Monthly Archives: October 2013

Universities cannot lead innovation when they themselves are all but impervious to innovation

innovation-motivational-poster-2865I really despair at times around the rhetoric in the university space. The meme at present is innovation. We are to be the engines of innovation, creating and educating a generation of innovators, leading to an Ireland that is the land of innovators and entrepreneurs. And yet, within the third and fourth level sector, for a variety of reasons, universities are highly conservative and increasingly bureaucratic institutions.  I know of no way in which we can have innovation embedded in students without it being embedded in the universities, and we are far from that.  Rather than being innovative, universities are increasingly conservative, strangled by bureaucracy, and fearful.

There are good reasons for universities to be conservative. As an institutional group, an industry if you were, they have been phenomenally successful in continuing to exist. Over 600+ years universities have continued to operate with a policy of slow change. That has served them well, in that they have not generally gone with the faddish flow. At times that has meant an increasing disconnect with the rest of the world but eventually both elements come back into alignment. So, innate conservatism as an institution is a feature of the beast.

I  suggest that to foster innovation in students, if such even be possible, universities must themselves be innovative. That they are not. True innovation is disruptive, organizationally and sometimes financially costly, and challenging. We need to embrace this.

Innovative organizations act like venture capital companies internally. That is to say, they back lots of initiatives, knowing the great majority will fail miserably, some will limp along, a few do ok and a very few might be successes. Internally failure is punished by lack of promotion and ignoring of future ideas. Beyond that we face an external environment hostile to failure, dominated by a civil service wherein the path to promotion is paved with inertia. Imagine the carping wails from media commentators, publicity seeking minor political hacks and mandarins whose idea of innovation is to have grey socks instead of black were a university president to ruck up and say “yep, we failed big-time in this, and boy did we learn. We are going to be so much better for this“. They would tune out after the second word, not so much rushing to judgement as oozing prejudicially towards it. Until we see the monies spent on failed courses, bust initiatives, and imploding centers as investments and not “waste” then we cannot expect universities to take the plunge. This isnt a wasters charter – its a need for a new mindset in the finders and a courageous mindset in those funded.This runs internally also. So if we want to foster innovation in students we need to learn to accept massive, continual failure. Else, we simply will avoid the consequences by inertia. If you do nothing you run no risk of failing in doing something.

The disruptive element is also absent, perhaps for the reasons outlined. Looking at the university sector in ireland it is in most ways the same as it was when I entered as an undergraduate in 1981. To each of the following questions there are exceptions of course but we need to ask some hard questions across the board.

