Nyberg Report on Banking Sector

The Nyberg Report is available here.

219 replies on “Nyberg Report on Banking Sector”

I have always had an issue with the IFRS rules in relation to provisioning but what stated in the report under section 2.8.9 is simply incorrect.

‘2.8.9 These new accounting rules proved to be pro-cyclical and had important consequences for the covered banks. In the benign economic environment before 2007, the banks reduced their loan loss provisions, reported higher profits and gained additional lending capacity. The banks could no longer make more prudent through-the-cycle general provisions, or anticipate future losses in their loan books, particularly in relation to (secured) property lending in a rising property market…’

Where it states the banks could no longer make prudent through the cycle general provisions … is utter nonsense.

Of course the banks could have put in general provions the only problem of course is that than ran the risk of their Auditors disagreeing with them and in all probability issueing the Audit Report carry that qualification.

It is simple not true to say they could no longer include these provsions they could have at the time and they still can Auditors aside.

A thoughtful, insightful and very polite Finn whose credulity is obviously being strained by his observations of
(1) a deliberate and wilful suspension of disbelief:

“5.5.2. …A great number of persons in very responsible management and watchdog positions insisted that, until the end, they had no idea that a serious and acute problem with lending and funding exposures in the banking system even existed. In the stated absence of this knowledge, little was done to prevent the crisis. This is true of politicians (whether in government or opposition), central bankers, regulators, department officials and bank board members as well as influential analysts in the media, academia and financial enterprises.”

(2) the suppression and punishment of any dissent:

“5.5.5. Secondly, there was a conspicuous lack of timely critical debate and analysis by bank analysts within institution and among the public at large….Doubters (the few that identified themselves as such to the Commission) in the main grew unsure over the years when nothing
seemed to go wrong. It also appears that some stayed silent in part to avoid possible sanctions. The Commission suspects, on the basis of discussions held with a wide number of people, that there may have been a strong belief in Ireland that contrarians, non-team players, fractious
observers and whistleblowers would be informally (though sometimes even publicly) sanctioned or ignored, regardless of the quality of their analysis or their place in organisations.”

(3) deliberate minimisation of responsibility – and no accountability whatsoever:

“5.5.7. Thirdly, many institutions in the broader financial sector seem to have operated in silos….”

and (4) the Irish penchant for not seeing a rule without considering ways to bend it or break it:

“5.5.9. Fourthly, adhering to either formal or traditional, often voluntary, constraints and limits on banking and finance, does not seem to have been greatly valued in Ireland during the Period.”

So are people going to declare that these problems and features were confined to banking, banking supervision and financial regulation in this period, that they have now been addressed and that every other area in the Irish public sphere presents absolutely no evidence of these failings?

The problem is that many people holding positions of power, authority and influence will like us to believe such BS – and the perpetuation of this BS is the principal reason Ireland is struggling to recover from this largely self-inflicted down-turn.

Alot of repetition from the other two reports as expected but he does seem to be particularly hard on the FR of the time:

“The real problem in FR was not the lack of powers but lack of scepticism and the appetite to prosecute challenges”

“Bank loans seem to have expanded so rapidly because neither banks nor borrowers apparently really understood the risks they were taking. Many banks were increasingly led and managed by people with
less practical experience of credit and risk management than before. Property-related lending was seen as “really the only game in town” for growth-oriented banking. The purchase of second or more
properties by individuals was seen as “a no-brainer”. Rapid loan growth could not be funded by retail and corporate deposits; consequently, banks turned to the wholesale market. The long upswing in the property market, accompanied by relentless media attention, eroded the risk awareness both of banks and their customers in Ireland. Banks, citing the long sequence of good years, generally saw little problem in expanding their lending by allowing credit quality and risk management to gradually erode. Likewise, households and investors had seen their incomes and wealth increase markedly for a number of years; easy access to credit further encouraged belief in a never-ending

Peak oil and climate change are going to be far worse.

A objection to a particular line on the report.

“while external conditions favoured financial excess in Ireland , only Irish institutions , investors and households themselves could decide to indulge in financial risk”.

I remember back in 2002 Anglo was offering 3.75% on a two year deposit , with the low interest rate environment of the time and the Post office offering miserable yields and also the huge subsidy of commercial bank deposits under the SSIA it was financially reckless to invest in Goverment money.
Citizens forced out of Goverment money by their own goverment is EXTREMELY reckless however.
PS notice the tiny size of goverment money illustrated on Figure 1.1 in the Euro area even today.
The Euro system is just a extreme leverage system desgined to favour bank profits.
This created a destruction in the physical economy through speculation until the bank dominated goverment executives found themselves on the edge of a monetory event horizon.

Despite Lenny’s belief, we didnt all party, but for those that did, the following comments rang true in my mind.
“..exent to which…Irish society were willing to let the good times roll on until the very last minute …may have been exceptional.” Typical Paddy, Put the weeks wages on a horse even though you know at the back of your mind it has 3 legs and the kids will go hungry.

It was a very good idea to use a Finn to coduct this report.

The collective memory, and lessons learned, of the Finnish banking crisis which had a much more devastating social effect compared to Ireland (eg 20% unemployment during the 1990ś are very fresh.

Finland has a better comprehension of what “peripheral “actually means in a Northern/ West European context having a different relationship with its “biggest neighbour “than Ireland has, no large diaspora/lobby, and Nordic neighbours who are not in the EZ.

Despite, (in some people opinion) opportunistic stances over corporation taxes by “Uncle Olli” and others the last thing Finns want is Ireland to leave the Euro. Even the recent victory of “True Finns” party which included much debate about southern European bailouts made very little reference to Ireland.

Low interest on deposits favour speculation period – while nearly all of the cream went to equity and bond investors.
Such a system is only sustainable if losses are distributed down the line as would happen under a functioning moderately capitalistic system.

Even so – credit production comes before interest income.

I cannot figure out why Banks monopoly to create credit remains unchallenged in this great little nation.

Apologies I whould have written in my last post:

“Even the recent GAINS of True Finns party….”

They came in third place which I presume was a “victory” for them as they will also enter coalition negotiations.

I think “Figure 2.11 Funding Gap – Excess of Domestic Lending to Residents over Deposits” shows rather a dramatic policy paradigm shift – a shift, when things were already good, to heavy gambling with borrowed funds, which policy makers could hardly claim they did not notice. This occurred in the context of USA banks doing somewhat similar and when theUSA was rapidly liberalising trade with billions of people with near zero income while we were voting “No” to the admission of 50 ml Poles to the EU – so much for the level of higher level thinking by policy makers.

@ DoC
“Low interest on deposits favour speculation period” But it doesn’t have to mostly be national property speculation?
“as would happen under a functioning moderately capitalistic system” Any examples?

@Sf: “Peak oil and climate change are going to be far worse.”

Yep. Though we might not be flavour of, anything, for daring to mention this. The first will strike like a waveless Tsumani. The second will leak in under the PC radar.

@ DoC: “I cannot figure out why Banks monopoly to create credit remains unchallenged in this great little nation.”

Easy. Regulated larceny. You fence in credit creation, the finance houses become geldings. What would that do for the ‘manhoods’?

The report is not telling me anything I was unaware of by end of 2005.



I agree with your take on Finnish perceptions. They learned the hard way that they need to hold those to whom they give power and governance responsibility to account. Ireland didn’t experience as hard a lesson after the GUBU decade. I suspect Mr. Nyberg was simply incredulous as he recounted the ‘Specific Irish Features’ which i highlight in my 3:36pm comment.

But what has really changed? The people have exacted severe retribution on the governing factions, we have a new cabinet and special advisers, there has been a painfully slow changing of the banking guard and we have a new CB governor and Financial Regulator. But, apart from these changes, the culture and attitudes remain entirely unchanged in every other area of the public sphere.

Yes Eamonn – the world monetory system has become extremely confused as banks deposits created by private credit have the expected backing of treasuries / CBs.
I would favour a simplified financial system where a Treasury would produce extra money at say 1-2% a year and full deposit banks would loan out their own money at their own risk – it would be self regulating as money would be created or destroyed depending on the physical economic environment rather then the artificial monetory one.
Anyhow I digress as it ain’t going to happen this side of the coming dark age.
-getting back to your point – If people gained a positive yield on a paper sum it would prevent them engaging in idle speculation on any fancy unless they wish to lose money for the fun of it.
Therefore real materials in the physical world such as copper in useless houses would not be wasted on idle home nesting dreams.
This would be positive to global wealth rather then consumption but alas our masters wish us to be well feed slaves rather then idle austere crewmen.

On the much asked question here of guarantee vs nationalisation:

“As already mentioned, it is not obvious how an apparently solvent institution without any evident need for additional capital could have been subject to nationalisation….Nationalisation could therefore have been the early start of subsequent efforts to handle impaired assets in a way that would have minimised State costs and funding problems…

Would nationalisation of Anglo have been an alternative to the Guarantee rather (than) complementary to it? To the extent that nationalisation implies that the State takes on all the liabilities of the bank, the two outcomes would have been essentially the same in relation to the bank concerned.”

One of the basic building blocks of the credit bubble was the humble house buyer (i.e. they were the base of the pyramid).

I’ve done a quick Ctrl+F for “Affordability” and “Income multiples” and didn’t get a hit. In particular, I’d like to see who was involved in the decision to move from ‘income multiples’ to ‘affordability’. I think this happened around 2003. My reason is that this is a distinct event/action of relaxing credit policy and, therefore, it could be investigated. Is there any section of the report covering this?

I agree with the sentiment that nothing much fundamentally has changed.

Well meaning people see virtue in whistleblower protection but even people with some sort of moral compass treat such people with disdain.

There is little evidence of community spirit; those who have got bubble gains will fight tooth and nail to keep them.

Being a spoofer combined with a brass neck still pays dividends.

The likes of RTÉ provided a platform for bubble cheerleaders and maybe now doomayers but what has changed?

Does it now understand concept of conflict of interest? – – a common problem.

Strange isn’t it when the public broadcaster presents itself as a property retailer? It helps that the sector is still unregulated.


The safest option is still to keep the head down and go with the flow and at The Sunday Independent, check the weather vane!

@ Paul

I have no doubt Mr Nyberg is a very “polite Finn” and I am sure his “credulity” is being strained.

I understand the Finnish banking crisis also turned up “some gems” which would also strain ones credulity.

I recently read somewhere (admittedly it was a forum post so I cannot verify it ) that when the Finnish Banking crisis erupted there were no rules to adequately deal with mortgage arrears, personal bankruptcy etc.

I am sure Mr Nyberg may be struck by “the Irish penchant to bend rules” but other experts in the 1990ś may well have been struck by the “Finnish penchant” not to make appropriate rules.

I understand that Bankers went on trial in Finland so it would not surprise me (even though “no names were mentioned” in Mr Nybergś report), if failure to make rules did not prevent appearances in Finnish courts during the 1990ś ,then “bending rules” may also result in some interesting Irish court appearances

From certain Irish bank executives perspective Ireland of 2011 may well be a much colder place than the “cosy club” of 2008 which has just been subject to an arctic breeze.

The whole thing reminds me of the Leo Tolstoy story “How Much Land Does a Man Need?”

[from Wikipedia]

The story’s premise is that greed knows no bounds.[citation needed] It’s a morality play in which a man’s greed for land leads to his death. The protagonist of the story is a peasant named Pahóm, who at the beginning can be heard complaining that he does not own enough land to satisfy him. He states that “if I had plenty of land, I shouldn’t fear the Devil himself!”. Unbeknownst to him, Satan is present sitting behind the stove and listening. A short amount of time later, a landlady in the village decides to sell her estate, and the peasants of the village buy as much of that land as they can. Pahóm himself purchases some land, and by working off the extra land is able to repay his debts and live a more comfortable life.

However, Pahóm then becomes very possessive of his land, and this causes arguments with his neighbours. “Threats to burn his building began to be uttered.” Later, he moves to a larger area of land at another Commune. Here, he can grow even more crops and amass a small fortune, but he has to grow the crops on rented land, which irritates him.

Finally, he is introduced to the Bashkirs, and is told that they are simple-minded people who own a huge amount of land. Pahóm goes to them to take as much of their land for as low a price as he can negotiate. Their offer is very unusual: for a sum of one thousand rubles, Pahóm can walk around as large an area as he wants, starting at daybreak, marking his route with a spade along the way. If he reaches his starting point by sunset that day, the entire area of land his route encloses will be his. He is delighted as he believes that he can cover a great distance and has chanced upon the bargain of a lifetime. That night, Pahóm experiences a surreal dream in which he sees himself lying dead by the feet of the Devil, who is laughing.

He stays out as late as possible, marking out land until just before the sun sets. Toward the end, he realizes he is far from the starting point and runs back as fast as he can to the waiting Bashkirs. He finally arrives at the starting point just as the sun sets. The Bashkirs cheer his good fortune, but exhausted from the run, Pahóm drops dead. His servant buries him in an ordinary grave only six feet long, thus ironically answering the question posed in the title of the story.

@Ahura Mazda

I’m of the view that income multiplies and their like were as much to blame as much of the other stuff that went on.

I can only find 1 mention of ‘yields’ in the main body of the report and 1 mention of yields in the paragraphs on the foot of the pages.

This to me is still the most crazy thing that went on during the whole housing saga.

How banks felt it OK to lend money at less than 1% net rental yields in Dublin at the height of the market when risk free altenatives were paying close to 4% and now have the law on their side to legally bankrupt consumers who can no longer afford these mortgages for all the reasons that we know.

This is plain wrong. These are banking lending errors and under the suitability code of practice posted here yesterday consumers should have told to go away and come back when net yields were closer to their average over the past 40 years being 7%.

Instead banks gladly signed them up when because in many instances as a result of inflated salaries income mutiple models may have looked reasonable but underlying pricing looked daft on a yield.

Mean reversion will dictate that long run yields will get back to 7% and last Fridays auction is indicative of this.


I’m not seeking to paint the Finns as paragons of virtue. I just think they seem to have learned lessons from the early ’90s banking debacle of broader import -and took them to heart. Their ability to tailor fiscal policy to the exigencies of Euro membership, I think, is evidence of that. Ireland learned nothing from the GUBU decade and the subsequent bout of fiscal rectitude. In fact Ireland’s rapid escape to ‘Celtic Tiger’ glory simply reinforced the ‘Specific Irish features’ that Mr. Nyborg highlights. They’re all still in place across the board – in particular the suppression and punishment of any dissent or analysis that might compel a formal questionning of the cosy, conventional wisdom.

I think the auditors got off lightly.

If LBS speaks the truth and governments are ultimately responsible for private debts racked up in their jurisdiction there doesn’t seem to be any point in continuing with the current system of auditor self regulation. How many bank auditors have lost their jobs ?

It’s interesting to see Lenihan-era official Ireland asymptotically approach the notion that the September 2008 guarantee was a disaster.

On what may seem like completely different point – I am sick to my teeth of snooty little nosed ex bank tellers , coming to my flipping door selling Bord Gas , ESB , airtricity identical services.
Surely the money spent on these sad little sales cllerk’s is better spent on a over paid electricity operative that will maintain the network.
This is a utility not unlike credit.
Competition in such a field is absurd.
We are guilty of replicating the same economic phenomena as in the banking collapse but this time in heat and light rather then messing around with the medium of exchange function.
I don’t know wether to laugh or cry.
Role on debt for a rest.

@ The D of C,

You’re taking us off-piste, but you might find this comment on another thread of interest:

The issue of retail competition and utility service provision is worthy of serious consideration – and probably would be worth a thread of its own here if some of the grown-ups were interested. But this is unlikely as it is a bit ‘microeconomic’, given the interests of the relatively few principal contributors who bother to post here.

Mr Nyborg is being quite shrewd by producing a non-judgemental and low key report. By doing so he avoids becoming entangled in an Irish nest of political and legal vipers.

The report confirms that the Gov’t, Financial Ministry, Central Bank, Commercial and retail banks were incompetent.

Our new Gov’t, god bless them (they need it) are cursed with the same genes and are equeally incompetent and completely incapable of guiding the country through a recovery. FG instead of making a declaration of governance such as we (FG) will govern as if we had a majority and will resign immediately if we are outvoted in the Dail, entered into the usual nonproductive, teat sucking, coalition with Labour. We now have the replay of the FF fiasco as campaign “contributions” flow in, favours are bought and granted and the country sleep walks over another precipice. The only glimmer of light on the horizon is that the ECB and IMF will dictate to our gov’t what has to be done.

All this shows is that history is written by the winners.
How come nobody gets this:
Property is not a typical asset because:
1: Shelter is a human necessity
2: Whose value is determinded by the amount of money made available to pay for it.

Very unimpressive report overall. No names named and the average Irish Joe scapegoated again for trying to secure a place to live in the midst of a flood of credit.
If we paid for this we should ask for our money back



I’ve been wondering about this for years. It was the standard method of lending in the early 90’s when I worked briefly in the EBS. Can anyone tell me if the income multiplier was an actual regulation or simply a common practice? If it was a law, who abolished it?

