Strategic Ideology – Preparing the ground for Repossessions?

Pat Kenny (on evictions) –  ‘Will we see more people on the side of the road literally, soon?’

IBEC economist  –  ‘Look, I think all the options will have to be looked at’

Prime Time (RTE  Current Affairs) 4th April 2013

Introduction

Ideology in its popular sense is seen as something akin to identity and something we are very much aware of, one has an ideological political position, usually some ‘ism’ or other. While true to a small extent the real secret of Ideology is the insidious nature of what becomes ‘common sense’, and how this ‘common sense’ may go on the frame narratives, agenda and discussion. This ‘common sense’ may or may not have any basis in material reality and it may or may not reflect an overt political movement. But scratch the surface and there is inevitably some class interests at stake. If one thinks of the inevitability of cuts as opposed to the impossibility higher corporation or wealth  taxes as expressed by the mass media we can see that point.

In fact the entire notion of austerity itself is an ideological and class based construct, and yes, thus far, it is working very well for elite power. The ideology of austerity has become a default and assumed reality across much of the political spectrum. The only remaining questions being sectional and localised.

Within the mass media there is a tendency for dominant political and social ideas to become ‘common sense’, in other words assumed to be true while anything contrary to this ‘common sense’ is deemed political, ideological and not rational. This type of thinking allows someone like Karl Deeter, a constant and deeply ideological champion of the Irish Property market system, to proclaim:

‘…that Flac and New Beginnings “have an ideological view of the world. I don’t’. “Maybe that makes me soulless but I believe my research is good. They can dismiss my research and rubbish it but what have they done? What research have they put together. They have done nothing. I am certainly not going to back down just because people disagree with me.”

In other words those who are in any way critical of the premises of the market system are ideological while those who support this system are, in their minds, entirely rational. In the upside down world of newspaper and media, treatment of property heterodoxy is ideological while orthodoxy – even after the collapse of the property market – remains the only truth. The depth of ideological thinking within the Irish media can be seen in that even now, five years after the event, there seems to be no conception of the possibility of supplying housing outside of an unregulated market system.

Preparing the Ground – Identify the Enemy

Anyone who was in Ireland as the economy collapsed could not have missed the public-sector/private sector ‘debate’; which in reality was a class offensive which prepared the ground for huge cuts in pay and conditions in both sectors. The public sector were framed as lazy and overpaid as well as ‘holding the country to ransom’; their unions as old fashioned and corrupt. The private sector worker for their part were lionised for their perceived self sacrifice. Of course few in the media actually spoke to private sector workers or even their representatives and tended to speak to either private sector owners, managers or human resource ‘experts’, (which often meant highly paid private consultants). When private sector workers became unemployed they could be either used as a weapon to attack other workers pay and conditions or denounced as dole scroungers. This also played into the equally ideological ‘common sense’ viewpoint that anything organised in the private sector was efficient and well run, while anything not privately run was inefficient with the logical conclusion that privatisation would be a preferred option. This was particularly ironic at the time because the bulk of the collapsed private banking system (and more importantly its debts) were on the road towards nationalisation.

While not proposing there was a media conspiracy around this period, certainly there were structural and deeply ideological issues in effect, which again were affected by material conditions, identities, the class nature of journalism and journalists, working practices and ownership and the power of advertising (especially property).

The New Enemy Within?

So the question is have we reached another such point? Are we witnessing the softening up of the population for repossessions, evictions and a new class offensive. Well first we have to meet our new national villain – step forward the ‘strategic defaulter’.

Step forward the new villain 'the strategic defaulter'

Step forward the new villain ‘the strategic defaulter’

When developing a new ideological offensive what better candidate than Colm McCarthy to step up to the plate: in a number of recent articles he discusses the idea of the ‘strategic defaulter’.

…it appears that some people who have gone into arrears have been choosing to do so, in the sense that they do not lack the financial capacity to make repayments on schedule. Some arrears can be termed ‘distressed arrears’, in the sense that the borrowers simply cannot pay, but others, so-called ‘strategic’ arrears, arise through borrowers choosing not to pay, presumably in the hope that some debt forgiveness scheme will ultimately emerge, or that they can cod the bank into believing that they are suffering genuine financial distress.

McCarthy (and much of the media) have been citing Gregory O’Connor from the National University of Ireland Maynooth:

Mr O’Connor reckons that these strategic defaulters constitute at least 35 per cent of the total, based on statistical studies of strategic default in the United States, where re-possession is easier for the lender. Despite the greater severity of the housing downturn in Ireland, there have been far fewer dwellings re-possessed, relative to the volume of arrears, than in the USA or the United Kingdom.

