

When Irish Eyes Are Crying - dsplittgerber
http://www.vanityfair.com/business/features/2011/03/michael-lewis-ireland-201103?printable=true

======
duke_sam
The bank bailouts made very little sense, the biggest toxic bank, Anglo Irish
Bank, was not a retail bank. They specialised in property financing. Letting
them go under would not have resulted in the Irish Government having to cover
huge amounts of deposits. The current majority party (Fianna Fail) has a
history of connections to property developers and this connection is what a
lot of people though spurred the saving of Anglo. Now more information is
bubbling up about the exposure of European banks to Anglo and the other Irish
banks. Europe (especially Germany) wants this mess cleaned up because if the
Irish Government drops the guarantee then their own banks will have a huge
hole in their finances. These were essentially risky investments made by
foreign banks that the Irish taxpayer is now being forced to pay back.

Bank of Ireland and Allied Irish Bank were profitable (extremely so in the
context of the Irish economy) and if kept in government hands would eventually
make back their losses. Anglo made it's profits on the back of the property
bubble, not something that will be repeated any time soon.

This is the perspective of an Irish economist on the debacle:
[http://www.ronanlyons.com/2011/01/18/the-irish-bank-
sandwich...](http://www.ronanlyons.com/2011/01/18/the-irish-bank-sandwich-
time-for-the-eu-to-face-up-to-reality/)

~~~
yequalsx
I'm in Berlin now and it appears the Germans feel these so called bailouts are
rescuing countries that don't have their affairs in order. I think these
bailouts are mostly to prop up German and French banks. Banks in Europe and
the U.S. have finally figured a way to socialize their losses and privatize
their gains. Big bonuses are still the norm at American banks even though it
was their bad bets that led the U.S. to its current economic mess.

~~~
muhfuhkuh
"Big bonuses are still the norm at American banks even though it was their bad
bets that led the U.S. to its current economic mess."

I agree wholeheartedly, but there are _so_ many people who readily (and
hastily) blame "dumb and poor" people who shouldn't have gotten mortgages,
Fannie and Freddie (US loan guarantors) who backed those mortgages, and one
rogue liberal US representative (Barney Frank) who somehow bullied the entire
500-member legislative branch and then President Bush into allowing more
mortgages to be handed out to poor people, thus causing the worldwide
financial crisis.

Seriously, that's what people actually believe. What can be done to convince
them that it's way, WAY more complicated than that?

~~~
yequalsx
Yeah, it's hard to convince people that the CRA was not responsible for the
real estate collapse. There were property bubbles in Spain, Ireland, Britain,
etc. The CRA was responsible for those, obviously.

It's easy and natural for one to want to collapse a complicated issue into
something manageable and understandable. Even if there is no evidence for it.

~~~
WalterBright
Holding interest rates artificially low, and very favorable tax treatment for
real estate investments and gains, clearly added a lot of air to the bubble.

------
abrenzel
Anger is certainly an appropriate reaction in circumstances like this, but I
find articles like this really gloss over the nature of the shared
responsibility for what happened.

Yes, banks and governments (including the US! - we just haven't felt the full
brunt of it yet) engaged in many unsustainable and downright fraudulent
practices. Asset bubbles are breeding grounds for such things. On the other
hand, no one forced homebuyers to take on loans they knew they could not
afford, or spend borrowed money at unpayable rates.

Now, everyone wants a bailout. Neither banks nor consumers should get them.
Iceland actually did the right thing by taking its banks into receivership and
breaking them up. The banks screamed bloody murder and threatened national
chaos, and the Icelandic economy did grind to a halt for almost a year. Now,
they seem to be on a road to sustainable recovery. This is not true in either
the rest of Europe or the US, where the bailouts came fast and generous. Look
at today's job report. Is that the sign of economic growth?

