Bog Property Developments Inc

April 6, 2014

George Bernard Shaw once wrote: There is no accomplishment so easy to acquire as politeness and none more profitable.

Queuing for Dublin’s reignited property bubble, economy turning the corner, or bubbles from a drowning corpse?artane Welcome to the Irish Property Market. All Irish ministers were away on junkets for St Patrick’s Day living it up on their high salaries while this  Gazumping was going on: attached photo with prospective house buyers queuing outside a property in North County Dublin in March.

1. Bidders don’t have to authenticate themselves before they place a bid. They just need to turn up and give a name and number. Are these bidding details saved for regulators to verify in some way?

2. No way for a bidder to have confidence that a counter bid is genuine. You have to accept it at face value. For arguments sake a counter bid could be bogus (from seller or agent).

3. Ability of Estate agent to control the supply of a corner of the market in a particular area. No regulations there requiring full disclosure on release of property on their books onto the market.

4. The % fee as incentive should be regulated/replaced with fixed fee.

5. No obligations around Sale Agreed eg no legislation that the sale should be posted on a public database with the law giving contract protection to the purchaser…this allows for gazumping. Buyers should be able to access a public database to show if a property is still for sale.

It would be very interesting to follow the money re cash buyers and see where it comes from. The above list is not exhaustive. Are banks providing this money? Huge downpayment deposits lead the market into the hands of dubious cash buyers.

Here was the bidding for a St Annes house in Raheny circa November 2013: Asking price €325,000 The house eventually went sale agreed at €391,000. When the current bid for this house reached about €360,000 they then put another house in the same estate on the market . That house eventually went sale agreed at > €360,000.

A month or so later the same estate agent then put another house in the same estate on the market and the asking price was €390,000 !!! Controlling the supply of these properties into the market place allowed the estate agent to manipulate the market.

The Irish property market remains broken and government have done little or nothing to help fix it.

The Irish banks are vulnerable to depositor bailin. Deflation has taken hold and the growth rates for the Irish economy with 2% heralded for 2013-2014 insufficient to grow Ireland out of recession.

I’ll try to put this politely as I consider the following: A lynch pin of propaganda on employment statistics are government claims they have ‘created X number of more jobs in the economy’. Members of the opposition or critics of government  say, yes, they should be congratulated for that….but…..!! So, before I go any further, let me clearly state I do not give the government any credit for any upswing in employment statistics. In fact, through their programme for austerity, the reverse is the case.

Any employment improvements have come in spite of their policies. There are of course those who under any government eg Enterprise Ireland or IDA or people in the commercial world, who should take kudos, without government claiming their efforts, as their own achievement. Leo Varadkar, Minister for Transport, Tourism and Sport, is now signalling that Ireland’s railway system will be cutback because apparently he regards investment in road transport, more efficient and productive.

The austerity drive continues unabated.

Government will quickly take credit with Enda Kenny and Richard Bruton making their business to turn up at any announcement of tele support jobs to take advantage of our status as a tax haven. Laughter and feel good smiles de rigueur. Education and Health have seen major cutbacks in employment levels. Our international university ratings are falling because of cutbacks in R&D and staffing and investment.

Six years into our financial meltdown and a report just out reports that up to 80,000 urban housing units are needed over the next five years to keep up with demand. NAMA has been providing a trickle of Social housing units falling far short of requirements. €30bn of taxpayer money went into NAMA, €67bn of bailout money went into the banks.

Why isn’t the government out providing jobs building these homes? Do you get the feeling the government is not in control of anything?

They are just along for the salary/pension ride mandated to do nothing while others pull strings in the shadowy financial sector ! The trick is to do nothing  other than to milk every photo opportunity where one new job can be created out of nothing!

A Conundrum

Here’s the problem, banks require developers to put up to 30% of their own money into property development projects, but developers don’t have that kind of money other than for small infill developments. One solution proposed by government to deal with this problem is to use money from to provide a three way supply of investment from banks, Strategic Investment Fund, and developers to get large projects eg in Adamstown, Co Dublin, off the ground, to provide homes.

