Was the financial catastrophe that hit Ireland from 2008 on an accident or due to mistaken policies?
It is natural for economies to experience highs and lows during different periods, often being subject to a boom-bust cycle. The financial catastrophe that hit Ireland from 2008 on, however, was definitely not an accident. A global financial crisis ensued the same year, which would obviously have a negative impact on Ireland - it “contributed very significantly to the [Irish] economy’s current woes” (Fitzgerald, 2011). However, the policies undertaken by the Irish government, Central Bank and ECB are the main cause of the prolonged length and depth of the Irish recession.
The origin of the Irish recession stems from the monetary policy implemented by the Central Bank and the ECB, and from the introduction of the Euro in 1999. The integration of EU financial markets provided Irish banks with access to international market (wholesale) funding, allowing Ireland to borrow cross-border without the foreign exchange risks; as a result banks were able to expand their loan books to a great extent.
This new source of funding made it possible for Irish banks to lend well beyond their means of domestic deposits and equity. There was also potential for large profits, as Irish banks could borrow short term at a cheap interest rate and lend long term at a higher rate. The rate to customers was still relatively very cheap and, at a time when the economy was growing rapidly and incomes were rising, people took advantage of the cheap credit and borrowed excessively. The average household took out small loans and large mortgages alike; small and medium enterprises borrowed more for expansion and business purposes, and property developers took on...
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...cial Stability Policy, Patrick Honohan and Donal Donovan and Paul Gorecki and Raque Mottiar (2010) http://mpra.ub.uni-muenchen.de/24896/1/MPRA_paper_24896.pdf
Whelan, Karl (2012). "ELA, Promissory notes and All That: The Fiscal Costs of Anglo Irish Bank” http://www.karlwhelan.com/IrishEconomy/Whelan-PNotes-September2012.pdf
Regling and Watson, 2010: A Preliminary Report on The Sources of Ireland’s Banking Crisis, http://www.betterregulation.com/external/A%20Preliminary%20Report%20on%20The%20Sources%20of%20Irelands%20Banking%20Crisis.pdf
Misjudging Risk: Causes Of The Systemic Banking Crisis In Ireland (Nyberg, 2011) http://www.bankinginquiry.gov.ie/Documents/Misjuding%20Risk%20-%20Causes%20of%20the%20Systemic%20Banking%20Crisis%20in%20Ireland.pdf
The Irish Economy Today: Albatross or Phoenix http://www.esri.ie/UserFiles/publications/WP384/WP384.pdf
The Savings and Loans Crisis of the 1980’s and early 90’s created the greatest banking collapse since the Great Depression in 1929. Over half the S & L’s failed, along with the FSLIC fund that was created to insure their deposits.
report of the national commission on the causes of the financial and economic crisis in
After a generation of portfolio managers and investors profiting from decades of favorable returns on stocks, they believed the modern economy was impervious to major calamities (“Rethinking” 20). As inflation rates fell from record highs in the late 1970s and early 1980s to the record lows that they are today, interest rates followed, enabling Americans to borrow more money from lenders which, in turn, increased housing prices to all-time highs (“Rethinking” 21).
The economic business cycle of the world is its own living and breathing entity expanding and contracting with imprecise balances involving supply and demand. The expansions and contractions also known as booms and recessions support a delicate equilibrium of checks and balances, employment and unemployment. The year 1929 marked the beginning of the downward spiral of this delicate economic balance known as The Great Depression of the United States of America. The Great Depression is by far the most significant economic event that occurred during the twentieth century making other depressions pale in comparison. As a result, it placed the world’s political and economic systems into a complete loss of credibility. What transforms an ordinary recession or business cycle into an authentic depression is a matter of dispute, which caused trepidation among economic theorists. Some claim the depression was the result of an extraordinary succession of errors in monetary procedure. Historians stress structural factors such as massive bank failures and the stock market crash; economists hold responsible monetary factors such as the Federal Reserve’s actions when they contracted the currency distribution, and Britain's attempt to return their Gold Standard to pre-World War parities. Subsequently, there are the theorists such as the monetarists, who presume that it began as a normal recession, however many policy errors by the monetary establishment forced a reduction in the money supply, which worsened the economic condition, thereby turning the normal recession into the Great Depression. Others speculate that it was a failure of the free market or a failure of the government in their efforts to regulate interest rates, slow the occ...
