Reading the response to the comments by Enda Kenny at Davo, what is his take on the crisis?
“Irish people simply went mad to borrow . . . which spawned greed to a point where this went out of control and led to the spectacular crash,”
Now that might be okay, were it restricted simply to ‘some’ Irish people, but in very broad brush strokes Kenny continued:
“The extent of personal credit, personal wealth created on credit, was done between people and banks – a system that spawned greed to a point where it just went out of control completely with a spectacular crash.”
The Irish Times certainly thought he was spot on. In an editorial entitled ‘Shock! Horror! Kenny Tells the Truth’ it wrote:
THE FURIOUS, though largely politically manufactured, response to Taoiseach Enda Kenny’s Davos debt comments have a lot more to do with cynically playing to a national inhibition about washing our dirty linen in public than any real belief that Kenny was wrong.
Though it had to accept that:
Wandering off script, his words were perhaps insensitive, unnuanced and unqualified.
Uh-huh? And…
Though he should have added, as he has in the past, that government and regulatory failure and bankers’ excess played their part.
So in other words his statements were only partially true. And a partial truth is not good enough, not from the elected leader of a state or anyone else. Not when he is implicitly and explicitly blaming the population of that state by no qualification on the term ‘people’.
Entertainingly the IT sought support from the following:
In Davos, according to our correspondent, the response to the Taoiseach’s comments was warm, a welcome for his frankness, and an appreciation of the other part of the message, that there is light at the end of the tunnel.
And a.nony.mous…
One veteran Irish Davos-attender described the criticism as “ludicrous”.
And what of this unlikely suspect?
Businessman Denis O’Brien observed that “Our Taoiseach is one of the few leaders who have come to Davos and actually been honest,” while a letter writer on this page suggests a headline “Nation in shock as politician tells the truth.”
Maybe it’s me but when you’re looking to Denis O’Brien for validation you’re not in Kansas anymore [and the IT should perhaps know better given a certain spot of unpleasantness in the not too distant past over a certain columnist and the termination of their contract].
It doesn’t stop there.
By comparison with other countries, moreover, a study by consultants McKinseys finds Irish household debt (as a proportion of GDP) currently running 57 per cent higher than the average in “mature economies”, and only marginally better in respect of Spain and Portugal. Of the two other countries associated with the euro zone crisis, Greece and Italy, household debt here is double the former, and 2½ times the latter.
There is an argument currently being made in some quarters that the austerity being imposed on the Irish public is entirely about bailing out German and European banks who irresponsibly lavished us with cash, tempting us to borrow and spend beyond our means. And that they are entirely culpable for the mess we are in – we owe them nothing. But as German ambassador Dr Eckhart Lübkemeier put it bluntly at a meeting in Trinity on Thursday night, “it takes two to tango!”. Borrowers have a moral responsibility too.
That’s a nice convenient line. ‘Borrowers have a moral responsibility too’. But borrowers are – generally speaking, and I’m not talking about certain classes of them – at a disadvantage in this context. They must take a risk and often from a position of inadequate knowledge. A while back I had to shift from a DCC shared ownership mortgage to a commercial mortgage. Work needed to be done on the house and DCC did not provide any facility for top up of mortgage – as handy a mechanism for jettisoning property into the commercial market as I can think of [and what kills me is that when the deeds of the house were signed over jointly to DCC at the start of the process in the late 1990s the man from DCC who was doing so said that he hoped the house wouldn’t be sold on rapidly. That was never the intention and I share[d] the sentiment but to see the property leave partial social ownership was a bitter pill for me to swallow].
Anyhow when organising the ‘new’ mortgage I asked the person dealing with it what they thought the risk was. They assured me it was fine, but then stopped and admitted that there was a risk if jobs were lost or the economy went further south or interest rates rose substantially [and at the time, about two years back this seemed highly likely]. One of those circumstances could probably be dealt with, but not all of them together.
In other words in a reasonably stable economy such a risk is just about manageable, or if one has savings or the sums involved are low. But in an economy in a boom situation such risk is much less manageable.
How much less manageable?
Here from the IT’s editorial on this topic:
The realities of our addiction to personal debt in recent years are deeply disturbing. CSO figures show that between 2001 and 2008, while GNP increased by some 56 per cent, household loans (including mortgages) soared 245 per cent. Borrowing has tailed off a bit since the crisis, but remains at just below historic highs. Economist Cormac Lucey cites a US study which argues that when household debt exceeds 85 per cent of GDP it becomes a drag on growth – in Ireland that threshold is exceeded by 50 per cent.