So there you have it no less than 35% of defaulters and arrears are from strategic defaulters who are choosing not to pay. McCarthy is citing a blog post by Gregory Connor of the National University of Maynooth on The Irish Economy.  There are however some serious issues with this blog post which becomes evident even after a brief reading. In effect the blog post boils down to saying that in the US there is X amount of strategic defaulters, Ireland has had a worse crash, therefore there must be Y amount of strategic defaulters here. It is also an entirely market based approach concerned with market values and negative equity.  By using a market based approach it focuses mainly on those who purchased property as an investment, while ignoring those who bought property as a home. Moreover, it doesn’t deal with the issue of what happens to debt after a default is ignored. Under Irish law even if the property is re-possessed and sold, the remainder is still owed by the borrower, (however unrealistic the opportunity of return). In an Irish Times article Gregory O’Connor discusses his thesis further with some remarkable and what could only be describe as ideological oversights:

The classic source of distressed arrears is loss of employment. A Central Bank sample study showed that 32 per cent of residential mortgage holders in serious arrears were unemployed, or had a mortgage co-payer who was unemployed. Unemployment does not explain the remaining 68 per cent of arrears cases.

Unemployment may not account for the other 68% of cases, but what about pay cuts, pension levies, universal social charges, household taxes, loss of hours for contract workers, full time work reduced to part time? Not to mention other issues such as the cost of fuel (for those in the commuter belts), the cost of childcare, medicine etc etc. In simple terms a couple who may have bought a house they could barely afford in 2006, can quite reasonably, after losing the 15-20% of their income, having children or becoming sick be unable to afford that mortgage today. And in structural terms what about the unsustainable inflation of housing cost from 4 times the average wage to twelve times in less than a decade?

O’Connor also cites recent legal decisions which may well have had an impact:

The legal block on repossessions arising from the 2009 Land Conveyancing Reform Act is another obvious potential driver of strategic arrears. Starting that same year, the financial regulator imposed the Code of Conduct on Mortgage Arrears, limiting banks’ ability to scrutinise arrears cases. Combined with troubled banks’ natural tendency towards “extend and pretend” on delinquent loans, this created a tempting environment for mortgage holders inclined towards strategic default.

While there is quite possibly merit in this argument again it ignores everything else that happened in 2009.

In other words O’Connor’s work is simply speculation and pretty poor speculation at that. What is of interest is how a purely speculative blog post can then be then quickly reproduced in the mass media as peer-reviewed scientific fact:

Recent surveys suggest that at least 35pc of those who are in mortgage arrears may be unwilling, rather than unable, to pay. This figure is based on statistical studies of strategic default in the United States, where re-possession is easier for the lender.

For his part   McCarthy hammers home some anecdotal evidence:

There is anecdotal evidence from bankers that some people are meeting all sorts of payments (direct debits for utilities) and also clearing credit card balances monthly, while failing to meet mortgage repayments.

Where to begin with this? While one can go into arrears with a mortgage and hope to work one’sway back in the future, one cannot, for example, stop paying electricity and gas bills without facing immediate cut off and losing the ability to heat your home. Not to mention the fact people may raise the €200 or €300 for a bill, but not be able to raise the €1,500 for the mortgage payment. The fact that McCarthy’s banking friends see this as a great immorality says much about their mindset. Likewise not paying a credit card minimum rate sees massive interest payments follow.

I am not arguing that there are no so called ‘strategic defaulters’, there may well be, certainly the developer class has had no qualms about such issues. Within working people there may be some, and I do not see any particular moral issue with it. After all the property market was overpriced and working people through taxation and cutbacks have already paid for much of the default within the system.  In fact  ‘strategic defaulting’  if done at a collective level in the form of a mortgage strike would be a legitimate and probably very effective form of class struggle. The point of this article is to consider why is this  becoming a household term. Does it form part of the new mood music of banks ‘getting tough’? Is it recognition that the short term strategies of the banks and state are running out of steam? In short, is it a softening up for repossessions and evictions? This is not to be conspiratorial about the media; but at certain times media framing can become so commonplace that it seeps into the consciousness as ‘common sense’, and once a group is effectively demonised, actions considered abominable a short time before is suddenly not only acceptable but expected and even demanded.

Eviction in Ireland (Vandeleur Estate, County Clare. Circa 1880s or 1890s). National Library of Ireland

Henry Silke is a PhD candidate in the School of Communications, Dublin City University. For more blog articles on the media treatment of the property crash see hereherehere and see here for an article on the conceptual basis of the research.

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2 thoughts on “Strategic Ideology – Preparing the ground for Repossessions?

  1. Just seeing this now and think it’s a good post but misses the point I was trying to make. I accept that I have ideology just as everybody does, total objectivity is rare.

    I might remind the author that my ‘champion’ status is ill founded, I came to the fore as a market practitioner who said that we are going to experience a crash and to stay away from property, I turned bullish again on non apartment 2nd hand homes in Dublin from early 2012.

    The statement is further misconstrued by implying that I made it ‘in support of the market system’ I didn’t, I made it in favour of using research or evidence to make decisions or form opinions which is a separate matter.

    However, the point being made was that repetition of something doesn’t make it fact and that is what the debt lobby groups were doing, they simply said ‘this isn’t true’ and tried to make it become accepted norm. Simple denial creates the conventional wisdom for them that you say that those coming with research are trying to make.

    Just this week Davy produced research here http://t.co/M3wiCWF50D which indicated my figures were correct and perhaps too low. NUIM Economist Greg Connors said the same thing albeit you can critique his work and he is an academic.

