An Irish woman's social, political and domestic commentary
Monday, July 18, 2005  


This week's ST....

Debt is heavenly — according to banks

The fine weather has made the hiring of a landscape gardener an imperative. The decoration of our new house is almost finished. An abstract by a trendy artist and a few more lampshades would complete the picture, but already I can show guests around and glow in the warmth of their compliments.
When I look outside, my pride dissipates. The house is situated in what was a field. Our dreams of smooth lawns, the shade of a leafy oak, and tarts filled with homegrown fruit are about 10 years and €20,000 away.

There are three possible sources of finance for a garden to match my delusions of grandeur. There’s the Lotto, even though the odds are 5m to 1. Other people win it all the time; no reason why I can’t. Mind you, discovering I haven’t is a bi-weekly source of irritation.

I could check out those friendly letters from the bank announcing that I have been pre-approved for a loan, or pay attention during those mundane transactions at the branch when I am interrupted by staff reminding me that a simple signature is sufficient to secure funds to hire Diarmuid Gavin.

Finally, there is the Eddie Hobbs Strategy of Last Resort. I could cut back on expenditure, put aside a certain amount each month, and only do that portion of gardening work that can be financed by my savings. This is clearly the ludicrous option — nobody saves any more. It seems so passé; so 1980s. Saving has gone the way of the outdoor toilet and the fondue set.

The Central Bank reported last week that Ireland’s rate of personal debt continues to soar. The ratio of debt to disposable income in households is now in excess of 120% and growing. Instant gratification is funded by instant credit. Despite dire warnings from the Central Bank, most people seem quite happy with this. We insist we deserve new clothes, nice cars, fancy holidays and fine dinners. The telecoms, software and property millionaires are all around us and have raised the lifestyle bar.

Dan McLaughlin, an economist, showed up on Eamon Dunphy’s radio show last week to pour scorn on those who are concerned that our flash lifestyles are being funded by increasing debt. He accused the Central Bank of engaging in “ritualistic moral panic”.

McLaughlin believes that worrying about our profligate borrowing is unnecessary and rather silly. We should remember that McLaughlin is not any old economist, though. He is chief economist at the Bank of Ireland. The banks regularly remind us that interest rates will never go up, house prices will, and it’s okay to spend, spend, spend.

Some journalists conduct interviews with the likes of McLaughlin as if they were neutral academic commentators. On the contrary, they represent institutions whose profitability depends upon increased borrowing by the public. If McLaughlin showed up and advised people to live within their means, I presume he would be fired on the spot.

Likewise, the misers at the Department of Finance will stifle their giggles when consumer agencies start advising us to cut back and save. Although we are frequently reminded that we live in a low-tax economy, the comparisons refer to income tax. Exchequer receipts continually exceed estimates due to the revenue from Vat and other spending taxes such as stamp duty. Every time an irresponsible consumer buys a new car on HP, bids over the guide price for a house, or puts a holiday on a credit card, that’s more money for the government to waste on pet projects.

If you suspect this is a trite conspiracy theory, then note that only two days after the Central Bank issued its warning, First Active launched the country’s first 100% mortgage. The kindly lenders there took pity on first-time buyers who are frustrated by the need to spend a few years saving the deposit for their overpriced house.

The Central Bank’s relief that house price inflation appears to be slowing will be short-lived. With extra funds at buyers’ disposal, property prices will continue to rise. The government, whose laughable regulatory agency cannot veto First Active’s product, can count on the extra stamp duty. The banks are lending more money, so they make more profits. The developers can charge more for a house. The solicitors and auctioneers are all on a percentage. The first-time buyer will have to move further out of town and spend longer in their car using more petrol, the price of which also continues to spiral. Surely the revolution cannot be far away? I will continue to decline the enthusiastic offers of money from the bank. I’ll also stop doing the Lotto, because the government gets that money too. Anyone got a number for Eddie Hobbs?

Ps When I submitted this I had Diarmuid Gavin down as Dermot which is what he was called when I knew him years ago. On his Front Room in the Garden show on BBC, Lawrence Lewellyn-Bowen also called him Dermot. But everytime he's interviewed he's called Diarmuid...I wonder what the story is? btw, he (and his wife) are extremely nice people. I hope they make a fortune. They used to be v. poor.

posted by Sarah | 21:18 5 comments
Nice Fintan/CJH reference with the fondue set. Applying Fintan's logic, imagine the wealth that a Taoiseach needs today to keep ahead of the Joneses. But then again, they are paying Bertie 250K a year.

My one theory about Dermot/Diarmuid (knowing nothing of the person) is that it's less confusing to the French.
I wonder how many others would remember the Fintan thing? I doubt he reads the review section of the Times himself!
Can the revolution be far away. Yes is the answer there. On the other hand it is inevitable. Why on earth are you in Fine Girl?
Because it's bred into me. Also, I threatened to jump in 92. During the debates over dinner I gave out yards about Brutal and claimed Spring was by far the better performer. For example, he really pushed the boat out on the Beef Tribunal. My parents darkly warned that he was not to be trusted. They were proved correct. Not only on the coalition but also in relation to the Beef. When he went into the witness box he couldn't back up most of the allegations he had made. On the other hand, Brutal had been careful not to say anything in the Dail that he couldn't prove even tho' with privilege he could say what he wanted. Thus he could back up his speeches. Spring was all style. Even tho' personally I like him. He turned out to be talk talk. Then Quinn turned out to be Fianna Fail. Rabitte is much better and I like him. But I have learned my lesson and will wait to see what happens before jumping ship. Anyway, who is left (no pun intended)? Sinn Fein? The Greens? Fine Gael are the only party to prove they have genuine integrity so even if I disagree with their policies or think some of the front bench are useless, at least I can count on them to do as they say. Is that not a good enough reason to keep voting for them?
On the Lottery option, I discourage my friends from playing by suggesting that they pick the following six numbers...1,2,3,4,5,6. They of course retort that those numbers would never come up and it would be a waste of money picking them. Well, I'm afraid that combination has the exact same probability as any other! However if you still insist on playing - just think of it as a worthy cause - like other taxes!
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