Ireland is being mugged over and over again due to our lack of understanding of how capitalism works. Capitalism is about efficiency of finance and capital is attracted to the most efficient processes; capital chases yield. We, the Irish, seem to be happy to let our children, our future feed that capital.
For centuries Irish people were slaves to the land and to feudalism. The British, in various forms, over the centuries controlled our greatest asset, the land. Their weapon was their military presence.
That all changed in 1922 and we became independent in many ways but did we really gain our financial independence as the country struggled financially up to the 1990s. The writer migrated to the UK in the 80s like many; my personal tax rate on a low wage was in the 70% bracket and unemployment high, opportunities low.
Then the noughties came, EU membership was kicking in, the Euro was delivering cheap money and we had the first modern day financial invasion.
They arrived from England, Scotland, Denmark, The Netherlands and Belgium. They portrayed themselves as bringing financial competitiveness to the Irish consumer. They propagated “Interest Only” loans and hired locals to bring them market share. What was their main weapon; cheap finance. They lashed it out, ignoring consumer codes, code of practices, regulatory guidelines and all good standard banking practices. They rewarded their local management, our fellow countrymen, with vast financial incentives; anything to grow their balance sheets.
The previous invasions were funded by military strength; this invasion was funded by easy cheap money and we could not get enough of it.
There is a comparison here to the international crash of 2007/2008 that was caused by fraud as the originators of suspect subprime mortgages in the US passed the risk to foreign investors and pension funds and the supply chain widened and accountability and sight of risk disappeared. In Ireland the local employees of major banking corporations handed out Interest Only, Self Cert and loans past retirement dates, with no thought or question as to how they would be repaid. Unfortunately, due to commercial pressure, the local banks followed suit and joined in this “misconduct” in order to save their market share.
These latter invaders lost their cheap money in 2008 and have since slowly departed these shores with the last leaving in 2021.
Now arrives the next invader and their weapon of choice; cheap money. We call them vultures. We wonder why they can buy everything and our kids can afford nothing. We wonder why all our building resources (i.e. builders) focus their output to meet the vultures’ desires; it’s simple, guaranteed sales of their output.
My kids borrow off the bank at 3.9%; the vulture borrowers at 1.2%. It does not take a genius to work out who can pay the most for the assets. Ask the question:-
“How come my kids can’t afford to buy a home yet they can afford to fund the rent on that very home”
What makes it worse is that the vultures borrow their senior money at ridiculously low rates from the very same banks that we place our deposits at – for zero or less.
The Central Bank has capped borrowing levels for Irish consumers (I hear you applaud) yet allowed others to participate in the housing market with no caps or restrictions. Their objective was to cap or limit house price growth, however, if you just cap one participant class in a market, all you do is allow the others to arbitrage the situation and f*** over the restricted party.
We have turned our housing market into a commodities market, a tradeable market with little regulation except over one investor type, our children. I suspect we like this as it drives prices up and we, the existing home owners feel good and confident about things. However, we have to realise there are three serious long-term effects of this policy of homes classed as investments:
- Investors need to drive higher rents, higher prices and these will feed through into our productivity as a country, making us less competitive;
- If you have a modest house and two or more children, then significant house price inflation makes your family unit less wealthy, do the math;
- Lack of home ownership disconnects people from their community with all the ensuing social problems, both physical and mental.
Is this the country we want for our children?
Ben is a failed retired banker who left Ireland in the 80s and grew as an individual in a major global investment bank. Having returned to Ireland, he now wants to repent. His profile can be seen at https://financialcounselling.ie. He also assists people who know their mortgage was mis-sold at https://misselling.ie.