RE-CAPITALIZE THE BANKS, THEN RE-NEGOTIATE OUR MORTGAGE DEBT
Nov 18th, 2008 by Conor McCabe
€132 billion.
That’s how much Ireland Inc. owes in mortgages.
€32 Billion.
That’s how much Ireland Inc. has ‘invested’ in buy-to-rent properties, around €23 billion of that taken out in the past five years.
Thing is, this figure contains mortgages that were taken out on vastly-overpriced properties, and as such, any move to re-capitalize the banks must go with a parallel move to re-negotiate this mortgage debt.
Traditionally, the national average price for a family home (three-bed) moved between two-and-a-half and four times the annual average industrial wage.
Thanks in no small part to the vast amounts of credit floating around the system over the past fifteen years, we have seen that relationship completely smashed - to such an extent that, even today, the average price for a three-bed house is eight to ten times the annual average industrial wage.
The cheap credit is gone, and is gone for the foreseeable future, which means that we have to go back to prices based on what banks can loan from their deposits, which is based on what people earn, and which is based on what people can afford.
some figures, and let’s be generous. The annual average industrial wage for a man is €32,000, for a woman it’s €28,000, but let’s say the average is €32,000. That means, based on pre-cheap credit rules, we’re looking at an average house price of between €82,000-€128,000. Now, there’ll be houses worth €40,000, and there’ll be houses worth €400,000, but the average price should be around those figures.
That means that, at the moment, the majority of people who bought a house in the past seven years, have paid over the top for their house.
The idea that we can re-capitalize the banks and not tackle the mortgage debt - based as it is on fantasy prices - is insane. In effect, a re-capitalization without a re-negotiation of the national mortgage debt would lead to a situation where we would have a devalued banking system claiming premium rates off unreconstructed loans. Sheer brass neck folly.
We have to introduce a mortgage readjustment agency, where people can apply to have their mortgage reduced to an acceptable level.
It means that, in a lot of cases, the cost of a mortgage will be reduced by anything up to 50%, taking huge pressure off the business sector with regard to wage demands as the reduction in mortgage debt is, effectively, a reduction in the cost of living.
Such a move would mean that the Irish banking industry is left with sustainable mortgage loans - loans that they can use as collateral - of around €70-80 billion.
Such a move would be in itself a form of recapitalization, as it sends out the message that Ireland’s mortgage debt is sustainable - that it is “bankable”.
Coupled with a government move to recapitalize, and thereby taking a shareholder role in the banks, we would be laying the basis for a recovery.
It will not lead to a recovery in itself, but it puts Ireland Inc. in a more secure, and realistic, position, instead of the one now where fantasy is running riot. The twin moves of re-capitalization and re-negotiation of mortgage debt are merely aspects of a wider stimulus package - but essential aspects, nonetheless.
Just in case anyone thinks that what I’m proposing is fantasy, it should be pointed out that Irish banks are doing EXACTLY the same thing for their property developer customers as we speak - but not, it needs to be pointed out, for their mortgage customers.
We have to have a re-capitalization plan which deals with the €132 billion mortgage fantasy value as well - to bring it down to a more realistic figure of around €70-80 billion. Once that happens, rent control and land reform has to be introduced to ensure we do not have this problem, on this scale, again. €32 billion spent on property rent business schemes, €23 billion of this in the past five years. Picture if that money had been invested in real businesses instead of passing over into the collective hands of property developers, estate agents, banks, and solicitors. House price speculation has to killed, once and for all, before it’s allowed to kill us.
Then, and only then, can we even think about talking about a recovery for the Irish economy.
Conor, call me pedantic if you will (and you will, I’m guessing, indeed call me pedantic and be quite correct to do so), but I absolutely abhor the use of the phrase Ireland Inc. It is a phrase which, since the onset of the financial crisis, has been all pervasive in print and radio media. Even if we could validate its usage in this part of the world it would be more correct to say Ireland Ltd, which we would pronounce as Ireland Limited, not Ireland ill-te-d. Across the pond where companies are incorporated no one would dream of saying America Ink. They would use the long version of the abreviation; incorporated. So, if you wish to, by all means call me a pedant, a crank or even a nit-picker, but be aware that without pedants and cranks and nit-pickers the world would go to hell in a hand-cart!
