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    LONDON – The pound tumbled Tuesday on fresh nerves over the health of U.K. banks, while the dollar has lacked direction.

    The pound fell from $1.6350 as London trading started, to a low of $1.6295. It then extended its fall later as nerves over risk hit global markets again. The euro spiked from the £0.9030 area to a high of £0.9061 before reversing the gains as the single currency fell against the dollar.

    At the outset of London trading, the U.K. government said it would inject £31.2 billion ($51.16 billion) of new taxpayer money into Royal Bank of Scotland Group PLC and Lloyds Banking Group PLC as part of a revamp of the banking system and the long-awaited asset protection scheme.

    Both banks disclosed major capital-raising plans to bolster their balance sheets and detailed the divestments they will make to satisfy European Union competition concerns.

    The news, which had been expected, served as yet another reminder of the fragile state of the U.K.'s banking sector -- a key factor for the pound's movements. And some traders appeared to be unhappy with the banks' divestment plans.

    "The way it is being done is not to the market's liking," said Geoffrey Yu, a currencies analyst at UBS AG in London. With risky assets across the board under pressure, and with the Bank of England scheduled to set monetary policy on Thursday, that was enough to push the pound lower, he added.

    Elsewhere the major news came from Australia, where the central bank raised interest rates by a quarter of a percentage point for the second month in a row, taking the key rate to 3.5%. However, in an accompanying statement, the Reserve Bank of Australia dented expectations for a series of further hikes ahead, hinting that a December rise is not guaranteed, partly because of the strength of the Australian dollar.

    The statement dragged the so-called Aussie down from the USD$0.9080 area to a session low of US$0.8951, particularly as some economists had expected the RBA to produce a half-point rate rise.

    "All in all, there was absolutely no sense that the RBA will become more aggressive and hike by 50BP any time soon," said Sue Trinh, an analyst at RBC Capital Markets in Sydney.

    More broadly, the U.S. dollar wasn't showing clear direction, in a quiet session without key data releases. The currency gained sharply against the euro but fell slightly against the yen. Analysts said choppy, directionless moves are likely to persist for now ahead of a string of crucial central bank meetings that lie ahead this week.

    The U.S. Federal Reserve will announce its latest monetary policy decision Wednesday, followed by the Bank of England and the European Central Bank Thursday.

    "There is a sense that market participants are waiting for [these meetings] before serious action resumes," said analysts at Brown Brothers Harriman.

  2. #

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    You can get more from a term deposit if you want to go that way.

  3. Recession blamed for 43% increase in suicides

    By Seán McCárthaigh

    Friday, October 30, 2009

    RECORDED suicides increased by 43% in the first three months of 2009, figures have revealed.

    Data published by the Central Statistics Office show that 106 suicides were registered between January and March this year – an increase of 32 on the same period in 2008.

    By comparison, the number of road fatalities in the first three months of 2009 was 59.

    Mental health experts last night warned the impact of the economic recession was to blame for the soaring suicide rate. The sharp increase in the number of suicides comes after the 424 registered suicides in 2008 represented a 16-year record low.

    The HSE’s National Suicide Prevention Office said the latest figures did not reflect the overall annual downward trend of death by suicide in Ireland.

    A HSE spokesperson said the CSO’s provisional suicide figures had to be treated with utmost caution. She pointed out that many of the suicides registered in early 2009 are likely to have occurred last year, as they are not formally recorded until after inquests.

    The HSE said the number of suicides has been falling continuously since 2003.

    However, Fine Gael spokesman on mental health Dan Neville expressed concern that the dramatic increase in the number of suicides was linked to rising unemployment and people experiencing financial difficulties.

    Mr Neville, who is also president of the Irish Association of Suicidology, described the latest suicide figures as "alarming".

    If replicated during the remainder of 2009, the figure would reach almost 600, said Mr Neville.

    Fianna Fáil TD Chris Andrews called for a review of suicide prevention figures in light of the CSO figures.

    Read more: http://www.examiner.ie/ireland/recession-blamed-for-43-increase-in-suicides-104511.html#ixzz0VQ5LN67v

  4. Its so eazy ! poor countries can become rich, just print money and give it to the plebians

    Market watch to day

    Consumer spending rose at a 3.4% annual rate, the biggest gain in more than two years.

    Consumer spending added 2.4 percentage points to GDP.

    Spending on durable goods surged 22.3%, the most in eight years. The government's cash for clunkers program boosted auto sales.

    Most of the clunker sales came out of inventories, but production of vehicles rebounded smartly after a sharp pullback earlier in the year. Motor vehicle production contributed 1.7 percentage points to growth, nearly half of the total GDP increase.

    Consumer spending on nondurable goods rose 2%. Spending on services increased 1.2%.

    The savings rate fell to 3.3% from 4.9% as disposable income dropped 3.4%, reversing a 3.8% gain in the second quarter that was due to a one-time government transfer payment.

    Business investments fell at a 2.5% rate after plunging at a record 39.2% annual rate in the first quarter. Investments in structures dropped 9%, and investments in equipment and software rose 1.1%, the first increase since the recession began. Business fixed investment subtracted 0.2 percentage points from growth.

    Inventories declined by $134.4 billion after a record $163.1 billion drop in the second quarter. The change in inventories added 0.9 percentage points to growth.

    Investments in housing rose for the first time after 14th consecutive declines, growing at a 23.4% annual rate, the most in 23 years. Home building was boosted by a tax credit for first-time buyers, by a severe contraction in inventories of new homes and by other federal policies to lower interest rates and increase sales. Residential investments added 0.5 percentage points to growth.

