Cyclical Trends BOH v04

LIMERICK INSTITUTE OF TECHNOLOGY
Cyclical Trends in Construction and Property.

3rd Yr. Quantity Surveying 2011-2012.
Draft no.04 Author: Brian O Hanlon.
K00123106
2/29/2012
The year 2008 will be remembered in Economic History as one of the most turbulent and volatile periods for the worlds financial systems in general, and for the Irish Construction and Property industry in particular. Now in 2011-2012 the consequences of that collapse in the property and construction boom are being fed through into instability in the Eurozone itself.
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Contents
Contents .................................................................................................................................................. 2 Table of Figures ...................................................................................................................................... 4 Study of Economic Bubbles.................................................................................................................... 6 Bubbles Historically speaking. ........................................................................................................ 6 Bubbles - This Time it is different. ..................................................................................................... 9 Study of Subprime mortgages ............................................................................................................... 14 The Sub-Prime mortgage market. ..................................................................................................... 14 The effects of the Sub-Prime mortgage market collapse. ................................................................. 17 Who is to blame? .............................................................................................................................. 20 What is Euro zone? ........................................................................................................................... 25 The Eurozone and European or International Policy Making. .......................................................... 27 Study of Irish Economics ...................................................................................................................... 33 The Irish Bubble. .............................................................................................................................. 33 The Irish Bubble and its Underlying Factors. ................................................................................... 37 The Irish Economy and Eurozone crisis. .......................................................................................... 44 Study on NAMA ................................................................................................................................... 49 NAMAs role. ................................................................................................................................... 49 What is NAMA supposed to fix? ...................................................................................................... 55 W o r k s C i t e d ............................................................................................................................ 58
Table of Figures
Figure 1 - Index of Japan nationwide land prices. .................................................................................. 6 Figure 2 - Financial industry profits as a share of US business profits................................................... 7 Figure 3 - UK real average earnings. .................................................................................................... 11 Figure 4 - Reversing origins of US corporate profits, 1950-2004. ....................................................... 13 Figure 5 - Unconventional Monetary Policies, US Federal Reserve Bank. .......................................... 23 Figure 6 - Explosion of fiscal deficits as a percentage of GDP. ........................................................... 31 Figure 7 Skyline of Dublin Docklands Area in 2000's. ..................................................................... 33 Figure 8 - Monthly house completions, based on ESB electricity connections. ................................... 34 Figure 9 - Property lending in billions of 2009 Euro, 1993-2009. ........................................................ 35 Figure 10 - Evolution of credit in Irish economy, Y-axis shown as millions of euro. .......................... 38 Figure 11 - Average first time buyer mortgage and new house prices, relative to average earnings.... 39 Figure 12 - Surplus capital exporting countries. ................................................................................... 40 Figure 13 - Foreign currency intervention: global currency reserves. .................................................. 41 Figure 14 - Consumer debt service ratio. .............................................................................................. 42 Figure 15 - Portugal, Ireland, Greece and Spain. .................................................................................. 44 Figure 16 - Housing Investment as a percentage of GDP. .................................................................... 45 Figure 17 - General Government Balance, as per cent of GDP. ........................................................... 45 Figure 18 - Lost competitiveness in periphery, Unit Labour costs, relative to Germany. .................... 46 Figure 19 - Irelands projected Debt to GDP ratio................................................................................ 46 Figure 20 - The Five Irish Lending Institutions. ................................................................................... 50 Figure 21 - Loan book by loan type. ..................................................................................................... 51
Study of Economic Bubbles

Bubbles Historically speaking.
Describe, using examples from past economi c experience throughout the world, what is meant by an Economic bubble?
Bubbles have occurred in developed economies since the very beginning. My professor in architecture school in Dublin in the 1990s used to like to tell the story of ancient Egyptian economy and the pyramids. The economy had become so wrapped up in building these structures, that the Pharaohs couldnt stop, or risk crashing the whole economy. Professor Morgan Kelly, a keen observer of the Irish economy in the period of the early 21st century, might draw a similar observation about Ireland. (Kelly, 2009) (Reinhart & Rogoff, 2009)
Figure 1 - Index of Japan nationwide land prices.

Source: David Harvey. (Harvey, 2010)
Professor Kelly of UCD made a historical study of bubbles that occurred in Japan in the 1980s, and the Irish agricultural land bubble following entry into the European Union in the early 1970s. It was a
popularly assumption in Ireland in the 1970s that having gained access to large markets for agricultural produce, all of the farmers in Ireland would become rich. It resulted in of over investment in new equipment, infrastructure and agricultural land (purchased using credit). The aftermath in the 1980s saw many farmers going bankrupt. According to Woolley (Biais, Rochet, & Woolley, 2010), the Financial Industry itself is a bubble, absorbing absurd amounts of capital and human resources. Banking and finance is the worlds largest industry accounting for 10% of GDP in the US and UK. Woolley refers to it as rent capture, or the ability of the middle man to earn excessive profits. (Biais, Rochet, & Woolley, 2010) (Stiglitz & Nations, The Stiglitz Report: Reforming the International Monetary and Financial Systems in the Wake of the Global Crisis, 2010)
It isnt just that the agents are in a position to capture the bulk of the gains from financial innovation because they are at the intersection of the saving and investment processes for the entire economy. They have the potential to extract the bulk of the returns from the entire productive economy. They can bleed the economy dry. (Woolley, 2010)
According to Woolley (Biais, Rochet, & Woolley, 2010), until 2005, one could explain the price of any individual commodity wheat futures, pork bellies, aluminum, freight rates, oil or whatever by supply and demand in relation to the underlying commodities. But the search for alternative investments by giant investment funds in the late 2000s has caused distortions in the market for commodities. Which has messed up all of the signals for consumers of commodities themselves.
Figure 2 - Financial industry profits as a share of US business profits.

Source: Simon Johnson, Atlantic Montly. (Johnson, 2009)
Soros (Soros, 2008) commented on the commodities bubble in emerging countries in the later 2000s. Which resulted in a lot of capital flowing from the centre of the financial system to the emerging countries. In the aftermath of September 2008, US Secretary of the Treasury, Hank Paulson, was forced to guarantee deposits in order to give people at the center of the system confidence. But it also had the consequence that a flood of capital rushed from the periphery to the center. The periphery got hit again. (Soros, 2008) George Soros, lifelong hedge fund manager and owner of the Quantum Fund has published works in recent times about what he calls the Super Bubble. Many other bubbles such as the dot.com technology stocks bubble and the US Sub-Prime mortgage securities bubble, fit inside the Super Bubble according to Soros. 1 (Soros, 2008)
I recommend that readers also pay close attention Professor David Harveys theory about the internal contradictions of capital surplus accumulation, which I describe later in the document. It is an alternative and interesting theory to do with innovation in consumer lending from the 1970s onward.
Bubbles - This Time it is different.

Why, despite the fact t hat this phenomenon has been experienced numerous times in the past, is it so difficult for market players in a bubble to correctl y assess the nature of the market t hey are participating i n until after the bubble bursts?
Paul Krugman described the inability of economists and policy makers to see the housing bubbles in America of the 2000s, as one of the most depressing things ever prices were out of line with any notion of the fundamentals. (Krugman, 2009, June 09) At least the technology bubble of the 1990s was something completely new. We did not know how to value it properly. But housing markets have been around since the Sumerians. 2 Why did people suddenly believe the old rules no longer applied to the housing market? Harvey does not believe it is possible to have a crisis free capitalism. Professor Harvey cited the most recent World Bank development report the best thing that you can do, is let the market rage. This is the advice as handed down to countries all around the globe. You can clean up the mess after the bubble has been created and has gone. (Harvey, 2010) Harvey suggests the only way that we will be able to avoid future financial crises and bubbles occurring, is to have social control over the surplus produced by the capitalist system. In Harveys theory, economic bubbles may be an inevitable consequence of capital accumulation. (Harvey, 2010) It is worth spending some paragraphs to look at the concept of what George Soros has termed the Super Bubble. There are several components of the super bubble. The expansion of credit made possible by the growth of the financial services industry. The creation of more and more sophisticated ways in which to employ financial leverage to place larger and larger gambles. The globalization of financial markets is another component. (Soros, 2008) According to (Reinhart V. , 2011), the most frequent phrase used by Hank Paulson in US Congressional testimony in 2008 was: Before Asian markets on Monday.
The cities of Sumer were the first civilization to practice intensive, year-round agriculture, by perhaps c. 5000 BC showing the use of core agricultural techniques, including large-scale intensive cultivation of land, monocropping, organized irrigation, and the use of a specialized labour force.
The doctrine of market fundamentalism played a role in the creation of the super bubble. The misconception of regulators and governments that markets can correct their own mistakes. The cost of financial innovation is that you are going to have occasional bubbles, and you pick up the pieces afterwards. Periodic financial crises and their subsequent resolution by governments only served to reinforce the misconception. (Soros, 2008) Financial crises such as the Savings and Loan in the United States in the 1980s served as successful tests of the misconception. In 1998, the leveraged hedge fund, Long Term Capital Management was about to default but the system was held together by the successful intervention of the US Federal Reserve. After the 1998 crisis, it was peripheral economies such as that of Indonesia which suffered the most damaging after effects not the United States economy. (Soros, 2008) The belief was reinforced that capital was safe at the centre of the financial system in the markets of the United States. The United States was able to suck up all the savings of the world. (Soros, 2008) How or why did the huge expansion in consumer lending that we witness today in modern society come about? One explanation is ventured by Harvey (Harvey, 2010), who said labour (the workers who produce goods, that creates the surplus known as capital), became weaker from the 1970s onwards. One of the first attempts to break labour, was through means of immigration. In the mid 1960s, the United States revised its immigration law to allow itself access to the whole global labour market. That proved to be politically unpopular. It created competition on home soil for employment. The United States then tried off-shoring of jobs. In order to do that, ways for capital to pass across national boundaries was needed. What the United States required was the opening up of new financial architectures starting from the late 1970s and early 1980s onward. Even the threat of off-shoring of jobs began to discipline labour. Capital needed to go where the most disciplined labour force existed. The currency futures market in Chicago begun in 1972, was essential for pursuing a solution to the labour problem. By the mid 1980s according to Harvey, the labour problem is essentially solved from a capital point of view. (Harvey, 2010) Capital had access to massive labour reserves all over the world. One can read the work of Naomi Klein also for illustration of this point. (Klein, 2002, April 06)
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From the point of view of a US multinational, the most disciplined labour force existed in the developing world, and in places such as Ireland. What has been the net result of all of this movement of capital to continue with cheap labour resources?
Figure 3 - UK real average earnings.

