by Charlie Garratt

Created on: April 23, 2009

I'm not an economist but I do live in Ireland and although it's easy to point the finger at the Government as being to blame for the changed fortunes (literally) of the Irish economy personally I believe that the truth is a little less palatable. For me, the simple answer is greed. Greed on behalf of the banks and greed on behalf of those people in Ireland who thought they could make a ton of money on the property bandwagon.

Banks, unbelievably, were continually offering potential mortgage borrowers large amounts of extra cash on their loans, which was being converted to cars and furnishings, thus keeping the consumer economy boosted. Unfortunately this was being supported by 120% loans in the unsupportable expectation that property values would continue to rise inexorably over the next few years.

Alongside this, and seemingly missed by the banks, masses of new houses were being built, speculatively, to cope with the increased demand caused by the easy loans. It's hard to see how the banks missed this as they were lending the money to the developers to carry out the building programme. It might be assumed, cynically, that they just didn't care, as long as they were dragging in vast amounts of interest.

Then, surprise, surprise, there were too many houses in the marketplace, values started to stall, people started to realise that they couldn't afford the enormous mortgages they had taken out and developers couldn't pay back the loans. Crash!

The Finance Minister recently said on a radio interview that none of the experts saw the problems with the property market coming. I'm not sure where the experts come from but anyone with an ounce of sense could see so many houses being built that it was clear it would never last. It was perhaps difficult to see in the larger cities like Dublin and Limerick but in the small towns and villages across the country there were large estates being built which seemed to be doubling the size of the areas they were located in.

And so where was the Government culpable? Probably in three areas. Firstly, by grabbing a major tax dividend arising from all the development; secondly, by spending large amounts of that additional income with no thought that some day it would run out, and; thirdly, by not putting tighter regulation on the banks in their lending habits. The first two of these were probably what any Government would have done in the circumstance. The third, it seems, was what most Governments seem to have done, not just the Irish one.

Finally, a superb example of the phenomenal greed that has been at play was seen when a bank executive recently announced that due to the poor performance of his organisation he would be limiting his annual bonus to two million euro. This would take the average employee in Ireland over 60 years to earn. Hard times eh?

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