@ Mickey Hickey

Spot on! The one benefit of the report is that scotches, once and for all, the idea that it was any body’s fault other than our own. This will have consequences in public opinion which may be helpful for the hard road ahead, not in terms of what this feeble coalition may decide, but in following actions beneficial for the country that may be dictated to it

Again there is no mention of the inherent flaw in the Euro.

I am no fan of this monetory system but for it to work Governments have to remain in considerable deficit so the banks and populace are unable to engage in a speculative frenzy.
It simply does not work at 3% defecits.

Sarah Carey says,

I’ve been wondering about this for years. It was the standard method of lending in the early 90’s when I worked briefly in the EBS. Can anyone tell me if the income multiplier was an actual regulation or simply a common practice? If it was a law, who abolished it?

You know what Sarah. A lot of people I listen to recently, frequently use a sentence which goes something like, the best guy I’ve come across, who seems to have some answers and who seems to have gotten to the bottom of it all . . . I grew up in an era when there seemed to be a lot of problem facing the world. In 1992 during my Leaving Cert year it was before ‘the mainstream’ had started to worry (or even think) about the planet, the environment etc. One of the topical news stories I remember studying for an oral examination in Irish or French, was about drug use in Olympic Athletes. I remember vividly watching Ben Johnson steaming up the 100 meter racecourse and passing out Carl Lewis. I remember it like it was yesterday. I remember trying to describe the aftermath to that particular train wreck in atrocious French and oral Irish to an examiner. It would be a useful exercise this year (or any year for that matter), if the RTE film crew were to visit some schools and interview some young folk for the archives. I wonder what they would talk about? Anyone know the French for . . . . bankers? Eugene McErlean commented on radio one day, about a skateboard teenager he saw in a DART journey one day, who sat down and pulled out a copy of Too Big to Fail. Some other parent phoned into to a radio show recently, that her husband said at the breakfast table that he had enough money in the chequing account used to run their family business to pay for something. The eight year old present at the table spontaneously said something like, That is the money to pay for Anglo. I’ll end this fairly nonsensical comment of mine by asking a question. I listened to a London School of Economics podcast before Christmas last. It was a guy called David Harvey who related the credit bubble of the recent past, to the labour strikes of the more distant past, which we all seem to have forgotten about in the present conversation. Having broken the worker in the 70s and 80s, and achieved competition in wages and salaries, the problem became, how to afford those same workers the credit they required in order to consume the goods they were producing. Fintan O’Toole commented in today’s newspaper about the culture of capitalism in Ireland, and the lack of sufficient braking power etc. I think it was Tom O’Connor economist on radio this morning who commented on the shortfall in tax take circa 2008, of €17 billion appearing out of nowhere being at the root of our problems today, thoug the banking crisis gathers most of the attention. Maybe we should bear that in mind? Somewhere amongst all of the opinions referred to above, there may be some measure of an answer or a truth. I still remember the photograph of the civil servants though, whose job it was to announce that €17 billion hole in the exchequer’s revenues. I think that photograph (perhaps from the Irish Times?) was a classic the day it was shot. Utter disbelieve. I do not know who at the Irish Economy blog at the moment, is following Mad Men television series. But there is an interesting plot line at the moment involving creative director Don Draper, who realised having lost the Lucky Strike cigarette account, his enterprise was in serious trouble. He published a letter in the New York Times, in which he announced that his advertising agency would no longer be seeking commission from the tobacco industry. I wonder, who it make sense for the Irish government and minster for finance to advertise a similar page in the newspaper proclaiming, we will be seeking no more easy money from transactional taxes? In a way, the transactional property tax in Ireland, was the Lucky Strike account that had propped up too much in Ireland, for too long. BOH.

Quite a summation, and depressing, of the moral and psychologically supine makeup of official Ireland – the establishment, whatever. It will of course be safely ignored. Interred after the weekend. A number of commentators will do a bit of ritualized hand wringing at the removal but to take such insights seriously would be too disturbing to our own gentry.

The fact that ordinary retail investors were fed a diet of misleading and false information about the health of the banks by people and institutions ‘in the know’ and which notionally acted in the public interest is batted about in official circles as something to discuss, but ultimately no one of significance will appear in court.

What Nyberg has revealed, ultimately, is just how delusional is, and was, the culture of official Ireland. The trough mentality is a badge of honour, a measure of deserved entitlement. No quango cull yet. Raising questions even timidly about conflicts of interest is treated as a despicable impertinence. As long as there is consensus among the gentry, reality can be directed out to sea.

Ah yes, a long road ahead indeed.

For what its worth I believe such a elementary flaw in the Euro financial chemistry was deliberate as the Euro has been the product of some of the best monetory minds on the planet.
It was designed as a sovergin killer – it is murdering the concept of nation on the European continent and is also in a battle with the dollar where Congress and not the FED produces the base money.

Admittingly the nation state was a creature of the banks many moons ago but the fracture in the social contract now is just too painful.
You cannot rip up 200 – 400 years of invention and lore without very serious consequences.
I am sure the lads in Frankfurt are getting a kick out of us paddies tearing each other apart but why give them the satisfaction ?

It is interesting that there is no mention in the report regarding the complete absence of macro-prudential oversight by the ECB and only brief mention of the damage done from too-low ECB interest rates (from an Irish perspective).


I agree with you completely that Ireland learned nothing from the “GUBU decade” and it is a terrible price we have to pay for not doing so. The “joys” of the Celtic Tiger probably dampened our incentive to learn any lessons.

However I think this time around we may see a much more serious “reckoning”. GUBU left behind a generation of moderately educated people who may have been broke and unemployed but could see a way out once they got back to work without carrying a load of debt on their shoulders..

This crisis (we need to find an acronym ) has left behind a generation of highly educated and sophisticated people who now are burdened with debts and a pervading fear of facing into years of more anxiety and hopelessness. The impact and memory of that will be felt for a long time.

In addition we have the GUBU generation (many of whom have also been burned and/or have teenage children with an uncertain future) and an older generation fearful for their adult children.

I think that the political pressure to enforce accountability and prevent “repeat performances” is enormous. It will also be easier for politicians to satisfy these demands by getting “furriners” to write investigative reports, enforce regulations and “burrow” deep into the records of banks which they have been brought in to manage.

However right now you are correct and I agree completely with you: Many of these ” specific Irish features” are “still in place across the board” and it is very tempting to feel very little has changed or will change. In fact (IMHO)the only real disadvantage of too rapid an economic recovery would be if we do not tackle core problems of “specific Irish features”.
I also find it interesting to observe that in 1999 the Finns felt that joining the Euro was a necessary part of recovering from (social and economic) crisis while Ireland now has to hold an internal debate on whether “jumping ship” or “staying on board” is necessary in order for us to recover as an economy and a nation.

If the first commandment of the ECB is that only 3% of the currency created can be money how are we going to engage in business when we are all in debt except the banks who hold the assets ?
Without a dramatic price increase in the Euro value of Gold the Euro is bankers wet dream.


If the ECB was not responsible for macro-prudential oversight at the 17-country level, who was? No one? No, the ECB messed up a bit too and should admit it. There were unsustainable Euro-denominated credit flows between member country banking systems at a macro level.

You seem intent on placing all the blame on Ireland. I cannot understand why.
If the rules of he who does wrong must get punished were applied consistently in Europe then where would Germany be today?

@ Gregory,

The issue of EMU membership is completely glossed over but figure 1.1 and 1.2 let the cat out of the bag. Irish credit grew by 300% in the period under review and during this decade real interest rates were set at zero. Any 2nd level student of economics can tell you what happens to demand when price is set artificially low. I cannot find the discussion of a) whether we should have been in the euro in the first place and b) whether the ECB monetary policy setting was too easy in that period.

One you dicuss that issue honestly, you can move on to the domestic issues of the conduct of banking, fiscal policy etc. In summary this report lacks balance.

Whats striking to me is that I believe at least some well meaning but not too bright economists in the ESRI and elsewhere not only lived with their head up their arse but also lived in the past.
The quaint world of sovergin debt and the banks fractionally multiplying this money is the world they inhabit.
Unfortunetly for the patient Hibernia – these physicians were a bit behind the times.
Even if they knew about the new monetory practises their generation were trained on a older textbook.

They believed the sov yields would give warning of impending trouble – but they did not , until at least it was too late.

But the euro debt cells were growing, multiplying…..
The Euro is a perfect parasite in many ways – not showing its true monstrous nature until the host is near death.
Its almost as if it was genetically engineered……….


Recognises the ‘intellectual basis’/ideology of the ‘paradigm of efficient financial markets’ – and our case contribution?: neither stable nor efficient! Costly lesson.

@ Gregory Connor

I must apologise for being so blunt but the myth of others being responsible for Ireland’s woes has such legs that being blunt, at times, seems the only response.

The system of macro surveillance in the euroarea was clearly deficient and this deficiency it is now being remedied, rather half-heartedly, by (i) the improvements in relation to financial supervision in force since 1 January 2011, including the creation of the European Systemic Risk Board (the chairmanship of which the ECB had to fight long and hard to gain) and (ii) the improvements in relation to the Stability and Growth Pact (to be finalised before end June).

Ireland was not in the forefront of efforts to maintain discipline in the euroarea. Quite the opposite, in fact. In such circumstances, how can we blame others for the things that have gone wrong?

The issue of the capacity of the country to emerge from the mountain of debt that has resulted from our errors is a different one. It has nothing to do with anything other than the view our creditors take of our capacity to repay. If we do not make every effort to pay our bills, which the state has done since its foundation, we will be in difficulty with the international financial markets almost indefinitely. It is as simple as that.

If, on the other hand, our creditors feel that we are making that effort but, in the process, are actually reducing our capacity to repay, they, being hard-headed states without sentiments one way or the other, may be willing to strike a deal. But we are far from that stage at present.

Our creditors will not be swayed by bleating from those in “permanent pensionable employment” about their inability to pay their bills when nearly half a million of their co-citizens have no employment of any description whatsoever.

@Brian Flanagan

Maybe something like this:

“Those ****** Irish are going to go berserk and sink the MV Euro .

Then Paddy will jump ship by pegging to sterling or the dollar leaving us struggling with a Finn Mark (and Estonian Kroon) trying to peddle Japanese sounding mobile phones to Scandinavians, fending off bears at night, while being left out in the cold by Angela and her crew.

We better send over a well mannered gentleman with a Swedish name to keep Paddy calm. In the meantime we can roar about southern European states during the election campaign before compromising as we enter coalition.

Peripheral my **** those shaggin Irish have no idea! They will probably also expect us to pay him for writing his ****** report.”

“The system of macro surveillance in the euroarea was clearly deficient” would seem to answer your question “how can we blame others for the things that have gone wrong?”
Your arguments are somewhat circular and your insistence on Ireland paying more for whatever mistakes it may have made than Germany paid for starting WW2 seems very strange to me

@yields or bust, aura

What you are touching on is something very fundamental, essentially that BANK LOANS in general are problematic. There is a big difference between equity investment thought processes an those for lending. At times in the past there has been balance between the differing influences of equity and debt. Where equity requires judgements about value and returns and the professional is effectively agreeing with the person trying to raise equity finance, debt finance doesn’t require anything more that the proposal is unlikely to be so useless that both equity will be wiped.out and any security will not be realisable.

That debt finance and the banks have become so dominant of late means that many more dumb investments are being made with the momentum of the classic wall of money behind them.

In short,it is banks and banking as an economic force in the investment arena that is central to the creation of bubbles like the one that overtook Irish property. Banks providing loans are effectively dumb investors.

don’t worry. The mighty IMF in 2006 knew what was coming. Good job their team had a senior German banking regulator to add to the weight of their warnings:

“The Irish financial sector has continued to perform well since its participation in the Financial Sector Assessment Program in 2000. Financial soundness and market indicators are generally very strong.

• The outlook for the financial system is positive. That said, there are several macro-risks and challenges facing the authorities. As the housing market has boomed, household debt to GDP ratios have continued to rise, raising some concerns about credit risks. Further, a significant slowdown in economic growth, while seen as highly unlikely in the near term, would have adverse consequences for banks’ non-performing loans. Stress tests confirm, however, that the major financial institutions have adequate capital buffers to cover a range of shocks.

• Good progress has been achieved in strengthening the regulatory and supervisory framework, in line with the recommendations of the 2000 FSAP.”


Seriously, there’s nothing uniquely incompetent or evil about our little country – despite what our Troika and EU partners tell us. Nearly all economies facing rapid take-off face asset bubbles – us in 19th century, japan, asian tigers, Netherlands (twice), Finland in the 1990s…

Whats different here is the ability of the EZ powers to achieve the socialisation of this onto 2 Million Irish taxpayers…..

The EZ is becoming the “prison of the nations”

“Wonder what he’d make of the landesbanken?”
Maybe a hat? Or an aeroplane? Or a bird?

@Gregory Connor
Add to this that Seamus Coffey has shown (from Central Bank figures) that almost half of the credit that came into Ireland came from ex-euro sources. It is not clear if that was non-euro EU money, or totally ex-EU.

Two things:
1. If it was non-euro EU money, it came through Mifid. That is the ECB’s area of responsibility. Totally and utterly. The ICB operates as the agent of Mifid in Ireland.
2. In either case, the money was not euro and not from within Ireland. The Irish Central Bank had no authority to restrict its flow.

Credit where credit is due…

‘How banks felt it OK to lend money at less than 1% net rental yields in Dublin at the height of the market when risk free alternatives were paying close to 4%…’

It was OK because some bank execs and associates were getting rich beyond their dreams. Perverse incentivisation via bonuses, aka looting. The fact that some of the looters were themselves hit in the bust doesn’t alter what happened.

‘.. rapid loan asset growth was extensively and significantly rewarded at executive and other senior levels in most banks, and to a lesser extent among staff where profit sharing and/or share ownership schemes existed. Targets that were intended to be demanding through the pursuit of sound policies and prudent spread of risk were easily achieved through volume lending to the property sector’ (p46)


To make such statement the author needs to know how much oil is left out there

anyways why is another thread being hijacked by resident oil drummers?
lets go back to discussing a report which blames everyone but names no one.


All this shows is that history is written by the winners.
How come nobody gets this:
Property is not a typical asset because:
1: Shelter is a human necessity
2: Whose value is determinded by the amount of money made available to pay for it.

Endless cheap credit and an asset of fixed quantity that almost all individuals and most businesses must have access to. Where did that credit come from again?


The ECB did not have responsibility for “macro-prudential oversight” and still does not have. This was, and remains, a matter for national governments. Are you seriously suggesting that the ECB should set interest rates to protect us from our own stupidity?

Our stupidity made it. Amazing.

Somehow our stupidity created the single financial services market and the wave of credit that low interest rates created. Ireland’s stupidity made European monetary policy. (If only we could use our powers of stupidity for good. Everyone think about Bini-Smaghi tripping over a manhole cover).

The ECB does not have stupidity as a defence, they had the numbers and cared not at all about the various bubbles caused by loose monetary policy. The ECB’s one tool was always going to be used in a way that suited the larger economies. We are collateral damage in the battle to improve German growth keep the Euro an attractive reserve currency, neither bad aims in themselves.

So however comfortable with the ECB’s priorities a person is they can not pretend that Ireland’s insane level of bailout related debt represents anything other than the socialization of private debt to preserve the current configuration of the European financial system and its assets.

No one is stupid enough to fall for that.


‘The superior man, when resting in safety, does not forget that danger may come. When in a state of security he does not forget the possibility of ruin. When all is orderly, he does not forget that disorder may come. Thus his person is not endangered, and his States and all their clans are preserved.’

The fools, the fools, the fools …………….

@ pongo

25% of all the oil ever burned is independent of what is left.
It’s like the auditors signing off on a historic view of the accounts.

@ Michael Hennigan
“I agree with the sentiment that
nothing much fundamentally has changed.”

John Kay had a good article about this in the FT


The crash challenges established views, people will tell you, but this seems to be a recommendation to others, rather than a personal statement. Lessons have been learnt, they will say, but the lesson most people have learnt is that they were right all along


If we do not make every effort to pay our bills, which the state has done since its foundation

Apart from the little matter of the Economic War. So much for the Irish education system.

The rest of your post’s not much better.

@ Livonian
I would dispute that it was a good idea to use a Finn for this report, it would appear to be a classic case of remembering much and learning little.

In Finland at the moment the extreme right wing is making rapid political advancements on the strength of Finnish dissatisfaction with bailing out supposedly “spendthrift” countries, in the face of facts to the contrary, not least of which is that bailout funds come with stiff enough interest rates to satisfy the most austere of EU members.

But of course it’s easier just to drip anti-Irish sentiment all over the place. Much easier than for example weighing up the realities of the financial crisis. I mean come on – “the Irish penchant for not seeing a rule without considering ways to bend it or break it” What was that? There’s a name for applying negative attributes to an entire naton with a broad brush, and the far right is no stranger to it.

