Sunday 22nd May 2016
Ireland’s wounded bank structure will need more than a few quick small patch-ups
It must be acknowledged that high variable rates are a symptom of deeper problems in the system,
Micheal Martin with his front bench colleagues outside Leinster house. The FF Bill empowering the Central Bank to cap certain mortgage lending rates will please mortgage borrowers but will hardly appeal to the Central Bank, which has not sought these powers.
Ireland’s retail banking system comprises the patched-up remnants of the dysfunctional and swollen structure which arose during the bubble. There were spectacular collapses, every single bank had to be rescued, some remain in majority public ownership, several disappeared and a well-functioning system has yet to re-emerge. As is true in many countries, the banks remain burdened with non-performing loans and there are reservations about balance sheet quality. Customers complain about credit availability and cost and there is an evident lack of competition. There continues to be an over-concentration on housing finance.
The Fianna Fail Bill empowering the Central Bank to cap certain mortgage lending rates is an understandable response to borrower concerns and may succeed in reaching the statute book. It will please mortgage borrowers but will hardly appeal to the Central Bank which has not sought these powers, may decline to exercise them and cannot be forced to do so.
Variable rates on mortgage loans in Ireland are about 1.5% higher than the average in Eurozone countries, and in some cases the excess is even greater. Banks which owe their survival to the taxpayer are reporting profits, promising to resume dividends and able to afford pay increases and pension fund top-ups. Borrower discontent is hardly a surprise.
The problem with variable rates reflects the structure of the banking system which emerged after the crash and rescue. The survivor banks have scrambled to rebuild net interest margin, the excess of what borrowers pay over the cost of bank funding. A highly competitive, indeed excessively competitive, mortgage market has been replaced by a small handful of lenders willing to offer mortgages and in a position to expand margins at the expense of captive legacy borrowers.
There are just five active mortgage lenders, AIB, Bank of Ireland, Permanent TSB, Ulster and KBC. The latter is reviewing its involvement and could exit, following the departures of National Irish, Bank of Scotland (Ireland), Irish Nationwide, Educational and others. Just over half of the performing Irish mortgage loans are at variable rates, ranging from 3.5% to 4.5% and even higher, but the remainder are trackers charging 1% or thereabouts and they lose money for the banks. Trackers, which locked the banks into long-term lending at tight margins, are no longer profitable and are no longer offered.
The banks cannot borrow cheaply enough, even with deposit rates near zero.
The lending rate on trackers was set at a modest margin, around 1pc in most cases, over the ECB’s main lending rate at a time when banks could borrow wholesale funds at roughly the ECB’s figure. This rate has been reduced steadily through the crisis and is now zero.
But the Irish banks have been paying well above the ECB’s rate for wholesale funds and are stuck (the margin on trackers is contractually fixed) with the huge book of tracker mortgages issued in the years 2004 to 2008. They made an unhedged bet on the indefinite availability of cheap financing and they lost (or rather, the taxpayers lost).
The resulting hole in their annual revenue has been filled through their ability to expand margins at the expense of captive borrowers, principally variable-rate mortgage borrowers. The ability to expand margins reflects the weakness of competition in the post-crash marketplace.
Irish banks are not substantial lenders to small business – their principal activity consists of mortgage lending and lending to housebuilders and holders of residential land. For AIB and Bank of Ireland, about two-thirds of lending activity is related to housing, for Permanent TSB an even greater portion. Some of this (the trackers) is unavoidably loss-making. Margins on lending to farmers and SMEs have also been edged upwards but the expansion in spreads on variable-rate mortgages is the principal driver of the profit recovery, more than compensating for the losses on trackers.
Bank profits would fall substantially, or in some cases disappear, if variable rates were cut severely. The banks have been rescued through a huge, once-off bailout by taxpayers. They are being rescued every day through a further and continuing subsidisation of their loss-making tracker loans by other borrowers, notably those on variable rates.
A well-functioning market competition, or the threat of competitive entry, would discipline the lenders against overdoing it, since borrowers can switch. But there is limited competition and the weakness of, in particular, the UK banking system has dissuaded potential entrants. The Central Bank is caught in a dilemma and the Government in a conflict of interest.
