having a central bank...

The Irish Property Bubble The Republic of Property
#1

One thing that has not been looked much is the central bank, I would like to know why they never changed the reserve requirements for banks as a way to quell lending/speculation?

the irish central bank can’t change ecb rates but they could have told banks here that they have to hold a higher % of their money in hard cash which would have had the effect of reducing the lending flow.

too little too late but I was just wondering why they didn’t do some of the things that were still in their power to do?

#2

I understand that most of them are ideological “free market rulez” nutters and after all there are 6 Irish CB staffers who earn more than Trichet himself so we obviously bought the best .

#3

Why didn’t they say no 100% mortgages, no 40 year terms, no cosy deals with developers, no selling through brokers so that you can deny liability later down the line, why not prevent people borrowing more than a fixed multiple of their actual income (as opposed to pie in the sky income), why didn’t they say to Irish people stop this is madness (oh wait, they did, and no one listened)?

#4

but they never used central banks tools like raising reserve ratios , they let the madness go while bleating uselessly. There are 700 working in that useless shithole of a central bank :frowning:

We need to fire half of them straight away and put their salaries in the miserable little rainy day fund instead, too late I know but lets make the culprits share the pain first.

#5

JohnnySkeleton: i’m not concerned, nor are many with what they ‘say’ rather its what they ‘do’ in their role as central bankers, it is their job after all to guide the economy, and they failed deplorably. If anybody could have halted 40 year terms it was the CB. they after all decide what does and doesn’t wash.

some other points about not allowing brokers are kind of pointless, if regulation doesn’t ensure there are certain rules and procedures in place then whether the loan is brokered or not is of little consequence, brokers are only a distribution chanel.

and regarding the ‘mulitplier’ rules, they actually did do that, then after 2001 they decided to see what would happen if they changed the rules and now we have a nice bubble to remind us of that.

2Pack: very militant view! partly correct though, if they fail in their job then why don’t they get pay cuts? the economy is reflective of how well they do their job so there is some thinking that could be done around that, although knowing the way things work around here that is not likely to happen!

#6

How much did the use of securitisation circumvent the reserve ratio? If you could sell the loans on, you could meet all sorts of reserve requirements without much difficulty.

#7

Vultures will be circling over our banking disaster
David McWilliams, June 4th, 2008
davidmcwilliams.ie/2008/06/0 … g-disaster

If bank HQs leave the country can the money be far behind?
David McWilliams, January 20th, 2008
davidmcwilliams.ie/2008/01/2 … far-behind

Central Bank cocooned from real life
Marc Coleman, Sunday September 02 2007
independent.ie/business/euro … 69968.html

Central Bank tries to stem tide
David McWilliams, November 12th, 2006
davidmcwilliams.ie/2006/11/1 … -stem-tide

Banks are drowning us in debt
David McWilliams, October 30th, 2005
davidmcwilliams.ie/2005/10/3 … us-in-debt

A shamrock solution for Central Bank has got three wings
David McWilliams, February 25th, 2001
davidmcwilliams.ie/2001/02/2 … hree-wings

#8

Note the date in the following articles the central bank only begins moving after the horse has bolted.

#9

I have said this for ages. The central bank failed to control the massive credit explosion through measures other than interest rates. They raised the reserve ratios and stress tests too little, far too late. They are the biggest most overpaid quango in the state and i am suprised no ambitious young politician didnt question Mr Hurley on his and his instituition’s failings when he attend dail eireann commitee last week. The media and politicans ahve given the central bank and hurley a free ride so far. He has been about as usefull as a dildo in a nunnery.

#10

Mortgage Broker, maybe you can get someone in Newstalk to look into it when you are next on the radio? Although their economics editor Coleman is a former ECB employee and I think an Irish Central bank employee? and “central bankers” (what does that rhyme with!) stick together.
Cheers.