Still, it’s an ill wind, and there are always those that seek to make capital on the misfortunes of others.

140 pages and no-one actually blamed for anything. No one individual singled out? “Herd mentality?” to blame?!

Does this mean we’re now allowed to treat bankers, regulators, property experts and commentators as bovine imbeciles? Mindless drones capable of a devastating stampeding, trampling half a million jobs and decades of progress whenever they get too frisky?

NO! It means we’re allowed to pay them €3 million a head, and be thankful we were able to afford such great talent!! Well, at least this means that the pool of candidates for banking, and regulatory positions just got larger.

I came across a reference to Finnish economists Honkapohja and Koskela a few days ago either here or elsewhere. Anyhow I found them on http://www.repec.org in IDEAS, search on author. There is a good article on taxes and migration from 1999 as well as the Economic Crisis 1990s Finland which I have linked.

The magnitude and damage are on a scale close to our present crisis.

@ paul quigley, Shay

Paul, just to help clarify. Have I got this right?

The boom reached a point where it was in the interests of the banks, and even the developers to drive up property prices, as although loans had to be taken out, and in theory repaid, the increase in the property value (an asset) was substantially higher year on year than the interest on the loan. An interest rate fundamentally set by the ECB. So we saw fantastic sums being offered for development land, where previously the developer would have tried to but land for as low a price as possible, for traditional common sense reasons.

I’m wondering whether there was a distinct ‘tipping point’ where bid high made more sense than bid low, or was it more indistinct?

More anecdotally, and from various conversations. I think a number of branch managers giving out domestic mortagages saw themselves as good guys, facilitating people getting on to the property ladder in a win-win senario. Certainly, I get the impression the big beasts of development could sleep at night believing they had turned tens of thousands of people into property millionaires. Or am I not sufficiently cynical?

In Cabra, where we lived in houses built by the state for our parents and grandparents, these went from being a form of social housing to being worth 400k plus – and they were the exact same houses only with the bathroom inside rather than out! Of course that value was theoretical, and from what I saw, people took out modest enough second mortages against this vast equity and built extensions out the back, bought a car that was too fat for the street, and maybe helped their kids out with a deposit for a house on an estate in Trim – as the kids found it hard to buy where their grannies had grown up for more or less free. My impression is that the working people of Cabra were in fact pretty steady, given what looked like a monumental windfall of Lottery winning proportions for each and every one.

Anyway, on foot of this report what could change so that it is no longer in the interests of the banks to drive up property prices for the interests of profit, or is that just inevitable, and thus it becomes more a matter of improved oversight from the egulator and the auditors?

Shay, based on a comment you made elsewhere, this report does seem to show an interesting example of how competition in a sector actually drove inneficient and detructive practices, as the banks, who thought they were playing leapfrog, were in fact playing beggar thy neighbour.

Maybe it wasn’t the compeition that was the problem but the quality of the strategic thinking. I’m not sure.

@ Pahóm

Thanks for the story.

The one I had vaguely in mind for this report is the old English folk-tale of ‘Yallery Browne’, Tom being the Irish government and Yallery Browne being easy credit (Seanie). This version doesn’t quite capture the key fact that every good thing that Yallery Browne does for Tom causes incidental harm to his neighbours, and thus makes him hated in the community.



You say:

“The one benefit of the report is that scotches, once and for all, the idea that it was any body’s fault other than our own.”

All our fault?

From P. 94

“There was no euro-wide framework in sight for dealing with emerging difficulties and clear indications had been given to the Irish authorities that it was their responsibility to address the problem. The Government had earlier concluded that it could not permit any Irish bank to fail (which the Commission understands was also the advice from the ECB), given the potentially very serious adverse effects on confidence in the banking system in Ireland and elsewhere.”

Only following orders, guv.

@ seafóid

Prof. Kay had written after the Enron crash: “Enron generated a lot of business for lenders, investment banks, consultants, accountants and high-profile individuals. Don’t expect any of these to give impartial advice to the company about its strategy or to outsiders about the company.

Their incentive was to tell the company and people outside it what the company wanted to hear.”

Nyberg Report: Plus ça change. . . or can conservative Ireland mange more than glacial change?


Below is the most recommended comment responding to the conclusion of a report in The Economist on the Finnish election:

“”Finland had the image of being a strongly pro-European party, and it will now be regarded rather differently.”

Not so. People mix up pro-European and pro-EU. The EU is a corrupt, anti-democratic, pampered institution that is consistently mismanaging Europe. Any pro-European has to be anti-EU.

We want an EU that represents and executes the will of the majority, not that of a tiny media and poltical “elite”. Among others this means that selfish and mismanaged countries such as Greece, Ireland and Portugal adhere to EU treaties and take responsibility for their past misdemeanours. It also means that the EU protects the integrity of its borders, rather than provide safe passage to illegal border crossers. And so on.

The only “amazing” thing is that people as educated and sophisticated as the Finns have been tolerant for so long to the abuse by the anti-European EU.”

Hits quite a few nails on the head, in my view.


It is clear from my postings that I am referrring to sovereign borrowing, not to a bilateral dispute in relation to the payment of land annuities. Neither did that dispute call into question the solvency of the Irish state.


If there are other presumed errors in my contribution, I would be grateful if you would point them out.

My experience of the Irish education system has been good. What it was in your case, I do not know.

@ Gavin Kostick

I have never argued that the management of the crisis by the ECB and the other member countries of the euroarea was a model of coherence. Quite the opposite. And have been active in the debate about how to do something about it.

My point is that this does not take from the fact that we alone were responsible for creating the bubble and, as the euroarea was designed, we held nationally the responsibility of dealing with it.

That is the bitter truth which the Nyberg resport invites us collectively to confront.

@ Gavin

There have always been asset bubbles. They always end in a bust. The biggest losers are the ones who get sucked in towards the end. Our bubble has been disastrous for many groups, including the ordinary bank employees who are now facing the dole, the folk trapped in negative eqity in peripheral towns, people struggling to service enormous mortgage debts, and those who can find no foothold in todays’ shrunken economy.
Bank bondholders are emerging unscathed, as befits those at the top of the money tree, but I will bet they are feeling the cold winds in Cabra.

The global economy has been driven by a series of asset bubbles over the past 30 years. It’s a con game (Ponzi) even though many of the players don’t recognise it as such. The chief architect was Alan Greenspan, former chair of the US Federal reserve bank, and Bernanke is simply following suit. As long as headline inflation is contained, all sorts of skulduggery can be tolerated in asset pricing. The wild swings provide the opportunity for profiteering, as wealth is siphoned off from the real economy into the financial services ‘industry’.

Good accounts are provided in Yves Smith’s Econnned and John Mauldin’s Endgame, among many others.

Ireland and Spain got sucked into the property bubble which took off in the the US and the UK after the collapse of the dotcom collapse. Nyborg is rather shy about the remuneration issue, but he notes that the reward systems in our banks were easily gamed, or abused.

The reality is that senior bank staff were rewarded heavily, and in some cases were permitted to reward themselves hugely, for lending practices which were culpably negligent. Interlocking directorships and golden circles galore. As the biggest rewards went to the worst offenders, profssional banking and accounting standards were jettisoned. Money talked a lot louder than self regulation or professional ethics. So many respectable folk were involved that we can’t really look closely at it. Too embarrassing.

Nyborg also notes, I think, that much of the dodgy lending in AIB was located in the regional offices. You are probably right to feel that some managers saw themselves as public benificiaries. The government and CBI had been captured by the bank bosses, and all the signals were set to green. ‘It’s coming off a broad back’. So bankers had the moral rewards of helping people to buy (a pig with lipstick on) as well as the cash bonuses for enabling punters to join with them in the financial equivalent of a suicide pact.

As you say, the normal principles of trading were inverted. Without any prudential standards, credit was effectively free, and bonuses were related to the size of the deal, so bankers competed to drive up prices. It’s all a bit like going away on holidays and leaving the teenagers in charge of the gaff. Very early days for thinking about how to prevent another episode of this type, as we are only beginning to assess the consequences now. I think it’s fair to say that, like Fukushima, we will be dealing with them for the foreseeable future.


So the ‘it’ of “the one benefit of the report is that scotches, once and for all, the idea that it was any body’s fault other than our own” is specifically the housing bubble? I’ll have a think about that.

I still think the bit I quoted with regard to “we held nationally the responsibility of dealing with it.” is not so clear, from the splendidly paranthetical remark: “The Government had earlier concluded that it could not permit any Irish bank to fail (which the Commission understands was also the advice from the ECB)” suggesting that the ‘dealing with it’ aspect of the bubble was done under ECB inlfuence.

So, to follow your line of reasoning, the government, if it thought Anglo should be let fail, should have said to the ECB, we hear what you say, but as this is a national responsibility, we are ignoring your advice in this case.

The Irish Times — one of the most culpable parties in all of this — writes, rather self-servingly, that “we are all responsible to a greater or lesser extent for the mess in which we find ourselves”.

Can we all agree that people who were too poor to buy property, even given the lax lending standards of the day, cannot have been to blame for the speculative frenzy of the time, by definition?

And can we not also agree that the people who could have participated, but chose not to, because they could see that there was a housing bubble, are also not to blame for the speculative frenzy?

And if the counter-argument is that ‘sure they voted for the government’, can we not also agree that the majority of people didn’t in fact vote for FF and the PDs?

Simon Carswell writes that Nyberg’s view is that “hundreds of thousands” of people are to blame. That seems exactly right to me.

light weight report light weight remit light weight aurthor
light weight financial regulater light weight central bank light weight DOF
light weight goverment light weight bank auditors light weight bank boards

what have all the above in common ? herd mentality, ,,,,,nah

no they all guarenteed to have been or will be handsomly rewarded for their
in competence and fruad

@ Gavin Kostick

What can I say other than quote Mr. Nyberg (according to the IT – Harry McGee) at his press conference that a “government is responsible for everything that happens in a country”.

Is it not extraordinary that this has to be pointed out?


I am not inclined to be argumentative through these threads, and am just largely following various positions, information and reasoning, but “government is responsible for everything that happens in a country”, is surely simply not true.

Kevin, there is a subtlety in what Nyberg writes – he is harsh on the attitudes of “politicians” and relatively soft on the “government”. I don’t think being a Fine Gael or Labour supporter in opposition is carte blanche to escape the consequences of the political consensus.


one of the principle stated purposes of the ECB is, together with the rest of the EuroSystem of Central Banks, “to systematically monitor cyclical and structural developments in the euro-area/EU banking sector and in other financial sectors. It does so in order to identify any vulnerabilities and to check the resilience of the system.” Did it perform this task to any successful degree v-a-v Ireland?

While you are right that it was our actions which created the bubble, the lack of any counter-actions, from either the ECB or the other Eurosystem central banks, was also a contributing factor. The ECB could not stop the Irish banks borrowing funds from abroad – but they, via the Bundesbank and the BdF, could have stopped German and French banks from lending so easily to them.

@Sarah Carey

Despite BOH posting a long and wide ranging comment above I’m not entirely sure your original question was answered.

The answer is the affordability metrics were never the law, or even close to being legal sadly it was market practice which meant that the basis of 3 times first earner and 1.5 times second earner were lost pretty quickly as we moved closer to euro entry in 1999.

Don’t be misled however despite the fact that these ‘affordability’ metrics may have served us well in the past it was definitely more luck than design as the coming of a lower interest rate regime with Euro entrance showed these metrics to be wholly flawed.

Even today applying 3x first and 1.5x second earners against average 2010 industrial wages (€36k per CSO) using a 90% LTV would give an average couple buying power (!) of c€180k. (Mortgage €162k)

Using today’s TSB variable rate (tracker no longer available and fixed rates prohibitive) for first time buyers over 20 years would cost €1,190 per month (rate quoted today by the bank is 6.38%) and monthly cost assumes no further rate moves.

Sadly the average market yield quoted on daft.ie based on q4 2010 was 3.9%.

This obviously looks at of step with the ‘real’ market yields as suggested by last week’s auction. Although it seems 90% of those buying last Friday were cash purchasers so perhaps the market was more surreal than real (who really has €200k – avg price – in cash not me !) anyhow it would suggest that house buyers using mortgage finance would be looking for yields higher than the average achieved last Friday at close to 9% Gross.

Nevertheless working off the 3.9% on the survey would suggest the €180k house could in fact be rented for €585 per month. Given these metrics who would buy?

More importantly it suggests that using these affordability metrics which allows buyers a certain amount of buying power is crazy without actually looking at the underlying yield on the property. Hence my comment above.

In this instance assuming (according to the economic theory at least) consumers should be indifferent between buying or renting, consumers could potentially putting themselves into significant negative equity on the day they get the keys with the house ‘costing’ them €180k but with a ‘value’ of €88k (€88k house with LTV at 90% – same mortgage deal as above costs €585 per month).

To enable the indifference theory to work buyers should either rent at €585 or buy at the same level. The market as survey by Daft.ie would suggest that couples walking into these deals today would be in negative equity to the tune of €162k – €88k i.e. €74k on day one – great start!

So despite what may look and sound conservative ‘affordability’ metrics they are a disaster and these numbers using published results etc show it to be the case. The only metric that banks lending cash into the property market should ever consider is the yield metric. It’s fundamentally sound providing banks look to the past rather than the future and it prevents banks betting on one’s earning power into the future and importantly should negate bubbles assuming supply demand dynamics are properly policed.

It also ensures the chances of negative equity are lessened and ensures house prices track rental inflation which we know over time tracks CPI +/- 1%.

Had the banks asked the right questions such as ‘please supply us with rental information for 3/4 houses in the same area as you were buying’ during the past 10 years as opposed to daft stuff about p60s and bonus payments, overtime, employer letters etc etc and instead concentrate themselves on establishing the true price of the properties based on the long run average yield in the ROI since records began of 7% we would not be having this blog conversation and Mr. Nyberg et al would not be generating the news. Fact.

Are people saying that nobody in Ireland will be fired or prosecuted until further clarification has been found in relation to the ECB rates? Not quite sure why judgment day should be postponed but if Ireland sees that as the price to pay…..

Should the BdF had said that Ireland is a high risk country so German banks are not to lend money to Irish banks? Some might have seen that a slight towards Ireland.

Re Nyberg, there are racial overtone ‘groupthink’ slurs. It satisfies a political agenda, I heard Lenny in full throttle blaming the central bank, whereas we all know Bertie, Fingers, cronies went joy riding in their ferraris telling all naysayers to commit suicide. This anti Irish political agenda is hell bent on making the Irish population, citizens and taxpayers, stump up for the bill.

I’d draw another useful analogy, which if I recall correctly DmcW has used as well, this is that of the soldiers who fought the trench warfare campaigns of World War 1, who lost their lives in the campaigns http://www.harris-academy.com/departments/history/Trenches/Joanna/joanna1.htm

The budget is the instrument used by the government and Department of Finance to control the country’s finances. All of the facts and figures revenue raising information from the bubble was at their finger tips. The buck stopped at the Minister for Finance desk.

Even David Begg of ICTU claimed cautionary and critical reports on government bubble spending were made by ICTU over and over again only to be ignored. DmcW and others were vilified as dissenters peddling nonsense, the opposite was indeed the case.

Government and their armchair general croney gang of bankers and developers ensured the continuation of a free supply of lending to the troops in the trenches. The troops were made up in the main of first time buyers given the ammunition of eight times gross income on occasions for 100% mortgages. Local prudent bank management was replaced with Dublin whiz kid bonus incentivised managers hell bent on selling loans to most anyone they could.

At the top of the pile, the magic twenty or so of developers and speculators such as Quinn with permission to join the free for all, were given billions to invest anywhere at home or abroad. Anglo itself set up more subsidiaries abroad than it did at home. All depositors with cash to spare were targeted as fodder for the government sponsored property credit binge.

Not everyone, contrary to what Nyberg, would have us believe, took part. The vast majority who did, were first time buyers attempting to buy a house for their wife and future family, in a market made toxic by deregulation.

Nyberg doesn’t name names, it apportions blame to Irish people in a racist way. Insofar as it does this, its just another coverup to allow those responsible avoid responsibility.

Irish people know who is to blame. They acted in that knowledge in the last election.

@ Jesper

If the Irish CB/FR should have told the Irish banks to stop lending so much into property – would that have been a slight to property developers?

@ Hoganmayhew et al

I would not continue to defend this point were it not so fundamental. The following may be quoted from the link provided.

“Lines of defence
Banks, insurance companies and other financial institutions form the first line of defence against financial crises. It’s their responsibility to remain viable and solvent, and to check the creditworthiness of borrowers and thus to manage the risks they assume.

The measures taken by public authorities to prevent or minimise financial crises constitute the second line of defence. The measures include:

1.prudential regulations that financial institutions have to comply with in order to ensure effective risk management and the safety of depositors’ funds, and to disclose information so as to promote market discipline;
2.prudential supervision, which means making sure that financial institutions follow these rules; and
3.financial stability monitoring and assessment, which identifies vulnerable points in and risks to the financial system as a whole.
If, despite all these measures, financial institutions run into trouble, public authorities may need to intervene”.

