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AFTER MANY YEARS of extraordinary success the dramatic collapse of the Irish economy in 2008 was unprecedented in the history of post-war industrial countries. Who and what was responsible for the demise of the poster boy “Celtic Tiger”?
What lessons can be learned from the Irish debacle, and can the Tiger come roaring back?
1. Until around five years ago, the Irish economy was the envy of the world
During the ’90s, the rise of the Celtic Tiger was one of the most remarkable post-war industrial country phenomena. A relatively poor country on the periphery succeeded in transforming itself into one of the richest countries in Europe.
The key was the massive inflow of foreign direct investment, as US and other multinationals sought to take advantage of Ireland’s location and young, well-educated labour force – the only English-speaking country in the common currency euro area.
To be sure, sound financial and macroeconomic policies also helped inspire confidence. Ireland experienced annual growth rates of almost 10 per cent at times, living standards soared, and emigration — the hallmark of the Irish – turned into net immigration. Foreigners, especially from Eastern Europe, flocked to take advantage of the booming economy.
2. Things then started to go horribly wrong, although it was not recognised at the time
Starting around 2002, the technology based export led growth began to turn into a property bubble. Fuelled by special tax incentives and unlimited funding at low euro area interest rates, the Irish banks went on a splurge of reckless lending to property purchasers and developers. Government budget expenditures soared, financed by revenues from the artificially booming property sector.
House and land prices soared to levels among the highest in the world and the population engaged in a frenzy of borrowing to acquire property before it was too late…
3. The property bubble burst in a spectacular fashion in 2008
In 2008, following the bankruptcy of Lehman Brothers in the United States, the property bubble burst in a spectacular fashion. Almost overnight, prices began to plummet, eventually losing between 60-80 per cent of their value.
All the Irish banks became hopelessly insolvent, the budget deficit soared to almost unimaginable heights as the earlier surge in expenditures could not be reversed, and unemployment tripled. The fall in output was probably the largest ever experienced by an industrial country since the Second World War.
Ireland quickly found itself unable to borrow on international markets and in November 2010, had to follow Greece and seek ignominious recourse to an emergency bail out from the IMF and the EU.
4. Much progress has since been made but there is still a tough road ahead
Under the strict insistence of the IMF/EU, much — albeit painful — progress has been achieved in righting the financial ship of state in the last four years. The enormous budget deficit has been slowly but steadily reduced, and the massive financial problems of the banks have been addressed.
But Ireland’s debt has unavoidably continued to soar, and while the economic decline appears to have bottomed out, unemployment remains stubbornly high at around 14 per cent and large scale emigration has resumed.
Moreover, it is not clear that steps are being taken to tackle decisively the major failings in political and economic governance that caused the debacle in the first place
5. The future and Ireland’s corporate tax regime
It is very difficult to imagine a return to anything near the heady heights of the Celtic Tiger. Ireland’s economy is very heavily dependent on exports and the EU growth outlook remains very clouded.
Increasingly, there are questions as to whether Ireland’s preferential corporate tax regime – key to attracting foreign investment over the years — can be sustained in the face of pressures from other countries.
Still, even if real incomes in Ireland return to around their 2000 levels, this would still be an enormous improvement compared to the ’70s, when Ireland joined the EU as its then poorest member.
Dr. Donal Donovan is a Member of the Irish Fiscal Advisory Council, Adjunct Professor at the University of Limerick, and Visiting Lecturer at Trinity College Dublin. He is a former deputy director at the International Monetary Fund with considerable experience in the area of financial crises. He is co-author, with Antoin E. Murphy, of The Fall of the Celtic Tiger: Ireland and the Euro Debt Crisis.
This article originally appeared on the Oxford University Press blog.
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I read this article thinking it might contain something I didn’t know.
Me too. I hope he has some actual insights or advice for the Irish Fiscal Advisory Council.
The article still pushes the EU agenda at the end. No mention of the fact that the euro currency ( Deutschmark) was responsible for cheap wholesale money flooding Irish banks with ultra low interest rates.
