An Irish Mirror

Paul Krugman’s NYT column focuses on the new Irish Economy Note by Greg Connor, Tom Flavin and Brian O’Kelly.

43 replies on “An Irish Mirror”

The usual BS except he refers to history only in the future tense…. guess that is why he deserves the Nobel!

Nothing like restraining bankers, now that there is no credit, only debt!

I am truly deeply honoured that Krugman mentioned our work. In my opinion he is among the great political-economic commentators of recent decades. I also remember back when he did pure theory and he was brilliant at that as well. So it is a great honour to get such a high-profile citation from him.

Thanks to Philip too — for your contribution with irisheconomy and irisheconomy policy notes in raising the profile of your local colleagues.

Congratulations, Gregory.

I like Krugman but I think he tends to drag party politics into his columns too much – we know the guy is a committed Democrat, but for all their obvious failings he have a really jaundiced view of Republicans that makes him sound like a politician rather than an economic commentator.

I think his last point is the weakest. It is definitely true that the ideology of homeownership played a fairly prominent role in the credit bubble there – it’s just that it affected both parties to a large degree. It doesn’t fit in with his Democrats good, Republicans bad mantra so he is willing to set it aside and blame everything on that most vague of concepts, “free market capitalism.”

Still, I think Krugman’s best attribute is his ability to explain what happened in very clear and accurate terms, and he (and the authors of the note) definitely achieved that.

Unfortunately, we did have a consumer protection panel – the consumer panel of the FR. It was both independent in nature (being part of the independent FR) and in personnel (i.e. it wasn’t stuff with obvious civil servants).

It was, however, completely and utterly useless. Why was that? I would say it is because it was stuffed largely with financial types – those making good money out of the status quo with no incentive to rock the boat and look ahead to what might happen, what is future-proof.

No mention by Krugman of the Gramm–Leach–Bliley Act 1999 (Clinton Administration). Can the CRA be dismissed so easily?

“It will guarantee that our financial system will continue to meet the needs of underserved communities , something that the vice president and I have tried to do through the empowerment zones, the enterprise communities, the community-development financial institutions, but something which has been largely done through the private sector in honoring the Community Reinvestment Act.
The legislation I sign today establishes the principles that, as we expand the powers of banks, we will expand the reach of that act. In order to take advantage of the new opportunities created by the law, we must first show a satisfactory record of meeting the needs of all the communities a financial institution serves. I want to thank Senator Sarbanes and Congressman LaFalce for their leadership on the CRA issue. I want to applaud the, literally, hundreds of dedicated community groups all around our country, that work so hard to make sure the CRA brings more hope and capital to hard-pressed areas.”

Congratulations to the authors. And long may Krugman enrage his begrudgers.

Greg, Krugman refers to “claims that liberal Democrats somehow forced banks to lend to the undeserving poor (even though Republicans controlled Congress)” and the fact that Ireland had “no Community Reinvestment Act, no Fannie Mae or Freddie Mac.” His views on all that are well known to his regular readers, so it’s hard to see why he should have devoted more space to it.

Very few of us will ever be namechecked ( in a good way) by nobel laureates in our field. Very few will ever have their work discussed in a calm, rational manner in one of the worlds leading newspapers. To get both is a huge triumph. Well done gents.

Does that count for repec? 🙂

Great achievement, both for the authors and for the blog.

@ Kevin Donoghue

“His views on all that are well known to his regular readers, so it’s hard to see why he should have devoted more space to it.”


“These theories range from the absurd to the plausible — from claims that liberal Democrats somehow forced banks to lend to the undeserving poor (even though Republicans controlled Congress) to the belief that exotic financial instruments fostered confusion and fraud.”

Krugman implies that it is absurd to suggest that the CRA had anything to do with sub-prime loans, and even if it did it must have been those pesky Republicans who controlled Congress.

I merely point out that Clinton saw the Gramm–Leach–Bliley Act 1999 as “expanding the reach” of the CRA.

Not absurd at all. Deregulation fostered credit expansion.

Well done on the note. The comparison between the USA and Ireland is interesting and enlightening. It is clear that banks, bank regulation and moral hazard amongst bankers are the key ingredients in bubbles.

When will somebody take this on board and take a broom to the bank executives and loan officers in Ireland and the USA? There is still time to partly correct the moral hazard. Bankers are not like dogs. They will know why things are happening to them even if the action is delayed.