I have never argued that the ECB covered itself in glory with regard to the actions that it might have taken within its limited powers, but the debate simply butters no bread as far as Ireland is concerned. The crisis has confirmed unequivocally that banks are the responsibility of their supervising authorities which are, ultimately, national governments. That is the core difference between a single currency that is the responsibility of a federal government, such as the US dollar, and that run by, to quote again the rather contradictory but accurate description of Jacques Delors, a “federation of nation states”; indeed, a sub-set of such a federation.

The jury is still out as to whether this construction is, in fact, feasible. The ECB has had to take a variety of “unconventional” steps to keep the show on the road from which Ireland is drawing considerable benefit. The fact that this is only recently beginning to be recognised must rankle with its governing authorities.

As a general statement of position, I repeat what I posted earlier.

The issue of the capacity of the country to emerge from the mountain of debt that has resulted from our errors is a different one. It has nothing to do with anything other than the view our creditors take of our capacity to repay. If we do not make every effort to pay our bills, which the state has done since its foundation, we will be in difficulty with the international financial markets almost indefinitely. It is as simple as that.

If, on the other hand, our creditors feel that we are making that effort but, in the process, are actually reducing our capacity to repay, they, being hard-headed states without sentiments one way or the other, may be willing to strike a deal. But we are far from that stage at present.

Some of the issues that arise were being discussed on the thread by Karl Whelan “Buckheit and Gelati on the Greek Debt” – with an exceptionally informative post from Michael Hennigan – but that thread petered out after a limited number of contributions.

The report is poor. If Ireland alone was responsible then why ate Greece and Portugal fubard too?
Googled Nyberg and found out he was involved in some of those simulated ECB crises. It seems the response drawn up from those simulations was to contain problems and buy time. In this respect Nyberg is using this report to peddle the party line. I’d like to know if he was chosen on any recommendations (JCT perhaps). Maybe DOCM could throw some light on that.

@ Sarah: Glad to see you back. Income Multiplier? Very long history. One of the axioms of the Iron Law of Mortgages. One you ignore at your peril – of financial disaster. Only for ‘sissys’! What would testicularly challenged persons know about the ‘real world’ of money anyway! 😉

@Pongo: Please pay the most careful and assiduous attention to the matter of ‘Peak Oil’. Like, very close and serious, like! It is a matter of absolute significance, especially in economic terms. And this site is about economic matters? Yes? I think so.

Seafoid: Thanks for info. We will get their attention yet. Hope it is sooner than later!

When I was much younger and the house prices were going up, parents, aunties, uncles etc all bemoaned the fact that house prices continued to rise and expressed concern about “how my generation would ever be able to afford one”.

This wasn’t questioned, people without exposure to international property bubbles look around locally for their empirical evidence – the fact was cars, services, hell even sweets were noted as increasing in price over the years but never coming back down.

I know people can argue everyone is to blame and people should have looked logically at the outlay they were being asked to commit to for a house but so many really didn’t know any better.

I’m a little bemused that so little attention is being paid to the ‘specific Irish features’ which Mr. Nyberg identified and which I have summarised as:

(1) a deliberate and wilful suspension of disbelief:

(2) the suppression and punishment of any dissent:

(3) deliberate minimisation of responsibility – and no accountability whatsoever: and

(4) the Irish penchant for not seeing a rule without considering ways to bend it or break it:

These are within our control to address. Did Mr. Nyberg get these wrong? Or, more likely, is he cutting too close tothe bone? My sense is that these features are endemic in Irish society. Do we want to change? Blaming the unquestioning culpabalility of other EU players and institutions seems like the usual displacement activity.

@Paul Hunt
I particularly dislike this line:
the Irish penchant for not seeing a rule without considering ways to bend it or break it:
You can attack a country on the basis of it’s actions but to presume flaws in an entire population is bordering on …well…you know what I mean
People are the same the world over

@Edward: the professional classes who were among the biggest contributors to the property mania are largely FG supporters (and Irish Times readers indeed), so I don’t at all claim that not supporting FF absolves you of responsibility!

@Paul Hunt
The priesthood used our weakness as a weapon against us.
I recommend you do your research about the strange events leading up to the Euro introduction.
It may enlighten you.
This goes very deep.

@ Paul Hunt

You say:

“Blaming the unquestioning culpabalility of other EU players and institutions seems like the usual displacement activity.”

Fair enough, but why then do you quote approvingly the comment from the Economist above, which is a blatant piece of fact-free finger-wagging and demonising the ‘other’, whether it be the evil media, corrupt elite, or scary foreigner lurking beyond the border?

It’s not so much an attempt to blame the ECB (or whoever), but look through the report and see how it allocates responsibility, and people are commenting on that.

I do agree that there has been, and still is, a decoupling of responsibility and accountability, but it is not displacement activity, I think, to consider whether this involves non-Irish agencies.

@ Kevin O’Rourke

“Simon Carswell writes that Nyberg’s view is that “hundreds of thousands” of people are to blame.”

4 million people are paying for it. Including over 1 million children.
One of the biggest things I learnt from the collapse is that neither corporate Ireland nor corporate Europe does accountability. It is always someone else’s fault. And always someone else who picks up the pieces.

@Col Brazil

Re the link to the telegraph – cobblers.

It’s the same old problem as before establishing a LTV ceiling is perfectly fine accept the for V part.

If the V is not based on long run market fundamentals being long run yield metrics is makes little or no difference what the LTV is.

If the V is wrong the LTV is wrong. Garbage in Garbage out.


Mr. Nyberg is more polite and understated, but what he is seeking to communicate cannot be missed. Read Section 5.5 – the paras from 5.5.9 in particular.

You are talking as if those of us that say the ECB shares some blame somehow absolves domestic blame. It doesn’t, it is another component of it.

“The crisis has confirmed unequivocally that banks are the responsibility of their supervising authorities which are, ultimately, national governments.”
This is to entirely miss the point. The point is about unsustainable credit flows across borders. Capital controls are not permitted to NCBs. Without capital controls, there can be little restriction of credit. Without restriction of credit, there will be asset bubbles.

These asset bubbles didn’t just happen in Ireland and they didn’t just happen in the eurozone. They happened in the wider EU too.

@ Paul Hunt

Let me respond to your bemusement:

RE (1) I was at Beckett in The focus last night for which I indulged in was it Samuel Taylor Coleridge’s phrase “deliberate and wilful suspension of disbelief”. That was theatre. I didn’t indulge in that during the credit boom as I believe the government sponsored credit binge had the official sanction of government, Department of Finance and banks. But perhaps you are right, in future perhaps we should regard as Yeats did government shenanigans as ‘a circus’. At the time though, we did foolishly believe the store was being minded.

re (2) We need better whistle blower laws greater publicity given to examine the discovery of detail and facts surrounding this aspect of Irish society.

re (3) Its ironic Nyberg distributes blame to everyone’s ‘groupthink’ and no individuals are named. Perhaps they are afraid of the Calally effect of legal action against Nyberg on the basis of ‘wooly pass the buck notions’ that are throughout Nyberg itself.

re (4) Agreed. In the USA we have seen bankers in handcuffs. In Ireland Calally rule bending is the norm. When do we have the first prosecutions from the Garda Fraud Squad against eg the B&B Anglo money or other personal asset liability developer loans. When do we get proper investigations of the €600 million of deposits that got helicoptered out of Anglo shortly before its meltdown, who owned those assets. Was this developer money being protected against meltdown and probable seizure by the state. On top of this cesspool of corruption, we have the Nama scandal of employing developers to sort out their toxic loans, developers already in the hole for millions as they apparently escape scot free … scandal of bakers like Doherty walking away with €3 ml while AIB is in the hole for €12 bn losses. We can make laws overnight for bankers to steal taxpayers money and we can’t make a law to tax grab the morally unjust earnings of these guys. Bankruptcy for Anglo and AIB would have ensured these guys got nothing, it would have sanitised the Irish banking system and fiscal finances instead of perpetuating the free for all bubble which still perpetuates in efforts by Daly to turn NAMA into an Anglo lender…

One law for the financial class in Ireland, another for taxpayer victims.

“I particularly dislike this line:
the Irish penchant for not seeing a rule without considering ways to bend it or break it:”
You may dislike it, show me the evidence that it is not true in general terms.

Kevin O’Rourke writes,

And can we not also agree that the people who could have participated, but chose not to, because they could see that there was a housing bubble, are also not to blame for the speculative frenzy?

I would compare it to the Jackie Charlton days in soccer, when suddenly the real Ireland soccer supporters, who had held with their team through the lean years, were suddenly put out of the running for tickets and matches etc, because of the sudden influx of Johnny-come-lately’s. There is nothing worse and more herd-like, than a bunch of Johnny come lately’s, who jump on the bandwagon for the victory lap. To the extent where the wagon itself, is in danger of grinding to a halt, before the victory lap is even half done. On the other hand, one has to balance this, with cautionary behaviours to avoid elitism. The victory wagon cannot be a place for elitism, and chequebooks, credit cards and all forms of reliable credit are accepted on the victory wagon. In fact, after a while, people forget what the victory was all about in the beginning and just care about taking the credit cards. Like the Irish soccer supporters going into the Charlton era, I was in an ideal position to observe what was happening to us. I had struggled to be involved in a construction and planning industry in Ireland, before it was sexy to do so. Before the herd had trully arrived. If anything, my earliest memories of construction and planning in Ireland, were of the herd running distinctly in the opposite direction. I had a baseline to work with, from which to base some kind of an opinion. But as the boom in Ireland continued, and as Bertie would say, got boom-ier, I found myself, like the Irish soccer supporter in Landsdowne road, an increasingly more lonely figure in the terraces. I found myself surrounded by folk who seemed to be experts, and were deeply invested in the future of Irish property and speculation. I had no idea where this crowd had suddenly come from, and I found it quite weird. Furthermore, I had received a professional training in the property professions, but it was dangerous to give air to a considered view about anything. All the crowd wanted to hear was, hot much would we win by, and how many were we going to put into the net. For some reason, my experience that following the team, was about the ups and the downs, seemed strangely out of place in that crowd. The road was only going one way. Of course, now the terrace is draughty, cold and isolating as I find myself huddled up there again, keeping the attendance from falling to zero. There are still a few of the Johnny come lately’s around, who have ideas and are interested in advancing forward. Some who have hopes and dreams of future greatness. They seem like a reasonable bunch, and I think I a like them. Although, they still don’t put much stock in my words of advice or guidance. They have their own ideas, and that is not too bad either. I enjoy having the odd bit of friction with them. I am glad though the noisy rabble have evacuated the area. I am sure they will return in their own time, with their loud horns and bugles and brash un-qualified statements of opinion. These things are cyclical, and there will always be another big match to play some time. BOH.


@Paul @ Hogan
It is indeed true in general human terms.
It is a feature of humanity and not especial to Irish
People are people

moral: concerned with goodness or badness of character or disposition, or with the distinction between right and wrong; dealing with regulation of conduct; capable of moral action.

What am I missing here?

Oh! “I did nothing wrong. I broke no law.” Perfectly true, (there was no law to break, was there?). Now, where did I hear that excuse before?


There is much that is thoughtful content in the report but at least two major weaknesses.

One is that there is too little attention paid to the badly designed Euro system in underpinning the (OK mostly) Irish homegrown crisis.

Two: the terms of reference (at least under Nyberg’s interpretation) constrained him not to mention any individuals. This greatly obscures his attempt to give a clear picture of what happened in the bubble period in Ireland. In particular, the report should have (ideally) dealt clearly with the actions during the bubble period and relative culpability of each of the following individuals: Bertie Ahearn, Brian Cowen, Charlie McGreevey, John Hurley, Patrick Neary, Sean Fitzpatrick, David Drumm, Michael Fingleton, and a few other key players. The absence of individuals makes the report too abstract and vague and also biases the conclusions.

@Gregory Connor

It was not badly designed , it was perfectly designed for its purpose.

@ Gregory

we all know what would have happened if anyone was named or in danger of being named – an endless stream of pointless legal actions lasting years into the future. I notice Inda has said he’ll put a referendum to the people giving the Dáil greater powers of investigation going forward.

@Mr. Bond,

Agreed. And I also noticed the report of An Taoiseach’s intention to advance a constitutional amendment that would over-turn the Supreme Court’s Abbeylara jusgement and re-empower Dail Cttees. But he, or his government, have no intention of empowering Dail Cttees to hold government effectively to account or to ensure proper scrutiny, in an adversarial manner and using relevant external expertise, of government policy proposals or of government executive actions. In this whole banking fiasco the actions and inaction of government were as much to blame as anything done by the relevant stautory or commercial players.

While there are no procedures to hold government to account we’re simply setting ourselves up for a repeat performance down the road and the pig-headed exercise of executive dominance until then.


A question.

You say: “The crisis has confirmed unequivocally that banks are the responsibility of their supervising authorities which are, ultimately, national governments.”

Does the government currently hold responsibility for the banks?

Nyberg puts out a meek and mild, understated report that threatens no one individually. Factual it is, can you imagine the response if he had not pulled his punches, named individuals and described them as the bunch of drunks, clowns or fools that ran the institutions involved. As to people being the same around the world, having been around the world I would say there are similarities but there are also distinct differences. One of the countries with distinct political and business cultures is Ireland. There is ample evidence to support the view that all of us with our inbred, navel gazing, parish pump and religious fixations, plus loose political and business morals have mismanaged our country since 1922. The money spent on a dead language and the opportunity lost is but one symptom amongst many of our inability to evolve.
What is admirable is family stability, our reputed sociability and general friendliness.

@Bond Eoin Bond
Another distraction for the people – although the current Dail provides higher quality entertainment then the numerous other reality shows on TV.

International Monetary flows now control everything now that the Old Sovereign republic dynamic of the people and the local banks is dead as a dodo.

No the local banks typically supervised the goverment as they had control of the money – however the local banks gave up this control when they joined the euro.
Maybe they were a victim of obsolete sovergin money thinking.

@Yields or Bust

If you are going to do comparisons like that you have to seperate out the interest element of a mortgage from the capital repayment.

@Kevin OR

Those that might have participated but didn’t are not only not to blame, they deserve thanks for not further inflating the bubble and an apology from those that sneered at them – who are to blame.

None of you fine lads want to deal with the mechanics of money in the Irish Bog.
Fair enough , keep spreading your illusions so that you can remain in your castle keeps.
I hope yee are proud of yourselves when we enter the next stage of our bondage.


On an interest to rent comparison the negative equity is c€50k – still a loser.

If I was an international investor I’d be looking at Ireland and seeing another report. But no consequences. There have been a few reports and there are new faces in the CB and the financial regulator but no changes to the system. So how much in terms of additional bps on the yield would I need to invest in Ireland in future ?

No mention of Boston – as in Harney’s ‘we are closer to Boston to Berlin’ moment – which is ironic given the amount of subprime debt in the banks’ books.

No change of substance will occur. The culture is not geared for it.

This report which had to operate in a silo from the get go because of carefully designed legislative nobbling was a waste of time and tax payer money. The average person on the street knew all this and more already. Rating agencies look on in bemusement and go why not ratchet them downwards sure they have no intention of learning or wanting to deal with this. Germany wants to get out of the Euro and that is where the deflationary policies will deliver that. Ireland knows it must default but not before the elites have asset stripped the country and they have had another 1.5 years of salting away bailout money, NPRF money and NAMA fees. NAMA is acting like many of the big developers I met during the boom they owed hundreds of millions some billions yet they were flush with cash but Instead of paying down debt they were borrowing more and more. NAMA intends to get into the property lending game.

How long will it be before more foreigners with suitably sounding names have to be drafted in to prepare reports on why NAMA has been such a spectacular failure. More group think and more of the, too big to fail philosophy.

@ Yields or Bust, Sarah Carey,

In working from memory so hopefully I’m recalling things accurately. I believe income multiples were a guideline, but a well established one. A lender couldn’t change to affordability without the approval of regulators. In advance of the move to affordability, lenders had been stretching income multiples and parental guarantees were more frequently required. In short, banks weren’t able to justify shoveling out enough money under existing practices.

The official nod sanctioned easier credit. Because this is a tangible action, it is something you should to untangle.

YoB – I agree that rental yields were mad and should have had red lights flashing. I’m not focused on yields here as I’m not aware of an existing guideline or a single action of credit easing.

@ Kevin O’Rourke,

The “we’re all to blame” is bonkers. It’s as daft as blaming Poland for providing construction workers. I don’t think I should be as much to blame as Patrick Neary. Though if someone offers me his pension, I’ll stand next to him.

Two comments from an outside perspective:

1. One of the key issues in the Irish bubble is asset valuation and its role in lending. If inflation gets too high, it becomes a major political issue and governments fall (central bankers just get to write explanatory letters). On the other hand, if asset prices rise public opinion views this as a triumph and governments get re-elected with large majorities. Central banks sit on their hands.