Source: National Statistics Office, UK.
The wage share of national income has been steadily declining in all OECD countries since the 1970s. (Harvey, 2010) (Stiglitz, 2006) Wages have even been declining in China. In this environment, where is the market for goods going to come from? Where is one going to sell produce? Harvey explained the solution to this crisis, dictated the terms of the present day one. The solution to the lack of markets for produce, was to give everyone credit cards. It is what Harvey calls the organization of a debt economy. Households in the United States tripled their indebtedness over the last 30 years. The indebtedness also occurred in a situation where wages levels were declining. Competition between capital, meant that profit margin on goods sold went down. By the late 1980s, a low wage economy and a low profit margin economy had been created. This suited Ireland for a brief period known as the early phase of the Celtic Tiger in the 1990s when our economy was competitive and based around manufacturing and exports, rather than on household consumption and property speculation.
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While the boom lasted, to get the resources it needed the building sector outbid firms that were exporting. The effect of the rapidly rising costs, especially wages, was that firms that depended on export markets were closing even in the good times. Because of the general buoyancy in the economy these losses went unnoticed. (Fitzgerald, 2009)
Why would capital wish to invest in a low profit margin economy? Capital began to invest instead in other things. New markets for assets which had never existed before. Markets which do not clear themselves in any ordinary sense. Markets where one could make money out of money. Later in this study, the Sub-Prime mortgage market in the United States will be discussed. Markets in derivatives, markets in insurance on derivatives, derivatives on insurance on derivatives and so on. At the height of the financial crisis of 2008, the five largest hedge funds in the United States each earned $30 billion a piece. That is where capital was going, because it could not find good markets to make things that people really need. (Soros, 2008) (Harvey, 2010) (Wolf, 2011, March 16) A lot of savings from all across the globe ended up in the United States, because it was supposed to have sophisticated markets that knew how to invest the savings well. That turned out not to be true. (Krugman, 2009, June 09) In fact, the United States had no idea what to do with the capital. (Wolf, 2011, March 16) In the future the American financial industry will not represent 25% of the market capitalization of the New York stock exchange. The shadow banking system will be absorbed back into the regulated investment banking system. The hedge fund industry will go through a shakeup and be dramatically reduced in size. Having 40% of all US corporate earnings in the financial industry was an excess. With increased regulation, certain business models which relied on excessive leverage, such as Long Term Capital Management, will prove to be unworkable. (Soros, 2008) (Stiglitz & Nations, The Stiglitz Report: Reforming the International Monetary and Financial Systems in the Wake of the Global Crisis, 2010)
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Figure 4 - Reversing origins of US corporate profits, 1950-2004.

Source: David Harvey. (Harvey, 2010)
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Study of Subprime mortgages

The Sub-Prime mortgage market.
Describe fully the evol ution of the sub-pri me mortgage industries collapse in the United States.
A notable economic commentator in the United States, Peter Schiff, suggested that in the 2000s in America if one wanted money one bought a house. Mr. Schiff points out, that you needed more paper work to rent a home in California in 2006 than to buy a home using a bank loan. (Schiff, 2006) 3 One did not need to any money down as deposit to purchase a home. One could buy with credit and wait as the value of the investment rose. (Shiller, 2008) According to Harvey, the largest failed state in the world today, is California. If it were not for federal state transfers, California would be completely wrecked. (Harvey, 2010) (Harrison, 2007) Harvey points out, the tax relief on mortgage interest payments, offers huge advantages to the middle classes in the United States. The larger the mortgage debt of the American citizen the more interest you are paying, the more interest tax relief you receive. (Harvey, 2010) 4 The percentage of home ownership the United States is over 60%. In other wealthy countries such as Switzerland it is only 20%. (Harvey, 2010) When we hear the term Sub-Prime nowadays, we tend to think about Wall Street, corruption and the financial meltdown. But the Sub-Prime mortgage was heralded as a fantastic innovation. It offered to millions of young Americans who may have overdrawn their credit cards in their youth and thereby
An astonishing amount of what Schiff describes about California in the 2000s, also sounds familiar from an Irish or UK residential market perspective. (Kelly, 2009)
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In this study, I did not have time to bring in the input of American socialist thinker and author Mike Davis. See bibliography at end, for a PBS interview on the Bill Moyers show, in which Davis discusses the involvement of labour in America as part of the solution that president Roosevelt negotiated in the New Deal era. The agreement in the 1930s in America between capital and labour, which Davis believes is not happening in the early 21st century in the United States. Also refer to the work of Harvard professor, Elizabeth Warren, and her extensive studies into the state of the middle classes in the United States today, for additional points of view.
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ended up with a poor credit history rating a means to access credit to buy homes. The Sub-Prime innovation gave many people a route back towards home ownership. Geanakoplos (Geanakoplos, 2009), explained that you can never find $1.0 trillion worth of people willing to lending to subprime borrowers. This is where the innovation of financial intermediation and risk management stepped in to assemble the credit in the quantities necessary to develop a solution such as the Sub-Prime mortgage. The whole idea behind securitization is that one doesnt need to find $1.0 trillions worth of lenders. By splitting the mortgage securitization into tranches of different risk ratings, of the $1.0 trillion of creditors, approximately $800 billion were buying a low risk investment. It was only the 20% who were taking on the much higher level of risk, were paid premiums for their risk investment. The whole idea of the American financial system, was to create cash flow for the people in the states that wanted it. (Geanakoplos, 2009) The financial sector fabricated on an incredible scale these safe higher yielding assets which satisfied the reach for yield by investors who were struggling to find returns for capital in the extraordinarily low real and nominal interest rate conditions of the post dot.com years. Wolf believes that German banks purchased more US Subprime mortgages than American banks did. The safe assets turned out to be anything but safe. (Wolf, 2010) According to Simon Johnson the additional profits of the financial sector in the last decade have come for the most part from dealing in the more exotic securities, assets and markets which had never existed before in the financial system. (Johnson, 2009) As soon as house prices in the US began to slide, the short comings of the risk models was revealed by losses on such a scale, that they threatened the solvency of the worlds major banks. The losses were out of proportion with the banks cushion of shareholder capital to absorb losses. Swiss bank UBS for instance, a leader in the use of risk management models, lost $44 billion. Professor Patrick Honohan, the Governor of the Irish Central Bank, speaking in December 2008 provides an explanation of why risk management failed so spectacularly in banks throughout the globe. (Honohan, 2008, December 02) Honohan understood that banks were using risk management tools to build very complex transactions. At first the risk management tools performed well by generating accurate predictions of risk, and spreading the risk amongst many lenders. This has allowed banks and financial institutions to conduct
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new kinds of business with apparent safety. But the risk management tools were pushed well beyond their true capabilities, being employed to assess the riskiness of increasingly complicated and unproven transactions. 5 It was the level of confidence placed in these tools which resulted in their becoming a kind of Trojan horse. Basel II (Bank for International Settlements, 2004), according to Honohan is dead on arrival, being the embodiment of the over confidence in mechanical risk management tools. There should be 5% capital in any institution regardless, and it should be equity capital. We got into more and more trouble because risk-based capital became the measurement. (Fish, 2009, September) If capital is to be used to take overnight positions in foreign exchanges, or to take derivative positions, or to invest in an automobile company in China, then capital has to be very high. (Fish, 2009, September)
Economist Nouriel Roubini turned out to be one of the most accurate predictors of the crisis of 2008. Honohan had dismissed the early analysis of Doctor Doom Nouriel Roubini, because Roubini had no particular expertise in banking and risk management, being a macro-economist. (Honohan, 2008, December 02)
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The effects of the Sub-Prime mortgage market collapse.