...ults of the recession. In order for this never to happen again, there is a need to learn from the mistakes in the past and to look for the warning signs. The problem is not just restricted to one country, but is a global problem and needs to be addressed as such.
Cabral, R. (2013). A perspective on the symptoms and causes of the financial crisis. Journal of Banking & Finance, 37, 103-117
Banks failed due to unpaid loans and bank runs. Just a few years after the crash, more than 5,000 banks closed.... ... middle of paper ... ... Print.
In conclusion, people have still not been held accountable for one of the largest financial collapses of all time. I think that there should be a limit on who gets qualified for any loan in order to avoid this situation again. I think that everyone who was responsible should be held accountable for what happened even if it means banks going under.
As a result, the famine is an event still discussed and debated today; influencing Irish politics and its position within the British Isles. Questions about morality and blame have led to historians to attempt to critique British and Irish response during the famine, whilst cataloging the short term and long-term consequences. Although most blame is primarily placed on the regional and national governments response to the famine crisis, the actions of the State do not provide an adequate analysis of early nineteenth century social structures which would shape Ireland both economically, socially and politically in the years before the famine. The establishment of the Union in 1801 led to a free market system and s...
... were basically led by the promise of a great profit, this false pretense helped people in high authority to be blinded by the chances of certain personal goals so they only cared about continuing their personal and collective growth without analyzing the decisions correctly and understanding the recklessly of there actions, they failed to anticipate that their selfish actions would eventually and inevitably has a severe effect on the Irish economy as a whole and for many individuals who are now jobless as a result. The recession has affected almost everyone and methods must be engaged to punish those who acted irresponsible and learn from our mistakes to protect the future economics solidity of the state.
Since the turn of the millennium Ireland witnessed unprecedented growth, in stark contrast to the economic hardship of the 1900’s. Ireland became one of the most prosperous countries in Europe during the 2000’s. Times were good for Ireland as unemployment was low, growth and GDP was growing year on year and inflation was constant. In 2008, all this was to change and Ireland witnessed the worst recession in its history. The banking crisis, the construction sector and poor regulation were the major contributors in the Irish recession. A fiscal crisis erupted, NAMA (National Assets Management Agency) was established to secure bad loans in banks, and a EU/IMF bailout was agreed which burdened Irish taxpayers. I will explore the causes and consequences of the crisis in this essay.
Firstly, the main reason for the systematic failure, according to the report was the expansion of the property bubble financed by the banks. Between 2002 and 2008 bankers demonstrated high levels of greed combined with disregard for the risks and gross misjudgement which few bankers’ could disagree with. This was evident from the surge in lending between sectors which was very uneven. Residential mortgage lending and lending to the construction and property sector considerably out-paced growth in all the other sectors combined (see Fig1 15). For instance, lending to this sector increased at an annual rate of almost 45%. This effectively created a property bubble and like all bubbles, they burst, and this heavily influenced Irelands’ financial crisis. This tied with the world- wide economic crisis heavily increased the rate of the crisis.
Warwick J. McKibbin, and Andrew Stoeckel. “The Global Financial Crisis: Causes and Consequences.” Lowy Institute for International Policy 2.09 (2009): 1. PDF file.
Ronayne, T. 2004. Regions Without Work: Unemployment and Labour Market Policy in Ireland. [Online] Available from: http://www.wrc.ie/publications/regionsw.pdf [Accessed 7th May 2012]
The failure of adequate board accountability has indicated strong adverse effects on corporate performance including, the bankruptcy of various public companies, thereby casting serious doubt on the credibility and efficacy of board accountability. For example, Lehman Brothers scandal, the largest bankruptcy in U.S history, Northern Rock was a large failure of a financial institution in the United Kingdom (Hull 2015:16). In Ireland, the Anglo-Irish Bank created a huge bubble that plunged the state into economic recession. In September 28, 2008, the Irish Government signed into law, the “bank guarantee” which provided with immediate effect a guarantee arrangement to safeguard all deposits in retail, commercial, institutional and interbank transactions, covered bonds, senior debt and dated subordinated debt (Lenihan 2008). Banks in Ireland clearly needed yet more capital from the State (Irish Times 19 November 2011) and this underscores the need for the government’s bailout