    After collapsing in the first and second quarters, trade recovered. Exports rose 14.7%, the biggest gain in two years. Imports increased 16.4%, the most in five years. Net exports subtracted 0.5 percentage points from growth.

    Government spending rose at a 2.3% annual pace. Spending by state and local governments fell 1.1%. Federal spending increased 7.9%, including an 8.4% increase in the volatile defense spending category. Nondefense spending rose at a 6.8% annual rate. Direct government spending added 0.5 percentage points to growth.

    The price index for domestic purchases (prices paid by U.S. residents) rose 1.6% annualized in the quarter as energy prices climbed. Consumer prices increased at a 2.8% annual rate, while core consumer prices (which exclude food and energy) rose 1.4%

  5. McDonald's, which imports most of its ingredients for its Big Macs, couldn't survive. It would have to put the price of the Big Mac up too much and the locals weren't prepared to buy at that price, particularly when local food was much cheaper.

    Last March, a restaurateur in Reykjavik predicted to me that this would happen. She ran a fast food fish restaurant down on the docks where huge trawlers came in with their catches. Her restaurant was cheap, her fish was fresh, just out of the freezing North Atlantic and her trade -- all locals -- was brisk. She said that the Icelanders would abandon the expensive imported food that had become commonplace in the boom, along with the s*****y restaurants.

    With the currency devalued, it would make no sense to pay through the nose for imported food when the local farming and fishing sectors were offering good food for half nothing. She said that the first industries to boom after the fall in the currency were local agriculture and tourism and as they recovered so, too, would the rest of the country.

    This is what is happening and, as she succinctly put it to me, Iceland would, in the future, have "more fishermen and less bankers" and they'd start again. She also made the point that with the worldwide demand for food rising exponentially, fishermen would be better paid than bankers in the years ahead. It was an interesting point.

    Five months ago, I visited Iceland to see for myself what was happening. I wanted to see what it felt like to live in a "basket case" economy. Part of the documentary 'Addicted to Money' was made in Iceland and I spent a week there chatting to all sorts of people. Back then, it was clear that a new Iceland was emerging where the people -- both politicians and bankers -- who had mortgaged the country had been kicked out. There was no rescue scheme like NAMA. The Icelanders took their medicine straight away and allowed their currency to fall dramatically. This has been evidently painful for many but as a local policeman suggested to me, "So what if we have fewer Range Rovers and less camembert?"

    The economy is now recovering quickly, much more quickly than Ireland. And the devalued currency has a lot to do with that because with a devalued currency local industries can export much more easily and large foreign outfits like McDonald's are sent packing. In a short period Iceland's huge trade deficit disappeared. Contrast this with what is happening here.

    Back home, last Thursday morning I made a speech in the Four Seasons Hotel in Dublin. In the room next to me, at precisely the same time, Brian Lenihan was addressing the private clients of Goodbody Stockbrokers. By all accounts he spoke well and reassured the private clients that there would be no new taxes -- and for that they were clearly grateful. The minister is a good public speaker and I am not surprised that the clients of the stockbroker were happy that they wouldn't be asked to share too much of the pain.

    In the foyer I bumped into a man who imports cars. I asked how his business was doing and he said it was tough but the rising euro was working wonders, because with sterling so cheap he could get great bargains in England and offer luxury BMWs at a much reduced price to those people who still had cash.

    This sums up our dilemma. Our currency is wildly overvalued, so some can still spend frivolously on BMWs and think they are getting good value, yet we can't kick-start our local industries because they can't compete with our biggest neighbour. So, the car importer stays in business but the small exporter goes out of business.

    What type of future is envisaged by the people who make our economic policy and hold the reins of power? Is it one where we become a client state of the ECB, with our grubby hands out for a dig out from Europe via silly class rescue schemes like NAMA? Is it a future where the "protection of the euro" -- as the minister constantly refers to it -- leaves us enfeebled, with the economic marrow of the country hollowed out by a currency that has risen by 53pc against sterling and a similar amount against the dollar in 10 years?

    But as I left the Four Seasons, it struck me. As always in Ireland, economic policy is framed by people who have a stake in society -- the insiders. In contrast, the outsiders -- people whose toehold in the country is fragile -- are sacrificed. The euro protects those who already have wealth by securing their wealth in a hard currency that the economy can't afford; it is just another mechanism to protect the insiders at the expense of the outsiders.

    If you look at what our country does in the face of a crisis, whether it was the 1950s economic crisis or the 1980s emigration fiasco, the pattern is always the same. Instead of paying for the mess they have made, the insiders emerge from the crisis stronger and with a tighter grip on power. The outsiders always suffer. So while in the rest of the world, in countries like Iceland, a crisis causes dramatic change and the insiders pay for their mistakes, here in Ireland the crisis only strengthens the status quo -- a status quo, which created the problem in the first place.

    Will we ever learn?

    David Mc Williams's new book 'Follow the Money' is published on Friday

  6. David McWilliams: Rich get richer as rest of us pay for their mistakes

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    Also in David McWilliams

    * We are limbering up for a scrap with ourselves

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    By David McWilliams

    Wednesday October 28 2009

    McDonald's pulled out of Iceland yesterday. This is an enormous moment because it is the first time the McDonald's machine has admitted defeat in a modern, sophisticated country. A few years ago, this would have been unthinkable.

    In the 1990s, when globalisation was in its pomp, a popular expression -- coined by Tom Friedman, the 'New York Times' columnist -- stated that "no two countries with McDonald's have ever gone to war with each other". The expression was supposed to mean that globalisation was good for all of us because it civilised us and, what better expression of globalisation than McDonald's?

