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This image gallery presents a historical survey of some of the public libraries that have served Dublin’s citizens from 1884 until the present day.

Since opening its doors in 1871, the Gaiety Theatre in Dublin has been a cultural landmark. The oldest continuously operating theatre in Dublin, the Gaiety Theatre has provided entertainment to audiences for generations. As the name ‘gaiety’ suggests, the theatre originally specialized in comedy and opera; today the theatre offers entertainment of all forms. This gallery offers a peek into the Gaiety’s rich history, from the 1880s to the 1930s.

The grandest public space in Dublin is College Green. Roughly triangular in shape, it has three of Dublin’s finest public buildings fronting onto it: Trinity College West Front, the Houses of Parliament, and the General Post Office. In the centre is the equestrian statue of William III. Leading off it from the three corners are the great shopping streets, Dame Street and Grafton Street, and leading towards the river, College Street. It’s a lovely drive by carriage, sweeping down Cork Hill to Dame Street and entering the Green from the west. It is very fashionable to take an evening promenade by the Parliament House, strolling in the arcade formed by the columns. Posters for new plays, and other public notices, are displayed on the pillars and you can catch up with all the latest news as well as getting information about upcoming events here. Back in the early '80s we saw the huge gathering of Volunteers before the Parliament House, what a spectacle that was! Rousing speeches were given that day and we all cheered. We have settled down with our own parliament now, but it does not have full legislative rights, some matters have to be referred to London. However, there is a great sense of occasion surrounding the workings of the Houses, lords come and go, proud orators preen themselves on the steps before entering. When petitions are being presented great ceremony can accompany the petitioners as they enter the building. The Lords’ Chamber is sumptuous, one of the most beautifully decorated spaces in the city, and it is a rare treat to be able to visit. The Parliament Coffee House is the place to be seen if you have ambitions in the political sphere. The Green is like the throbbing heart of the city when parliament is in session. A new club, called Daly’s Club, is the talk of the town since it opened at the beginning of the year with a grand dinner. It’s a fine new building on the western edge of the Green at Dame Street. Designed by Francis Johnston, its interior is reputed to be lavish with grand chandelier lustres, inlaid tables and marble chimney pieces, and the chairs and sofas are white and gold upholstered in silk. Here the sons of the aristocracy and members of parliament can squander their wealth in gambling with cards and dice. I see in the papers that Antoine Gerna is about to open a very fancy new reading room at his shop across from Trinity, next to the General Post Office on the south side of the Green. He’s calling it the Cabinet Littéraire, this would seem more pretentious, I suppose, if he wasn’t French himself, and fluent in French and Italian. Members can make themselves comfortable at his blazing fireplace reading all the recent newspapers in French and Italian, and browsing all the new pamphlets. I hope it’s a success, it will probably attract the Trinity crowd, the students are always glad of a warm place to sit! I’m sure the politicians from across the way in the Houses of Parliament will be happy to be seen there, and at least pretend to be interested in current affairs in the European and American lands. 

Listen back to ‘The Irish Economy; What happened, what next?’ The 2011 series was aimed at helping to answer, or at least providing possible answers to some questions around the Irish Economy: How have we reached the point we are at now? What has the policy of successive governments been? How has this contributed to the current situation?

I love the theatre, I’m fascinated by the spectacle, the costumes, the music, and of course people watching. The heavy smell and flickering images of the wax candles create an atmosphere like no other: combining the formality of church with the excitement and anticipation of the performance to come. All the gentry turn up in their carriages, especially on benefit nights. When it gets really busy the drivers are only allowed to drive the carriages in one direction along the street, they drop their passengers at the door and keep moving.  Smock Alley, or to give it its official name, The Theatre Royal, Smock Alley, is my favourite theatre in Dublin and it gets all the latest shows from Drury Lane in London. Smock Alley has had a play-house on this site for over a century now, and it is frequented by Dublin's high society. It can even boast a number of riots since the start of this century. Many of the great actors have trod its boards, such as Thomas Sheridan, Peg Woffington, Benjamin Victor, Elizabeth Vincent, and David Garrick visiting from London. Its location is very convenient also, right in the centre of town, not far from Dame Street where all the fashionable people shop, and it's near the Liffey where you can go for a stroll before the performance. Crow Street Theatre is a good space too, and I like having the choice of venue.    I especially enjoy the new comedies and I see that Oliver Goldsmith’s new play, She stoops to conquer, is advertised again. I love this play, it is so well observed, and it moves at a cracking pace. I read it as soon as it came out two years ago, it was published first in London, but I read the Dublin edition when it appeared shortly afterwards. The Dublin edition costs sixpence halfpenny. It was so popular that it reached its fifth edition in less than a year. While it was very entertaining to read, you really need to see it performed. I went first in January, and I enjoyed it so much, that now three months later I’ve got tickets to go again. It's good to know that in nearly 240 years time a theatre will still occupy this space in Smock alley and will still be showing She stoops to conquer to delighted audiences.I like to buy my own copies of the new plays, they’re not expensive, usually between sixpence and one shilling each, and I can relive the theatrical experience at home. It’s good to have the cast list at the front so that I know the actors who were in the original production. I like to see who acted in the Drury Lane production, I wonder if they were as good as the actors I saw in Dublin: Mr Parker as Hardcastle, Mrs E. Brown as Mrs Hardcastle, Mrs Brown as Miss Hardcastle, and Mr Waddy as Young Marlow. I keep the plays carefully and eventually I will bind them together in volumes arranged by theme, or perhaps by date.

