# McCreevy "The mistake is to try to spend [money] when you haven't got it."



## Brendan Burgess (27 Dec 2017)

I see that Charlie McCreevy was misquoted yet again in today's Irish Mirror. 

_“Just because there is a certain amount we can use, would it be prudent to do that?” the Taoiseach asked, indicating that the government is not willing to go on a “if we have it, we’ll spend it” spree.


This was the motto of former Minister for Finance, Charlie McCreevey, who controlled the country’s purse strings during some of the boom years.
_
In fact, Charlie McCreevy's full quote was made in the context of expenditure cuts in November 2001.  He was responding to calls from the opposition to increase public spending.

*McCreevy takes axe to public spending*

_In a sideswipe at some of his critics, he said: "When you have it, you spend it. The mistake is to try to spend it when you haven't got it. There are many institutions in this town that found that out recently."_


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## noproblem (27 Dec 2017)

Pointless pointing out to people anything good about FF who are blamed for all the post Celtic Tiger problems. If only the citizens of Ireland would be honest with themselves and admit that they themselves made massive mistakes, got greedy, borrowed too much, purchased houses for the fun of it and were pure and utterly stupid with money they never had and a wealth wish they could never attain. McCreevey may not have been the greatest ever Minister for Finance Ireland have had, but I for one know no one that's been as good. I know, I know, you guys will say i'm living in Cuckoo land making a statement like that, but the truth is hard to take sometimes BUT SURE THERE YOU GO.


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## joe sod (27 Dec 2017)

well said, imagine the furore there would have been in 2005 if the government started raising property taxes and reducing spending, oh and stopping one off houses (which are still half of the houses being built today). Afterall everyone voted for bertie even after they knew about his irregulal financial situation


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## TheBigShort (27 Dec 2017)

noproblem said:


> Pointless pointing out to people anything good about FF who are blamed for all the post Celtic Tiger problems. If only the citizens of Ireland would be honest with themselves and admit that they themselves made massive mistakes, got greedy, borrowed too much, purchased houses for the fun of it and were pure and utterly stupid with money they never had and a wealth wish they could never attain. McCreevey may not have been the greatest ever Minister for Finance Ireland have had, but I for one know no one that's been as good. I know, I know, you guys will say i'm living in Cuckoo land making a statement like that, but the truth is hard to take sometimes BUT SURE THERE YOU GO.



Hard to know if you are being sarcastic or not.
From where im standing, its same old, same old....take political credit for all things good, blame the opposition for all things bad.
Blame the public for catastrophes!

In hindsight, having blamed FF for all things bad, I have a more considered view now - the 2008 crash, and subsequent bankruptcy, was out of their (and every other irish politicians) control. It was an international collapse, the effects of which still reverberate around the globe.


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## AlbacoreA (28 Dec 2017)

The problem with blaming the public is that, a lot of the obstacles to Joe Public borrowing spending beyond their means were removed then put back in afterwards. Same with the banks.  

But I assume Brendan wanted this thread to be about the miss-quoting. Which is either extremely careless or deliberate. Considering the effect of the miss-quote. 

It getting very tiresome that everything you read in the media/papers has to be double checked for accuracy now.
I just always assume its wrong, or deliberately distorted now. The media has no credibility for me anymore. 
Maybe its always been like that and I've only just started paying more attention in the last decade or so.


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## Brendan Burgess (28 Dec 2017)

AlbacoreA said:


> But I assume Brendan wanted this thread to be about the miss-quoting. Which is either extremely careless or deliberate. Considering the effect of the miss-quote.



Yes that is it. 

McCreevy's quote was always in the context of "I want to spend lots more money...". In fact, he was saying the very opposite. He was trying to cut expenditure. 

Brendan


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## cremeegg (28 Dec 2017)

AlbacoreA said:


> It getting very tiresome that everything you read in the media/papers has to be double checked for accuracy now.
> I just always assume its wrong, or deliberately distorted now. The media has no credibility for me anymore.
> Maybe its always been like that and I've only just started paying more attention in the last decade or so.



It has always been like that.

A cousin of mine won a sporting event many years ago. There was a quarter page article in one of the national papers the following day. He was 
quoted extensively about how delighted he was, how all the hard training was worth it, how grateful he was to his coach, family, supporters etc.

All completely made up by the reporter, who never spoke to him. The quotes were all just platitudes, nothing controversial, journalist just couldn't be bothered to speak to his supposed interviewee. 

the press largely trades in stereotypes, occasionally some real news emerges to change direction and off the media goes with the new stereotype. The prime example in recent years has been the treatment of the clergy. When I was young, they could do no wrong, nowadays they can do no right.

It is important to point out that there are some real journalists who report real news even when it does not conform to the expected view. Kitty Holland is my current favourite. There are even some opinion piece writers who have something original to say.


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## odyssey06 (28 Dec 2017)

What Michael Gove said:
"I think that the people of this country have had enough of experts with organisations from acronyms saying that they know what is best and getting it consistently wrong, because these people are the same ones who got consistently wrong."

The shortened quote "The people of this country have had enough of experts" was reported as the interviewer interrupted Gove mid-sentence...
You may agree or disagree with either statement, but one is clearly a far more qualified statement than the other, but it seems like the short form has entered public consciousness.

As for Fianna Fail, Bertie deliberately packed off McCreevy to Europe after FF took a hammering in local elections. He put Cowen in to open the purse strings that McCreevy was at least trying to keep a grip on. At the time Fianna Fail were under relentless pressure from certain sections of the media to spend spend spend. I don't exonerate them for caving in but I do extend the blame to those spending cheerleaders.


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## joe sod (28 Dec 2017)

odyssey06 said:


> As for Fianna Fail, Bertie deliberately packed off McCreevy to Europe after FF took a hammering in local elections. He put Cowen in to open the purse strings that McCreevy was at least trying to keep a grip on. At the time Fianna Fail were under relentless pressure from certain sections of the media to spend spend spend. I don't exonerate them for caving in but I do extend the blame to those spending cheerleaders.



