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The Irish Banks, The Central Bank and the Property Bubble


Lennon

Well-known member
Joined
May 9, 2007
Messages
335
Is the Central Bank there to protect the banks or to protect the consumers?

During the property bubble the Central Bank presided over a situation where banks operating in Ireland were permitted to engage in totally inappropriate lending practices such as 100% mortgages over 40 year periods which were a multiple of 10 times the borrowers earnings.

The banks of course were making a lot of money. Property prices continued to rise and rise as more and more Irish people paid way over the odds for houses which are now descending into negative equity. But what did the Central Bank do to prevent this scandal? Absolutely nothing!

As the share price of Irish banks plummet (along with property prices) the Central Bank continues to claim that the Irish banks are solid. The banks are now in big trouble and in the end the Irish taxpayer will be forced to bail them out when the inevitable collapses occurs.

It is now clear that the Central Bank is there to protect the banks and not to protect the consumers.
 

mairteenpak

Active member
Joined
Apr 21, 2008
Messages
196
Could the Central Bank face civil suits if they were proved to be negligent?
 

Lennon

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Joined
May 9, 2007
Messages
335
mairteenpak said:
Could the Central Bank face civil suits if they were proved to be negligent?
The Central Bank Act 1942, states that:

"The Bank shall be a body corporate with perpetual succession and an official seal (which shall be judicially noticed) and power to sue and be sued in its corporate name and to hold and dispose of land."

http://www.irishstatutebook.ie/1942/en/act/pub/0022/print.html

Individual accountability including the imprisonment of those responsible for this outrage needs to be looked at.
 

mairteenpak

Active member
Joined
Apr 21, 2008
Messages
196
Some of the UK financial institutions were sued successfully in relation to endowment mortgages.

It is conceivable that a financial institution could face an action for permitting over lending
 

Lennon

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Joined
May 9, 2007
Messages
335
mairteenpak said:
Some of the UK financial institutions were sued successfully in relation to endowment mortgages.

It is conceivable that a financial institution could face an action for permitting over lending
A class action could be taken by all those people now in negative equity because these overzealous unregulated lending practices.

However I would not expect our political elite who are also complicit in this scandal to take any action.
 

mairteenpak

Active member
Joined
Apr 21, 2008
Messages
196
Could the people who provided the valuations be sued, as it was reasonable for an expert to foresee that a valuation based on a multiplier of 26 times rent would not hold up in the event of higher interest rates, where as a layperson would be likely to rely on the expertise of the valuer.

The valuers have nice juicy indemnity policies
 

Lennon

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Joined
May 9, 2007
Messages
335
mairteenpak said:
Could the people who provided the valuations be sued, as it was reasonable for an expert to foresee that a valuation based on a multiplier of 26 times rent would not hold up in the event of higher interest rates, where as a layperson would be likely to rely on the expertise of the valuer.

The valuers have nice juicy indemnity policies
The large estate agents are now running scared about giving property valuations.

There is every likelihood that estate agents who continued to provide inflated property valuations using unreasonable assumptions could be joined into this class action.
 

Anorakphobia

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Joined
Apr 13, 2007
Messages
911
We all know what teh spivs and knaves in vested interests like actioneers,lenders, landlords and builders did but you'd surely expect better from Government and Central Bank
However,
as late as Thursday night on CNBC our Taoiseach said
"the anticipated correction in property prices is occurring"
also
stated all our banks are rock solid and "very liquid"
Why would banks who are "very liquid" refuse to lend people 30% of the book value of a property?
Dunno?
Me neither but i could make a very reasonable guess but of course I am not allowed speculate anything about the strength or otherwise of banks, sure isn't that prohibited by teh Central Bank.

Unless of course you are John Hurley, Governor.
The Governor of the Central Bank effectively gave investment advice and tipped up Irish banking shares by stating in front of an Oireachtas panel on Tuesday that falls in bank shares are "overdone"

Great fcuking little country we live in
 

Lennon

Well-known member
Joined
May 9, 2007
Messages
335
Country Tom still thinks it's a good time to buy property in Ireland!

[youtube:3uctlos0]http://www.youtube.com/watch?v=p-kuggPZzO8[/youtube:3uctlos0]
 

politicaldonations

Well-known member
Joined
Sep 28, 2006
Messages
683
Amazingly the governor of the central bank gets more than the heads of the US Fed, ECB and Bank of England despite having little or no responsibility and overseeing a tiny economy/financial system. What do the staff in central bank do since the arrival of Euro and ECB rate setting in 2002? They should have taken pay cuts since 2002. There were many ways to control credit bubble apart from setting rates if te central bank and government had acted. Alan Aherne recently outlined some things. They Central bank made a belated effort at end of boom by demanding higher reserve ratios and stress testing but this was too little far too late. A civil case with independent economic and financial experts from around world testifying could succeed against Central bank IMO.
 

