Property high flyer in crash landing

Thanks to Matt for sending an interesting piece from the Wall Street Journal to the Gombeen Nation mailbox on the demise of the Irish economic miracle. And miracles, as we know, have no basis in reality.

One passage in the WSJ piece encapsulates the present, all too predictable, economic mess:

In a way, Ireland offers a lesson in how not to handle your newfound riches.

Alan Ahearne, an economist at the National University of Ireland in Galway, worked for the U.S. Federal Reserve. When he came back to Ireland in 2005, he was unnerved. House prices had rocketed, outpacing incomes and rents.

In 2006, the census found more than 250,000 empty properties, in a country with a population of just over four million. Many were investments their owners didn't bother renting out, so good were the gains from rising prices. "That, to me, was a scary sign," Mr. Ahearne said.

It is obvious that “Padraig and Mary” (to use Bernd’s apt expression) created the property bubble though careless borrowing with the aid of careless lending from the bank - and with official Government encouragement in the form of tax incentives,

To illustrate, it was reported in the Herald last week that banks and building societies loaned an Air Corp pilot just short of €8 million, “turning him into a ‘property tycoon’ in his spare time.” It seems that this particular Padraig “owned” a total of 12 properties, but found himself in the Circuit Civil Court where it was revealed that his property empire “had collapsed”, and that his paper properties had reverted into the hands of the financial institutions that provided the loans, while the family home had been repossessed.

It is difficult to grasp the mind-numbing stupidity of the Irish property boom, and the part played in creating and perpetuating the unsustainable illusion by the authorities and most economists, who acted as facilitators and cheerleaders. But still none of this exonerates the greedy Padraig and Marys – who priced people out of homes through their greed - from the blame in their own downfall.

When the Banks are being asked to put a stay on repossessions, as part of the recapitalisation plan, it would be assumed that investors and speculators will not be included in the measures? Otherwise, how will they ever learn that speculation, by definition, is a two-way street.

But nothing would surprise me here.

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