Listen to Simon Carswell's talk.Welcome to the Dublin City Public Libraries and Archive Podcast. In this episode Simon Carswell, the Irish Times Finance Correspondent, talks about Anglo Irish Bank and the part it played in Ireland's economic collapse. This talk, one of a series on the Irish Economy, was recorded in front of a live audience in the Central Library on 29 March 2012.Thanks very much.  Sorry for the delay.  I actually was at an Anglo results presentation just there where they said that they are going to issue legal proceedings against Michael Fingleton today so they’re issuing a plenary protective summons which is, which seems to be a ... they didn’t explain what it was about but it’s a block that they’ve put in that gets around the statute of limitations.  But anyway they’re going to issue proceedings later today and they’re obviously trying to get around the statute of limitations which is a 6 year block, as far as I understand it, with regard to contractual issues so they’ve obviously found something that they can try and sue Michael Fingleton on but they need to issue proceedings today so hopefully we’ll find out later today, hopefully we’ll be able to read about it in The Irish Times tomorrow.So as Padraic said I am author of two books and I am a Finance Correspondence in The Irish Times so I’ve been covering the banking story for 4 years now and prior to that I worked in the Sunday Business Post where I was News Editor.  And I guess the timing of the book is interesting because the first book over there was written in 2006, published in 2006, I finished writing at the end of 2005 so it kind of somewhat predates all the crises that happen and all that’s emerged with the banks since then.  So I suppose the scandals in that book are in a ha’penny place to the scandals in this book but there you go.So just I want to give just a brief history of Anglo, it was founded in the 60s and later emerged into City of Dublin Bank, both kind of fairly small banks, Anglo was a pretty tiny minnow in the market and then it kind of developed and really only became ... Sean Fitzpatrick only became involved in it in the late 70s.  He was originally in a bank called Irish Bank of Commerce, it’s kind of confusing, the structure, but in the late 70s Fitzpatrick, who as an Accountant, was put in to run Anglo Irish Bank in ’78 and he had been moved in from Irish Bank of Commerce which was itself a subsidiary of City of Dublin Bank so, and he really allowed him to kind of steer his own ship and he developed Anglo as he saw it really into a ... what started off as a lender that would really do various small time lending in trade finance and guarantees and exports and bridge financing, so if you were moving house and you wanted to sell your house and get a loan to buy the next house without the mortgage being drawn through, he would provide that.  And then gradually he got more and more into property lending and it was specifically secondary properties or investment properties for professionals, the likes of doctors, lawyers, dentists, accountants, for those kind of people who wanted to buy their own office space or to have buy to let properties and he saw a niche in that market and really developed that.  And then I guess as a sign of Anglo’s strengths and how it rose under Fitzpatrick it actually took over its parent in the mid 80s and it’s around ... it was in 1987 that the Anglo name appeared in the stock market and then a short time later it took over the bank that Fitzpatrick originally worked in, Irish Bank of Commerce, and that acquisition actually was very much instrumental in Anglo getting into property developers and the property development space and Irish Bank of Commerce would have had a lot of clients whose names you will be familiar with today.  They had Paddy Kelly, Gerry Gannon and the Bailey Brothers.  So Anglo was kind of in the property space but its takeover of Irish Bank of Commerce really pushed it into the space of lending to developers, builders, many of the names who became very wealthy in recent years and then bust in the current time.  And the bank was also very active in the early 90s I suppose that given that it was in the property space it became very active in developing pubs and hotels and it lent to the likes of the O’Dwyer brothers who are behind some of the pubs and the super pubs, like Cafe En Seine, Break for the Border and some of those properties.  But Anglo really spotted a niche in the 90s when the property market started rising, it saw that it would support developers and builders from its relationship through its relationships in Irish Bank of Commerce and at a time when AIB and Bank of Ireland didn’t really want to have anything to do with the property market, they still thought it was very high risk.  And I guess AIB and Bank of Ireland would have been regarded in the 90s as quick sleepy to react to big changes that were taking place in the property market whereas Anglo had these guys and there were a lot of developer clients who were sitting on very large undeveloped land banks, again very familiar names now given what the property market went through and the boom when through, so it was kind of bank rolling the likes of Gerry Gannon in North Dublin and West Dublin and Sean Reilly, a Cavan developer, in South Dublin, Joe O’Reilly who went on to build the Dundrum Shopping Centre and then Gerry Barrett in Galway and then eventually got into major investment properties, the likes of Derek Quinlan and all the money that he gathered from his clients and property investors and then internationally the likes of Sean Mulryan’s company Ballymore which develops ... it is very prominent in the UK and in Eastern Europe and Treasury Holdings which is Europe, China, Sweden and France – its developments are very international.So I guess when Anglo spotted this market and saw how much money there was to be made in it and the property value started rising that’s when AIB and Bank of Ireland started to react.  They saw Anglo making very big profits and there’s a famous quote from Michael Buckley where he said, you know, ‘Anglo joined us for breakfast but now they’re eating our lunch’ and so they had wanted to fight back and get back some of that business.  So 2003/2004 you see AIB starting to react and Buckley set up what he called a ‘win back team’ where he said ‘I want you to find out what Anglo are doing to get all this business that’s making them so much money and their investors so much money from the stock market.  And I want you to replicate that’.  So AIB set on a course under Michael Buckley to start taking in more of the property business than Anglo was doing.  So in hindsight there was a bit of a race to the bottom, bankers were willing to lend more and more money on riskier and riskier projects and I think the influence of the foreign banks in Ireland, the UK owned banks or the Scottish banks as it’s really known, you’ve the likes of Bank of Scotland Ireland which was run by Mark Duffy and it was owned by Halifax Bank of Scotland and Ulster Bank which was owned by Royal Bank of Scotland became more and more aggressive, like AIB, to compete with Anglo.  And Bank of Ireland was a lot slower to move into that space but the current Chief Executive of Bank of Ireland, Richie Buckley, would have been quite proactive under Chief Executive Brian Goggin to actually get some of the property business that Anglo had.  