rockyracoon

Active member
Joined
May 17, 2007
Messages
181
I've have done a bit of reading up on the ECB and its relation to national central banks (ncbs) in the Eurozone. Written into EU legislation with regard to all ncbs is the concept of decentralisation. While the ECB has its own reserves originally constituted through contributions of members of the Eurozone, our own ICB still does many of the same tasks it did before it became a member of the ECB. It still is the central clearing house for all international banking transactions, etc. The ICB is in reality a shareholder of the ECB. It can actually receive a proportion of profits from the ECB's activities at the end of the fiscal year. (Strangely enough, if I understand correctly, the ECB owns about 8% of all Euro currency in circulation.)

Through EU law, the ECB is a legally indepedent body. (Again not sure if it's a corporation or just a seperate legal entity - sort of a quasi-corporation set up.)

However, the regulatory function is a new division of the ICB as consistuted by law in 2003. It appears the Financial Services Regulartory Authority carries out the tasks of ensuring the non-bank financial and legal functions engaged in by Irish financial institutions are above board. This includes mortgage advisors. I do not what guidelines it goes by.

Then there is a third body, the National Treasury Managment Agency which reports to the Finance Minister. This agency is responsible for obtaining loans for the goverment and for managing the National Pension Reserve. The Agency is allowed invest in any type of security except Irish debt bonds. It is allowed to invest the pension reserve, it seems, in any type of investment vehicle it chooses to.

So the ICB is a fractional shareholder in the ECB. While the ICB can print money, it can only do so through direction of the ECB - ie it cannot do so unilaterally. So it appears it cannot create money supply through national borrowings either.

This is where I lose the plot. Does anyone know who we actually borrow funds from? (That is, how is the money supply created.) Is the ICB a corporation? I believe it is a seperate legal entity from what I've read. Who are the ICB's shareholders. It's not a national central bank ,so our government doesn't own it. Do the banks who deposit reserves essentially own the ICB?
 

youngdan

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Joined
Jul 9, 2007
Messages
1,378
Understanding how the money supply is created is the simplest thing in the world.
 

stopthetrain

Member
Joined
Mar 29, 2008
Messages
48
I was just wondering how much is the interest rate on mortgages on borrowing right now, apart from loan for other purposes ? :mrgreen:
 

Centurian

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Apr 30, 2008
Messages
118
stopthetrain said:
I was just wondering how much is the interest rate on mortgages on borrowing right now, apart from loan for other purposes ? :mrgreen:
Not sure - but I bet it's a much better rate than that offered for a loan by your local Witch Doctor...
;)
 

rockyracoon

Active member
Joined
May 17, 2007
Messages
181
youngdan said:
Understanding how the money supply is created is the simplest thing in the world.
Yes, we know how money supply is created but the question is who creates money supply in the Eurozone. I've just read where Spain is borrowing from the ECB up to but below its initial reserve ratio. So, it would appear that the ECB is the one creating the money, but given the "decentralisation" policy it is not beyond the realms of possibility that NCBs also have some capability. Capice?
 

stopthetrain

Member
Joined
Mar 29, 2008
Messages
48
Centurian said:
stopthetrain said:
I was just wondering how much is the interest rate on mortgages on borrowing right now, apart from loan for other purposes ? :mrgreen:
Not sure - but I bet it's a much better rate than that offered for a loan by your local Witch Doctor...
;)
I was just thinking of paying my school fee rather than buying a van for my business as a show off, but when i calculated how many business i am getting with rest of mind i realize i dont need a witch doctor in my life it's a taboo!!! :mrgreen:
 

Conor

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Joined
Apr 7, 2004
Messages
5,206
rockyracoon said:
It's not a national central bank ,so our government doesn't own it.
It is a National Central Bank; the State owns it.
 

rockyracoon

Active member
Joined
May 17, 2007
Messages
181
No, the ICB in not a national central bank in the sense that the government owns it. It has its own legal identity seperate from the state although it is designated as the state's Banker. When the state was first constituted the Bank of Ireland was its banker - now the ICB is; although it seems to only really deal with Irish foreign reserve accounts for the most part for the government. However, the banking act of 2003 substantially altered its status and functionality. While the ECB works under a decentralisation policy, all money supply matters have essentially been moved to the ECB.
 

Conor

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Apr 7, 2004
Messages
5,206
rockyracoon said:
No, the ICB in not a national central bank in the sense that the government owns it. It has its own legal identity seperate from the state although it is designated as the state's Banker.
Insofar as that makes any sense, it's not right.
The CBI was established by statute, passed by the legislature of the State; the assets of the CBI are assets of the State; the Governor of the CBI is appointed by the President of the State. In what sense do you take it to be distinct from the State?
 
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