  • For the most part irish academics work in disciplinary silos, where funding and promotion are vertical and where each silo is forced into a hobbesian war of all against all for a slice of the pie. We have very little horizontal interaction save by chance, and few academics work outside their area. Teaching and research are mostly within schools or maybe faculties. This is bureaucratically easy to manage but hardly fosters a sense of intellectual cross fertilization. Where are the cross disciplinary units? What are the ways we reward initiatives which seek to break traditional boundaries? Where are the chairs in Public Engagement with Art, in Science Communication, in Sustainable Finance….?
  • We teach, more or less, as we have always done. Powerpoint (or Beamer if you are an economist who thinks that making things more difficult for oneself is a mark of a ma) has replaced the chalkboard but that it for the most part. Where are the flipped classrooms? Where is the drive to ensure student participation via the use of clickers and instant feedback?  Where is the online presence, and not just in MOOCs? Where is the push for inquiry based learning? What role do we have for open learning? 
  • We run the danger, both from self interest and from fiscal interest, in skewing more and more towards one side of the dyad. Universities are or should be about teaching and research. As less and less, proportionally, money comes following students a source of funds that is more and more tapped is that for research. Combine that with the reality that in the modern environment research is the key to mobility (as I think it should be) and the skew is in. But research alone is sterile and teaching without research is mere scholasticism. Where is the innovation in ensuring that both are honoured at the individual and organizational level? Where are the teaching intensive tracks, not the punitive approaches taken for “failed” researchers that we see in the UK and Australia but ones that allow gifted teachers to excel and be rewarded (while still doing some research just as even the most gifted researcher must face a student now and again)?
  • We typically teach towards the same rhythm. No, universities don’t close for the summer – such sneering ignorance is typical of those who see third level as a kind of second level school for kids who can drink, but hears as little resemblance to reality asking why a radio show is only on 2h per week or why parliament sits only X days per week. Things happen other than at the undergraduate lecture space. That aside, we teach to two semester per annum for historical reasons. Ensuring that staff get one semester free from teaching ensures, if we manage it, that there is research undertaken. But we must ask where are the credit based and flexible learning courses? Where are the accelerated degrees as a flipside to that? We need to consider students as self actuating adults. Some may wish to speed through an education, others may need or desire to take things at a slower pace. We don’t, typically, facilitate that as part of the mainstream. Where is the granting of credits for demonstrated transferable, life and soft skills not gained in the formal setting? 
  • We are poor at integrating those inside and outside the groves of academe. Universities are part of society and vice versa. While there are many many adjuncts delivering courses and sometimes engaging in research, we seem to eschew innovative flexible engagement. Where are the formal professors of practice, outside the medical schools? Where are the fractional posts, the joint appointments of academics with “industry”, the seamless engagement of society with universities and viceversa? 
  • We deliver courses in silos. There are some wonderful cross institutional initiatives but  where are the efficiencies in delivering basic transferable skills across units instead of silo based approaches? Where indeed are the structures that allow students to transfer within not to mind between institutions as they themselves learn their interests and skills?  
  • We stifle ourselves with bureaucracy, morphing into managerialism. This is confused with management. Faced with a demand for something from the external environment the natural reaction is to create a committee, to introduce a form… or sometimes worse- Foreign travel in TCD  requires a form to obtain a form which then requires a form thereafter to obtain refunding where the existence of the first form is not allowed as evidence that the activity was sanctioned….Where is the innovation in reducing bureaucratic overhead and slimming down plethoras of committees?
  • The external environment is ever more intrusive, with the slow imposition of a form of organizational structure which worked well, for a while, in early 20th mass industry is as well suited to managing a modern knowledge organization as a sea lion is to playing the viola. Yet, faced with this, where is the innovation in how internally universities are organized and how collectively they engage coopetitivly?  Faced with an external environment where a prominent public official can use the analogy of feeding bowls for funding, what have Irish universities done to both decry this language and to respond to the concerns which might animate it, no matter how distasteful it is worded?
  • We look to the international student body as a  source of funds but we are fearful of innovation in seeking these. There is a steady stream of vice presidents for global affairs streaming to India and China to seek to get students. Meanwhile, we sit on the edge of a continent of 500m people, ignoring them for the most part, hoping they will come along. We end up showing where Ireland is on a map when we go to seek students in Chindia. We dont need that when dealing with people who know where we are and who mostly dont think we are too bad in our  When was the last time a major push was made to engage Polish or Italian undergraduates to come to Ireland? Where is the encouragement of formal joint degrees with Slovenian or Portuguese institutions? Where are the joint appointments of faculty?

I could go on. If we do not allow, encourage, cajole and force ourselves into allowing innovation, with the concurrent failures that it will entail, in the creation and delivery of our own products, how can we be taken seriously as a force for innovation in society? Modern technology, massification of education, reduced external funding and greater international competition should force us to look at ourselves. The fad de jure for making universities lead the push in society for greater innovation is that – a fad. But the need for organizations facing the forces that Universities face to themselves become more innovative, or at least more open to same, that is longer lasting. In a budgetary and organizational crisis we can hunker down or face the challenge. We seem to be hunkering down.