This has been done to death at this stage. Sick of hearing about the collapse. These academics would be better served by trying to solve our many, many current problems rather than taking turns to give their two cents worth on the journal. Its nearly every second day one of these things are on this days. Obviously you shouldnt forget the mistakes of the past but you dont constantly dwell on it either
Hear hear or is it here here ????? Me thinks a less boring debate that the bloody economy.
I suspect that the timing has more to do with the imminent budget?
“The enormous budget deficit has been slowly but steadily reduced, and the massive financial problems of the banks have been addressed.” which to me translates as “Austerity is working” – note also the time honoured phrase such as “Long road ahead…”..
Dead right RH, this article is like listening to Enda Kenny on the six one news.
I read Dr Donovan and Antoin Murphy’s book. I disagree with many of the conclusions.
The Bank Guarantee of the 30th September should not have been given. It was a dreadful mistake.
The focus of the book is too narrow.
It fails to analyse the reckless lending policies of the Irish banks in the residential property sector.
The book attempts, unsuccessfully, to sustain the argument that in September 2008 Anglo Irish Bank was still solvent.
The book is too conservative and orthodox to offer a meaningful and useful insight into the destruction wreaked by the Banks.
They were solvent based on a particular model but the model fell apart.. in the same way a person is perfectly solvent if they have a job and pay the bills… Loss the job , you become insolvent.
Banks were based on a funding model that disappeared
Donovan & Murphy are typical mainstream neo liberal ideologues who had nothing to say before the crash and have little to say now that offers any real insight.
They also have nothing to say concerning the deeply flawed Euro currency system which has effectively denied the kind of counter cyclical government policy that should have been taken, and is the biggest single reason unemployment has remained high. (This is also why Greece, Portugal, Spain, Italy etc. are getting worse despite various ‘fixes’).
Unemployment ‘stubbornly’ high my arse. It’s a result of policy & political ideology.
Ireland unable to borrow from markets because debt/deficit was so high? US, UK have higher debt to GDP ratios are higher, Japan’s nearly twice Ireland’s after all its bailing out, and there borrowing rates are so low, their creditors are paying to deposit funds, not earning interest. Why is that?
Why is it that when Euro countries need to borrow, with Debt/GDP ratios no higher than non Euro states, they are forced to pay +several times+ the cost – all in favour of banks etc. – compared to comparable countries with their own currency? If Donovan & Murphy have any clue, they could care less.
With economists like these ‘advising’ governments, only the interests of the top few percent (especially the same bankers etc. that made the mess) are being catered to.
In the interests of democracy, that actually represents the majority, and after five years of unnecessary mass unemployment right across the Euro zone, these two & their chums should told to eff off.
Well said Mike , the blatant ignorance of the role of the single Euro currency and it’s flawed architecture is always airbrushed away , it was a political motivation to introduce it not a financial one , and the consequences and long term dangers for small open economies like ours were ignored , especially as for the initial years the cost to borrow and the flooding of capital gave the appearance that all would be grand , the naysayers were dismissed as cranks who were raining on the Celtic tiger party but the flawed euro architecture was really exposed once the inevitable credit crisis hit and we had signed away our ability to take local measures to the ECB , now we have had five years of hell and by any measure more to follow and while some adjustments to the euro are made Ireland has been saddled with unmanageable debt for a lifetime but the actual causes and bad decisions get watered down with each passing year in bullshit academic articles.
Mike, that is an excellent reply. I agree with each of your points. I wasted money buying O’Donovan and Murphy’s book. It was full of special pleading, tendentious arguments and arguing back from desired conclusions.
Anglo Irish was healthily and generously solvent in September 2008! Really. That is what they asserted.
I remember that there were articles in 2007 asserting the the purchase prices paid for the Ballsbridge sites were multiples of the value which could deliver a return however high the densities permitted. Only Marc Coleman disagreed. He said that the only problem was insufficient densities. But where were all the people who would pay €1.4 million upwards for a 70 sq. mt. Apartment to come from.
Of course the Banks were insolvent from late 2007 onwards. It was just that there was collective denial.
Directors of small and medium sized enterprises can be restricted or disqualified as directors for acting with prudence and responsibility. That could never happen to Bank directors.