While the decisions were justifiable at the time, TARP, TALF, and the like
need to be admitted as mistakes and corrected. If this means recognizing all
of our largest institutions as insolvent, so be it! The nation requires a
banking system, but not any individual bank. It will hurt badly, just as it
hurt in Iceland, but the alternative is Ireland and Greece.

~~~
ebiester
On the other hand... for the equivalent square feet in Tucson, my rent went up
50% over a decade for the same square footage. When you see your rent go up so
drastically, while everyone is getting low interest rate mortgages, you start
to question your "fiscal responsibility." If I had bought in 2006, I couldn't
have sold my property today. However, we didn't know where the "new normal"
would even out.

People took on these home loans, in most cases, because of the fear of rent
increasing past their ability to pay. If you buy, you may not be able to
afford it now, but eventually inflation will bring the numbers into line,
especially not knowing where the "new normal" would be.

~~~
yummyfajitas
_People took on these home loans, in most cases, because of the fear of rent
increasing past their ability to pay._

This is one of the most retarded ideas I've ever heard.

Renting: a small, liquid, short duration, unleveraged short position.

Owning: a large, illiquid, long duration, highly leveraged long position.

So basically, to follow a short term trend, people decided to tie up a large
chunk of their life savings in dangerous, long term leveraged bets. Financial
literacy FAIL.

~~~
yequalsx
I guess it's fine to put a lot of blame on people who bought houses they ended
up not being able to afford. However, there were fraudulant practices by
mortgage companies.

Banks have more responsibility for the mess because they are the experts
(allegedly) at assessing risk. They are the ones that got ratings agencies to
give high scores to the mortgage backed securities. They are the ones in a
position to wreck the economy by collective failure. They are the ones who got
a bailout and clamored for one.

An individual homeowner who makes a bad bet doesn't ruin the economy. Too big
to fail banks who make millions of bad bets do ruin the economy. They
socialized their losses and continue their extremely high pay and bonuses.

The anger should mostly be aimed at the banks. Especially in light of their
dubious foreclosure practices. People are mostly financially illiterate.
People don't understand percentages and compound interest. People are not
rational (most of the time). A regulatory apparatus that isn't beholden to the
banks is what is needed.

~~~
yummyfajitas
_They are the ones that got ratings agencies to give high scores to the
mortgage backed securities._

And that's an issue between them and the people/institutions they sold those
securities to. It does not in any way absolve individuals for making dumb
bets, particularly when those individuals often lied on their loan
applications.

The housing bubble simply could not have occurred without financially
illiterate people making bets they didn't understand in the hopes of getting
rich quick. I agree with you that any individual bank had a more harmful
effect than any individual real estate speculator, but that's just a matter of
size. Collectively, real estate speculators are just as guilty as banks.

I don't disagree with you at all concerning bailouts. We should end "too big
to fail".

But on the other hand, try to remember that real estate speculators also
received massive subsidies (frannie, mortgage deduction) even before the
crisis. The banks, excluding GM, have more or less paid back their portion of
the bailout (this even includes the AIG portion). Real estate speculators have
not paid back their subsidies.

 _The anger should mostly be aimed at the banks. Especially in light of their
dubious foreclosure practices._

Many loan originators did shoddy paperwork to save a buck, and didn't transfer
the lien's to the right party. Real estate speculators are now exploiting the
legal problems caused by this shoddy paperwork to break their contracts and
squat in homes they don't own. The loan originators absolutely deserve to be
sued by the bond purchasers over their negligence.

But the real state speculators are also culpable for exploiting legal quirks
to steal homes from their rightful owners [1]. We may not be 100% sure whether
BankAm Loan Issuing Corp, BankAm Loan Servicing Corporation or the MBS
corporation is the rightful owner of a home - but we are quite sure that the
squatters currently occupying it stopped paying their mortgage and therefore
do not have any right to it. The squatters deserve to be foreclosed upon, and
then the loan issuer, servicer and bondholders can fight over who really owns
the home.

Banks are a convenient political target. But real estate speculators are just
as guilty as the banks.

[1] Obviously, not all real estate speculators are doing this, but I have read
quite a few media accounts of this.

~~~
abrenzel
Spot on.

The whole "Fraudclosure" thing is a bit of a red herring. Yes, banks should be
made to pay for their negligence in complying with basic mortgage laws, but
does their negligence change the fact that the occupants of those homes have
not and cannot pay their mortgages? The mortgages are delinquent, no matter
who the actual owner of the note is. All the controversy has done is slow down
a process that will eventually happen either way.

TBTF needs to go. Many banks, including big boys like JP Morgan and Bank of
America, probably need to be recognized as insolvent despite the bailout money
they took. The foreclosure mess in its own way probably only slows this down
by continuing the cloud the status of the properties in question.

