TheBigShort
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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
We should have been running a €10 billion surplus in order to cool the economy.
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.”
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.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
Everybody does do it, or at least tries to do it. They have done since the 1950's.If you can just inflate debt away why doesn't everybody do it?
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.
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?
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?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.
We can’t do anything in isolation but as a global economy we should change tax systems so that capital is taxed more.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?
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.
We can’t do anything in isolation but as a global economy we should change tax systems so that capital is taxed more
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.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.
Agreed. The State didn’t do its job; it should have stopped this, and had the power to do so, but didn’t.To my mind, this is where the regulators started to turn a blind eye. Upon political inertia, banks just opened the credit floodgates.
Yes, it is. I still find it hard to believe that people were so irresponsible.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?
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.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?
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.What is the point in having financial institutions if their financial advice is not to be undertaken?
Yes, it is. I still find it hard to believe that people were so irresponsible.
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.
That's assuming people are incapable of rational thought. I think they are.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..
You are talking about the Central Bank, the Financial Regulator and the Department of Finance here, right?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.
Yep, it takes two to tango. Both parties have to take responsibility for their actions. One side blaming the other is a cop-out.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?
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. And we would have 200,000 less houses today.
That's assuming people are incapable of rational thought. I think they are.
You are talking about the Central Bank, the Financial Regulator and the Department of Finance here, right?
Yep, it takes two to tango. Both parties have to take responsibility for their actions. One side blaming the other is a cop-out.
The State had a responsibility to protect the citizen.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, 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).In the end, its the system that facilitates all these bad loans to happen.
The State had a responsibility to protect the citizen.
The State, through the Central Bank, Department of Finance and Financial Regulator, created the Irish system.
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?
Yes. Not just the financial institutions but the individuals within them.Are the financial institutions not responsible for their actions too?
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.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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