So really you had what Peter Nyberg who investigated the banking crisis, he described it as ‘herd mentality and group think’ and the other banks were trying to keep up and so Anglo was leading the herd and the others followed.  Nyberg used these terms to describe not just how the banks behaved but how many different aspects and people in Irish society behaved as well, where we were all kind swept up in the boom that was happening and the money to be made from it and certainly people would take issue with that and a lot of people now who are struggling to pay for their homes and their residential mortgages didn’t get involved in the investment property and didn’t get involved in speculative lending are now having to face the pain of that, this group think and herd mentality created.So to give you an idea of just the level of borrowing that took place and that was a heavy concentration in property, at the peak of the boom for every 5 euros that the banks had lent out 3 related to property, so I think that that statistic on its own really describes the bubble that was created in Ireland by the likes of Anglo and the others following them, there was a huge concentration, there was far too many eggs in one basket and as we’ve seen now the crash is as a result of that.  And one of the areas that the banks got involved in they were frantically trying to lend money out they created what they call the dreaded equity release and this is where Anglo and the other banks what they did was well they said to the developer ‘You made so much money on the last development, you know, all of the houses sold out in the sales weekend’ I mean we all remember the queues of people and people camping out and sleeping in their cars to try and buy a property, so the banks said ‘Well you’ve made so much money from selling those properties that you haven’t even built let’s take those paper profits and assume that that’s the cash element of the next deal.  So there’s no cash in from that but don’t worry they’ve all been sold so it’s fine.  So let’s put that money into the next deal.’   And so the next deal had no cash in it at all and if you do that a number of times and you do that across your book and the banks had a huge concentration amongst a very small number of developers that you’re really piling debt on debt on debt and the cash element is never taken out, there’s no cash ever taken off the table, so you create this house of cards really and that practice in banking explains the ghost estates that we now have, the 2,000 odd ghost estates, where you have half built derelict houses that have not been sold but the banks felt well the market isn’t going to collapse, it’s going to be soft landing, everything will be fine.  So they felt that well it’s not an issue, the money would always come off the table at some point.  So this left the banks kind of terribly exposed in the event of a property crash.I just want to describe a little bit more about Anglo’s culture because I think it really does point a lot to the kind of bank it was and also how it worked with customers.  They had what they called this relationship banking model where it was staying close to your customer, you know exactly what they want, if there’s problems on their building sites or with their property investments, you know before AIB would or Bank of Ireland would because you’re a small team of people, you’re kind of in the customer’s face all the time, so they actually thought that they’d broken the banking mould and this invariably meant that they would work with them by day and entertain them at night and in corporate hospitality trips and I think it’s kind of significant the culture of the institution because bankers themselves in Anglo liked it because it gave them an idea as to what kind of customer they were  dealing with and, you know, everything from how they would hold their drink, how they would behave when they were having a good time, if a good looking waitress walked by, all of these things, you know, really played on the bankers’ minds as to whether they were a good or bad customer and whether they should be lending money to them.  And also access to clients was crucial as well and this is where we had this massive spending on golf, apart from the fact that Sean Fitzpatrick was a golfing fanatic, golf put Anglo in a position where it could meet its customers and get to know them well and some of the figures that I have in the book, I mean the bank spent more than 2 million euro on golf in 3 years between 2006 and 2008 and also they got involved in golf competitions and this expenditure on golf balls alone was 208,000 euro which is an astonishing figure.  And aside from that they also did trips, there was ski trips, there was a famous trip on the Orient Express where they brought developers from Paris to Venice and brought their partners as well.  And again to give you an idea of some of the expenditure on corporate entertainment the bank would engage in, in 2008, this is the year of the bank guarantee, Anglo spent €21,000 on Manchester United tickets, €19,000 on Chelsea Season Tickets, €42,000 on tickets for Six Nation away games, and €9,000 to take clients in the US to the Boston Red Sox baseball game, so that’s the kind of spending they were doing.  And then gifts to customers, in Christmas 2008, 3 months after the bank guarantee, they spent €53,000 on hampers and wine and they used to do an annual thing where they’d bring some of the valued customers, a lot of the valued customers, and their kids to the panto in the Gaiety and they spent 24,000 euro on panto tickets in December 2008.Participant 1: Can I just ask you was there a psychological profile on what were good developers based on what you’re talking about, apart from the entertainment aspect, but just ...?I think it was very simply based around whether they could work with the individual or not and if they made demands of the developer that the developer would meet their demands and the problem was that the relationship banking model was seen to be well, you know, you can make a lot of money from customers by staying close to them but as we’ve now seen they got too close and the relationship model was far too close.  For example, in the Quinn case, we’re now seeing in the courts that the bank lent more than 2 billion to Quinn to allow him to meet the margin calls in this investment that he made on the shares so his investment was collapsing in value and the bank was lending to him and it was that incredibly close relationship between senior Anglo lenders.  I don’t know whether there is a psychological profiling done in the bank of developers but it’s just who they knew who they liked best and who they could get on with, I think it was that simple.So this is an older picture of Mr. Fitzpatrick and Gerry Murphy, who was Chairman until the late 90s in fact he was there, this is the chap who ran City of Dublin bank through the 70s and 80s, really Fitzpatrick was his protégé of sorts.  This picture I think is around the time of ‘88/‘89 after the bank had listed on the stock market.  So just to describe what happened in the market, I’m not going to spend too much time on the graphs and the slides in relation to economic data but I think where the lines go will give you an idea of what happened, so you had the boom in house prices with house prices quadrupling and Anglo had many clients in development so they did exceptionally well and as I said earlier a lot of the developers would have had land banks dating back to before this graph in the early 90s, so they would have been sitting on options on land as well as land itself that they would have bought from farmers and ready to move and when then property market went where it went, these figures in comparison to Spain and the UK, they made a lot of money and as a result the Anglo share price soared.  