    Once a McDonald's opened up in a country, the assumption was that lots of other modern things were going on, such as tolerance and greater interaction with the rest of the world.

    It is more than ironic, therefore, that the first country that McDonald's should pull out of is a country with no army. Iceland contracted out its defence to the US in 1951. The Icelanders concluded that they had no enemies; no one really had any urge to invade them, so why have an army?

    McDonald's announced that it couldn't make any money because, since the devaluation of the Kroner, the Icelanders have turned back to their local fish and local meats.

  7. Bank Insolvency Is Not A Dead Issue

    by Daniel Aaronson and Lee Markowitz

    The Federal Reserve's current 0% interest rate policy will be more damaging to the US economy than the 1% interest rate policy pursued following the NASDAQ bubble collapse. While home owners were the primary losers from the last Federal Reserve policy blunder, all owners of fixed income assets, especially banks, will suffer from the Federal Reserve's current intervention.

    One of the primary goals of having 0% interest rates is to entice banks to employ the carry trade. On the surface, the carry trade supports the Fed's goal of stabilizing the financial system because banks can borrow at near zero while investing in higher yielding government securities. This investment strategy leads to higher bank profits and replenished capital levels. In addition, the carry trade helps fund the federal budget deficit by enticing banks to buy longer-term treasury bonds. While the carry trade may initially seem beneficial, Federal Reserve interference always creates unintended consequences that inevitably outweigh the projected benefits. Below, we attempt to explain the unintended consequences of the carry trade.

    Figure 1 demonstrates that the carry trade is in high gear, as indicated by the year-on-year growth in US bank holdings of agency and treasury securities.

    Figure 1. U.S. Bank Holdings of Agency and Treasury Securities Y/Y % Growth

    Source: ISI

    Although some commentators assert that bank holdings of government securities are low on a historical basis (Figure 2), the rapid growth in holdings is a troubling statistic considering the historically high prices and low yields. The accumulation of securities also demonstrates the impact of the Fed's 0% interest rate policy on the bond market.

    Figure 2. U.S. Bank Holdings of Agency and Treasury Securities % of U.S. Total Bank Holdings

    Source: ISI

    Even though the growth rate in holdings of government securities (Figure 1) is comparable to that from other periods of time, the interest rate backdrop today is different than any other time in the last few decades, especially the early 1980s. In the 1980s, interest rates were high while bond prices were low. With limited risk of further increases in interest rates, banks were presented with a win-win situation - if interest rates declined, bank bond holdings would rise in value and borrowing costs on deposits would fall. Additionally, from very high levels, a drop in interest rates would energize the economy and likely lead to higher asset prices. In stark contrast to the early 1980s, today we are dealing with inconceivably low interest rates. Theoretically, interest rates can decline further, but they are so low now that over the medium to longer-term they can only rise.

    When interest rates eventually rise, banks will be forced to pay greater amounts on deposits at the same time that their assets fall in price. Therefore, it is no surprise that banks have delevered over the past 20 years (Figure 3). Yet, it is astonishing that leverage still exists at near 10X when, with the odds greatly favoring higher future interest rates, leverage should be nearly non-existent.

    There should be minimal leverage in the banking system because treasuries are likely overvalued, thus bank assets too are overvalued and equity overstated. To further demonstrate the risk in the financial system, let us assume that 100% of assets held by banks are treasuries - the safest asset in the world. A decline in treasuries of just 5% would wipe out half of all bank equity capital. Further, if treasuries fell 10%, the majority of banks would be rendered insolvent. However, banks own not only government securities, but also riskier assets and loans that will fall even faster than treasuries.

    Figure 3. Banks Total Equity / Total Assets (includes goodwill)

    Source: St. Louis Federal Reserve

    Despite leverage falling on bank balance sheets, risk remains extremely high as real estate loans are 43% of total bank assets (Figure 4).

    Figure 4. Real Estate Loans at All Commercial Banks

    Source: St. Louis Federal Reserve

    The Federal Reserve created the housing bubble by trying to alleviate the problems resulting from the technology bubble. Now, the Federal Reserve is using the same play book to solve the problems caused by the housing bubble. Once again, the medicine will prove to have been worse than the disease. By encouraging mass buying of treasuries at unsustainably low rates, the Federal Reserve has created another bubble. With low short-term and long-term interest rates, a falling US Dollar, and growing US Government debt, there is significant risk that interest rates will increase in the near future. When interest rates rise, those who have used leverage to buy financial assets will see their cost of borrowing increase as the assets they own decline in value. Such an outcome will be even worse than the deleveraging that occurred in 2008 because today the economy is much weaker and assets are lower yielding (higher priced). It is feasible that even without loan losses the entire banking system would be insolvent if treasury yields rise high enough.

  8. Beware the toxic mix of falling stocks and rising Treasury yields

    October 27, 2009 | 5:00 am

    Stocks slumped Monday and Treasury bond yields rose, which is a combo that really gives Wall Street the creeps.

    The damage was limited -- the Dow Jones industrials lost 104.22 points, or 1%, to 9,867.96, and the 10-year T-note yield (charted below) ended at 3.55%, up from 3.47% on Friday. But if this turns into a trend it could undermine investor confidence in a hurry.

    Why? Stocks, of course, are a bet on economic recovery. If the market sells off because of recovery concerns, Wall Street fully expects Treasuries to benefit -- meaning, yields should fall as some investors seek a haven.

    Unless . . . investors stop regarding Treasuries as a haven, perhaps because of the ever-ballooning federal debt.

    10yeartnote Investor demand for Treasuries had been robust in August and September even as the stock market rallied. But for the last seven months the Treasury market also has had the benefit of regular purchases by the Federal Reserve, which on March 19 committed to buying $300 billion of government bonds in an effort to put a lid on longer-term interest rates.