It was a boom. The outcomes as we have seen have been disastrous. Yet who precisely was shouting stop during this period? Well, it wasn’t the ECB, the EU – and the IMF was remarkably silent about these matters. Far from the Irish economy being a source of overt, or even covert, concern, this state was regarded as exemplary, a model for emulation and so on.
The political classes – that is the three/four largest parties then extant – were as one, with only marginal unease, in agreeing that the status quo was to be continued. Remember Labour’s proposal to cut the lower rate of tax in 2007? And Fine Gael, led by one E. Kenny can take no pride in statements raising concerns over the situation either.
The media? Well we’ll discuss that in a moment… but what of the effects on ‘people’ in this environment?
As a friend in the public sector said to me ‘no one ever thought wages would be cut’. No one did. No one in the general economy – I worked for a private enterprise that some years before I arrived had tried to cut wages, this in the very early 1990s or late 1980s. The staff rebelled. Wages might remain static [which of course is a cut], but they rarely went down, short of unemployment.
And what talk there was of change was of ‘soft landings’.
And the media?
Well the Irish Times itself is open to charges of massive hypocrisy on this issue. Some will recall how during and before the Celtic Tiger period the Irish Times led the cheerleading with property supplements that were deliberately designed to generate enthusiasm in a market where ever increasingly stratospheric prices were regarded as the ‘new normal’. Some might also recall that the Irish Times was the media organ which didn’t merely restrict itself to such rhetorical, though frankly I think its influence was far from rhetorical, activities but also purchased a property website.
For it now to argue, as it does, that somehow the credit problems were in some respect intrinsic to our nature, that it was a ‘madness’ which descended upon an Irish people who only now are in recovery, and that only through the ‘tough decisions’ is a profound evasion of its own centrality [and that of the media in general] to this process.
So that is the context. Borrowers in a context where in order to buy into a market where prices were increasing ludicrously, in no small part due to the prodding a collusive media and political and economic circles, had to expose themselves to absurd risk. I’m 46, I’m cautious by nature in financial matters and I had the memory of the 1980s, and God knows part of the 1990s, to make me even more cautious again. Add in an antipathy to banks, and media and economic tropes, in large part guided by socialism and I’m the antithesis of the target market for borrowing. But if it were otherwise, if I was less sceptical, less risk-averse [and note the contradictions in the messages we are being bombarded with, on the one hand ‘we’ went ‘mad’, on the other our supposed entrepreneurial class are reified for their ‘risk-taking’] there but for the grace of who knows what might go I – and many others, well they went.
None of which is to excuse the crass stupidity of some involved in the process, the fact that there was greed, but for the Irish Times, given its role in all this to try to point the finger at ‘people’ is inexcusable.
And for it to ignore another aspect of this crisis now is equally inexcusable. As Vincent Browne puts it in the Sunday Business Post this weekend:
Wouldn’t it have been refreshing if at the Davos assembly of very important people, Kenny had said something like the following: ‘the Irish crisis was caused by internal and external factors. We certainly mismanaged our own internal affairs and that cause the fiscal crisis, and we will pay whatever we have to pay to rectify that [aligning with EU norms on taxation would be a good start there – wbs]. But there were external factors also for which we do not – and did not – have responsibility. The low interest rates in the eurozone were appropriate for Germany but not for Ireland.
It was partly under pressure from the ECB that we gave the bank guarantee in Sept 2008, and that has cause a massive burden of private bank debt to be inflcted on the Irish people. We have been told that were we to default even marginally on this debt the consequences to us would be calamitous for it would destabilise European banks generally.
So to protect that stability Ireland has to bear an enormous burden alone. This is wrong. It has to be European wide burden sharing and I am going to insist on that at the EU Council meeting on Monday.
It’s bad enough that Kenny cannot make a statement like that, but then again who expects a rather tame Irish Christian Democrat to go up agin the big guns? It’s just not part of his political make up. But for the Irish Times to be unable to see the necessity for him to transcend the entirely self-serving rhetoric [from both his and the ITs perspective] of his actual statement tells one all that is necessary as regards their true concerns in these matters.
The Cedar Lounge Revolution 