Irish Banks : Arrears, Deposits, Bail-in and Interest Rate Editon

This is an edited and extended version of a column in The Irish Examiner 26 October 2013

There is a great book on marketing titled “the long tail” , which stresses that instead of trying to hit millions of customers at once its perhaps better to do millions of niches. Replete with examples it was and remains a deserved hit. The long tail refers to the distribution of something – a large bulk at one end quickly trailing off to smaller numbers but which go on for a long time. Another word for this is skewness. In very many skewed distributions it is common for the total amount in the long tail to be equal to or greater than the amount in the bulk. Another way of thinking of this is a power law. Many many things have been found to follow power laws – terrorism, population of cities, bibliometrics, income distribution… theres no reason to think Irish bank losses are different.

download (1)The long tail approach is worth considering as we move into the sixth year of this crisis.  Having dealt with the massive mess of the commercial property and developers loans via hiving them off to NAMA (which has yet to “get credit flowing” as its cheerleaders in the then government and some still prominent stockbrokers trumpeted) , the long tail of the mortgage and SME loans continue to erode the banks. We are moving down the tail with the average loss getting smaller but there are an awful lot of them. Today I spoke to a SME owner who runs a small distribution business. He had settled with a bank for a loan taken out in 2006 which resulted in the bank taking a loss of just under €1m. The business is still going, much reduced but “ticking over nicely”. This is as good as it gets – a viable business remains. Many many SME loans are for larger amounts and the banks will take a larger hit as there is nothing left. I think of someone  I know who purchased a house in 2006 for €450k, interest only of course, in a  not very fashionable holiday area, where similar homes are selling at €150k on a good day. These are the long tail and they are wagging the dogs of our banks as the banks chase them round in a circle.

Basel-IIIAt present Irish banks are well capitalized. Some might say that in a classic overreaction to the lack of adequate capital buffers in the past they are over capitalized. Bank capital is a two edged sword. On the one hand the more capital they have the greater a buffer exists to absorb losses. On the other, as capital is measured as a percentage of assets the more capital is required then all things considered the smaller will be the assets. A bank that has a 10% capital ratio will be able to make more loans (assets) than one that is required to hold a 15% ratio. The ECB has recently announced that it will conduct another round of stress tests. These are required, in essence, so that the final set of capital injections will be made prior to the ECB taking over full control of regulation. The political reality is that this step, a necessary requirement for a proper banking union, will require that individual states make or supervise any capital injections. In a banking union this will be the responsibility of the union, and thus the German taxpayer might be on the hook. But not this last time.

gpyugoWe have known for some time that the Irish banks will require additional capital. The state of the mortgage book is bad but the state of the SME loan book is also dire. Earlier this year we found out that  50% of the SME loan book was in distress.  There is a total of €70b in SME lending, of which an astounding €30b is still outstanding to real estate. A multibillion loss is an absolute certainty.   On the mortgages we have similar. The question that should raise its head is : who bears these losses. Traditionally the order of losses was deemed to be shareholders -> junior bondholders -> deposits and senior bonds. The taxpayer might then step in and recapitalize if the bank was deemed to be needed.  So in the Irish case 2008 saw some but not all junior bondholders and almost all equity destroyed, but the system balked at that and so in stepped Paddy with his chequebook. And we know how that ended. We saw in Cyrpus, and indeed have seen in the liquidation of IBRC that depositors can and in future will be “bailed in”. This is fine and dandy if all other sources of capital have been burned through. The problem is that recent statements by Mario Draghi suggest that bondholders might be spared in future, for fear that once burned they might not return. In other words the sovereign would be required to make a decision as to whether they would absorb losses or instead force bailins on depositors. There is zero willingness for the Irish state to add more taxpayer money into the banks. Thus the question becomes: do the banks hae sufficient buffers in place to absorb losses before the question of depositors comes into play?