Incidently, your idea to write down up to 50% of household mortgage value would be most welcome at Chez Lawlor, but will not happen. Far from relieving the upward prssure on wage demands it would simply start a new cycle of overspending, which would fuel inflation, which would lead to wage demands et cetera. The root cause of the Celtic Tiger binge in our economy was the Fianna Fáil / PD policy of cutting taxes and putting excess cash into people’s pockets. What they forgot to tell us, however, was that we were supposed to save some of that extra cash to pay for services which the government would no longer be providing. Services like health care, education, public sanitation and vaccinations against killer cancers to name but a few. Ordinary plebs are not to be trusted to act responsibly with hard cash. The tax cuts should only have been given to those who agreed to sign up with MABS (Money Advice and Budgeting Service). That might have help to avoid the scenario where the wealth from the economic boom was given back to idiots who blew it on new cars and 42 inch plasma TVs and holiday villas in countries one really shouldn’t visit unless accompanid by an ex-green beret bodygaurd (Dominican Republic, anyone? What about Cape Town, South Africa, murder capital of the dark continent.)
Andrew, given the huge level of private debt in Ireland - 147% of earnings, unprecedented in Irish history (pre-credit bubble, around 20-30% of earnings) - the idea that a reduction in mortgage levels would automatically lead to overspending is not true. America is going through this as well, where they’ve all but abandoned the idea of tax breaks to “pump” the economy as it is known that given the economic crisis and general feeling of doom, ordinary people are not going to use spare cash to spend. They will either save or pay off personal debt, especially as the reason why personal debt was allowed to get so high - fantasy money generated by the credit markets - is gone.
The mortgage readjustment, again, makes practical sense as house values are also fantasy at the moment, and again, it wasn’t supply and demand that pushed prices up - no property bubble in France and Germany remember - but lending policy by banks, and tax-break frenzy on the part of the government.
And the idea that somehow personal spending on the part of the ordinary citizen drove this, again, doesn’t stand up to the fcts. The majority of personal wealth is held by a TINY proportion of the population. Lifestyle articles in the Sunday Indos do not a national analysis make.
There’s another effect to massive mortgage debt that I haven’t been discussed much, and that’s the fact that in a recession many workers will dedicate whatever they have of spare time to working unpaid overtime in their present jobs as a means of maintaining that job and keeping up house repayments, rather than seeking to develop their skills and getting further education. So you end up with a stagnated workforce in terms of skills. And seeing as the only future for Ireland’s economy is in terms of ‘knowledge’-based services, that’s very bad news.
I think the point that re-negotiations on property development loans are already underway while banks and government will steadfastly hold the line on the retail banking sector (ie. me), is revealing though not in an even remotely surprising way.
Sure didn’t King lear himself say:
Through tattered clothes great vices do appear;
Robes and furred gowns hide all. Plate sin with gold, And the strong lance of justice hurtless breaks.
Arm it in rags, a pigmy’s straw does pierce it.
So he did.
Good quote, Donal. It’s a long time since I read King Lear dutifully as a “set text”. Here’s an easier to remember quote from The Merchant of Venice, which I did for the Junior Cert:
All that glisters is not gold;
Often have you heard that told:
Many a man his life hath sold
But my outside to behold:
Gilded tombs do worms enfold.
Somebody blew the safes of the world banking system to release the worms from their gilded tombs.
And the fatherly advice of Polonius to his son Laertes in Hamlet is an eternal caution to the clients of bankers and building societies:
Neither a borrower nor a lender be;
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.
This above all: to thine ownself be true,
And it must follow, as the night the day,
Thou canst not then be false to any man.
just to be clear, I’m not talking about a bailout for those in negative equity on an indivual case-by-case basis - I’m talking about the fact that the housing stock, taken as a whole, is overvalued by at least 100%, and we can sit around and wait two to five years for it to “readjust”, and in the process sucking hundreds of millions out of the real economy, or we can roll our sleeves up and tackle the myth that housing speculation is, womehow, coming back in a couple of years time.
The party’s over, baby. Dem prices are not coming back, because dem prices were set to a large degree by the lending policies of the banks, and those lending polices are over; by irresponsible tax-breaks on home construction; and by ferocious land speculation. Gone. gone. Gone.
Andrew - I agree - I think the time has come to put Ireland Inc. into liquidation - and re-launch the country as Eireann Teoranta and start running it again on a cash-only basis out of Fagan’s pub.
