On May 22, 2013 I called on the Minister for the Environment, Community and Local Government, Phil Hogan to investigate and intervene in cases where algae in Dublin City Council’s water filtering system is leaving people in Wicklow without water. The Minister promised Deputy Harris and myself that he would look at the problem.

Many homes in Delgany, Willow Grove and elsewhere had no water over the weekend, while water has now been turned off between 10pm and 7am in Enniskerry. This problem of water shortages has been ongoing since Saint Patrick’s Day, and was expected to continue until May. However, Dublin City Council has now said that the earliest it will be fixed will be the end of June. This is not good enough and hopefully, the Minister’s intervention will help to provide a speedy solution.

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Sounds dull, I know, but some mechanism is desperately needed. Many people with unsustainable debts have several creditors. A family might be servicing their mortgage but, due to job loss or pay cuts, can’t meet payments on a student, credit union or business loan. Five years into the crisis, no workable framework exists for multiple lenders to agree a joined-up position. So families get bounced between lenders, and the interest continues to mount. And that affects everybody.

So, the Central Bank has, finally, stepped in. Its scheme is snappily entitled ‘Framework for a Pilot Approach to the Co-ordinated Resolution of Multiple Debts owed by a Distressed Borrower’. It provides a common set of rules for lenders to use, so that a single agreement can be reached between borrowers and their lenders. The launch was greeted warmly by RTE, who reported that “a major new initiative has been agreed . . . to alleviate the debt burden of over-stretched borrowers”.

Why, then, are the credit unions refusing to play ball? Because, predictably, the scheme is not what it seems. It may, in the short term, help distressed borrowers pay the interest on their loans. But it won’t really help them pay those debts down. It will, however, increase bank profitability on many of the loans.

Here’s how: lenders will follow a ‘Multiple Debts Resolution Waterfall’. This specifies a strict order of steps lenders must take with borrowers. It starts with lenders putting the mortgage on interest-only for six months. This increases bank profits. If that doesn’t work, lenders are to reduce credit card and overdraft interest rates to 9 per cent for five years. This might help, but the lender still makes significant profits at 9 per cent – and gets the capital back in full.

If that doesn’t do the trick, lenders are to extend the repayment terms for any unsecured loans, followed by the mortgage. Both of these steps increase profits for the banks. After that, lenders will reduce interest rates on unsecured debts to 4.5 per cent, and then do the same for the mortgage, for up to five years. Again, lenders are still making considerable profits at these rates, and the capital is paid back in full.
Then, and only then, are lenders to consider a ‘Significant Mortgage Restructure’. But fear not – the two options suggested are split mortgages and negative equity trade-downs. Some banks, like AIB, PTSB and EBS will, to be fair, forego profits on the split mortgages, but all capital is still paid back. Bank of Ireland forego no profits on the split mortgage, as they charge the full rate of interest on the shelved portion. No bank loses any profits on a negative equity trade-down.

In the Central Bank document outlining the process, the sentence “Full repayment of all principle expected”, or one just like it, is repeated five times on one page. And the scheme puts the banks in the driving seat. They decide what constitutes a reasonable standard of living for borrowers. They decide what a sustainable offer looks like. They decide which borrowers are eligible – those designated as ‘non-co-operating’ by the banks are excluded. There is an oblique reference to unsecured debt being written down – and it is the bank holding the mortgage that decides.
And so the ILCU has withdrawn. It believes the scheme has been designed, not to help Irish citizens, but to protect bank capital – a pattern that has become the norm in Ireland. The credit unions recognise that debts have to be written down if citizens, and society as a whole, are to recover. It sees this scheme for what it is – a method of keeping borrowers on the never-never. Of helping them service their loans, not getting out from under them.

This works for the banks – it keeps the money flowing in and means they don’t have to make provisions on their balance sheets for not getting their capital back. In many cases, it means total profits from distressed borrowers will be far higher than had they been able to pay back the loans on schedule.

But it doesn’t work for the country as a whole – keeping large swathes of people in debt traps locks in economic stagnation and double-digit unemployment. The money earned by these households is not circulating. It is not being invested in new businesses. Instead, it’s flowing into the banks and staying there. Everybody is affected. This week the ESRI told us that people under 45 years of age have reduced their consumption by 20 per cent – significantly more than their incomes have fallen.

Why? Because they’re trying to pay down these debts. One result is that they’re opting out of private health insurance. But their premiums support the whole system, as younger people pay in far more than they use. And so we hear that the private health insurance market might collapse. For better or worse, we are in this together.

The banks do not take this system-wide view. Their job is not to find the best solution for Ireland, but to find the best one for themselves, to return to profitability as quickly as possible. Nor is it the job of the Central Bank – to it we entrust the task of regulation – to ensure the banking system does not destroy itself again.

The wider view, the long-term socio-economic planning, is meant to fall to the politicians. But we appear to have washed our hands of any responsibility. The Dail doesn’t hold the Cabinet to account. And the Cabinet acts to protect the banks. Between this one and the last, they gave the banks €64bn – more than half of which went to two dead casinos.