    Those purchases will end this week as the Fed reaches its self-imposed $300-billion limit.

    While the Fed prepares to step away the Treasury is coming to market with another huge slate of debt to sell: It will auction $44 billion of two-year notes today, $41 billion of five-year notes on Wednesday and $31 billion of seven-year notes on Thursday.

    It isn't unusual for market yields on Treasuries to back up a bit ahead of auctions. That may be the simple explanation for the recent rise in interest rates, which left the 10-year T-note yield at a two-month high on Monday.

    George Goncalves, head of fixed income rates strategy at bond dealer Cantor Fitzgerald in New York, thinks there's still enough private investor demand for Treasuries to soak up the ongoing flood of supply without a steep jump in yields.

    Some big investors, he says, have been simultaneously putting money to work in the bond market at opposite ends of the spectrum: They've been buying corporate junk bonds for yield, while also buying Treasuries for the liquidity they should provide if markets were to enter another panic phase.

    But Tom Tucci, head of government bond trading at RBC Capital Markets in New York, says a lot of the investors his firm deals with aren't much interested in Treasuries at current yields, which are well below their peak levels of spring.

    "With people now very neutral on the market given where yields are, supply becomes an issue again," Tucci said. And the Fed won't be there after this week to take up some of that supply.

    Wall Street can understand the logic of the combination of falling stock prices and falling Treasury yields; ditto for the combo of rising stock prices and rising bond yields.

    But in a still-struggling economy, falling stocks and rising Treasury yields would signal that something has gone very wrong.

  9. New €14bn debt bomb just about to explode

    Forget the billions for Nama and the property developers, there's another big financial godzilla coming out of the water -- and it could be even more devastating, writes Louise McBride

    Sunday October 25 2009

    IT'S almost nine months since Finance Minister Brian Lenihan announced the government's €7bn bailout of AIB and Bank of Ireland. AIB and BoI are still standing -- but many of the customers who borrowed money from them and other banks are drowning in debt.

    If our personal debt timebomb explodes, the government could end up paying about €14bn -- twice as much as the AIB and BoI bailout -- for the clean-up operation.

    In the midst of a recession, and with 420,000 people on the dole, Irish consumers are up to their oxters in about €136.4bn of personal debt. This debt includes mortgages, credit cards and other personal loans.

    "This is massive," said Jim Power, chief economist with Friends First. "It could be safe to assume that around 10 per cent of this debt -- €13.6bn -- is in considerable difficulty at this juncture, but this could double over the next two years if interest rates start to rise."

    Higher interest rates are certainly a threat to consumers who are already, at a time of all-time low interest rates, struggling to repay loans. By the end of September 2008, about 6.5 per cent of the €7bn worth of credit union loans were more than 10 weeks in arrears. Earlier this summer, the International Monetary Fund warned that about seven per cent of consumer debt in Europe would be lost as people defaulted on their credit card bills. Apply this figure to the total amount owed by Irish credit card borrowers, and almost €205m of unpaid bills could have to be written off.

    Hard-pressed households are also struggling to keep their homes over their heads. In June 2008, about 14,000 customers were more than three months late repaying their mortgage. These figures -- the most recent available from the Financial Regulator -- must have soared as the recession slowly garotted Irish consumers. At 795, the number of High Court actions taken by banks to repossess family homes and other property is now three times what it was two years ago.

    The Government has poured €54bn into Nama to sort out the debt problems of the Irish banks. But unless the elephant in the room -- personal debt -- is acknowledge and addressed, the consequences for the Irish economy could be just as devastating as those of a collapsed banking system.

    "The cost to society [of over-indebtedness] includes increased social welfare expenses, losses in income tax receipts, higher medical costs and the costs of accommodating evictees," said the Law Reform Commission (LRC) in its recent consultation paper on personal debt.

    Taxpayers also have to foot the bill for those sent to jail over unpaid debts. The average cost to the taxpayer of keeping a prisoner in custody during 2007 was €97,700. Almost 300 people were sent to jail over the last year for "offences related to debt". Among the debtors included a woman who had not cleared her credit card debt -- she had applied for her credit card while an inpatient in a psychiatric hospital.

    "We know all about the developer debt that Nama will be taking over from the banks, but an even bigger issue is the rest of the debt outstanding," said Mr Power. "There is a massive amount of personal indebtedness in the system and many people are either in difficulty or will be as the government cutbacks and tax increases increasingly impact over the coming months.

    "That is on top of the more than 200,000 people in negative equity. This mountain of personal debt will act as a major burden on the economy for years to come. Many people are now technically insolvent and only surviving because the banks are giving leniency, but this will not last indefinitely."

    What's even more bewildering is the lack of any adequate government response to our personal debt crisis.

    "The principal state response to over-indebtedness has been to continue to fund the Money Advice and Budgeting Service (Mabs), while refusing to grapple with the underlying legal system for its purpose in this arena," said the Free Legal Advice Centre (Flac) in To No One's Credit, a report it published earlier this year.

    "Despite vast changes in the consumer credit market, the method of obtaining a court judgement for a sum of money and the principal method of debt enforcement available in the courts for people of limited means remains substantially unchanged since before the Second World War."

    Paul Joyce, senior policy research with the Flac, said there was "huge government interference in the context of Nama bailing out the banks, but when it comes to consumers, the government is simply saying to the banks: 'be nice to customers'".

    The Financial Regulator's code of conduct on mortgage arrears kicked in last February. Under the code, most banks must wait six months before taking legal action to repossess the home of a borrower who has fallen into arrears -- AIB and Bank of Ireland must wait a year.

