Madam, – The call for mortgage debt forgiveness by 10 Irish economists (Opinion Analysis, November 11th) is to be met with scepticism.
Mortgage debt forgiveness boils down to transferring a portion of the speculative losses that peak buyers suffered on to the taxpayers.
On economic justice grounds, this is only slightly less deplorable than transferring the losses of bank bond debt from the international gamblers who called themselves investors, on to the aforementioned taxpayer (something already done through the bank guarantee).
To see why, consider two taxpayers. Taxpayer A “bought” on a 100 per cent mortgage in 2006. At the time, his mortgage interest was greater than the rent, but he was betting prices would rise and the equity gain would outweigh the poor performance of his investment.
Clearly, that gamble did not pay off. Now he wants mortgage debt relief in order to transfer a portion of his gambling losses to someone else. The economists assure us this is a matter of “forcing the banks to take . . . the losses for which they are responsible”, but they should know better.
The banks are broke. So in effect, it is Taxpayer B who will shoulder the losses. Is this fair? B at the time chose not to gamble. If the market had kept rising, and B had kept living in the box room in her parent’s house, what percentage of A’s gambling gains could she have expected to receive? (Hint – it’s a number beginning with “z”.)
Even leaving economic justice to one side, there is a convincing reason to force default on irresponsible borrowers. The market is frozen. Rents have, shockingly, stabilised recently and prices have not fallen far or fast enough. This is because few indebted “owners” are forced to sell and realise their losses.
Next to bailing out bondholders, shoring up property prices and rents is probably the worst thing Ireland could be doing right now. Land is really the only part of Ireland’s cost base under its control, so lowering rents is the only clear means of boosting competitiveness, while ensuring wage deflation remains as painless as possible. – Yours, etc,