Demonstrate how this collapse had severe consequences for the wider financial services industry in the USA and elsewhere i n the world.
Larry Fish said, it was the first time in his forty years of banking, that there was a crisis in consumer lending. Consumer lending had always been easy to underwrite, and never had any serious problems. In the past it was always commercial credit which had caused the crises in the banking industry. (Fish, 2009, September) This crisis was not caused by any external shock, such as the lack of supply of oil as had occurred in the 1970s. This was a crisis that originated at the center of the global financial system. (Soros, 2008) Geanakoplos says the third quarter of 2006 was the peak of the Subprime mortgage market and that by early 2007 it had collapsed. By November 2007, the stock market in the United States had also collapsed. Geanakoplos says that traders had figured out something bad was going to happen. (Geanakoplos, 2009) The Subprime market was only $1.0 trillion in size. But there were all kinds of insurance written on it also by those same banks who had announced losses at accelerating rates by December 2007 and early 2008. Geanakoplos noted that securitization had made investing in Mortgage-backed securities much safer by the 2000s, and that financial institutions were buying them using leverage. Insurance companies were big buyers of MBSs, but the price got so high they stopped buying. Instead they purchased Credit Default Swaps, which enabled a pessimistic investor to express themselves in the market. (Geanakoplos, 2009) Large investors began to bet against the market for Subprime mortgages starting in 2005 and soon the Subprime market went down. MBSs went down so far in price new securitizations were not worth it any longer. If new MBSs were sold at a lower price, there was no money to lend to the
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Subprime borrower. In order to make the MBSs sell for a higher price, issuers of new bonds demanded that homeowners put up more capital. 6 (Geanakoplos, 2009) In 2007 Subprime borrowers who could have re-financed their loans using only 3% down, were asked to put 25% down instead. In 2007, people all stopped re-financing their loans. They got stuck with the old loan, which then was ratcheted up to higher interest rates. Subprime borrowers who had maintained payments for the first 2-3 years at the lower interest rates, began skipping payments. But before this had even occurred the Subprime mortgage market collapsed, followed soon after by the stock market and eventually huge holes began to appear in balance sheets all over the world. (Geanakoplos, 2009) How bad was the financial collapse of 2008? Three of the five largest investment banks in America failed. The countrys largest residential mortgage funder failed. The countrys fourth largest commercial bank failed. The United States largest insurance company failed. The great semi-government mortgage assemblers, Fannie Mae and Freddie Mac failed. Two of the four largest UK banks failed. The largest bank in Belgium, and the largest bank in Holland. Tens of billions of dollars were lost by banks in Switzerland, France, Russia, China and Germany. The list goes on. (Fish, 2009, September) No sector was blamed more than the financial services sector. Not every countrys banking system got it wrong. The banking systems of Canada, Brazil, Spain and Australia did remain stable. (Fish, 2009, September) But that is only the regulated side of the whole banking system, as it was in 2008. By the time of the crisis, the conventional system was competing directly with its nemesis, the shadow banking system. (Gorton, 2009) (Krugman, 2009, June 08) According to Krugman we fell into the illusion that a bank had to be a depository institution and we had forgotten about things like bank runs.
A bank is not a big marble building with a row of tellers. A bank is any institution, or any arrangement, that allows people what seems to be ready access to their funds, while at the same time financing long term and/or illiquid investments. (Krugman, 2009, June 09) The detailed story Geanakoplos tells is that 70% of Subprime borrowers had always been able to re-finance their Subprime mortgage between years 2 to 3, before its interest rate shot up. That is Subprime borrowers were no longer considered the same credit risk, and it meant that lenders for the Subprime loans were assumed of getting back 70% of their money within three years of lending it. In 2007, Subprime borrowers could not refinance their loans, and it meant that lenders got nothing back either. (Geanakoplos, 2009)
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Krugman points out that in retrospect, a lot of the shadow banking system represented an end run around conventional banking regulation. When the crisis hit, far from having a secure banking system, it was more than half as un-regulated, as un-insured and as un-policed as it had been the case at the beginning of the Great Depression. People say nowadays, that we havent had great waves of bank failures like there was in the 1930s. But in fact, we have. It is just that they do not look like banks. The shadow banking system today has suffered a huge shrinkage in volume. In October 2008, the Federal Reserve bank officials testified before the US congress, in order to pass through legislation for the Troubled Asset Relief Program telling members of the house of representatives, that ATM machines would dry up. A flurry of faxes that would go around Wall Street, and shortly afterwards, the world would all come to an end. If banks were not willing to make trade credit available, then activity in the economy would stop. (Reinhart V. , 2011)
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Who is to blame?
Who or what should be apportioned the blame for this catastrophic market failure?
What were central banks doing during the decade of the 2000s? Central banks stood back and watched as banks hugely expanded their balance sheets. Central banks stood back and watched the expansion of the parallel shadow banking system and as the amount of credit in their economies grew and grew. (Gorton, 2009) (Alessandri & Haldane, 2009) They stood back and watched the extreme levels of asset price inflation and household debt accumulation. (Davies & Green, 2010) Bank leverage in the regulated sector expanded rapidly from 2003 on, as it tried to compete with the un-regulated parts of the system. (Davies & Green, 2010) Central banks stood back and watched as risk became seriously mis-priced. The Central banks around the world were writing their financial stability reviews which included only half of the recommended IMF indicators of financial stability. 7 (Davies & Green, 2010) Martin Wolf has said the United States is the one country that can finance itself. It is the country that issues the reserve currency. That is why it is stable. But Wolf also thinks the system turned out to be less stable than the experts expected. What broke, was not the global capital flows, but the domestic banking system. The US financial system broke under the intermediation process, of trying to sustain the global capital flows. (Wolf, 2011, March 16) The conventional wisdom, at the time of the 2008 crash in the financial system, was that Central banks could not do very much to prevent formation of asset price bubbles. It was best to wait until the bubble had burst, and try to clean up the mess afterwards. (Davies & Green, 2010) (Soros, 2008) With its intervention in March 2008, to rescue Bear Stearns, the US Federal Reserve extended the perimeter of its safety net. The Federal Reserve bank had not lent outside a set of commercial banks in volume for more than 20 years. It sent out a market signal, for who it was going to support. (Reinhart V. , 2008)
Professor Charles Goodhart has conducted important research in this area. (Goodhart, 2010) The European
Central bank has said in its 2010 review that financial stability needs the sustained intellectual investment that only price stability has received. (Davies & Green, 2010)
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The play book for government intervention in times of financial crises had been documented, written about and well-rehearsed during the Clinton administration years of the 1990s. Normally, a branch of government would lend money to a leveraged entity in a time of great stress. The financial assets that the entity held could not be liquidated in sufficient time to pay back short term liabilities. Government would try to assist those institutions who are supporting lending in the general economy. Governments were preventing fire sales. (Reinhart V. , 2011) If you force the financial institution to liquidate it would be selling impaired assets into the market all at once. Prices would go well down below fundamental value. There would be capital losses, that wouldnt be suffered by anyone, if only the assets could be held to their true maturity. We have this presumption that government intervention is a free lunch. (Reinhart V. , 2008) The $50 billion Mexican guarantee of credit was never invoked, so it did not cost the taxpayer a cent. It was a free lunch. But why doesnt a market speculator simply choose the next institution where the government will intervene short sell its equity and buy its unsecured debt? The fact that government stands ready to help in the resolution of the firm, doesnt stop the incentive to speculate in the market. It doesnt prevent strains in financial markets. It only puts them in different places. Reinhart argues that if you have provided a blueprint for how you are going to resolve entities protecting some portions of the balance sheet, wiping out another portion that is a blueprint to speculate against the firm. (Reinhart V. , 2008) The Federal Reserve bank lent to Bear Stearns to protect unsecured creditors. When unsecured creditors were saved in the Bear Stearns resolution, the cost of buying insurance for Lehman Brothers (which had a similar balance sheet of assets to that of Bear Stearns) on the CDS market, went back down. The US Federal Reserve sent out a message to the world. Unsecured creditors dont have to be as careful as they would otherwise be. After the resolution of Bear Stearns in March 2008, the Federal Reserve then opened its discount window to the remaining primary dealers, of which Lehmans bank was one of twenty such institutions in early 2008. It allowed primary dealers to borrow at subsidized rates. At rates that were below what they could borrow at in the market in early 2008. Hence, these primary dealer institutions received a form of subsidy.
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The purpose of such an action by the Federal Reserve was to give the primary dealers time to clean up their balance sheets, so that they could learn a lesson from Bear Stearns. In theory, the financial system would have become more secure and less vulnerable. Lehman Brothers bank did not learn the same lesson from Bear Stearns as the Federal Reserve had hoped. Lehman Brothers bank assembled together all the bits of underwriting that remained on its balance sheet. A mixture of various mortgage backed securities, collateralized debt obligations. Lehmans rolled them all up together and issued it as a new security, that was eligible as collateral for borrowing at the Federal Reserve banks recently opened discount window. (Reinhart V. , 2008) Rather than begin a process of cleaning up its balance sheet, Lehman Brothers embedded the risk even deeper into its own balance sheet with its new security a security which had no other customer other than Lehmans bank itself because it could only serve as collateral at the Fed discount window. (Reinhart V. , 2008) No matter how hard US Secretary of the Treasury, Hank Paulson, worked each weekend in 2008, there was always another financial firm getting into trouble. In 2008, over and over again, the same play book was used by the US government with many of the large institutions. Between Bear Stearns and Lehman Brothers was the resolution of government sponsored enterprises Fannie Mae and Freddie Mac with the result that unsecured creditors are again made whole, at 100 cents in the dollar.
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Figure 5 - Unconventional Monetary Policies, US Federal Reserve Bank.