God bless democracy - but apparently over 50% of those asked in a recent poll believe Bertie would run this mess better…
Sometimes I’m glad I have little hair left as it spares me tearing any more out :-
Don’t like it. I didn’t spend the last few years overpaying my motgage and getting it down to 4 years left only to have that comparative advantage wiped out by the pen-stroke of an accountant. The idiots who paid that much money CHOSE to do so, I chose to act thriftilly and responsibly. Where’s my reward, heaven?
Thirstcriminal, it was impossible to get a mortgage in the past seven years on terms anywhere matching those of the previous 20 years to that. That wasn’t the fault of first-time buyers, that was because of Fianna Fail policy, and a banking system awash with fantasy money. They pushed up the prices to unsustainable levels, not the first-time buyers. you’re focusing your anger on those who are suffering BECAUSE of Fianna fail and Irish banking policy, which is wrong.
also, my point is based on the fact that Irish housing as a whole is completely overvalued. I mean, I don’t know how much you paid for your house, but I’m assuming that if you have four years left then you bought it sometime in the early 1990s. I’m also going to assume that the price you paid for the house bears little relation to its current market value. Now, if that’s the case, it’s because speculation pushed up the market price to what it is now. There is nothing you could have done to your house in the meantime to justify that current marlet price. That’s all down to speculation, and because of that it’s a fantasy price. You can’t keep your fantasy price and at the same time berate the reasons for it!
what I’m saying is that we have to face up to that, and deal with it. This isn’t about paying off people’s mortgages at current speculation-driven prices, it’s about getting prices back to realistic ratios between wages and price. when that happens, we bring in rent control, land reform, anti-speculative measures, to ensure that profits are not made out of this. (As it is, banks are going their damnest with that at the moment, with their dedicated move to take as much money out of the Irish economy as they posibly can, in order to save their fat bloated asses.) nobody is getting a speculative-driven house for free. what we’d be doing is accepting the reality of the situation, collectively adjusting prices, and ensuring that the two and a half-four times ratio isn’t broken again.
Until we do that, our economy is going nowhere but down. and fast.
Nope, not the early 1990s by a long, long shot, I just knuckled down and got on with it. Granted it also wasn’t in the last 7 years though. House prices are only one part of the story though, and the idiots who paid too much money for a whole raft of things should see the pidgeons come home to roost.
I think perhaps I would agree to some degree with the first time buyers getting let off the hook (a small bit), but anyone who traded up and is now in negative territory, anyone who bought a BMWx5 on the back of their inflated house price, anyone who bought an investment property on the back of their “equity” should suffer the consequences.
BUT, the objective behind such a scheme is, surely, to get our economic growth trajectory back on it’s good old track. Shite. There is considerable evidence that the growth based economics of our world is going to shaft us all, evidence that has been around since the year I was born. No. Don’t fix a bad system, make a better one.
Oh, and I have little desire to keep the current price of my house, it’s my relative spending power I’m interested in.
Sorry for the disjointed comments, one last thing, I agree with everything you say in the last paragraph of your comment, I just don’t agree with your route, prices will drop to those levels naturally, particularly if the banks fess up and shaft their developer friends.
Well buy-to-lets are not part of this. Thery’re business loans. ok. Technically mortgages, but still, it was a business decision. and yes, this is about working to achieve a form of stability for the Irish economy in the future, because it’s going to take a while to sort this mess out. so, while you’re rejecting my plans, not for any economic reason, mind, but for emotive ones, can I ask you what plans would you argue for that would allow thousands of Irish people to get their “just rewards”, as you want, and at the same time help us as a society to get through this?
Just to clarify my point, I don’t believe that the market is going to correct itself here, mainly because markets don’t work as self-correcting machines. Never have. Never will. any time there’s been a “correction” it’s been part and parcel of certain government policies, either to protect vested interests, or to in some way guide the correction. What I’m putting forward is a plan for that.
Also, I’m on work at the moment which means I’m being a bit “quick” in my own comments. I’m not getting at you thrift, I’m just blaming the medium
That’s cool, I’m actually stirring as much as anything, if there was debt forgiveness it’d actually make very little odds to me, but a bit of emotive reaction adds spice to a discussion, and ther’ll be plenty that view such a move in this light (check out the comments on Dave McWilliams site about the same thing). Also I’m not getting at you (at work too).
I need to make clear, though, that what I’m proposing is not the same as what McWilliams and even what the States is proposing to do - which is debt forgiveness. I’m talking about a re-evaluation based on the reality of the situation, a consequence of which would be a sgnificant lowering of mortgage liability for people, as the value of their property is lowered as well. It’s not quite the same thing. Debt forgiveness means that inflated prices are not really tackled. It just means that the government picks up the tab.