Anglo share price rose by 2000 per cent in 7 years.  So just to explain it in kind of simple money terms, if you invested 5 grand in Anglo in 2000 you’d be sitting on 100 grand in 2007.  So if you go back to the herd mentality and the group think and the naysayers in the early noughties coming out  saying this won’t last after  7 years of growth with that amount of money to be made I think it would convince even the most sceptical that this was a bank that had done things and was doing things differently and given where the share price went the value of the bank went from about 600 million in 2000 to 13 billion in 2007 I think people felt that well they’re on to a winner here and I’m going to put my money with them, both in terms of depositing with them and buying their shares. Here you have ... this slide is to do with house completion, so again it reflects the increase in prices and this would be all of the new builds by developers and builders and the figure reached ... 2006 is the peak of the market where there was 90,000, just over 90,000 new houses built, and just look at that in comparison, that’s twice what would be built of new buildings that would be build in the UK which is 14 times the size of Ireland’s population so it gives you an idea of the level of the ... we talked about the lending boom or the credit boom in Ireland and the banking boom well this is the construction boom, this is the slide that shows that.  And again, you know, everyone felt that we’d hit a new paradigm and things would change with immigration and that there would always be a demand for houses so 90,000 new houses in one year was not regarded as a bubble it was regarded as something that was simply responding to the needs of the country and people needed homes. This is Anglo’s profits, as you’ll see, this is their own from their own report so this is what they reported every year so again the figures, this is 2007, so you can see through the noughties it really soared and this would have been David Drumm’s first year as Chief Executive and that was ... he took over from Fitzpatrick, so again once he took over he said he wanted to double profits in 5 years and he did it, it soared up, that’s 1.2 billion.  So they reported that figure in November 2007 after the credit crunch so again the figures show that the profitability of the bank followed the other markets and followed the growth in the share price as well.  So this is David Drumm and Tom Brown, Tom Brown was Head of the Irish Business, so this is them presenting the results and Tom Brown would have been instrumental in doing all the property development in the Republic and David Drumm really put the accelerator down, the pedal down, and took the bank to new places in terms of growth.  So this is the boom in Irish bank lending, you can see the increases, the light blue is the Irish banks and the dark blue is the IFSC banks, so again huge increase in lending by the Irish banks where total assets to balance sheets, assets or loans and other ... mostly loans, the balance sheets of the Irish Banks was 700 billion in 2008.  And there you have Anglo’s loan book, it’s soaring again, the last three are David Drumm’s years, so you’re seeing a massive increase in lending by the bank.  Sorry it goes back to that figure there.  And it’s a massive increase, the lending, it goes from 6 billion in 1999 to 33 billion in 2005 and 73 billion in 2008, so it’s massive increases; that’s the credit bubble there. So where does the money come from that they lend out to customers?  The Irish banks traditionally in the late 90s you would have had for every euro you had on deposit you’d have roughly about a euro out on loan and that was the traditional banking, you pay for deposits and you charge for loans, it was very simple.  And that changed, so what you say is the cheap and easy access to funding through the bond markets and borrowing from other banks and it allowed banks here to lend out money more cheaply and freely.  Being in the Euro after 1999 it removed the currency risk from the banks own borrowing and it gave them access to vast pools of borrowings across Europe so the main banks in Europe that would have been lending to the Irish banks were the UK banks and then you would see the French and German banks and then the Italian banks, but mostly the UK.  So we hear about bondholders, those are the people lending money to the banks when Ireland entered the Euro and Anglo would have borrowed from those banks to lend on to customers.  So the gap between loans and deposits which didn’t really exist in the late 90s change completely and it rose to 2:1 so for every euro you had on deposit you had two euro on loan, so that gap was filled by borrowing from bondholders in other banks.  And in Anglo’s case it was extraordinary growth in borrowing reflecting the growth across the other banks, they had borrowed 100 million from bondholders in 1999 and this reached 23 billion by the peak of the bank in 2007, so borrowing from other banks soared and the other problem for Anglo was they thought that the deposits that they had were very sticky, in other words they wouldn’t be withdrawn in a hurry, but they left pretty quickly when the crisis hit and those corporate depositors would have been kind of multinationals here, insurance companies, pension fund companies and the like.  So that’s the increase in Irish bank borrowing. And then you have the crash, so property values start to fall from 2007/2008 and they really start to nosedive in 2008 and 2009 and this is the Anglo building, some of you know, in the North Quays, it’s kind of become a symbol for the crash here, it was built by or half built by property developer Liam Carroll who actually wasn’t a long term customer of Anglo but he won the competition to build the building and Anglo provided 60 million to do that, that cost 60 million, what you see there.  It kind of stands as this post-Apocalyptic monument to Irish excess.  I saw ... I remember a columnist I met from the UK and we were discussing it, it was kind of like the monument in Hiroshima where you have the hall under the site of the bomb site so perhaps it’s a pretty crude and unfair analogy to draw but it’s kind of become our symbol of the crash. So property prices falling, they’re down, Anglo said there an hour ago at their presentation that the market is down 65 per cent so it’s quite a drop.  This is a slide from the Department of Finance.  House prices are down about 60 per cent and commercial property down 70-80 per cent but the development land which is much riskier for the bank is down about 90 per cent and in many cases, particularly outside the city, it has reverted back to agricultural values.  And when you think about it that Anglo had 80 per cent of its loan book in property, more than 20 per cent, a fifth, more than a fifth of their book was in this high risk land and development so if you think about the bank at the peak of the market, 73 billion in loans in 2008, it just had 4 billion set aside to cover potential losses which isn’t enough.  And I mean you could argue well whose fault is that?  