Source: United States Federal Reserve bank.
Government intervention was made possible, while avoiding the US House of Representatives, using government off-balance sheet entities. At a time of crisis, the US Federal Reserve bank itself has become a government off-balance sheet entity. The Dodd-Frank reform legislation of July 2010 signed into law by president Obama just legitimizes the governments use of power in those situations. (Reinhart V. , 2008) (Greenspan, 2011) When the United States government did let one go, the world didnt come to an end because Lehman Brothers assets were tied up in the courts. The bankruptcy process does work. The collapse of Lehman Brothers sent the signal it did to the market, because an expectation of government intervention wasnt realized. The market players screamed Oh my God! They arent going to bail us out! (Reinhart V. , 2008) According to Reinhart, we might be in much better shape today, if we could do things to make the bankruptcy process more transparent and easier than having too many government resolution processes. (Reinhart V. , 2008) If Bear Stearns had gone bankrupt in March 2008, the Federal Reserve would have had to provide funds to support a market, rather than provide funds to support institutions. We witnessed a similar behavior in Ireland during the late 2000s. The Irish government tried to maintain such things the National Asset Management Agency as an off-balance sheet entity, without success.
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It is not the taxpayer that is putting money into it (NAMA). The taxpayer will gain money from it (NAMA). We will get back liquidity into the banking system which is causing the absolute disaster that we have in the economy right now. The payment for these loans will not come from the taxpayer. It will come from the issuing of government bonds, which will then be cashed by the banks at the ECB. It is really the ECB which is putting this money in. (Fahey, 2009)
It should not be surprising, given that consultants such as Goldman Sachs sell the Clinton play book around the world, to whatever government is experiencing a national crisis and can come up with the fee.
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What is Euro zone?
The Eurozone is a fixed exchange rate system in operation between a number of separate sovereign European states. Dissimilar to the United States federal system, the Eurozone is an economic union, without a political union. Critics understand that to be one of its shortcomings. There are efforts underway as this study is being written in early 2012 to extend the degree to which fiscal policy decisions are centralized for all Eurozone member states. (Whelan, 2012) From an Irish industry and investment point of view, the added cost to business from having to hedge against exchange rate risk, had made Ireland un-competitive relative to other countries with stable currencies. 1992 saw an orchestrated market raid on the British pound a highly leveraged bet that the British currency was over-valued. The bet had paid off for the speculators, when the British pound had to de-value.
It (Confederation of Irish Industry in a request in 1979) sought that Government underwrite the exchange risk for industry, and pointed out that the cost to the Exchequer would be zero, if the Irish currency maintained its value against EMS currencies, in accordance with Government policy. (Power, 2009)
Currency exchange rates are extremely important for a small open economy where exports and imports, combined, significantly exceeded GDP in value. (Power, 2009) In March 1979 when Ireland had first joined the European Monetary System, or EMS, the Irish Pound broke its one-for-one parity with Sterling, which had obtained since the Act of Union in 1801. That early EMS, proved to be a zone of monetary stability in a world where major currencies fluctuated violently, (Power, 2009). Ireland was eager to increase its monetary integration with the rest of Europe and gain more access to a large market for its produce. The first of several stages for full European monetary union began in 1990. Later stages of monetary integration were scheduled to occur between 1994 and 1997. (Power, 2009) For the full European monetary union to take place, at least seven European community member states were expected to meet pre-designated criteria. For eligibility for full membership of the EMU, Ireland was expected to achieve a high degree of price-stability, in terms of inflation being close to that of the best-performing Member States. The second major consideration for Ireland pre-2002 was
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a requirement to have a sustainable Government financial position. Ireland passed eligibility tests on both accounts and became part of the Eurozone in 2002. (Power, 2009) The Eurozone system operated for ten years since 2002, as though all member states had exactly the same credit risk. But in 2010 especially, the market realized that fiscal positions of EU countries would deteriorate dramatically, because of what happened in the private sector of those member states. (Wolf, 2010) The Eurozone saw a massive explosion in debt spreads of some countries over Germanys interest rates. Ireland, Greece and other countries became completely illiquid, and dependent on sovereign bailouts from their partners. (Wolf, 2010)
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The Eurozone and European or International Policy Making.
What policy options ar e available to Eur opean and International Policy makers to restore stability to the Eurozone?
Europe had neither net capital in-flow or out-flow. But Europe replicated within itself, the imbalances we saw at the global level. (Krugman, 2009, June 09) Wolf believes that Germany is being driven painfully to financing the deficit countries in the Eurozone, because otherwise it has to write off its assets. (Wolf, 2010) The Eurozone system is struggling towards working in the way that John Maynard Keynes (an important contributor at the Bretton Woods conference in 1944), thought the global financial system should work. (Wolf, 2010) (Chwieroth, 2008) I will describe some policy options and challenges faced by European and international policy makers, in relation to the Eurozone crisis, by viewing measures which were employed in the United States of America recently. 8 Coming up with policy actions to deal with the first wave of the Eurozone crisis is one thing. The pertinent question is asked by Nouriel Roubini is what happens after a double-dip recession? (Roubini, 2010, May 18) The United States committed something like $11 trillion of resources to the financial system, post the 2008 crisis of which three out of the eleven trillion were spent. (Roubini, 2010, May 18) The resources were committed via numerous policy avenues, including an $800 billion fiscal stimulus and the running of a fiscal deficit of 10% of GDP. The US Federal Reserve bank has bought $1.8 trillion between Treasury bonds, and agencies such as Freddie Mac and Fannie Mae. There were government guarantees extended, re-capitalization of financial institutions, interest rates were pushed
In a recent article in the Irish Times newspaper by Karl Whelan (Whelan, 2012), he builds on ideas as
expressed by economist Paul Krugman, in relation to deficit spending by government, in order to reduce the extent to which we impoverish ourselves in the future.
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down to zero, quantitative easing was undertaken and doubling of base money. (Roubini, 2010, May 18) But if we end up in a double-dip recession, having extended the level of government support to the financial system extended thus far, we are running out of policy bullets. (Roubini, 2010, May 18) Governments cannot quadruple the monetary base or you end up with hyper-inflation. There is no sense in trying to double a budget deficit of 10%, to make it 20% of GDP with public debt exploding from 100% to 200% of GDP. The markets are already worried about governments ability to pay. If there is a double-dip recession, then governments cannot do much to backstop the financial system. The United States has already guaranteed $11 trillion of assets, and another round is simply not possible. How can a government guarantee a financial system, when it is deemed insolvent itself? The guarantee will mean nothing. (Roubini, 2010, May 18) If the governments remove the fiscal stimulus too fast, when recovery in the economy is weak and tentative, then you end up back in recession. If governments leave the fiscal stimulus, or monetize the public debt, it creates inflation, which in the long term is going to push interest rates higher. Thereby a recovery is crowded out, owing to lack of finance. Roubini uses the phrase, damned if you do and damned if you dont, to describe the predicament. (Roubini, 2010, May 18) Roubini who has studied crises for decades, commented on the fact, the balance sheet problems that are associated with todays asset price bubbles, are not typical of the old business cycle. Roubini talks about long cycles today, where elements of one crisis merge into another one. Nowadays, fall-out from crises which produce losses in the trillions of dollars, or between 10-30% of GDP are no longer the exception. (Roubini, 2010, May 18) What US Federal Reserve Chairman Ben S. Bernanke referred to as the Great Moderation (Bernanke, 2004), has actually led to more instability in the financial system. The fact is, we have no clue, as to what the Eurozone financial clean-up process could end up costing If one compares it to the situation as seen in the United States economy. Roubini cites the ex. US Federal Reserve Chairman Paul Volcker as stating we need more radical reform because the huge cost of banking crises has led to too high a fiscal cost. (Roubini, 2010, May 18)
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Central bankers such as Ben Bernanke believe it is impossible to identify bubbles and asset price misalignments. But others, (Davies & Green, 2010) have asked: if you cannot identify bubbles and misalignments with certainty, is it any harder than the other judgments that one has to make such as determining the output gap, when determining short-term interest rates. The cost of not doing anything about bubbles and misalignments, can be very large indeed. The BIS economist, Bill Whites view (White, 2006), is that monetary policy should be more focused on pre-emptive tightening to moderate credit bubbles, than on pre-emptive easing to deal with the after effects.9 Crisis followed by reforms, is that which leads to the continued evolution of financial regulation. (Soros, 2008) A central bank needs a robust set of indicators of stress and we need to put credit back into macro-economics in a meaningful way. (Davies & Green, 2010) Monetarism is a false doctrine. Controlling interest rates only is not enough. Credit and money do not go hand in hand. Independently of money supply, you can have an overall credit contraction in the economy, or a credit expansion. You must regulate credit as well as money. (Soros, 2008) Regulators say they do not have enough instruments, and they are correct. It used to be the case years ago, that margin requirements on stocks were adjusted up or down, depending on market levels. 10 (Soros, 2008) A central bank needs to patrol the regulatory frontier. That is the big lesson of the current financial and economic crisis. (Davies & Green, 2010) Things were going on outside the regulated universe, that central bankers were not interested in they ought to have been. Davis and Green (Davies & Green, 2010) believe that central banks ought to contribute to the assessment of the need for counter cyclical policy requirements, or macro-prudential regulation. According to (Davies & Green, 2010), the key factor in implementing new tools like macro-prudential regulation, is to carefully engineer how they will interact with interest rate policy adjustment. If you use capital regulation based on a concern for the overall amount of credit in an economy (and the
That is, there may be occasions when you would be seeking to tighten policy even when your short term
inflation objective was being met. (White, 2006) The length of this document did not allow for a detailed examination of the Leverage Cycle theory of John Geanakoplos, professor at Yale University. But in common with Soros and others would advocate intervention by the Central banks to regulate credit in the economy as opposed to just interest rates Geanakoplos, believes very strongly the Federal Reserve bank in the US ought to gather data about degrees of leverage within the economy. Something that the Federal Reserve has never done to date. (Geanakoplos, 2010 August)
10
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asset price bubbles related to that), what you are achieving, is alteration of the price of credit. It will not mean anything unless private banks respond to an increase in their capital requirements by increasing their own lending interest rates to their customers. Therefore, macro-prudential regulation ought be considered alongside monetary policy and not separately as per the old one instrument, one target approach. Further analysis of the limitations of conventional monetary policy are provided by the economist Paul Krugman, who admitted he believed until 1997, in the overwhelming effectiveness of monetary policy and in the wisdom of Central bankers like Alan Greenspan. (Krugman, 2009, June 08)
Whoever was in control of the money supply, could always reflate demand. (Krugman, 2009, June 08)
Economic experts believed that really big falls in demand were not going to happen. World industrial output following the shock of 2008, has fallen every bit as fast as it did during the Great Depression. (O'Rouke & Eichengreen, 2009) Paul Krugman observes that we were supposed to have this kind of thing under control. They only thing that had caused Krugman to harbor doubts, (demand shocks that policy makers could not control) was the case of Japan. Following the crash in Japan, monetary policy had been pushed to its limit where the interest rate on short-term government debt was zero. Nonetheless, the recession persisted.
Japan very nearly doubled the monetary base, and it did nothing it had no effect whatsoever. (Krugman, 2009, June 08)
Krugman began to ask himself the question, could this happen in the United States as well? Krugman looked at the history of economics in the United States, and in particular at the Great Depression era. The US Federal Reserve bank in the 1930s had expanded base money supply, but it had just sat there. Krugmans description of this problem is what he calls the Liquidity Trap. According to Krugman, if you are in a liquidity trap as central banks in developed nations find themselves in today, the interest rate that one would need to enable full employment, is unfortunately negative.
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But it turns out, a non-inflationary economy, is one in which booms really get out of hand and in which interest rates are low in general leaving less room to cut. (Krugman, 2009, June 10)
You cannot set the interest rate below zero, or else people buy cash instead of government issued Treasury notes. We have reached the lower bound limit of conventional monetary policy.
Today a recession means that inflation slips and heads towards deflation. If people expect prices to fall, or expect prices to rise less rapidly, it makes them less lightly to borrow.
There is a lot of excess capacity in the economy. Why build new factories and shopping malls, if you cannot use the ones that you already have? We are in a world where expanding government deficits, does help saving. The government deficit is giving those savings some place to go. What happened in Japan of the 1990s, is now a problem for all of us. It would be helpful if we could get some inflation not so much to inflate away our debt but to bring down the real interest rates.
Figure 6 - Explosion of fiscal deficits as a percentage of GDP.

