Saturday 18 November 2017

Starvation won't cure overeating

While hand-holding is reserved for the big guns, the little guys get a lecture on moral hazard, writes Brendan O'Connor

Everyone seems to be agreed that more debt is not the answer to debt. Unless, it seems, you are Treasury Holdings and the other people whose debts have been transferred to Nama. In that case, a little bit more debt seems to be the answer. At the very least, when your debts go into Nama you are led into a hand-holding process whereby everybody bends over backwards to help you pay off a proportion, maybe half, of your reckless, maybe toxic, debts. At best Nama will facilitate you with further loans, in the form of 'working capital', to help you pay off what you owe it already. It may even join in with your crazy schemes, schemes that have seen off numerous other developers, schemes like Battersea Power Station. It seems that, for Treasury Holdings, being loaned more money by us is the best way of us getting back the billion it owes us already. This is an example of more debt apparently being the answer to existing debt. Or throwing good money after bad, as you might also call it.

But that's for the big guys. For the little people, as we all know, it's different. For the little people it seems that the solution is no more debt, and for them to be pressurised to pay off what they owe as quickly as possible. There is no hand-holding process, no gentle Nama to save us from the banks, and to sit down and help us figure out where we go from here. Any suggestion of a creative solution is frowned upon by the regulators.

And so it was with the suggestion from some banks last week that they would start rolling out products that would help people who are in negative equity to move house, retaining their negative equity but moving it to a new property. A bad idea, we were told, throwing good money after bad and getting people into worse debt. Jonathan McMahon of the Central Bank said that they would look at those products with scepticism. Now they get sceptical, sez you.

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