I think the irish political system is especially sensitive to vociferous media campaigns, the way the government caved in over the water rates is a perfect example of this. For example would such a campaign have succeeded in UK , I think not


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## noproblem (28 Dec 2017)

We now live in a country where (1) headlines can be terribly misleading and (2) one gets an awful berating if your opinion differs from the status quo. Just wait until the abortion debate starts in earnest again. We've already seen and heard how the national papers and national tv/radio station have positioned themselves. How dare anyone disagree with THEM?


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## galway_blow_in (28 Dec 2017)

cremeegg said:


> It has always been like that.
> 
> A cousin of mine won a sporting event many years ago. There was a quarter page article in one of the national papers the following day. He was
> quoted extensively about how delighted he was, how all the hard training was worth it, how grateful he was to his coach, family, supporters etc.
> ...



kitty holland is the female vincent browne with the same pet project


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## Brendan Burgess (29 Dec 2017)

AlbacoreA said:


> It getting very tiresome that everything you read in the media/papers has to be double checked for accuracy now.
> I just always assume its wrong, or deliberately distorted now. The media has no credibility for me anymore.



Hi Albacore

I share your frustration. Would you consider making complaints to the media involved or the BAI in the case of the broadcast media? 

I complained the David McWilliams programme The Great Wealth Divide.  It was rejected by RTE and by the BAI. It took a lot of work and it was frustrating but I thought it was the right thing to do as the programme was so misleading. 

I have just had an email telling me that my complaint to the BAI about RTE's The Housing Crisis has also been rejected. 

I am probably seen by them as a crank - demanding balance and fairness in statistics.  But if a few more people make complaints about these issues, there would be a reasonable chance that the BAI might take notice.  I gather that they get no other complaints about economic issues. The complaints are mainly "presenter X made a comment which was racist, sexist or supported gay rights during the referendum." 

Brendan


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## joe sod (29 Dec 2017)

I saw that show "The great wealth divide" and thought it blatantly wrong, using statistics misleadingly and ignoring statistis and facts that contradicted the agenda the program was trying to propagate (that ireland is a highly unequal society). For example any statistic like the very high welfare payments in ireland in comparison with other countries was simply ignored.


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## Purple (2 Jan 2018)

odyssey06 said:


> As for Fianna Fail, Bertie deliberately packed off McCreevy to Europe after FF took a hammering in local elections. He put Cowen in to open the purse strings that McCreevy was at least trying to keep a grip on. At the time Fianna Fail were under relentless pressure from certain sections of the media to spend spend spend. I don't exonerate them for caving in but I do extend the blame to those spending cheerleaders


 Well said. Bertie was the populist who shafted McCreevy after he tried to do the right thing. I do blame Bertie for not just caving in to the vested interest groups but effectively putting them in charge of the country through Social Partnership. 



joe sod said:


> I think the irish political system is especially sensitive to vociferous media campaigns, the way the government caved in over the water rates is a perfect example of this. For example would such a campaign have succeeded in UK , I think not


 I agree. An emotive and emotional narrative is established after which facts and opinions which question it are not tolerated.


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## Purple (2 Jan 2018)

TheBigShort said:


> In hindsight, having blamed FF for all things bad, I have a more considered view now - the 2008 crash, and subsequent bankruptcy, was out of their (and every other irish politicians) control. It was an international collapse, the effects of which still reverberate around the globe.


That's true but because we were so heavily exposed to construction, financed by cheap money, we suffered more than most. The fact that we had seen a decade of massive increases in public spending, the vast majority of which was in wage increases, meant that the impact lasted much longer than it should have. The banking/ financial crisis gave us €40-€50 billion of debt, public sector wage costs, very high welfare rates and massive increases in health spending (with no discernible improvement in outcomes) gave us the other €150-€160 billion. Yes, the crash was beyond our control but the impact of the crash was largely our own fault.


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## PMU (2 Jan 2018)

odyssey06 said:


> As for Fianna Fail, Bertie deliberately packed off McCreevy to Europe after FF took a hammering in local elections. He put Cowen in to open the purse strings that McCreevy was at least trying to keep a grip on.


This is one of the big myths, but it's not exactly correct. Mr McCreevy was Minister for Finance from 1997 to 2004; in that period public expenditure increased by 116%. Mr Cowen was Minister for Finance from 2004 to 2008; in that period public expenditure increased by 53%. http://www.per.gov.ie/en/expenditure-trends/.  Both Ministers oversaw public expenditure increase by a CAGR of 12% (McCreevy) and 11% (Cowen). So both were equally profligate spendaholics, and both increased public expenditure at about the same rate.  [Then under Ministers Lenihan and than Noonan public expenditure decreased by 8% and 4% respectively.]


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## Purple (2 Jan 2018)

PMU said:


> This is one of the big myths, but it's not exactly correct. Mr McCreevy was Minister for Finance from 1997 to 2004; in that period public expenditure increased by 116%. Mr Cowen was Minister for Finance from 2004 to 2008; in that period public expenditure increased by 53%. http://www.per.gov.ie/en/expenditure-trends/.  Both Ministers oversaw public expenditure increase by a CAGR of 12% (McCreevy) and 11% (Cowen). So both were equally profligate spendaholics, and both increased public expenditure at about the same rate.  [Then under Ministers Lenihan and than Noonan public expenditure decreased by 8% and 4% respectively.]


McCreevy saw where we were heading and tried to do something about it. That was why he was packed off to Europe. If he was left in place he would have reduced spending, or at least reduced the rate of increase in spending.


