"Train spotter" that I am , I have spent many hours pouring over the new Insolvency bill. Under current circumstances, I just cant see how its going to work and the Minister will need to amend it very quickly or we risk letting the banks, force this country to its knees for another thirty years.
It appears to me that the position of each of the parties is as follows
1) Minister for Justice
has repeatedly said that we need to resolve the unsustainable debt in our economy and we need to do this to allow people to get on with their lives and restore growth to the economy as early as possible. The PIB is framed in such a way that insolvent debtors will pay as much as possible towards their debts for the 1st five or six years of the arrangement after which time, the remaining debt will be written off. Unfortunately there is a veto in the bill that will allow the banks to dictate the outcomes in most cases and the big worry is that the banks have repeatedly said that there will be no write-offs whatsoever. It seems to me that the banks will "play" with this piece of legislation. Shatter has said that he will review the legislation early if it seems that the banks are not cooperating. The battle lines are drawn.Only time will tell if Minister Shatter is also playing for time or if he is really serious about getting this piece of legislation to work as intended.
2) The Banks
are between a rock and a hard place. They are worried that they wont be able to keep the flood gates closed if they start down the road of "debt forgiveness" Their balance sheets are not strong enough for massive debt write off and they worry about separating the "cant pays" from the "wont pays" Some commentators are beginning to think that the arrears problem in the Irish banks is a lot worse than reported and the impairment provisions are under-stated. If the banks need further capitalization, its unclear where it will come from. The banks current solution appears to involve "parking" or "warehousing" unsustainable debt into the future. For example if a debtor owes 500K and can only service 200K, the reamaining 300K is "parked" until the 1st 200K is dealt with and then the intention is to work on a repayment plan for the remaining 300K.This is a dangerous game by the banks. The debtor has one ace left in his hand. His choice is to sign up for the bank "master plan" OR file for bankruptcy. The banks are gambling that individuals will shy away from the bankruptcy option. I think they're wrong
3) The Debtor
is frustrated at the lack of action by the banks. Many have lived the nightmare for a number of years already. It seems to me that very few will want to sign up for 30 years of debt repayment. It doesn't make sense.
My worry is that the government will shirk their responsibility to solve the crisis. They have drafted the Personal Insolvency bill which in itself is a powerful framework to resolve the issues however it falls down completely by placing the balance of power in the hands of the banks. The dilemma is that the banks will act in the interests of the banks (as they have always done) and not in the interests of the people or the economy.
The bottom line is clear. As a country, we will need to write off debt and we will need to recapitalize the banks again in doing so. This is a government responsibility and the big mistake now is delegating it to the banks who are lining up to make a big problem, even bigger.
The discussion that should be taking place is a recognition that the PIB will involve writing off debt (which it does) which inevitably will result in recapitalizations of the banks. The government should be considering how to handle such a recapitalization.There is no visible discussion on this subject at all. We cant fix the economy if we don't properly address the debt crisis. The situation is farcical.
If every Tom Dick and Harriet can see no way out of their individual financial messes and all decide to go bankrupt (and the real danger here is that it could become "fashionable" / acceptable to go bankrupt) then the banks will be forced to write off ALL the debt rather than a PART of the debt which might otherwise be possible under a properly functioning insolvency act. The banks are gambling again with the tax payers money and I'm not sure everyone realises that yet.
I have communicated recently with several individuals who are waiting to have their problems solved, and owing typically 300K on failed property investments. All of them would be willing to pay back around half the amount owed, provided the bank is willing to write off the other half. None of them are prepared to spend the rest of their lives paying back a debt and having nothing to show for it at the end. They all speak about bankruptcy as the only show in town. The banks are acting tough and attempting to play the "long game". It wont work.The banks really need to tune into the Personal Insolvency Bill OR they will end up writing off a lot more bankruptcy debt than would otherwise be necessary. The banks are in survival mode. Things will have to change and change quickly.