hqdefaultOn a macro level they are good. AIB has shareholders funds of c 10b, BOI of 8b and PTSB 2.4b.  In the case of PTSB and AIB much of these shareholder funds are in fact state funds, so any erosion of these is an erosion of taxpayer funds. The problem is that as we noted they are required to hold funds at a certain level. This level is higher than the European requirements. Thus as losses get booked the banks will have to either raise additional funds. This, in sufficient amounts, is I submit unlikely. While they have had some success in raising limited amounts these have either been expensive or have required significant security. In addition, the banks face rollovers of existing issued debt. Bank of Ireland will need to roll over or pay off bonds of 9.5b in 2014-2015, AIB 7.5b and PTSB 5b n the same period. This will tax them significantly. If they face a requirement to otherwise increase capital from losses that will make the job that much more difficult. A large part of the outstanding bonds are senior notes, some 7b. A large part of the remaining is covered or asset backed. Only some 5b or so across the banks, mainly in Bank of Ireland, are unsecured or subordinated. Bank of Ireland has the largest “burnable” buffer but is the one least likely to require it. AIB has very little unsecured debt and less than 4b senior debt. We have seen that even the mention of senior debt being burned, where legally possible, has caused significant negative market reaction. Thus where there is no taxpayer backstop and either no bondholders or no willingness to burn them, inevitably deposits must come into play. In that context depositors should seek a higher rate than they are at present getting.

browseChartThe chart shows the deposit rate on new deposits for an agreed maturity, Ireland v Germany. Deposits that were ten years ago seen as close to riskless as it is possible to be are no longer so perceived. The difference between Irish and German deposits is not, I suggest, sufficient to reward for the relative risk differential. Although small, the risk of depositor bailin in Ireland is many many times larger than that in Germany. These risks are the worst sort- small probability large outcome risk. It is time that the banks begun to remunerate depositors  appropriately for the risk, small that it is, that they are being asked to bear.  We need to move away from a banking system that is dependent in large part on loan capital towards one that is dependent on deposits. In fact, in the last week we have seen the situation worsen. The increase in DIRT means that deposits are now paying less than the already paltry levels. Combined with the loss of ACC , closing after 86 years, this further erodes competition, even if ACC was a small player. Expect pressure on interest rates to be downward, relatively speaking, on deposits. Which are now risk capital and in the firing line.

Misogyny United 1 Admiration for Skill 0

There is a fantastic video on Youtube of Stephanie Roche scoring a class goal in a recent match. If you have the remotest interest in soccer or sport its worth watching.

http://www.youtube.com/watch?v=c0L0WIK2Ync 

Its been hailed as a classic and as a goal for the seasons by professional players and pundits including top flight international players. See http://www.independent.ie/irish-news/match-of-the-days-gary-hails-stephanies-goal-of-the-season-29678698.html and http://www.telegraph.co.uk/sport/sportvideo/footballvideo/10393036/Today-on-YouTube-Stephanie-Roche-scores-goal-of-the-season-contender-for-Peamount-United.html for just some of the reactions.

However… Look through the comments on YouTube for a less savory experience.  We know from the experience of some high profile women that social media comments can range from the mildly sexist to downright disturbed and disturbing. Think of the threats to Mary Beard, or Caroline Criado-Perez as the most high profile recent cases. The ability to comment, anon or pseudonymously seems to give some people a case of foot in keyboard syndrome. They tap into the reptile part of the brain and spew forth in a manner that one hopes (but fears that they might) they would not do to their wives, partners or siblings. Anonymous abuse is one thing ; Iv gotten a fair share of it on IrishEconomy.ie , Politics.ie and Thepropertypin.com, and unless its frankly libelous I let it ride – when it’s layered with a deep vein of misogyny , sexism and downright creepiness then its something else.

The comments, some reproduced below, suggest a bunch of guys with poor social skills threatened by a display of individual skill from a woman. So, they try to take her down. Its shameful. Youtube could and should like all social media platforms be significantly more vigilant. Comment is fine, criticism is great, but in the lack of moderation then people behave immoderately. Its not enough to have  a “report for spam” or “thumbs down” button and to crowd-source – thats necessary but not sufficient. And it doesn’t matter if the comments are few – we are much more sensitized to negative than positive interventions.