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## odyssey06 (2 Jan 2018)

PMU said:


> This is one of the big myths, but it's not exactly correct. Mr McCreevy was Minister for Finance from 1997 to 2004; in that period public expenditure increased by 116%. Mr Cowen was Minister for Finance from 2004 to 2008; in that period public expenditure increased by 53%. http://www.per.gov.ie/en/expenditure-trends/.  Both Ministers oversaw public expenditure increase by a CAGR of 12% (McCreevy) and 11% (Cowen). So both were equally profligate spendaholics, and both increased public expenditure at about the same rate.  [Then under Ministers Lenihan and than Noonan public expenditure decreased by 8% and 4% respectively.]



The difference being that McCreevy was spending it when "he had it" ... at the same time as increased spending, he also reduced the national debt in real and percentage terms. He was packed off to Europe because he could see the dangers of trying to spend what you don't have... but when Cowen came in he kept the giveaway budgets and increased spending going, at an unsustainable level which left Ireland exposed when boom turned to bust. 
There's no other convincing explanation I have heard of for why McCreevy was sent to Europe and replaced by Cowen, other than he wanted to put a brake on the spending.
I don't think you can compare the later Lenihan and Noonan budgets... but in an alternative universe, a FG budget from 2002 where Noonan is Taoiseach would be interesting for comparison.


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## PMU (2 Jan 2018)

odyssey06 said:


> The difference being that McCreevy was spending it when "he had it" ... at the same time as increased spending, he also reduced the national debt in real and percentage terms.



Another myth.  A 1% increase in national debt from 43,599 €m (1997) to 44,056 €m (2004) isn't a reduction of the national debt . While the debt to GDP ratio decreased under Mr McCreevy's stewardship, this was due to the increase of Ireland's GDP from 73,092 €m (1997) to 156,143 € m (2004), i.e. a 114% increase, not a decrease in national debt itself.



odyssey06 said:


> but when Cowen came in he kept the giveaway budgets and increased spending going, at an unsustainable level which left Ireland exposed when boom turned to bust.



Did Mr McCreevy 'have it'? Another myth. Ireland's Budget Deficit was 1.3% of GDP in 1997. Then he increased every year to 4.9% of GDP in 2000; to decrease to 1.3% of GDP in 2004. So he didn't 'have it'. He just spent and spent and spent, and racked up a deficit.  And as I said in my previous post Mr Cowen increased public expenditure at about the same rate as Mr McCreevy had.



Purple said:


> If he was left in place he would have reduced spending, or at least reduced the rate of increase in spending.



Would he? That's a big 'if'. You are just supposing what he coudda/shudda/wudda done. But the fact is he didn't, and just spent public money like it was going out of fashion.


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## odyssey06 (2 Jan 2018)

PMU said:


> Another myth.  A 1% increase in national debt from 43,599 €m (1997) to 44,056 €m (2004) isn't a reduction of the national debt . While the debt to GDP ratio decreased under Mr McCreevy's stewardship, this was due to the increase of Ireland's GDP from 73,092 €m (1997) to 156,143 € m (2004), i.e. a 114% increase, not a decrease in national debt itself.
> Did Mr McCreevy 'have it'? Another myth. Ireland's Budget Deficit was 1.3% of GDP in 1997. Then he increased every year to 4.9% of GDP in 2000; to decrease to 1.3% of GDP in 2004. So he didn't 'have it'. He just spent and spent and spent, and racked up a deficit.  And as I said in my previous post Mr Cowen increased public expenditure at about the same rate as Mr McCreevy had.
> Would he? That's a big 'if'. You are just supposing what he coudda/shudda/wudda done. But the fact is he didn't, and just spent public money like it was going out of fashion.



The question in the thread is about spending money when you have it, or not ... not spending per se.

How is it possible to spend money you don't have without any significant change in the national debt?

If he was spending money like it was going out of fashion, why was McCreevy packed off to Europe?


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## TheBigShort (2 Jan 2018)

Purple said:


> That's true but because we were so heavily exposed to construction, financed by cheap money, we suffered more than most. The fact that we had seen a decade of massive increases in public spending, the vast majority of which was in wage increases, meant that the impact lasted much longer than it should have. The banking/ financial crisis gave us €40-€50 billion of debt, public sector wage costs, very high welfare rates and massive increases in health spending (with no discernible improvement in outcomes) gave us the other €150-€160 billion. Yes, the crash was beyond our control but the impact of the crash was largely our own fault.



Public sector spending was too high, but not by the amount you identify. If you are assuming that all national debt is wasteful then you are saying we should not have a public sector at all. Sometimes it pays to borrow and invest.
I note that you talk of the crisis lasting longer than it should have, as if it is over. The consequences are still reverberating noticeably in the dysfunctional housing sector and corrupt banking sector.


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## odyssey06 (2 Jan 2018)

TheBigShort said:


> Public sector spending was too high, but not by the amount you identify. If you are assuming that all national debt is wasteful then you are saying we should not have a public sector at all. Sometimes it pays to borrow and invest.



Borrowing to pay for specific once off capital projects is one thing... borrowing to pay for day to day expenses or salaries is not investment. It's creating an unsustainable burden. 
It may be an essential component of government expenditure, but I don't see why a national debt is an essential component of a public sector?


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## TheBigShort (2 Jan 2018)

odyssey06 said:


> Borrowing to pay for specific once off capital projects is one thing... borrowing to pay for day to day expenses or salaries is not investment. It's creating an unsustainable burden.



Im not disagreeing. Merely pointing out that element public sector wage _excess _is a small component compared to overall national debt.


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## Purple (3 Jan 2018)

PMU said:


> Another myth. A 1% increase in national debt from 43,599 €m (1997) to 44,056 €m (2004) isn't a reduction of the national debt . While the debt to GDP ratio decreased under Mr McCreevy's stewardship, this was due to the increase of Ireland's GDP from 73,092 €m (1997) to 156,143 € m (2004), i.e. a 114% increase, not a decrease in national debt itself.