The Central Bank is doubtless pleased to see the banks restored to profitability, since profits (unless dissipated in dividends) help to rebuild capital. Healthier banks are able to borrow on better terms and are less likely to go wallop again. But the Central Bank has responsibilities to bank customers, too, and cannot be unaware of the cross-subsidisation going on in the mortgage market.
The Government owns a large slice of the banking system and hopes to recover some of the bailout costs through selling off bank shares. Profitable banks able to pay dividends are reassuring for shareholders, and the Government is the biggest shareholder. Awkwardly, the variable-rate borrowers are voters, and their interests diverge from those of the Government as shareholder. It is hardly an accident that the highest variable rate is charged by the bank in which the Government has the smallest stake.
There is a second conflict of interest for the political system. Mortgages are secured loans, collateralised through the lender’s right to repossession. Without this security, housing finance would be much more expensive – check out the interest rate on personal or small business loans to see the difference! Politicians of all parties are sympathetic to the plight of underwater mortgage borrowers, and have been chipping away at the entitlement of banks to repossess.
As a matter of social policy this is perfectly understandable, but it has consequences. One consequence is that the appropriate lending rate goes up, not down, when the collateral value of the loan security is diminished. A draconian regime of instant eviction for non-payment with no sensitivity shown for delinquent borrowers is the one likely to offer the lowest borrowing rates.
It would be nice to have a competitive, profitable, well-capitalised banking system charging low rates to borrowers, paying decent returns to savers, slow to realise collateral from defaulters, yielding generous dividends and offering high returns to departing shareholders. We had a banking system which looked like this for a while and you know what happened next. It is not possible to whistle up these conflicting features by political fiat in the wounded structure of post-crash Irish banking.
The Fianna Fail Bill will now go through a deliberative process in the Oireachtas, presumably the first task of a new committee on banking and finance. This committee will need to acknowledge that high variable rates are a symptom of deeper problems in Irish banking and to address the longer-term structural issues.
Brendan Walsh, formerly the chairman of UCD’s economics department, passed away suddenly last Thursday at the age of 76. Brendan was the outstanding Irish economist of his generation, a gifted teacher, prolific researcher and contributor to public policy, and a wonderful colleague. Ni fheicimid a leitheid aris
Irish Government now to replace jobBridge internship scheme, says Leo Varadkar
The Minister for Social Protection says a more targeted scheme needs to be introduced
Minister for Social Protection Leo Varadkar said he would replace JobBridge with a scheme more suited to the current job market and will be replaced by another that is more fit for purpose. This will not be before the end of September however.
The JobBridge scheme, which provided internships for unemployed graduates, is to be replaced with a more targeted scheme, Minister for Social Protection Leo Varadkar has said.
The Minister said the scheme, introduced in 2011 by then minister for social protection Joan Burton to provide work experience to graduates, had served its purpose. He said he would introduce a new scheme more suited to the current job market.
Under JobBridge, interns work for between six and nine months, 30-40 hours per week, for an additional €52.50 on top of unemployment allowances. About a third of the 46,500 people who signed up to the scheme have gone on to secure full-time employment.
Since its inception, the scheme has attracted criticism from politicians, trade unions and other bodies, including the National Youth Council of Ireland.
In April this year, trade union Impact called for the scheme’s abolition following reports it had been used to fill hundreds of positions for State agencies and multinational corporations.
Deputy general secretary of the union Kevin Callinan said many of those who welcomed the scheme in 2011 have been troubled by the recurring reports of abuse and exploitation, “which have dogged its reputation and greatly undermined its many positive outcomes”.
“While the scheme undoubtedly served a useful purpose when youth unemployment and emigration was rocketing at the height of the economic crash, it’s now time to move on,” he said.
The most frequent user of the scheme has been the HSE, which took on 399 JobBridge interns over five years, followed by the GAA with 249 interns. Global IT firm Hewlett-Packard brought in 176 JobBridge interns.
Last week, Minister of State for Training and Skills John Halligan, also spoke against the scheme and said it should be scrapped.