I think Krugman is right about market fundamantalism in american. I don’t think people in Ireland understand how strong a political ideology market fundamentalism is in the USA. It is strongly tied up with americans’ notions of freedom, democracy and the beloved national character trait of being dedicated to hard work and endeavour.

@ Gregory Connor & Philip Lane

Re that unposted post/comment – on ideology – seems Paul K takes a similar view. (original still available)

Many congatulations to Gregory and colleagues. Brian Lucey eloquently describes their achievement.


I think Prof. Krugman’s denigration of “market fundamentalism” is motivated by the extent to which the super-rich elites (in the US, George W Bush’s “haves” and “have-mores”) used “freshwater” economists as useful idiots and subverted governments to evade taxation and regulation and to accumulate eye-wateringly large amounts of wealth. The constitutional separation of the legislature, executive and judiciary protects property rights, but possession is contingent on performance and any curtailment or infringement of possession is subject to both democratic and judicial governance. The US system will heal itself, but the contrast with Ireland could not be more pronounced in terms of (a) the primacy of posssession over performance, (b) executive dominance and an impotent legislature and (c) a judiciary deprived of the legislation required to make (or excluded from making) judgements on property rights.

@Paul Hunt

What do you mean by “possession” and “performance”?

I think we would all agree that land holds a particular place in the Irish psyche. It goes back to our history as a dispossessed people. I think Paul Krugman is not being overtly partisan when he talks about the place of free market fundamnetalism in the USA. That also goes back to their colonial history and struggle for independence and the thinking of men like Benjamin Franklin.


Without wishing to be curt, but also wishing to avoid an extensive response, I can only refer you to Prof Joe Lee’s masterly “Ireland 1912-1985: Politics and Society”. The second part provides an excellent explanation.

Since I doubt Prof. Krugman is taking note of this thread – and is not in a position to adjudicate on our little debate, my expereince of dealing with US economists is that they take forgranted the ability of their unique system of democratic governance to prevent the emergence of any sustained tyranny. And the strain of “market fundamentalism” that took hold from the late 1990s was a form of tyranny. The US system is working, perhaps, in the eyes of external observers, too slowly, to deal with this, but they will get there.

Meanwhile we are left with an elective dictatorship and the entire machinery of the permanent government and the quangocracy that is at its disposal.

@Paul Hunt

I am totally lost as to what you mean by possession and performance. Is it possession of land and performance by state institutions of their functions?

I have JJ Lee at home. What am I supposed to be looking for an explanation of? The Irish attachment to land? The background to the Irish attitude to property rights?

Congratulations to Greg and the others. Major coup 🙂

On market fundamentalism I think Zhou is right. I’m in CA right now and watching Fox. Holy God. They’re barking.


Apologies for appearing evasive and being unclear. My contentions spring from some work I’m doing at the moment on the valuation of assets and the definition and protection of property rights – in particular, for network and utility industries – and I have been struck by the huge difference in treatment between the US and Europe. Europe’s failure to address this effectively is undermining its electricity and gas market liberalisation project, but it appears to have wider implications – and these arise from fundamnental differecnes in the systems of democratic governance.

However, this may be taking us off-topic. I still believe that Prof. Krugman is being pejorative in his reference to “market fundamentalism”. I suspect he would contrast this with genuinely competitive markets operating within a supportive policy framework and subject to appropriate regulatory and judicial oversight.

And yes, pace Sarah Carey, a rabid adherence to market fundamentalism runs deep in America, but, for much of the time, pragmatic centrists – from both parties – hold sway. The problem at the moment is that Congress is behaving more like a parliament and less like the legislature the Founding Fathers intended. And the nutters seem to have taken over the Republican Party, but this too will pass.

The key point is that the US system of democratic governance constantly renews itself. The system in Ireland, and, to a considerable extent, throughout the EU, is broken. If this isn’t fixed, recovery from the current problems will be difficult – and a future repetition will be likely.

I tend to agree with Greg that it is a re-hash of his well known views. OTOH, he is commenting on a new piece of work which ‘justifes’ his views. Good for the academics…..;).

On the Joe Lee/Possessions/Performance; is this relevant any more in the [post] globalisation world? The US is one of the few economies that can, in extremis, live internally, if necessary. Ours isn’t any more, if it ever was, in real terms. We could, of course, go back to the land, if we didn’t have the basic distortion of the CAP. The IFA is already making the noises that, post 2013, we’ll get a derogation from reducing subsidies ‘cos we’re poor……We sure are.