Well if you look at the Basel rules which are the rules that all international banks follow in terms of how much they need to set aside in capital, the Basel rules have been changed so they’re now saying that the minimum is four times what it was originally.  So if you think about if you were to apply that, go back in time and apply that, the banks should not have grown more than a quarter of their eventual size so the banks just got too big and it wasn’t just an Irish problem it was across Europe and indeed across the world, particularly in the US.  So we kind of get to the nub of the talk which is the cost to the State of all this and Anglo’s role in Ireland’s economic collapse.  I suppose the best way to describe what happened and to look at Anglo’s role in it is what actually triggered the economic collapse and whether Anglo is responsible.  I spoke earlier about how it led the race to the bottom as we can now see what it was and it drove all the other banks down with them.  But on the night of the guarantee itself, September 29th/30th 2008, Anglo had run out of money that day and the share price had collapsed almost in half so that’s kind of like a megaphone, the market saying this bank is gone, really it’s absolutely tanked and it had run out of cash and it had gone to the Central Bank looking for money.  So if you look at what happened on that night the government didn’t think it was dealing with a solvency crisis, they didn’t feel or weren’t told by the Regulator that the banks hadn’t enough cash in reserve to meet the possible losses from the property cash and they felt they were dealing with the liquidity prices, the collapse, after the collapse of Lehman Brothers in Wall Street caused the markets where the banks borrowed, as I said half their money, those markets froze.  So Anglo was the trigger for the government’s decision to do something on that night and as we seen Brian Cowen said that they needed to give kind of one signal, a big signal to the market that they were fixing this problem.  So Anglo would need more the following day after running out of cash and after getting the 3 odd billion from the Central Bank on the 29th so the government felt well Anglo has run out of cash, the other banks are going to run out of cash if we don’t do something because there was this domino effect and investors weren’t really discerning between good and bad banks, they were kind of painting the Irish banks as too exposed to property and also heavily borrowed in the international wholesale markets, money markets.  So the government went too far, the government wanted the silver bullet solution to ease market concerns and most people who know about this kind of thing in official circles have said that a guarantee was required and you have the likes of Patrick Honohan, his report, the OECD saying ‘yes use a guarantee’ and certainly a guarantee is one of the tools in the toolbox you take out when you want to repair a banking system that has gone bust.  But it was far too broad this guarantee, it pushed the liabilities covered by the State, insured by the State, to 440 billion and the State was only ... our economic output at that stage was in the order of 170/180 billion, so clearly it was a lot to put on the shoulders of the State.  So if the government had instituted a more narrow guarantee it could have given the government now more options to burn other bondholders, senior bondholders, because the guarantee is place they’re protected and we’re protected under the extended guarantee as well, so this increased the cost to the bailout to the State. So this slide shows the holes in the Irish banks in what we’ve ... how we filled them.  As you see the biggest is Anglo, it’s lumped in with Irish Nationwide under IBRC, Irish Bank Resolution Corporation as it’s now known.  So the biggest hole was at Anglo, it was 29.3 and they’ve said that it will rise to 34 if the market doesn’t recover for 10 years.  Just earlier there today at the presentation the bank said again that it expects the figure for Anglo to be in the order of about 25-28 billion.  And then other figures AIB, which is I suppose the next worst in terms of absolute numbers, is the order of about 20 plus the 20 billion we’ve pumped into them and Irish Nationwide 5.4, Bank of Ireland 4.2, EBS 2.4 and Irish Life and Permanent as of yesterday has gone to 4 billion from 2.7.  So of those we own AIB, EBS, we own Irish Life and Permanent, we own Anglo, Irish Nationwide and we own 15 per cent of Bank of Ireland and the bailout is 63 billion.  The situation with Bank of Ireland is again as I said earlier they were slower to get into the property market and that maybe saved them from government control because they required less from the State and they could manage to get these US investors in last year who took 35 per cent of the company.  So if you look at the guarantee on the night of the guarantee a 700 billion banking system compared to the economic value of the State 170 billion, and that’s down to about 150 now, really the guarantee put the State on the hook for the banks’ losses and the State couldn’t cope with those losses.  When the size of the hole at Anglo emerged in 2010 which was a month before the blanket guarantee ended it was really a case of the markets got very concerned and said well what is the figure for Anglo we don’t know, it seemed to be rising all the time and the government were unable to put a figure on it until September 2010 and by that stage the banking guarantee, the 2 year guarantee, had ended and under the guarantee the Irish banks had borrowed 30 billion so when they couldn’t borrow to repay that 30 billion the only place they could turn to is the Central Bank, two places – Frankfurt and Dublin – the Irish Central Bank and the European Central Bank.  So what you saw is the banks borrowings for the European Central Bank and the Irish Central Banks soared and that really spooked the ECB and they said we didn’t expect it to go as high as this and although the authorities here would say well we warned them, we let them know from the Greek crisis blowing up in May 2010 that there was a problem coming down the tracks and when that bank borrowing soars the top line there shows how much it increases by, in two months Anglo’s borrowings from the Central Bank went from about 14 billion to 34 billion and that was really ... that had the alarm bells sounding in Frankfurt, they said we need to do something here, and that was the trigger for the ECB coming in and putting the government under pressure and the view in the ECB was there is more black holes in the Irish banks that you haven’t identified because clearly you’re just grappling with Anglo and you’ve been dealing with that for a time.  So again that spike, that was the trigger, we talk about another trigger, that’s the trigger that prompts the bailout of the country, so you had the bailout of the banks in 2008, the State couldn’t cope with that, and ultimately the next trigger then is this, the increase in the Central Bank borrowing.So the government feared at that time that the ECB could increase the rate it was charging on emergency loans to Anglo, that was the one it was most concerned about.  You hear talk now about Trichet, Jean-Claude Trichet, the European Central Bank President, threatening Ireland and some say the fear was that they would withdraw the funding from the Irish banks.  I’m not sure they could have done that but what they could have done is put pressure on the government by increasing the charge and increasing the interest rate on that.  