The Crash in 2009
As predicted in earlier reports dating from 2006 and 2007, a property price crash hit Ireland by the first half of 2009. It coincided with the 2009 recession, and both had started to develop in late 2008 following the global economic slowdown and credit control tightening. By June 2009, it was reported that around 40% of the price escalation that had occurred during the property bubble years ("Celtic Tiger Part 2") of 2001-2007 had been lost. As of 2012, house prices are below the 2001 prices and more than the entire gain during the Celtic Tiger years has been erased.
There were several groups and organisations that were blamed and that also accused others of causing the crash. Some of the more notable ones were:
- The Construction Industry Federation: blamed part-time builders for the bubble
- The Financial Services Consultative Consumer Panel, which was tasked with monitoring the performance of the Central Bank of Ireland, said that most consumers have lost "significant amounts of money" due to the inadequacies of the financial regulatory structure. It also criticised the "deficient" response of the regulator to threats to consumers, including the property bubble. In response they said "It is clear that the actions we took were insufficient and were not taken early enough," Following the failure of existing regulatory structures to prevent excessive lending to the property sector, consultants which were brought in to review their operations said that "regulatory expertise was lacking in some areas." Former Taoiseach, Bertie Ahern said his decision in 2001 to create the Financial Regulator was one of the main reasons for the collapse of the Irish banking sector and "if I had a chance again I wouldn’t do it".
- The Central Bank of Ireland admitted in November 2005 that they had estimates of overvaluation of 0% to 60% in the Irish residential property market. The Irish Times has revealed minutes of a meeting with the OECD where they indicated that property was overvalued but was fearful of precipitating a crash by "putting a number on it". Their 2009 Annual Report had virtually nothing to say about how and why the Irish banking system was brought to the brink of collapse.There were four Central Bank directors on the board of the Financial Regulator, yet the Central Bank maintains it had no powers to intervene in the market. The Central Bank had the power to issue directives to the Financial Regulator if it thought it was conducting its business in a way that was contrary to overall Central Bank policy aims.None was issued. The Central Bank told the Oireachtas Enterprise Committee that shareholders who lost their money in the banking collapse are to blame for their fate and got what was coming to them for not keeping bank chiefs in check, but did admit that the Central Bank had failed to give sufficient warning about reckless lending to property developers.
- The banks: were accused of too loose lending practices, contributing not just to property prices spiralling out of control but also increasing the debt burden of the average citizen as they were to be later bailed out
In general, it was assumed to be a combination of factors that were both external and internal that affected the country. Further revelations of the corruption within the banking sector, particularly Anglo Irish Bank, have continued to affect the credibility of Ireland's presence within the international finance and business community.
At the start of 2011, the government put its banks through stringent stress tests after repeated rounds of recapitalization failed to halt the banking crisis in Ireland. Instead of trusting banks to submit their own data, BlackRock - the world's largest and most prominent asset management company was paid to value individual assets on bank books. This involved a series of on site audits of bank accounts, and even in some occasions physical valuation of some of the properties underlying bank mortgage assets. And based on the valuations by BlackRock, the estimate cost of recapitalizing Ireland's banks was raised to €100 billion.
The stress-tests that the banks underwent, unveiled that four banks—Allied Irish Banks, Bank of Ireland, EBS Building Society and Irish Life & Permanent—must raise an extra €24 billion of capital to meet a minimum core Tier-1 capital ratio of 6% under the tests’ worst-case assumptions. The tests, at the very least, did not reveal the need for more money to be poured into the maw of Anglo Irish, which announced a loss of €17.7 billion for 2010, the largest in Irish corporate history.
During the property bubble, a disproportionate number of people were employed in the construction industry. As that has contracted and other manufacturing moved offshore, unemployment by May 2009 was at 11.4%, and had reached 14.3% by September 2011. The Ireland-based ESRI (Economic and Social Research Institute) estimates it will reach around 17%.
Read more about this topic: Irish Property Bubble
Famous quotes containing the word crash:
white-sailed of Crete,
you brought my mistress
from her quiet palace
through breaker and crash of surf
to love-rite of unhappiness!”
—Hilda Doolittle (18861961)