Nice goal. Now get me a sandwich b*tch.

did someone get lost out of the kitchen again

women……football ahhahahahahahahahahahhaahhahaa­hahhaha

Bet she cant make a chicken sandwich though :/

im puzzled by this video… where are their aprons, or am i looking at some very feminine looking men? some fill me in please and tell me what the hell is going on here??

dykes

I didnt know Cookie Monster was on the bench

and so on and so forth. To be fair, a lot more comments are positive or if critical are from people suggesting issues with the defense  technical issues etc. But the fact remains there is a well of sexism, misogyny or downright hatred of women that comes out on social media at times. Its disturbing..

Microsimulating the Unemployed to work…

The Irish Times today carrys a report that the Department of Social Welfare will soon contact all 400,000 people on the live register to explain that they would be better of working. Which seems fairly obvious

The report is interesting in that it first of all was and is still in the print version headlined “75% would be better off working” but was amended to “only 3% better off not working”. I wonder why. The report, says the Dept in  a response to me (reproduced below) is not new. It is this report.

Now, that report is excellent. It looks at replacement rates (ratio of what you get on welfare to what you get on work). The 75% statement seems to come from the analysis of table 3 where the authors state “about three quarters of the recipients on Jobseeker’s payments face a replacement rate of less than 60 per cent”. In english this means that in the simulated labour market they develop someone on Jobseekers would get 60% of the predicted wage they would get.

The welfare situation is complex. The replacement rate is a fine and dandy tool to benchmark what you get in position A vs B. The problem is that the report and the letter campaign will be spun as “get of yer asses and get a job” . In a classic case of transference the (nominally) socialist Tainiste suggested young people should not be “in front of flat screen TVs”, echoing Norman (assuredly not socialist) Tebbitt and his exhortations to the unemployed of the 1980s to “Get on yer bike”

Here however is the problem..are there JOBS for these layabouts to drag themselves to instead of watching Jeremy Kyle and reruns of Americas Top Model? Focusing on the replacement rate is a classic case of supply side initiatives. But the other half of the issue is Aggregate Demand. From the Budget 2014 we see that domestic demand, which will drive jobs more than hoped for hightech exports, is calculated to be at best sluggish, at 1.4% to 1.1% pa for the next few years. It would be nice if we could have media and government that acknowledge that supply and demand work together.

*************************

The reference to ‘75% of people on welfare could increase their income by about 50 per cent by obtaining a job’ is from Live Register analysis and has been cited in a response to a recent parliamentary question (see below).

The separate research from the ESRI, is publicly available and the title of the study is “Tax, Welfare and Work Incentives’.

PQ – 17th October, 2013

Deputy Peter Mathews asked the Minister for Social Protection  her plans to ensure that persons are financially better off in employment rather than on welfare; and if she will make a statement on the matter. [43140/13]

 

Response from Minister for Social Protection (Deputy Joan Burton):    

The replacement rate for given income levels is a tool used to measure the degree to whichout-of-work benefits when unemployed replace take home income from work. While there is no pre-determined level of replacement rate, which would influence every individual’s decision to work, higher replacement rates may indicate lower incentives to take up employment. In this regard a replacement rate in excess of 70% may be considered to be excessive. The Department will shortly make available an online “Better Off in Work” ready reckoner which will give an indicative estimate of the difference between a customer’s potential in-work and current out-of-work payments based on information input by the customer. I expect this to be of significant practical help to jobseekers. Replacement rate analysis, as supported by research by the ESRI, demonstrates that the great majority of people on the Live Register have a strong financial incentive to work and significant numbers leave the Register each year.

In this regard it may be noted that almost three-quarters of the people on the Live Register are only claiming a personal rate for themselves. They are either single or may have a spouse or partner who is working. In addition, 53% of the people on the Live Register receive less than the maximum personal weekly rate.

