The Taoiseach trying his best to prolong the property bubble by saying people who are predicting a collapse should commit suicide.

The Fundamentals are Strong

The ECB made Ireland very drunk.

The Irish Property bubble differed from a normal bubble for one major reason, it wasn't a more greedy banking system, it wasn't a more greedy public, it wasn't a more complacent political class, I have no doubt all of these played their part in the crash but they are also usual occurrences in a property bubble. The difference with the Irish property bubble was the fact that Ireland was a member of a Currency Union called the Euro. A currency union that made little sense for Ireland to join, Ireland was and is in a different economic cycle to the Euro’s biggest economies, Germany and France. Throughout the 00s Ireland continued to grow at high rates, with property increasing in value massively. Normally the Central Bank would have raised interest rates to reduce the supply of money in the country. However Ireland accounted for 1% of Euro area GDP and the European Central Bank was focused on the picture overall so they were more worried about recession in Germany and France. The interest rates were dropped to near the floor. This meant that during Ireland’s asset bubble, the European Central Bank was fanning the flames, or to put it another way, they were lacing the punch with more and more alcohol.

The banks had to continue making money with interest rates on the floor, to do this they chose to lend more money, this meant lowering their requirements.
The Irish people also responded by taking on high personal debt, financing holidays, extensions and second homes.

Property developers began paying exorbitant prices for land, with many ambitious plans such as Sean Dunne’s plans for the affluent Ballsbridge, which included a 30 story tower as its centrepiece.

Many economists predicted the crash of the property bubble for 2004 or early 2005, (as seen with some of the videos I have posted). The very fact that it continued on until late 2007 points very clearly to the ECB prolonging it by inadvertently throwing money at the Irish property bubble, Ireland was too small for the men in Frankfurt to worry about. Only when it had all gone wrong did they sit up and take notice.




http://www.mountbrook.ie/jbc/


http://www.guardian.co.uk/music/2008/nov/03/u2-tower-plans-shelved

An ad for a property website that launched in 2006, many believed this was real, just showing how caught up in the bubble many were.

A very good insight into what was to come, interesting to note is what David McWilliams says at the end.

The Irish Property Collapse

The Irish economy started to grow at extraordinary rates during the 1990s, the growth rates were unheard of in a developed Western nation. As the level of growth was of the same level as the tiger economies in Asia, this led to Ireland being dubbed the Celtic Tiger.

The Celtic Tiger began to wane at the start of the 00s but instead of Irish growth collapsing, instead it continued to rise at annual rates of on average 5% every year until 2008 largely because of a property fueled boom. Ireland experienced huge growth in wealth up until the financial crisis of 2008. The subsequent collapse of the Irish property market turned out to be one of the worst in history. With Residential values plummeting by up to 60% and Commercial values dropping by up to 90% in some cases, the values are still falling.

A normal property crash has on average falls of roughly 30%, so even if the Irish banks had been run in a prudent manner, (which they were not) they still would not have been able to meet the loan losses on their balance sheet.

In my blog I want to discuss what happened in more detail, firstly how did it happen and then who should be blamed, is it too easy to just blame people for being greedy, from bankers to the public and then onto politicians. Was it really just their fault or could all of that just be a sideshow to the real problem, namely the currency union, the Euro?