~~~
krakensden
I thought JP Morgan came out relatively unscathed from the crisis, weren't
they the one bank to not need TARP funds?

------
bhavin
Pardon if I deviate a bit from the main topic.

I live in Ireland, and it was quite disheartening when the last budget cuts
appeared. Taxes were increased across the board. If you were earning 25,000
Euros a year, you would pay an extra 1000 Euros in tax (and surprisingly
enough, this low earner class was the worst beaten income group by hike in tax
in percentage terms - 4+% more tax!).

Since its general consensus that banks, govt. etc are at fault (to which I
agree), I want to say something which generally is ignored, just a theory. The
Celtic Tiger years, due to low Corporation Tax rates, have had the similar
impact on the economy as Resource Curse
(<http://en.wikipedia.org/wiki/Resource_curse>). Ireland got rich so fast with
all the incoming money that lots of careless spending by government as well as
people was ignored. The property prices went up crazy, things became awful
expensive etc etc. When nobody cared about how much govt spent or how much
banks are landing real estate developers, this was bound to happen IMHO. If
Ireland had gotten rich slowly and on its own (by increasing exports,
productivity etc), such rackless spending bubble economy would probably never
have manifested itself.

~~~
fdghjkh
The UK spent the last 10years in a period of genuine economic growth - but
still managed to increase it's national debt.

There is no limit to how much government's can spend, however they get the
money!

~~~
benohear
Until 2002 it was actually going down. Then the increase was moderate and it
finally exploded in the 2007 recession.

------
greenmachine
As someone currently living in Ireland, I found the subtitle of this article
particularly appropriate: "Where's the rage?". The Irish government bankrupted
the country many times over by putting the debts of the banks on the backs of
the people. But, unlike France, for example, where people have taken to the
streets and brought the country to a halt to be heard, in Ireland there is
nothing like the level of activism that one would expect given the depth of
the economic quagmire.

I find it quite sad to see how a country that was once such a hotbed of
political unrest has become so passified by the recent wealth that it
experienced. My guess is it has to do with people having the feeling that they
are stakeholders in the system now, with mortgages and fungible assets, and so
they are less willing to want to subvert the system itself rather than muddle
along even with unsatisfactory political solutions.

~~~
fdghjkh
Best reply I heard was an interview with a new graduate.

"We will just do what we have always done when the government fucks-up - we
emigrate!"

~~~
bsandbox
In a nutshell, that's it. People have a sense of resignation on the whole
thing. There is very little prospect of things improving any time soon. The
choices would appear to be a) adjust to a lower standard of living, or b) get
out.

------
dpapathanasiou
It's interesting to compare Greece and Ireland.

Greece was profligate, openly cooking the books since at least 2002
(<http://en.wikipedia.org/wiki/Greek_Financial_Audit,_2004>) whereas Ireland
was doing the noble thing by imposing austere measures on itself.

Yet both needed bailouts by the EU recently, and both will probably wind up
defaulting.

~~~
watchandwait
Ireland and Greece are COMPLETELY different. Greece's government budget is
wildly fraudulent. Ireland's government was responsible, but decided to
encumber taxpayers with private banking losses. Irish voters, like those in
Iceland, may yet reject this deal.

I know I would. The international banking cabal has captured the "democratic"
processes across most of the West and is using those governments to plunder
their people.

~~~
patrickk
" _Ireland's government was responsible...._ " absolutely untrue.

" _As a small, open economy, Ireland was always going to be vulnerable to
global swings," says Ray Kinsella, an economist at University College Dublin.
"But this is predominantly a self-inflicted crisis._ "

[http://www.businessweek.com/magazine/content/10_48/b42050820...](http://www.businessweek.com/magazine/content/10_48/b4205082055642_page_4.htm)

There was an expensive, taxpayer-funded study done (can't seem to find it atm,
but if you Google around you may find it) which basically concurs with the
above statement - our crisis was largely our own making. The international
credit crisis may have accelerated it slightly, but it would have happened
eventually anyway.