High replacement rates are generally associated with a relatively high number of dependent children and/or receipt of rent or mortgage supplement. However, it is important to note that only some 9% of persons on the Live Register are in receipt of rent supplement, with a further 1.5% in receipt of mortgage interest supplement. The vast majority of jobseekers do not receive these additional supports. Significant moves have already been taken to address the impact of housing entitlements upon replacement rates. Arising out of commitments in the Programme for Government to review the operation of the rent supplement scheme, proposals to integrate the systems for providing rent supplement and social housing support have been advanced. It is intended to transfer responsibility for the provision of rental assistance to persons with a long term housing need from the Department of Social Protection (currently provided through rent supplement) to housing authorities using a new housing assistance payment.

The effect of this transfer and the introduction of a new form of housing assistance payment will be to address one of the significant disincentives to accessing full-time employment that exists under the rent supplement scheme. This will have a positive impact on replacement rates.

Scientific American faces firestorm after removing blog post about scientist being called a whore

So, its apparently ok to call someone a whore for NOT working for free for your commercial blogging enterprise. This is interesting to me for two reasons. First, its simply inappropriate for someone to call out a person as a whore. There is far too much incivility in online discourse. People say things online, even in direct ‘face to face’ online communications, which they would (we hope) never dream of saying in real life. As to the germ of the issue… Dr Lee was asked to do some blogging, she asked whether and how much remuneration was involved, and declined on hearing ‘nuttin’. Then she gets called a whore (which is odd as if she was doing things just for money…). But why do commercial blogs and online commerce organizations think they can freeride on academics? A few months ago I was asked to do a monthly online one hour virtual meeting room with clients of an investment bank. I asked “how much” and the answer was zippydoozero. I declined and as per here they whined on about how great an exposure it would be for me.
Companies : you operate in a commercial environment. That doesn’t end when you ask Prof Pointyhead to work for you.

Retraction Watch

We tend to stick to retractions in the peer-reviewed literature here at Retraction Watch, although we’ve made exceptions. Today’s post seemed like a good reason to make another exception, because while Nature Publishing Group-owned Scientific American is not a peer-reviewed journal, the science blogosphere and Twitter are lighting up this weekend with strong reactions to the magazine’s removal of a blog post by biologist Danielle Lee.

The incident was first noted by Dr. Rubidium, who wrote yesterday:

Scientist and science communicator @DNLee5 declined an offer to blog for free from biology-online.org and got called a ‘whore’.  @DNLee5 posted a thoughtful response on her Scientific American‘s blog ’The Urban Scientist‘.  A short time later, her response vanished

(You can read Lee’s original post on Dr. Isis’s blog.)

Yesterday morning, Scientific American editor-in-chief Mariette DiChristina responded on Twitter:

View original post 627 more words

Irish Banks failure to deal with BTL mortgage arrears gives scant hope for the future.

austeritycornerThis is a expanded version of my column with the Irish Examiner of October 12 2013. With the budget around the corner we are hearing soothing noises all round about the economy. Apparently things are grand, or about to be. We are to be grateful that in an inversion of 1 Kings 12:11 we are not to be beaten with the scorpion of 3.1b but merely with the whip of 2.5b in cuts.  Hooray… Although the Fiscal Council still suggests exemplary discipline, the government has decided to show some mercy. We also see the ESRI coming out very bullish on the economy, particularly with regard to employment, which is rising. This, and they are right, represents an improvement in the domestic economy. How much of this is a dead cat bounce and how much a sustained improvement we will see, but one thing is clear, we are by no means out of the woods. At best we have worked out on what side of the dead tree we should look for the lichen to aid us in getting out. The real domestic economy remains mired in deep recession and persistent questions remain about the reality of the export figures especially for services, which are subject to the vagaries of international tax arbitrage.

