Morgan Kelly predicts further fall in house prices as wave of mortgage defaults are next

Tuesday November 09, 2010 13:30

by T

ECB keeping Ireland solvent for now

In the latest piece in Monday's Irish Times from Prof. Morgan Kelly who at the height of the boom in 2007 said Anglo had lent over €100 billion and would eventually go bust, now says the country is facing a wave of mortgage defaults and that the country is effectively gone bust already.

According to Morgan Kelly, this is where our economy is headed

Morgan Kelly who flagged up our bubble economy long ago and got bad press for it, has struck again this week with an article in Monday's Irish Times, saying the country is basically bust already and is being quitely kept going for the moment by the European Central Bank (ECB) who are now the main source of funding for our banks.

He was also against the bank bailout all along and says that since September when we had our last chance to get out of it, our fate has effectively been sealed. He also argues if it were not for the bank bailout our deficit would be no worse than any other country like France, and it is the cost of the bank bailout that is the real issue.

As an aside (not covered in the article), a check of the NAMA website on the publications for the first and second tranche of loans to NAMA show 30% of the loans were for property in the UK for tranche 1 and 44% for tranche 2! which all goes to show that despite the mainstream media trying to convince us all it was all caused by people being greedy buying expensive house, in fact the problem was caused by commercial property and a good slice of it abroad.

The point of this though is that Morgan in his article now says the cost for the bailout of AIB and Bank Of Ireland combined will now rise to that of Anglo because of the huge wave of mortgage defaults that will hit soon and so far this has not been counted in anywhere. As he says himself:

The next act of the crisis will rehearse the same themes of bad loans and foreign debt, only this time as tragedy rather than farce. This time the bad loans will be mortgages, and the foreign creditor who cannot be repaid is the ECB. In consequence, the second act promises to be a good deal more traumatic than the first.

Where the first round of the banking crisis centred on a few dozen large developers, the next round will involve hundreds of thousands of families with mortgages. Between negotiated repayment reductions and defaults, at least 100,000 mortgages (one in eight) are already under water, and things have barely started.

Banks have been relying on two dams to block the torrent of defaults – house prices and social stigma – but both have started to crumble alarmingly.

People are going to extraordinary lengths – not paying other bills and borrowing heavily from their parents – to meet mortgage repayments, both out of fear of losing their homes and to avoid the stigma of admitting that they are broke. In a society like ours, where a person’s moral worth is judged – by themselves as much as by others – by the car they drive and the house they own, the idea of admitting that you cannot afford your mortgage is unspeakably shameful.

That will change. The perception growing among borrowers is that while they played by the rules, the banks certainly did not, cynically persuading them into mortgages that they had no hope of affording. Facing a choice between obligations to the banks and to their families – mortgage or food – growing numbers are choosing the latter.

And as regards the situation with the country's solvency and where we are with it, he says:

The other crumbling dam against mass mortgage default is house prices. House prices are driven by the size of mortgages that banks give out. That is why, even though Irish banks face long-run funding costs of at least 8 per cent (if they could find anyone to lend to them), they are still giving out mortgages at 5 per cent, to maintain an artificial floor on house prices. Without this trickle of new mortgages, prices would collapse and mass defaults ensue.

However, once Irish banks pass under direct ECB control next year, they will be forced to stop lending in order to shrink their balance sheets back to a level that can be funded from customer deposits. With no new mortgage lending, the housing market will be driven by cash transactions, and prices will collapse accordingly.

While the current priority of Irish banks is to conceal their mortgage losses, which requires them to go easy on borrowers, their new priority will be to get the ECB’s money back by whatever means necessary. The resulting wave of foreclosures will cause prices to collapse further.

Along with mass mortgage defaults, sorting out our bill with the ECB will define the second stage of the banking crisis. For now it is easier for the ECB to drip feed funding to the Irish State and banks rather than admit publicly that we are bankrupt, and trigger a crisis that could engulf other euro-zone states......

....Ireland faced a painful choice between imposing a resolution on banks that were too big to save or becoming insolvent, and, for whatever reason, chose the latter. Sovereign nations get to make policy choices, and we are no longer a sovereign nation in any meaningful sense of that term.

Full article can be read at the link below

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Comments (4 of 4)

NAMA Key Data for Tranche 1 and 2 Loans

Tue Nov 09, 2010 13:36

Here is a copy of the NAMA publication for the key data for Tranche 1 and 2 loans that have now been transferred onto the tax payers.

