Sunday, 24 February 2013

The Repo Man is coming...

If Patrick Honohan, Governor of the Central Bank, wants to see the mortgage arrears crisis handled, then he should try either talk to the people who can do most to speed up the resolution: people with mortgages in arrears or improve the interface between the i-doting t-crossing quadruplicate-form filling civil servants in the Central Bank and the bank staff working to resolve the problem.

Honohan's intevention last week to castigate the banks on their "failure" to deal with mortgage arrears crisis" was a direct re-statement of his remarks 11 months ago (http://irishtimes.newspaperdirect.com/epaper/viewer.aspx), reminding us once again how ineffectual the Central Bank has been and is.

Since there are no blanket solutions to the mortgage arrears problem, no jubilee, no Government payments, only a case by case approach, individually negotiated with up to one hundred thousand households, can happen. Even with a those householders' best will that takes enormous, skilled manpower. That good will does not exist, and the manpower is tied up settling the vast sea of non-performing commercial loans. 

The threat made to punish banks by changing capital rules is a very dangerous one. Central banking by it's nature is either a crony-capitalist game (US Fed) or a direct government restraint of trade & markets (everywhere else). Now Dr Honohan has taken onto himself the power to punish selected companies for not doing as government wish. Honohan is no Mussolini but the practise of Government control of supposedly private enterprises is old fashioned 1930s Fascism. Such talk is popular because banks are unpopular but anything that further erodes commercial freedom and property rights helps undermine the economy.

With over 11% of of the roughly three quarters of a million Irish mortgages distressed, a rate ten times that of the UK, there is an urgent need for constructive comment from the Central Bank. Much more effective would have been a speech telling those in mortgage arrears what options they had & with which options & restructuring options they might expect their mortgage provider to agree. 

Even with mutiple options (debt for equity, interest free bonds, rent back) the current very low level of home reposessions here will rise dramatically. Despite having ten times the troubled mortgage rate prevailing in the UK , Ireland has more than four times lower a reposession rate. Such a large divergence in practice across two relatively similar legal systems will not continue.

Honahan's advice should have been to holders of troubled mortgages and it should have been brutal. Get in to your bank and make a workable deal now, the future will be much worse.

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