Ah, that makes more sense, my mistake.
Actually, my mistake. I should have made that clearer.
To ask a vital question, who pays for your scheme Conor?
What you are proposing would represent banks needing to write off at least €50-60 billion in cash already lent to houseowners, if they were not compensated for it. The banks have roughly around €15-18 billion or so in capital. Writing off €50-60 billion against this amount would render them insolvent several times over!
Also, the possibity that the government could pay for this through some agency is an utter non-starter also. €50-6o billion would more than double the current national debt. Hell, they cannot even afford the €3-4 billion or so needed to recap the banks right now!
Besides, gve a heavy lifetime smoker a new pair of lungs and watch him waste them away again. Never underestimate the like-clockwork predictability of our greedy natures!
No, this is going to be a long, slow, and painful recovery and we are all going to have to grit our teeth about that. I just hope this is as bad as it gets. There are worrying signals right now coming out of the US markets once more that the banks there may still be in deep trouble…
Interesting idea, but totally unaffordable! I am not being smart-arsed when I say that the only way to avoid the shit that we are heading into is to have not put ourselves in this position in the first place. However, that ship has now long-sinced sailed…
Longman, I think you are getting what I am proposing mixed up with something else. As I said, this is about recognising that Irish housing is overvalued by at least 100%. It´s only an expense if you want to save that overvalued price by getting the government to prop up the difference, which is what you seem to think is what I am proposing. Why would we prop up overvalue? Who does that benefit?
what I’m saying is that overvalued assets are NOT assets. We are not getting out of this until we recognise that.
And there’s something Victorian about WANTING people to suffer,no? (and it seems to be a common theme these days.) I mean, it’s a theological approach to economics, one I don’t understand, especially when there are mechanisms to alleviate some of the pressure, and to help us begin the process of building a solid asset base once again in Ireland. I mean, extreme pain and suffering as an economic model? Is this Sunday school? We have to suffer for the sins of our brethren, now lets sing Psalm 23 and pass the bowl.
To save having to restate my points on what I am proposing, have a read of the post and the comments again.
Longman, just to say that I think your comments are valid. Again, this goes back to what I said to Trift. I should have made my points clearer in the first place.
Conor, what scares me is that every negative prediction that I have made so far this year has actually underestimated the downturn by some margin! As for harking back to Victorian times, how very droll!
Indeed, I would rather be wrong and thought of as some masochistic madman, than be right and walk the difficult path that I believe lays ahead of us. If mortgages need to halve, as you say, then that means a lot of people stuffed with huge amounts of negative equity, at a time when I think that unemployment is going to continue rising. For me, that is an impossible problem to resolve quickly and painlessly.
In this respect, the real difference between you and I here seems to be that you think that there is a viable short-term solution (as proposed above), whereas I do not.
This brings me back to saying that I really do disagree with you on this issue of value and why I therefore cannot agree that your proposal has practical merit (no offence meant)! However, if you want to show me otherwise, then all you have to do is to satisfactorily explain away this scenario!
• A bank lends money to customers that it mostly “borrows” from its deposit holders.
• If mortgages are reduced by 25-50% in the manner that you propose, that is 25-50% less money that the bank will now receive back from those customers.
• However, the bank is still obliged to return 100% of the money that it “borrowed” from its deposit holders.
• How does it make up the shortfall?
what I’m saying is that overvalued assets are NOT assets.
Is that true though? Take my own house (please, take it!), and I apologise for the lack of proper technical vocab here.
The burden of charges on the house does not as yet exceed what might be the fair market value of the house. But it might do in future, meaning that if the bank repossessed my house, it would incur a loss, since it had loaned me money in excess of the sale value of the house. And if I put my house on sale at what is perceived as the fair market value now, it would simply not sell, and its price would have to fall. Houses are now taking years to sell, so this is a likely scenario.
Bear with me here, because I’m a bit shaky on it. If you look at the total value of assets held, and you base your valuation on the fair market value of the house, then at any given moment this is likely to be way in excess of the total sum these assets would actually sell for if they were all put on sale at once, because a massive sell off would inevitably lead to a plummet in prices due to a huge supply surplus.