You appear to be struggling to get to grips with intricacies contemporary public finances Mr Hal.
In a nutshell, those nations that have control of their own central banks have been monetising debt. In other words, there own central banks have been printing currency to buy up the debt of their own government on the markets. Thus creating an artificial increase in demand and pushing down rates.
The ECB has been doing this to an extent with the debt of European nations including Ireland. In an attempt to return to the monetary restraint of the Bundesbank, the ECB is making some show of demanding that national governments show some fiscal restraint.
The ECB are partially correct in this. Inflationist monetary policies have a long history of exacerbating existing crisis and resulting in much deeper recessions and depressions. In other words, switching off the printing presses invariably means the economy will convulse and the damage will be much more severe than if inflation was avoided in the first place.
Alternatively, if the printing presses aren’t turned off then the quantity of new money required will increase exponentially to compensate for the inflation created by printing money in the first place. You end up with a Weirmar/Mugabe economy.
Another aspect to inflationist policies is that they become infectious. Non-inflationary economies become concerned that they will be disadvantaged and this can result in a race to the bottom currency war.
Currently the Federal Reserve Bank is creating about $80 billion/ month so that the US can keep the lights on, while the Bank of Japan is printing approximately half that amount per month.
David
Yes, exactly.
And I think it’s worth adding the point that the Euro currency union has demonstrated precisely the flaws that authorities were warned about before its introduction as virtually a one-way, very difficult to reverse, gamble. There is much more trouble to come – as nothing is ‘fixed’ – after the German elections.
One might have thought, given such an obvious fact, that the banking malfeasance under this system, that took place in Ireland, should be a collective responsibility, not dumped entirely on the ordinary citizens of a tiny country who had no part in making the mess.
One might have thought that Irish economists might have made an extremely robust case for this – certainly those richly paid and pensioned from the public purse.
That they haven’t demonstrates where their interests really lie – not in some nationality or principle of majority public interest, rather among their fellow travellers in the top few percent. (Including political leaders, media owners & executives etc.)
Sean O’Keefe
The problem with your ‘analysis’ is that people like you have been making the same argument every month for at least the last 5 years (& earlier)…..always….not just mild inflation, but ‘exponential’, ‘Weimar’, ‘hyper’ inflation is imminent!…happening now!….central banks are ‘printing’ $x billions/month blah, blah, blah. You sound like a Peter Schiff groupy.
So where is this ‘hyper’ inflation then?
You must think we all have short term memory impairment lol.
You are right Mike. Also, itd pretty straight forward – creating ‘money’ out of thin air, giving it a value (backed by nothing), lending it at interest and being the only one allowed to issue it – then debt just grows, never to be repaid as the money for the interest doesnt exist.
Say I have 20 euros in my pocket. It may be mine, but it was issued at interest to someone or some body. I carries debt with it.
Mike the problem your analysis, besides being somewhat juvenile, is that you repeatedly confuse the symptoms of the underlying dysfunction as the cause of the crisis.
Traditionally, it was not possible for banks to fund bubbles such as we experienced. Bank credit expansion is limited by their reserves, reserve requirements and demand for credit. Once Ireland joined the Euro these natural limit were effectively circumvented. Central European nations were in recession. The ECB opted for expansionary policies and cut reserve requirements to 50/1 for commercial banks.
Irish commercial banks responded by loading up from wholesale markets and lending without restraint. Thus inflating a credit bubble. The bankers behaved recklessly. However, the fuel and matches were products of European monetary policy.
As for inflation you won’t be disappointed. Remember the Reichesbank was inflating the supply of currency for over two years before price inflation took off in Germany. In addition, consumers have not read the inflationist script as they continue to hoard currency rather than spend (.ie. the velocity of money continues to fall). Sooner or later velocity will pick up either because consumer confidence returns or holders dump currency because of currency debasement. Then you’ll see inflation.
A lot of trends, encouraged by austerity and lack of economic growth are in the direction of deflation. It seems unlikely that we are going to see massive inflation in the near future. There are no pointers to increased velocity. Currency debasement is a significant risk factor if the euro collapses.
