Moral panic on vultures delays end of arrears crisis

In 2011 at the Global Irish Economic Forum in Dublin Castle, former US president Bill Clinton sauntered onstage and delivered some home truths. Among them was his diagnosis of a peculiar Irish problem – our reticence for dealing, once and for all, with our mortgage arrears crisis.

In his easy, drawling, homespun style, Clinton told the room that Ireland – then barely one-third of the way through the bailout – was facing many major economic decisions, but none was bigger than how to deal with its mortgage problem.

Over the previous two years, Ireland had engaged in a national debate over how, or whether at all, to help “distressed mortgage borrowers” – a silly, trite phrase that always brings to my mind images of exhausted mums and dads quietly weeping over piles of bank documents after the kids have gone to bed.

As often happens here, whenever there is an important conversation to be had, the debate descended into a Victorian morality play. People who had bought houses near the top of the market and were now hopelessly mired in negative equity – and broke to boot – were, in that period, treated as sinners.

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The virtuous (who in reality comprised those who were only lucky enough to buy their houses in a different era) decided that there should be no “debt forgiveness” for even the most hopelessly underwater sinners. No, no, no. That would bring “moral hazard”.

And so it was decided that no decisions would be taken to deal effectively with the problem. Extend and pretend, and sure it’ll go away.

Clinton arrived in Ireland just as this dumb consensus was being settled upon, but he sounded like he was having none of it. Glasses perched on the tip of his nose, he looked out across the room and eyeballed the Irish establishment.

They were all there: Leo Varadkar perched next to Lucinda Creighton (she was the future then); they sat in front of Richard Bruton; he was just down from Michael Noonan, just behind Joan Burton.

No forgiveness, please, we’re Irish

Ireland must find a way of dealing with the “unresolved debt” of boomtime homebuyers, Clinton argued. If it wasn’t dealt with, it would damage the economy, delay full recovery and continue to blight the lives of those borrowers.

Clinton was basically calling for targeted debt write-offs to stimulate demand within the economy. He said Ireland would take at least five years to recover, but it could be even faster if the mortgage crisis was dealt with.

“Clean this debt up . . . accelerate this,” he urged those present.

An Irish audience would usually applaud Clinton just for getting the day of the week right. His hints at mortgage write-offs were met with silence inside the room, and outside. No forgiveness, please, we’re Irish.

More than six years on, Ireland’s mortgage arrears situation is still a dog’s dinner, while the establishment keeps talking in tongues. This time, however, it isn’t obsessed with forgiving sinners, but with repelling “vultures”.

The mortgage figures are improving, but nowhere near fast enough. The property bubble burst 11 years ago next month, yet there are still 50,000 homes in arrears of three months or more. About 90 per cent of the total sum of arrears has been owed for longer than two years. Extend and pretend. Sure, it’ll be grand.

But when an institution – this month Permanent TSB – decides enough is enough and moves to sell its dud loans to someone who might actually do something to resolve them, it sparks a moral panic about so-called vulture funds.

Difficult jurisdiction

Some people have been predicting a massive wave of home repossessions by funds for years now. It hasn’t happened. And if it doesn’t happen now, it never will. House prices, rising fast as they are, makes calling in the loan and selling the house theoretically a much more attractive option.

But Ireland must be among the most difficult jurisdictions on the planet in which to repossess a home. The system is set up to stymie it, and this applies to vultures as much as anyone else. The wave most likely will never come.

Clinton is as right today as he was in 2011: the problem of mortgage arrears won’t be fixed until someone takes on the dirty job of doing what needs to be done. That means either writing off debt, or selling loans to those who will face reality by ending the “extend and pretend” charade of sustainability.

What is the alternative? It is intellectually dishonest to pretend that the wider arrears problem can be solved any other way. There are some people living in homes bought with loans that they will never be able to afford to fully pay back.

But the current debate is, as always, mired in a haze of emotion and morality. Many commentators cannot see past the deeply loaded term “vulture”. It is a handy moniker to describe a fund that makes hefty profits by sorting through financial carcasses.

But the emotion it stirs up obscures the fact – and it is a fact – that such funds bring much needed liquidity to markets that need them. If vulture funds don’t buy the dud Irish homeloans, who else will? But if you broach this reality, you risk being childishly dismissed as a “vulture lover”.

The only other option is taxpayers, in some guise or other, footing the bill. We had this conversation already before Clinton arrived, and our morals steered us away from it.

We cannot have it both ways. Someone is going to have to look the mortgage arrears problem in the eye eventually.

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FOOTNOTES

- It is game over for Toys R Us, which is facing into an "orderly wind-down" overseen by administrators in the UK. What a gift for the Smyth family from Mayo, who own the eponymous toy retail chain. They'll be lighting bonfires on the hills around Claremorris.

Patrick O'Brien, the UK research director for Global Data Retail, took to the Twitter machine yesterday, after the Toys R Us news emerged, to state the unvarnished truth – the demise was down to Smyths more than anybody.

Just over a decade ago when Smyths entered the UK market, Toys R Us had virtually a free run and 14 per cent of the overall toy market. In the last year, Smyths has almost breached the 9 per cent level and has overtaken its rival.

The Irish company now employs about 2,000 staff in the UK, and had British sales of almost £400 million (€451m) in 2016. From a standing start in 2007, it has opened about 85 stores across Britain, and it has also embraced online sales.

With the addition of its 28 stores in Ireland, North and South, the secretive family-owned group, which has unlimited status here, must be bagging group sales of more than €600 million.

After the Dunne and Musgrave families, are the Smyths the most successful retailers Ireland has ever produced?

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- Susan Dargan, who heads up the Dublin-based European operation of State Street Global Services, has told staff at the company that she intends to step down in September after 15 years with the business.

It is believed Dargan, who previously worked with AIB, Bank of Ireland and Mitsubishi Bank, wants to give more time to family and personal interests, although she is apparently still open to the idea of non-executive roles.

Dargan once rapelled down the side of State Street’s headquarters in the Docklands for the Make A Wish Foundation. I’m sure she will be back scaling the heights of the financial industry soon again.