Source: Martin Wolf. (Wolf, 2011, March 16)
Krugman believes that the monetary policy as pursued by central banks such as the US Federal Reserve in todays world, is anything but conventional. Federal Reserve chairman Ben Bernanke has overseen the purchase of a lot more than short-term Treasury paper tripling the size of the Federal
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Reserve banks balance sheet (Refer to Figure 5 - Unconventional Monetary Policies, US Federal Reserve Bank in this document). Krugman describes this new activity by the Federal Reserve, as doing the lending that private banks are not willing to do and serving as the financial intermediary of last resort. However, all of this activity while expanding the monetary based is having no inflationary effect in the real economy. The banks are just sitting on too much excess reserve. (Krugman, 2009, June 10)
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Study of Irish Economics

The Irish Bubble.
Figure 7 Skyline of Dublin Docklands Area in 2000's.

Source: Irish Times Newspaper
Is it correct to describe the IRISH residential and commercial pr operty markets behaviour between 2001 and 2008 as symptomatic of a market experiencing a bubble?
John Fitzgerald wrote (Fitzgerald, 2009):
While the most obvious fall-out from the burst bubble is the collection of severely damaged Irish banks, a more serious long term problem is the loss of competitiveness caused by the building boom. To get the resources the building sector needed during its period of excess, it had to rob resources from elsewhere in the economy. This was done by bidding up prices, wages and costs.
The following quotation from economist Paul Krugman could describe the Ireland of the second phase of the Celtic Tiger.
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The US economy has become a place, where we make a living, by selling each other houses, which we pay for with money we borrow from the Chinese, and this is not going to end well. (Krugman, 2005)
In the initial stages of the so-called Celtic Tiger, Ireland had found itself on a quite sustainable path towards growth and full employment. 11 The years following Irelands adoption of the new Euro currency are the years in which the most devastating damage was done to Irelands economic miracle.
Figure 8 - Monthly house completions, based on ESB electricity connections.

Source: Department of Housing, Heritage and Local Government.
The misconception in real estate being that the price is independent from the willingness to lend. (Soros, 2008) (Kelly, 2009)
The length of this paper does not allow me to analyse the period of Irelands growth directly leading up to the so-called Celtic Tiger. The period of the late 1980s and up to the mid 1990s decade, saw a fiscal surplus for the Irish government for the first time in many decades, and the beginning of payment its national debt. Refer to the 2009 published work of Con Power, former economic advisor at the Confederation of Irish Industry, CII, and Irish Business and Employers Confederation, IBEC, for further information. (Power, 2009)
11
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Figure 9 - Property lending in billions of 2009 Euro, 1993-2009.

Source: Morgan Kelly. (Kelly, 2009)
According to Krugman and many other economists, the thing that happened in parallel with the expansion of the banking system, was the rise in leverage throughout the economy not by corporates but by households. (Krugman, 2009, June 09) The requirement to put up collateral for borrowing became drastically reduced, as a direct result of financial de-regulation. 12 By the time of the Savings and Loan crisis of 1982, in the United States, the last of the New Deal 1930s era regulations were dis-mantled. Where expansion of credit to the household sector is concerned the flip side of that coin, was the sudden collapse of private sector borrowing following 2008. Savings which had almost dropped to zero, suddenly shot upwards. Irish economist at the Economic and Social Research institute, John Fitzgerald wrote.
One of the reasons why this economy will lag behind the rest of the Euro area next year is the huge uncertainty affecting households and companies in Ireland. Until individuals feel reasonably certain about their jobs and future incomes, it is very difficult to see them deciding to increase their consumption, buy a new car or invest in a house. (Fitzgerald, 2009)
If space had permitted a key part of my analysis ought to include the work of Yale economist John Geanakoplos, and his theory of the Leverage Cycle. (Geanakoplos, 2010 August)
12
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The Irish economy in the 2000s decade, had tried to re-organize itself around the new arrival of flows from other EU countries. When this flow of credit was turned off post 2008, the Irish economy had to re-adapt all over again. Paul Krugman puts it neatly in the following quotation.
What we have had since the mid-1980s is long booms that never had too much inflation that basically collapse underneath their own weight. (Krugman, 2009, June 09)
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The Irish Bubble and its Underlying Factors.
What were the underlying factors which led t o the Irish residential and property markets perfor mance between 2001 and 2008?
The main factor is to do with the Irish banking system, and how it imported so much capital from abroad into the Irish economy.
When Bank of Ireland Scotland offered mortgages of 100%, no one stood up and shouted stop! We dont need it! (Fahey, 2009)
There is also the matter of government tax spending, otherwise known as tax relief schemes for property buyers. Commentators have referred to tax breaks for property as the fuel the Irish government threw on the fire.
The Irish government and the opposition, rejected Dr. Peter Bacons recommendations in his reports in late 1990s, for the introduction of a property tax. (Fahey, 2009)
At an annual economics conference at Kenmare in 2010, Dr Michel L Collins, an economist at TCD, and Mary Walsh, a chartered accountant told that in decisions on where to focus tax expenditures, or tax relief schemes, there was very limited economic evaluation. (O'Brien, 2010)
When compared to seven OECD countries included in a recent OECD study, the authors note the use of tax breaks and incentives is not unusual in Ireland in terms of overall tax revenue foregone. What is unusual is that the cost of the tax breaks is concentrated in a small number of reliefs. (O'Brien, 2010)
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The reasoning behind the massive expansion of credit into the Irish economy post 2003, has never been adequately investigated. In Ireland in 2012, we are more aware of the consequences of such actions. Between 2003 and 2007, Irish banks increased their net borrowing from abroad by an astonishing 50% of annual GDP. (Honohan, 2008, December 02) According to Honohan, even Icelandic banks did not import funds on that scale.
Figure 10 - Evolution of credit in Irish economy, Y-axis shown as millions of euro.

Source: Central Bank of Ireland, Money and Banking Statistics.
Honohan recalled that funding of such loans from abroad by the Irish banking system, would not have been so effortless in the past. Such high levels of foreign borrowing left the Irish banks very vulnerable. By September 2008, at least one of them could not roll over the loans, was the trigger for the infamous Irish bank guarantee. (Honohan, 2008, December 02)
When Irish banks increased credit to the Irish economy from 160 billion at the beginning of 2003 to 380 billion at the beginning of 2007, no one shouted: Hey, the banks shouldnt be giving out so much money. Allied Irish bank increased its lending to 83 billion on property, which is 62% of its total loan book. (Fahey, 2009)
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Figure 11 - Average first time buyer mortgage and new house prices, relative to average earnings.
Source: Morgan Kelly. (Kelly, 2009)
Exactly as has happened on the global financial system level - when the capital stopped flowing within the Eurozone system there was a massive collapse in private sector spending particular in the case of Ireland and Spain. (Wolf, 2010) The Eurozone did replicate the imbalances that were seen at the global economic level. Germany in particular, and Holland became gigantic capital exporters. Spain and the United Kingdom became the largest capital importers in the region. Lending to eastern European countries, though quantitatively speaking was not very large relative to the size of some eastern European economies the inflow of capital was enormous and resulted in huge bubbles being created. (Krugman, 2009, June 10)
By the numbers, it was a complete re-production of what had happened in South East Asia. Look at Latvia in the 2000s. That is Thailand. (Krugman, 2009, June 10)
Krugman can relate what happened to the Asian Tiger economies in the late 1990s, to what also occurred in the 2000s with the Baltic and eastern European states. (Krugman, 2009, June 09) Deficits in Italy and France are large, but less important, relative to the size of those large economies. Spain was the dominant deficit country in scale and it played a role similar to that of the US at the global scale. (Wolf, 2011, March 16)
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The Eurozone crisis is like the global financial crisis in miniature with one key difference the fixed exchange rate system of the Eurozone changes the way in which the adjustment process can take place. (Wolf, 2010) There was far too much lending and borrowing within the Eurozone system. It needs to re-balance itself. But the question is how can it do so? It is worth taking a look at what did occur at a global level because in looking at that problem we may gain some understanding of what happened in miniature within the Eurozone itself. Wolf (Wolf, 2010) places particular focus on the change in the global monetary regime, towards currency reserve accumulation in emerging countries on an unprecedented scale. In a floating currency world, Wolf and others had believed, there would be no need for foreign currency reserve accumulation and that countries would not bother. That prediction turned out to be woefully incorrect. (Wolf, 2010) Historically speaking, it was rich countries that had more capital than they could use, and exported it to poorer countries. Contrary to that norm, the exact opposite happened in the decade of the 2000s. Exports of capital in the form of foreign currency reserve accumulation by emerging countries has climbed from $1.5 trillion in the late 1990s to $9 trillion by the time of the 2008 financial crisis. It has risen by almost $2 trillion more since the end of the crisis. That is $9 trillion to manage the exchange rate system, and to ensure that capital is being recycled abroad. (Wolf, 2010)
Figure 12 - Surplus capital exporting countries.

Source: Paul Krugman. (Krugman, 2009, June 10)
China today combines twin roles of the worlds fastest growing country and the worlds greatest exporter of capital. Those were roles carried out separately by Great Britain and north America at the
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end of the nineteenth century. Chinas reserves have gone from $100 billion in the late 1990s to $3 trillion, which is around 50% of Chinas GDP. (Wolf, 2011, March 16) Net capital exports from China peaked at 10% of GDP, at a point when investments had also reached 40% of GDP the total savings of China had reached an outstanding 50% of GDP. The amount of capital exported by China was equivalent to the amount for Japan and Germany combined together. At peak, surpluses of China and the rest of Asia, rose to over 3% of total world GDP. From 1997 onward, the United States imported capital on a gigantic scale, absorbing 70% of that surplus. (Wolf, 2011, March 16)
Figure 13 - Foreign currency intervention: global currency reserves.