Last week, the Department of Social Protection said decisions on the future of the scheme would only be made after the publication of a review, being undertaken by consultancy Indecon. The report was expected to be ready in September.
Welcoming Mr Varadkar’s announcement, Fine Gael TD for Dublin North-West Noel Rock said there was ample evidence to suggest that the abuses of the JobBridge scheme were outweighing any good that it did.
“As the economic recovery widens and deepens through all sectors, we are thankfully seeing the rate of youth unemployment fall,” he said.
“As such, the JobBridge scheme is now past its sell-by date. I welcome the speed with which Minister Varadkar has recognised this fact, and look forward to further reforms.”
Independent TD Dr. Harty denies his support for new Government is guaranteed
The Clare TD Dr Michael Harty.
The future of the new Government has been thrown into doubt this weekend after an Independent TD warned he may not support Taoiseach Enda Kenny’s administration on crucial votes.
Clare TD Dr Michael Harty has insisted he will approach any future votes on a strictly case-by-case basis in a move that suggests his support is far from guaranteed.
But Dr Harty, who is one of eight Independent TDs who is voted for Kr Kenny, rowed back on remarks that suggested his support had been pulled.
Dr Harty said today he was not part of the Government and said he will approach all votes including any motions of no confidence in either the Taoiseach or his ministers on a strictly case-by-case basis.
The TD said he backed Enda Kenny as Taoiseach because he believed the country did not want to go back to the polls but insisted he never committed to full-time support of the Government.
However, he rowed back on his statement when his stance came under the media spotlight.
The Clare deputy said he will now back Mr Kenny on motions of no confidence and budget votes.
“When I said on case-by-case basis I meant votes in the Dail and not votes which could bring down the Government,” he said.
Dr Harty also insisted he is a “wholly Independent TD” despite pledging to back Mr Kenny in crucial votes.
When the contradiction in this statement was pointed out, Dr Harty said: “Obviously, if the vote (of confidence) on cataclysmic, unforeseen event it will depend on the issue at hand.”
The doctor said he never sought a position in government from Fine Gael and insisted he is not “throwing his toys out of the pram” because he was not appointed as junior minister.
There is now speculation that Fine Gael may seek to back Dr Harty as chairman of a powerful new Oireachtas health committee.
A Fianna Fail source said last night that Dr Harty’s decision leaves the Government in a “very tenuous” position.
“Our aim is not to pull it down unless we are adamantly against something, but if he loses another vote things will become very volatile and Kenny will have to watch every vote,” the source said.
Last week, former Independent Alliance member Michael Fitzmaurice also ruled out supporting the Government, despite the rest of his political grouping backing Mr Kenny.
Each member of the Independent Alliance has been given a ministry, as was Denis Naughten, who was part of the so-called Rural Five along with Dr Harty.
Another Independent TD, Katherine Zappone, was given a senior Cabinet position.
The only other Independent TD who supported Mr Kenny for Taoiseach and was not given a position is Tipperary deputy Michael Lowry.
Fine Gael has sought to distance itself from Mr Lowry, but now his support is more essential than ever.
He has claimed he has an understanding with Fine Gael in return for his support, but the party has denied any such arrangement is in place.
Low-salt diets may not be beneficial for everybody, a study suggests
Salt reduction only important in some people with high blood pressure
A large worldwide study has found that, contrary to popular thought, low-salt diets may not be beneficial and may actually increase the risk of cardiovascular disease (CVD) and death compared to average salt consumption. The study suggests that the only people who need to worry about reducing sodium in their diet are those with hypertension (high blood pressure) and have high salt consumption.
Risks associated with low-sodium intake — less than three grams per day — are consistent regardless of a patient’s hypertension status.
A large worldwide study has found that, contrary to popular thought, low-salt diets may not be beneficial and may actually increase the risk of cardiovascular disease (CVD) and death compared to average salt consumption.
In fact, the study suggests that the only people who need to worry about reducing sodium in their diet are those with hypertension (high blood pressure) and have high salt consumption.
The study, involving more than 130,000 people from 49 countries, was led by investigators of the Population Health Research Institute (PHRI) of McMaster University and Hamilton Health Sciences.