Seriously? National debt is always looked at in relation to GDP. If GDP increases by over 100% and the national debt increases by 1% that is a reduction of 50% in the debt to GDP ratio (the measurement that really matters).


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## Purple (3 Jan 2018)

TheBigShort said:


> If you are assuming that all national debt is wasteful then you are saying we should not have a public sector at all.


 That's a serious assumption and bit of a leap! 


TheBigShort said:


> Sometimes it pays to borrow and invest.


 Sometimes it does. Committing to long term expenditure which is funded by capital tax windfalls and/or borrowing is never a good idea. During the latter stages of the boom Public Sector wages increased by 50% (tens of billions). That's hardly a minor factor.


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## TheBigShort (3 Jan 2018)

Im not disputing that public sector expenditure was too high, merely pointing out that in the latter stages of the boom the deficits were in the region of €1-2bn. It is easy to point to this in hindsight and say it is responsible for €150bn deficit, which is simply not true. 
When the crash came we were then exposed to a €20bn expenditure deficit and subsequent bailout. But it would have made no economic sense to run €20bn surpluses (i.e no increases in public spending via wages, recruitment, welfare rates, welfare programs etc...) in anticipation of a collapse in the construction industry. 
The national debt was circa 30% of GDP, budget deficits were running at €1-2bn. On the face of it, wholly manageable in the short-term. In reality of course, everyone knew that the construction industry was unsustainable, but unfortunately those who held the levers of power in banking and government really fell for the "this time it's different" mantra. 
Had the budgets been kept in surplus by €1-2bn in latter stages, for sure the impact of the amount of the bailout wouldn't have been as large, but it is debatable by how much. Certainly figures of €150bn are way off the mark.


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## T McGibney (3 Jan 2018)

cremeegg said:


> It has always been like that.
> 
> A cousin of mine won a sporting event many years ago. There was a quarter page article in one of the national papers the following day. He was
> quoted extensively about how delighted he was, how all the hard training was worth it, how grateful he was to his coach, family, supporters etc.
> ...



You were going well until you mentioned Ms Holland, who wrote an entire book on the death of Savita Halappanavar without a single mention of Dhara Kivlehan  - who two years previously had died of the same condition and in the same circumstances as Savita, nine days after giving birth to her son at Sligo Regional Hospital - because to do so would have ruined Holland's use of Savita's tragedy to campaign for abortion.


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## T McGibney (3 Jan 2018)

In relation to debt to GDP ratios, take note that Irish GDP figures are grotesquely inflated by multinational transfer pricing. When public spending and debt figures are expressed by reference to more accurate measurements of economic output, they're very scary indeed.


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## Firefly (3 Jan 2018)

PMU said:


> Another myth.  A 1% increase in national debt from 43,599 €m (1997) to 44,056 €m (2004) isn't a reduction of the national debt .



Hi PMU,

The point was made that the national debt was reduced in _real_ (and percentage) terms. A 1% nominal increase over this period is well below the rate of general inflation, so in real terms, I believe the debt was reduced.


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## Firefly (3 Jan 2018)

Purple said:


> During the latter stages of the boom Public Sector wages increased by 50% (tens of billions). That's hardly a minor factor.



And don't forget all those juicy, tax-free lump sums that so many in the PS got for early retirement, never mind the looming pension bill coming down the tracks...


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## galway_blow_in (3 Jan 2018)

T McGibney said:


> You were going well until you mentioned Ms Holland, who wrote an entire book on the death of Savita Halappanavar without a single mention of Dhara Kivlehan  - who two years previously had died of the same condition and in the same circumstances as Savita, nine days after giving birth to her son at Sligo Regional Hospital - because to do so would have ruined Holland's use of Savita's tragedy to campaign for abortion.



same journalist is also instantly silent whenever a member of a particular minority group commit crime , whenever they are the perceived victim of a social injustice , she has it all over her twitter page or column 

the female vincent browne


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## cremeegg (3 Jan 2018)

T McGibney said:


> You were going well until you mentioned Ms Holland, who wrote an entire book on the death of Savita Halappanavar without a single mention of Dhara Kivlehan  - who two years previously had died of the same condition and in the same circumstances as Savita, nine days after giving birth to her son at Sligo Regional Hospital - because to do so would have ruined Holland's use of Savita's tragedy to campaign for abortion.



I agree that Kitty Holland and indeed the IT generally are campaigning for the introduction of abortion. The fact that the difference between disinterested journalism and campaigning is disappearing is very unwelcome in my opinion.

However campaigners are allowed to use facts to bolster their case. Kitty Holland's work in the Savita Halappanavar was certainly not lazy. She brought an important case to the public attention. A case which has implications far beyond the abortion debate. Thats good journalism and can be recognised as such whatever your views on abortion.


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## T McGibney (3 Jan 2018)

cremeegg said:


> However campaigners are allowed to use facts to bolster their case. Kitty Holland's work in the Savita Halappanavar was certainly not lazy. She brought an important case to the public attention. A case which has implications far beyond the abortion debate. Thats good journalism and can be recognised as such whatever your views on abortion.



Her exclusion of the Dhara Kivlehan story from her book on Savita reflects either monumental laziness or (more likely) deliberate selectivity in the facts presented. Its effect was to hide the implications beyond the abortion debate.  Either way, it's hard to paint that as good journalism.


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## PMU (3 Jan 2018)

odyssey06 said:


> How is it possible to spend money you don't have without any significant change in the national debt?


As I said, Mr McCreevey didn't have it. He just created a massive deficit, i.e. an accumulated budget deficit of 13,178 €m during his ministry.

The national debt is a balance sheet figure; the budget deficit is an income statement figure. The Minister for Finance finances the budget deficit through borrowing, i.e. through foreign liabilities. In Ireland by 2009 our net external position, i.e. foreign liabilities minus foreign assets, had deteriorated to such an extent that nobody would lend to us, so we had a credit crunch and subsequently an IMF bailout. 



odyssey06 said:


> If he was spending money like it was going out of fashion, why was McCreevy packed off to Europe?



