THE future of our banks is intertwined with our own, but while they wear the Government like a glove, distressed borrowers and those who are sitting on the fence will be abandoned to the courts, where they can fight for their homes and what's left of their businesses.
ACC has folded, Danske Bank Ireland (once National Irish) is to withdraw from personal banking here. The rest are broke and need a miracle to save them. They can't help because they don't have the money, and they'll burn distressed borrowers to survive.
If you want to leave your financial problems behind, start paddling your own canoe. No one is coming to the rescue. If you sit back, you'll be washed away. If you have something worth fighting for, there are financial solutions that don't involve shooting the dog or drowning the cat. Banks are testing the water to see what they can get away with, so it's up to you to find a solution.
If you default on your loans, you may be in breach of contract and you risk losing everything you have, even your home. You can whinge about the dire state of the economy, or you can do something to change your circumstances. If you don't have a job, why not start a business? If you can't pay the bills, and there's nothing left to sell, stop trying and start again. The system provides bankruptcy and personal insolvency solutions for those in trouble – why would the banks offer anything else? They know most people don't want that.
Tax relief played a major part in affordability of our mortgage obligations, but the Government cut it out when the crisis began. It's insolvent too – it can't get enough tax to pay the bills. Mortgage interest relief was given indiscriminately to homebuyers, but it favoured first-time buyers who were most vulnerable. The banks did the same when they gave them lower interest rates, at the expense of their loyal customers.
There is no doubt that the Government and the banks colluded to grow the market. It meant more profits for the banks and an unstable building sector to fund the State. It might have worked had it been monitored and controlled, but it wasn't. They should have seen it coming, as should the financial regulator. After all, it's his job to stop the system from overheating.
They built a house of cards, but they built it in the wind and now it's gone. In the end, it created more victims than beneficiaries. The elite few who profited from the insane madness did very well for themselves. When the house of cards they built fell down, they alone were compensated; the rest were made to pay. As the saying goes, the rich get richer and the poor get prison. The banks made it a fait accompli.
Let's ignore investors and just think about homeowners for a while. There is something very personal and special about buying and owning your own home. You grow attached to it in spite of all the agony and pain it can cause. It literally becomes part of the family, and no matter how bad things get, you will do anything to keep it. It might be only bricks and mortar – and they are cheaper now than they ever were – but it's where you live and where you go to get away from the madness outside. It might be the only thing to give you the strength you need to carry on.
It may be different for single people. On the one hand, they are more flexible and can cut the ties more easily than a family can. But even single people need a place to call their own that is their home. It can be harder for them to get a foot on the property ladder, and the risks are high. They must save a deposit on their own, they have to pay the mortgage on their own and if they lose their job, the risk of default is greater. At least with a couple the problems can be shared, and that includes the bills.
There is still a tax relief that many haven't even contemplated, and that is the Government's rent-a-room scheme. It allows you to earn up to €10,000 a year tax-free from renting a room in your own home, and it doesn't create any adverse stamp duty or capital gains tax problems. You could lose your privacy, but is that such a bad thing, especially if it helps you keep your home. It might be easier for a single person, but there is no reason why it shouldn't work for couples too.
Another tax relief involves childcare services. You can earn up to €15,000 a year tax-free for minding children in your own home. It's no walk in the park, and childcare is more and more regulated, but it might provide a family with the extra cash to meet their mortgage repayments or get them back on track. Whether you are out of work or a stay-at-home parent, it might be what you need.
For the long-term unemployed, the recent Budget brought in one of its most radical back-to-work schemes. But on this occasion, it is a set-up-your-own-business scheme. If you've been on the dole for 15 months, you could earn up to €40,000 a year tax-free for two years if you set up your own business.
It is also possible to recoup up to 30 per cent of your accumulated pension fund under certain circumstances, to reduce your debt. You will pay the marginal rate of tax on whatever you take out of the fund, and you will be jeopardising your financial independence in retirement. It will work for some, but it would be a foolhardy move for most. It shows how anti-pension this Government is, but it's there and worth considering.
If these don't work for you, there are many other alternatives, including sustainable restructuring of loans, which the banks were so slow to offer. It is hard to get what you need from the people who couldn't sort out the problem in five years. Thomas Edison said that if we did a fraction of what we are capable of, we would simply astound ourselves. I wonder if the same applies to bankers? If they dig deeper they could solve the problem, but they need a lot more money.
I've shown you what you could do, and I'm sure you can think of even more things. It's the banks' turn to show us what they can do, but that won't happen soon. Up to now, it's been about keeping what they have, grabbing what they can and blaming everyone else. It's a pity they didn't do more. It's up to the rest of us to bail them out again. Sure, what else can we do?
James Fitzsimons is an independent financial adviser specialising in tax and financial planning