Fortunately, we are seeing the start of a realisation that not all banks can be saved. Society and the public interest must not be sacrificed again on the altar of preservation of the banks at all costs.
Sean, you really haven’t clue have you? So desperate are you to fabricate ‘facts’ around some fantasy Austrian school script.
The problem was (& still is) regulatory capture by banks, not just in Ireland but much everywhere. Allowing the combination of their essential functions in the real economy with reckless gambling. In case you hadn’t noticed, banks imploded with their toxic assets outside the Euro area, and many ‘zombies’ still exist. A far, far bigger bubble still exists in unnecessary ‘derivative’ gambles of many kinds.
And bank lending is not constrained by ‘reserves’, either before or since the Euro. See MMT for a proper understanding of banking operation. (eg Warren Mosler’s, or Prof Bill Mitchell’s excellent blogs)
But your biggest piece of nonsense is “….consumers……continue to hoard currency rather than spend….”
Really, Sean, this is pure comedy. It really does take someone as confused, or self deluded, as you to make such a silly statement. But I’m pleased you’ve come out and actually said something about the present situation, rather than your acres of obscure & irrelevant quotes from hundreds of years ago.
Oh, and can we have your prediction then for hyper inflation to take off please? Please also tell us when you began to make your daft statements about inflation, so we can back date it accordingly. Going by what you’ve said already about Euro policy, the ‘clock’ to inevitable hyper inflation should have started, well, near 5 years ago….
Not really taking off is it?…..just like Peter Schiff’s ‘predictions’ of these last 5 years (at least), making similar statements for what passes as his ‘reasoning’. (He doesn’t understand the monetary system either.)
I’m surprised to see people still peddling this tripe. So Sean, exactly what would persuade you that there might be a flaw in your theory?
The economist Sean Corrigan predicted both the the Dotcom crisis and the current crisis.
Last year he offered the following analysis of MMT:
“If there is one incontrovertible thing about monetary matters, it is that they offer a field rich in misunderstandings, obtuseness, half-reasoned suppositions, and outright crankdom—much of it a wearily reworked canon of old fallacies dressed up in (terminologically) new clothes by a profession which has long since decided that mathematical dexterity and political expedience is far more important than an awareness of its own history, meaning it never manages to build cumulatively on past insights, unlike the physical sciences which its practitioners so envy, alas!
Among the latest vogues is the so-called ‘Modern Monetary Theory’ – a truly laughable epithet, given that Mises was deriding its Chartalist-founding father Knapp’s vainglorious use of exactly the same term almost exactly a century ago.”
Like Krugman, Corrigan identifies MMT as the half-baked logic of cranks.
http://www.joshuakennon.com/the-velocity-of-money-for-beginners/
I appear to have got ahead of myself introducing a concept like the velocity of money without explaining it first. A useful link attached:
Sean O’Keefe
Sean Corrigan is a joke. Another Austrian school nut job, like yourself. Everything he has ever said about MMT is a ‘straw man’ argument. He either has never read the source material for MMT or, more likely, deliberately misrepresents it.
Just so other readers know, all Austrian school nutters have a few characteristics.
1. Pathological hatred of government, except for guaranteeing the security of (their) property rights. (Democracy never gets mentioned, just the ‘free market’ – which simply means zero regulation, or whatever the rich and powerful want.)
2. They are obsessed with ‘money’ as a commodity, which regardless of whatever mess is made of society, must retain a fixed value. They want the rest of society to guarantee their ‘savings’ no matter who or how many starve to do it, ‘Free market’ see?
What you won’t find is any discussion or policy concerning unemployment. Only some vague fairy magic about how ‘prosperity’ appears from something they call ‘honest money’. Why is that? Simple. ‘Free market’ – if you’re unemployed, you’re asking for too high a wage! Ordinary citizens (as opposed to our ‘Austrians’ who live off their ‘savings’, because, you know, the ‘free market’ puts such superior beings at the top) are deemed to be just another ‘commodity’ in their ‘free market’ gold standard utopia. Which, of course, they claim is simply the natural behaviour of humans.