Normally in countries where you import a lot of capital, you would expect it is the business sector doing it. But the problem was, the richest countries had no idea what to do with this net in-flow of capital from emerging countries. They failed to use it in any useful way. It went into household consumption. The graph by David Harvey, shows how debt service payments have risen against disposable income of those working in the United States between 1980 and 2006.
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Figure 14 - Consumer debt service ratio.

Source: Board of Governors, Federal Reserve Board, Household Debt Services and Financial Obligations Ratios
From 2008, the household sector in developed countries, suddenly began to accumulate savings, leaving a huge gap in demand for goods and services in countries such as the UK and United States. Government since 2008 have been operating fiscal policy designed to try and combat the collapse in spending by the household sector. Wolf (Wolf, 2010) said that we have not seen this kind of deficit spending by governments since the Second World War. The really big global macro-economic question in view of Wolf (Wolf, 2011, March 16), is how the re-balancing process will work. The crisis has left some very important high income countries with damaged financial systems, dramatically over leveraged household sectors and very large fiscal deficits. The reason that developing countries accumulated $10 trillion of foreign currency reserves, is that they do not trust themselves in a situation where they might be forced to borrowed from the International Monetary Fund. They do not trust the insurance arrangements. They want to self-insure, on a massive scale. Advanced countries are no longer in a condition to absorb net exporting of capital from emerging economies. Wolf believes that at some stage governments in emerging countries will come under political pressure from citizens, to run a fiscal deficit. Wolf believes that when that occurs it will finally help to re-balance the global financial system and alleviate our current crisis. (Wolf, 2010) The United States should lead an international effort to stabilize the system, which includes the peripheral economies. Hopefully China will be more a part of the global financial system. The United States dominance over the global financial system will not last. (Soros, 2008)
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At the much hyped Irish Property Developers conference in Dublin in 2007, the presentations all focused on a notion that a small band of leveraged Irish borrowers could storm into eastern Europe and swipe the profits from under the noses of Baltic and former Communist block states. That excursion was to be funded by the Irish banks such as the former Anglo Irish bank. 13 Irish banks began to acquire banks in eastern European countries, in anticipation of this Irish (and very ill-fated), version of Operation Barbarossa. 14 Of course, the Irish banks that were to fund such an economic and property building experiment did not have funding of their own. They had to borrow it from capital exporting countries such as Germany. It brings this analysis back to the point made by Professor Harvey: the manner in which the modern financial system is able to move capital around the globe, using all kinds of intermediaries, principals, agents and so forth. 15 (Harvey, 2010) Ireland, in the opinion of this study does not have sufficient regulatory systems in place, financial oversight by its Central bank, or indeed the level of market sophistication that is required to undertake the voyages it had tried to organize. The brief domination of global trade by the Dutch in the late 1600s serve as the kind of analogy one may look for, in trying to understand why such a small nation such as Ireland would try to command the global property development industry. 16 17 (Bernstein, 2008)
Anglo Irish bank is infamous today in 2012, because it ended up costing the Irish taxpayer billions of euro, just to wind it down and make it disappear. Its shareholders in Ireland pre-2008 included some of the wealthiest movers and shakers in every small town and parish in the whole island. A lot of sensible, old wealth was lost, when Anglo Irish bank had be nationalised by the Irish government in early 2009. 14 Based upon personal recollection of the author and extensive involvement with the Irish property development industry at the time in question. 15 The length of this paper did not allow for detailed explanation, but I will draw attention to the work of Dr. Paul Woolley of the London School of Economics, who has published some work about the problems associated with dis-intermediated Principals and Agents in the more financial system. (Biais, Rochet, & Woolley, 2010) On a similar subject matter to that of Dr. Paul Woolley the work and teachings of Ira Millstein, or so-called Dean of Corporate Governance, and professor at the Yale School of Management, is noteworthy of reading also I believe. (Millstein, 2011) 16 One of the reasons frequently cited for the long dominance of the British over global trade and its general success in establishment of remote colonies, was that it financial system at home, had been so well managed and robust. In contrast, the Portuguese financial backup during its brief period as a global power was so under developed, that trading vessels often had no money to buy goods when they arrived to their destinations. That too is quite similar to the Irish property developers in the early 21st century. 17 The length of this study does not allow for examination of the case of Iceland and its banking system during the 2000s. Iceland was a country of only about 300,000 inhabitants, yet it had a banking system far, far larger than the size of its domestic economy, which revolves mainly around fishing.
13
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The Irish Economy and Eurozone crisis.
Figure 15 - Portugal, Ireland, Greece and Spain.
What are the potential implications for the I rish Economy of a severe escalation in the crisis of the Euroz one?
Power (Power, 2009) provides a quotation from The Economist journal from 1986, which he felt gave a very simple and pragmatic message to illustrate a relationship between the money economy and the real economy.
Of all the ways for poor countries to become less poor, one stands out: Make sure exchange rates reflect internal-versus-international costs, so that exporters are not squeezed while (others make) a fortune importing shoes and ships and sealing wax at what, in local currency, are dirt-cheap prices.
Professor Honohan observed that Euro membership, created a low interest rate environment in which the Irish economy operated from 1998 onwards. (Honohan, 2010, May 31) That interest rate reduction helped to trigger a demand for purchase of new homes.
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Figure 16 - Housing Investment as a percentage of GDP.

Source: John Fitzgerald, ESRI.

To return the economy to full employment in the next decade, a substitute will have to be found for the unsustainable jobs lost in building. These new jobs will have to be created by firms developing and expanding into new markets abroad. However, as of today, this is a very difficult task given Ireland's very high cost base.
The potential implications for Ireland of an escalating Eurozone crisis are complex. But first among the concerns in 2012 is the support Ireland is receiving from the ECB for its broken domestic banking system. It is several years after the peak of the 2008 crisis. Ireland has made little progress in returning to sustainable growth despite the deficits spending by government, and the level of support offered from the EU and IMF.
Figure 17 - General Government Balance, as per cent of GDP.

Source: IMF, WEO, April 2010.
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If the awful unemployment problem is to be solved by the middle of the next decade through nurturing new jobs, Ireland will have to price itself back into its European markets. This could be done by holding wage rates unchanged for quite a number of years as wages rise slowly in our competitors. Such an approach would eventually work but competitiveness would only gradually be regained.
Figure 18 - Lost competitiveness in periphery, Unit Labour costs, relative to Germany.

During the boom period, there were massive increases in unit labour costs relative to Germany. Competitiveness that has been lost now has to be re-gained, because the only way out of Irelands crisis is through investment and exports. But if Ireland deflates in this way, the real level of debt gets higher and higher. (Wolf, 2011, March 16)
Figure 19 - Irelands projected Debt to GDP ratio.
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Source: John Fitzgerald, ESRI.
The challenge as described by Honohan is to re-engineer the re-balancing process, with a minimum of disruption to production and employment. (Honohan, 2008, December 02) Without the support of European partners, then a small country such as Ireland would not be able to offer the scale of assistance it did to its private banking system.
It (NAMA) will not have any effect on property prices. It is the ECB who are putting money into the Irish economy. Whereas the British exchequer and American exchequer can print money to put into the economy we are getting it through the ECB. (Fahey, 2009)
The complex financial mechanics of the NAMA were also explained to the public on live radio broadcast, by former Fianna Fail deputy and chairman of the parliamentary Finance Committee Mr. Frank Fahey, of Galway west constituency. He was speaking at the time that NAMA legislation was being drafted up in Irelands Department of Finance with the NTMA. (Fahey, 2009)
The ECB is lending this money to NAMA at one and a half percent interest rate, which is a very low interest rate. NAMA will pay back that interest, from the interest that it gains from the loans that it is taking over. When NAMA over the next ten years, disposes of these properties, the loans will then be paid back to the ECB. (Fahey, 2009)
An idea of economic policy options and conditions in an absence of Eurozone support can be gained from a recent work published by Con Power, a member of the Confederation of Irish Industry from 1979-1993. (Power, 2009)
The National debt as a percentage of SNP rose to 85.7% in 1981 and peaked at 117.6% in 1987, amounting to 38,200 million, of which 41% had been borrowed abroad. Servicing the National Debt consumed 25.4% of net government current expenditure in 1987, or 32.6% of total tax revenue. (Power, 2009)
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From 1960 to 1992, Irelands unemployment rate was almost double the EEC average, despite significant transfers from the EEC under the CAP and from the Structural Funds, the relative success in attracting FDI, and the accumulation of an enormous National Debt. (Power, 2009)
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Study on NAMA
NAMAs role.
What is the r ole of The National Assets Management Agency ( NAMA) ?
The upward re-assessment of risk means that the ratios of debt to equity in the world is now much too high, and current financing arrangements are too fragile to be supported. Governments around the world have begun to purchase equity in banks on a large scale, and also to provide backstop guarantees on large blocks of loans thereby reducing the banks need for capital. (Honohan, 2008, December 02)
We need to put serious numbers of billions into the banks between now and Christmas, and that will start the recovery. (Fahey, 2009)
NAMA as designed by Peter Bacon in early 2009 (Bacon, 2009), is what is known as a bad bank, or a toxic asset vault. It is part of a strategy used by governments in bank resolution schemes in which illiquid loans on the balance sheet of one or more distressed financial institutions are warehoused until they reach full maturity, as was originally intended to happen. (Bacon, 2009)
We had Bo Lundgren (ex. Swedish minister for finance), over to speak to us at the Finance committee and he explained to us, why NAMA is going to work. (Fahey, 2009)
Sweden experienced a property market crash and consequent banking system collapse in the early 1990s. Economists often draw parallels between the bad bank solution which was deemed to be successful in the Swedish case, and the current NAMA solution in operation Ireland today. Deputy Frank Fahey was anxious to point out also, that Sweden did not have the advantage of European Central Bank support, when it went through its crisis. (Fahey, 2009)
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In the aftermath of a substantial financial crisis, bank institutions may be inclined to admit losses only gradually over time. The economy which depends upon those same private banks for supply of credit, may find itself starved . Therefore the creation of NAMA supervised by the National Treasury Management Agency, NTMA, was deemed necessary to enable the clean-up process of the five Irish banks by the state to proceed.
They (the Irish banks) would say, leave us alone, and we will work it out ourselves, over ten years. (Aherne, 2009)
According to economist Alan Aherne, NAMA should force the Irish banks to accept their losses quickly to make them crystallize those losses and resume with business, even though it may put a hole in the banks balance sheet. NAMA is being used in Ireland to reduce the size of the balance sheets of the five largest lending institutions. Half of which are in the process of being wound down and remaining assets sold off. Two of the banks are to continue on, with a cleaned up balance sheet, re-capitalization and new management. They are to be restored to what former Finance Minister Brian Lenihan referred to as greatness. (Lenihan, 2010)
Figure 20 - The Five Irish Lending Institutions.

