Hundreds of thousands of ordinary people have become financial prisoners of banking parasites that are sucking the marrow from household wallets to keep their doors open.
Permanent TSB’s rate increase is a brutal reminder that the banking system and housing market remain broken. It’s a bank that bears enormous responsibility for fuelling the housing bubble during which it shovelled money out the front door just as fast as it could get it in the back door from the money markets. If the safe mortgage bank driving limit was 100kmph, its board and management drove at 500kmph. When the bank inevitably ran out of road, its loan to deposit ratio was a catastrophic 250%.
The damage wrought from such catastrophic negligence is now being visited on its mortgage customers who are manacled and shackled to the bank’s financial straits. Its variable rate mortgage rate will jump by 1% to a stratospheric 5.19%. With similar rates in Germany less than 2%, its customers will pay well over 3% extra just to keep PTSB bank open for business. Hot on its heels, Ulster Bank has announced its own increase of 0.50% for its similarly imprisoned customers.
Inner city commercial property hulks and rotting carcases of provincial housing estates bear testament to a time when as Michael Lewis put it in his Vanity Fair article “suddenly, among the richest people in Europe, the Irish decided to buy their country – from one another”. It was a time when many considered homes to be a store of wealth, ATM machines to be tapped to buy more property.
It was an illusion of wealth. Encouraged by government and vested interests, it was an enticing mirage many were inexorably drawn to. It worked because our banks could borrow cheap money from money markets. It worked because of chaotic property development. And it worked because there was enough fat to keep almost everyone happy. It’s now so broken no one will give our banks money any more – at least at a price they can afford. So banks are fighting each other for retail deposits. But money is flying out the door, seeking safe haven in other jurisdictions or lodged in branches of foreign banks to fund their lending everywhere else but here.
Banking’s mobilisation of household savings into affordable loans has stopped. With a home mortgage market frozen solid, no one can move their loan to another bank. Switching is not an option for the 350,000 in negative equity and only an option for those few who qualify should another bank have funds to lend. Captivity is not confined to those in negative equity, it extends to the majority of the 770,000 mortgage holders. Everyone is at the mercy of their broken bank. And all our mortgage banks are broken.
Have the property and credit bubble lessons been learned and applied? What has been the political response? One party’s proposal to create a mortgage warehouse for tracker mortgages – the ones banks cannot contractually squeeze- merely shifts a bank funding problem onto the state’s balance sheet. How will the mortgage warehouse be funded? The state’s cost of funds is 6%. It appears yet another burden to be borne by the taxpayer to rebuild the banking system.
What of price controls – capping mortgage rates and forcing banks to live on proper margins? Not one political policy document addresses the housing and related mortgage credit market. Not one addresses the growing mountain of unaffordable mortgage debt. No one has grasped the nettle and dusted off the decade’s old Kenny report that called for the regulation and control of affordable housing. No one has adequately addressed the legacy of banking’s boom time abusive marketing of mortgage credit and latter day abusive treatment of their captive customers who have no choice but to pay exorbitant rates.
The very use of the word “recovery” means achieving a previous state of being. Does economic recovery mean going back to where we once were? A time when uncontrolled housing market and credit markets combined to create one of the worst housing bubbles ever. Or are we to craft a different outcome? One that supplies decent, quality housing at affordable prices. One that has a regulated credit market free of abusive marketing practices. And controls the price of mortgage credit?
For decades politicians have mouthed platitudes about housing market regulation and control, all the while captive of powerful influential property interests. Is it time to regulate the housing and associated mortgage markets in the common good?
So far politicians’ policy documents have failed to address just how these markets will be restored to working order and how they will be managed in the common good.
A version of this article appeared in the Irish Examiner, Business Edition, Monday 7th February 2010.
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