So this is what led to the bailout programme and the decision to provide 67½ billion in bailout loans to the Irish government.  So again Anglo really was the trigger for that, the other banks were following in as well, like AIB had borrowed on emergency loans from the Central Bank as well.So unrelated to property lending Anglo did some wild things.  This is Mr. Fitzpatrick leaving the Garda Station in Bray after his first arrest.  He’s been arrested a second time.  So Anglo, some of you have been following know now that the issues around that are loans to directors which were provided mostly by shares in the bank, they were initially non-recourse which meant the directors didn’t have to pay the loans back, now they’ve been changed to recourse and a lot of those directors are in severe trouble.  David Drumm has applied for bankruptcy in the US.  Sean Fitzpatrick has applied for bankruptcy in Ireland or filed for bankruptcy in both cases.  And then Sean Quinn, their biggest borrower, has filed for bankruptcy as well.  He tried to do it Belfast but he was blocked by the bank and he’s now bankrupt here.  Then the issue of Fitzpatrick’s loans hidden in Irish Nationwide at the time, Anglo wrote up its annual accounts and then I suppose one of the most incredible aspects of that is that emerged in December 2008 and even though the government had stepped in to guarantee the bank it left Fitzpatrick and Drumm in place and in their jobs after the guarantee.  So the scandal about Fitzpatrick’s loans increased the pressure on the bank and on the government and it eventually led to pressure on the deposits and that’s when the government had to step in and nationalise the bank in January 2009.  So since then investigations and arrests have arisen over things that the bank did in 2008 when its back was against the wall.  We’ve now discovered that Anglo was cooking the books with dodgy deposits from Irish Life and Permanent in 2008 to make their balance sheet and make the books look better than they actually were.  And that was – now talking about triggers – another trigger for the nationalisation of the bank back in 2009 and now we’re seeing through the courts this week and last and in international courts the battle with the Quinn family.  They owe the bank almost 2.9 billion.  They’re the biggest, after the loans have been transferred to NAMA, they’re the biggest borrowers at what is now Irish Bank Resolution Corporation and the bank is pursuing them internationally and here to try and recover as much of that as they can.  And again most of those loans relates to his decision to invest in the bank in the period up until ... he was buying right up until 2008 when the share price was collapsing.  And the fear at Anglo was that if he couldn’t afford to meet the losses on his investment that would force the brokers who held the shares to dump them, the share price would fall, depositors would see that, they’d get spooked, they’d pull their money out, then you have a run on the bank and then the bank collapses.  So the bank in 2008 decided to get ten customers together when it couldn’t sell Sean Quinn’s shares in the markets it got ten customers together, it gave them 450 million in loans, got them to buy 10 per cent of the bank in a secret deal and that 450 million is gone now.So this is the fallout and the end of the bank, the name, a kind of symbolic day in April 2011, an Anglo signage being removed from the bank’s branches and this is a photograph taken of the building in St. Stephen’s Green.  I think it says a lot.  It doesn’t take away the anger that people feel towards the bank because we’re still paying for it and the current talks are about trying to push out the cost of that so these promissory notes, these IOUs, that have been written up by the government back in 2010 when we didn’t have the cash to pay for Anglo, they said well here’s a promissory note, it’s an IOU, we’ll pay you over a long period.  The cost of that is very high every year and the government wants to reduce that because it needs to get to this target deficit by 2015 to show the markets that we’re getting back on our feet again.  So it’s a small amount of the debt that the country had, the debt problems the country has, but it’s kind of trimming at the edges but it should ... it seems to be ... Patrick Honohan has said that it’s likely to be successful so the payment is due on Saturday for 3.1 billion and they’re saying well instead of paying that in cash which would be a drain on the State let’s do another IOU, we’ll give them a government bond, and say this is 2025, we’ll pay you back in 2025 and IBRC takes that instead of the 3 billion in cash and goes to European Central Bank and exchanges it for cash.  So that’s the whole exercise that’s being done in private at the moment and then the longer term exercise that’s being done is to come up with a whole new system to restructure the rest of the 30 billion that we have to pay.So to summarise I’d say that Anglo drove the other banks into reckless lending because they say the spoils that were to be made from that and I think they’re as guilty though on reckless lending charges because they followed Anglo.  And also Anglo was the trigger for the decision to guarantee the banks and also the trigger, or at least the biggest reason, for the ECB forcing the government to take the bailout from the EU and the IMF.  So this was a bank that started out as a small Dublin lender and it soared on the property market in the property boom.  It eventually became too big to fail and then too big to bail and ultimately too rotten to save.  So you can see here in front of you but it’s a gratuitous plug for my book (Anglo Republic: Inside the bank that broke Ireland) which you can either buy or borrow from here, hopefully, there’s loads of copies in the library.  I can take some questions if anyone has anything they’d like to ask me?Q & AParticipant 2: I’ve two questions, just go back to 2008, the banks came in to see the government.Yeah.Participant 2: The first question is did the banks actually lie to the government?  And the second question is in 2008 could the government have burned the bondholders?In 2008?Participant 2: Yeah?I’d say did the banks lie when they came into the ... I mean that’s a question I’ve asked when I ask any bankers now who were there and I say “Were you lying or were you just deluded?” and I think it’s a bit of both.  I think in Anglo’s case there was an element of deceit about it.  Certainly from my research in the book there were managers within Anglo who could see in June 2008, there was a big board meeting in June 2008 Anglo did down in Cork and there was a presentation made to the board how bad is our property book and certainly at that point they knew they had major problems.  And I mentioned there about equity release, the other issue that was a real signal that there was problems was… is interest roll up, they weren’t even paying their interest bill through 2008 and that was widely known.  Some of the big developers were just not paying back the loans at all.  So I think that in Anglo’s case they probably knew they had major problems in the loan book but again as was widely felt in the marketplace was that this was a blip or a soft landing, it wasn’t going to be a major crash, so I think they were deluded as well.  So I think it’s a bit of both.Participant 2: Right.They were lying, they were deluded.  