Our perception of consumer price inflation depends on consumer price indices – not just casual conversations about things getting expensive. Indices for asset prices are much less widely used and have little influence and not much credibility – yet are very useful. Anyone who looked at Shiller’s work in the US (cf. http://www.irrationalexuberance.com) could have seen what was coming. Yet this is largely ignored by policy makers, bankers and (apparently) most economists

How can economists explain to the public that asset price inflation does not make (most) people rich? Where are the economic models taught in undergraduate classes that show the role of asset prices?

As someone involved in credit decisions, I can see that this would make a big impact on avoiding future crises.

2. I don’t think it’s racist to suggest that different societies have differentiated social behaviour. Ireland has always struck me as having a very high level of social pressure exerted on individuals and strong social consensus. Over the years, the social norms have changed (less religious practice, more golf, always lots of sport) but the pressure to conform remains pretty much the same. This pressure is probably strong in most small countries, but Ireland seems to have stronger conformity than in most other countries with comparable populations (question for sociologists, not economists?).

From contacts with Irish bankers before the crisis, it seems to me that similar mechanisms exist in business. This is what Nyberg refers to as group think. I recall a conversation with a senior banking economist around 2004. The bottom line was that ultimately, Ireland is an island, so property prices will continue to go up. Of course there were some more economic considerations, but the advice given to management was fundamentally optimistic – and an aversion to upsetting practical business people with “theoretical” (therefore suspect) economic arguments that didn’t go in the direction they wanted to hear.

If the EU/ECB are so much to blame for our banking problems, how come no other EU country is in a similar situation banking wise…why are we the only country to fall foul of the terrible EU and their evil machinations…it really is a puzzle

@ Jarlath

German banks have a whole host of losses covered up on their balance sheets, and Spanish banking problems need no introduction. Austrian and Belgian banks have equally gotten into trouble in Eastern Europe, while many French financial interests are heavily exposed to Greece and Spain.

The only difference between Ireland and the rest is a quantitative one, not a qualitative one. Lots of institutions got into similar trouble to our banks, just none to the same extent as ours, individually for the most part, but systemcially in particular. We went insane while everyone else just went slightly nuts.

@Yields or Bust

Thank you for answering on income multipliers! ( I think back in the early 90’s it was even lower – 2.5 times the first salary and I remember my mother urging buyers to consider the effect of an interest rate rise or how illness would affect ability to pay….anyway)
But might I venture that the focus on yields for a home overlooks the fact that the yield is that you have somewhere nice to live and so normal investment rules don’t apply? I’m not saying that justifies paying any price, but it means people use affordability rather than return as the means of deciding what to pay?

@Paul Hunt

I think this is a crucial one 2) the suppression and punishment of any dissent
I saw that at work in companies where I worked. Once I saw a really good financial controller eased out because he was so boring and conservative and kept questioning certain transactions. He was seen as someone who just didn’t “get it”. I’m not convinced at all that that culture is part of the past.

@Brian Woods 🙂 thank you

On how many people are to blame – I’m one of those who bristles at the “everyone” and “group think”. I never borrowed a stack of money I couldn’t repay and I don’t think I’m alone. Didn’t we have a statistic at one time that said that 56% of Irish homes are owned outright?

A period of artificial austerity and diminished demand (the ‘Maastricht convergence’ era -1999) followed by a sustained interval of low interest rates, record low rates for many eurozone countries, was a recipe for disaster. The ECB’s remit was inadequate for dealing with the situation that resulted, but after all the controversy over his appointment JC Trichet was in no position to lobby for extending the powers of the insitution he’d sought for so long to lead.

Central banks across the developed world responded to the low inflation era that resulted more from globalization (i.e. an ever-expanding range of cheap imports) than their own policies by clapping themselves on the back instead of by adjusting their inflation targets in compensation. They acted as if the economies they managed somehow had a right to grow at a certain rate and ignored asset price inflation, rampant credit expansion, capital flows and so on.

The roots of the global disaster lie in monetary policy, whatever about local variations, as do the solutions. While the BoE and Fed reflate, the ECB is tied in knots trying to rationalise insane policies that result from it’s restricted mandate rather than professional judgement. Trichet attempted to speak his mind and was literally shouted down in the European Council by Sarkozy. Disinterested commentators internationally have greeted with universal derision the speeches of Axel Weber, Lorenzo Bini-Smaghi etc. in defense of the indefensible.

The boom-bust cycle hasn’t been a zero-sum game. There are losses other than those that must be borne by either Irish banks or their creditors, ranging for instance from the dead losses of emigration, unemployment and the secondary effects of negative equity to depressed demand for creditor nations’ exports to the environmental blight of ghost estates. None of these is necessary and nobody benefits from their infliction.

@ Eoin

The difference between the extent of the problems in our banks, as opposed to the problems in some other random selection of EU countries could then be classified as our portion of the blame. in my opinion that difference is pretty colossal.

@ Outside Looking In

‘How can economists explain to the public that asset price inflation does not make (most) people rich? Where are the economic models taught in undergraduate classes that show the role of asset prices?’

That’ll be fine as long as they don’t expect to get a job in an internationally prestigious institution, or to get a commision to edit ‘mainsteam’ textbooks. The sad reality is that, with some notable exceptions, the commanding heights of the economics profession have been bought by business interests, in this case the financial service ‘industry’. The characters protrayed in Bonfire of the Vanities may be a caricature, but they are based on real attitudes and activities.

As Yves Smith puts it in her book Econned: How unenlightened self interest undermined democracy and corrupted capitalism:
‘Despite economists’ attempt to position themselves as benign unpires, their role is profoundly political….The public is rightly concerned when an eminent medical researcher is discovered to have medical industry ties. There is much less sensitivity to similar conflicts on interest or ideological leanings among economists’

Most of those battles are, of course, fought out for very big bucks in the US, and the rest of the world, including Ireland, tends to follow along.

“It is indeed true in general human terms.
It is a feature of humanity and not especial to Irish
People are people”
Erm, no. It’s not universal. I’ve lived and worked in a number of countries. The only place I’ve found comparable to Ireland for playing around with rules is India.

It also appears that the Republic had/has run seriously short of Dissenters. Unbalanced …

There’s a really important point being missed in all of this.
There was a very credible alternative hypothesis to suggest that house price inflation was justified – the unique Irish demographic.
We had our returning emigrants, new immigrants and one of the highest birth-rates in Europe to justify the belief that there was a reason for the house price increase.
The increase kinda made sense. It would be very hard for somebody from a country without our diaspora to grasp this. The Finns weren’t returning in their droves but the Irish were. Sorry this I can’t put this better

Sorry, Sarah, I’m not going to allow you to choose. The four features that Mr. Nyberg identified comprise a package that is greater than the sum of the parts – and defines Irish ‘differentness’ in relation to other national societies in the developed world.

@ Hogan
It takes different forms in different places. I have travelled too and have never been in a country that wasn’t corrupt. In some places it just takes a bit more looking to see it. Name your country

@ Yields or Bust

re “If the V is not based on long run market fundamentals being long run yield metrics is makes little or no difference what the LTV is.

If the V is wrong the LTV is wrong. Garbage in Garbage out.”

The V should be checked with proper regulatory rules that enforce good lending practices and prudent lending e.g


“A few points about individual countries are worth noting. Despite having a rather light and declining overall housing tax burden (Figure 11), Germany has a relatively high property tax rate and is one of the few countries in the sample that does not allow mortgage interest payment deductions. Belgium and Denmark have seen strong increases in property prices in
recent years, despite the relatively high tax rates in these countries.17 The decline in property taxes coincided with property price increases in France, Greece and Ireland, although this was counteracted by a reduction in the rate of mortgage interest rate deductibility in the latter
two countries.18 A number of housing markets in fast lane countries, such as Spain and the Netherlands, enjoy relatively low property tax rates and, in particular in the case of the Netherlands, a relatively generous regime of mortgage interest deductibility for income taxation.”



“Low levels of home ownership (42% compared with 70% in Britain), a culture of state subsidy for rental accommodation and a reluctance by German banks to lend money to buy property have combined to cause house prices to stagnate.

Read more: http://www.thisismoney.co.uk/mortgages-and-homes/article.html?in_article_id=410564&in_page_id=8#ixzz1K53thnzO

The Iron Law of Mortgages. It is immutable and shall be enforced by lenders – note, lenders. The strict observance of this law ensures that you, the borrower, may have a 0.9+ probability of surviving a ‘near-fatal’ financial accident.

1. Principle Residence Rule: Your principle res is where you live, have your kids, and possible grow old in. It shall NEVER be deemed to be an investment that may provide a yield or ‘flipped’ at a profit.

2. Fixed Duration and Rate Rule: You get a 30 yr mortgage at fixed interest. I know, I know. But that is The Law. Most people do move at least once. Take out a new loan. Seven year itch and all!

3. Transaction Costs Rule: TCs shall be paid from cash savings only. You are prohibited from ‘borrowing’ these funds, from any source. Lenders shall not advance any loans for TCs

4. 20/28/32 Rule: You shall provide 20% of purchase price from your cash savings. You shall not exceed 28% of your after-tax income on res property expenses (mortgage, house + mortgage protection insurance, local gov taxes). You shall not exceed 32% of your after-tax income on all outgoings directly attributable to all expenses in respect of personal borrowings (house, car, HP, cards, term loans, overdraft, bank fees, etc).

5. Maximum Loan to Value Ratio Rule: This shall not exceed 80%. See Rule 4.

6. The Maximum Loan Rule: The maximul amount of the advance shall not exceed two and one-half times your pre-tax salary. Such salary shall be verified by Revenue Documentation only. Minimum of three years of current, sequential documentation shall be provided.

6a. Extenuating Circumstances Rule: At the sole discretion of the lender, the purchaser may be advanced an amount up to three times their pre-tax income, provided the purchaser shall make a 25% cash down payment.

7. Two-Salary Rule: Only one salary shall be used to calculate the maximum amount of the advance. The use of two salary sums is prohibited.

Follow this Iron Law of Mortgages and you will never, ever, have a res property ‘bust’. You may have defaults, but these may be, at most, in 1% – 2% range.

Looks and tastes like cold porridge: but that’s life! Without the bust!


@Sarah Carey

What you indicate is exactly what happens in the real world and you get rules slippage which gets people into bother.

So what I’d suggest is forget affordability, forget times incomes etc because one ends up moving away from the market fundamentals and into character assessments (which was fine is bygone years when jobs for life were the norm).

We don’t have the luxury of jobs for life anymore so we need in my view to revert to the price in the market and that price is rent and work back to get the true market price of the property – what LTV the banks determine after that would I assume depend on income stability and all the rest of the normal stuff and what method they use to determine the loan term and rate is a risk assessment at the time the loan is given.

The overriding issue still is the property price determination as it dictates everything else and giving people buying power based on earnings regardless of whether one intends to live in the house or rent it is simply crazy.

It is the equivalent in equity valuation of valuing a company on its capital size without any cognizance of what return is being made on the capital – this is something one does not do regardless of the venture.

@Adrian Kelleher

You want to give the most independent central bank more independence ?

This was a set up by the usury class – pure con job.
They got sick of hybrid sovergin states and decided to cut their balls off.

@ Brian Woods

Good prudent rules but (7) 7. Two-Salary Rule: Only one salary shall be used to calculate the maximum amount of the advance. The use of two salary sums is prohibited.

Disagree with that, but I understand the risk re one salary becoming unemployed or ill.

I would therefore factor in a further requirement though you mention it in (5) though here its more to do with risk such as fire or damage to contents.

This would be a national property insurance scheme that is mandatory.

The terms should include repayment of the mortgage if payments cannot be met due to unforeseen circumstances such as the death of either partner, or both, or severe illness leading to unemployment.

@Yields or Bust

re “revert to the price in the market and that price is rent”

See links above to Germany where rent is linked to caps set by the municipality. Rent in fact turns out to be a bigger and more unreliable variable than times salary, as it too is subject to market variables such as supply and demand and even crazier things in Ireland such as ‘upward only rent review’ that bake value into a false commodity.

The purpose of the Nyberg report was not to determine the blame on a sliding scale with “Ireland” at one end and “EU/ECB” at the other end. The terms of reference were narrow, and the broader context such as low interest rates, capital flows etc were out of scope. These broader issues were addressed however in the EU Commission’s de Larosiere report, which covers the global failures of financial supervision and suggests an improved architecture for future supervision. (The report is two years old and a number of its findings have already been implemented).

In fact the framing of the argument into a simplistic Ireland vs EU paradigm (e.g. every LBS speech) is an example of a false dichotomy. LBS’s speeches are rhetoric, and he is well versed in its techniques.

Risk management everywhere was bad, and in Ireland was even worse. Financial supervision everywhere was bad, and in Ireland was even worse. The de Larosiere report touches on why some banks did better than others and points out that the competence of regulators varied somewhat (e.g. Spanish approach was better than most); some banks had developed better risk management and internal controls than others; and that banks that used the “US investment bank” model (which I interpret as heavy dependence on wholesale funding) did better than those that used the “universal” banking model (which I interpret as more traditional dependence on retail deposits).

As Nyberg says – the problems were a matter of degree, not concept. There were widespread global failures –

It appears, at least on the face of it, that many of the problems and failings in Irish banks and public institutions were quite similar to those in other countries.

Central banks and regulators abroad generally were almost as unsuspecting of
growing financial fragility as their Irish counterparts.

The fact that Ireland was not special…

If you removed the headline “Specific Irish Features”, and removed all references to Ireland, and handed Nyberg section 5.5 to someone in the the US and asked if that captured the dynamics of the subprime crisis, many would say yes. Traditional rules were abandoned; everyone thought the correct path was being followed and that the new mechanisms to minimize risk (CDOs etc) were sound; even ‘self-esteem’ elements by allowing people to realize the American Dream were involved. Most of the points raised in 5.5. are common to speculative bubbles everywhere.

The issues of
(i) causes of the crisis
(ii) future crisis prevention mechanisms
(iii) current and future crisis resolution mechanisms

are separable. I actually think, from Nyberg and other reports, there is a very high level of agreement on (i), also pretty broad agreement on (ii) (e.g. separation of retail banking from investment operations in some manner, counter-cyclical capital buffers, stricter LTVs etc.)
but no agreement at all on (iii). Much of the argument on this thread is really about (iii), using (i) as a proxy.

Outside looking in says,

How can economists explain to the public that asset price inflation does not make (most) people rich? Where are the economic models taught in undergraduate classes that show the role of asset prices?

That is the key problem. If you ever have a chance to watch Spielberg’s documentary series, Band of Brothers, there is a disturbing scene where the elite first airborne unit discover a camp inside of German territory, and they don’t understand what it is for, what it is doing there beside a very pleasant and prosperous village. What was even more disturbing in the episode was how the medical experts on hand had to prevent the troops from handing out any more food to these poor misfortunes, and had to close them back into the enclosure. Apparently, more damage can be done by eating too quickly. The stomachs aren’t ready to take it, and the poor souls have lost the understanding of how to stop eating. I was thinking about this scene quite a bit today for some reason, and about the Nyberg report. We can have enormous fun and games with the herd analogy that Peter Nyberg used in his report to describe the inhabitants on the island of Ireland. But there is a more serious side to it. Having scribbled by short piece earlier today about Charlton’s Army, in which I used the analogy of the World Cup successes and soccer supporters to have fun with the herd idea, it made me think about the recent boom and bust in Ireland, on a larger time scale. At first, I thought it would make sense to blame the European banks who were sort of like the First Airborne unit who ‘discovered’ Ireland and its inhabitants in the early 2000s. But then I decided that didn’t work either, in helping my analysis. It made a lot more sense to look at it in a wider global view, as Alan Greenspan or others may have done in 2008 in their writings. Which mention the existence of some much capital from the former socialist regimes in the financial system globally. In effect, it was that global phenomenon of so many millions joining the world market, and Ireland’s exposure to the same, as such an open economy, that enabled us to eat more than our bellies were able to take. BOH.


Are you arguing Irish exceptionalism?

The 4 points are all absolutely solid, but haven’t they applied in every property boom/bust? Isn’t that how property bubbles globally and historically develop – but everyone thinks they are different, or that this time it will be different?

@ Brian

The problem wasn’t how many people borrowed, the problem was the level they borrowed at due to price increases which led to further price increases in a continual cycle. People had no idea where the peak was and were afraid no peak would be reached (soft landing or continual increase).

Why not index the amount that can be borrowed to income declared to the revenue office and wealth declared on a register there?
E.g. pW + qI
where p is weight for Wealth(W) and q is weight for Income(I)

All loan agreements would then be lodged with the revenue office and these records would be the ultimate determinants in disputes (stopping banks/customers from underdeclaring wealth/income/loans). This should be linked with a propery deeds repository really too to prevent the market moving ouside the jurisdiction.