Now this creates a headache for the bank as well. The bank has no interest in seeing the value of houses plummet, but in terms of outstanding mortgage debt, nor has it any interest in seeing the capacity of mortgage holders to pay off their mortgage diminish either, since that in itself causes asset values to plummet even further, and they lose more money.
So it seems to me that there needs to be some sort of restructuring program whereby some proportion of outstanding debt is bought up by some agency, and terms set at a lower rate of interest, making it easier for mortgage holders to continue repayments and giving them more money to spend in order to stimulate the economy. And there needs to be some coming to terms with the fact that the property ladder as previously known has vanished.
Where the cash to do this might come from, I have absolutely no idea, I’m afraid.
And in fact, I may be talking out of my hole.
First of all Longman only a small proportion of the money lent by banks actually comes from deposits. The majority came from money borrowed at very favourable rates on the international markets. As we see now, that era of cheap credit is now gone. Banks borrow from other banks. That they were able to borrow for a very low short term rate meant that they could then sell on the money they had borrowed at in or around the ECB rate, which gave them significant room for profit. Interest rates are also connected to Libor, a good explanation of which can be found here.
I think Conor mentioned that the banks are writing off debts as we speak:
This is from Wednesday’s Irish Independent:
One aspect of any recapitalization is a realistic assessment of a bank’s debt. There is a regulatory mechanism (I think its regulatory) in banking called Marked to Market, which I’m sure you know all about, but which means that the assets of a bank are only worth what they would get in today’s market, and not the price of the property when the bank first offered the loan. So their assets are being devalued daily anyway.
The softening up news that Irish banks might consolidate is a clear attempt (I think) to provide an adequate capital base to make sure that at least a couple of banks can continue to exist and proves that there is little prospect of an international lending institution offering them money on the basis of the assets they have. The assets of the other banks will be devalued but their remaining resources might be sufficient to offset the incredible losses in value of the assets across all the banks.
The attempt now is to prop up the inflated price, or to halt the fall in some way, and by consolidating banks try to keep mortgage repayments at the level they are now, and let the banks foreclose on houses where repayment is a problem due to a stagnating economy, unemployment etc and hope that this will be limited.
Longman, just to echo what Donagh said, there was a time when bank borrowings were linked to deposits, but we haven’t had that in decades. It’s kinda why we have this situation these days, you know? none of the main banks in Ireland gave out loans in proportion to their deposits. Maybe in some economic textbooks they still talk of a banking system where loans are linked to deposits, but baby, that hasn’t been the way the financial world has rolled in a long, long time. and even when banks did give out mortgages based on their deposits, they still made a 40-60% mark-up on the amount loaned. what you’re putting forward is a form of bartering, that is, a loan where you pay back only what you borrowed. And where does that exist? The banks gave out bad loans, to such an extent that more than a couple of them are un-viable as banks anymore. What happens there is that the shareholders and directors take the pain, certainly not those who are being charged up to 100% more for buying a house than the house is actually worth. The only reason why you would do that is to protect the shareholders and directors. Well, fuck that.
Hugh, house prices in Ireland were pushed up to their present bizzare levels through bank lending policies, government tax breaks, and unfettered land speculation. That’s the problem. That’s why we have a bubble. you can’t now talk about holding on to the price of your house in terms of market price, ´cos the “market” didn’t set the price - in other words, only a proportion (around 40-60%) of the “market value” of your house is linked to the bricks and mortar, location, demand, etc. The main energy behind the bubble, i.e. cheap credit, has now collapsed, and there is, I believe, a bit of a suspension of reality going on in Ireland at the moment, as the country seems to be thinking of house prices in terms of the hidden hand marketology, that there will still be a “correction” when in fact this problem wasn’t caused by exchange of values, but through the availability of fantasy money.
Overall, though, I mean, correction implies that the problem is not structural. But the problem is structural, so any solution that links itself to maintaining the structure, well, it isn’t going to work. We need to completely reconfigure our banking system, and the place to start is with a viable asset base. what I’m proposing is part of that process, but it has to go hand-in-hand with the smashing of housing speculation as an economic template for an island economy.
The entire world is struggling to find value that’s linked to real products, not just fantasy credit. In the past, bad assets did indeed form value, but look where that got us? The world has changed, and for the foreseeable future, value has to be viable. And a property bubble that was created in the manner the Irish one was created, aint going to “correct” itself, as the problem is structural. Irish banks, even merged Irish banks, aren’t going to be able to borrow on the international markets until they prove to the international markets that their value is indeed viable. That aint a correction, that’s structural.