@ Gregory Connor,

Your modesty is misplaced. Anyone reading your paper could hardly fail to be impressed.

One thing that struck me about its argument is that when the big boys run into trouble any weaknesses in the small guys are cruelly exposed. So if the US crisis had not happened and precipitated a global credit crunch, sure we’d have had a property bust sooner or later, but would the shock have been anything as severe?

Secondly, my only criticism of the paper is that I found the political analysis a bit too facile. Acknowledging the FF/developer nexus on one level, I think what was going on across the political spectrum was more complex than that.


“I think Krugman is right about market fundamantalism in american. I don’t think people in Ireland understand how strong a political ideology market fundamentalism is in the USA. It is strongly tied up with americans’ notions of freedom, democracy and the beloved national character trait of being dedicated to hard work and endeavour.”

I disagree – I actually think Irish people (and foreigners) in general don’t give Yanks enough credit for their pragmatism (and this from somebody who’s lived there extensively and is shacked up with an American). Freedom (they prefer the more pretentious form, “liberty”) as they interpret it and the market are important to the American psyche, but what aspect of the Bush’s administration’s disgraceful awarding of military contracts as political favours can be explained due to market ideology?

It’s just too simple an analysis, and one that, on the face of it, Krugman actually seems to acknowledge. In Conscience Of A Liberal he presents a massive history of the conservative movement with regard to its free market ideology, but at the same time he highlights the well-documented runaway cronyism between the party and makes no effort to reconcile the internal contradiction – it is simply not possible to be a free market idealogue and a corrupt corporate shill at the same time.

As Greg (not Gregory) pointed out earlier, much of the problem has its roots in the Clinton administration and its efforts, allied with a Republican congress, to strip away necessary regulation in order to improve the ability of poor and middle Americans to buy houses. It goes to show that all of the bad things that have happened in the past decade don’t necessarily have their roots in “evil” – sometimes good intentions can lead to the worst outcomes.

@Zhou_EnLai & Paul Hunt

On Joe Lee – read the final excursus on possession/production – it has some merit in the Irish case – and remains very relevant to a perscpective from social psychology on recent affairs, in particular the 2002-2008 period.

For a deeped psychological read – try Erick Fromm ‘To Have or To Be’ – for general reader – on personality types – and if you wish to go deeper still his Fear of Freedom (written after he did a runner to the US in late 1930s) – the latter might be useful in the type of broad social scientific analysis called for recently by The Governor – and such analys of course demands input from more than ‘trained economists’ as one put it recently on this blog. In other words, this Possession/Production distinction has real merit …………

On Krugman and Ideology – I 99% agree. Good few of them still around – they haven’t gone away you know! I refer to them as ‘dangerous fools’.

Well done to all the writers. I was struck by this comment by Krugman:

“In Ireland, regulators looked the other way in part because the country was trying to attract foreign business, in part because of cronyism: bankers and property developers had close ties to the ruling party.”
Some of our commentators do say this and the number is growing but our chief clerical (aka political) correspondents rarely do. Why?

I wonder what do foreigners generally think of Ireland? And if we were bigger and they had to think of us what would they think? All I ever hear about is their adulation for Brian Lenihan.

Finally we did have our own home grown free market fundamentalists lead by Sean Fitzpatrick, Harney and McCreevy. You couldn’t say the other PIIGS are vastly less corrupt than us but our banks are…second(?) only to Iceland? Why? What effect did the IFSC have? What effect will it continue to have?

Finally we need bank resolution legislation, a referendum on Anglo/Nationwide and a general election ASAP.

Poster Braighni on the pin:
“Gardaí poised to arrest Anglo Irish staff” is about as close to the panto “it’s behind you!” as one can get.

@Oliver Vandt
““In Ireland, regulators looked the other way in part because the country was trying to attract foreign business, in part because of cronyism: bankers and property developers had close ties to the ruling party.”
Some of our commentators do say this and the number is growing but our chief clerical (aka political) correspondents rarely do. Why?”
I am surprised that you are surprised by this comment. Foreigners are merely repeating the comments made by commentators here (in Ireland) ad nauseum. I thought that it was a pretty commonplace view. Personally, I have never been convinced by the view that we are supposedly one of the most corrupt countries in the world – but I could be wrong as maybe I don’t move in the right circles! For instance, we are always being told that everything is more above board in Europe but there seems to be lots of political deals there and horse trading seems to be the norm for European appointments. Also, is anyone convinced by the Eurostat arguments that they did not know what Greece was doing to get into the EU? please – give me a break! I just think that it is naive to think that everything is so pure in most other countries.

