We had plenty of talk about the bank balance sheets in European banks here on p.ie and the possible sources for the reckless lending in the Irish economy during the Celtic tiger years. Last but not least to better understand the collapse of the Irish economy in 2008 and its aftermath.
We have discussed a number of possible sources for the wall of money that crashed into the country e.g. reckless eurozone banks flooding the domestic Irish banking system with cheap cash, bankers in the city of London on a drug induced predatory lending splurge and the complete mayhem unleashed by the introduction of subprime CDOs in the US combined with the complicity of rating agencies in creating the toxic debts packages.
After a couple of month following the threads on p.ie now it becomes clear that most of the money in Ireland actually came from Irish banks themselves by way of mortgage book expansions. So how did that work? You may ask. Well one has to understand that the loans made by the Irish banks were recorded as assets. But the money the banks have lent out to the developers, investors and mortgage holders never existed in Irish banks in the first place. They instead created the money out of thin air. These shenanigans could go on as long as the banks could find new customers for their ponzi scheme but once they had exhausted the lending market they were in deep deep trouble.
Now the question I have is can we quantify this credit expansion in Ireland? And how much of the €100bn+ in mortgage debt in Ireland was created or made up if you like in Irish banks? Is the promissory notes deal the price we have to accept for allowing the ship of fools to embark on this financial odyssey?