They looked specifically at whether the relationship between sodium (salt) intake and death, heart disease and stroke differs in people with high blood pressure compared to those with normal blood pressure.
The researchers showed that regardless of whether people have high blood pressure, low-sodium intake is associated with more heart attacks, strokes, and deaths compared to average intake.
“These are extremely important findings for those who are suffering from high blood pressure,” said Andrew Mente, lead author of the study, a principal investigator of PHRI and an associate professor of clinical epidemiology and biostatistics at McMaster’s Michael G. DeGroote School of Medicine.
“While our data highlights the importance of reducing high salt intake in people with hypertension, it does not support reducing salt intake to low levels.
“Our findings are important because they show that lowering sodium is best targeted at those with hypertension who also consume high sodium diets.”
Current intake of sodium in Canada is typically between 3.5 and 4 grams per day and some guidelines have recommended that the entire population lower sodium intake to below 2.3 grams per day, a level that fewer than five per cent of Canadians and people around the world consume.
Previous studies have shown that low-sodium, compared to average sodium intake, is related to increased cardiovascular risk and mortality, even though low sodium intake is associated with lower blood pressure.
This new study shows that the risks associated with low-sodium intake — less than three grams per day — are consistent regardless of a patient’s hypertension status.
Further, the findings show that while there is a limit below which sodium intake may be unsafe, the harm associated with high sodium consumption appears to be confined to only those with hypertension.
Only about 10 per cent of the population in the global study had both hypertension and high sodium consumption (greater than 6 grams per day).
Mente said that this suggests that the majority of individuals in Canada and most countries are consuming the right amount of salt.
He added that targeted salt reduction in those who are most susceptible because of hypertension and high salt consumption may be preferable to a population-wide approach to reducing sodium intake in most countries except those where the average sodium intake is very high, such as parts of central Asia or China.
He added that what is now generally recommended as a healthy daily ceiling for sodium consumption appears to be set too low, regardless of a person’s blood pressure level.
“Low sodium intake reduces blood pressure modestly, compared to average intake, but low sodium intake also has other effects, including adverse elevations of certain hormones which may outweigh any benefits. The key question is not whether blood pressure is lower with very low salt intake, instead it is whether it improves health,” Mente said
Dr. Martin O’Donnell, a co-author on the study and an associate clinical professor at McMaster University and National University of Ireland Galway, said: “This study adds to our understanding of the relationship between salt intake and health, and questions the appropriateness of current guidelines that recommend low sodium intake in the entire population.”
“An approach that recommends salt in moderation, particularly focused on those with hypertension, appears more in-line with current evidence.” The study was funded from more than 50 sources, including the PHRI, the Heart and Stroke Foundation of Canada and the Canadian Institutes of Health Research.
NASA DOES NOT WANT YOU TO SEE THIS GIANT HOLE AT NORTH POLE THAT PROVES THE HOLLOW EARTH THEORY,
AS CONSPIRACY THEORISTS CLAIM
Conspiracy theorists claim to have stumbled upon NASA images that prove the controversial Hollow Earth theory. The Hollow Earth theory claims that the Earth is hollow and consists of an “inner Earth” populated by people and animals.
The inner Earth, according to Hollow Earth theorists, has a Sun and a technologically advanced civilization.
Hollow Earth conspiracy theorists claim there is a hole at the North Pole, as well as at the South Pole, through which the inner Earth can be accessed.
Conspiracy theorists also claim that the government and NASA are aware of the presence of a gaping black hole at the poles, but have tried to cover up the evidence by obscuring the hole in satellite images of the poles. Thus, most satellite images of the North Pole have a “dark zone or blackout region where no information is available.”
But according to the YouTube alien and UFO hunters Secureteam10, in a video uploaded online on May 20, 2016, titled, “NASA Caught Hiding Something At North Pole! Hollow Earth?” new, uncensored and never-before-seen satellite images of the North Pole allegedly prove that NASA and the government have been hiding evidence that there is a hole at the North Pole that leads into the “inner Earth.”
“Every single satellite image that we have of the North Pole shows a massive hole or a blackout hole put there to hide whatever’s underneath,” according to Secureteam10.
