Residential Mortgage Arrears Strategy Issues

The estimable Constantin Gurdgiev comments here on this speech earlier this week by Governor Honohan.(Hat-tip to the Ballyhea Bondholder bailout protest page on FaceBook.)

It may surprise some readers, but I pretty much agree with his comments.

"Strategic" is very rarely a term properly applicable to defaulters in Ireland. "Tactical" might be a better one, but,for me, whichever term is used, it is not appropriate to regard it as always a derogatory one. Such defaulters are not all trying to "game" the system or escape scot-free from their obligations. In a significant number of instances, lenders are still unable or unwilling to engage realistically or at all with their troubled clients.

Faced with unresponsive or unrealistic creditors, some debtors are "defaulting" as a negotiation move.

However, this is a dangerous course for many, whose circumstances are often too precarious to enable the requisite discipline and clear-sightedness to be maintained. They may start with a lump-sum in a separate account, and adding monthly payments to it, but may not be able to resist drawing from that account for other more immediately pressing needs, for example.

And of course many - not all, or even most - debtors continue to pretend that hard decisions can be put off for ever, that the mistakes of others excuse all of their own, and generally that "the world owes them a living". When one reads suggestions that someone who isn't paying for the roof over his head "deserves" a foreign holiday, one has to wonder how farther we still need to go to approach collective sanity.

Still, I repeat that we won't get there by pretending that taking every debtor case-by-case through a fantasy attempt to get blood out of stones is doing anything but indulging an alternative - and, really, less forgiveable - fantasy. I am disappointed that the Governor appears to be flirting with this.

[UPDATE: The full text of Prof. Honohan's speech is now available here. As usual with utterances from that source, the speech repays close reading, and is full of useful information and comment.]

As For Moral Issues ...

Note that I have not mentioned moral issues yet. If we "go there", though, again the position is that both extremes, and many who do not accept that they are extremists, are propagating positions which, in my view, do not stand up to moral scrutiny.

The notion that you can take other peoples' money, agreeing that, if necessary, you will have to lose your home to pay them back, and then use violence to obstruct execution of that agreement, is hard to justify in moral terms.

But it is even harder to so justify the "meme" that says "I paid all my loans back, so must everyone else, whatever it takes" or "I didn't borrow at all" or "I didn't borrow foolishly", "so why is it my problem ?"

Nor does the call that "it's not our debt" stand up to moral scrutiny, except with many qualifications and reservations.

Finally, the idea that all bondholders deserve to be "burned", whether on the nonsense basis that they were only gamblers, or on any other basis, while other creditors suffer no loss at all, is devoid of moral reasoning.