Re the IFSC, if you look at our competitors like Luxembourg, I never really see any criticism from them about their own financial sector and when they had a Madoff problem in some funds they were very quick to defend themselves. They have one of the highest paid workforces around, albeit very dependent on one sector, so presumably they are intent on protecting it. Would you prefer it if the 23,000 jobs or whatever it is now in the IFSC left Ireland? We had better find a replacement sector or two fast since the recent media stories about the education system seem to indicate that we may not have the smarts for a smart economy.

Re. Corruption
I disagree. We should aim to lead the world in transparency and accountability.

Someone who works in the financial area in Britain – and with no axe to grind – told me that the regulations in the IFSC were very, very weak in comparison. We put our faith in the banks and look what happened.

NAMA valuations may be changing….or probably not judging by usual practice. NAMA will pay €54Bn as the LTEV even if God announces the world will end in 2014. I can see Lenihan now.
“If you want to not pay LTEV and become like Iceland, just because the world will end in 2014 due to nationalisation.”

So we will probably now pay €15Bn more than the assets are worth in a property market that the banks/government/developers are furiously manipulating to prevent further falls:

“What has happened since September 2009? The Sunday Business Post last Sunday stated that instead of a drop in values of 47% as suggested by Mr Lenihan, values had in fact dropped by 55% which would mean the €88bn of assets were now worth €39.6bn. HOWEVER, the long-term economic value will still be €54bn (if that example of a development plot had a long-term economic value of €54m last September, why should that have changed in the last 5 months?). This means that we must now pay the banks a Long Term Economic Value of €14.4bn (€54bn less €39.6bn) and not €7bn.”


“ is simply not possible to be a free market idealogue and a corrupt corporate shill at the same time.”

Many thanks for your insights and observations. The point, I think, is that, perhaps on occasion, corrupt, but always greedy, corporate shills aligned with free market ideologues and employed “freshwater” economists as useful idiots to blow away any policy or regulatory constraints on their behaviour – and, furthermore, to ensure the policy and legislative framework was fully supportive of their activities. To achieve political traction they drew on the strong desire of many US citizens (I agree here with Zhou) for liberty, low taxes and small government and the lingering impact of Ronald Reagan’s “nine scariest words in the English language”: “I’m from the government and I’m here to help”. Bill Clinton’s political “triangulation” allowed him to be sucked in as both a useful and powerful idiot.

Ireland has had, and, to an extent, still has, its own inimitable version of this lethal tyranny. The ideology is more nuanced, but the useful idiots, both academic and political, though a little muted, are still around. And this has nothing to do with free, efficient and competitive markets. These are an anathema to this collusion of government, the permanent government, big business, the professional classes and the unions, despite continuous mouthing of the mantra of “competition and better regulation”. And the “little people” are left to pay for impacts of the disastrous policies of this tyranny.

The key point for me is that the US is constitutionally structured to defeat this tyranny and to re-align its economy. It’s obviously not happening quickly enough for Prof Krugman – but it will happen. In contrast, in Ireland (also in Britain and to varying extents in other EU parliamentary democracies) the system of democratic governance, without significant reform, is incapable of defeating this tyranny.

I think I once mentioned previously that an Irish employee in a very senior executive position at a US bank (who works overseas but is responsible for the Irish operations) said (back in 2005) that my business name, Compliance Ireland, was the best oxymoron he had heard. When I travel to London I get jibes from some of my ex-FSA colleagues and the wider risk professionals about Compliance and Ireland being used in the one sentence.

In terms of local criticism from politicians etc, I have only heard these from the opposition members and in private from TDs in government. However in Jim Farrell’s annual report as Chairman of IFSRA (albeit after the horse had bolted) he said that IFSRA’s trust in the directors of credit institutions was misplaced and he called for more intrusive supervision. It leaves Honohan and Elderfield in undesirable positions because they are sure to step on a number of toes in delivering their objectives to meet the new regulatory vision (which is yet to be articulated by the pollies). The issues of fines in this area were picked up by the Tribune over the weekend ( and also the Independent picked up on some of my comments on the likelihood of white collar crime prosecutions ( .