If you acknowledge that use of the SIF would be beneficial in this instance, it does have its difficulties. Not the least of which is the fact of high property prices beyond the capacity of the typical industrial wage. Even those on high incomes cannot afford rising rent, high cost of accommodation; those on lower incomes, single income families, eg unmarried mothers face inability to pay higher rent charges and are in danger of losing their homes.

The high cost of property is due to Ireland’s re-ignition of a property bubble in the larger cities because of low investment and shortages in supply of new building and government failure to govern; including failure to negotiate bondholder debt write-down.

Couple this with the rentier dependence of the banks on return from large property lending on past loans, then we have a conundrum turning into a real crisis with a negative impact on the economy and the lives of young people.

The balance sheets of banks are based on ability to recoup  lending that allowed banks to mark up  balance sheets. Here’s the problem: it’s therefore in the interest of banks to keep property prices high to curb negative equity to improve/maintain their  levels of capitalisation and solvency. But, a big BUT, falling salary levels, higher taxation/charges, mean fewer can afford to take out loans, even to obtain modest housing stock.

Our bailout has been the bailout of compulsive gambler losing at the casino. Banks have funded him and told him to continue playing as before. Property Scam Property prices and high rents go beyond the capacity of ordinary people to afford. So, even if large developments improving the housing stock come on stream, austerity driven salary levels and a middle class pilloried and under attack from all sides for more taxes/charges, mean fewer can afford the high property prices.

If banks write down bad loans based on high property prices in the past, their balance sheets will be severely effected. If they give out mortgages based on high property values, banks know from previous experience such predatory lending will boomerang back at them and lead to unsustainable lending practices. One could argue on a large scale this dilemma has been mirrored by NAMA . With a portfolio in the 10’s of billions, was this portfolio worth nothing with no buyers out there to give it credibility? Will the coming ECB stress tests of 2014 due for later this year see the ECB look at the banks and see large holes in their balance sheets with lending out there that cannot be recouped due to falling property prices; taps turned off vis a vis loans to SME’s and other forms of investment in the economy?

As a result, will NAMA not be able to sell any of its portfolio stock? Worse, will NAMA sell its stock in a firesale and send property prices into a spiral downward? Ministers from Northern Ireland were worried NAMA might just do this creating havoc for Northern Ireland’s economy. Would coming stress tests on the banks pull the rug from under the banks and force them to write down their lending and loan books to ZERO? Furthermore, this could have impact on the broader EMU economy and prevent Ireland from reaching its targets to pay back its €67bn of bailout without being crushed by the burden?

Recent activity in Ireland by US hedge founds with reports that one deal of circa €5bn was concluded in record time of 2 weeks for NAMA and its NI portfolio, plus a proliferation of other similar deals, would appear to give evidence that a strategic decision has been made by US Hedge funds to invest into Ireland buying distressed commercial property assets of NAMA and the banks. This would  provide a backstop to the banks and NAMA hopefully lead Ireland out of its quandary, and hopefully lead other countries eg Spain/Italy to follow Ireland  out of recession, a Surprising backstop of the Irish banks?

Who would have thought US Hedge funds could be persuaded to rescue NAMA?

We have a Tilly, fumbling at the greasy till,  government, silly.


James Joyce

He travels after a winter sun,
Urging the cattle along a cold red road,
Calling to them, a voice they know,
He drives his beasts above Cabra.
The voice tells them home is warm.
They moo and make brute music with their hoofs.
He drives them with a flowering branch before him,
Smoke pluming their foreheads.
Boor, bond of the herd,
Tonight stretch full by the fire!
I bleed by the black stream
For my torn bough!

Part 11

The Growing Power of Tilly Hedge Funds 

The Greasy Till

Thus it is that the financialisation of the global economy sees more and more power vested in the global, shadow economy; less and less power in the real economy. The real economy has not gone away. Jobs and salaries have yet to be created and found to underpin the strategic investment of Hedge funds with tenants/owners able to pay their way in a new rentier system experiment.