Source: Draft NAMA Business Plan (13 Oct 2009)
When NAMA was announced in April 2009, and legislation was later being passed through the Irish Parliament in October of 2009, politicians and citizens may have viewed NAMA as a means by which to re-create the pre-2008 economic conditions.
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NAMA is going to sort out the problems of the banks, and the problems of the property downturn. (Fahey, 2009)
Economics advisor to Minister for Finance Brian Lenihan, economist Alan Aherne, explained some technical details about NAMA. (Aherne, 2009) He drew distinctions between investment properties, un-completely or abandoned projects, works-in-progress, and purely speculative purchases of peripheral or un-zoned land for future development. The very mixed bag of loans that were being transferred into NAMA.
Figure 21 - Loan book by loan type.

Source: Draft NAMA Business Plan (13 Oct 2009)
Investment properties are properties which are completed, occupied and functional. In other words, they generate an income stream when they were purchased by Irish borrowers (sometimes at what were known as Paddy prices). (Aherne, 2009) Aherne emphasized that where valuation of the loans are concerned a large amount of information is needed. You have to know who was the borrower. You have to know, what was the collateral. You have to know when the properties were bought.
People are assuming that everything was bought at the peak. A lot of stuff was bought in 2004, 2005. There are land banks that were bought back in the mid 1990s. Those things were bought for a schilling. (Aherne, 2009)
If one supposed that in 2009, property prices had fallen by 50%, to roughly where prices had been in Ireland in 2002 if NAMA was to purchase a loan associated with a property acquired in 2002 using a loan of say 10 million - that loan would still be worth 10 million in 2009. (Aherne, 2009) Aherne believed for a third of the commercial property loan book (30 billion of the 90 billion), the book value for investment property loans, could be quite close to a realistic 2009 valuation. (Aherne, 2009)
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Wait until next Wednesday week (16 th September 2009). You will see, that in actual fact that the amount of money that is being paid - while it will have a very slight upturn in my view it will have a very realistic and prudent price. All this talk about paying way over the odds, is a load of old . . . . (Fahey, 2009)
If one can judge anything about priorities of national government in late 2009 from the media and political discourse the priority was to fix the property market immediately and to worry about fixing the economy later.
Fahey: If you allow the assets, which are pulling down the two main banks at the moment, not to be able to be, in some way dealt with what you are doing is, you are bringing the banking system to a halt. (Fahey, 2009)
Journalist Eamon Dunphy responded to Deputy Fahey as follows.
The banking system brought itself to a halt. 98% of the people in this country only need a bank for normal activities. Small businesses, personal loans, stuff like that. These banks destroyed themselves, and nobody destroyed them. (Fahey, 2009)
If the property industry in Ireland had become the engine of its economic growth during the decade of the 2000s, (Kelly, 2009) then the property industry was to become the engine of recovery in 2009. The biggest danger perceived by the Fianna Fail government in 2009 was a total collapse of the Irish property market which may drown out any prospect of recovery.
It you let all of the property out on the market at the moment, through liquidations, it will be very hard to sell anything. There will be no liquidity there to buy that property. If you allow NAMA to take away all of these toxic assets, and store them, the market will begin to operate again. There is great value out there now, once people have the confidence to start buying. (Fahey, 2009)
NAMA was the Irish governments way of coming to the rescue, of playing the white knight in armor. NAMA was going to be a free lunch for the Irish taxpayer too.
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This is being done under an EU framework. What long term economic value means, is that its the money that NAMA will have to get back from those loans, when they sell them off. If NAMA doesnt get it back, there will be a levy on the banks to ensure that the taxpayer doesnt pick up the bill. (Fahey, 2009)
Deputy Fahey exchanged these remarks with famous Irish journalist, Mr. Eamon Dunphy on Newstalk 106 Lunchtime radio program in September 2009. 18
Deputy Fahey: NAMA is going to put billions into the banks. Dunphy, Journalist: But they are our billions. Deputy Fahey: They are not! (Fahey, 2009)
When deputy Fahey was asked in September 2009, if one could get liquidity going again (in the Irish economy), without doing NAMA deputy Faheys reply was an emphatic: No you cant! (Fahey, 2009) Professor Patrick Honohan speaking in 2008 (now appointed as the Governor of the Irish Central Bank), about the Irish financial crisis, commented that the Korean and Malaysian economies experienced V-shaped crashes in 1997/98. Other Asian economies did not recover quickly, because their banks, though re-capitalized remained nervous and risk adverse. The Mexican economy experienced a decade of under-lending from its banks after the so-called Tequila crisis of 1994. (Honohan, 2008, December 02) Professor Honohan ended his lecture by commenting:
We wish the banks had not lent recklessly to property, but now we do not wish them to freeze out viable firms in the rest of the economy, or the sort of borrower whose plans would help the economy to recover its rapid growth on a sustainable basis. (Honohan, 2008, December 02)
Honohan asserted that getting the policy package just right will be demanding for Irelands economy. Honohan noted that what had been achieved in Ireland during the decade of the 1980s, and resulted in prosperity as seen in the early Celtic Tiger years, was as much a political, as an economic process.
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Mr. Eamon Dunphy was so bold as to make a point to Deputy Fahey, that neither the Irish Government nor the European Central bank had any money. The only money that either had any access to, was that which they could receive from taxpayers.
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The actions that are required on wages and salaries, on taxation and public spending, range well beyond the narrowly financial. (Honohan, 2008, December 02)
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What is NAMA supposed to fix?
Critically examine its progress in alleviating the aftermath and financial debris of the Irish Construction and pr opert y bubble.
Solutions such as NAMA are not intended to fix much of anything, despite the weight of financial and economic theory that they are surrounded by. The main function of a project such as NAMA is to restore political capital to government. The taxpayer on the other hand, will pick up the bill. In 2009, Minister for Finance Brian Lenihan had convinced parliament and the public they would lose out by a lot more, if a toxic bank solution was not implemented swiftly. Professor Vincent Reinhart has observed that, in the Clinton years of 1993-2001, the Democratic administration was trying to find a role for itself. The message that President Reagan had preached to the American public throughout the 1980s, was that government was a problem not a solution. (Reinhart V. , 2009) President Clintons boyhood hero, President John F. Kennedy was a master at showing to the world, an image of government that they could perceive as being youthful and vigorous. (American Experience, 2012)
This kind of talk of easy solutions to difficult problems, if believed, could inspire a lack of confidence among our people when they must allabove all elsebe united in recognizing the long and difficult days that lie ahead. (President Kennedy, 1961)
In the time of crisis in 2008, the Irish government paid millions in fees to international consultants such as Goldman Sachs, for what former Minister Lenihan called best international advice. Many former White House, and Capitol Hill staffers, who moved to the private sector, commanded rich prices, for selling the old playbook to governments who wished to save the world.
There is no market today. That is the problem. (Fahey, 2009)
When one listens to the political message from government in Ireland after the 2008 crisis, it is obvious who has written the play book, to save Ireland.
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Let me explain the context of what is happening with Liam Carroll (Carroll owed 3.0 billion to various lenders in Ireland in 2009). If NAMA was in operation today, Liam Carrolls properties would be taken over by NAMA, and Liam Carroll himself would be liquidated. His properties would go into NAMA. They would be held by NAMA. They would be let out by degrees as the property market returned. If Liam Carroll is liquidated through the courts process, and just say that Liam Carroll owns fifty houses around where Eamon (Dunphy) lives, those houses would go at fire sale value. It will totally destroy the market and destroy the banking situation. Nobody will be able to buy a house or sell a house. Because they will not be able to get the credit. (Fahey, 2009)
The National Asset Management Agency is a solution, engineered by government and it represents a massive intervention by government into the market.
The reason that you cannot sell your house at the moment is because nobody can borrow, because the banks cant give anybody any money to buy it. That is the reason you cannot sell it. When money starts to flow again, then the market will start to operate again. (Fahey, 2009)
NAMA is designed to put political capital back into political parties, and not put financial capital into private banks. Solutions such as NAMA are expensive make-overs, intended to make governments appear vibrant and dynamic as President Kennedy did during his Man on the Moon, special address to US Congress in 1961. (President Kennedy, 1961). Or why stop at Kennedy? Remember Lincolns famous words in November 1863 at Gettysburg, Pennsylvania.
". . . that we here highly resolve that these dead shall not have died in vain - that this nation, under God, shall have a new birth of freedom - and that government of the people, by the people, for the people, shall not perish from the earth." (President Lincoln, Abraham , 1863)
With solutions such as NAMA in existence, the citizen in Ireland can feel safe and protected. The good men and women of government are watching out for us.
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Works Cited
Aherne, A. (2009, August 27). Personal adviser to Irish Minister for Finance in 2009. (E. K. Newstalk 106 Lunchtime Radio Station, Interviewer) Alessandri, P., & Haldane, A. G. (2009). Banking on the State. London: Bank of England. American Experience. (2012, February 02). American Experience Episode: Clinton. Retrieved from Public Broadcasting Service, PBS: http://video.pbs.org/program/american-experience/ Bacon, P. (2009). Evaluation of Options for Resolving Property Loan Impairments and Associated Capital Adequacy of Irish Credit Institutions, Proposal for a National Asset Management Agency. Dublin: National Treasury Management Agency. Bank for International Settlements. (2004, June). International Convergence of Capital Measurement and Capital Standards: A Revised Framework. Retrieved from BIS, Monetary & Financial Stability: http://www.bis.org/publ/bcbs107.htm Bernanke, B. S. (2004, February 20). The Great Moderation. Meetings of the Eastern Economic Association. Washington, USA: US Federal Reserve Bank. Bernstein, W. J. (2008). A Splendid Exchange: How Trade Shaped the World . New York: Atlantic Monthly Press. Biais, B., Rochet, J.-C., & Woolley, P. (2010, March 25). Rent capture through financial innovation. Retrieved from Vox: http://voxeu.org/index.php?q=node/4798 Chwieroth, J. (2008). International liquidity provision: the IMF and the World Bank in the Treasury and Marshall Systems, 1942-1957. In D. M. Andrews, Orderly change: international monetary relations since Bretton Woods (pp. 52-77). Ithaca: Cornell University Press. Davies, H., & Green, D. (2010). Banking on the Future: The Fall and Rise of Central Banking. New Gersey: Princeton University Press. Davis, M. (2009, March 20). An Interview with an American Socialist . Retrieved from Bill Moyers, The Journal: http://www.pbs.org/moyers/journal/03202009/watch2.html Deeter, K., Harrison, F., & Reed, S. (2010, November 03). Site Value Tax. Retrieved from Smart Taxes: http://smarttaxes.org/2010/11/03/fred-harrison-stephen-reed-and-karl-deeter-on-svt/ Fahey, F. (2009, September 02). Dail deputy and member of government finance committee 2009. (E. K. Newstalk 106 Lunchtime Radio, Interviewer) Fish, L. K. (2009, September). Financial Services: Prospects for Your Future. MIT Sloan School. Boston, Massachusetts: MIT. Fitzgerald, J. (2009, October 4). Shock therapy needed sooner rather than later to spur recovery. Retrieved December 07, 2011, from Irish Sunday Tribune: http://tribune.maithu.com/article/2009/oct/04/john-fitzgerald-shock-therapy-needed-soonerrather/#comments
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Fitzgerald, J. (2009, October 04). Shock therapy needed sooner rather than later to spur recovery. Sunday Tribune newspaper, p. Opinion piece. Geanakoplos, J. (2009, Autumn). The Leverage Cycle and the Subprime Mortgage Crisis. Retrieved from Yale University: http://academicearth.org/lectures/the-leverage-cycle-and-the-subprimemortgage-crisis Geanakoplos, J. (2010 August). Solving the Present Crisis and Managing the Leverage Cycle. FRBNY Economic Policy Review, 101-131. Goodhart, C. (2010). Money, credit and bank behaviour: need for a new approach. National institute economic review, 214 (1). Gorton, G. (2009). Slapped in the Face by the Invisible Hand: Banking and the Panic of 2007. Atlanta: Prepared for the Federal Reserve Bank of Atlantas 2009 Financial Markets Conference: Financial Innovation and Crisis. Gorton, G. (2010). Questions and Answers about the Financial Crisis. USA: Prepared for the U.S. Financial Crisis Inquiry Commission. Greenspan, A. (2011, March 29). Dodd-Frank fails to meet test of our times. Wall Street Journal, p. Opinion. Haldane, A. (2009). The International Financial Crisis: Have the Rules of Finance Changed? Chicago: Federal Reserve Bank of Chicago twelfth annual International Banking Conference . Harrison, F. (2007). Boom Bust: House Prices, Banking and the Depression of 2010 . London: Shepheard-Walwyn Ltd . Harvey, D. (Performer). (2010, April 26). The Enigma of Capital. London School of Economics, Department of Geography public lecture, London. Harvey, D. (2010). The Enigma of Capital and the Crises of Capitalism. Oxford: Oxford University Press. Honohan, P. (2008, December 02). The Financial Crisis: Ireland and the World. The Michael Littleton Memorial Lecture 2008. Dublin: Radio Telefis Eireann. Honohan, P. (2010, May 31). The Irish Banking Crisis Regulatory and Financial Stability Policy 2003-2008, A Report to the Minister for Finance by the Governor of the Central Bank. Dublin: Irish Central Bank. Johnson, S. (2009). The Quiet Coup. Atlantic Magazine, Economy section. Kelly, M. (2009). The Irish Credit Bubble. UCD Centre for Economic Research, Working Paper Series, WP09/32. Klein, N. (2002, April 06). No Logo: No Space, No Choice, No Jobs. New York: Picador. Krugman, P. (2005, August 29). Greenspan and the Bubble. New York Times, p. Newspaper Column. Krugman, P. (2009, June 08). The Return of Depression Economics Part 1: The sum of all fears. Lionel Robbins Memorial Lectures. London: London School of Economics.
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Krugman, P. (2009, June 09). The Return of Depression Economics Part 2: The eschatology of lost decades. Lionel Robbins Memorial Lectures. London: London School of Economics. Krugman, P. (2009, June 10). The Return of Depression Economics Part 3: The night they reread Minsky. Lionel Robbins Memorial Lectures. London: London School of Economics. Lenihan, B. (2010, September 30). Ministers Statement on Banking . Dublin, Ireland: Department of Finance. Lenihan, B. (2010, March 30). Ministers Statement on Banking . Dublin, Ireland: Department of Finance. Millstein, I. M. (2011, February 23). The Stock Market and Everyday Americans. New York Times newspaper, p. Published Letter to Newspaper. O'Brien, D. (2010, October 18). State loses 11bn annually due to tax breaks . Irish Times newspaper, p. Business section. O'Rouke, K., & Eichengreen, B. (2009, April 21). A Tale of Two Depressions. Advisor Perspectives. O'Rouke, K., & Eichengreen, B. (2010, March 08). What do the new data tell us? Retrieved from Vox: http://www.voxeu.org/index.php?q=node/3421 Power, C. (2009). Metamorphosis: Lessons from the formative years of the celtic tiger, 1979-1993 . Cork: Oak Tree Press. President Kennedy, J. F. (1961, May 25). On The Importance of Space. A Special Address to Congress. Washington DC, USA. President Kennedy, J. F. (1961, November 16). University of Washington Speech. Washington, Seattle, USA. President Lincoln, Abraham . (1863, November 19). The Gettysburg Address. Gettysburg, Pennsylvania, United States of America. Reinhart, C. M., & Rogoff, K. (2009). This Time Is Different: Eight Centuries of Financial Folly. New Jersey: Princeton University Press. Reinhart, V. (2008, March 28). Vincent Reinhart on Bear Stearns, Lehman Brothers, and the Financial Crisis. Retrieved from Econtalk, The Library of Economics and Liberty : http://www.econtalk.org/archives/_featuring/vincent_reinhar/ Reinhart, V. (2009). When They Were Young. Magazine of the American Enterprise Institute, 16th July. Reinhart, V. (2011). A Year of Living Dangerously: The Management of the Financial Crisis in 2008 . Journal of Economic Perspectives, 25(1): 7190. Roubini, N. (2010, May 18). Financial Crises And Crisis Economics: Past, Present And Future. Department of Economics public lecture. London: London School of Economics. Schiff, P. (2006, November 13). Western Regional Mortgage Bankers Association Meeting. Retrieved from http://www.youtube.com/watch?v=ADVEiTo7tDE
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Cyclical Trends BOH v04