I always find it striking that it is small firms like ours that join the debate while the large accounting and law firms never take a critical position except in terms of light debate on corporate governance. It suggests to me that Ireland is basically an ostrich with its head in the sand.

On the issue of corruption, sometimes in a developing nation a reasonable amount of ‘good corruption’ (i.e. no violence), could be the right thing? It acts as an incentive for (rapid) growth. As the economy matures so too must that mentality to taper off the ill-effects of long terms and systemic corruption. Please, I am not using Gordon Gekko speech so don’t beat me up here. If corruption is viewed as an illegal practice then Ireland has been corrupt since the turn of the century – has it not? Today’s terrorist can be tomorrow’s government. Without seeking to create a controversy, aren’t Ireland’s problems caused by a lack of maturity? We jumped into the big boys’ playground (wholesale markets) as the game was ramping up and we didn’t have the skillset to play the game and foresee a likely outcome. Our banks were flattered by the attention the international wholesale markets afforded them, but the markets know a patsy (or a paddy) when they see one. When the impact hit us we cowered in a corner with our politicians crying ‘it is Lehman brothers fault’. Why so? Because an Irish developer didn’t know his debits from his credits or the difference between profit and turnover? That last point came up in a court case in 2009 when a judge ordered the winding up of a building company after the directors pointed to their turnover for the basis of their belief that the company was a going concern. The judge had to point out that there were liabilities which had to be taken into account to determine something far more important – profitability and cash flow. When we get to a position of lawyers and judges advising businessmen on basic accounting we know we really are in trouble.

The issue of maturity can also be seen in the classic phrase I always hear in Ireland when a deal (even if it is bad long term play) is signed – ‘Ah, Ireland, we punch above our weight’ but we fold as soon as someone crticises us and we lose an important opportunity to put our view forward or indeed accept responsibility. Rather our politicians respond saying that these comments are ‘unhelpful and inappropriate’ – the truth often is. Ireland will never be a leader in governance or transparency (except perhaps academically) – it doesn’t suit our need to grow. But we should at least be in the bottom half of the top quartile.

@Bookworm – Re the point about Luxembourg – very hard to argue against that ‘Madoff’ point and it is a good observation. Our regulator has been remarkably quiet compared to the CSSF issuing what appeared at the time to be a reminder of the duties of a trustee. However I understand that IFSRA is investigating this area from both a regulatory and policy perspective.

@yoganmahew the consumer panel had several non-finance/FF people, brendan burgess used to be on it (now on the new oireachtas committee for debt) – he works in recruitment by trade and runs a financial website. he didn’t make a living via the financial industry. and kathleen barrington – journalist, hardly a FF hack/financial services type? the others are much the same, i’d be the first to knock our regulator but not from the angle of the consumer panel

Krugman titled his opinion piece “An Irish Mirror.” I have a trivia question for blog readers and contributors. Is Krugman paraphrasing James Joyce? There is a famous passage from Ulysses about an Irish mirror, and in particular about the cracked mirror (or looking-glass) of an Irish servant:

“Stephen bent forward and peered at the mirror held out to him, cleft by a crooked crack.
Drawing back and pointing, Stephen said with bitterness:
— It is a symbol of Irish art. The cracked looking-glass of a servant.
Buck Mulligan suddenly linked his arm in Stephen’s and walked with him round the tower, his razor and mirror clacking in the pocket where he had thrust them.
— Cracked lookingglass of a servant! Tell that to the oxy chap downstairs and touch him for a guinea.”
From Chapter One of Ulysses, by James Joyce

@yoganmahew and @Karl – the consultative panels are choosen by the Minister. They are as independent as they can be. However the consumer panel does not benefit from having members (like the industry panel) from professional representative bodies which can use the resources of their bodies to research matters before the panel.

Peter Oakes
Agreed. IB was asking for co-operation in prosecuting in Ireland, for tax offences and we had to put up with similar jibes, but we actually had a reasonable record in co-operating with other jurisdictions. We had earned some notoriety as a result of our “predation” due to low tax rates.

Peter Hunt
Very true!