Sound a bit ‘Thatcherite’ – ‘….no such thing as society…’ etc ? Yep, very similar. People like the Tea Party backers, the billionaire Koch brothers like Austrian school ‘economics’.
I f anyone wants to get an idea what an ‘Austrian’ society, that Sean loves so much, looks like, the 19th century pre universal suffrage era would be close. You know, children down mines, colonial conquest etc. ‘Free market’ see?
As for MMT, apart from the only ‘prescriptive’ element – the Job Guarantee – the rest is purely an accurate and honest description of how banking & our current fiat currencies actually operate, and the macro economic options (such as Abba Lerner’s ‘functional finance’ for government) that flow from that.
To quote former career central banker, Professor of International Finance & globally respected expert on currency systems, Bernard Lietaer -
“Academically, MMT has never been challenged. From what I see, they are right.”
Which is not much of a surprise, because various Fed, BIS, IMF and other documents and papers describe the monetary system in exactly the same terms as MMT.
Mike you should try to get to grips with basic economic concepts like velocity of money before buying into MMT pseudo-economics.
Calling everyone nut-jobs isn’t a compelling argument. This is where your rhetoric let’s you down and comes across as juvenile.
Did I mention Krugman also reckons that MMTists are flakes?
Sean
This has been really useful because it has forced you to come out into the open & actually state your position as an Austrian school ‘gold bug’.
So let me tell you why I refer to this belief system in terms of the expression ‘nutjobs’.
Its sole focus, raison d’etre & priority is to create an artificial cast iron guarantee on the value of your ‘savings’ money. Because you represent a tiny, but vociferous minority of interests that are the ‘small fry’, grubby, scrooge like characters occupying the lower ‘wannabe’ section of the top few percent.
Your plan is to live off the ownership of ‘money’, rather than working. You have barely enough money to do this, but of course still a lot more than the vast majority of citizens. (Who, by definition in a capitalist structure must live by selling their labour & spending most of their income.)
So, as far as people like you are concerned, as stated in your thinly veiled hatred of ‘government’, especially any government that helps the more vulnerable in society, the rest of the economy & society can go to hell in a hand basket. Just so long as the ‘rent’ from your grubby little pile of savings continues to keep you in a standard of living to which you have become accustomed.
And to cap it all, the monetary system that you want is a relic of history (that suited the 19th C, red in tooth and claw perfectly) that cannot possibly return unless we are prepared to see the entire global society collapse as fiat money positions are unwound. In the modern, interlinked in micro seconds world, there is simply no possibility of it happening. To even consider it is certifiably insane, and everybody else in economics, of any other stripe, except your own little coterie of ‘small investor’ nutjobs knows this perfectly well.
Really, if ever there was a perfect incarnation of the hated ‘landlords’ agents’, Sean, it is you and your Austrian school friends. Seeking a lifelong guarantee of being able to live off the labour of everybody else.
The difference between you & I, Sean, is what we see the purpose of an ‘economy’ is – what we think it should do.
You look no further than your own, small fry bottom rung of the top few percent ‘wannabe’ richer interests. And could care less what else happens. Has more than a whiff of you’re a pretend intellectual & therefore better than everyone else. Sure, just another Darwinian ‘free market’ in human beings eh Sean?
Whereas, my concerns lie firmly with the – by definition, always – vast majority of citizens who must live by their labour. And, to me, we can +only+ consider such a society ‘fair’ if it can offer (without any coercion) an at least minimum wage, full time job, to all who want it. And for that tiny minority who for whatever reason, health, mental health or other, feel they cannot avail of it, well, they must receive sufficient benefit to maintain life & health, without conditions. (20th century history has proven beyond any doubt that those unwilling or unable to work are insignificant in number, barely 2% typically. There are no ‘undeserving’ poor, that ‘Austrian’ schoolers & others would have us believe exist.)
That is to say, before we prioritise +anything+ else in the economy, we put an ‘economic floor’ – not just some patchy, exposed to political whim, supposed ‘safety net’ – underneath the living standards of +all+ citizens. No one left behind. Ever.
