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Wednesday, April 21, 2010
Mortgage holders forgotten by sheriff
By James Laffey
THE recently appointed financial regulator Matthew Elderfield is being held up in some quarters as a latter-day demigod descended from the heavens to save Ireland in its hour of need.
His appearance before a Dáil committee last week was hailed as a turning point in Irish corporate history as the new sheriff in town delivered his ‘Show Me The Money’ line to a group of cheerleading deputies who were more accustomed to the softly, softly approach of Mr Elderfield’s wretched predecessor, Patrick Neary.
However, one aspect of Mr Elderfield’s so-called tour de force that went unremarked was his willingness to give carte blanche to Irish banks to arbitrarily raise interest rates on mortgage owners who are already contending with negative equity.
The financial regulator believes the banks have no choice but to increase interest rates (independent of the European Central Bank) and he doesn’t appear to be especially bothered about the plight of hundreds of thousands of mortgage holders who will be squeezed dry by these profit-hungry institutions in the years to come. Nor does he appear especially perturbed at the prospect of Bank of Ireland chief executive Richie Boucher receiving a €1.5m top-up to his pension – as if he was the only man in Ireland to suffer a shortfall in his pension in 2009!
The revisionism that is currently occurring in Irish economics and banking is utterly astounding and would cause even the most sanguine soul to despair for this country’s future. Readers will recall that at the height of the property bubble – when the dogs in the street knew that mortgage lending in Ireland had got way out of control – our political and banking masters told us there was nothing they could do to stop the runaway train.
The introduction of the euro meant Ireland was powerless to change its mortgage rates to suit its particularly unique economic circumstances. Low interest rates were needed in the Eurozone to drive the stagnant German economy and it was just too bad that Ireland was in the throes of a property bubble when the euro was launched, and that the low interest rates were making a bad situation worse.
Yet a few short years later we discover that we can control our own interest rates and that our banks can – with the imprimatur of the financial regulator – hike up rates by as much as 0.6 per cent with a single stroke of a pen. So if we can increase interest rates now – when we should be keeping them low to ensure that mortgage holders retain some small amount of disposable income – why could we not increase them at the height of the boom when such a strategy would have gone a long way towards dampening down our overheating economy?
It is a question I have not heard anyone answer and I may even take it upon myself to write to the Taoiseach Brian Cowen because it was on his watch that interest rates were kept at historically low levels, thereby throwing petrol on the flames of our economic inferno.
Interestingly, Mr Cowen gave an interview to Business and Finance magazine in November 2006 in which he predicted that Ireland’s property prices were destined for a ‘soft landing’ (remember that comforting phrase?). And why was he so confident that our housing market was not destined for the same fate as the British model of the early 1990s?
Here’s what he said: “If you look at what happened in the UK it was against a backdrop of rising unemployment and much higher interest rates than we have now. A credit squeeze came in these adverse circumstances and that caused huge problems in terms of house values.”
Three years later Mr Cowen is presiding over an economy where a gung-ho financial regulator rides shotgun for gangster bankers who protect their obscene pensions by squeezing the financial life out of honest mortgage holders. And then he wonders why public servants don’t trust him!
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