    "The code ducks the question of negative equity," said Mr Joyce. "The six-month moratorium on repossessions is simply postponing the evil day."

    The new programme for government says it will "introduce new measures to protect families having difficulty with their mortgage payments". Such measures could include lower interest rates on the loan, the bank taking equity in the house, or the bank taking ownership of the house and leasing it back to the resident -- with the rent payments coming off the loan.

    However, if our negative equity problem gets worse -- as is expected -- short-selling could be the only option, particularly for those who can't afford their mortgage payments. This system is used in the United States. For example, let's say a property is valued at €200,000 but the outstanding mortgage is €240,000. The negative equity on the home is €40,000.

    "If a customer wishes to sell a property to relocate, and assuming the customer is in good standing with their bank -- that is, has never missed a payment -- many US banks will write off the €40,000," said Frank Conway, director with the Irish Mortgage Corporation. "The benefit to the bank is that it doesn't have to take repossession proceedings. The mortgage holder can move on and sell the property knowing they are not on the hook for the outstanding balance -- which creates a more fluid market."

    The programme for government also says that it will introduce a "new system of personal insolvency regulations" which would allow for debts to be settled outside the courts.

    How long it will take the government to introduce such measures -- and what form they will take -- is anyone's guess. In the US, individuals in serious debt can apply for Chapter 7 bankruptcy, where certain assets and property are seized from the individual to help repay their debts but certain things, such as their home and social welfare payments, cannot be touched. Once the individual goes through Chapter 7 bankruptcy, his debts are written off and he does not have to surrender any assets or future income. The US also has a system known as Chapter 13, where debtors sign up to repayment plans over three to five years. Britain has a similar system known as an individual voluntary arrangement (IVA). South Africa goes a bit further -- here, a court can declare a credit agreement to be reckless if the lender didn't follow certain rules. In such cases, the court can write off the customer's loan, or suspend or restructure the agreement.

    Even if a solution to our personal debt crisis is found, there is another financial godzilla coming out of the water.

    Irish corporate debt is biblically huge. The amount of credit owed by Irish companies to banks and credit providers last June came to €243.6bn, according to the Central Bank.

    The value of unpaid corporate debts being chased through the courts could hit €0.5bn by the end of this year, according to James Treacy, chief executive of Business Pro. It has already reached €300m -- about 12 times that of last year. And court action is only the tip of the iceberg.

    In the first nine months of this year, 1,135 companies went bust -- more than twice the number that did so over the same months in 2008. "Company collapses can have a domino effect," said Jim Stafford, managing partner of liquidators Friel Stafford.

    "I know of trading companies that are owed more than €1m [by a company that has gone bust]. They will never get that money back."

    One of the consequences of unresolved corporate debt problems is unemployment. "Another concern is the amount of companies going on three-day weeks," said Mr Stafford. "This means people are taking the equivalent of a 40 per cent pay cut -- and that's on top of the 20 per cent cut they may have already taken."

    Whatever the solution to our personal and corporate debt nightmare, we have to come up with it quick smart. Otherwise the €54bn paid to clear up the banks' bad debts will be mere pittance compared to the cost of the clean up of our personal and corporate debt tsumani.

    Sunday Independent

    Yes this were we are heading and irland as allways is leading the way. Early ripe, early rotten.

  10. Is there any escape? Renting out the property and moving in with friends or family is one option. But the decline in rents has cut off this escape route for many. Anne Cunningham, an education worker from Galway, and her husband, a paramedic, became accidental landlords when they built a new house in rural Galway but couldn’t sell their house in the city. “The combined mortgages on both properties is €750,000,” she said. “But we wouldn’t get much more than €600,000 if we sold both.”

    Cunningham loves her new home, a contemporary, eco-friendly property on 0.75 acres, but the four-bedroom semi in Knocknacarra has become a burden. “We are on a tracker mortgage [linked to the European Central Bank rate] on both homes. But if there are more public-sector wage cuts and if interest rates go up, we could be having a long chat with the bank manager,” she said.

    Even emigration does not shake off the ball and chain of negative equity. Sean Kearns, of the Irish Peoples Union, an organisation that campaigned against recent interest-rate hikes by Permanent TSB, cites a man who moved to Australia to get a job. “He rented out his house in Ireland but the money doesn’t cover the mortgage, so he’s supplementing it from Australia,” Kearns said.

    Brawn said that this option could become even less affordable as rents fall and interest rates creep up.

    Based on international evidence, however, only one in 10 householders in negative equity typically defaults on their mortgage. “Those who default usually experience sudden cash-flow problems,” said Duffy. “It’s usually accompanied by one or more partners losing a job, getting sick or divorcing.”

    Recent analysis of those divorcing suggests that negative equity is driving a wedge between couples.

    Roisin O’Shea, a family-law researcher, discovered that most separating couples are “up to €100,000” in negative equity. “Family-court judges are being asked, in essence, to apportion debt rather than assets,” she said.

    On a recent visit to Ireland, the Nobel prize-winning economist Joseph Stiglitz suggested that the government could force banks to write down the size of the debts owed by those in negative equity — a type of Nama for mortgage-holders.

    The Green party is said to be looking at this option, plus others, including the government subsidising lower interest rates.

    In the absence of intervention by the government, the best option for most households in negative equity is to sit it out, says Brawn. “A house works for you in an upturn, but against you in a downturn. You just have to outgrow the negative equity. Many people think they can just hand back the keys but that isn’t an option either,” he said.

    On Friday, the Irish Brokers Association noted how lenders are pursuing borrowers who hand back keys for their other assets, turning a mortgage into “a life sentence”.