It is rather insular to describe an appointment as a European Commissioner as being 'packed off' to Europe.



Firefly said:


> Hi PMU, The point was made that the national debt was reduced in _real_ (and percentage) terms. A 1% nominal increase over this period is well below the rate of general inflation, so in real terms, I believe the debt was reduced.



That's what a text book tells you, but in real life, money is money. It's an illusion to believe you can inflate debt away. Ireland had accumulated high foreign liabilities to finance its deficit. By 2009 liquidity dried up, nobody would lend to us to finance day to day spending (i.e. spending to finance a housing boom and not tradable sectors), and we needed an IMF bailout. That is why inter alia, the EU introduced the Stability & Growth Pact, to eliminate excessive deficits in the eurozone area.


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## Purple (3 Jan 2018)

TheBigShort said:


> When the crash came we were then exposed to a €20bn expenditure deficit and subsequent bailout. But it would have made no economic sense to run €20bn surpluses (i.e no increases in public spending via wages, recruitment, welfare rates, welfare programs etc...) in anticipation of a collapse in the construction industry.


We should have been running a €10 billion surplus in order to cool the economy. We should measure our expenditure relative to GNI, not GDP and we certainly should not use windfall taxes from a capital boom to fund long term current expenditure commitments. If we did that then in the 5 years running up to the crash we should have had an extra €30 to €50 billion in our reserves and the borrowing requirement after the boom whould not have been so large. If we ran our economy before the crash in the way the Troika forced us to run it post-bailout our debt would be significantly lower. My guess is 30-50% lower but I'd love to see a study on it.


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## odyssey06 (3 Jan 2018)

PMU said:


> As I said, Mr McCreevey didn't have it. He just created a massive deficit, i.e. an accumulated budget deficit of 13,178 €m during his ministry.
> The national debt is a balance sheet figure; the budget deficit is an income statement figure. The Minister for Finance finances the budget deficit through borrowing, i.e. through foreign liabilities.



It still doesn't add up to me - where are you getting your figures from?
If he financed this significant deficit spending through borrowing, why didn't the national debt in real money increase significantly during his term in office?

This information shows little or no budget deficits from 1997 to 2004:
https://tradingeconomics.com/ireland/government-budget
http://www.finfacts.ie/irishfinancenews/article_1028925.shtml

He also set up the national pension reserve fund, which invested 1% of GDP each year with the intention to fund future pension requirements. Does that seem like the behaviour of someone spending money like it was going out of fashion?


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## Firefly (3 Jan 2018)

PMU said:


> That's what a text book tells you, but in real life, money is money.


There is a big difference between nominal and real debt / inflation. My parents bought their house with a mortgage for about 5k back in the day. Their last mortgage repayment was something like 50 quid a month. Back when they took out the mortgage this 50 quid a month was a fair bit of money. By the time the last repayment was made it was nothing. 

Likewise with the national debt. If we could even stop borrowing and just maintain our current level of debt, in 20 years or so it wouldn't be problem.


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## PMU (3 Jan 2018)

odyssey06 said:


> It still doesn't add up to me - where are you getting your figures from?


  From here https://countryeconomy.com/deficit/ireland. You can also get them on Eurostat.


odyssey06 said:


> If he financed this significant deficit spending through borrowing, why didn't the national debt in real money increase significantly during his term in office?


 You can look at the budget deficit as an overdraft on your chequebook and the national debt as accumulated interest you owe on your overdraft. If interest rates fall, you can pay off accumulated interest, i.e. your personal national debt is reduced, and at the same time you could convince your bank manager to increase the level of your overdraft, i.e. to increase your personal budget deficit.


odyssey06 said:


> This information shows little or no budget deficits from 1997 to 2004: https://tradingeconomics.com/ireland/government-budget http://www.finfacts.ie/irishfinancenews/article_1028925.shtml


 They do. The web site you referenced https://tradingeconomics.com/ireland/government-budget correctly tells you that: “Ireland recorded a Government Budget deficit equal to 0.70 percent of the country's Gross Domestic Product in 2016. Government Budget in Ireland averaged -3.20 percent of GDP from 1995 until 2016, reaching an all time high of 4.90 percent of GDP in 2000 and a record low of -32.10 percent of GDP in 2010.”




Firefly said:


> There is a big difference between nominal and real debt / inflation. My parents bought their house with a mortgage for about 5k back in the day. Their last mortgage repayment was something like 50 quid a month. Back when they took out the mortgage this 50 quid a month was a fair bit of money. By the time the last repayment was made it was nothing. Likewise with the national debt. If we could even stop borrowing and just maintain our current level of debt, in 20 years or so it wouldn't be problem.


If this were correct why is there an EU Stability & Growth Pact? If you can just inflate debt away why doesn't everybody do it? The purpose of the SGP is to reduce the ability of eurozone members to introduce inflationary pressures in their economies and to require 'close to balanced' budgets. That's one of its benefits. No future Minister of Finance will be able to create massive budget deficits as Mr McCreevey and Mr Cowen did.  (Unless we leave the Eurozone.)
​


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## cremeegg (3 Jan 2018)

PMU said:


> It's an illusion to believe you can inflate debt away.



This was not true in the 1970s or 1980s but it is certainly true today and likely to be true for the medium term future. Many politicians and even some AAM posters have not grasped the change yet,



Firefly said:


> There is a big difference between nominal and real debt / inflation. My parents bought their house with a mortgage for about 5k back in the day. Their last mortgage repayment was something like 50 quid a month. Back when they took out the mortgage this 50 quid a month was a fair bit of money. By the time the last repayment was made it was nothing.
> 
> Likewise with the national debt. If we could even stop borrowing and just maintain our current level of debt, in 20 years or so it wouldn't be problem.


