FF Members Day at Galway Races

[markmchugh]

mark,
aparently its the official FF party line...

personally, i disagree with it. they should be burned at the stake for challenging the dogma of the government and their builder buddies.


as an aside, anyone read the article in the SBP by the head of "Research" in lisney? it read like unadulterated estate agent propoganda. it basically said (my paraphrasing) that the economy is going great, that the fall in construction is a good thing as it will prop up second hand houses, that the builders miraculously wound down the number of units completed with perfect timing absent in the US and their real estate fall, that the economy is going great (just in case we missed it the first time), that house prices are not in free fall, that the economy is going great and that everything is hunky dory so we should get back to buying and selling houses like we have done over the past 5 years.

quite and entertaining piece, and one which speaks more of the estate agencies desperation in the shrill article.

the author, an economist like myself, neglected to mention the single greatest factor in affecting the amount of money people can borrow and therefore how much they can spend.

he neglected to mention, thats correct - not one single word, interest rates. really would have thought that an economist in the real estate market would have known that supply and demand are only half the story in the real estate market, the other being how much people can afford to borrow, which is determined by interest rates.

of course, it could be a coincidence that this fall, sorry "stabilisation", in house prices occured during 8 successive hikes in interest rates. it probably would be the patriotic thing to say!

at last some intelligent comment, was this in yesterdays SBP?

also, from the point of view of borrowing, surely the country must be pretty close to the limit that can be borrowed?

[zakalwe]

mark,

yes it was.

as to your second question. are you familiar with the central banks method of allocating funds to banks.

basically, the individual banks each tender for the amount of money they will need on a weekly and monthly basis (two different tenders). the include the amount they need and what price they are willing to pay (aka the interest they are willing to pay). the central bank prepares a bid array and submits this to the ECB. the ECB gets all the bid arrays from each country and allocates the money available on the basis of the interest they are willing to pay. there's a horribly complicated formula which i won't go into here but most banks get allocated a proportion of the funding they require (could be from 60-95%). on the basis of this, the CB pays the money out to the banks (subject to receipt of adequate collateral) and the bank lends to joe and josephine punter buying their two up and two down cardboard gaff in longford (now a gateway to dublin).

the amount of money the banks can have available for borrowing depends on the price they are willing to pay. irish banks tend to outbid all other nations. it'll be a long while (and not until you see banks profits falling) before you see the banks getting their allocation slashed and therefore the amount of money they can lend out.

there are other sophisicated methods which banks can employ to avoid the capital adequacy requirement under basle. if a bank securitises its mortgage book, it can obtain a rating on the book greater than the rating on the bank. it sells the mortgage book to 3rd party investors via an offshore SPV, usually in the isle of man or the channel islands. it then enters into a caretaker agreement with the spv to collect money and administer the mortgages on behalf of the SPV (for a fee of course). check who owns your mortgage, its likely that its owned by a company you have never heard of! because the mortgages are off the balance sheet, the bank can free up part of its liquidity requirement and lend that money out (on top of the proceeds of the sale of the mortgage book).

it has been calculated that the same e100m can be loaned out 12 times (loan then securitise then loan proceeds then securitise again and so on).

and given that the loans are off the balance sheet, the credit risk lies with the investors (tho they usually have a credit default swap taken out with one of the bigger financial houses), and therefore the banks are not as worried with credit quality as the used in the past.
and that, my friends, is why the country is awash with credit.

[markmchugh]

yes, i did some work on basle 2 complience, but as a computer programmer, i know just the basics of the numbers and not the full theory behind it.

my question was more related to the indivudual average borrowing, surely we must be close ot that limit, i.e. we wont be seeing lots more borrowed money, so this means the only industry here ( buying houses ) will decrease?


also, from an ecomonists point of view, do you know much about market confidence theory? i.e. when confidence leaves a market, how does it come back?

[Daonphobal]

Are the FF posters here representative of FF rank and file in general?
The likes of Daithimac and Galvatron (and plenty of others) who believe that any criticism of FF represents criticism of Ireland, hatred of Ireland,

And why wouldn’t they when the national anthem actually confirms their belief.

Sinne Fianna Fáil
A tá fé gheall ag Éirinn,

Would you get it in a totalitarian communist state or a banana republic?

Are these the original lines?

Yes they are - as introduced by Cumann na nGaedhal in 1926 when they formally made Amhran na bhFiann the national anthem, before Dev hoist them on their own petard six months later by founding a party of that name!

[zakalwe]

i think what you're referring to is the role of expectations in economics (or to the final year student, the inclusion of e in the solow growth model).

basically, herd mentality matters. how else do you explain bubbles. its when people ignore common sense and invest en masse into whatever the fad is. in the 16th century it was tulip bulbs in holland, in the 19th century shares in the South Sea Company. we have had the technology bubble (why would a website with no customers be worth millions?). and now we have the property bubble.

the main difference is that in the past responsible governments have talked down bubbles, in ireland the govt actively supported it.

market confidence is only restored when the fundamentals return. ie for the properrty market it'll be when interest rates calm down, when banks lend responsibily, and when buyers re-enter the market (which they won't do if there is no value in the market). in the tech bubble it was when tech companies proved they had real paying customers and acted like any other company.

[markmchugh]

i had to survice the tech bubble, and this property one is exactly the same. they are all saying everything will be ok in a few months etc, as with the tech bubble i guess it will be about 6 months or so before the herd see's that everything is in bits.