    You cite things such as pay-cuts etc being to blame but in doing so cite no actual research so you hide in the midst of assumption, something you seem to want to deplore. Knowledge of credit underwriting would help in this respect, that trackers which have improved affordability represent c. 50%+ of mortgages and that they were underwritten to represent (in general) not more than 35% of disposable income should insulate against a very high degree of financial pain in the form of higher taxes and wage cuts.

    The point you are making (and it’s an important one) is correct but you have it skewed in the wrong direction, the people making this point have actually done some research, the ones refuting it have not.

    The Central Bank Governor has also cited as yet unpublished research showing that 66% of those in arrears are in work, that it isn’t just down to job loss and that while employment has risen 1.1% in the last year that arrears have still managed to go up.

    You can pick your own opinion, but you can’t pick your own facts, and the facts indicate that what has been said is closer to a representation of reality than the alternative you have presented.

    • Hi Karl

      Thank you for the considered reply, I will explain a little of my thinking below. Firstly on the quote while I can see your point I chose that particular quote because it was a good example of what is termed ‘common sense’ in the current conjuncture that those from the industry are considered ‘practical’ while those outside ideological. While indeed rights groups for example may have an ideological view (i.e. support the rights of tenants/homeowners in distress, those from the industry will have very different view, which is equally ideological. While you may use statistical evidence to support your claims groups like FLAC may have substantial evidence gained from thousands of interviews. While statistical evidence is very useful, it can miss key issues that can come out via interviews. For example do you include the cost of childcare in your figures, a massive outgoing. My main point is that in general the media present figures such as yourself as experts only, with no explanations of possible biases or interests, unlike unions reps. or politicians who get far more grilling.

      On the issue of a market defender I mean (and from what I have heard on your radio and television appearances) that you overall seem to be very much in favour of the market system for both housing supply and regulation. In other words that it should be the market that decides price and other issues, and that while you may have certainly advised people at different times for or against investment, It remains a model you support and defend. Also I am not sure (you may need to clarify this) was your advice for investors and or landlords or for people wishing to buy a house to live in?. As I am sure you are aware under our Dickensian rental laws there is not much agency in Ireland for people who wish to live without fear of whimsical eviction. Again it goes down to base ideological aspects of the role of housing, is it a place for people to live or a market?

      I did indeed critique the work of Greg Connors which is of course the norm in the academic world, albeit his research was a blog which was in turn critiqued by another blog which is not the same as peer reviewed research which would be far more vigorous on both our parts. The difference of course is that the blog claiming that there was a certain amount of strategic defaulters was picked up by the national media, and reported as peer reviewed research (this was the main point of my own response). This is quite a serious matter as it was being used to politically justify evictions.

      My point on the other issues if you read again was not citing them only as the only reasons but questioning why they were not included in the blog claiming that there was X amount of strategic defaulters. I think that it also betrays a lack of a holistic approach to the research that leaves out some very basic questions which should consider actual people rather than simply markets. I am not sure how much I trust underwriting as many many people I know had to lie to get to get a mortgage (again another aspect of real life that number crunching can miss),and I think the banks were willing to stretch the rules. But I do not claim any expertise, I would wonder out loud though is it a defensive point from underwriters to maintain that their work was sufficient to allow for the past five years while in fact it was not?

      I think it is okay to make some assumptions – the entire public sector workforce and much of the private sector have experienced huge pay cuts (not to mention pension levies, housing tax etc). We have seen the return of mass unemployment and outward migration, that there would be widespread problems coming out of a hugely inflated housing market is hardly shocking and to pass over these issues is I think a massive blind-spot.. Finally I think it needs to be remembered that these are real people, real families that will face evictions, people who had no choice but to buy housing on a private market (and a massively inflated one) or live in a precarious situation paying huge rents and facing eviction at any moment. To say nothing of the media pressure to ‘get on the property ladder’ at all costs.

      The issue of research then is finally another David and Goliath issue, that is where is the funding for research, mine for example is purely voluntary and in my spare time. Groups that might represent private sector tenants etc have little funding. The financial sector on the other hand has plenty of money for research, research in itself can be skewed by the very questions asked or the purpose of the research. How much financial research for example questions of the purpose of housing beyond returns on investment. What about issues such as the serious distress caused by evictions (an everyday occurrence)?

      On the central banks figures, I am sure they are in work, but what is their pay, what are the conditions (are they in full time employment, part time precarious employment), what about overtime? Are they working for job bridge etc?

      Finally my main point again is not so much the research in itself but on where media gets its information and how is it framed. My own research has shown very much a source bias towards the financial world especially in housing, for example I looked at 800 articles on housing in the lead up to the 2007 election, only one used tenants as a source, most articles were framed in terms of the market rather than society. In the same way the ‘strategic defaulters’ narrative taken from the above is now cited as fact even though it is highly contentious, in fact on last nights Vincent Brown it was being cited again.as fact.

      I have another quick blog on source bias which explains it a little more if you are interested.

      https://criticalmediareview.wordpress.com/2013/07/19/privileged-access-an-insight-into-source-bias-in-the-irish-press/

      Thanks again for your reply and I hope you can see where I am coming from.

      Best

      Henry

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