I think in the case of AIB and Bank of Ireland who went in to government on the night and said ... I mean they went in to say you need to nationalise Anglo and Irish Nationwide, we’re not the problem here, but we will be, we will have a major problem if you don’t take these out because international investors who give us money, who lend money to us, are saying ‘What’s the story with Anglo and Nationwide, we know they’re bust, they’re exposed to the property market. 80 per cent of their loan book is for the property market why aren’t you doing something about that?’ but I think AIB, in particular AIB, did not know the extent of the problems within that bank and when you look at the figures back in that chart in terms of the bailout, I mean AIB is not far behind Anglo in terms of what it’s cost and in fact during the boom years developers would say you could get a loan from Anglo in a week but you could get it in 2 weeks from AIB so a lot of them went to AIB so I think AIB knew they had the problems there and I think they were deluded, I don’t think they were lying I just think they were deluded as to the extent of the problems.  Could they have burned the bondholders in September 2008?  Yeah they could have.  If you apply a guarantee like this kind of throw a massive blanket over the system and say ‘We stand over everything that the banks have and we will pay their liabilities no problem’ you immediately limit your options as to what you can do with those bondholders.  I mean I think people ... the issue of bondholders and who owes what it’s like a queue, if you can imagine it like that, who is first to take the losses, shareholders take losses because they take a punt and the view is as well who is next in the queue to take losses if the business goes bust, the subordinated bondholders who get paid a bit more than the senior, so they’ve taken a higher risk in this regard, they’re next.  The decision on the night of the guarantee to include some of them in the guarantee is astonishing, absolutely astonishing from my perspective.  Look they decided to guarantee the date and subordinated bondholders and what that means is those are guys who have a loan note or an IOU from the bank saying they’ll get paid at a certain point, they get paid a good interest rate, they get 10/11 per cent in some cases, so those guys should have been burned and yet they were included.  Now if you look at the advice that Merrill Lynch gave on the night in the run up to the guarantee they raised a possible problem, they said well there’s what they call cross default and what that is is that somebody could have a subordinated bond and they could have a senior bond, if I have a subordinate bond and you burn me on that I can call you in on this so Merrill Lynch warned it’s not as easy as that so I think that that might have influenced the thinking on the night.  But yeah you could have, what you could have done on the night is you could have said, right, we’re going to take out Anglo and Irish Nationwide and nationalise them, we’re going to put a guarantee in place but only for the depositors at AIB/Bank of Ireland and we’ll only guarantee any new bonds you issue and you apply all sorts of terms and conditions to those bonds but and as we’ve seen Brian Cowen had said in this lecture that he gave in a university in the US he said ‘We wanted a big bang solution’ if you don’t know the extent of your problems in your banks you can’t do that and what surprised me is there was an admission by Kevin Cardiff who has now gone off to that job in Europe, he was Head of Banking in the Department of Finance, he was asked after the crisis they said ‘At what point did you realise you had a problem here or that you didn’t know the extent of your problems in the banks?’ and he said “When we could no longer rely on the Financial Regulator for information we had to rely on the banks own advisors” and that was Goldman Sachs in the case of Irish Nationwide and in the case of ... I can’t remember who it was in Anglo Irish ... but for a senior government official to admit that and that was prior to the guarantee they were calling on Goldman Sachs, we did not know the extent of the problems because the Regulator didn’t have the information available that we had to turn to their own advisors, knowing that  now and even knowing that then if you had realised that then why then would you have agreed to a guarantee?  Granted Cardiff isn’t making the decision but he’s there on the night.  So yes you could have burned senior bondholders on the night.Participant 2: Yeah.Would the ECB have let you?  That’s another question.Participant 2: That was my ... Brian Cowen in that article that he gave in the States a few days ago or whatever recently he said that’s the common factor that you could even now, he was saying right across from 2008 to now ...Yeah.Participant 2: ... you’d have a problem burning the bondholders.And the senior bondholders are what count because we burned subordinate bondholders but it’s not nearly enough to cover this bill, so the senior bondholders were really the only ones that could have been burned to save on that and no senior bondholder in a Euro zone bank has burned.Participant 2: Yeah.They refused to allow it because they feel if it happened it would unravel, it would lead to another Lehman Brothers type tsunami across the European banking system.  The one country that has burned senior bondholders is Denmark, they allowed it, but in that case they only allowed it for a couple of small banks.  Like as I said we had six banks and three of them got far too big, much bigger than the State could cope with when the crash came, so the Danish model is interesting, the markets did react and they did ask for more money when they were lending to the Danish banks after they did that.Participant 2: Right.But that calmed down again.  But we haven’t seen a major bank in Europe both ... well definitely not in the Euro zone but outside the Euro zone, I haven’t seen a major European bank burn senior bondholders.Participant 3: Thank you very much.  Going back, Lehman Brothers collapsed in the middle of ’07.September ’08.Participant 3: Yeah, okay yeah, but the market was beginning to down from the middle of ’07.Yeah.Participant 3:  It was the 15th of September ’08 but I’m bringing it up to date, last weekend there was a big debate in Frankfurt on the sovereign debt debate and the whole issue of sovereign debt and on the bailout of countries, now we’re one of the three countries in an IMF programme, Christine Lagarde, the Managing Director of the IMF, when asked just on the day of the signing of the austerity, the new ...the latest from Greece, was asked do you think you’ll come through and she said yes on condition that private investors, pension funds and bankers take a haircut.  What I’m picking up since and that was only a few weeks ago is that a lot of the pension funds lost 75 per cent of their money, some of them had credit default swaps, now is this not, you know, the sovereign debt, we’re now producing an IOU into sovereign debt with 25 years, we’re now introducing sovereign bonds to go into pension funds and annuities now are we not just, you know, switching credit around and no real money, you know, are we not doing exactly the same as what’s been going on in the last five years?  