With hundreds of thousands of people in negative equity and struggling to pay their mortgages, the issue of revaluing peoples mortgages, or ‘debt forgiveness’ as the government have tried to brand it, has come up. Here Joe Higgins TD looks at the issues involved from a socialist perspective.
In the 1920s the Labour Party was too cowardly to accept an appeal to lead the small farming community, then a major part of the population, in a boycott campaign of the land annuities that were crippling them economically. These were the funds being paid to former landlords for being good enough to hand the land back to the people whom they had bled dry for generations. The labour leadership refused because ‘illegality’ might be involved and they were terrified of being branded as ‘reds’.
Today’s Labour leadership is as establishment oriented as Fine Gael in its response to the plight of tens of thousands of householders trapped in negative equity and unaffordable mortgage payments. Regarding the obvious need to take urgent action to reduce their crippling mortgage debts, Labour Party leader Eamon Gilmore warns of giving ‘people who are in genuine difficulty false expectations’ while labour Minister for Social Protection, Joan Burton has been attempting to pass the parcel and wash the government’s hands of the problem by focusing on the banks.
If it weren’t such a serious issue it would be amusing to watch the hand wringing by the establishment on this issue. There were no such long drawn out arguments on the fateful night of September 28, 2011 when the Taoiseach, Minister for Finance and a few bankers decided in a matter of hours a blanket guarantee for the catastrophic debts arising from the outrageous profiteering in property by the banks. Since then ordinary taxpayers have been crippled by rising taxes and levies and have seen their public services slashed for the purpose of directing billions to hole the banks’ black of debt.
What we are seeing now is an inevitable result of the madness in the property market that the Fianna Fail/PD government and the economic and media establishment cheered to the rafters while it was happening. Basically young workers wanting to start their families or get a place of their own were held to ransom for the profits of developers and bankers but also of newspaper proprietors who made a fortune from chunky property supplements.
I remember a sharp exchange in the Dail in May, 2006, when I challenge the then Taoiseach Bertie Ahern over the obscene prices that young workers were forced to pay for a home. I pointed out how a bank manager had worked out for me that a young worker in his twenties who had bought a new home for the then average price of €375,000 in the Swords area with a forty year mortgage would finish up paying €¾ million at an interest rate of 4%. That would rise to €1 million if the interest rate rose to 6%!
It didn’t take a genius to work out that this situation was untenable for a number of reasons. Should the income of the mortgage payer change significantly in a negative direction there was going to be trouble. And so it has come to pass for tens of thousands.
The crazy house prices were highly destructive of the economy in another way also. By being forced to shovel such huge amounts of money into the banks, there was much less to invest in goods and services that normally homeowners would like to purchase. That was having a severe effect on demand in the manufacturing sector of the economy depending on domestic demand. There was a huge dislocation of employment toward construction at the expense of a balanced development of employment in manufacturing and services.
The Minister for Finance uses the term ‘debt forgiveness’ to describe the kind of arrangement needed to ease the crisis for homeowners in serious trouble with their mortgages. Forgiveness implies ‘sin’ on the part of those who were forced to buy their homes at inflated prices. While a small minority may have been buying speculatively, the big majority of people were simply doing what had to be done, purchasing a home to live in. They are victims not sinners.
The answer to the mortgage crisis should not be massively complicated to work out in terms of basic principles. The problems were caused by homes being grotesquely overpriced. The solution now is to put a real price on all those homes and make the homeowner liable only for that. This would mean the monthly payments would be sharply calibrated downwards which would make them affordable in many cases.
The only way in which to deal with the growing mortgage crisis is to break free from the dictatorship of the crazed financial markets, repudiate the massive private debts that have been put on the shoulders of the Irish people and place the banks in real, democratic public ownership as opposed to the ad hoc, ‘bail-out’ kind of nationalisation that has happened in some cases.