Thus it also is that Enda and Richard like to frolic and proclaim their job hunting skills. Squaring austerity, which is the antithesis of economic growth, though strong arguments are made to the contrary, with real development and real economic growth is a real problem. The rich become richer the disposable income of the middle class is falling(cf last blog). Maintaining the high cost of property by Hedge Fund investment while deflating the economy through austerity policies, is a recipe for disaster.

Ireland future 51st state of the union?

Perhaps the Hedge Funds have covered their bets with Ireland now considered ripe for membership as a future 51st state of the union should the euro fail?

Former Bank of Ireland chief executive Mike Soden, now a leading member of the Irish government’s newly-established Central Bank Commission, has said Ireland should consider leaving the European Union if it renders the country unable to make decisions on its own fiscal policy.”

“In his new book on the financial crisis, ‘Open Dissent,’ the 63-year-old banker say: “Just for a moment, let us question why our hands are tied at this time as a member of the EU. “If we are in search of a solution and Europe finds it difficult to accommodate the needs of the Irish electorate, should we look elsewhere?” He adds: “Our membership of Europe has to have balance in all aspects, particularly in relation to our culture, our sovereignty and the price we pay for economic and financial independence. “Have we unwittingly surrendered these precious aspects of our society as the price of European Union membership?”

While government has done nothing to reshape this economy, the real shakers and movers have been busy. Globalised Financialisation of the Irish Economy Backstop You might also expect government preparedness and action to prevent a property bubble beginning again, that the banks would be forced to lend into the economy, housing units required by population sustainability and growth, would be built. Government would lead the people back to affordable housing to allow young people to set up homes based on reasonable incomes free from predatory lending practices and crushing bubbles.

You would be wrong!

There are no plans to make housing affordable? Whatever about plans that may come in the future to build more homes, the word ‘affordable’ will not be part of the lingua franca. The banks want to net large profits and bonuses on property loans. The government want to net large profit from property taxes. Many government ministers have large property portfolios they do not want to compromise with falling property prices. Somewhere in all of this are the victimised serf taxpayers. The only gotcha in this ludicrous situation is the lack of long term sustainable jobs in a stable and real economy. Without a real economy the long term sustainability of over inflated property prices is compromised  headed for a fall.

Namawinelake here speculates that instead the government’s capital budget is being siphoned away to coverup shortfalls in austerity suffering departments eg Health. What that housing agency report does is show up government ineptitude and propaganda. The only budget this government cares about is downpayment of troika debt. No doubt that report will lead to the commissioning of another government five-year plan. Instead of action we have delayed planning that scuttles any attempt to act now.

6 years into financial meltdown we have a plan to have a banking inquiry and with a new property bubble emerging, we will soon be making more property planning bubbles to consign to the shelf as soon as every ounce of propaganda is milked from them.canstock8599636 But we do have a Shatter inquiry. Plans are like bubbles easily popped as they lie dormant on a shelf somewhere waiting for a pin such as a broken promise to burst them.

Mortgage arrears of 12000 have been recently lanced by news of 4 debt writedowns (I kid you not). Government , NAMA and Irish Central Bank can’t believe their luck It would not suit the interests of global hedge funds that the Irish bailout fail putting at risk global share values triggering massive default on large scale bondholders. Add to this opportunity value in the acquisition of potentially lucrative assets yielding fat profit all round. Thus it is the Hedge funds are active in buying off large chunks of the NAMA portfolio( see last blog).

Northern Ireland politicians have been terrified NAMA would go into NI with a firesale wreaking havoc on their property market. With a deal on property worth €4.5 bn marked down to €1.3bn rich pickings allow the portfolio to be massaged in value upward heading for another property bubble. Similarly Hedge funds have been looting other tranches of the NAMA portfolio. Government here are delighted claiming the improved employment figures due to MNC’s capitalising on their tax haven status, have been created by them, not the MNC’s.