    Conor Halpin, a Dubliner teaching in Meath, discovered how difficult it is to walk away from a mortgage. If negative equity is akin to a disease, he did the equivalent of hacking off the offending limb.

    “I bought for €238,500 in Navan in September 2005 and decided to sell last year. My estate agent, Sherry FitzGerald, valued the house at €260,000 but after a few months of it not selling, they suggested I lower the price,” Halpin said.

    “At the time it was clear that prices were tumbling, so I agreed to reduce it to €200,000, even though my mortgage was for €225,000.”

    Halpin sold for €185,000. “Prices were tumbling, so I decided to cut my losses and get out. But when I approached IIB, my lender, they said I would have to pay off the entire loan on the day of the sale or they wouldn’t allow it go ahead,” he said.

    Halpin took out a €40,000 loan from the credit union, discharged the mortgage and moved out.

    “I’m paying off more now than I was when I had a mortgage, but it’s a weight off my mind. I think I’m lucky I got out when I did,” he said.

    Home truths

    There are 1.6m households in Ireland, 40% of which have a mortgage, according to the 2006 census, so there are about 645,000 mortgages.

    Total mortgage debt in December 2008 was €148 billion.

    The percentage of mortgages in negative equity is expected to rise from 9% in December 2008 to 30% in December 2010.

    76% of those in negative equity are first-time buyers.

    House prices will fall 30% between 2007 and the end of 2009.

    If prices fall by 50%, 350,000 owners will be in negative equity.

    The situation is worsened by the prevalence of top-up mortgages, refinancings, interest-only, 100% and lengthy mortgages.

    In 2007 and 2008, 25% of loans to first-time buyers were 100% mortgages.

    In 2008, 82% of first-time buyers had mortgage terms longer than 25 years, with 54% on between 31 and 35 years.

    The Irish Banking Federation says that top-ups, refinancings and interest-only were respectively 30%, 16% and 15% of loans in 2007.

  11. It’s a debilitating condition that will soon affect one in four Irish households. Thousands of people suffering from the disorder don’t even realise it yet. But by the end of next year, up to 350,000 families could be stricken by the disease if property prices continue to plummet, the Economic and Social Research Institute (ESRI) calculated last week.

    It is negative equity, which arises when the mortgage on a property exceeds its value. And it’s contagious: once one house on your street contracts it, the spread is unavoidable. Symptoms include stress and a loss of mobility.

    But for Andy Kelly, a nurse originally from Co Wexford, the condition will manifest itself most fully in his young daughter’s Dublin accent.

    Kelly always dreamed of moving to the countryside once he had children but, due to the decline in the value of his home in Dublin 16, he is now effectively stuck.

    “We bought a three-bed a year-and-a-half ago just before prices collapsed,” he said. “Everyone advised us to buy and, with prices increasing all the time, we thought that if we didn’t get in, we never would. After all, rent was dead money.”

    Three months ago, his partner, also a nurse, gave birth to a girl. “We can’t complain: we have a house and we can afford to pay the mortgage. But I’ve given up thoughts of moving out of Dublin,” he said.

    Andrea Carroll, an environmental consultant who runs her own company, would like to move in the opposite direction, from Meath to Dublin. She and her boyfriend bought a house in Navan in 2007.

    “We paid €317,000 for a four-bed. Work is getting more difficult to come by, so I would like to be in the city, but the house is €100,000 in negative equity. I like the house, but I don’t like the feeling of being trapped,” she said.

    Kelly and Carroll have resigned themselves to staying put for the time being. But the situation is worse for a couple living in a one-bed apartment who want to start a family, says Derek Brawn, author of Ireland’s House Party. “The social consequences of negative equity will only become apparent over the next few years. There is a huge over-supply of one-bedroom apartments in Dublin and if you bought one to live in during the last four or five years, then get comfortable,” he advised.

    Brawn should know. In September 1992, he bought a one-bedroom flat off Tower Bridge Road in London, thinking prices had bottomed out in the then stagnant UK property market. “Three months later, a neighbour in my block of 25 apartments panicked when interest rates started to rise and handed her keys back to the bank,” he said. “They sold the flat quickly, accepting a low bid, and overnight, prices in the development were effectively set at that price. Overnight my home was worth 35% less than I had paid for it three months earlier.”

    Brawn estimates that one-in-four Irish households will experience this sinking feeling by the turn of 2011. The ESRI estimates that more than 150,000 households are already in negative equity, while Goodbody stockbrokers estimates that, given the range of property values, the average household owes €43,000 more than their homes are worth.

    But as long as you’re happy where you are, so what? Right?

    BRAWN finally sold his London flat six years after he bought it, securing the same price he had paid originally as he cashed in on an upswing in the property market. But he had grown to resent his home for “trapping him in limbo”.

    “Negative equity has a pernicious psychological effect. At one point, the pump that controlled the water pressure in the shower in my flat broke, but for six months I refused to fix it. I couldn’t bring myself to pay €200 or €300 to a plumber,” he said. “I didn’t see the point of putting money into a property that had been devalued so much.”

    This is a common response to the burden of owning a home that is worth less than their mortgage. David Duffy, a researcher with the ESRI, discovered a similar phenomenon in America, where research has shown that “owners with negative equity behave more like renters and re-invest less in their properties”.

    The social consequences of negative equity are manifold, he points out. “It affects consumer spending as people feel less wealthy. Those in negative equity tend to increase precautionary saving, taking money out of the economy,” he said.

    Negative equity can also adversely affect people’s ability to obtain credit. “In my experience, a lot of people only realise that negative equity is affecting them when they look for a loan to extend their house or for a car, and realise that their credit rating has been affected,” said Brawn.