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## Firefly (3 Jan 2018)

PMU said:


> If this were correct why is there an EU Stability & Growth Pact? If you can just inflate debt away why doesn't everybody do it?


I believe the EU has an inflation target of 2% and with QE I expect this will come about eventually.

Whilst the nominal debt increased, in real terms it decreased. Do you agree?


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## TheBigShort (3 Jan 2018)

Purple said:


> We should have been running a €10 billion surplus in order to cool the economy.



What would you have done with this €10bn surplus, bearing in mind the record house prices, low unemployment, low national debt ratio to GDP etc


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## odyssey06 (3 Jan 2018)

PMU said:


> From here https://countryeconomy.com/deficit/ireland. You can also get them on Eurostat.
> You can look at the budget deficit as an overdraft on your chequebook and the national debt as accumulated interest you owe on your overdraft. If interest rates fall, you can pay off accumulated interest, i.e. your personal national debt is reduced, and at the same time you could convince your bank manager to increase the level of your overdraft, i.e. to increase your personal budget deficit.
> They do. The web site you referenced https://tradingeconomics.com/ireland/government-budget correctly tells you that: “Ireland recorded a Government Budget deficit equal to 0.70 percent of the country's Gross Domestic Product in 2016. Government Budget in Ireland averaged -3.20 percent of GDP from 1995 until 2016, reaching an all time high of 4.90 percent of GDP in 2000 and a record low of -32.10 percent of GDP in 2010.”



4.9% is a *positive *figure, it means there was a budget surplus, which unless I'm really reading the statistics backwards, is also the case for the official government estimates:
http://www.budget.gov.ie/Budgets/2000/Tables.aspx

Your interpretation of the statistics appears to be that in 2010 at the height of the recession we had a budget surplus of 32%?
http://www.finfacts.ie/irishfinancenews/article_1022150.shtml

1997 was the first budget in a generation (i.e. 1980) to record a budgetary surplus -  I think that might have been just before McCreevy's time.
McCreevy continued this trend and only recorded one budget deficit, in 2002.
But you seem to be interpreting the statistics such that 1997 was the first to record a deficit?
​


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## Purple (3 Jan 2018)

TheBigShort said:


> What would you have done with this €10bn surplus, bearing in mind the record house prices, low unemployment, low national debt ratio to GDP etc


I would have but it into a reserve fund. It should have been taken out of the economy in order to cool things off. Then used to heat things back up again when the crash came. In short it should have been used as a tool in counter-cyclical economic planning. Tax cuts, tax breaks, pay increases, welfare increases, pension increases, State Sector employment numbers boom; it all added fuel to the fire. Cheap Credit, a massive increase in money supply and reckless lending were only part of the problem. It was all populist and irresponsible. Blaming Lehman Brothers or Fannie Mae or anything else is a cop-out. We were, to a great extent, authors of our own destruction. The good news is that means that we are not powerless to prevent the same thing happening again.


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## Purple (3 Jan 2018)

PMU said:


> If you can just inflate debt away why doesn't everybody do it?


Everybody does do it, or at least tries to do it. They have done since the 1950's.


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## Firefly (3 Jan 2018)

Purple said:


> I would have but it into a reserve fund. It should have been taken out of the economy in order to cool things off. Then used to heat things back up again when the crash came. In short it should have been used as a tool in counter-cyclical economic planning. Tax cuts, tax breaks, pay increases, welfare increases, pension increases, State Sector employment numbers boom; it all added fuel to the fire. Cheap Credit, a massive increase in money supply and reckless lending were only part of the problem. It was all populist and irresponsible. Blaming Lehman Brothers or Fannie Mae or anything else is a cop-out. We were, to a great extent, authors of our own destruction. The good news is that means that we are not powerless to prevent the same thing happening again.



And thankfully, we have those EU rules on borrowing limits to keep us in check!


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## TheBigShort (3 Jan 2018)

Purple said:


> I would have but it into a reserve fund. It should have been taken out of the economy in order to cool things off. Then used to heat things back up again when the crash came. In short it should have been used as a tool in counter-cyclical economic planning. Tax cuts, tax breaks, pay increases, welfare increases, pension increases, State Sector employment numbers boom; it all added fuel to the fire. Cheap Credit, a massive increase in money supply and reckless lending were only part of the problem. It was all populist and irresponsible. Blaming Lehman Brothers or Fannie Mae or anything else is a cop-out. We were, to a great extent, authors of our own destruction. The good news is that means that we are not powerless to prevent the same thing happening again.



Broadly, and on face value, I would generally agree with this. But in the context of the Irish economy at the time it doesn't quite fit. Putting a budget surplus into a reserve fund would not have stopped the availability of credit. It was private bank lending that fuelled the construction and housing boom. Combined with low unemployment wage pressure demands would still occur. 
I think blaming Lehman or Fannie or FF or individuals is all a cop out. Given the chance to borrow €10m to make €20m five years later, why wouldn't a developer take that opportunity?
The problem is the system, as a whole. It has no ceiling, no structure to divert or avert spiralling wealth ( and by that I mean non-productive wealth, land hoarding, $450m Da Vinci paintings, €30m Ferraris, gold stores etc) into areas that are crying out for basic infrastructure investment. 
I don't blame anyone for obtaining or desiring that type of wealth, but there has to be a point where we as a society can say - you aren't getting anymore?


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## Purple (4 Jan 2018)

TheBigShort said:


> Broadly, and on face value, I would generally agree with this. But in the context of the Irish economy at the time it doesn't quite fit. Putting a budget surplus into a reserve fund would not have stopped the availability of credit. It was private bank lending that fuelled the construction and housing boom. Combined with low unemployment wage pressure demands would still occur.
> 
> I think blaming Lehman or Fannie or FF or individuals is all a cop out. Given the chance to borrow €10m to make €20m five years later, why wouldn't a developer take that opportunity?