Do nothing and take the credit for any positive achievements of others due to other factors is a mainstay of the present government. No doubt when any improvement can be claimed in the economy these Hedge Funds will head for the exit. The fact is the Irish government have contributed next to nothing to turnaround. Least of all have they defended the interests of the Irish people. Irish taxpayers will pay the difference between the €4.5 bn marked down to €1.3bn in the above instance.

Just to be clear, in case your house is in negative equity and you paid €450,000 for it, the fact the Hedge funds get a mark down of €4.5 bn marked down to €1.3bn does not mean you will get a mark down and write-down on your mortgage from €450,000 to €130,000. Also don’t be complaining in public about this, note you signed an Non Disclosure Agreement with your bank and the bank can throw you out of your house or take you to court or make life even more difficult for you.  

What can you do?

Anyone facing insolvency or in arrears with their bank with their homes in negative equity should have a word with the Insolvency Service of Ireland in spite of their poor record to date. This is no Iceland where a major mortgage write-down scheme was recently announced, A third of Iceland’s  population of 100,000 people will be helped by a capital injection of circa €1.5bn that will split in two ways, mortgage relief and tax relief. In turn this will boost the local economy.

In Ireland, with 350,000 homes in negative equity and approx €2.5bn in outstanding mortgage arrears, numbers increasing, government has dismally failed to address the situation. Government up their necks with banks lobbyists and financial sector propagandists make sure the banks get what they want. They face the quandary of repossession required by the banks vs bad publicity for government if banks get what they want.

Frozen in this limbo government tend to ignore the situation much preferring to highlight any new arrivals taking advantage of Ireland’s status as a tax haven with friendly taxation policies for the wealthy. Banks want all their odious debt back, they do not want debt write-down, they want to inquisitorially extract their pound of flesh on a case by case basis with FF/FG/LB government acting as their willing bailiffs and Sheriff.

However, there could be an OK corral situation in the coming bank stress tests end 2014. This may force banks to write/mark down their real exposure to debt that will not be repaid.

The commercial and private mortgage property sector in Ireland is bust and the government have done nothing to fix it. The worst excesses of the Celtic Tiger bubble that gave rise to the financial collapse, are being stoked into flame.

Its easy enough to see what needed to be fixed. The economy needed to be returned to a level playing field of debt sustainability where at a minimum two people on average salary levels could afford to purchase a house they would later turn into a home in which they would raise their family. Worst excesses of the bubble such as gazumping, developers primed by predatory lenders to stoke the market, unsustainable rises in property prices, market manipulation, all needed to be fixed by government. The Celtic Tiger led to a situation where ordinary families could no longer afford housing even on two incomes.

The market had become infected by property speculators fed by unsustainable and predatory lending. This has not been fixed, it collapsed in meltdown but with no government fix, its rising again from the ashes. One would expect in the collapse of the property market, housing would be made affordable again, banks would begin to lend secure and affordable loans. Long term sustainable employment would return helping to build homes and create more jobs in the economy.

This has happened in Iceland where debt write-down is practiced. Instead a number of factors have conspired to undermine the interests of Mr and Mrs citizen. A financial services model has intervened to exploit and further undermine the legitimate aspirations of Irish citizens. There are fewer jobs. Part time and contract employment has replaced what used to be full-time sustainable long-term unemployment. The residential and commercial property market is being pillaged and looted by large-scale institutional property investors such as NAMA and US Hedge Funds to corner the supply of property, forcing exorbitant rent/lease demands on individuals and small to medium-sized businesses.

The financial sector has intervened and wiped out the real economy that demands debt write-down. Pent up demand (see falling savings rates previous blog) does not explain the emergence of a new property bubble  in the Irish economy. Such bubbles can be compared to the last breath of a dying economy, or a ‘turning the corner’ of the Irish economy.