    Those in negative equity, typically first-time buyers in their 20s and 30s, are also unable to move location quickly to take advantage of job offers.

  12. Economy not as bad as media trying to make out

    In this section

    The media should help to boost confidence with more balanced reporting, writes DAVID BLOCH

    NOT FOR the first time, there’s been good news this week for business and the economy. But don’t expect the media to go into overdrive – it seems only to highlight the bad news, and even spins good news to make it appear bad.

    The truth is that Ireland is doing well and the future looks very bright indeed. This week, for instance, a business sentiment survey of 340 companies by KBC Ireland and Chartered Accountants Ireland showed that 22 per cent reported stronger levels of activity in the past three months and that 33 per cent felt more optimistic about the Irish economy, while 29 per cent gave a more negative assessment. This was the first time more firms were upbeat since the survey started in late 2007. Another example – this one facts, not sentiment. On October 7th, Ireland’s second quarter GDP figures (April to June) recorded no fall in our GDP (0.0 per cent), putting us 10th in the EU (ahead of the UK, Holland, Spain, Denmark and also the US).

    Why wasn’t this headline news? Why are we only being told the bad news? Why only give airtime to those predicting our demise?

    So "dont worry be happy"

  13. Saturday, October 24, 2009

    The landed class who blew the bubble

    In this section »

    While many property developers during the boom liked to see themselves as patriotic avengers of historic injustices, in this extract from his new book, ‘Ship of Fools’, FINTAN O’TOOLE shows how Ireland’s astonishing property bubble was based on an age-old problem: ownership of the land by a tiny elite

    PADDY KELLY didn’t have a Rolls Royce. He had, as he corrected his interviewer, Eamon Dunphy, on RTÉ radio at the end of November 2008, “several” Rolls Royces. He didn’t have a house on Shrewsbury Road, where, perhaps because it was the most expensive property on the Irish version of Monopoly, all the developers wanted to live. He had two houses on Shrewsbury Road. He hadn’t yet gone bust – that would take another few months – and the “hundreds of millions” of euro he confessed to owing the banks were, he said, “no great burden” to him. But he was, nonetheless, one of the oppressed, the heir to a legacy of great suffering and injustice whose every triumph was a blow struck for history’s victims.

  14. Mike Soden, former chief executive of Bank of Ireland and now an independent financial consultant and commentator, wrote in The Irish Times last Friday that he believes that the construction and property industries need investment in order to get the economy up and running again.

    He suggested that, should the industry be ignored, it would decline further, which in turn would mean less income for the Government’s coffers, more unemployment and a deeper and longer depression, which would delay any recovery. “The single biggest sector that requires investment is construction and property. This sector is on its knees and is parched for liquidity,” wrote Soden.

    I, for one, am delighted that any banker (even a former banker) is admitting that banks are just not lending to anyone, particularly not to those in the construction and property sector.

    Hmmmmmm Ireland is now a net exporter of people, just who will occupy the buildings?

    Only a banker would have the lack of forethought to make so crass a argument, it is no wonder Ireland is in the state it is now in.

  15. Trade unions believe that the priority is to further invest public money to help tackle growing unemployment, which reached 9.5% in August in the euro zone with even more worrying figures in specific member states. In Spain, it hit 18.9%, Latvia 18.3%, Ireland 12.5% and Slovakia 11.6%. It is close to 10% in France and 8% in Germany, according to Eurostat

    Most business have cut the workers hours, in a effort not to sack their workers, so there is pain out there that isnt in the figures.

  16. How high has the Dow climbed on the back of this good news?

    Ireland to see 45% house price crash

    Permalink: Ireland to see 45% house price crash

    by Gill Montia

    Ireland to see 45% house price crash

    A leading credit ratings firm says it expects further significant house price falls in Ireland.

    According to Fitch Ratings, house prices in the republic have fallen 24% from their December 2006 peak (based on data from the Permanent TSB/Economic and Social Research Institute) and Fitch is now forecasting a total decline of around 45%.

    Tax rises, high unemployment, wage deflation and property supply overhang will all play their part in the crash, as Ireland experiences a deep recession.

    The agency expects unemployment to increase to 12.5% in 2009, and 15% in 2011, forcing property prices down to align with affordability.

    The market could also experience downward pressure on price from increased funding cost for Irish lenders, with mortgage interest rates likely to rise in the years ahead.

    Finally, Fitch reports that the scale of potential house price declines across Ireland is already raising concerns over arrears.

    How low will the DOW go when reality hits ?

  17. By Paul B. Farrell, MarketWatch

    ARROYO GRANDE, Calif. (MarketWatch) -- Jack Bogle published "The Battle for the Soul of Capitalism" four years ago. The battle's over. The sequel should be titled: "Capitalism Died a Lost Soul." Worse, we've lost "America's Soul." And worldwide the consequences will be catastrophic.

    That's why a man like Hong Kong's contrarian economist Marc Faber warns in his Doom, Boom & Gloom Report: "The future will be a total disaster, with a collapse of our capitalistic system as we know it today."

    Insuring against economic calamity

    Gold ETFs are so popular they now hold more of the shiny stuff than most central banks. What will it take to sustain the funds' big gains? Barron's Clare McKeen reports.

    No, not just another meltdown, another bear market recession like the one recently triggered by Wall Street's "too-greedy-to-fail" banks. Faber is warning that the entire system of capitalism will collapse. Get it? The engine driving the great "American Economic Empire" for 233 years will collapse, a total disaster, a destiny we created

  18. Capulation?

    Just when you are ready to give up is the time too dig in.