They set up Nama to clear the banks of their dodgy property loans. They offered ‘no opinion’ on compensation packages worth more than €900k. They shrugged at AIB topping up its pension pot with €1.1bn of public money. They gave the banks a veto and a host of other sops in the insolvency legislation. They are allowing pensioners to be wiped out in the liquidation of Anglo.

And this week, they watch as the Central Bank introduces the wrong scheme. There is no doubt that some Central Bank officials would push the banks further, to provide real protection and meaningful solutions to Irish citizens. But that requires political leadership – and when it comes to the banks, that is something we are all still waiting for.

This article originally appeared in the Sunday Independent on Sunday, May 19, 2013. You can read the original here.

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According to comparative international studies, Ireland is bottom of the pile when it comes to how we do our budgets. The Index Of Legislative Budgetary Capacity, 2006 gave Ireland zero out of ten on the amount of time given to parliament to consider a draft budget and zero out of 10 on the amount of information given to parliament to allow it interrogate the proposals. Ireland ranked second from bottom (only South Africa was lower) in index of legislative budgetary capacity in the OECD and other countries (36 countries in total).

Thankfully, some budgetary reform is happening – as with the Ministers and Secretaries Bill, which is being introduced at the behest of our friends in Europe. But the Culture of secrecy and exclusion surrounding Irish budgets hasn’t changed.

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Yesterday the Government has confirmed to Stephen Donnelly, Independent TD for Wicklow and East Carlow that it will consider subsidising the Number 2 Wexford to Dublin Bus, due to its importance for the people of Arklow in accessing Saint Vincent’s Hospital. This follows confirmation from Bus Eireann that it intends to reverse some of the changes that were brought in last September.

Minister of State, Alan Kelly told me that he will have his officials examine the case of the Number 2 Route once again. I look forward to the outcome of their considerations, and hope that they see sense; a route of such vital importance should not be operated as a commercial route.

Earlier this week Bus Eireann confirmed that they expect the Number 2 route to soon stop at Ferrybank, Main Street and Lidl in Arklow, and that every second service will stop at Jack Whites, the Beehive and Barrindarrig. The company has also requested that the 6am service will leave Wexford ten minutes earlier and requested new stops in Dublin. They expect all these changes implemented by the middle of June.

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Every six months officials from the Department of Finance give the Committee on Public Expenditure and Reform an update on the EU legislation it has enacted. We recently discussed their report for the period of 1st July to 31st December, 2012, which included the following elements;

• Single Supervisory Mechanism & European Banking Authority
• Bank Resolution Framework
• Deposit Guarantee Scheme
• Mortgage Credit Directive
• Packaged Retail Investment Products
• Markets in Financial Instrument Directive/Markets in Financial Instrument Regulation

All important (if highly technical) stuff. The good news is that the Department seems to be doing a good job. I was slightly concerned that their report seemed a little one sided; it didn’t outline anything that the department had failed to achieve.

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When Maurice Hudson‘s son got in touch with me, I assumed he’d been given bad information. His father put his pension fund in Anglo Irish Bank in January 2008. The capital was guaranteed, and was due to be returned to him in January 2014, with interest. When Anglo was merged with Irish Nationwide to form IBRC, remaining deposits were moved to AIB. Maurice’s wasn’t, as it was deemed to be an investment product. It was, nonetheless, recognised by the State as a pension – Maurice had been able to take out his 25 per cent tax-free lump sum, and the remainder was taxed when the Government decided in 2011 to take 1.8 per cent out of all private pensions.

Now, he was being told that when IBRCs assets are sold, there won’t be enough left to return his pension to him. He won’t get his €450,000. He won’t even get the €100,000 which was presumed guaranteed by the State under the deposit guarantee scheme. Now €450,000 might sound like a lot, but it pays a pension of about €27,000 a year. That’s less than many teachers get on retirement, so nothing out of the ordinary.

When Maurice’s financial adviser confirmed all of this, I still assumed a mistake had been made – that in the chaos of liquidation, the Government didn’t realise Irish pensioners were being wiped out. Having paid tens of billions of euro of taxpayers’ money we never owed to international investors, to avoid having “the name of defaulter across our foreheads”, it was inconceivable that we would now default on our own pensioners.

Turns out I was wrong. I raised Maurice’s case directly with Minister Michael Noonan, and was stunned by his reply.

“Neither I nor the Special Liquidators are able to discuss the circumstances of individuals who had accounts with IBRC … I would suggest that individual customers take up their concerns with the Special Liquidators and IBRC (in liquidation) directly.”

The minister was washing his hands of any responsibility.

He continued, “I have been advised that the Liquidator is aware of a number of customers who fall outside the eligibility criteria for the ELG (Eligible Liabilities Guarantee) Scheme due to the nature of the investment product. Unfortunately, if a customer is not eligible under the ELG scheme they will rank as an unsecured creditor in the liquidation.”