Lets look at some recent evidence. Barry O’Halloran of Irish times writes: “US hedge funds Lone Star and Oaktree Capital Management have bought about €1.2 billion worth of mortgages put up for sale by the Irish Bank Resolution Corporation’s (IBRC) special liquidators. Kieran Wallace and Eamon Richardson of KPMG, who are liquidating the State bank that absorbed the businesses of Anglo Irish Bank and Irish Nationwide, confirmed yesterday they had sold part of Project Stone, a number of commercial property loans with a headline value of €9.3 billion, and Project Sand, a group of 13,000 former Irish Nationwide mortgages worth €1.8 billion. Lone Star and Oaktree Capital Management bought 64 per cent by value, roughly €1.2 billion worth, of the mortgages, meaning the borrowers must now repay the cash to the US funds.” News of the sales come before the advent of coming stringent stress tests in 2014 by the ECB. Attention so far has focused on the appointment of “Pepper Asset Servicing” to manage the loans and deal directly with the borrowers. But a number of questions need to be asked:

1. How clean are those mortgages? 2. What percentage of those loans are recoverable? 3. Assuming a large portion of the portfolio is not recoverable, is this purchase a hidden backstop of Irish banks to prevent them going under? 4. What are the implications for debt write-down on behalf of borrowers who cannot repay their loans? 5. While the news may be good for the capitalisation of banks as bad loans are laundered into a monetary value where none may previously have existed, are potential house buyers worse off by the news?

In some US states the activities of such funds buying up all property commercial and private, has led to the situation where property purchase can no longer be afforded. The result has been a situation where ordinary people can no longer afford to purchase a home. They are forced into the rental market. Rising rents mean greater profits for developers and Hedge Funds or companies like Pepper acting on their behalf. Examine the US experience News may not all be bad:

“Judicial states, including New York, New Jersey, Florida and Maryland, require that every foreclosure be approved by a court, slowing the process.”

“For investors, foreclosing or paying a borrower to move out may often be more cost efficient than time-consuming loan workouts, said Diane Thompson, attorney with the National Consumer Law Center based in Boston.” ” Foreclosure Incentive

Seizing a property can be especially valuable to a fund in a market where home prices are rising, Thompson said. Another concern is that institutional investors aren’t subject to the same level of regulatory scrutiny as large banks, making it more difficult to police them, she said. “It’s likely that at least some homeowners will find themselves losing their homes who should have been able to keep them,” she said. “Results will vary. Some will be getting good modifications they wouldn’t have gotten otherwise. For many people expectations will be raised and they’ll likely be disappointed.” American Homeowner Preservation gives homeowners three options, and borrowers often choose as if ordering from a menu, CEO Newbery said. They can pay off the mortgage by coming up with 90 percent of the property’s current value; accept a modified loan with a principal cut; or take between $1,000 and $5,000, depending on the home’s value, to hand over the keys or cooperate with a sale. Making Profit Newbery said his company started in 2008 as a nonprofit organization, and has retained its mission of keeping borrowers in their homes whenever possible. In Ragusa’s case, the firm can make a solid profit even after lowering his payment and the amount he owes, Newbery said. American Homeowner Preservation purchased Ragusa’s mortgage for $134,000 from a fund that had acquired it from Citigroup. (C) Ragusa is now trying to come up with the $10,000 the firm is seeking in exchange for restructuring the loan, a payment that has increased from the original offer. Ragusa, who now works in sales at the cable company for less than half his previous salary, owes $308,000 on his mortgage for the three-bedroom house, plus two years of payments. The balance will be knocked down to $211,500 if he makes the deal with American Homeowner Preservation. “I’m sure the hedge funds are going to do a better job than banks in pushing these through, because they’ve had five years and have not done anything,” Newbery said. “The loans going into private hands and away from banks is a big step forward to resolving families in limbo.’” So here’s the deal. Tarp injects testosterone into the banking system. The economic outlook is dire so funds are not lent into small SME’s.

Government should develop infrastructure through capital projects, are not spending. The economy is stagnating and deflating. The QE money has to go somewhere so it goes into stocks and shares and Hedge Funds. Hedge funds wont invest in manufacturing because  middle class savings levels are dropping to zero. Instead, Hedge funds work the property market creating a false bottom to the commercial and private property market buying out mortgage and property portfolios from the banks.