MMT’s not only states this desire, but explains how easy it is to achieve with +existing+ monetary systems we have, solely by using operating facilities they already have, but are denied & obscured by political authorities – the top few percent.
MMT’s +only+ ‘prescriptive’ element is to establish this income ‘floor’ by means of the (transition, non competing) Job Guarantee policy. It has no prescription as regards the relative size of government vs private sector – none, nada. Rather, this is left to democratic government (the one Sean & friends hate) to decide, with just the one overriding proviso – (near) full employment must be maintained, with guaranteed ‘transition’ jobs available when ‘normal’ employment fails to provide enough jobs. That’s it.
Krugman?
MMT flakes?
Mike prosperity can not be secured from the printing press. We would all like to think it could but then we grow up and become adults.
The Chartalists were trying to peddle the same nonsense a century ago and that also died in the water.
Read some books and get a grounding in economics. Economic and monetary history will provide some perspective and allow you to communicate with some authority.
Irish house prices had peaked, and were dropping, way before Lehmans fall.
The liquidity crisis turned a decline into a freefall.
Well they peaked in late 2006 & had flatlined until 2008
Id nit say peaked in 06. Slowed yes. I got my house in 06. I remember in 07 the same house across the way has 50k more price tag. Now id have lost realistically 100k
Paul, yes that is correct.
History tends to get reinvented in order to suit particular agendas.
So why are all the Fianna Fáil traitors on huge pensions not in prison ?!
Have you looked at the statute book? Treason is a poor persons crime!
Foolishness is NOT a crime sadly
Poor Brian Cowen is suffering on a €2,500 per week pension so c’mon, cut him some slack.
I was thinking in terms if Ahearn Cullen McCreevy Neary et el!
What about Dick spring and Alan dukes are they also on skid row?
Find a crime that you can charge them with, and off you go ! Yes, you.
You clearly haven’t looked at the statutes, or the Constitution
I agree we need to learn and understand what went wrong and people need to be punished for this apolocayspe.
However yeara later we still dont know in detail what happened and NOBODY has been punished.
OUR government has continued on the same path as before.
Goverment has not been reformed as it should. Same lies and propaganda messages but no substance and action
While true, I hate this need for punishment for a failed economy…. Yes people who broke the law should be punished but the need to have a draconian punishment on a few is going to serve no one.
We already have the punishment across society….
Rehab – if nobody is punished for annihilating the economy, for their gross negligence, for misrepresenting the truth / solvency – then the clear message from the state is ‘do what you like. There’s no repercussions.’ – that is poisonous.
And don’t forget … “the population engaged in a frenzy of borrowing to acquire property before it was too late”
@scarr …. As such that is my point, those who broke the law should be punished… But hoping for public floggings is serving no-one.
If anything, it shows how shite our legal system is dealing with whitecollar crime, which causes far more hardship
As did the banks
Draconian?? I would settle for public executions!
Depends on what you mean by “punished”. Lots of people have lost jobs, millions of euro, respect, property, families etc. Some have been bankrupted, others face charges. Not enough, I agree, but not nothing either.
Now, I might be as simple as mashed potato, but is there not a case for objectivity to insert a few more summary points in the 3) section? Seems to me that in the second paragraph it skips over:
3b) The private lending institutions running to the country’s financial legislators in a panic because they were caught with their trousers down.
3c) Choices were then made in a deal between the private lending institutions and the government which effectively protected the major shareholders of these private lenders by signing up tax-payers to the very same massive debts that these private lending institutions could not cope with.
3d) Superstate banks, which prior to this would not even consider lending to these failed private lenders, THEN bailed out these failed private banks with a series of massive loans as they were now covered by a whole nation of debtors.
3e) These unmanageable debts hang around the taxpayer’s neck like a leaden millstone.
@R H Beige Lark
The one group who were not protected at all were the major (and minor) shareholders of the banks. They lost nearly 100% of their investment. For Anglo shareholders it was 100%.
I haven’t read the book. But I am surprised by the assumption that it is necessary that those who benefitted least from the boom should pay the highest price to resolve the crisis. They are the people who were forced to pay inflated property prices, just to get a home, and are now paying mortgages worth twice as much as the value of their homes.