Deflated-balloonThe budget will act as a drag on the economy. There is no doubt about that. We have long since passed the point of no return for the myth of expansionary fiscal contraction, in fact that was exploded in the Irish case by Karl Whelan in 1997. What remains to be done however on the fiscal side is, by comparison to what has been done, small (but still painful).  We are  still however looking at a structural deficit – that is to say that abstracting from interest payments on debt we are still running a deficit. Until we are in structural balance we are still liable to fall into fiscal wardship. So the domestic economy will struggle on.

For many persons with mortgages, particularly buy to let mortgages on investment properties the next few years are likely to be the most difficult of all.  Having taken cuts and tax rises, incomes are  tight. We now know that the buy to let market is in the horrors. Of the 150,000 mortgages outstanding 40,000 are in arrears. That is an astounding figure – one in four loans in distress. Arrears are rising by 3% every quarter with arrears over two years rising by 15% every quarter. The sector is bust.

Anchor,_England_-_scan01Typically buy to let mortgages in the boom were on a interest only basis. Thus the mortgagee repaid interest and expected that in 20 or 25 years time the capital value of the property when sold would meet or exceed the initial sum borrowed. Fully 50% of a sample of recent BTL investors noted that they were not getting rental income sufficient to cover the interest. Thus in addition to these mortgages slipping further into arrears there is a growing cohort of investors who are building up further arrears on capital. The same investors do not see the property market recovering, in the sense of outperforming for its level of risk, in the short or medium term. Despite all that a large percentage of these investors refuse to sell for less than the price at which they purchased. In the face of a 50% fall in capital values where there is likely to be at best modest nominal increases in value in the medium term, this is while understandable from a psychological perspective simple delusion from an economic perspective. Not selling in hope of nominal prices returning is called Anchoring. While it may be stable something anchored can also have its guts ripped out if the anchor is overly strong, and of course being tied to an anchor  is a wonderful way to drown. Tying oneself to something while underwater is generally contraindicated.

house-of-cards-550x550The banks refuse to engage with this problem . With 150000 mortgages of which 40000 are in arrears we have a paltry 500 in repossession. There are 10000 buy to let mortgages in arrears of over 2 years. These are never going to be repaid.  The 700m of accumulated arrears of these defaulters are gone. The €3.3b of mortgage value represented by these two year defaulters  is impaired by at least €1-2b. The banks refuse to move to write down these loans, repossess and move on.  They too are anchored to unrealistic expectations. This is down to their petrification that when they start to do this, to repossess investment properties, they will cause a cascade.  Part of that cascade will be that as repossessed houses come onto the market this will further depress the prices which, Dublin aside, remain in decline. A more worrying element for some is that there are an unknown, but presumably non-trivial, number of these which are cross secured on residential properties. While there is some faint appetite for repossessing investment property there is much less for principal private dwellings. More worryingly, a large percentage of these property investments seem to have been secured on other property investments. Kicking away the props from a shaky house rarely results in a neat outcome. So despite rents beginning to rise, which would make these properties more attractive for banks in their capacity as landlords, there remains a massive blockage. At the bottom of an interest rate cycle, with a depressed economy at best recovering very haltingly, with little prospect of fiscal loosening in the medium term, the outlook for these BTL investors is bleak as it is for the banks.

billboard-stuck_1116867iSitting on the  problem and hoping that it will go away will not work for the BTL investors. Nor will it for banks. While individuals may be excused for anchoring to past prices and for displaying psychological traits such as cognitive dissonance (wanting to sell, not seeing the asset as attractive but not wanting to sell for less than purchase) there is no real excuse for a large commercial organization to do so. These are investments. People took them for such. If the Irish banks refuse to deal with these then there is scant hope that they will deal with the  larger problem of residential mortgage arrears. The residential mortgage market is 4x the size of the buy to let but has ‘only’ 2x the arrears. Together however the banks are sitting on mortgages in arrears totalling a stunning €35b, with €4b in total arrears. Looking at the over two year arrears  we have mortgages of €10b with accumulated arrears of just under €2b. These are for the most part lost. But the banks refuse to move on them.The result is that the banks will be crippled for decades. We need functioning banks and right now they are dysfunctional.