Saturday 24 March 2018

Edmund Honohan: 'Promissory note' deal for mortgages ticks all boxes

Allowing people to pay their mortgages by IOU for three years would release that cash into the economy.

Edmond Honohan

Are we overlooking a simple way of avoiding the Japan-style stagnation which is now threatened? We are exhausted with the long debate over distressed mortgages. In parallel, we are ever conscious of the crisis in the public finances, the rating agencies, the bond market and the terms of the Troika bailout. Private debt. Public debt. Where is the macro economic synthesis?

A Keynesian stimulus is the lifeline the economy needs, but where is the money to come from? The answer is disarmingly simple: our private mortgage borrowers, both coping and distressed, paying perhaps €5bn per annum in repayments to both banking and subprime, should be given the option of "paying" by promissory note. Release into general consumption the money that was earmarked for the mortgage and watch the domestic economy revive.

Cue alarm bells all round. If it's that simple, they'll say, someone will have thought of it before now, and ruled it out as naive. Not so. In this groupthink society, conventional thinking will always be assumed to be optimal.

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