They Blunder, You Pay

A lot of people were outraged at comments made by the Secretary General of the Department of Finance, John Moran, last week. And with good reason.

Moran was appearing before the Public Accounts Committee in Leinster House. The issue of mortgage arrears was raised. Independent TD Shane Ross asked the top man in the Department of Finance if we could expect the rate of home repossessions to increase.
John Moran sounded bullish in his response. He made the point that the rate of repossessions in Ireland is very low at .25%. He compared this to the UK, where apparently there is a 3% rate, and the US which is running at 5%. “It’s surprising to us that there are so few repossessions in the system at the moment, given the extent of the crisis,” Mr. Moran said. And he forecast that, yes, the rate here would rise – and that we might yet emulate the Yanks in terms of turfing people out, onto the streets.
He framed his appetite for a higher number of repossessions in an interesting way. The major banks are now owned to one degree or another by the State. “It is not necessarily appropriate,” he said, “that banks should be using taxpayers’ money to subsidise people living in accommodation, even if it is a family home, that is beyond their means.”
Taxpayers’ money?. According to reports at the time of his appointment, John Moran is earning €200,000 per annum. Doubtless there are perks which add to the real value of his package. And then there is the inevitable pension, to which those working for the public service do not have to contribute. The money John Moran earns is paid by the very taxpayers to whom he was referring. And he currently ranks up there among the best paid individuals in the country.
In the normal course of things, there would be no particular reason to begrudge him his earnings. But things are not normal at the moment. And besides, a man who openly espouses a policy of repossessing the family homes of those whose mortgages fall into arrears is walking on very thin ice.
John Moran is a member of a ruling elite, from the Taoiseach down, that many people in Ireland consider to be grossly overpaid. Indeed a report in Monday’s Irish Times confirmed that the pensions paid to ex-Taoisigh are far higher than what their British and European equivalents receive – just another scandalous little instance of the way in which Ireland’s top dogs have feathered their own nests.
John Moran also has a kind of job security which very few in the private sector enjoy. Which is why it was deeply upsetting for so many to hear him pontificating about people who are living in accommodation which is “beyond their means.” It smacked of the kind of disreputable smugness that only the thoroughly cosseted can ever afford.
There is a very different way of expressing the reality of negative equity: people are living in accommodation for which they paid inflated prices during the property bubble. They paid those prices because of the dismal failure of the Department of Finance and the Central Bank and the Financial Regulator to exercise the kind of duty of care that would have been necessary to prevent the reckless lending by banks that directly led to the crash, which has devastated the country.
It is utterly wrong to blame individuals for excessive borrowing when (a) that phenomenon was driven by an active campaign by banks to get people to borrow more; (b) all of the precautions and constraints which had traditionally applied were jettisoned by banks, who advised customers that they would have no problem paying back the huge loans that they took out; and (c) it was directly encouraged by the Government of the day, who were the chief cheerleaders of bubble-era economics, as the revenue rolled in from stamp duty, grossly inflating State coffers – money that was then spent on higher salaries for people like John Moran and on politicians’ pensions.
The property bubble was caused by ‘light touch’ regulation. This approach on the part of the authorities allowed the banks to effectively write their own rules. It enabled them to lend money that they didn’t have. It permitted them to accept security that was inadequate. It encouraged them to lend to people who were relatively high risk irregardless. All in the pursuit of inflated profits – and the bonuses which they triggered.
We all know that the reckless actions of the banks torpedoed the Irish economy. In sinking the economy, the banks cost a huge number of people their jobs. They caused a reduction in salaries for hundreds of thousands of others. And they created the circumstances in which the public service payroll now has to be drastically reduced. And all of this was facilitated by the Department of Finance, over which John Moran now presides.
I know that he was not on the scene when the bubble burst. He has no personal culpability in this respect. But he must be aware that his predecessors – and indeed those working under his direction now who were part of the team back in the crazy days of the noughties when things got completely out of hand – were hugely responsible for the disaster into which we have all been plunged.
In which context, you would think that some level of discretion or humility might be advisable, rather than appearing to advocate that the repo man should be sent in, forthwith.
There is a lot of talk now about ‘strategic defaulters’. It is possible that a small number of these exist. But if they do, it is only because the Government has failed to define any kind of policy in relation to household mortgage arrears. The reality is that the vast majority of people who are in hock to the banks are ordinary decent citizens, who did what everyone else would have told them was for the best at the time: they bought houses to live in with their families. Some spent money on repairs and refurbishment and paid all of the taxes that implies. Almost all forked out huge sums to the Exchequer in stamp duty.
It is utterly wrong now that they should be nailed to the mast of whatever unmanageable debts might have been incurred, and duly sunk, while the banks that were the real cause of the collapse in the economy are bailed out by cripplingly punitive taxes, extracted from those very same people. Where is the natural justice in that?
I am not suggesting that there is a one size fits all solution, where mortgage arrears are concerned – though there may indeed be. But smug prescriptions from elite public servants are no replacement for imaginative policy making. Too many of our citizens have been bled dry. Someone in Government needs to find an equitable way of forcing the banks to properly share the burden. Now.