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Theodore Dalrymple
How the Irish Bubble Burst « Back to Story

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I used to think "the Emperars new Clothes" by H C Andersson was a fairy tale for kids. Now I realise it is a entirely plausible reality story.
This is dated but still interesting.
Shannon A. Clark, Texas April 05, 2011 at 3:38 PM
Another example of how goverments, the state, creates economic chaos. None of this would have happened if the state had not inflated their government union workers salaries. The state should let itself default and let the economy start all over, sans statist interference.
Hi Theodore.

500,000 dollars debt per Irish person. I doubt that the mortgage debt taken out by the Irish is responsible for that.

In the case of the USA, the IMF estimated the bank losses in 2008 as 1.4 trillion, and estimated this as being 50 times greater than the losses on the sub-prime mortgages themselves. This is a fundamental fact one needs to know if one is to begin to understand what is happening. The vast bulk of the losses comes from side-bets between the banks, hedge funds, et al. Janet Tavakoli says there was 10 times as much money betting that mortgagees would default as that they were safe.

It's the bankers who caused this crisis. Those bets needed to be huge to enable them to award themselves huge bonuses.

It's the politicians who, having failed to regulate the bankers, are now allowing a banking crisis to create a completely unnecessary crisis in the real economy. This is because they do not understand their own monetary system.

See http://moslereconomics.com/2009/12/10/7-deadly-innocent-frauds/
The increase in public sector employees and pay increases certainly caught my eye.
What happens next when ECB/EU/IMF want their money ? . Watch for a referendum being proposed which would allow Irish Gov. to renegotiate terms and conditions of bailout . There is a growing realization that an independence from EU/ECB would be better for our future than this decades of serfdom that is being prepared for us .
You language is a little unclear when you say "The cautious Americans lent only $70 billion", which according to the previous sentence would make the Americans, not the Belgians, the largest lender?
Francis Stocker, M.D. February 27, 2011 at 8:52 AM
Wow. I thought we Americans went crazy.
My family roots are in Scotland and Ireland via Glasgow,Scotland. And of course growing up in a community that was part Irish -and often very nationalistic and part Scottish -who tended to be British loyalists- the questions of Irish Independence and even Scottish Independence often came up. The prevailing opinion in our family was Unionist based on the simple fact that both Ireland and Scotland owed their freedom and relative independence to outside sources : the British Navy, the RAF and of course to the USA. My father considered it a delusion that Eire or Scotland could be politically and economically self-sufficient because their population and economic bases were too small. Ireland was a nice place to visit but you wouldn't want to live there. My Scottish grandfather -who in the last forty years of his life never once returned to Scotland- used to say "Scotland was a good place -TO BE FROM- and reminded us all it was a Bonnie Land but "ye canna eat the scenery." Of course, for us, this was just an academic question because we are all US citizens now and we have no ties to the old country at all except for a fading nostalgia fuel by a taste for traditional music. But even this nostalgia is not likely to passed down to the younger generation which has no memory of the Old Country or the Old Folk.

Ireland is indeed lucky that it still has access to emigration to Britain and Canada thanks to the Irish Treaty of 1922 negotiated by Michael Collins. An Irish friend of mine said that the the USA was big enough so that if you lost your job in New Jersey you could move to Texas or North Dakota or even work seasonally in Alaska but Ireland was so tiny that for the young emigration is the only way.
The Irish tale, as Dr. Dalrymple has so ably described, is a microcosm for the seriousness of the world economic and social crisis which can only grow worse as inflation rears its ugly head and energy prices "skyrocket". I knew the situation in Ireland was bad -it is far worse than in the USA-but we are also looking at a collapse of commerical real estate and well as a continuing decline of housing prices here. I cannot but help think that the current economic crisis has been fueled by wild speculation and an irrational hubris -not optimism- that disregards basic economic rules that states that money cannot be debased and that it must be sufficiently scarce so as not not lose all its value. In other words one can not print one's self out of debt without overheating and ultimately destroying savings, investment and economic growth. The lesson to be gained here is that a nation like an individual has to live within its means and save -not borrow- for a rainy day.
Thank You for all your work Mr. Dalrymple
Excellent story. A very human story--how a political party and a country after decades of poverty and then relative neglect suddenly went crazy during a boom. Fortunately the Northern Ireland peace process was finally stabilized in 2007, some 3.5 years before the boom finally ended and some 8 years after Fianna Fail renounced Ireland's claim to Northern Ireland.
Obama, Reid and Pelosi are studying Ireland very carefully to see if we can achieve the same results through taxing, borrowing and spending. They now have Dublin squarely in their sights.
Political Economy
Fianna Failed - http://www.flickr.com/photos/xshayx/5211461215
Lies, damn lies and statistics.