By declaring a limit to how much can be lent based on income/wealth records and introducing a property tax based on these records, and releasing some statistics on these, future bubbles would be avoided since people have a reasonable expectation of the peak being reached.
Off the top of my head, the only requirements that I foresee to prevent the bubble is a limit to the ratio of Income to wealth that can be used in determining the index value and a requirement that increases in wealth in the past t periods be excluded to prevent feedback loops…..

@Kevin O’Rourke
“the professional classes who were among the biggest contributors to the property mania are largely FG supporters (and Irish Times readers indeed), so I don’t at all claim that not supporting FF absolves you of responsibility!”
Only because they are no longer supporting FF… The ‘Me Fein’ party? Which one is that this election…

“It takes different forms in different places. I have travelled too and have never been in a country that wasn’t corrupt. In some places it just takes a bit more looking to see it. Name your country”
It’s not corruption. It is an unwillingness to observe the law. They are different. I agree with you that many countries are officially more corrupt than Ireland (in that corruption is embedded in public officials). In Ireland it is different – disdain for following the rules is embedded in society. Many considers themselves an exception, that the rules are for someone else.

Contrast with Japan, Korea, Taiwan, Switzerland, Germany, the Netherlands – people are generally law abiding, if they don’t like the law, they change it, official corruption exists, but the same sense of pulling strokes doesn’t exist.

@ Sarah

I can confirm how mortgage approval rules were flouted. PTSB were notorious for this. We took out a mortgage on an investment property in early 2005 with PTSB. Our broker made up the figures for us and, not alone that, when we were on hols in Spring 2005, signed the docs on our behalf! A member of my extended family did a lot of investment business with a broker for PTSB who basically asked ‘How much do you want?’ and then the documentation (letter on ‘company’ stationery stating X earned €Y per year) was presented. For me, the peak of the boom was 29th June 2006. We sold the aforementioned investment property for €375k having bought it in Jan 2005 for €305k. The reason we sold it? The full principal and interest repayment was approx. €2,200 per month and the most we could rent it at was €700 per month (I do not exaggerate). I realised then the figures did not add up but had to suffer the scorn and ridicule of family members who said ‘Oh you’re foolish; you can’t lose on property’ or words to that effect. We were too embarrassed to say we couldn’t afford to subsidise the mortgage. Why the 29th June 2006 as the peak? Our 3rd child was born on that date and I confirmed the sale at €375k to Sherry Fitz in a phone call from the maternity hospital so it naturally sticks in my mind!

So yes, I am guilty and I must admit to slavering over the property supplements all through the noughties. We got out in time but only because we could not subsidise the mortgage on the investment property. I did think in June 2006 that the peak had been reached but never believed there would be such a crash.

I believe there must be tens of thousands of fake loan applications on the books of all the banks. That is, ‘fake’ in the sense that the supporting application documents were often fictitious – earnings, expenses and overtime overstated to meet income criteria.

I believe the bottom of the crash is a long way away.

@ Sarah
Thanks for putting that better than I could

@ Hogan and Paul
I don’t accept your claim that Irish people are inherently less law abiding.

People respect laws that are enforced and are seen as fair.

Look at this link

Look at the stats for Switzerland. This is only an imperfect proxy measure, granted but it shows that even there people will take chances with the law.
This is not a perfect refutation to your assertion but I think the burden of proof in this instance is on you.

You would not get away with making statements like this about any other nationality without having to defend them robustly.
I’m not going to get cross but the vast majority of Irish people are extremely law-abiding. To cast blanket aspersions on their character as you have done is not acceptable in the least.

Tony says,

The problem wasn’t how many people borrowed, the problem was the level they borrowed at due to price increases which led to further price increases in a continual cycle.

I think that is a very fair point to make. I watched a Ray Mears survival documentary on mountain climbing and altitude sickness, Pulmonary edema and Cerebral edema. The expert on the documentary noted how people thick if they persevere with their climb, and somehow they will get out of it. Worse, sometimes they decide to make camp at the current altitude an wait until they get better. The expert made the point, that all of these altitude sicknesses though extremely dangerous, are avoided if the climber on the mountain only desends a couple of hundred feet, where they can recover again very quickly. What seems to have happened in the Irish property market is similar to what happens to climbers on mountain tops. Where they believe in their minds they can persevere, but only make things worse, and end up in a terminal condition. I don’t honestly know how best we can enforce mechanisms which will prevent people from making these mistakes regarding credit and asset bubbles.

What I am certain of however, is that Ireland continues to be described in many conversations I hear, as an open economy. It strikes me as strange that for all our open-ness, we are denied access to financial markets. It seems that Ireland is an open economy, which has been ring-fenced effectively by the IMF and EU. For no better reason than to put Ireland’s economy into the deep freeze, until such time as the IMF and EU can get around to doing something about Ireland. It sounds like something Stalin would do with a peripheral state that was causing him more bother than it was worth. There is a strong sense I think, in which the financial markets will not lend to Ireland or to Greece – because the market has discovered that Ireland’s organs and digestive system is incapable of using the finance the market may have to offer. It is safer to deny Ireland a cash flow therefore, than risk losing the patient altogether. I have ears, and I could listen to conversations amongst people of my own age group during the boom years. It would go something like as follows.

You need to leverage yourself at least ten times. Otherwise, you will not have enough motivation to pursue employment and opportunities. That is what people my age, were telling each other in Ireland. Buy yourself something really big, and then get serious about your career or whatever enterprise you engaged in. That doesn’t sound like an organ system capable of digesting heavy fuel such as bank credit, and it was not. I am afraid, that unless Ireland does something sensible to reassure the market, we won’t binge again, as soon as the credit taps are turned on – we will be left inside the enclosure for our own safety and well being. We can talk about being an open economy all we want. BOH.

When I was in Switzerland and Austria, the locals would not even consider jaywalking. The red man meant stop. Not ‘stop if there’s nothing coming or its not coming very fast’. It is not about being law abiding, as such, it is about respecting the law and understanding that it is there for everyone.

You asked me to name you a country. I ask you to name one of the ones you lived in where the same disregard is shown.

@Gavin Kostick
I think that’s absolutely it. The impulse to defy the colonial master has never gone away. Petty civil disobedience was engrained at a level that has been hard to shake off.

I don’t believe it will be like this forever, indeed, I think there are some hopeful signs. As @Eureka points out, the drink driving laws are pretty well observed, although I still end up with drunks in my garden looking for a back road home. On the other hand, the smoking ban has been pretty successful. Mind you, on a recent visit to Indonesia, the smoking ban there has also been successful and I wouldn’t exactly put that country in the law respecting category.

@ Hoganmayhew
Ok. You cannot say that Irish people jaywalk more than other countries, therefore Irish people are less law-abiding and therefore they ended up with a banking crisis. Jaywalking is a specific human behaviour. It is not reflective of an overall attitude to law and order.

It is a very dangerous leap of logic. We have had this kind of thing thrown at us by our former colonists for centuries. People are people.

If you want me to name examples of where people take chances with the law I could list you every country I have ever been in. If you want me to name places where people jaywalk – I couldn’t be bothered!

Ah Eureka! No follow rule. Boom! Boom! But we all know that by now.

@Tony: Its a iron (immutable) law. Its cast, not forged. Tamper proof. You mess with it: it snaps! They messed. It snapped. Debt hell.

The Revert to Mean time for res property prices is approx twice as long as bubble takes to form. This includes a dip below mean, before it re-adjusts back up. 2007 => 2015 would be a good bet. But if oil prices do not revert in parallel, then we are in really deep doo doo (in respect of aggregate economic activity). Please watch oil price movements very closely. US Fed dumped a sh*tload of dollars into global commodity markets. Prognosis is a tad worrisome.

In respect of the unfortunate res property buyers. Their behaviour can only be described as irrational (in the extreme). But that was fully predictable. Some of my ‘friends’ still barely speak to me. I advised them to flee the res property market back in 2005/06. I went to metals!



Barclays predict oil at $185 a barrel in 2020. That baby isn’t going back to $30.

Did Nyman say anything about the developers who controlled most of the land banks around Dublin ? They are covered in Fintan O’Toole’s “ship of fools.”
In Fingal 15 developers owned 50% of development land in 2003. Before the boom land made up to 15% of the cost of a house. By the top of the boom it was 40 to 50%.
Blaming the punters who bought in 2007 is easy. What about the system that brought the market to where it was by then ?

Defined as cynical self-interest I see. Hardly a uniquely Irish phenomenon!
Some might say, for example, that they think Goldman Sachs is cute-hoorism on a gargantuan scale.

Seafoid says,

Did Nyman say anything about the developers who controlled most of the land banks around Dublin ? They are covered in Fintan O’Toole’s “ship of fools.”
In Fingal 15 developers owned 50% of development land in 2003. Before the boom land made up to 15% of the cost of a house. By the top of the boom it was 40 to 50%.
Blaming the punters who bought in 2007 is easy. What about the system that brought the market to where it was by then ?

This is the other said of the story. In addition to the credit availability and the asset price bubble, there was also the land values doing something strange underneath it all, and how the owners of land banks were up to something funny in trying to create a bottle neck in supply. I wrote about this an awful lot, if you check some of my earliest ramblings at the Designcomment blog. To be honest, if one is to look at only the engine of the credit bubble, and the associated asset price inflation, one can come up with a pretty accurate analysis. But in order to fully represent the sequence of events that occured in Ireland in the 2000s, one has to include that third leg of the stool, and all of the associated political weaknesses which led certain individuals to believe they could corner the market with regards to building land. The truth is, no property developer would require borrowing in such enormous volumes as suggested by the top 30 NAMA developers. Construction alone (no amount of it, which we could ever do in Ireland) requires the sort of financing that our top 30 NAMA developers sought. What the NAMA developers were at, was akin to the cold war and the missile silos. They wanted to out maneuvre one another by a grand display of each other’s arsenal. But that is a world so distant from the average Joe soap, that it rarely gets the coverage it warrants in most analyses. Indeed, it is surprising how little intelligent analysis has emerged of the large NAMA developers either before or after their loans were warehoused. It is almost ghostly how the larger developers operate underneath our noses. It is a scale which most ordinary folk just cannot get their head around. I won’t burden the Irish Economy blog here, with much more commentary about development land except to say, there is investigation which aught to be carried out there. But I don’t believe the esteemed economist profession have many who know the area of land values well enough, to know how to really analyse it. BOH.

@Sarah, Hogan, Eureka, Gavin, Bryan G,

I think Gavin makes a valid point about ownership of laws and Hogan backs it up with a relevant point about the ex-colonial experience. Bryan G is correct that Nyberg’s specific Irish features could be transferred to the Neocon-inspired bonfire of financial regulation in the US that led to the international financial blow-out, but to a great extent they may be limited to the chicanery that fostered the ascendancy of these unfettered forces of global financial capitalism.

I would argue that these specific features are embedded in every aspect of Irish commercial and administrative activities.

Take the energy sections of the State Asset Report as an example (I know, wrong thread), and lets’s go through Nyberg’s 4 features:

1. Deliberate suspension of disbelief:

The Dept., CER, ESB and BGE would have us believe that everything has been and is for the best of all possible worlds.

Only very occasionally in the report does it reveal (is allowed to reveal?) any hint of the reality. E.g.
a. Mind-boggling stupidity in aspects of EU primary legislation and regulation;
b. Devious and cunning transposition of this into national legislation;
c. A huge volume of regulatory decisions over more than a decade that has imposed huge unnecessary cost burdens on consumers and will prove difficult to reverse;
d. Capture of policy and regulation by the semi-states;
e. Willing compliance by the semi-states with woolly-brained, expensive Green whizzo schemes as a means of empire-building;
f. Cross-subsidisation (bribing people with thier own money) to convey the impression of competition in the retail market and
g. a sequence of uneconomic and expensive large investment decisions.

2. Suppression of dissent

I can confirm from personal experience that anyone seeking to make a livelihood in the energy sector in Ireland who highlighted these features of the industry would starve.

3. Avoidance of responsibility or accountability

The parcel is continuously passed between the Dept., CER, ESB and BGE without it stopping anywhere – and huge effort is expended to make sure it stays up in the air.

4. Bending of rules

Laws and regulations have been cunningly drafted and applied to maintain this suspension of disbelief.

This is just another example of what Nyberg found in banking and I remain convinced it is endemic in Irish society.

But that said, and when all this ‘business stuff’ is put aside, Irish people are absolutely wonderful, warm-hearted, friendly and welcoming. I would rather be no where else. But they deserve so much better. They just have to take hold of their governance and get over this “Ah sure, why would you be bothering yourself with stuff like that? Life’s too short.”

@ Bunbury: “I believe there must be tens of thousands of fake loan applications on the books of all the banks. That is, ‘fake’ in the sense that the supporting application documents were often fictitious – earnings, expenses and overtime overstated to meet income criteria.”

That’s fraud, pure and simple. Criminal behaviour. Please inform the authorities. An informed opinion is sufficient. Oh! I forgot. “We broke no law. We did nothing wrong”. JC spare me!

“I think that’s absolutely it. The impulse to defy the … colonial master … has never gone away.

Don’t want to stir the sh*t on this one on this site. But Irl Inc was NEVER a colony! We were always ruled by ourselves, us Irish. We indeed did have a self-imposed (yes, self-imposed!) hiatus: 1801 – 1922. But we still had over 100 MPs from Irish constituencies elected (by an iffy suffrage system to be sure – but England and Scotland were little better) to Westminster. Our local civil service was Irish (even some of the most senior ccs in Britain were Irish). Irish-born military types figure prominently as well. This ‘colonial’ business is pure political Crapola. We ran our own affairs. Please read Joe Lee’s (Ireland: 1912 – 1985) to see just how bad we actually were – sorry, still are! Who coined the phrase: “They have learned nothing, because they have forgotton nothing.”? That’s us!

@PH: “Life’s too short.” 🙂 Yep! But someone IS bothering! So for whom are they ‘bothering’ then? Anyone got any info on when one of the RC Bishops cracked the pulpit with his crozier to denounce immoral behaviour in business and finance and politics? AND demanded action from both his flock and the pols? Where’s my Tyrconnel?



Bang on the money. I’d even suggest April May 2006 as the top which now means we are entering our 6th year of price deflation and as Brian Woods suggests above the deflationary period could run out to 2015 which to me sounds very reasonable given the excess supply sitting on the market with little or no demand.

In relation to the mortgage v rent comparison I indicated something similar above and this opens the entire question of blame/fault. Who allowed this situation to develop and who should have known better.

I have made comments in Daft.ie of a similar vein in relation to this subject and to me there is only one answer the blame rests with the banks. End of.

Ultimatley the cost cannot be shouldered 100% by the consumer. As indicated the other day ‘buyer beware’ does not apply in relation to the Code of Practice in place for financial institutions. In simple terms the banks should know better than novice property consumers who transact perhaps twice in their adult lifetime in the property marketplace versus banks, building societies etc who do this day in day out.

It is simply illogical to then turn around and suggest the individual is 100% liable for debts when the metrics presented above by Bunbery were well know by the lenders in the marketplace at the time – or at the very minimum should have been known.

Therefore those who suggest that their is something wrong or unfair in pursuing a debt forgiveness program are to my mind missing the most fundamental and misunderstood part of the property market and that is that banks ultimately price property not estate agents, developers or consumers but banks and lenders.

In any market where there has such been a fundamental mis pricing error for the best part of decade the consumer should always has the option to renegotiate a real fair price – not the fantasy valuations as Bunbery indicates above.

In his example and assuming €700 per month was the rental market on the day he bought for €305k under the long run rental yield mean reverting average number of 7% would suggest the ‘fair’ price on the day was in fact €110,400. Being €700 Gross less 8% to cover expenses (mkt avg) netting to €644*12 / 0.07 = €110,400.

Colm Brazil above suggest that rental markets can be as ‘wrong’ as any other type of metrics however I don’t accept what he suggests

‘…as it too is subject to market variables such as supply and demand and even crazier things in Ireland such as ‘upward only rent review’ that bake value into a false commodity..’

The residential market in Ireland does not suffer anything approaching the upward only reviews stupidity foced in the commercial market and more importantly supply and demand are exactly the parameters one needs to consider when determining any market dynamic.

@ Yields or Bust

Does this one example suggest to you that as the property was overvalued almost 3 times, that we are heading for a fair market of around 35% of peak, perhaps around 2015?

Or is it more complex than that as rents have and are shifting?

I know this board won’t do it, but a graphic representation of what you are saying would be very useful.

@ Paul Hunt, @ Hogan
We can’t stereotype on this (no honestly we can’t!)
Lots and lots of countries have had their banking crises – not just us.
I was on the West Coast of Canada recently talking to people in Vancouver. They’re going through a period of property inflation at the moment (prices high even by our standards)
I asked a very sensible South African immigrant if he thought it was a bubble. “No”, he said – “the Chinese are buying it all”. And there you had it. Now, we don’t know if its a bubble or not. We don’t know what will happen to those prices and we don’t know if the exuberance is rational or irrational at the moment. But all it took was one credible hypothesis and this very sensible man was willing to discount the possiblity of a bubble and believe that it was sustainable.
We too had our credible hypothesis of returning immigrants etc to make an alternative hypothesis justifiable.
We also had IMF reports stating that we were doing a great job.