    Every thing going on right now is just smoke and mirrows.

    Cheap money is finding its way in to every thing, oil gold minerals, property. its not how ever going to manufacturing.

    jobs are being lost,

    I really belive it will all go bang in just a couple of weeks

  19. Fears of surge in home loan defaults

    By Shaun Connolly, Political Correspondent

    Tuesday, October 20, 2009

    FEARS over mass mortgage defaults and the viability of the National Assets Management Agency (NAMA) intensified last night amid shock new warnings that the property market has much further to fall.

    In a severe blow to hopes the crash was beginning to stabilise, a High Court judge said he was dealing with 70%-80% slumps in commercial property values "on a daily basis".

    This was seized upon by opposition parties, who said it made a mockery of Government estimates that only 20% of the €54 billion worth of toxic loans soaked up by taxpayers via NAMA would default because the price of development land will increase by 10% over the next decade.

    The outlook was made bleaker still as respected international brokers Fitch Ratings predicted that despite house prices having fallen 24% since their peak, prices would slide to nearly twice that level, 45%, before finally bottoming out.

    Read more: http://www.examiner.ie/ireland/fears-of-surge-in-home-loan-defaults-103741.html#ixzz0UQwE2TK3

  20. Australia will only continue to rise interest rates if the global economies continue to improve so says the governor of the resurve bank.

    What he says and what he does are not allways the same. This is the same man who in responce to the start of the crash increased interest rates. only to later drop them down to 3%.

    The Governor knows Australia is heading for a major property crash and if it is not stoped , the result will be negitive equity and all the lost years of a long drawn out resesion.

    Internation money from the carry trade is pooring in.

    Australian property must now be the most expensive in the world (a gess).

    Australian equities are bloated and ready to pop.

    Is it worth holding the Australian dollar? Hmmmmmm, I would say short term yes (but be fleet of foot) . Long term no (This is a resource export country and needs a cheap dollar to compete)

    Makes me wonder just how desperate the Governer is, to risk export income because of the housing bubble.

  21. Its deflation for ireland . What could the imf do within the euro framework other than massive spending cuts and tax rises ?

    How clever was the UK in keeping control of its money and not having the euro.

    I learned the other day that a nation can not be insolvent as long as it can print money, so printy printy.

    However the many of the nations who were lured in the EU are now no more than bonded slaves.

    My gess is that if the ressesion becomes a depression the EU will fall apart.

    The news press in Ireland are so very thought full in there reporting of racial problems unlike most other countries.

    And the people are all so tolerant.

    The people who were working and paying tax are entitled to the dole, why should they be forced to leave? most have fallen in love with Ireland and the culture.

    Having said that the labours from europe are leaving and they are now being replaced by leaches from all over the place.

    As conditions worsen, relations will worsen, as people will look for some one to blame.

    I recon the people to blame are the people who set this train wreck up. By joining the EU they have lost control of there borders.

    And as for Ireland being underpopulated ,how any one can rationalize that I cant understand, the last time Ireland had the population it now has was just before the great famine.

  22. On the Edge with Max Keiser - 16 October 2009 (2/2)

    Worth a look.

    Its not just Ireland with the big debit, its just about every country.

    Money was so freely avaliable I have never exerianced anything like it. The Dublin sky filled with construction crains.

    Grand new roads jamed up with new BMWs and AUDIs

    What ireland has now that others will soon have is some thing called negitve equity.

    This negitive equity is gona be the cause of the depression.

    This negitive equity is the elephant in the kitchen. Ireland joining the EU and signing the Lisbon treaty is like putting a noose around your neck.

    Throwing away self determination. For what? chasing the same thing that caused this mess.

    When Ireland had control of its future it has made some really good calls.

    Lowering the company tax. (now the USA is pulling its industry back to home)

    Universities. (this is a real winner)

    Tourism. (another winner)

    Ireland with little in the way of natural resources has done remarkably well.

    Now the future looks as dim as possible but you never know some thing may good turn up.

  23. There has bein a big swing in favour of the Libson treaty, mainly because of the perseption that the good times Ireland has enjoyed are because of EU membership.

    A drowning man will grab at anything.

    As for the moron insult, Hey I heard that monkey joke on Irish radio and Iam not in debt. but gess you probably are.

    Now for my poor spelling.

    Next time you have a conversation with some one with a speech impediment , try telling them that they are hopeless talkers see what will happen next!

    Ok now for trying to pass of a news report as my own thoughts. AS IF!

    Irelands property market will eventually be suported by overseas investors and retied people from the UK .

    The Irish will own the streets and once again Irelands sons and daugters will leave for foreign lands.

  24. Giving money to the Irish is like handing out razor blades to monkeys.

    You know you shoudent ,

    But do it just to see what will happen.

    THE collapse in the housing market has left the average household sitting on €43,000 of negative equity.

    A borrowing frenzy during the boom means Irish households are now nursing debt levels which are the fifth highest in the developed world.

    The average household owes €230,000 on its mortgage alone, excluding credit card, personal loans and other debts.

    These figures have emerged from calculations based on a new report on the economy from Goodbody Stockbrokers.

    Goodbody's Dermot O'Leary estimates that the bursting of the housing bubble has sent house prices down by 40pc from their peak in February 2007.

    This means the average house in the State is now worth around €187,000.

    There are 640,000 households with a mortgage, and the average household is sitting on negative equity estimated at €43,000, calculations based on the Goodbody report by the Irish Independent show.

    The State's 1.5 million households are now struggling with an overall mortgage debt mountain that has climbed to €148bn, leaving mortgage holders hugely vulnerable to a rise in European mortgage interest rates.

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