I attended a great presentation by a guy called Ed Walshe, who is the former
president of one of Ireland's biggest colleges
(<http://en.wikipedia.org/wiki/Edward_M_Walsh>) where he laid out in black and
white all the idiotic stuff the government got up too when times were good.
Things like massively increasing the numbers of civil servants - not in front
line services like doctors, nurses and teachers; but useless bureaucrats in
offices in Dublin, massively increased civil servant pay - way ahead of
inflation (this effectively bought them popularity for the next election),
cutting income taxes across the board, 'throwing gasoline on the fire' by
giving extra tax breaks to property developers (section 23 and section 50 tax
breaks) when things were extremely overheated and the brakes should have been
applied etc. etc. I can dig up a copy of the presentation on my hard drive if
you are especially interested.

Also adding to the problem was non-existent regulation of the banks and
construction industry in general. The head of the construction federation was
a guy who was former Fianna Fail (the main party in government). The head of
the banking lobby was a former member of a party that was in power with Fianna
Fail. Basically at the highest levels in Ireland the whole scene operated like
a gigantic old boys' network that would put things to shame in most other
parts of the world.

------
arethuza
One of the few positive things to have come out of the financial crisis of
2008 is that it has probably killed any prospect of Scotland becoming
independent - we used to be promised that we could share in the same kinds of
success as Ireland and Iceland if only we had the courage to go it alone!

I doubt if many people have the appetite for being stuck in a small country
with a financial monster like RBS or HBOS.

[NB I am a reformed Scottish Nationalist]

~~~
seanalltogether
Whenever I hear about people wanting to break away like that I'm always
reminded "There's strength in numbers". As the world economy starts to flatten
out, we're all learning that it comes down to a population game. I wonder if
we'll see a point where two countries vote to merge together to create a
stronger economy.

~~~
sp332
See: the European Union. Shared currency, very little restriction to travel
and trade, made it possible to compete economically with the UK.

~~~
patrickk
Yes, the EU has those advantages, but it's bloated, unwieldy, mainly tries to
serve the interests of Germany (biggest economy) and is ill-structured to deal
with the type of problems currently affiliating the 'peripherals' (or 'PIGS':
Portugal, Ireland, Greece, Spain). The features of a common monetary policy
are great when times are good, but allows the problems of one nation to spread
like a virus when times are bad. So it's a double-edged sword.

~~~
benohear
I find that statement a bit weird. Germany are on the hook for something like
120 billion in this bailout. That's €1500 for every man, woman and child in
the country.

And that's after essentially funding the EU for the past 20 years. Though
things have levelled a bit of late, they used to have net contributions about
3x higher than the next one (the UK).

------
Jun8
"Which way entire nations jumped when the money was made freely available to
them obviously told you a lot about them: their desires, their constraints,
their secret sense of themselves. How they reacted when the money was taken
away was equally revealing."

So true, for countries _and_ people.

------
billjings
Here's the previous article in what seems to be a series:
[http://www.vanityfair.com/business/features/2010/10/greeks-b...](http://www.vanityfair.com/business/features/2010/10/greeks-
bearing-bonds-201010)

------
patrickk
Wow, great to see Michael Lewis, one of my favorite authors, coming to little
ol' Ireland and do such an in-depth piece on us. I had no idea that the insane
decision to bail out Anglo Irish was so directly linked to Merrill Lynch's
'advice'.

Interesting fact: I was sitting less than 50m away from the heroic egg-thrower
when he went for the kill. Wasn't in the same room unfortunately. We were
warned to hide our bank ID badges that day going in and out of work :-)

------
Padraig
One fundamental problem we have in Ireland is the way in which we elect our
Dáil (parliament).

There's a 4 minute section in this video (43m45s onwards )
<http://www.rte.ie/player/#v=1090239> which explains better than I can, but
here goes:

In short: 1\. There are multiple seats (often with a few candidates running
from the same party) per constituency. 2\. It doesn't take many votes to get
elected (Any more than 8,000 votes got you elected in my constituency of
86,000 people).