By cornering the market they can now control the supply of property. It’s in their interest to stimulate and create a bubble. Hedge Funds and NAMA can force foreclosures and send a lot of property onto the market forcing a fall in property prices. This can send property into negative equity and force the sales by commercial/private property that Hedge Funds can buy sweeping up at market’s  lower end. They win on the up and they win on the down.

This is no longer a market economy but a market based on financial chicanery and predatory lending. Controlling the property market Hedge Funds can sell/short the market when it reckons its too high forcing a downward spiral. At its lowest, the Hedge Funds drop in again and buy at bottom prices. They stoke it upward then pull the rug and the cycle goes on making a fortune for them at the expense of citizen taxpayers. If Ireland’s politicians were fueled by Joyce’s brains, they would have declared bankruptcy. Instead, we are where we are, politicians as bailiffs and puppet manipulators of global financialisation and a badly designed European project holed beneath the waterline.

In bankruptcy, you wipe out the shareholders and bondholders and you  get rid of top management because somebody has to be held responsible. None of this was done in Ireland’s case. As a result we have no banking inquiry. The only plan we have to is accept odious debt and turn up in every hair dressing business that declares a new job. In bankruptcy, you need to have a new business plan.

Our business plan sent those in negative equity to the wolves.

Neither has it cleaned up the toxic property sector. What you need to become an estate agent in Ireland? In Germany a buyer is protected by the service of a notary: “Notaries generally hold undergraduate degrees in civil law and graduate degrees in notarial law. Notarial law involves expertise in a broad spectrum of private law including family law, estate and testamentary law, conveyancing and property law, the law of agency, and contract and company law. Student notaries must complete a long apprenticeship or articled clerkship as a trainee notary and usually spend some years as a junior associate in a notarial firm before working as a partner or opening a private practice. Any such practice is usually tightly regulated, and most countries parcel out areas into notarial districts with a set number of notary positions. This has the effect of making notarial appointments very limited.” Notarial instruments, if prima facie duly executed, are:

  • presumed valid and regular;
  • self-authenticating;
  • probative (i.e., proof of their contents);
  • public;
  • self-executing; and
  • have a data certa, i.e., a fixed, unalterable effective date.”

In Ireland there is not even public debate on the need to  investigate/establish ground rules and enforcement of these to protect the consumer.

Elizabeth Warren: Fixing the Banks, Lifting the Middle Class Active in  a new consumer agency set up under Obama following 2008 Senator Elizabeth Warren stated: “Consumer agency should stay independent” community banks and credit unions are very worried about additional regulatory burdens ” “We are going to fix them with the new consumer financial protection bureau” In Ireland the Irish Central Bank is piling regulations on Irish Credit Unions threatening their solvency and viability. Their democratic and voluntary role is being undermined. Banks are the ones who set the rules when it comes to dealing with those in arrears. Deflation and falling growth rates mean Ireland is still holed below the waterline Net saving rate in household disposable income %: 1.9 (2005) -0.9 (2006) -2.2 (2007) 3.7 (2008) 9.8 (2009) 7.0 (2010) 5.6 (2011) 2012/13..not given Note drop off. Is there money there Draghi would like to grab for depositor bailin?

  • At European level Draghi & Co have just agreed to bailin for depositors as a means to deal with bank failure; shareholders will be hit and as in Cyprus, depositors will be hit.
  • European stress tests are due to end of this year and many banks are in the firing line including some Landesbanken German banks and AIB, BOI and Permanent TSB. If it happens to us, Germans can wipe their hands and say, too bad, we got hit too.
  • Share prices in  Irish banks have been falling recently and some very large funds have withdrawn their money, both these facts connected.
  • ECB see a lot of savings in Irish banks not being spent in the economy. They can loot that money to fix the banking system.
  • Hedge funds aim to lead Ireland out of meltdown. Doing so may lead other economies eg Spain/Greece/Italy out of their danger zones. Don’t put your bets on this happening soon if ever!

The Irish economy remains in a state of chassis. The euro project has failed in Ireland. Time to reconnect with sterling or the dollar and leave the euro mess behind.



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