'Metastasis of moral hazard and its effect on gold' by Stewart Dougherty

[blacbloc]

This article below is a pciture of the US behind the Wall Street-Washington spun version of events. A rare glimpse of the reality on the ground which Irish media are so pitifully inadequate at seeking out - reliant as they are on Reuters, AP and other corporate owned agencies who are as vested in the tactics of bailout as any banker or financier.

It seems as though the Irish government are shadowing US strategy every inch of the way, eager to prove the can be just as nasty if that will secure a handful of our elite a continuing inch of space at the international markets trough. Not a new observation of course but what is new is the unusually frank depiction of the consequences of US policy. There have been increases in all sorts of fraud, crime and deception for example - which Dougherty attributes to a sort of 'fkk-it-if-they-can-tear-up-the-rule-book-so-can-we' reaction. People trash their reposessed homes eg before they leave them - a staggering 50% are damaged.

Dougherty also points to the multiple addictions which western societies are afflicted with - unusual addictions like television, shopping and food - as well as substance abuse but he says he thinks the greatest of them all is the addiction to money and power - habits the wealthy are unable to retrieve themselves from. And it's true, when they are asked eg to forego massive bonuses paid for out of public funds, even in the middle of this crisis they behave ten times worse than any alcoholic forced to part company with his bottle of booze. 'Squealing like stuck pigs' is the expression he uses.

Where the article goes off the rails is at the very end, imo. While the gold standard was certainly a much firmer and more reliable anchor for the world economy - it had hardly delivered the egalitarian societies that Dougherty implies it had. Though that was not necessarily the fault of the standard itself so much as the unwillingness of the polticians to legislate for the sort of scenario Dougherty envisages.

A really good, thought-provoking read:

The Silver Bear Cafe

[Schuhart]

It seems as though the Irish government are shadowing US strategy every inch of the way

I'm not sure it does do that. We're effectively just a region of the European economy, so the parallels would be hard to draw.

People trash their reposessed homes eg before they leave them - a staggering 50% are damaged.

As I think has been said a few times on this, the reason this happens in the States is that their mortgages are non-recourse. In other words, all the bank can do is take the house off you. If the house doesn't cover the loan, they have to sing for the balance.

Whereas here the bank can pursue you for any amount of the loan that exceeds the value of the property. In other words, the borrower has a strong incentive not to default in the first place. If default is unavoidable, the borrower equallly has a strong incentive to hand the property back in a condition fit for sale.

[blacbloc]

I'm not sure it does do that. We're effectively just a region of the European economy, so the parallels would be hard to draw.As I think has been said a few times on this, the reason this happens in the States is that their mortgages are non-recourse. In other words, all the bank can do is take the house off you. If the house doesn't cover the loan, they have to sing for the balance.

Whereas here the bank can pursue you for any amount of the loan that exceeds the value of the property. In other words, the borrower has a strong incentive not to default in the first place. If default is unavoidable, the borrower equallly has a strong incentive to hand the property back in a condition fit for sale.

We are theoretically in the EU but we are without a shadow of a doubt the EU country which has been most zealously wedded to the neo-con economics of the last two decades. We've evaded as much as possible any EU attempts to improve regulation - often vehemently and many people still believe that the gove may actually be luke warm about winning the election because of the impact it will have on coporation tax. Ireland had 25% of all US investment in the EU by bheaving in a very anti EU-principle way.

As to financial incentives not to trash - that's as may be. But it is not usual for US citizens to do this ordinarily. It is the manifest abandonment of fairness by the US government that has angered people to behave like this. It's a fair and valid point about just how much people are prepared to accept.

[Schuhart]

Ireland had 25% of all US investment in the EU by bheaving in a very anti EU-principle way.

Absolutely, we've basically used tax to take business of other member states. That said, I'm sure they'd do much the same if the situation was reversed. But surely that makes us more like, say, copyright pirates than neo-cons. I mean, Harney might have pretensions about having an ideology. But FF are ideologically no different than at any other stage since the 1960s. Its basically been about how we can get a fast buck. If the EU is no longer a soft touch for CAP money, then we just use tax to soak them instead.

I don't really see the connection to that US article - which might be a perfectly valid article about conditions there.

As to financial incentives not to trash - that's as may be. But it is not usual for US citizens to do this ordinarily.

