“moral hazard” and Debt forgiveness.

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monagt

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The words moral hazard are a pet hate of mine. Morals seems to be a word that is thrown around at bank meetings when the manager meets with a mortgage holder that is in trouble. I've had it thrown at me before and it does make you feel worse than you already do. A degrading term.
 
I don't believe it is a valid analogy.
When the firebrigade puts out a fire at my neighbours' house I benefit from the fact that the fire doesn't spread to my home.
When my neighbour gets debt "foregiveness" I don't benefit, quite the opposite, I pay for it.
 
i agree, it dosent seem fair that someone who didnt get themselves into debt should have to pay for those that did, but is unlikely the banks well take the hit for this!
 
Yes I thought it was a poor analogy – a safety net in case of accidental misfortune is not the same as being extricated from a freely-made personal decision that with hindsight should not have been made. Just because someone apparently clever/learned writes something on a blog doesn’t make it so...

A big moral hazard with debt forgiveness is that you have given people a one-way bet with a financial decision – heads you win, tails you don’t lose. If house prices had gone up, purchasers would be very happy with their excellent decision making. But things have gone badly so purchasers want debt forgiveness. The moral hazard is that in the future people will think ‘I will make this decision and if it goes well I will reap the rewards but if it goes badly, I will be bailed out by my fellow citizens’.

There is never any upside to deciding to set fire to your house so where is the moral hazard? People will be careless with matches because the fire brigade are available to put things right? Really?
 
Moral hazard is widespread in society.

Would treating smokers for lung cancer be a more appropriate analogy?

They freely choose to smoke.
They know that there is a significant chance of cancer.

So why do the non-smokers have to pay for their very expensive medical treatment?


Paying jobseekers benefit to people who didn't bother to study at school.

Brendan
 
Paying jobseekers benefit to people who didn't bother to study at school.
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Or perhaps the unbelievable many who leave Leaving Certificate exams just after 30 minutes!

Marion
 
Smokers cost treatment
However people who die off early around pension age don't cost years and decades of state pension payments

I wonder if some government actuary has ever done a report on this

Does smoking cost the State money or save it money?

I don't know, would be interesting to read such a report
My post seems very cold :eek:
 
Moral hazard would be that after the fire, the fire brigade builds the house and furnishes it for you, and puts you up in accommodation in the meantime - at your neighbours' expense.

So there is no incentive to act in prevent fires in future.

If the current proposal is that people get to keep their homes, but their debts are written off, the analogy would be more that if your house burnt down, the fire brigade came and built you a house twice as big and possibly give you a round the world trip in the meantime.
 
micmclo said:
Smokers cost treatment
However people who die off early around pension age don't cost years and decades of state pension payments
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Smokers also pay more tax as most of the cost of their pack of 20 is duty.
 
Purple said:
Smokers also pay more tax as most of the cost of their pack of 20 is duty.
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To an extent, because of high taxes and duties on cigarettes in particular, maybe... - but unless smokers have extra income because they smoke, they have finite income and expenditure. If they didn't smoke and buy cigarettes, they would buy something else that included tax which would end up going to the government anyway. Factor in the large proportion of black market cigarettes with no tax (so replacement spending would increase the tax take), I don't think it's obvious that the universe of smokers in Ireland pays more tax.
 
Fire engines, cigarettes - only silly monkeys trying to distract from the definition of moral hazard. Beware of those who use metaphors in trying to understand or describe a simple concept.

The banks have behaved badly, and have been bailed out.
What have the banks learned from this?
That they can continue to behave badly and will be bailed out forever more.

That is moral hazard.
 
shnaek said:
The banks have behaved badly, and have been bailed out.
What have the banks learned from this?
.
Click to expand...

But who are the banks ?

The building in town with an AIB sign over the door is still there , but the shareholders have been wiped out.

It's ultimately the shareholders who (in theory) set the direction of the business , and paid the price in the end.
 
Status Update
By Irish Homeowners Unite
IF YOUR MORTGAGE IS WITH IRISH LIFE AND PERMANENT (Irish Permanent Building Society) ... Ask them for the same deal as they gave to Dukedom Limited, a Dublin construction company where they agreed to discharge a debt of €453,598 for €100,000 in relation to a two house development in Foxrock, Dublin. (Irish Times 14/6/’12).

Fairness means equitable which mean same or similar for all.
 
monagt said:
Status Update
By Irish Homeowners Unite
IF YOUR MORTGAGE IS WITH IRISH LIFE AND PERMANENT (Irish Permanent Building Society) ... Ask them for the same deal as they gave to Dukedom Limited, a Dublin construction company where they agreed to discharge a debt of €453,598 for €100,000 in relation to a two house development in Foxrock, Dublin. (Irish Times 14/6/’12).

Fairness means equitable which mean same or similar for all.
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If IL&P (IPBS) write down/write off a loan, who pays ? The Irish taxpayer, and future taxpayers.

What are you advocating ?
 
High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email [email protected] to buy additional rights. http://www.ft.com/cms/s/0/bbe4810c-2c95-11e1-8cca-00144feabdc0.html#ixzz1xlZIDodh

Today, “debts exceed what can be paid”, says Michael Hudson, an economics professor at the University of Missouri. This is at the bottom of most of what has gone wrong in the crisis: the sum total of debt claims is greater than the worth of what was directly or implicitly pledged against the debt – whether the price of a house, the value of banks’ assets or the economic growth of countries.
Click to expand...

http://www.ft.com/intl/cms/s/0/bbe4810c-2c95-11e1-8cca-00144feabdc0.html#axzz1xgVzUTCM

Advocating nothing............but the world needs to move on and this involves writing down debts.
 
Did Dukedom get to hold onto their assets while getting a debt-write down? I really really doubt it.

When debts cannot be paid, there will eventually be write-downs/debt forgiveness after assets have been sold - this has always happened and always will happen. What most people are against is debt forgiveness that allows the debtor to hold on to the asset while getting the debt written off. Even the much publicised nurse Laura case of debt-forgiveness was after the house had been sold.
 
monagt said:
http://www.ft.com/intl/cms/s/0/bbe4810c-2c95-11e1-8cca-00144feabdc0.html#axzz1xgVzUTCM

Advocating nothing............but the world needs to move on and this involves writing down debts.
Click to expand...

I believe you're advocating writing down/off debts. Which would, historically, mean the lender taking a hit out of their own capital. But Irish lenders don't have comparable capital. If they take the hit, it ultimately comes out of the taxpayer's pocket.

That's not moving on. That's ostrich behaviour.
 
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