Wall Street Journal Europe editorial —
Ireland’s plight is not the result of collecting too little tax. The country is a victim of the global credit bubble, which tended to hit hardest the countries that had the largest and most innovative financial industries: Ireland, the U.K., Spain, the U.S. and, in its especially perverse way, Iceland.
Concerning credit growth …. what occurred in Ireland over the past decade was simply and squarely a massive financial sector and property boom. Moreover, this boom was not marked by the esoteric complexity of financial instrument design that proved the downfall of nstitutions elsewhere. The problems lay in plain vanilla property lending (especially to commercial real estate), facilitated by heavy non-deposit funding, and in governance weaknesses of an easily recognisable kind. Together, these factors led to acute vulnerabilities and then to deep economic and social costs.
To spell it out, although you can use various words about Irish banks, “innovative” is not going to be one of them.Â Yes there was cheap money but bad lending practices (including investment loans payable on demand and non-recourse loans to developers) are at the root of the crisis.Â However, it remains a Eurozone article of faith that bondholders who lent money to banks to engage in such dodgy lending practices shouldn’t lose a cent.