I just don't have information on that. I don't know if disgruntled folk losing their homes did the same thing twenty or thirty years ago, or if they had the same terms on their loans. I'm really just pointing out that the difference in behaviour between the US and Ireland is that in Ireland a borrower who trashes a repossessed property is throwing away more of his own money, as the bank have the rights to pursue the borrower for the full amount of the loan.

I mean, you'll have noticed how quickly all the 'just throw the keys back at them' stuff stopped once public awareness of this fact emerged. I'd expect the reverse process happened in the US, directly because (as you say) the financial incentives are to leave as little as possible for the bank to sell on.

[Breadan O'Connor]

.As I think has been said a few times on this, the reason this happens in the States is that their mortgages are non-recourse. In other words, all the bank can do is take the house off you. If the house doesn't cover the loan, they have to sing for the balance.

Whereas here the bank can pursue you for any amount of the loan that exceeds the value of the property. In other words, the borrower has a strong incentive not to default in the first place. If default is unavoidable, the borrower equallly has a strong incentive to hand the property back in a condition fit for sale.

Interesting how the banks screw the ordinary borrowers for the last cent but roll up interest on developers' loans when they can't pay!

[blacbloc]

Absolutely, we've basically used tax to take business of other member states. That said, I'm sure they'd do much the same if the situation was reversed. But surely that makes us more like, say, copyright pirates than neo-cons. I mean, Harney might have pretensions about having an ideology. But FF are ideologically no different than at any other stage since the 1960s. Its basically been about how we can get a fast buck. If the EU is no longer a soft touch for CAP money, then we just use tax to soak them instead.

I don't really see the connection to that US article - which might be a perfectly valid article about conditions there.I just don't have information on that. I don't know if disgruntled folk losing their homes did the same thing twenty or thirty years ago, or if they had the same terms on their loans. I'm really just pointing out that the difference in behaviour between the US and Ireland is that in Ireland a borrower who trashes a repossessed property is throwing away more of his own money, as the bank have the rights to pursue the borrower for the full amount of the loan.

I mean, you'll have noticed how quickly all the 'just throw the keys back at them' stuff stopped once public awareness of this fact emerged. I'd expect the reverse process happened in the US, directly because (as you say) the financial incentives are to leave as little as possible for the bank to sell on.

I think you are completely mssing the point. It isn't about what exact inducements or constraints may restrain people in each case but about the disaffection the blatant theft of tax revenue has caused. We may not bust up repossessed homes here but we are just as likely to find ways and means of giving expression to our anger as US citizens are. That's Dougherty's point.

[Schuhart]

Interesting how the banks screw the ordinary borrowers for the last cent but roll up interest on developers' loans when they can't pay!

As I understand it, they could pursue developers for the last cent. Recall those references to (at least some) development loans being backed by personal guarantees.

And, indeed, it could well be asked if the developers don't have the resources to honour those personal guarantees, why they were required in the first place. What's the point of a guarantee that evaporates when you call it in?

That said, generally, banks avoid repossessions whether large or small.

I think you are completely mssing the point. It isn't about what exact inducements or constraints may restrain people in each case but about the disaffection the blatant theft of tax revenue has caused. We may not bust up repossessed homes here but we are just as likely to find ways and means of giving expression to our anger as US citizens are. That's Dougherty's point.

Fine, so far as it goes. But how does that transfer to the Irish situation? What ways and means have you in mind?

[blacbloc]

As I understand it, they could pursue developers for the last cent. Recall those references to (at least some) development loans being backed by personal guarantees.

And, indeed, it could well be asked if the developers don't have the resources to honour those personal guarantees, why they were required in the first place. What's the point of a guarantee that evaporates when you call it in?

That said, generally, banks avoid repossessions whether large or small. Fine, so far as it goes. But how does that transfer to the Irish situation? What ways and means have you in mind?

I don't have any ways or means in mind. That's not remotely the point of my post. Read the article, I suggest. Again you miss the point. Or do you really?

[Schuhart]

I don't have any ways or means in mind. That's not remotely the point of my post. Read the article, I suggest. Again you miss the point. Or do you really?

Well, what's striking me about the article is its propositions don't really convert to the Irish case. I mean, we're more looked out like limpets wondering what vessel we can latch onto. That article is more an interpretation of how that vessel might be navigated.

Now, if that vessel sinks or changes course, there's really damn all we can do about it. So what I'd be looking for, if I was looking for something to illuminate Irish conditions, is something about the economics of being a limpet.