Here’s the logic being applied: Maurice isn’t covered by the ELG because he put his pension in Anglo before the State guarantee began in September 2008. As such, he’s an unsecured creditor. And because there aren’t enough assets in IBRC to cover its liabilities, the unsecured creditors, like Maurice and the other pensioners, aren’t getting their pensions back.

Taken at face value, there’s a certain logic to what’s being said – he invested his money in a bank that did not have a State guarantee, that bank became insolvent, and so he can’t have his money back. Only here’s the thing: on the night of the guarantee, in September 2008, €573bn was invested in the six Irish banks in question. Every one of those banks was insolvent, and so the owners of that €573bn should have taken a hit, including Maurice. Some would have taken more of a hit than others, due to the legal strength of their investments. But if we assume €64bn was needed to make the banks solvent, as that’s how much we’ve put in to them, then the average hit would have been 11 per cent.

But that’s not what happened. While some junior bondholders were hit, the vast majority of the €573bn was paid out in full. To the best of my knowledge, nobody got nothing back – until now.

Let’s look at Anglo, where Maurice put his money. On the night of the guarantee, there was nearly €100bn invested in the bank. Over €72bn was deposits, which have been honoured in full. Over €17bn was senior bonds, and the vast majority of these have already been paid out, with profits (€22.3bn of the €22.5bn of senior bonds in Anglo and Irish Nationwide in September 2008 has already been paid out). This was only possible because the Government gave Anglo about €30bn of our money.

Last year alone, €2bn was paid out to bondholders who put their money in Anglo before the 2008 guarantee. One such payment was for €1.25bn. Let’s just line these up. In January 2007, a professional investor loaned €1.25bn to Anglo, for five years. In January 2008, Maurice Hudson deposited his pension with Anglo, for six years. Neither had a State guarantee. In

January of last year, Irish taxpayers’ money was used to pay out the €1.25bn, plus accumulated interest, to whoever now held the 2007 bond. In March of this year, Maurice Hudson was informed he wouldn’t be getting a cent back.

And if that doesn’t lead you to rage or despair, consider this: the Government refuses to find out who the €1.25bn was paid to. It’s entirely possible the bond was bought from the original owner at a fraction of the original value – nobody thought the Irish Government would be stupid enough to pay out in full on unsecured, unguaranteed bonds from a dead bank under criminal investigation. But it did, and so it’s possible that someone made hundreds of millions in profit when the €1.25bn was paid last year.

This lack of information has become the norm. I asked Minister Noonan for the balance sheet of IBRC at the time of liquidation, to see who’s owed what. It is being withheld. I asked him how many pensioners are being affected by the liquidation. He said he doesn’t know. And yet when pressed by the Prime Time team last week as to why Irish pensioners were being wiped out, the Department of Finance responded that it would be too expensive to save them – even though it knows neither the number of pensioners involved, nor the cost of saving them.

It turns out that the Government is OK with having ‘defaulter’ written across its forehead. Just so long as we’re defaulting on our own people, and not on international investors, like Deutsche Bank. And so you have to ask the question: what have we become, other than debt collectors for foreign millionaires? What values do we hold as a nation? What lines will we not cross?

A way must be found to give these pensioners back their money. It was possible to underwrite the liabilities of an entire banking system, to implement the biggest per capita bank recapitalisation in history, and to create the largest property company on earth, all in order to save the banks. If we accept that it is too difficult to help our own pensioners, then we stand for nothing.

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On Wednesday May 1, 2013, the Dail began to discuss Minister Alan Shatter’s Land Conveyancing Reform Bill, which aims to fix the lacuna in the law relating to repossessions. I welcome the limited protection the bill offers borrowers, but believe there are some important amendments required to ensure that repossessions are not an easy option for the banks.
These include:

• To counterbalance the Bank’s Veto, the judge should be able to consider whether the bank has cooperated with any proposed insolvency arrangement;

• The CCMA should be admissible as evidence to determine whether both  borrowers and lenders have adhered to the agreed guidelines to date;

• The Judge should be able to grant more than a two month adjournment. The Insolvency Service Guidelines indicate that an insolvency arrangement would take longer than this;

• In instances of repossession, the borrower will undoubtedly be in financial distress. Therefore, the bank should carry the cost of engaging a PIP, in instances where a judge calls for a PIA;

• I would also like to see the legislation attempt to offer some protection to family homes, in instances where there are two secured loans in arrears, eg.  A family home and a buy-to-let property and the bank moves to repossess both;

• I would also like to see the Government funding  a borrower-side support network, including organisations like MABS, FLAC and New Beginning.

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I was on RTE’s Late Debate on Wednesday, May 1, 2013, with Ross Maguire of New Beginnings, Paul Joyce of FLAC and Arthur Spring of Labour. We were discussing the Land and Conveyancing Reform Bill 2013 and the live register figures.

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