A sympathetic approach to dealing with Property Developers

The Sunday Business Post reports that

Meanwhile, the British government has told its main financial institutions to adopt a sympathetic approach to Irish property developers and not to pursue them aggressively through the courts, under an informal accord reached between the Irish and British governments.

In return, the Department of Finance has briefed Irish institutions covered by the bank guarantee scheme not to pursue British developers on their overseas loan books. A number of Irish banks have significant interests in British commercial property.

The move is designed to give both governments room to deal with the collapse of the property market and the financial sector fallout. In Ireland, it is designed to assist operation of the National Assets Management Agency (Nama).

It sounds like the governments are working together in an attempt to maintain excessive property & land prices. Is this really in our best interests?

SB Post article
Hat tip : Property Pin

  • Sam Flanagan

    NO

  • John K Lund / Lllamedos / Suchard

    This is just one more panic move by Brown. All the participants created this 21st Century South Sea Bubble and now the market must be left to find its own levels.The Taxpayers are being asked to prop the banks and the developers who have caused this situation. The prime culprit being Gordon Brown.

  • Kropotkin

    It’s not really so different from governments working together to make sure equity prices remain high, which is essentially what TARP and all the rest of it is about.

    We’re entering a period of savage debt-deflation, and the last thing we need is chains of default starting to spring up, spreading the contamination of bankruptcy and further exacerbating the whole sorry downward spiral.

    Rest assured, prices are going to come down, despite the vast amounts of money being poured into the system. The inflationary effect of all that stimulus is completely negated by the fact that the big banks are essentially behaving as liquidity traps, soaking up everything that can be thrown at them and still creaking and groaning under the stress of their ravaged balanced sheets.

    That, in fancy economic language, means that the velocity of money is very low, and low velocity equals a deflationary effect.

    Property developers are very like the banks in many ways. Both took dangerous gambles with borrowed money on the assumption of endless growth, free from correction. Artificially low interest rates encouraged both to contribute to a pheneomenon of runaway inflation – debasement of the value of money – that was aided and abetted by the central banks, who absconded their duty to maintain sensible policies and became overwhelmed by the exuberance of a roaring bull market.

    Unfortunately, to pursue them to the last cent of their debts, in both cases, would be to invite disaster. If we let a single big bank fail, it’s creditors – those who had money on deposit – would instantly be wiped out, rendering them unable to pay their own debts, creating a second wave of defaults, which would in turn create a third wave as the creditors of those who’d lost everything to the first wave are also taken down. And so on, ad infinitum.

    Instead of the already difficult 5% deflation we’re seeing, we’d see something more like 50% in a matter of months, and civilisation would not survive that.

    It’s an awkward predicament since it means that we’re forced not only to overlook, but to actively assist those whose excesses got us into this mess in the first place, but it’s the only pragmatic choice. The alternative is literally widespread starvation, the breakdown of order and the beginning of a new dark age.

    Those are the times we live in.

  • Comrade Stalin

    I think a soft landing for the property market is best. Lots of negative equity and foreclosures will make things worse for everyone, not better.

  • epicene

    I shudder at each reference to “returning to ..(normal)..”. The bubble up until Oct 2007 was NOT normal, it was overleveraged/debt/fraud on a scale never before seen, even in the days of Greenspan’s “irrational exuberance”.
    Certainly a decline/fall/crash in asset prices will hurt the current bien pissant’s sense of self worth (wildly overvalued – sic!)but let the undead bury their dead.
    It can only be to the advantage of the young, to whom belongs. Bailouts/TARPs etc are borrowing from them, WITHOUT their even being asked, never mind consenting. Normally that is called THEFT. And we Boomers expect them to care for us in our dotage. Bets anyone?

  • davros

    I think it’s less about the property developers and more about not starting an almighty pissing match