Morgan Kelly : The Irish Credit Bubble

[Dreaded_Estate]

http://www.ucd.ie/t4cms/wp09.32.pdf

During the 1990s, rising employment resulting from improved competitiveness caused Ireland to experience rapid economic growth.1 As Ireland converged to average levels of Western European income around 2000 it might have been expected that growth would fall to normal European levels. Instead growth continued at high rates until late 2007, since when it has turned sharply negative. The proximate cause of the boom and bust in Ireland since 2000 is well known: construction.

Ireland went from getting 4–6 per cent of its national income from house building in the
1990s—the usual level for a developed economy—to 15 per cent at the peak of the bubble in 2006–07, with another 6 per cent coming from other construction. This construction boom led to an employment boom which drove wages in all sectors of the economy to uncompetitive levels; and generated the tax revenues that funded substantial rises in government spending.

However, driving the construction boom was a less recognised boom, in bank lending. As
Figure 1 shows, in 1997, Irish bank lending to the non-financial private sector was only 60
per cent of GNP, compared with 80 per cent in most Eurozone economies and the UK.2 The international credit boom then saw these economies experience a rapid rise in bank lending, with loans increasing to 100 per cent of GDP on average by 2008.

[libertarian-right]

it is starting to appear that the Irish banking system is too big to save.
As mortgage losses crystallise, the Irish government’s ill conceived project of insulating
bank bond-holders from any losses on their investments is sliding beyond the means of its
taxpayers.

Ouch. Sure didnt we all know that back in 2008 with the bank guarantee? The banks will swallow our money and disappear.

[hammer]

Screw the bond holders.

Lets save the FF voters that over stretched themselves first.

[HarshBuzz]

'too big to save'

I love it, absolutely love it

well done Morgan, you have done the State some service

[He3]

'too big to save'

I love it, absolutely love it

well done Morgan, you have done the State some service

He has.

This man also has a dangerous suggestion that will probably sink like a stone -

A chara, – It would be a very simple task to establish the cause of the banking crisis in Ireland.

An audit of the approvals of defaulted loans would settle the matter most transparently.

I could do it myself, for a reasonable fee, given the appropriate disclosures. – Is mise,


SHANE O’DOHERTY,

Balglass Road,

Howth,

Co Dublin.

The Irish Times - Letters