Sean Dunne bankruptcy in contrast with position of small borrowers

If you want debt forgiveness, you need to have enormous debts

Sean Dunne after buying the Jury's site in Ballsbridge. Photo: Frank Miller

Sean Dunne after buying the Jury's site in Ballsbridge. Photo: Frank Miller

 

The difference between the position of property developer Seán Dunne, whose bankruptcy move in the US could see him emerging from his debts this year, and the position of people here with distressed mortgages who are to be told by their banks for years to come what they can spend their money on, is truly shocking.

Dunne, who owes hundreds of millions to Irish and UK banks, and who is among the largest of debtors on the books of the State-owned National Asset Management Agency, has said he may end up paying back less than 2 per cent of what he owes. Society will have to shoulder the rest.

Meanwhile thousands of people who did nothing wilder than pay a once-standard price for a modest home, and took out loans that fell within the guidelines then being operated by the banks, find themselves being told their debts cannot be forgiven for fear of moral hazard.

It is commonplace to hear people say that no one was forced to take out loans during the boom and that all that is being asked is that people who can afford to pay back their debts, do so. That argument is only partly valid. The property boom went on for quite some time and people were in the meantime getting married, having children, and so on. Their lives were moving on and decisions had to be made.

Meanwhile the boards of the main banks sanctioned huge borrowings from abroad to fund a lending spree that was inflating property prices and feeding into the profits they used to justify their enormous remuneration. There is something profoundly unfair about people being told in such circumstances that the responsibility for their mortgages is 100 per cent their own.

In the US some years ago, economist Joseph Stiglitz suggested a court-administered process whereby those who had borrowed to buy their homes during the bubble years, should have part of their debts forgiven. The overall circumstances of the mortgage holder’s position would dictate the size of the debt write-down, with ability to repay, once you’d given up on foreign holidays and subscription TV, not being a valid reason for having to repay all of the debt assumed. The suggestion has the merit of addressing the culpability of the banks for what has happened to so many people.

The argument against such a move are well-rehearsed. Such a process would transfer the burden of paying off the debt created by the banking system from the holders of bubble-era mortgages, to the general population . The State could end up having to further prop up the banks, and might even be pushed to having to seek debt forgiveness itself.

Some time ago, when presiding over the publication of a report by the Central Bank on the capital needs of the banks, the Governor, Patrick Honohan, was asked to respond to the fact that senior bankers had been paid massive salaries and bonuses for making disastrously inept business decisions and the general public was now being asked to pay for the consequences of those decisions. Prof Honohan, understandably, responded by pointing out that the correct policy response was the one that most efficaciously got the banks, and the economy, back to work, and that fairness was not the speciality of his institution. The idea of focusing on what will work, as against what is fair, has great moral weight on its side. People, especially politicians and commentators, who bang on about unfairness while ignoring the complexity of the position we are in, are worse than an irritating nuisance. It is distressing that after a disastrous period in our history marked by opportunism, hostility towards critical debate, and an all-pervasive lack of seriousness, examples of such attitudes continue not just to exist at leadership level in Ireland, but to serve some people well in their chosen careers.

That said, the responses to fixing the problems besetting Ireland repeatedly throw up examples of such egregious unfairness that it can be easy to feel that our democratic model is being stretched to breaking point. The recent comments by Noam Chomsky to this newspaper, where he warned about effect of the ECB’s policies on democratic consent, are just another instance of such concern being expressed.

It has been well documented that people are hard-wired to throw self-interest aside when they feel they are being treated like mugs. The economic crisis in Ireland and Europe that has dragged on for so long , has involved people swallowing bucketloads of unfairness in the hope that in time it will serve their best interests and the common good. But people shouldn’t be pushed too far.

The failure of the previous Government’s plan to squeeze more revenue out of our non-resident multi-millionaires and billionaires has already illustrated how, if you are rich enough, you can evade Government efforts to repair public finances. The Seá n Dunne story shows that if you want quick debt forgiveness and the opportunity to get on with your life, you need to have above-ordinary levels of debt.

It is not a pretty picture. Perfection is not for this world, but the Government, in implementing policies that are so offensive to people’s sense of how the world should work, must not forget that when you stand back far enough, efficacy and fairness are not at odds with each other, but rather are necessary bedfellows.

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