Words matter. The phrases we use to describe particular concepts determine how we view them. In Steven Poole's wickedly insightful book, Unspeak: How Words Become Weapons, How Weapons Become a Message, and How That Message Becomes Reality, we can read how political bias or specific value judgements can be included in what we think are innocent conversations.

Recently the media and general public have been bandying about one of the more noxious examples of 'unspeak' used in Ireland and elsewhere. I speak of the term 'debt forgiveness', which is about as laden with political bias as the terms 'smart weapon', 'collateral damage' and 'intelligent design'.

"OK," I can hear you groan at the mere mention of it, "haven't we had enough discussion on a subject that we are never going to agree on? Can't we just leave it?"

Well, no, unfortunately we can't -- it's far, far too important for that. But please, no, don't turn the page; honestly I swear I bring good news.

I've just had the pleasure of browsing through a document called Designing a Debt Relief Programme without Moral Hazard. (Yes, I know, it sounds like a delightfully relaxing night-time read -- but bear with me, it's worth it.)

The author is financial analyst Karl Deeter (operations and compliance manager at Irish Mortgage Brokers) and his paper is aimed at the Department of Justice as opposed to the Department of Finance, which he says is "no longer controlling a national conversation on the issue -- they are not concerned with the justice of the debt situation".

Now, when I first discussed the issue of debt forgiveness with Deeter, he was stringently opposed to it -- for all the normal reasons: it's anti-capitalist, it encourages moral hazard, it's inherently unfair to other taxpayers. And so on ...

But when faced with rapidly changing circumstances such as the bank bailout and the enormity of the mortgage debt crisis, Deeter followed the advice of possibly the greatest economist of the 20th century, John Maynard Keynes, who said: "When the facts change, I change my mind. What do you do, sir?"

Deeter writes that debt-forgiveness "needs definition because it is an undefined term". And here we venture into the realm of unspeak, as the very words "debt forgiveness" conjure up a scenario of feckless borrowers getting away with stupidity or worse, living to similarly sin another day, when the vast majority of economists mean nothing of the sort when they advocate "debt-forgiveness". Perhaps we should rename it "co-responsibility" or just "making a plan that will prevent the entire economy from collapsing"?

Deeter believes the most sensible definition is "that it [debt forgiveness] involves a write down (of existing debt where appropriate) or a write off (of the balance of a debt after liquidating an asset)".

He notes that criticisms of debt forgiveness have centred

on three assumptions: first, that the State cannot afford such a scheme; second, that there is no working mechanism available or 'plan' to consider; and third, that 'moral hazard' is too great an issue.

In this document Deeter quite clearly rebuts the above assumptions, and goes further, saying that "in this paper [we] present an operational solution that can be backed by legislation due to be drafted by the Department of Justice in the coming months".

Really? Surely it can't be that easy, otherwise it would have been done months ago, right? And what about the cost to the taxpayer? What about my neighbour who splurged on holidays and new cars while I paid off my mortgage? What about the fact that we're utterly and completely broke? It just can't be done -- can it?

Well, using the above definition of debt forgiveness, Deeter asserts that it can.

He says: "The banks have capital and loans that can't be repaid and will not be repaid; this is no more than a call for financial honesty and realisation of losses where and when they arise."

He continues: "We have designed a system that would take less than two months from start to finish to get through, it uses proven practices from other jurisdictions and operates on the basis that lenders and borrowers alike must accept commercial reality via a semi-prescriptive solution."

Right, that sounds more like co-responsibility than debt forgiveness. But surely there are people out there who can afford to pay up who will find a way not to under such a deal?

Deeter argues that in this system there are incentives for both lender and borrower to engage, and sufficient negative implications that moral hazard is avoided. (He concedes "that some people will abuse any system is a given, but it just can't be systematic".)

So what is he suggesting the Government does, exactly?

For a start, provide third- party mediation, as is the case in the UK, US and other jurisdictions. This is vital.

"And that 65 per cent of a person's income is used to service their debts by underwriting the case from the bottom up and the top down (so that certain minimal amounts to live on are left over, as the solution should not be a poverty creator).

Now, of course the banks won't want this to happen. At the moment they're totally in control of who gets what. And not only that, but a lot of the work that they should be doing themselves (seeing as they were the other party in these agreements) is being done for them by organisations like Mabs and covered by the taxpayer. So even the threat of this scenario occurring may give your bank a bit of an impetus to consider every option available to you both -- and not just the appalling "deferred interest scheme" and suchlike which (as Deeter shows in his paper) have proven to be an unmitigated failure in the UK.

The creditors all meet with the arbitrator and a payment plan is made which takes account of secured debt (mainly mortgages) and unsecured debt (credit cards, personal loans, credit union loans etc); this plan is reviewed every six months.

This also tallies with a suggestion made by a contributor to the economic blog Irish-economy.ie who, in a discussion on debt forgiveness, said: "We should call for immediate publication of the numbers of all 'not to pursue/write off' decisions in the various value brackets. It might make very interesting reading. It is just not sensible to allow write-off decisions to be made behind closed doors by banks, with no written policy and on the basis that bankers are honourable and trustworthy in their dealings and know what is best for Irish society".

And so say all of us!

As Deeter notes: "Widespread debt forgiveness is not required. What is required is a system whereby people can take a sincere look at their situation and decide whether or nor to enter the system in order to make ends meet financially.

"The lender still has the option of repossession, but the playing field is levelled by ensuring that they cannot get a judgment for a shortfall if they opt for that -- which gives better incentives to create a genuine long-term answer, while at the same time not locking them out of their rights as a lender."

That sounds tolerably reasonable, doesn't it? Fair and practical, even. But it doesn't promise blanket forgiveness which all the clever finance guys have been yowling for recently, does it?

Well, no, but as economists such as Karl Whelan have reiterated, contrary to perception (irisheconomy.ie), "nobody is asking the banks to forgive debts of people who are able to pay it back (well, almost nobody)." This includes Morgan Kelly.

And rightly so, may I add.

As Jagdig Singh pointed out on the same thread: "Suggest forgiving the mortgage debt of someone who has a substantial salary, is not in difficulty and has substantial non-property assets and bling, and most people will become incandescent.

"On the other hand, if the bank were to write down €40,000 on the €80,000 mortgage owed by MP Mac Domhnaill, the man who wrote to The Irish Times during the week, poignantly describing the nightmare he faces, then I think most people would be in favour of that, forgiving some of the mortgage debt.

"In fact, if people knew the real identity of MP, I think they would be trying to help more directly. A less emotional example is that auctioneers will tell you that there is no point auctioning a repossessed farm in this country because the maximum bid will be €1."

This is the paradox of our attitude to any form of State- organised debt forgiveness: we are terrified that the chancers and parasites that we saw milking the country and getting away with it will profit, while we desperately want to protect the likes of Mac Domhnaill. Thus, a third-party arbitrator as advocated by Deeter is vital.

As Joseph Ryan (irisheconomy.ie) said: "Left to the Irish banks, as it is at present, the beneficiaries will once again be the big boys. A completely bust 'property' barrister will have his €1m mortgage written off, while five carpenters with €200,000 mortgages will be squeezed like lemons."

Deeter concludes by saying: "Policy makers may want answers, we'd rather see solutions. All criticism is worthy and warranted but the debate must move beyond the subjective and emotive argument to date toward a more meaningful and pragmatic end."

But while the whole debt forgiveness debate is, of course, concerned with economics and finance and doing what is best to put the country on an even financial footing again, ultimately it is about justice -- something we haven't seen much of recently in this country.

karl.deeter@mortgagebrokers.ie

Originally published in