NASA, according to conspiracy theorists, quickly delete from their websites all images showing a massive hole at the North Pole when, occasionally, they are uploaded unintentionally. Thus, the only images of the North Pole available to the public are those showing a “blackout” region at the North Pole designed to hide from the public the fact that there is a gaping hole at the North Pole.
Images of the South Pole are also obscured to hide the hole there.
Hollow Earth conspiracy theorists claim that testimony by the few people who have seen the hole at the North Pole and entered the inner Earth are being suppressed by government.
It is claimed that the polar explorer Admiral Richard E. Byrd, found the hole and traveled into the inner Earth. His missing diaries from the late 1940s, according to conspiracy theorists, contain an account of his journey in the inner Earth covering about 1, 700 miles, during which he saw lush vegetation, lakes, mountains and animals, such as woolly mammoth.
He also encountered advanced civilizations.
A German sailor, Karl Unger, also allegedly entered the inner Earth in 1943, during a U-boat expedition to the South Pole. Unger encountered an advanced civilization on an island called “Rainbow Island.”
Adolf Hitler is also rumored to have escaped to the inner Earth.
One of the earliest known proponents of the Hollow Earth theory was John Symmes, who proposed a “theory of concentric spheres and polar void.”
According to Symmes, the Earth is “hollow and habitable within, containing a number of solid concentric spheres, one within the other, and that it is open at the poles 12 or 16 degrees.”
Symmes toured the U.S. in the 1820s, campaigning for support to equip an expedition to “explore the hollow.” He petitioned the U.S. government to finance an expedition to find the hole at the North Pole.
According to the Telegraph, on March 7, 1822, Senator Richard Thompson proposed a bill in Congress to provide Symmes “with the equipment of two vessels of 250 to 300 tons for the expedition, and the granting of such other aid as Government may deem requisite.”
But the bill failed after a long debate.
Symmes died in May 1829 without achieving his life-long ambition. Rodney M. Cluff is regard widely as Symmes’ successor in the quest for the entrance to the inner Earth. The author of the World Top Secret: Our Earth Is Hollow! claimed to have been introduced to the idea as a teenager while employed at a farm in New Mexico.
After reading “the Scriptures, history and science,” Cluff became convinced that the Earth “as well as all the planets and the moons and even asteroids” are hollow.
In 1981, he traveled with his family to Alaska to “find the way to the Hollow Earth.”
But after the initial attempt in 1981 failed, he tried again in 2003 in partnership with Steve Curry, who managed a travel firm. But after setting up a plan to charter a Russian nuclear ice breaker and a plane to fly over the pole to locate the legendary hole, Steve Curry, leader of the expedition, died before the date selected to start the journey.
The team appointed a new leader, Dr Brooks Agnew, and chose the summer of 2014 to start the journey. But Agnew resigned before the date due to business issues.
And after another member of the team died in a plane crash, Cluff begin to fear that supernatural forces were trying to scuttle the planned expedition.
More recently in 2002, Dallas Thompson, from Bakersfield, California, became convinced, after a car accident in which he nearly lost his life, that the Earth is hollow and that there is a hole in the North Pole that leads to the inner Earth.
His car had plunged down a ravine but he survived miraculously. During the near-death ordeal, he received insights about the inner Earth and the opening in the North Pole.
He appeared on Coast to Coast on October 4, 2002, to discuss his plan to find the hole.
He told Coast to Coast’s Art Bell that the hollow Earth has “cavern systems and caves that traverse the whole mantel.”
He claimed there were huge herds of mammoth and a civilization in the inner Earth. But he couldn’t explain how he came about the knowledge.
Thompson claimed he had secured funding to find the hole. He revealed a bizarre plan to descend into the hole using a helicopter backpack and said he planned to depart on May 24, 2003.
News about the planned expedition spread and soon his book, Cosmic Manuscript, in which he described his Hollow Earth theory, became a bestseller.
But suddenly, and inexplicably, Thompson disappeared after posting to his Yahoo Group on January 11, 2003.
It is claimed that he went into hiding to avoid lawsuit following an allegation that the material in his book Cosmic Manuscript, was plagiarized.