I have no confidence that the banks will actually do what needs to be done. The banks want to avoid further recapitalizations at all costs or anything that will increase government ownership and control. Buckle up, we're in for for bumpy ride
It appears to me that the position of each of the parties is as follows
1) Minister for Justice
has repeatedly said that we need to resolve the unsustainable debt in our economy and we need to do this to allow people to get on with their lives and restore growth to the economy as early as possible. The PIB is framed in such a way that insolvent debtors will pay as much as possible towards their debts for the 1st five or six years of the arrangement after which time, the remaining debt will be written off. Unfortunately there is a veto in the bill that will allow the banks to dictate the outcomes in most cases and the big worry is that the banks have repeatedly said that there will be no write-offs whatsoever. It seems to me that the banks will "play" with this piece of legislation. Shatter has said that he will review the legislation early if it seems that the banks are not cooperating. The battle lines are drawn.Only time will tell if Minister Shatter is also playing for time or if he is really serious about getting this piece of legislation to work as intended.
2) The Banks
are between a rock and a hard place. They are worried that they wont be able to keep the flood gates closed if they start down the road of "debt forgiveness" Their balance sheets are not strong enough for massive debt write off and they worry about separating the "cant pays" from the "wont pays" Some commentators are beginning to think that the arrears problem in the Irish banks is a lot worse than reported and the impairment provisions are under-stated. If the banks need further capitalization, its unclear where it will come from. The banks current solution appears to involve "parking" or "warehousing" unsustainable debt into the future. For example if a debtor owes 500K and can only service 200K, the reamaining 300K is "parked" until the 1st 200K is dealt with and then the intention is to work on a repayment plan for the remaining 300K.This is a dangerous game by the banks. The debtor has one ace left in his hand. His choice is to sign up for the bank "master plan" OR file for bankruptcy. The banks are gambling that individuals will shy away from the bankruptcy option. I think they're wrong
3) The Debtor
is frustrated at the lack of action by the banks. Many have lived the nightmare for a number of years already. It seems to me that very few will want to sign up for 30 years of debt repayment. It doesn't make sense.
My worry is that the government will shirk their responsibility to solve the crisis. They have drafted the Personal Insolvency bill which in itself is a powerful framework to resolve the issues however it falls down completely by placing the balance of power in the hands of the banks. The dilemma is that the banks will act in the interests of the banks (as they have always done) and not in the interests of the people or the economy.
The bottom line is clear. As a country, we will need to write off debt and we will need to recapitalize the banks again in doing so. This is a government responsibility and the big mistake now is delegating it to the banks who are lining up to make a big problem, even bigger.
The discussion that should be taking place is a recognition that the PIB will involve writing off debt (which it does) which inevitably will result in recapitalizations of the banks. The government should be considering how to handle such a recapitalization.There is no visible discussion on this subject at all. We cant fix the economy if we don't properly address the debt crisis. The situation is farcical.
If every Tom Dick and Harriet can see no way out of their individual financial messes and all decide to go bankrupt (and the real danger here is that it could become "fashionable" / acceptable to go bankrupt) then the banks will be forced to write off ALL the debt rather than a PART of the debt which might otherwise be possible under a properly functioning insolvency act. The banks are gambling again with the tax payers money and I'm not sure everyone realises that yet.
I have communicated recently with several individuals who are waiting to have their problems solved, and owing typically 300K on failed property investments. All of them would be willing to pay back around half the amount owed, provided the bank is willing to write off the other half. None of them are prepared to spend the rest of their lives paying back a debt and having nothing to show for it at the end. They all speak about bankruptcy as the only show in town. The banks are acting tough and attempting to play the "long game". It wont work.The banks really need to tune into the Personal Insolvency Bill OR they will end up writing off a lot more bankruptcy debt than would otherwise be necessary. The banks are in survival mode. Things will have to change and change quickly.
I have no confidence that the banks will actually do what needs to be done. The banks want to avoid further recapitalizations at all costs or anything that will increase government ownership and control. Buckle up, we're in for for bumpy ride