One question. How has Dr O’Donovan suffered from the “necessary sacrifices”?
Most of us who are comparatively well off., ie decent income and no mortgage,
have had to do nothing that could realistically be called a” sacrifice”.
Sacrifice happens when you are forced to choose between life’s necessities eg to choose between paying a mortgage and sending kids to college.
Number of taxpayers on 100k a year is the same now as it was at the height of the boom!!
Finally. Did Dr O’Donovan, or whoever he worked for, ever criticise the insane decision to halve Capital Gains Tax rates in the middle of a housing boom??
Brendan would like to give you two green thumbs for your comment .
In January 2007 the share prices for BOI, AIB and Anglo were over €20 per share, in September 2008 these had already fallen to around a fiver. Others have posted that house prices had already seen significant falls in the same period.
While both fell further afterwards, it shows that Dr Donovans neat cut off point of September 2008 to coincide with Lehmans collapse is a fallacy. Back to the drawing board.
Prices were flat over that period
It’s easy for lecturers to avoid mentioning the transition of the state from a capitalist one to a socialist one since they will make a good living either way.
Fact is that the tax payer did not gain from the super-profits of the banks, not least because of our low Corp tax rate.
The bank guarantee swiftly lumped the banks losses onto the tax payer and turned us into a socialist state overnight, and a basket case economically. The EC loves the idea of a unified superstate with joined up banking but politely ignores the idea of social solidarity. We are expected to paddle our own canoe in very choppy financial waters where we are domed to sink under all our debts. This is galling having bailed out several EU banks’ exposure to our borrowings and putting the tax payer on the hook for generations to come.
Podge, we socialised the banking debt but this in no way makes us a socialist state. In fact we are currently seeing the destruction of our social support systems in order to pay for that failure of speculative financial capitalism.
Actually we have all the hallmarks of an actual socialist state, with the majority of the population dependent on government (aka taxpayers) money in one way or another. The issues that you’re pointing to are consequences of this.
I commend the author. We as a society need to be constantly reminded of what happened so we don’t make the same mistakes again and continue to pressure those who were in control at the time to be held accountable
The analysis is not quite right, this is the orthodox belief of what happened and what is going on but it misses the point on several levels. Namely that this crisis is not solely based on bad politics and lack of regulation etc these are certainly factors but they are not the root cause of the crisis. This is a fundamental crisis of the capitalist system, all the regulation in the world and straight political practices can not over come the flaws at the core of the system, namely inequality, greed and the profit motive. These intrinsic factors of the capitalist system mean that capitalism stumbles along from boom to bust and boom to bust but every now and than the system hits a limit that it cannot over come and we get a much more pronounced crisis such as in the 1930s and again now. Capitalism has no solution to these fundamental crisis, only the mass destruction wealth and commodities and economies in world war two over came the 1930s crisis. This current world crisis has still a long way to run as the attempts to overcome it have barely scratched the surface of what the root problems are. In fact the so called solutions such as austerity are actually making the core problems worse not better. So yes by all means we should blame those political parties who helped steer the ship but we also shouldn’t forget that this is also a consequence of capitalist system. If we want to overcome it we need to at least address the problems at its core.
The Soviet economist Nikolai Kondratiev was commissioned in the the 1920′s to provide an analysis of the decline of capitalism.
His work proved a bitter disappointment to the soviet dictator and for his hard work Kondratiev was rewarded with the gulag and executed 75 years ago this coming Tuesday.
“In a series of 1920′s papers, Kondratiev worked out the theory that capitalism had 50-to-60-year economic supercycles. Though not strictly the first to so hypothesize, he put the idea on the map; the (alleged) pattern still bears the name “Kondratiev wave” or “Kondratiev cycle”.
His belief that the intermittent major crises punctuating capitalism were not building towards systemic implosion but clearing the economic debris of bygone ages and allowing new growth were not the least of what got him into hot water with Stalin.”
Here Kondratiev’s last letter to his young daughter before his execution-
“My sweet darling Alyonushka.