That’s why we have a bubble. you can’t now talk about holding on to the price of your house in terms of market price, ´cos the “market” didn’t set the price - in other words, only a proportion (around 40-60%) of the “market value” of your house is linked to the bricks and mortar, location, demand, etc.
Well I myself ain’t goin’ nowhere, so the market value for me is meaningless. But I have a big debt to pay off. When I say asset, I am thinking about how the bank sees my house, not how I see it. And for the purposes of the bank, the asset’s value is based on a) the revenue to be earned from interest repayments b) the potential for sale after repossession if the repayments fall through. b) has to reflect market value in some respect, or we are talking pie in the sky. So I don’t see how assets such as these can form part of a viable asset base unless they reflect some form of market value. And it’s hard to see how they can be described as assets at all if a) in fact results in a net loss for the lending institution.
I have no problem with your argument that the problem is structural. But the idea of having a viable asset base seems to me still an element of the existing structure. And what I don’t quite understand, still, is what you mean by reducing the cost of a mortgage: are you basing this on the cost of a mortgage in terms of the principal outstanding, or the cost of a mortgage in terms of servicing the debt, or some sort of synthesis of both? If you simply say ‘you can’t take britches off a highlander’, and force through a cut in the debt burden on these terms alone, you’re probably talking about a banking collapse. I don’t see how that’s in anyone’s interest, much as I would be delighted to see capitalism smashed and banking executives flipping burgers. Where will the cash come from, that’s what I want to know. Fine to say that shareholders and executives should take the hit: problem is, shareholders don’t own that much these days, and executive pockets don’t seem deep enough to fund what you appear to be advocating.
Wow! Enough points of disagreement there to argue the entire week away on, but it is well into Friday afternoon and the blogging blahs are kicking in. Sorry! By the way, I am not sure that you actually answered my challenge in either of these detailed responses!
No worries, though, have a good weekend!
Hugh, you’re right about point B. The asset value has to reflect market realities or else it is pie in the sky. One of the problems facing the Irish banking system is that it’s got a fantasy asset value, resulting in billions of unsustainable debt, and is one of the reasons why Irish banks can’t get loans. Nobody believes them when they tell them that their asset value is what they claim it to be. One of the reasons for that is that Irish banks are overexposed to property.
what I’m talking about is a recognition of the devaluation of Irish property that has taken place, and will continue to take place, until we get back to an income-based house price and mortgage ratio of around two and a half to four times the national average industrial wage. What drove prices to snap from this ratio was the credit boom of the past fifteen years in Ireland. The credit boom is over, and is not coming back for a long time, especially given the moves at an international level to bring back regulation. Any move to flush out the bad debts in the system - something that has to happen otherwise the Irish banking system is finished - must include a recognition that property is overvalued. A re-evaluation of property would, in turn, lead to a re-evaluation of mortgages that were based on the previous, overvalued, prices. What we’re talking about is nothing short of a complete rebooting of the Irish banking system, one that involves writing off billions in “assets” as the banks are already doing. Now, it could take up to ten years to get all of this back on track, but until you have an asset base based on reality, the system’s going nowhere but down.
So, I’m not talking about the price of mortgages per se, I’m talking about having a national mortgage bill based on the actual price of housing, which traditionally hovered between two and a half times and four times the average industrial wage. It’s the move to that well-tested link that would lead to a reduction in mortgage repayments for a lot of people. The micro-management of such a system is the reason for the agency, but the principle is such as stated.
So, I am not talking about smashing the capitalist banking system, I’m not talking about having bankers flipping burgers. What I’m talking about is the opposite - I’m talking about a way for banks to rebuild their asset base. A banking system that has a mortgage asset base of €60-80 billion is in a much healthier state than one with a fantasy €132 billion mortgage asset base. I mean, the situation today is that your house is worth half a million unless you try to sell it, as one estate agent told the Irish Times last week. Any reorganization of the Irish banking system worth its salt has to take that into account, because current prices were set by easy credit, not demand, not bricks and mortar, not location, but easy credit.
furthermore, a society where people are paying a real price for their house, instead of a fantasy price, a hangover from the pre-crash days, is a lot more equitable than one where people are struggling to make repayments on overvalued houses, or where the Department of Health and the Department of Social Welfare are making mortgage repayments for unemployed people which run into millions of euros each month, but repayments based on overvalued houses.