Whereever there are bubbles people don’t see them. It is really really really wrong to blame something unique in the Irish for buying into this one.

Now, I am in no way excusing the sharp practice that occurred in banking and I think that the people involved should be prosecuted – pure and simple. But that sharp practice was just that – it’s the same stuff that happened at Enron and lots of other places across the world. In Germany they’ve had their industrial espionage scandals. In Britain they have their prime-minister patriotically defending BP after it dumped loads of oil into the Gulf. Money and greed corrupt – everywhere!

I would be really really happy if we could dispel the myth that Irish people cannot do business because we don’t like rules. We can and we do.

@ Yields or Bust,

If you want to use rental yields as a key determinant of residential house prices, then you need to look at the factors that determine rent. If you find that these factors are also variable, then it’s reasonable that you need to assess where these are likely to head in the future.

There are some potential factors that could have a major influence on future rent levels: 1.) Government – I’ve heard (but can’t verify) they rent 50% of private lettings 2.) New ‘distressed-asset purchaser’ landlords – they might buy at an estimated 12% yield but be happy to accept 7%.

That said, rent yields are a good tool.

@ YoB: Finest comment in a long time.

@GC: 35%?? Yep, this look good to go.

@Eureka: ““the Chinese are buying it all”.” To ‘sell’ to whom? Perhaps they intend to migrate to CN? That’s a boom by any definition of the term.

Just confirms the point, eloquently made above by YoB: res property buyers are novices and easily ‘scammed’ by real estate Spinola.



Outside of the sheltered sectors (private, public and semi-state) the commercial and economic performance of Irish people is exemplary and internationally recognised. Indeed, I suspect it is this that blinded the eyes of many international institutions and observers to the underlying reality in the sheltered sectors (in which the banks, despite their increasing on international short-term funding, should probably be included).

I agree with Hogan that the problem is frequently an ex-colonial legacy where the people never felt they owned nor have fully claimed the system of governance. This is the main problem I see in the electricity and gas sectors and I have seen enough to convince me it runs across all the sheltered sectors in some shape or form.


In simple terms yes.

As I have been suggesting for some time and Ronan Lyons indicated something very similar in his recent update.


Ultimately the only pricing mechanism which matters is rent and only rent. ALL other metrics suffer because of some sort of bias whereas rents are largely a reflection of supply and demand (rental supplement payments aside which I admit are a distortion but I believe in the very near term this too will revert to market).

My own view is that at the MINIMUM residential prices will see 66% PTT falls – that’s assuming rents remain stable at q4 2010 levels and yields stop at 7%. There very big assumptions.

I for one however cannot see that happening as the supply in the market outstrips demand (ghost estates aside) by a significant order so rents will ultimately reflect this and pricing as a result. So yields will move out beyond 7% as last weeks auction results already indicate.

I have indicated here before that the PCAR calculations in relation to PTT are a complete nonsense. Despite all the consultants hours and money spent I see no mention in the stress test paper of any reference to mean reversion in the property market, which is ultimately a risky asset market. Those of us who work in that place on a daily basis will tell you that mean reversion is alive and well in risk markets and will ultimately determine over the long run the pricing level in the market place.

Mean reversion analysis is tailor made for property markets as generally ‘bets’ are +20 years or more.

The mean reverting yield number in the ROI for residential is 7% since records began in 1976.

Using the Daft.ie q4 2010 yield numbers and assuming no further rent falls out to end 2012 and applying the PCAR house falls in the adverse case scenario calculates out to a yield at 5.6% at the end of 2012. I know already that this is a nonsense.

It bears no relationship with long run numbers and will be incorrect – I’d wager double or quits on my own mortgage that I’ll be proven correct – I have the benefit of c150 years of risk asset markets evidence to indicate I’m much more likely to right than wrong.

Bottom of the market yields in the ROI will not be 5.6% it will be a minimum of 7% and that means the PCAR numbers are wrong by a minimum of 20% on house price depreciation on a mean reverting yield of 7%.

I’d suggest having a look at page 58 of the PCAR where in the adverse scenario the Regulator has house prices estimated to recover to 91% of the peak value by, wait for it, 2040.

This means that those on interest only payments will in all likelihood never see and end to the negative equity disaster unless of course we see another boom – which is a brave bet.

Ronan Lyons piece below in relation to last Friday auction.

What is the new relationship between rents and house prices?

Ultimately, as an economist, I believe that the relationship between rents and house prices is the true measure of whether a property market is in balance. The annual rental income as a fraction of the property price should look like an attractive savings rate on a deposit account: if the savings rate is 3 per cent or 4 per cent, those putting their money into property will probably want closer to 10 per cent, as a reward for the risk they are taking.

The property market bubble destroyed this fundamental relationship between rents and house prices. The yield went from an average of 8 per cent in 1998 and 1999 to about 3.5 per cent in 2006, as rents were static but house prices rose substantially.

The rich data provided by the auctioneer on rental income from the properties for sale in the auction means we can actually see what sort of yield people investing in property are looking for. We can also use Daft.ie rental data to fill in the blanks where that is not known and come up with an estimated yield for the entire batch of Allsop properties.
The typical gross yield (12 months’ rental income as a proportion of the price) at Friday’s auction was between 8.5 per cent and 9 per cent. The properties that are definitely investment properties – they have existing tenant contracts – have a median yield of 9 per cent. Those that look like owner occupier purchasers look like they were bought factoring in a noticeably lower yield, typically 6 per cent.

How can I use Friday’s results to find out what a property is worth?

This is very useful information for would-be first-time buyers and indeed anyone who wants to know the value of their property. Looking at a particular property, you can of course just wipe 65 per cent off what you think it was worth at the peak and you will get what it probably would have got at Friday’s auction.

A more scientific way – one I’ve gone through before in my rent-or-buy calculator – is to look at the annual rental cost for the property you’re interested in. If you want to come up with an offer similar to the owner-occupiers last Friday, divide that figure by 0.06. If you want to bargain hard and only offer what an investor would, divide that figure by 0.09.
So if you’re looking at a four-bed family home in the Dublin commuter counties, the monthly rent of €900 translates into annual rental costs of €10,800. Friday’s owner-occupier buyers would tell you to offer €180,000 (10,800 divided by 0.06). Friday’s investor buyers would tell you to offer just €120,000.

Tyler Cowen writes in the New York Times today,

If enough depositors fear frozen accounts, the banks will be emptied out, and they also will require additional government bailouts, on top of the bailouts for the bad real estate loans. The banks come to resemble empty shells, conduits for public aid but shrinking and unprofitable as businesses — and, to a large extent, that is already the case in Ireland.

I listened to Ivan Yates on radio this morning speak about Eircom company after privatisation, and he compared it’s situation to that of Manchester United, when it was purchased by a family a while back. How those institutions become shell-ed out by their new owners, loaded up with huge debt levels they never had in the past. I would also argue btw, that a proper explanation of the 30 largest property developers now in NAMA, requires this kind of analysis also. Effectively the Irish banks were using the largest property developers, like their own personal Eircoms. Basically as vehicles, or pack horses upon which they loaded mountains and mountains of debt, beyond which any property developer would actually need to trade successfully. The pack horses believed, or were convinced by the banking institutions, that they would only have to carry the assets a certain distance, and that the banks had a plan for what to do, further down the track. The pack horses, like the innocent beasts that they were, said okay!

There is a very big aspect, akin to that, in relation to Sean Quinn and Anglo Irish bank. Where the bank recognise that a fellow is in trouble, and use him as a vehicle to expand their asset side of the balance sheet. Except, what has happened with the property developers is the opposite to what has happened with Eircom. In the case of Eircom, the privatisation was done and that was the end of things. But with the property developers, they were shelled out first, and then the nationalisation of their debt was executed. Ivan Yates also went to efforts to point out, that at the height of the speculative property boom in Ireland, a total of €3 billion euro of property changed hands. Yet NAMA somehow expects to off load a total of €8 billion in the next two years, according to its business plan. The fact is, that in order to create €3 billions worth of property transactions in Ireland in 2006, all kinds of artificial incentives and market manipulations had to be undertaken, to support that market.

Much of the media conversation, and political conversation by ministers for finance in Ireland focusses heavily on this concept of excessive lending by Irish banks. But what these good folk do not understand – it is not enough to give the guy the finance to make the sausage – you have to guarantee a market for the sausage to the same guy. It was in the creation and artificial support of the said market, that really the greatest damage was done. This is why former minister for finance, Brian Cowen was under such enormous pressure from Anglo Irish bank to establish the legislation, that would allow Anglo to sell securities of commercial property on the London market. Anglo were conscious of the fact, that so many of their sausages were rapidly approaching a sell-by date. BOH.


@ Paul Hunt
That’s grand. As long as we can put it down to regulatory/governmental failures as opposed to any inherent flaw in Irish people that’s good.
Don’t agree too much on the ex-colonial thing though. All peoples get sucked into irrational exuberance at some time- look at the UK in WW1 (a fast war to end all wars etc)
We can disagree on this but humanity is imprinted with a necessary frailty of logic that allows them to believe that “all will be well” when things seem ok. Fact is we would not be here without it. For example all the wars ever fought were fought by guys who believed at some level that they could win. And all the babies ever born were born to women who ignored the fact that childbirth was (in the past I’m talking about now) the most dangerous thing they could do.

Irrational optimism is a human thing. Ignoring inconvenent realities is a human thing. Trying to get away with stuff is a human thing.

Brian Woods, please stop writing, especially off-topic.

Reading some of your entries I am reminded of the sad reply Pauli made, “You’re not even wrong”

Corruption in Ireland is deeply embedded in politics and business. In Ireland I have never encountered petty corruption such as my encounter with an Indian security guard who questioned my credentials and ask for money to be passed under the table. We negotiated the exact amount which I passed under the table. With a straight face he then asked me if he could trust that I had passed him the exact amount. I burst out laughing. In Nigeria I greased customs officials with cases of Scotch and cartons of cigarettes. Within an hour customs management in gov’t limousines showed up and asked me what quantities I had given their employees. As they explained they could not trust their employees to share fairly. This was deadly serious so I did not even smile.

In Ireland corruption takes place between pillars of the community and is considered to be perfectly normal. Cronyism and nepotism is also deeply embedded in politics and business and I would not be surprised if the lack of competence which brought our economy to its knees is a result of decades of appointments being made with little relation to merit. The merit system is for people without pull in Ireland. Then we have the other Ireland, people like my mother who used to say ” Shooting would be too good for them feckers, slow hanging would be more appropriate.”. This was usually said when the demands were disproportionate to the rewards. We do have a finely calibrated value system and can get highly indignant when the rules are not observed. The whole country is so deeply immersed in shady dealings that one would have to be out of the country for at least twenty years in order to get a sense for what is normal behaviour.
It would take one hell of a shock to bring us to our senses.


We’re getting there! I’m trying to distinguish, as Mr. Nyberg did, the ‘animal spirits’, ‘irrational exuberance’, ‘this time it’s different’, call it what you will which is common to all humanity from specific Irish features (not ingrained traits or irredemiable physchological failings, but a learned behaviour to tolerate low level, soft corruption, shoddy standards and poor governance and accountability in areas where there is no effective external scrutiny or invigilation).

@Ronan Burke

Fair point !

However please alow me to make the two following observaions

A) I do not know much about Mr Nyberg but I would guess by his name he may possibly belong to the Swedish speaking minority left over from when Finland was a Swedish colony. I would also guess because of this fact, together with his choice of profession and career, he would not have much in common with extreme right wing Finns .

B) I believe 19 % of the electorate voted for “True Finns” party. So while their opponents may have accused them of extremism, populism etc, during the heat of election campaigns, the fact that their Party received this amount of votes and that they are in coalition talks must mean that the extreme elements in Finland do not have too much of a voice in that political party.

I am sure , as in Ireland, the overwhelming majority of Finnish people are decent individuals with normal concerns and vote for Political Parties who they hope will addres their concerns.

Sweden (and Denmark) also experienced a huge banking crisis at the same time as Finland so we may “have got a bigger bang for our buck” in hiring Mr Nyberg. Hopefully anyway!

“The proof of the pudding is in the eating.” Mr Nyberg produced the report now it is up to us to see whether we can use it or “shelve”it.

JO’B: All in the mind of the recipient, etc., etc. I prefer Popper.

If I AM of topic, the moderators have my e-mail address and can deal with the matter.


I met Popper when he spoke in Trinity along with Anscombe in ’53, and he would be appalled at having you as an admirer. He would want you to improve, to read and study more, and to write less until you do that.

@JO’B: John, if you feel sufficiently aggrieved, please e-mail your specific objections to Philip Lane as he posted the first entry of this thread. He can pass on your comments, and I shall consider them.


@Mickey hickey
The one advantage of the euro austerity programme is that it is shaking out all those false patriots that were sucking the now dry teat of Hibernia.

J.C.T. is not all bad – perhaps we can give him the keys to the Aras when he retires.
Shit I am becoming one of them…………………………………………….

Who’s talking about an inability to do business? Who’s talking about getting sucked into the boom? We’re talking about a respect for the law! You’re telling me that the people who voted for Beverley Cooper-Flynn (as she then was), Bertie, Haughey, P. Flynn, Rayfield Burke, Lowry, Lawlor, and every other not just gombeen, but proven in a court of law law-breaker have respect for the law?

It all fed into our bubble. All the cash and slush came from banking, rezoning, property, tax dodging or corrupt business practices. It was not just tolerated, it was approved of. By contrast, the cash for questions TDs not only served jail time, they were unelectable afterwards.

@Paul Hunt
Accepted. Perhaps the line: “the Irish penchant for not seeing a rule without considering ways to bend it or break it” was not meant as a reflection on the Irish character and was more a commentary on poor supervision and governance. Anyhow if that is what was meant point taken. And no offence taken. Just think that it was important to tease it out.

I’m not sure about your refutation. Just because the French vote in Jean Marie LePen should we characterize them in a particular way? Similarly the Italians and Berlusconi?

Anyway – was good to tease this out. Maybe can agree that no moral deficit in Irish people means that their children should pay for the sins of a few incompetent bankers.


@Sarah Carey


Now I am in danger of becoming an optimist.

I just did a” back of an envelope” calculation factoring in time lags on statistics. The percentage of homes with mortgages (including local authority loans, loans under 100 000 Euro, and loans close to reaching full term) may be around 40%.

If 10% of motgages are in danger of serious arrears and a further 10% are in negative equity then an absolute maximum (many people may actually be quite happy with their home even if it is “only” worth 40000 Euro less than market value as long as they know they can feel safe in it) of 6- 8% of homes are in trouble.

If creative policy measure to alleviate this problem meant that upwards of 300000 working age people (or 15% of working age people) could be relieved of anxiety just think of how much energy they could put into their jobs, creating jobs or seeking employment.

Most mortgage holders have partners (which is how I calcualted upward of 300000 working age people) and creative measures could easily be implemented which would see most of the loans eventually being paid back without subjecting otherwise productive people to paralysing anxiety or effecting their spending power.

It seems to me that the national economic benefits of implementing creative strtegies for negative equity and mortgage arrears would far outweigh disadvantages cited by the “moral hazard” brigade.

Such measures would also be a lot more simple (and considerably cheaper) than the complexities of insane banking which the government, and the rest of us, have beeen trying to get our heads around in recent years.

The eurozone consists of 17 countries with a combined population of 330 million. Ireland was alone in the eurozone in having a massive commercial property crash. This was entirely a function of our toxic commercial lease law i.e. long leases say 25 years ,tied to upward only rent reviews. All other eurozone countries have short leases say 3-10 years with break clauses and rents reviewed annually by increases/decreases in the CPI.

It would have been impossible to have had a commercial property bubble and crash with normal eurozone lease law. The Society of Chartered Surveyors lobbied for these toxic leases and were the mouthpiece for the landlords/speculators and their valuations were the greatest work of fiction in world property history. Please remember the banks lent tens of billions against these valuations and these toxic commercial leases.

The written media followed the money i.e. economic determinism. There was massive revenues to be gained from auctioneers advertising commercial and residential property. At its peak the Irish Times had 60 page property supplements and became a player by buying MyHome.ie. The paper and other papers were full of property puff articles and property interests press releases with no critique.

To summarise –the banks were not alone —-toxic commercial lease law/the Society of Chartered Surveyors /the Irish Times et al –played a central role in destroying our childrens futures.

@Mickey Hickey

“It would take one hell of a shock to bring us to our senses”.

Maybe the last 3 years have administered the approriate amount of shock.

For example I for one never believed, even two years ago,I would see FF down to 20 seats desperately clinging on to 3rd place just ahead of SF and way behind Labour with FG holding almost 80 seats.

John Corcoran says,

It would have been impossible to have had a commercial property bubble and crash with normal eurozone lease law. The Society of Chartered Surveyors lobbied for these toxic leases and were the mouthpiece for the landlords/speculators and their valuations were the greatest work of fiction in world property history. Please remember the banks lent tens of billions against these valuations and these toxic commercial leases.