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LIMERICK INSTITUTE OF TECHNOLOGY

Cyclical Trends in Construction and Property.

Draft no.04 Author: Brian O Hanlon.

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Study of Economic Bubbles

Figure 1 - Index of Japan nationwide land prices.

Figure 2 - Financial industry profits as a share of US business profits.

Bubbles - This Time it is different.

Figure 3 - UK real average earnings.

Figure 4 - Reversing origins of US corporate profits, 1950-2004.

Study of Subprime mortgages

The effects of the Sub-Prime mortgage market collapse.

Figure 5 - Unconventional Monetary Policies, US Federal Reserve Bank.

What is Euro zone?

The Eurozone and European or International Policy Making.

Figure 6 - Explosion of fiscal deficits as a percentage of GDP.

Study of Irish Economics

Figure 7 Skyline of Dublin Docklands Area in 2000's.

John Fitzgerald wrote (Fitzgerald, 2009):

Figure 8 - Monthly house completions, based on ESB electricity connections.

Figure 9 - Property lending in billions of 2009 Euro, 1993-2009.

The Irish Bubble and its Underlying Factors.

Figure 10 - Evolution of credit in Irish economy, Y-axis shown as millions of euro.

Figure 12 - Surplus capital exporting countries.

Figure 13 - Foreign currency intervention: global currency reserves.

Figure 14 - Consumer debt service ratio.

The Irish Economy and Eurozone crisis.

Figure 15 - Portugal, Ireland, Greece and Spain.

Figure 16 - Housing Investment as a percentage of GDP.

John Fitzgerald wrote (Fitzgerald, 2009):

Figure 17 - General Government Balance, as per cent of GDP.

John Fitzgerald wrote (Fitzgerald, 2009):

Figure 18 - Lost competitiveness in periphery, Unit Labour costs, relative to Germany.

Figure 19 - Irelands projected Debt to GDP ratio.

Source: John Fitzgerald, ESRI.

What is the r ole of The National Assets Management Agency ( NAMA) ?

Figure 20 - The Five Irish Lending Institutions.

Figure 21 - Loan book by loan type.

Journalist Eamon Dunphy responded to Deputy Fahey as follows.

What is NAMA supposed to fix?

There is no market today. That is the problem. (Fahey, 2009)

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