Except that the USA is very busy ignoring its constitution by executive “laws” and using the “power” to designate even its own citizens as enemy combatants and strip them of all rights. The fear of the war on Terror is therefore like that of the war on drugs. Fear and terror are more plentiful than ever and drugs are cheaper than ever!

It is also becoming very obvious to many that the “two” party system is in fact nerely a one party two wings system. The number of those prominent in public life in the USA, as public representatives and others, who are also likely members of their intelligence community is also fairly staggering. Tyranny? It arises when the population have been stampeded into a canyon with an inviting gate at the far end. We know what lies beyond that gate though!

Further congratulations are due – Brad De Long just blurbed the piece on his blog

@Gregory Connor

Re Comment in the Ney York Times – brought to me attendtion by Blind Biddy down the road: “GC Good, universal healthcare means that there are no ‘medical bankrupties’ and that unemployment does not have healthcare consequences. […] But the pain is relative. Inability to pay your mortgage and/or losing your job in Ireland does not mean destitution as it does for so many Americans. You can still have a holiday, your kids can still go to college, you can still eat well and have a few pints with your mates in the local pub while you sort out your life.”

Me methods are strange! They may cause surprise! To make the blind see! I throw dust in their eyes! (James Joyce)

@Peter Oakes
The likely outcome of our compliance catastrophe: the small operators will end up with extra box ticking while the big ones like Anglo auditor Ernst and Young get the contract to check the NAMA valuations. Irish compliance is not even an oxymoron – it’s a sick joke. I don’t think our media coverage reflects the fact that we are the Albania of banking and financial regulation. Also, we are not a developing country. Even at our worst we were still the poorest but in NW Europe – a wealthy region. The poorest of the rich. Our income per capita now gives us no excuses. We must have world class compliance – otherwise another cataclysm is inevitable.

Ireland, worst member of the Axis of Financial Corruption:

Anglo was part of a global web of balance sheet distortion.
“Anglo carried out ‘balance sheet management’ transactions for banks all over the globe, writes Business Editor Emmet Oliver

The internal audit report on the controversial transfers between Anglo Irish Bank and Irish Life & Permanent (IL&P) makes it quite clear the bank had entered into similar transactions before and was regularly receiving requests for “balance sheet management” transactions from a range of banks around the globe.

The bank names the following institutions in the above context: Lloyds and Scottish Widows, Credit Suisse, Rabobank and Robecco, Royal Bank of Scotland and HBOS.

It states that, over the past 18 months, Anglo Irish has received “numerous requests” for what it terms “balance sheet management transactions”. It claims that, in the last six months, from January, requests came from Merrill Lynch, Lehman Brothers, RBS, ABN, West LB and Hypovereins Bank.

The report then makes it clear that institutions have completed balance sheet management transactions for Anglo in the past, including Merrill Lynch, AIG, and Royal Bank of Scotland. It states that Anglo has also provided reciprocal arrangements in return to these institutions.

“A key reason for the need for balance sheet management transactions at period ends is due to liquidity being constrained,” the report states.”

This is astounding. Lehmans? AIG? Merrill Lynch? Hypovereins Bank? West LB? It’s a litany of catastrophe. No wonder the establishment have covered this up. No wonder we have a Garda/ODCE investigation that has become the first in history to go backwards. Not stall, or even hit a brick wall. No, for reasons “internal” to the investigation it’s going BACKWARDS.

We must have bank resolution legislation, a referendum on giving any further money to Anglo/Nationwide – in addition to the €14 BILLION we have already put in – and a general election.

Krugman is correct, the irish economic crisis was primarily caused by neo-liberal ideology. The market is always right and will correct itself. Unfortunately for us Marx’s ‘crisis of overproduction’ again raised its ugly head. Even without the international crisis the fact that working people were priced out of the housing market, at the same time that speculators went on a building bonanza meant the crash was inevitable. If anything the international situation disguised this basic economic fact. The irony is the ideologues of neo-liberal economics are still effectively in control and finishing us off with ‘market led’ deflationary economics, much as the housing policy failed this will follow. Because the as they say the proof is in the pudding, market led policies cannot run a modern society.

Krugman and the paper he cites both refer to ‘irrational exuberence’ of buyers and lenders.

I’m no economics expert, just an ordinary member of the public… but surely, in the case of lenders at least, this ‘exuberence’ is perfectly rational when you know that the worst case scenario is a taxpayer bailout?

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