Good paragraph. It more more less sums up the truth about Ireland. I agree with the logic as presented. What was very, very interesting to me, when my NAMA developer boss’s business crashed in late 2008, how the Chartered Surveyors all seemed to hold their jobs, as every other professional was fired abruptly. It was kind of like, we must send the kids to bed now. This is adult’s stuff. It really became clear to myself, of where the power lies in the Irish property scene. It is a lesson that I encountered the hard way, a lesson I will not forget tomorrow or the day after. BOH.

@ hogan and all,

I did not bring out this question in my post near the top of this thread, where I just focused on the possibility that some policy makers may not have been sufficiently tuned in to what they were paid to do. I neglected possible others for whom it may have been consciously chosen policy, but it’s still simmering:

Did the escalation of bank borrowing relative to deposits happen because (characteristically) the gov. saw it as a means of cheating on the spirit of the euro protective clause of a limit of a 3% budget deficit? (Such a … would have enabled it to have funds to say yes to every sector and win three in a row).

I might as well also mention the “criminally irresponsible” manifesto of 1977.

This has been a really great thread.
The point about normal lease laws is fascinating. But it came up here and not in the Nyberg report.

If anybody ever wanted to know just how serious Irish people were about business, law, and the right way to do things they only need to have a look at this blog. How many posts? How many threads? All trying to figure out what happened, why it happened and how to fix it.

It’s still not over though. There’s fight in the old dog yet http://www.rte.ie/news/2011/0421/export-business.html !!!!
I’m proud to be Irish.

“I’m not sure about your refutation. Just because the French vote in Jean Marie LePen should we characterize them in a particular way? Similarly the Italians and Berlusconi?”
Absolutely. Just as the Austrians were characterised when Jorg Haider was elected and became part of the government. You are who you elect. They are your public representatives. That’s why you elect them…

“Maybe can agree that no moral deficit in Irish people means that their children should pay for the sins of a few incompetent bankers.”
Absolutely. I don’t believe it is an issue of morals (I’d have brought up the relationship with the Catholic Church if I did!). Even if there was a moral deficit in one generation of a people, I don’t believe that should be applied to their children.

I believe, as I think Mr. Nyberg meant it, that we have a blindness to what are ‘our’ laws, an unwillingness to accept that laws need to apply universally or there is no point in having them.

On the other hand, it is the ‘us’ that is applying the debts to our children and grandchildren, not anyone else. It is not just the debts of a few incompetent bankers either…

@Peter Kinane
“Did the escalation of bank borrowing relative to deposits happen because (characteristically) the gov. saw it as a means of cheating on the spirit of the euro protective clause of a limit of a 3% budget deficit? (Such a … would have enabled it to have funds to say yes to every sector and win three in a row).”
I believe so. I believe the tax breaks were reintroduced in 2002 with the connivance of the banking and property sectors who were about to be badly stung by a decline in the property market. The share of investors in the market rose hugely after that point completely stuffing FTBs.

The banks stood to gain on the double as they’d financed the property developers, so financing people to buy off them at inflated prices wasn’t rocket science for them. Their poodle economists used their time on the public service property broadcaster to provide the ‘fundamental’ gusto to the blow-out phase of the bubble.

The government gained, aside from the election victory, with bubble tax revenues which hid the structural deficit and the diminishing return on capital investment. It had plenty of cash to buy off social partners who were only too willing to be bought. Let the good times roll…

You might equally say that the other 1.7 million people of working age (or 85%) would be better served by not having their taxes increased or their services reduced by a blanket bailout of the unfortunate and the greedy.

While many would be in favour of a measure of forgiveness for the unfortunate, few are likely to extend that to the greedy. The suspicion is, based on the examples that the papers throw at us, that the greedy outnumber the unfortunate.

Far better for our national well-being (and for demand in the domestic economy) to keep money in the hands of those who earn it so they can have the confidence to spend it to their benefit.

I don’t buy the post colonial argument . It suits certain groups to blame a deficiency in the national character but the country was taken over by a cult. FF were at the heart of it. The PDS were prominent. Nobody forced anyone to buy a house but the whole system was a Ponzi scheme. How was the average punter supposed to know when all dissent was sidelined? Ponzi schemes don’t have soft landings. And you can’t declare a Ponzi scheme in the Irish Times or the Indo which themseleves have a huge chunk of ad revenue coming in from the scheme. Blaming everyone may justify their punishment but it is no more credible than LBS pontificating.

Seafoid says,

Nobody forced anyone to buy a house but the whole system was a Ponzi scheme. How was the average punter supposed to know when all dissent was sidelined?

I recall having a conversation once about the great Wall Street Crash of 1929, and how ordinary folk got access to the market for common stocks. But apparently, the myths of shoe shine boys etc buying stocks at that time, were vastly inflated. There was a signficant segment of regular Joe’s who got involved in the speculation (people from the New York area if I am not mistaken), but nothing like the stories suggested. I don’t know how it breaks down from the point of view of people investing in property in Ireland. But many people found themselves in a position where they were landlords, not having intended to go down that route at all. I mean, quite conservative ordinary folk. The extent of the speculation is unclear though. It seems mostly, the problem was in paying inflated prices for single properties, as opposed to buying multiple ones.

There is one problem with the discussion in relation to property in Ireland though, which we need to be careful about. It is the distinction between commercial property and residential property.

The most unfortunate thing from Ireland’s point of view, is that very severe manipulation occured in both areas. There is a Venn diagram analogy that Ronan Lyons uses from time to time, where he analysed ‘NAMA land’. Ronan looks at Ireland as a map, and looks at areas where both unemployment levels and negative equity are most concentrated. There are places in the midlands of Ireland, where this happens. But there is a third aspect to the Venn diagram which Ronan Lyons cannot include in his map slides. Because the dysfunctionality, which John Corcoran has referred to in the commercial property market, may also affect people – along with unemployment and negative equity. I wrote a sub note at the end of a blog recently, which I entitled Self-Employment. You can read it at the end of the link below. BOH.

@ Paul Hunt

Read with interest.

Perhaps I’m mithering over nothing, but the bit where people get fined and imprisoned for talking out of school under the Credit Institutions (Satabilisation) Act 2010, seems out of line with encouraging transparency or whistleblowing.

“59.—(1) A person shall not publish the fact that the Minister proposes
to make or has made a proposed direction order, proposed
special management order, proposed subordinated liabilities order
or proposed transfer order unless required to do so by an enactment.

(2) A person (including a relevant institution) who contravenes
subsection (1) commits an offence punishable—

(a) on summary conviction by a fine not exceeding €5,000 or
imprisonment for a term not exceeding 12 months or
both, or

(b) on conviction on indictment by a fine not exceeding
€100,000 or imprisonment for a term not exceeding 3
years or both.”


We’re into different territory here. Bank resolution has to be done swiftly, brutally and, to a considerable extent, secretly. It would be far better though that this were done by a statutory body rather than an elected politician – e.g., the US FDIC which can go into a failing bank after close of play on a Friday and sort out it (shredding shareholders, hire-cutting bondholders, shrinking balance sheet, selling load and deposit books to other solvent banks as required) and have it open for business on Monday morning (or the entire thing taken over by another bank) on Monday morning.

It is instructive though that the natural instinct is to hide things and to punish those who seek the daylight in.

@ Paul Hunt

“It is instructive though that the natural instinct is to hide things and to punish those who seek the daylight in.”

Yes, that was exactly what I was trying to articulate.

why was Ireland the only member country of the eurozone to have a massive commercial property crash?.

@ Paul Hunt
Excellent link, the comments are spot on and it is heartening to see indications that people have a good grasp of the problems. Again there is little optimism that elected representatives are capable of implementing change. Still a positive first step is recognising that there is a systemic problem and the solution does not reside in Brusssels, Frankfurt, Berlin or Paris.

posted elsewhere but more relevant here post Deauville, post-Nyberg and all the NO-NAME generalized reports ……. time to move on and ………..ACT.

We take responsibility on banking system debt which is not ours – to wait for a European charge of the light brigade to our rescure is a mug’s game at this stage; all evidence is that we are to be sheeply sacrificed at the altar of saving the EZKore Banking system.

Declare a state of emergency; gov to get on with radical on the deficit (place all senior counsels in the Curragh for the duration, and charge them rent on the pink jumpsuits) in a balanced manner re burden-sharing; return to republicanism and citizenry first; declare Sept 29 2008 an error of judgment by incompetents; simply state that this state is unable to take on all banking system debt; open negotiations, within limited time frame of 30 days, with all concerned re the ‘restructuring’ with genuine sovereign debt deemed superior; licence Irish banking to outsiders; bond-market on sovereign debt will do business with us as deemed to be real and sustainable; Ireland saves the European Project, and in the process, saves itself.

Leadership, balls, self-confidence, and moral authority.

@ All,

I noticed Gurdgiev, Lucey, Mac an Bhaird and Roche-Kelly have published a good paper referred to on Trueeconomics. I must get around to reading this some time, it looks like it is compiled together pretty well. I liked the graph showing the Irish bank share prices over the years. In the last couple of years, I have gotten to know a few people who had invested in Anglo Irish bank. An academic paper which should be attempted at some stage perhaps, is one in which the analysis is of Anglo Irish share investments, and what exactly prompted its suddent rise. From the graph shown in your paper, I can grasp how Allied Irish bank was a strong share, going back a long, long time in Ireland – and Bank of Ireland sort of kept up the rear at a respectable pace of its own. But then you see the profile for Anglo Irish superimposed upon the two, and one wonders. One really has to wonder, how so much clever money, in large denominations all crammed into Anglo, a relative late comer, and an unknown quantity. Is that the very definition of a Ponzi scheme? A pretty large one. Are all Ponzi schemes able to wreak as much destruction as Anglo Irish? Is that a common characteristic of Ponzi schemes? Or is Anglo out on its own in that respect? I don’t know. I’ve read, listened to and thought a lot about the Irish banking collapse, and I still don’t understand quite how Anglo Irish came up like it did, and established such an unusual business model, which clearly did not fit with the general trend in Irish banking stocks. BOH.


@Brian O H

There needs to be a fundamental acedemic rejection of the mantra of the 80s – Austerity created the conditions for growth.

There was no austerity – there was a transfer of goverment debt to private debt and a dramatic increase of private debt relative to goverment debt.

There was a transfer of “wealth” and a increase of debt which drove consumption and not wealth creation
I have written before of the deliberate confusion of credit money with goverment money in the world economy since the end of the Gold standard and indeed before.
Modern MMT economies need to have considerable goverment debt to work efficiently – as goverment and central bank debt gives the signal for the true value of the currency.
A false overvalued currency based on a artificial debt metric is inherently non – optimal for trade and commerce as it creates huge unsustainable trade distortions in the economic ecosystem.

The above paper wrote that goverment nominal debt was essentially unchanged during the boom although I do believe that Charlie McCreevy actually reduced the debt in real terms during the height of the “Boom”.

Whats far more important is the ratio of money creation between private credit and goverment.
We are now at a point that the “authorties” have two choices – the much needed inflation of the system through putting real goverment debt on the books or the default or haircut of Term deposits built up during this 30 year boom in credit.
Its really that simple – as forced austerity to correct for 25 – 30 years of economic madness will result in the full breakdown of this society and others.
As long as we can keep checking accounts open we can get through this crisis – but we must recognize the fundemental problem in the system.

Acedemics and others need to project a mesage of at least limited gold ownership / goverment money so the during the possible coming storm there is enough wealth spread around the community to make trade and commerce a effecient excercise as unbalanced gold / goverment securties would merely replicate the deliberate mistakes of the past.

@ DofC: You ‘sound’ an awful lot like Frederick Soddy: “Wealth, Virtual Wealth and Debt” (1926). Familiar with? He was a genuine Nobel Laureat!


@Brian Woods.

No I have not – thanks for the name/ link – I will look him up.

@ Peter Kinane,

It certainly does seem to deserve a major post mortem.

The Anglo Irish shareholders are still here in Ireland, and are willing to speak about their experiences. There was a comment this morning on the Saturday View radio program about the McCarthy report, by Donal Palcic. Donal said that the McCarthy report on semi-states and privatisation was welcome. There have been numerous reports in the past, about individual companies, and reports about pay scales for individual positions in semi-state companies. But the McCarthy report, is the first in which the information is all assembled together, and one can read it as such. It is different from trying to compile a picture based on lots of fragments. It would be interesting to obtain a picture of the motivations behind those who saw Anglo as a sure thing, without maybe revealing identities. BOH.

@ BOH,

I had not read the paper when rplying above or in the other thread. Have done now.

Going along with the paper, there was a dotcom (ICT?) slow-down circa 2,000. In reaction the gov. introduced _activity_, by investing support, in the property market in 2002 (which was five years before I commenced to have an interest in, shall we say, “theory of economics”. However, this, while improving GDP, would have been what I would regard as largely investment in consumption, as distinct from investment in research and development. (This point of mine then leads to a fundamental issue of economic theory – which I have not much explored – the appropriate criteria to measuring economic development – as distinct from economic activity- -consumption). Such intervention makes good sense in times of downturn, in so far as it is affordable, though emphasis presumably should be on wealth development rather than on simply moving chairs around or consumption. All of this is coloured by the greater (foreign) environment in which a small, open economy such as ours operates. Indeed, it is perhaps with that greater context that we should start, in so far as we can be influential, even now in this current downturn. (I think that rapid trade liberalisation as is currently fashionable is froth with danger. Likewise, monetary inflationism, such as we – the old G7 world – had for years after the dotcom crash, though it may not much of a factor now, despite so much gov. intervention; it may not be generating much widespread _activity_).

Between Jan. 2003 and May 2008 private investment- -borrowing for property increased by a factor of three. This debt put pressure for its servicing on industry, which in turn put pressure for more activity- -stimulus of the _activity_, perhaps thereby diverting potential resources from research and development. (I am not implying that there are easy political solutions to downturns, which are probably inevitable. Indeed, there probably comes a point when to be a good government, one has to take tough measures and probably go out of office, in contrast to presiding while the nation going bankrupt).

Eventually people became scared of, or smartened up to, such heavy borrowing for properties and prices crashed.

From what I see the Anglo issue you raise is not addressed in the paper.

Peter Kinane says,

From what I see the Anglo issue you raise is not addressed in the paper.

That is the problem. There is quite a large body of research which has been undertaken in recent years about the bust. There has been TV interviews and documentaries etc. I suppose, it is understandable, that people want to invest their energies into understanding the bust, and proposals of solutions to get us out of the mess. It may be academic on my part, to worry about such things. But I do hope the real academics can focus on this at some stage.

I think it would be a very useful study area for a team of researchers from north America perhaps, or even Asia. Who could try to understand Ireland as a place, which was relatively unspoilt by the excesses of consumer credit until very recently, and how we made the transition. Similar in fact, to how anthropologists may venture into parts of Africa to observe over time the rapid transformation in societies that move away from Neolithic type of survivalism and co-existence with nature, to early forms of urbanism and market economy. BOH.

@ BO’H: Econ anthropologists gamboling about our boggy landscape! At least they might not end up in a pot for ‘supper’!

It was the Credit Cards what did it! Coupled with loose or non-existent regulation of credit risk. Manic marketing of aforementioned cards. Cheap(ish) east-asian imports – loads of. The FIRE economy! Funny that such a salient thing gets so little exposure on an econ site.

The full gory details of the distal and proximate causations of the debt bust are well documented. They just have not been acknowledged, nor absorbed, nor understood. I can understand the Sheeple not understanding, and perhaps the guys in the ‘white hats’. Who are too intelligent, and have the greatest difficulty understanding simple things, like: if your income is less (or likely to be less) than your outgoings, your bust!

It is indeed an interesting issue to study. Three Ps: papers, PhDs and professorships. Enlightenment? Now there I have my doubts, but its worth a try. Bernanke was allegedly an ‘expert’ on 1930s mess in US. And look where he has put them now. Worse!

That last para is a hoot. It has made my day. Thanks.


@ Brian Woods,

You’re welcome. No one is going to believe this, but I did write in in absolute serious-ness. But re-reading it this minute now, you’re absolutely right. It is quite funny. I was watching a Ray Mears Bushcraft documentary about the Hadza tribe in Tanzania last night (off the tourist trail), and it kind of prompted me to think of the analogy. BOH.

@ All,

From a more innocent time? October 17th 2008 to be precise. Notice the fish jumping from the small bowl, into a larger bowl. The best part though about the conference brochure though, is that in late October 2008 in Dublin, listening to David Drumm on banking and property, counted towards ‘6 hours continuous professional development’ at the Society of Chartered Surveyors. Group Think? Herding instinct? Dissenting Voices? BOH.


It looks like Nyberg,Honohan, Regling and Watson suffered from herd instinct,or groupthink by missing our unique commercial property lease law and the cartel who imposed it on all Irish commercial tenants.

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