We currently have Central Bank lending rules in place for Banks and borrowers. There was nothing stopping us putting those rules on place in 2002. When I bought my first apartment in 1996 (I bought it because I thought there was going to be a property boom) I could only borrow 2.5 times my income. What happened to those limits? When I bought my last house in 2005 as a married man we were offered 8.2 times our combined income. The notion that we were powerless victims of global factors is a cop-out.




TheBigShort said:


> The problem is the system, as a whole. It has no ceiling, no structure to divert or avert spiralling wealth ( and by that I mean non-productive wealth, land hoarding, $450m Da Vinci paintings, €30m Ferraris, gold stores etc) into areas that are crying out for basic infrastructure investment.


 If we want people to invest more in productive (wealth generating) investments then we need to make it easier to open and run businesses. Why open a business which employs people and makes things when you then become a “greedy employer” and have all the hassles associated with running that business only to be taxed at a marginal rate of over 50% when you can just invest in “the Markets” or assets and pay 33% on your profit?




TheBigShort said:


> I don't blame anyone for obtaining or desiring that type of wealth, but there has to be a point where we as a society can say - you aren't getting anymore?


 We can’t do anything in isolation but as a global economy we should change tax systems so that capital is taxed more.


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## TheBigShort (4 Jan 2018)

Purple said:


> What happened to those limits?



To my reckoning, there was so much pent up demand for housing that prices were exceeding the reach of your average buyer. Either wages rose (inducing an spiraling inflationary effect) to meet the increase in house prices or, credit became more readily available.
To my mind, this is where the regulators started to turn a blind eye. Upon political inertia, banks just opened the credit floodgates.



Purple said:


> When I bought my last house in 2005 as a married man we were offered 8.2 times our combined income. The notion that we were powerless victims of global factors is a cop-out.



We weren't powerless (be 'we' I mean the financial authorities). They knew what was happening and they employ people of expertise to advise etc.
My wife and I were offered 5 times our income once, we were tempted, but did the math and it made no sense. However, if the institution purporting to be an expertise on financial matters tells you that you can afford 5 times or 8.2 times, is it any wonder that lots of people believed them?
I've mentioned this before, for most people a mortgage is the biggest single financial transaction they will ever undertake. For most it is once or twice in a lifetime. If the financial 'experts' approve a mortgage 5 times income or more (based on their financial analysis), why shouldn't joe the plumber or jack the mechanic or mary the beauty therapist take their word for it? What is the point in having financial institutions if their financial advice is not to be undertaken?
These guys were peddling thousands of loans every day, five days a week for years.



Purple said:


> We can’t do anything in isolation but as a global economy we should change tax systems so that capital is taxed more



I agree.


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## Purple (4 Jan 2018)

TheBigShort said:


> To my reckoning, there was so much pent up demand for housing that prices were exceeding the reach of your average buyer. Either wages rose (inducing an spiraling inflationary effect) to meet the increase in house prices or, credit became more readily available.


Cheap credit and massive wage increases led to the increase in house costs, not the other way around. If the Central Bank had imposed income multiple limits such as they have now we would have avoided most of the credit and housing bubble.




TheBigShort said:


> To my mind, this is where the regulators started to turn a blind eye. Upon political inertia, banks just opened the credit floodgates.


 Agreed. The State didn’t do its job; it should have stopped this, and had the power to do so, but didn’t.




TheBigShort said:


> However, if the institution purporting to be an expertise on financial matters tells you that you can afford 5 times or 8.2 times, is it any wonder that lots of people believed them?


Yes, it is. I still find it hard to believe that people were so irresponsible.




TheBigShort said:


> I've mentioned this before, for most people a mortgage is the biggest single financial transaction they will ever undertake. For most it is once or twice in a lifetime. If the financial 'experts' approve a mortgage 5 times income or more (based on their financial analysis), why shouldn't joe the plumber or jack the mechanic or mary the beauty therapist take their word for it?


 They shouldn’t have taken their word for it precisely because “for most people a mortgage is the biggest single financial transaction they will ever undertake”. When making the biggest financial decision of your life you should spend 5-10 minutes thinking about it. A blunt pencil and the back of a fag packet in the time it takes to take a dump would be sufficient to avoid many, if not most, of the cases we now see in the media.  




TheBigShort said:


> What is the point in having financial institutions if their financial advice is not to be undertaken?


 That’s like saying what’s the point in having car salespeople if their advice on what car to buy and how to finance it can’t be taken.


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## TheBigShort (4 Jan 2018)

Purple said:


> Yes, it is. I still find it hard to believe that people were so irresponsible.



No its not. Its part of human behavior - follow the herd, get in first and get ahead of the pack, keeping up with the jones, etc..etc.. That is why there is an industry of trained and highly qualified experts in the field of finance. So that they can decipher the financial information in front of them and apply appropriate lending policies.

Instead, they were went crazy approving loan after loan after loan. Collectively, the lenders were engaged in the biggest financial decisions of their lives - you would have thought they would have spent 5-10 minutes thinking about it?


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## cremeegg (4 Jan 2018)

Purple said:


> Cheap credit and massive wage increases led to the increase in house costs, not the other way around. If the Central Bank had imposed income multiple limits such as they have now we would have avoided most of the credit and housing bubble.



True. And we would have 200,000 less houses today.


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## Purple (4 Jan 2018)

TheBigShort said:


> No its not. Its part of human behavior - follow the herd, get in first and get ahead of the pack, keeping up with the jones, etc..etc..


 That's assuming people are incapable of rational thought. I think they are.



TheBigShort said:


> That is why there is an industry of trained and highly qualified experts in the field of finance. So that they can decipher the financial information in front of them and apply appropriate lending policies.


 You are talking about the Central Bank, the Financial Regulator and the Department of Finance here, right?



TheBigShort said:


> Instead, they were went crazy approving loan after loan after loan. Collectively, the lenders were engaged in the biggest financial decisions of their lives - you would have thought they would have spent 5-10 minutes thinking about it?


