Debt Forgiveness or Vulture Culture?

Debt Forgiveness or Vulture Culture?

Feeding the vultures?

Reading the Irish Examiner this morning I am struck and really upset by what I am seeing ..

On the cover is a picture of the large queues at the NAMA property auction in Dublin this week – while I am sure there are some genuine people in that queue looking for a break by getting a property they can afford and get their lives moving I am more than sure that their are plenty of “vultures” swooping to pick some meat off the dead carcases of our property collapse.

Consider the steps that lead us to this point:

Step 1 – Property owner (formerly known as bank customer) can’t afford mortgage: bank turfs the loans to NAMA at a huge discount and write off the balance (request money from government to cover the loss – p.s. we have to pay for this). End of problem for Mr Bank.

Step 2 – NAMA take on advisor’s, solicitors, experts of all sorts and deal with the “property owners” at huge cost (the problem is just in another box and we pay the fees). A good friend of mine, a solicitor tells me they all know the biggest game in town is getting a gig with NAMA!

Step 3 – NAMA creatively look for solutions to sort out the property market? Nah – lets just do a fire sale and get rid of the properties for half nothing. What brains came up with that solution?

Step 4 – Chase the original property owner for the deficit (at this stage it is probably much bigger than it ever needed to be in the first place), which they will never, ever be able to clear.

Step 5 – NAMA realise that it has a bigger hole than it thought in the first place – look for money from Government as they have a shortfall (that’s us folks!)

Step 6 – Vultures queue up, avoid buying any property until they come up for sale again in another bargain basement sale. Further devaluation of property prices as a result – yep you get a bigger hole with even more people in trouble..

I know there was a huge reaction this week to talk of Debt Forgiveness (why should we pick up the tab for other people’s carelessness? is the general attitude) but if you look at the scenario above, which we have all witnessed – the original property owner could have made a sensible arrangement with the bank, managed through the current economic climate and ultimately recovered more money than what was ever possible in an auction fire sale.

Possible Result – The deficit would have been a lot less, huge savings would have been made on unnecessary professional fees and the property market would not be further compromised.

Just a month ago a pub quite close to us was closed by the bank – the “owners” could not manage the level of debt as they bought too high. Now the pub is being touted around by the bankĀ  at prices a fraction of what the original debt was – they will never recover the deficit from the original owners and we will end up picking up the tab for the “unnecessary deficit”.

Will the new operators do a better job that the original owners? And what about all the suppliers who get burnt in the shut down scenario?

Debt forgiveness is emotive and really difficult to manage (fire sale is too easy, less messy, inhumane and lousy for the economy = our country) but it must be better than pure stupidity, which we will all end up paying for. It’s time to work hard at brave, practical solutions that have the best interest of the county at heart..

….and besides, why do we need to feed the Vultures?

Greg Canty is a partner of Fuzion

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6 Responses to “Debt Forgiveness or Vulture Culture?”

  1. Damian Drohan Says:

    Greg, I couldn’t agree more, I was sickened by the whole thing and by the enthusiasm in certain media quarters that the “property market was alive”, not to mind the nauseatingly enthused manager of the company doing the selling, “delighted at the level of interest from as far away as China & Israel”. Great, the loser as you rightly point out is the tax payer and the original owner who will have to meet the shortfall. Debt forgiveness is a very emotive topic, there are people who were in trouble with mortgages right from the beginning as they bought houses they couldn’t afford, there are many people also who have cut back, and cut back with each swing of the Minister for Finance’s scythe and who are now looking at mortgage difficulties because there is nothing else to cut back on. If there is to be some form of debt forgiveness, there needs to be a case by case examination of circumstance, in the interest of fairness.

    What is distasteful is the number of vitriolic commentators, saying “oh I didn’t go and buy a house” etc, many people were panicked into buying, as the prevailing spin was “get on the ladder now or be left behind”, it’s a big mess, but if the Govt doesn’t realize soon that they can’t keep on cutting if they don’t want to spark widespread mortgage default, we will be in the do do. My tuppence worth.

  2. An Coppens Says:

    Hi Greg,
    Great blog and such an accurate summing up of the daftness of the whole government/bank carry on. It is so frustrating to see that the average person is given only the burden to carry, which reckless lending and illogical thinking by financial ministers have created.

    Some humanity on the side of the banks, ride the wave with the client until they are back on their feet is a lot smarter, than the bully tactics and ostrich management scenarios that exist.

    well written!

    • Greg Canty Says:

      Hi An,

      Thanks for the feedback – humanity and logic have left the building!

      For all of the talk, all of the analysis, all of the experts, and all of the expensive consultants the best we could do was a “jumble sale” – sad.


  3. Glenn Bradley Says:

    I couldn’t agree more that Debt forgiveness has to happen. However this is not a free solution and will in itself be very costly. It also comes with significant moral hazard which needs to be very carefully managed.

    For me the issue of debt forgiveness has two principal angles for the existing Bank:
    1. They have to accept less back for the loan – this is not an issue as a suitable provision should already have been raised on these loans.
    2. They have to continue to hold the reduced debt on their balance sheet and retain the ‘forgiven borrwer’ as a customer. This is what Banks hate most – but there is little other option as there are little if any refinance options in the marketplace.

    Nama itself has started to entertain this notion. Both Steven Seeling and Frank Daly have recognised that they cannot sell the quantum of assets that Nama hold into a marketplace that has no available debt finance. They are therefore suggesting that Nama will provide the finance. This is debt forgiveness by another name as it is accepting reduced values and installing ‘new jopckeys’ on the loans – albeit that Nama will receive an element of cash equity in such transactions.

    I disagree with your comments that sales that are being put to the market at present are ‘fire sales’. We cannot pretend that we are living in a perpetual crisis. The residential property market stoppped as long ago as 2007. The maerket that exists today is a valid market and sellers, mortgagees in possession and banks must be allowed to take prices that are available in this marketplace.

    I also disagree that Nama has been selling assets into this marketplace at ‘firesale’ prices. The auction held last week was not a Nama auction. I’m not sure any of the properties for sale are held by Nama. The properties put for sale were held by receivers, private owners and I suggest that some were put to the market at the behest of banks like Bank of Scotland. These Bank’s have recognised that the market is what it is and it is pointless looking at the problem forever.

    There are no cost free solutions to this mess.

    • Greg Canty Says:

      thanks Glenn – less costly perhaps?

      Taking the pharmacy as an example – I wonder was the operator there not able for the level of debt and now it is sold off at a fraction of that “number” in an auction?

      Bottom line whatever way we look at it – a mess!

      I appreciate the comments – cheers.


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