed to get one last week – not massive mortgages i must add but banks are lending where they see value
    I think people are so used to things being shit they are failing to see signs of growth and its signs we need to get people that possibly can afford to spend a little to do so

    14
    Install the app to use these features.
    Mute Noel Flannery
    Favourite Noel Flannery
    Report
    Apr 13th 2014, 11:45 AM

    Not in the home services sector, pubs and restaurants maybe but not on maintenance

    6
    See 3 more replies ▾
    Install the app to use these features.
    Mute Liam
    Favourite Liam
    Report
    Apr 13th 2014, 12:25 PM

    Yes but as one area improves so will others

    5
    Install the app to use these features.
    Mute Liam
    Favourite Liam
    Report
    Apr 13th 2014, 12:43 PM

    Also noel its completely dependant on the area of the country you are in i was working in cork there for a few weeks and its slow to see signs of improvement so far with lots of people saying work was scarce – compare that with meath cavan area and there is a big difference my old employer cant get staff a lot of electricians have left the country and those that are left are very busy some now with at least 1 months work ahead of them – my uncle whos a plumber is the same he is turning down work as he cant keep up with demand

    4
    Install the app to use these features.
    Mute James Halligan
    Favourite James Halligan
    Report
    May 15th 2014, 8:45 PM

    Some people are spending ie like some people have spare or had –with water charges coming into play next year and extra taxes MOST people do not I repeat do not have –EXTRA MONEY .In fact most have a lot less .

    1
    Install the app to use these features.
    Mute FlopFlipU
    Favourite FlopFlipU
    Report
    Apr 13th 2014, 10:23 AM

    Re-connect with sterling

    13
    Install the app to use these features.
    Mute hsianloon
    Favourite hsianloon
    Report
    Apr 13th 2014, 11:47 AM

    i suppose he could raise the price of houses, repossess it from the owners who cant afford the new mortgages which are ”subject to terms and conditions and holds right to change without prior notice”, sell them to private homeowners who will rent them out at exorbitant prices, while the old owners have to swallow the bitter pill of renting houses they previously owned.

    eventually people leave, and we are back to ancient europe, the landowners and the serfs. Oh wait, we were already there a long time ago…the celtic tiger became the celtic bitch…

    11
    Install the app to use these features.
    Mute Taxi Bill
    Favourite Taxi Bill
    Report
    Apr 13th 2014, 1:45 PM

    working people are being bled dry with taxes and we know why AND its not only to pay Noonan and co + banks etc, they just rake it in and it goes straight out, you can all fill in where so much of it goes!!!!!!

    9
    Install the app to use these features.
    Mute Michael Connors
    Favourite Michael Connors
    Report
    Apr 13th 2014, 11:11 AM

    Property bubble my arse. Property prices in Dublin are lower than in any city in Western Europe which is half its size. There are a handful of properties on the market in Dublin and the banks are not lending. If that is bubble conditions I would love to see a normally functioning property market.

    Maybe we should worry about the potential tech bubble, rather than been so focused on property all the time.

    8
    Install the app to use these features.
    Mute Angela Clancy
    Favourite Angela Clancy
    Report
    Apr 13th 2014, 11:42 AM

    The lady with the sockets….she’s read the newspaper, seen the news, and believes the spiel of recovery. The money she has sat on (and plenty of people have had money, and retained good incomes) during the recession, she now feels more comfortable to spend. I’d agree that in certain sectors and areas consumer spending is up; but it’s as much a result of the media spin as anything else.

    2
    Install the app to use these features.
    Mute Liam
    Favourite Liam
    Report
    Apr 13th 2014, 3:17 PM

    Yes but whether its spin or not if it gets money moving from those that can afford to spend it will trickle down to others along the way surely ?

    1
    Install the app to use these features.
    Mute Cathal Twomey
    Favourite Cathal Twomey
    Report
    Apr 13th 2014, 12:38 PM

    leave the euro.. and go where?….. is that what all the fanfare about Michael D visit to UK was about last week… soften the path to rejoin the Commonwealth, if Britain opts out of the EU..and open up all those other markets..?

    6
    Install the app to use these features.
    Mute Sean Mckevitt
    Favourite Sean Mckevitt
    Report
    Apr 13th 2014, 8:17 PM

    i’ll bet the developers waiting in the wings are the same fechers that Strategically defaulted on their loans (of hundreds of billions)…bailed out by the US SAPS

    4
    Install the app to use these features.
    Mute Tony Duffy
    Favourite Tony Duffy
    Report
    Apr 14th 2014, 1:24 PM

    Great article Damian. I know its not possible to cover every angle in a short article but other reasons why Noonan & Government want property prices to rise again
    * Psychological “wealth effect” makes people spend again – false sense of wealth/security
    * Owners/Investors in arrears more likely to sell as gap between loan and value of property narrowing.
    * New Investors return to market with higher rents.
    A huge amount of wealth , mainly in t he form of deposits left Ireland in 2008. This was due to fears over leaving Euro to Noonan taxing deposits ( He stole from private pension funds to His eternal shame).Some of this money is slowly returning to finance cash purchases of houses – the main driver of increases in property as Banks still lying about lending again. The reality is that the EU/ECB have instructed the Irish Banks to “de-leverage” their loan books by up to 50% – you cannot do that and keep lending – it’s total bullshit..
    The REAL Economy is NOT improving. The Jobless figures have been fraudulently shrunken through disenfranchising certain weak groups from dole ( eg Widow/Widower Unemployed) and scams like “Job-bridge and Fas Courses. The apparent growth in employment is due to “bogus jobs” which involve a few hours work a week and Job-bridge jobs – not real jobs.
    There is a massive amount of spin and downright lies at play here and RTE are the Government mouthpiece.Until we get rid of the “odious debt” of 64 Billion foisted on Irish Taxpayers there will be NO recovery.End of story !

    1
    Install the app to use these features.
    Mute James Halligan
    Favourite James Halligan
    Report
    May 15th 2014, 8:40 PM

    House prices rising are you for real !!!I I just saw a good house sold in West Limerick for less than 35,000 euros and it is in a good area of Limerick .

    1
Submit a report
Please help us understand how this comment violates our community guidelines.
Thank you for the feedback
Your feedback has been sent to our team for review.
JournalTv
News in 60 seconds