#11

The central bank may have ‘warned’ but they didn’t ‘do’ the right things in a timely manner. They can’t bear the entire blame, but many of their moves were pointless.

for instance: stressing loans on a 5 year fixed rate - granted this was used to get people extra €, but when this was scrapped those people ended up on 1 -3yr fixed rates and are coming off them in the hieght of the crunch! in fact, there is a strong rationale for stress testing loans over 5 or 10 or even 20 years because if this is done then the end user has fixed payments for a longer period and can budget accordingly, imagine the folks who are about to see a leap in lending price from 4% to 6.5%? perhaps all loans should probably be tested at 5 year fixed rates, but done as a measure of credit control rather than one of finding extra lending.

indeed the horse has already bolted, the sad thing is that these things are being done (at least in part) so that they can claim they did take ‘measures’ and of course becuase everything public sector takes 2 years to get anywhere they will be saying that it was spotted in 2003 but it took until 2007 to happen etc. its just dissapointing.

#12

on that note: the ‘reserves’ that are in place should there be any liquidity issues are a whopping 2%

centralbank.ie/frame_main.as … mo_nav.asp

so there is €526 million as a bail out fund, and 2% to save the day before the bailout fund is needed.
after that we’ll all bear the brunt, got so miffed i even did a quick article on it

mortgagebrokers.ie/blog/inde … e-lunches/

#13

Just read a link to more classic crap from Coleman: Sept 2007:
“Although rising in Ireland, inflation in the euro zone looks as dead as a doornail.”

#14

I would have thought that a dildo would be extremely useful in a nunnery. :confused:

#15

Forgive my colloquial mode of communication, but when I state that the CB could have said no 100% mortgages etc, I mean they could have imposed a rule prohibiting such practices. But I agree with you, they could have done so but didn’t.

I didn’t mean to have a go at you or your profession, but there are some frightfully bad brokers out there, and there is definately a suggestion that the banks were complicit in situations where the broker beefs up the potential mortgagor’s income with pie in the sky overtime, second jobs and rent a rooms, and then feeds this information to the bank as a global income figure which the bank use as the basic income. I even know of some brokers who never bothered to pass on such basic information as the mortgagee’s contact telephone number or previous address, and there are also a lot of mortgage customers (whether you believe them or not) who claim to be mis-sold products or not made aware that (for example) the monthly installments of a mortgage would increase after the fixed term is up.

I think there is much more that the CB could have done other than simply reduce the total available credit. If anything, that would probably have meant our banks borrowed more money to lend out the same amount rather than cut the amount they were lending. If this were to have happened, we would be in a much worse position than we are now.

Greenbear, that’s a lot of information, but in re: the stress testing, given that rates have gone from extremes (PTSB had a fixed rate introduction of 2.74% in 2005, and a variable rate of 5.94% in 2008) a stress testing of 2% seems very low.

#16

there are some awful brokers out there (hopefully i am never counted amongst their ranks!) but the issue with brokers beefing up salaries has more to do with bad debts and the liquidity crisis rather than that of the central bank.

i think we will see a big spike in ‘mis-selling’ claims in the near future as people end up paying more they will say that banks/brokers shafted them etc. but thats expected because nobody really likes to lose money and admit that they had any responsibility for it.

one glaring big error on behalf of the central bank is in greenbears post: they made a new ‘rule’ which means you had to stress at ECB + 2.75% instead of variable + 2%

that actually makes lending more easier, how? well - take an example from 2004 (only because you mentioned PTsb & i remember the PTsb variable from back then for some reason!) PTsb had a variable rate of 3.55% so it was stress tested at +2% meaning the stress would be on 5.55% but with the central banks new rules you only had to only do it at (old ecb @ 2004 level) 2% + 2.75% which means you are testing the loan at 4.75% which is less meaning they can place lending in that gap between 4.75% and 5.55% (if that makes sense), the way stress testing works is: the higher the number you stress at the less you can borrow - so the CB made a rule which actually meant people could borrow more, they took one of the few gatekeepers and dragged him down an alleyway for a beating.

the sum works the same if you roll forward to 2007 and take the variable rate then as well as the base rate, because variables were much higher when you used them rather than the ECB as the foundation for the equation the borrower got less. the ECB doesn’t even mean anything any more, and of course this news was delivered in august 2007, 1 month after the credit crunch had commenced…nice work.