Politicians don't compete on the differences between their parties because
they're also competing against another locally running party member. Instead,
they wage very local personality based campaigns. Since they only need a few
thousand votes, they can and do call door-to-door to chat with everyone they
can. Pothole need filling? Let your local candidates know and by god it'll be
fixed immediately.

This means that the people who end up making important decisions on whether or
not to take on 100s of billions of euros worth of debt are the people who came
across best on a few thousand house calls.

~~~
fdghjkh
There's a great book written by a civil servant in Ireland's foreign ministry
in the 80s.

He said he had two maps on his wall, one of the eastern bloc enemy and a
bigger one of his minister's constituency - a crisis (eg a pothole) in the
constituency was the priority.

~~~
Padraig
Ha! That doesn't surprise me at all. What's the book called?

There is an appetite to reform this stuff now, but it's hard to imagine the
winners of the game when played by those rules deciding to change it
dramatically.

~~~
vdm
'An Accidental Diplomat'? <http://www.amazon.co.uk/dp/1902602390>

------
albemuth
Completely off topic, but the ?printable=true in the url is a very nice touch

------
6ren
Australia also has had a long, rolling property boom, with bank lending behind
it all.

It didn't pop when expected because our economy was propped up by
mineral/metal prices, due to China's demand and surprisingly little supply
from other countries. Both may change.

~~~
j2d2j2d2
It still has a bubble which hasn't popped. Australia is def a nation to watch.

~~~
bhoung
Crossed my mind to ask if anyone saw any parallels with Australia. Glad to see
someone mention it.

My rough interpretation of the article is that cheap labour from Poland
distorted the Irish economy, and the banking contagion resulted in loans to
the Polish who couldn't afford the loans, and subsequently disappeared,
especially once the whole economy went sour.

An important difference to Ireland's story is that the people who make up
Australia's cheap imported labour face greater restrictions in entering the
country as they are, with the exception of New Zealanders who are have the
same living standards as Australians, international students (and possibly
people on working holiday visas) who, to my understanding, are required to
demonstrate sufficient funds to get by. Staying on after graduation of
whatever course is not guaranteed and has become more difficult post a recent
policy change. Australia runs a points system in issuing residency visas and
has just cut the number occupations/courses which receive points.

My feeling is that the same expectations fueled bubble has arisen here (I'm in
Melb) but has been sustained by the resilient resources dependent economy as
well as the capital inflows from those who see Australia as an attractive
place to invest and/or also live/have a holiday home.

"real-estate bubbles never end with soft landings. A bubble is inflated by
nothing firmer than expectations."

Although the factors driving the housing bubble in Australia are different
from those in Ireland, if we concede there is a bubble in Australia, and we
listen to economics professor Morgan Kelly, we're due for a crash.

A couple counterpoints to the above: China's demand for resources will
probably span another two or three decades, and also Australia's financial
lending practices are not and haven't been as lax as those of Ireland or the
US.

------
staticshock
some previous discussion on this:
<http://news.ycombinator.com/item?id=2171381>

------
VB6_Forever
Banking seems a lot like a gambling except that it's heads you win and tails
they lose.

Lend big into a property bubble and you'll be rewarded with colossal bonuses.

The bubble bursts, loans go bad and the share price collapses.

However the main banks banks are considered too big to fail and the taxpayer
has to bail them out.

Bonuses (smaller ones) for exceptional performance continue to be the norm,
rolling heads the exception.

Why don't the shareholders get rid of their employees, the bankers who have
overseen the collapse of their asset?

The shareholders are Pension funds who, while they ostensibly have the little
peoples'interests to preserve, are actually run by people from the same gene
pool as the bankers themselves.

These people sit on one anothers remuneration committees.

Dog does not eat dog.

~~~
RyanMcGreal
"Too big to fail" is a classic perverse incentive, and a mockery of the idea
that the financial industry can somehow self-regulate.

Unfortunately, if you remove deposit insurance (or any of its variants),
people's savings once again become subject to the self-fulfilling whims of
insolvency or _the unfounded rumour of insolvency_.

~~~
anamax
> Unfortunately, if you remove deposit insurance (or any of its variants),

I've heard that Canada didn't get deposit insurance until the 50s or 60s, well
after the US.