 Yep, it takes two to tango. Both parties have to take responsibility for their actions. One side blaming the other is a cop-out.


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## odyssey06 (4 Jan 2018)

To continue the car analogy... it's very easy to be irresponsible when you are driving someone else's car... in the end it was the bank's shareholders who took the biggest hit - not the staff who crashed the car. 

We should have been looking at ways to get the bank's owners to get each of their own banks to act responsibly, in their own long term interest - instead of the cat and mouse game we now have by seeming to place all the onus of ensuring responsibility on the regulator and expecting irresponsible banks. 
I suppose that's the moral hazard of 'too big to fail'


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## Purple (4 Jan 2018)

cremeegg said:


> True. And we would have 200,000 less houses today.


Would there be though? We hardly built a house for 8 years. Without the bubble and crash we'd still have functioning construction and banking sectors. Would we not have managed to build those 200,000 houses, and more, over the last 8 years?


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## TheBigShort (4 Jan 2018)

Purple said:


> That's assuming people are incapable of rational thought. I think they are.



Of course they are, but they are also capable of irrational behavior.



Purple said:


> You are talking about the Central Bank, the Financial Regulator and the Department of Finance here, right?



Absolutely. But also the banks are equipped internally with their own auditing and monitoring divisions. Given the nature of the business they are involved in (buying and selling money), it would be incomprehensible and reckless if they didn't have their own sufficient checks and balances in place, right?
Unless you think the regulators should hold the hands of the banks every step of the way?



Purple said:


> Yep, it takes two to tango. Both parties have to take responsibility for their actions. One side blaming the other is a cop-out.



Each side takes responsibility for sure. If I make 1 bad loan through borrowing, I am responsible for my one bad loan, not everybody else's bad loans - there is no 'we' in this circumstance.
If I make ten of thousands of bad loans through lending, day after day, week in week out, I am responsible for all those bad loans - there is no 'we' either.

In the end, its the system that facilitates all these bad loans to happen.


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## Purple (4 Jan 2018)

TheBigShort said:


> Absolutely. But also the banks are equipped internally with their own auditing and monitoring divisions. Given the nature of the business they are involved in (buying and selling money), it would be incomprehensible and reckless if they didn't have their own sufficient checks and balances in place, right?
> Unless you think the regulators should hold the hands of the banks every step of the way?


The State had a responsibility to protect the citizen. 



TheBigShort said:


> In the end, its the system that facilitates all these bad loans to happen.


 The State, through the Central Bank, Department of Finance and Financial Regulator, created the Irish system. There is no good reason why the Irish State could not have constructed our system in such a way that the impact of the international financial crisis on the citizens of this country was far smaller than it turned out to be. We were being warned about pro-cyclical economic policies by the EU and other EU governments ten years before the crash(remember the Dutch Minister for Finance berating us about our recklessness?). Richard Bruton warned in the Dail that the Celtic Tiger was built on internationally traded goods and services (real wealth creating jobs) but those jobs were being lost and replaced with construction sector jobs (non real wealth creating). 
So, we had pro-cyclical economic policies (tax reductions and massive increases in pensions, welfare and Public Sector pay and numbers), no competent oversight of financial institutions by the Financial Regulator, a Ministry for Finance which was excluded from State financial decision making by the Social Partnership model (and was unfit for purpose anyway) and no Central Bank control or limiting of lending by banks through mechanisms which are currently in place. I can only conclude that most of the crash was our own fault. The tragedy is that we seem to have leaned nothing from it.


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## TheBigShort (4 Jan 2018)

Purple said:


> The State had a responsibility to protect the citizen.



Yes, and it failed. Why do keep diverting the subject back to State institutions when nobody is disagreeing with you? Apparently the individual is also responsible for their actions too? Are the financial institutions not responsible for their actions too?



Purple said:


> The State, through the Central Bank, Department of Finance and Financial Regulator, created the Irish system.



That's what I said, it is the system that facilitates these loans.
The system facilitates me to go drink ten pints of beer and a bottle of whiskey if I want. Doesn't mean I have to do it, or that I should not be held accountable for my actions if I do drink all that alcohol.


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## T McGibney (4 Jan 2018)

Purple said:


> Would there be though? We hardly built a house for 8 years. *Without the bubble and crash we'd still have functioning construction and banking sectors.* Would we not have managed to build those 200,000 houses, and more, over the last 8 years?



True perhaps in respect of banking, but I'm not too sure in relation to residential property construction.

The powers-that-be in Ireland have always resented housebuilders & property investors doing well. They did their level best in 1998 to torpedo them through the ideology-loaded Bacon Report measures. These of course backfired spectacularly, triggering a housing crisis that was only defused when McCreevy eventually did a uturn and abandoned them. The begrudgers saw their chance post-crash in 2009 and fooled poor Brian Lenihan into adopting even worse measures that did away with new residential construction and investment for good.

Since then there has been barely a house built, and homelessness is rife.

It's highly likely that this would have happened with or without a boom and bust. Never underestimate the tendency of Irish policymakers to shoot themselves in the foot while commending themselves on their virtue.


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## Purple (4 Jan 2018)

TheBigShort said:


> Are the financial institutions not responsible for their actions too?


 Yes. Not just the financial institutions but the individuals within them. 



TheBigShort said:


> That's what I said, it is the system that facilitates these loans.
> The system facilitates me to go drink ten pints of beer and a bottle of whiskey if I want. Doesn't mean I have to do it, or that I should not be held accountable for my actions if I do drink all that alcohol.


 Exactly. The banks were responsible for their actions and the punters for theirs. All were failed by the State. The only people who suffered were the shareholders of the banks and the punters who bought the houses. The real decision makers are still in most of the banks (the boards are mostly window dressing) and nobody employed by the State suffered any sanction whatsoever.


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