This from the Statistics office for 2010 :
Migration: The years of high immigration to Ireland were 2005 to 2008. In 2006, immigration peaked at 60,300 for men. A year later, it peaked at 52,100 for women. Since then, immigration has fallen very sharply to about 15,500 for both men and women in 2010. Emigration rose steeply between 2006 and 2010, especially for men, resulting in a net outflow of 25,100 males and 9,400 females in 2010 (Tables 1.3 and 1.4).

There were 863,000 women and 996,100 men employed in Ireland in 2010. 5pc of this is 93k people.

I like your style and your ideas, but you need to get the facts right.

thank you

source : http://cso.ie/newsevents/pr_womenandmen2010.htm



Presumably the Americans were cautious because they were too busy breaking the banking system on their own?
Well, as for the restaurants being full, I inquired from a local Baskin-Robbins clerk whether business was better under these fiscally desperate circumstances or worse. He said, "Never been better!" When the pain hits, screw the debts, I wanna eat!
It is fairly easy to understand what caused the real estate Tulipmania in Ireland and elsewhere and why financial company compensation schemes make sure that it will happen again and again. All self-interested bettors who get to keep their winnings but whose losses are paid by others will take unreasonable risks
Most of the compensation of financial company managers and other employees who have the power to make investments (e. g., make loans and create trading positions) is based on current period accounting profits which are driven by current period loan origination fees, interest payments (which may have been lent to the borrower) and end of period mark to market of investment portfolios.
Current period compensation is not subject to claw back if the loan or the trading position goes sour in future accounting periods. Shareholders and taxpayer-backed insurance funds own the risks that these managers and employees imbed in the balance sheet and they will absorb the losses. Moreover, the managers and employees will keep their jobs after the institution is recapitalized.
In economic terms, the managers and the other employees are agents; the shareholders who are largely wiped out and the insurance fund/taxpayers who will recapitalize the institution are principals. So long as this agency problem exists, self-interested agents will not behave in the long term interests of the principals. Only when the compensation of financial company managers and other employees who have the power to make investments is largely based on long term increases in tangible book value will they become interested in controlling risk.
This is a good article for as far as it goes. The other part of the saga was that the more banks borrowed from their ilk and loaned to us mortals the more securities they had to play with as well. They securitized the mortgages by leveraging collateral and returns into new instruments and on sold those in funds to the likes of us mortals (read about Fannie and Freddie in the US for example) and fattened the fat cats of Wall Street in the process. Madoff and his Ponzi deals were only a symptom on this side of the story.
Perhaps the philosopher, Albert Camus, captured the essence of this whole affair:

"We live in an absurd world." (paraphrased)
"When the music stopped and the Madoff-style pyramid collapsed, the government was left with obligations impossible to meet.'

Not so. When the music stopped, it was the bond holders, mostly foreigners, who were on the hook. This massive private debt did not become the public debt of the people of Irelands until the stupid politicians assumed it.
And all along the Micks were seen as rustic primatives; a pint and a pipe, and they were happy as goslins on Galway Bay. So much for Hollywood characterizations, and good bye, Barry Fitzgerald. Yee'll neh be missed.
Dr D:
Sovereigns cannot go bankrupt. Alas ... because bankruptcy is the cure for insolvency and insolvency is the problem.

Regards,
Bill Drissel
Grand Prairie, TX
USA