It is well worth downloading this document and browsing through the break down of the loans which is given by bank, sector and geographical region. You will find the actual facts don't exactly follow the story we have been given for the last 2 years which is that it is all just about housing. The attached image is a mosaic of two pages from the report showing how much of this debt we will have to pay is actually for loans made in the UK which shows this is not just some couple buying their first house (and get ripped off) but that we are in fact bailing out the wealthy buying commerical property abroad.

Geographical breakdown of tranche 1 & 2 loans to NAMA

NAMA Key Tranche 1 and 2 Data. 23rd Aug 2010 0.31 Mb

PG tips, anyone?

by fachtna

Tue Nov 09, 2010 23:28

While acknowledging that kelly predicted the banking crisis he has been less than reliable when it comes to the figures he uses to illustrate his conclusions. In his article he claims that 100K mortgages are in arrears. The current figure is in fact in the mid 30Ks. The latest figure, out on Friday next, will show a slight rise. Past behaviour suggests that most Irish people will keep servicing their mortgage - whatever the pain. Even in the US, where non-recourse mortgages are the norm, defaults have not reached anything approaching the rates Kelly predicts for Ireland where mortgagors can't just hand back the keys and walk away.

However, the really interesting comment appears towards the end of his article - the prediction that if things do get really bad we will see the emergence of a Tea-Party style populist right-wing party. This bears thinking about given the abject failure of the left to increase its support at a time one would have thought was most favourable for a swing to the left. I remember when they predicted (incorrectly) that "the seventies will be socialist". Perhaps the twenty-teens will be Tea-Party. Should be fun. We may get to live in interesting times. Any volunteers for the McDowell Jugend?

Good article T

by FinancialTerrorists

Wed Nov 10, 2010 09:17

Morgan has done a good analysis. His story in the times
dominated Vincent browne's show tonight (09/10/2010 TV3).
It seems the cat is completely out of the bag now and people are starting to call a spade a spade.
Folks on vincent brownes show were mostly in agreement with Morgan's analysis and the word incompetent came up more than a few times regarding the bank guarantee. Rightly so.

As gogarty says,at the end of his xmas rap "we're screwed"
http://soundcloud.com/ihasaflavour/fuck-you-deputy-stag...er1-1

We should hang FF for treason, or financial terrorism. They have done far more damage than any guy with a bomb ever could. They should be treated accordingly (i.e. imprisoned)

Caution

by W. Finnerty

Wed Nov 10, 2010 14:26

I would be very careful about any analysis of the present global financial and banking crisis which fails to make any mention at all of the crucially important roles that have to date been played by the privately owned Bank of England, and the privately owned US Federal Reserve system of banks.

They both have much in common with each other, and they are both closely associated with all (or almost all) of the the rest of the privately owned "Central Banks" of the world, including the European Central Bank: which 1) can all create money "out of thin air (from nothing)", 2) have arrangements very firmly in place to magically (i.e. like "pulling a rabbit out of an empty hat") have the money they create out of nothing transformed into "debts" which are 100% real once the governments they lend the "created-from-nothing-money" to formally accept it, and, 3) they also have water-tight arrangements in place to have the tax-payers saddled (in advance) with interest payments for such created-from-nothing money "loans".

In the case of the Bank of England their role in this almighty (and rapidly growing!!) dysfunctional social mess dates back to 1694 or thereabouts, and the role of the US Federal Reserve -- whose arrival really put the "tin hat" on things -- dates back to the US Federal Reserve Act of 1913: which many believe was, and still is, completely unconstitutional (or legally invalid and/or bogus "law" in other words).

Slavery has not gone away.

At the time of the US civil war (in the 1860s) slavery was literally a "black and white" issue.

Since then the "lovers of slavery" have slowly but surely grown much more sophisticated regarding the design and application of their almost unbelievable scams.

Now, the privately owned global banking cartel can create "debt slaves" of all colours and creeds in all (or almost all) of the "sovereign and independent" (so called) states of the world: decades before the future "infant debt slaves" are conceived even, and with the full cooperation of each and every one of the "elected representatives" (so called) in our own, and virtually all other governments around the world.

Allowing for all of the billions of Euros which are now being borrowed (from privately owned central banks) for bailing out local banks, why is it that none of our economists (on RTE, The Irish Times, etcetera) are yet asking -- in public -- why very sensible and much admired people like former US Presidents Abraham Lincoln and John F Kennedy produced their own interest-free and debt-free money for their own governments: which, in reality, is a primary and an essential function of all "sovereign and independent" states.

How can any state or nation that is fully dependant on a privately owned global banking cartel -- for ALL of its money supply -- sensibly refer to itself as being a "sovereign and independent" state?

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Morgan Kelly predicts further fall in house prices as wave of mortgage defaults are next

Comments (4 of 4)