The Money Trail
I don’t know much about economics but I’ve always been curious as to where the tsunami of cheap money that fuelled the Irish housing boom came from. I wonder did this open the gates - the Asset Covered Securities Bill, 2001:
The purpose of this Bill is to allow international banks based in Ireland and domestic banks and mortgage providers to access international capital markets on the most competitive terms and in doing so to underpin the strength of the Irish financial system and the continued attractiveness of Ireland as a base for financial institutions. To do this, the Bill provides for the introduction of new financial instruments - the asset covered securities of the title - by Irish institutions into the euro zone market. These securities will be backed by assets held by the institutions concerned, in particular, mortgages and public sector loans.
Martin Cullen, Minister of State (Finance), 23rd October, 2001
And then this:
It was almost as if the demand for that paper created the mortgages…[c]alled forth the loans, because it became a really profitable business. You saw where you could issue these liabilities. Say, I could issue these liabilities at a weighted average cost of LIBOR [London Interbank Offered Rate] plus one-fifty, and I know all I have to do is just push that money out the door, push that money out the door, LIBOR plus three hundred, and I’ll make a huge amount of money from doing that origination activity or just on the equity piece that I keep, which is highly, highly leveraged. The person who really knows the mortgages is not the person who is really taking most of the risk. The person who is taking most of the risk is the kind of undifferentiated mass of buyers out there.
The person who is taking most of the risk is the kind of undifferentiated mass of buyers out there. Now who might that be I wonder?
Mark Waters marked time at 10:46 am on January 29th, 2008 .