Probably your holidays are over now and you are back at school. How did you spend the summer? Did you get stronger, put on weight, get tanned? I very much want to know. And I would like very, very much to see you and kiss you many, many times. I still do not feel well, I am still ill. My sweet Alyonushka, I want you not to get sick this winter. I also want you to study hard, as you did before. Read good books. Be a clever and a good little girl. Listen to your mother and never disappoint her. I would also be happy if you managed not to forget about me, your papa, altogether. Well, be healthy! Be happy! I kiss you without end.
Your papa.”
http://www.executedtoday.com/2008/09/17/1938-nikolai-kondratiev-purged-economist/
And there I was thinking it was all vultures capitalists both here and abroad that caused it.
O’Donovan trots out the tired old story that Anglo Irisb Bank was solvent until Lehman Brithers collapsed on the 15th September 2008.
It’s the tired old orthodox and conventional way of thinking which gave rise to the Banking insolvencies in the first place.
Article fails to address the fundamental world wide economic problem with the current economic system…eg..FIAT currencies…fractionalised reserve banking…manipulation by central banks…central banks not owned by the state/the people…those (the few) who understand the system manipulate it for their self interest…those who dont pay for its failure…without change it will happen again..in a slightly different shape…fundamental reform is needed so that the majority are favoured and not the few…will there be change ??
Halifax and other banks entered conservative(sensible) Irish market and undermined it with 100% lending that had to be matched by our banks Media of the time welcomed them.
Tom, you overlook Anglo Irish Bank, Irish Nationwide and only to a slightly lesser extent, AIB. I can’t agree with you. The non Irish entrants added ful to the flames but the fault was an Irish fault of irresponsible banks facilitated by a regulator which had been captured by the IBF.
Cheap euros were the fuel but the causative agents were the Irish banks, the Irish regulator and the Irish political system.
No word of unions here ???
What do unions have to do with it? Unions don’t control the banking sector or the dept of finance, unions react to these things and try to do what’s best for their members, in this case by wrongly reinforcing the bad economic practices of these other sectors but they are hardly the core problem. I’m no fan of the union leadership, they are a bunch of sellouts just like their Labour counterparts but the concept of unions and the grass roots are still sound and more necessary than ever!
So greedy, greedy, greedy, greedy. Good on ya Damo Dempsey
http://www.youtube.com/watch?v=FO8OckwyJwE
” Prices had risen so rapidly and exorbitantly, public interest had so focused on the share market, that any action tending to disturb quotations would have been fatal.
Moreover, inflation had spread to commodities, and a great rise in prices had followed. Land was especially in demand. Houses, chateaux, and farms sold at three or four times their former value. A property which had brought 700,000 livres a few months before was now sold for over two million. A loaf of bread, usually sold at from one to two sous a pound, now brought three sous. The cost of other provisions had advanced in the same proportion.
A collapse was inevitable, sooner or later;”
Elgin E. Groseclose – describing the Mississippi Bubble an economic crisis preceded by state mandated monetary expansion.
“For practical central bankers, among which I now count myself, Friedman and Schwartz’s analysis leaves many lessons. What I take from their work is the idea that monetary forces, particularly if unleashed in a destabilizing direction, can be extremely powerful. The best thing that central bankers can do for the world is to avoid such crises by providing the economy with, in Milton Friedman’s words, a “stable monetary background”–for example as reflected in low and stable inflation.
Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”
Governor of Federal Reserve Bank, Ben Bernanke, discussing another crisis that had been preceded by monetary expansion
This article misinterprets objective facts so as fit a particular politico-economic value system.
It is false causation to imply that the collapse of Lehman Brothers caused the collapse of the Irish Banks. Gross overlending in one sector on the security of over priced assets which were inflated in value by overlending was the cause of the bank failures.
Not a single Bank director was restricted or disqualified as a director for lacking prudence and responsibility.
An orthodox economist is someone who can’t tell you what happened even after it has happened.
I think so
Actually problem started when banks are giving loan to high value property but this bloom was only short time and banks stuck Irish economy in property they didn’t not work on manufacturing no one think about what will happen in future it’s very difficult to come out in recession and as every one know Ireland is the one of bailout country
have your say