If you even listen to Freddie Mac and Fannie Mae exactly the same debate and language is around the property in the States as it is here, you’re now hearing it also from China, so I don’t think anyone has learned anything and I don’t think ... I think all of this is going around and nobody knows what’s going on.Well yes is the answer, it’s all paper going around, like it’s credit again.  The difference being it’s sovereign borrowing rather than private borrowing or company borrowing so yeah it’s to do ... like the whole restructuring, the promissory notes, is just you know if you have a mortgage and it’s 30 years if you push it to 40 years you’re going to pay more over 40 years but you’ll pay less every year, that’s what they’re doing, it’s that simple and they’re doing it with paper, with IOUs with loans, there’s no cash to pay for this and the whole aim is that they need to separate the decision on the night of the guarantee, State banks one, they need to separate it again.  And this is that process that they’re trying to do, they’re trying to take out a chunk of this, so half this figure, take it out and get it off the State’s balance sheet and do something else with it.  Now the ideal situation would be to go and get agreement from the European authority and say listen just give us a loan from EFSF and instead of giving it to us just give it to IBRC or give it, you know, or better still let private investors come in and they take it but that’s not going to happen so really you’re right it’s the ...Participant 3: But I gather ... sorry for crossing over, I gather the small print on the Greek deal that hardly anyone found out until the end of the day was that the priority orders is such that the IMF get 100 per cent in that, the ECB get 100 per cent, even the EIB gets 100 per cent, the sovereign doesn’t, it’s on the very end, so who would actually put money in a sovereign debt considering most of the Central Banks actually do have ... most of their balance sheet is in sovereign debt.Well not in Greece, they wouldn’t do it at the moment, but that’s what they’re trying to do in Ireland, if they separate the State and bank debt they’re trying to get people in to start lending to the State again but people don’t want to, investors don’t want to come and buy Irish debt just yet because they want to be sure that Ireland will recover by the time it says it will recover, if we get the deficit down by 2015, so Honohan, Noonan and the rest of the government are saying well if we do this with the Anglo promissory note it will ease some of that burden and show those investors that Ireland is recovering and that you can lend to us and that you will get it back.Participant 3:  They’re saying there’s a 60 per cent change of default when you look at the risk assessment.Well it’s a high risk yeah absolutely it’s high risk but I mean you know the talk of a second bailout, is there going to be a second bailout for Ireland? I mean I wrote a piece in the paper today saying you could argue that what they’re trying to do with the Anglo loan is a second bailout because they’re trying to get money from a different fund or more money from the same fund in terms of the ESN, the longer term bailout fund, over a much longer period, so it kind of is a second bailout.  But yes is the answer, with paper, have the learned a lesson?  I’d hope so.  They’re doing the same thing but it’s with sovereign paper instead of bank credit.Participant 4:  Would it not be better to accept a second bailout if you’re getting a better interest rate?  I mean obviously if you go back to the market you’re going to have to pay a higher rate to attract private investors or new investors into buy Irish sovereign debt, would you not be better off just accepting the bailout because it’s at a lesser rate?Well no and what they’re doing is and again we don’t have the full details of what they’re doing in the background right now both in terms of the payment due on Saturday and the rest of the payments due until 2031 but Honohan said at the Oireachtas Committee the other day he said it’s got to be less than the bailout fund money or otherwise we’re just going to take the bailout fund money but they were saying that they would.  Sorry, yeah?Participant 5:  Just in relation to the IBRC does it have like a time span that’s allowed exist for the end of it and it has to wrap up or what is its objective?Well it’s a topical question because we were just asking Mike Aynsley, the Chief Executive of IBRC, that and he said on their briefing notes they hand it said 2020 is the day they have to be gone but one of the things they’re doing in the background is tracker mortgages are sitting on the books of AIB and Permanent TSB and they’re loss making, they’re making no money and burning money for those banks, so there’s talk now that as part of the restructuring of the promissory notes that they take out the promissory notes out of Anglo and Nationwide and put in trackers because it’s both their assets and funny enough the trackers at AIB and Permanent TSB are about 34 billion so it’s kind of a neat match between the figures involved and the issue with the tracker mortgages is that they don’t make money but they’re not bad, they’re being repaid so there’s money coming in off them, it’s just that the reason they’re not profitable is that the banks borrow at a particular rate and they charge at another and instead of being like that they’re like that so they’re making any money but they are ... they could be used as a way of both fixing the IBRC problem and also fixing the AIB and Permanent TSB problem, if you get them out of those two banks you may encourage investors to come in.  To answer your question the debate now is well if IBRC gets tracker mortgages some of those won’t fall due to be fully repaid until the 2030s so IBRC will be around for a lot longer.Participant 6: The different talks we’ve had, people had different kind of analysis of why we have a crisis, let’s say Conor McCabe seemed to think it was a particularly Irish version of capitalism and Ronan Lyons said that it was kind of a classic property bubble.  A lot of people would put it down to Anglo an when you look at Anglo you think the failing was their relationship banking model, was it just people being a bit reckless, was it a lack of regulation, why did it blow up so much?  I mean it’s happened in every country at the same time, similar things but not to this extent, but what was it uniquely about Anglo?Well it is depressing that it’s a kind of classic property bubble, it’s not that complicated what happened here, I mean there’s no kind of derivatives or CDOs or CLOs or any of the stuff that’s taken down like a few of the American banks, it’s just a plain old property crash.  I think in terms of the scale of the problem here Patrick Honohan has said the scale of the problem is four times worse here than in other European countries, and I suppose leaving Greece aside for different reasons, but the scale of the crisis here was four times worse than the market or the average and for that reason, you know, it’s much more of a domestic issue and you can’t blame Lehman Brothers or international factors for what happened here.  But I don’t really ... I don’t kind of buy into the whole is it a particular type of capitalism I think there’s one type of capitalism and there is extremes within it in terms of, you know, how government sets up a regulator to regulate capitalism in your country and I think what happened here was a variety of factors, I think if you’re asking legally who is to blame you could lay the blame first and foremost at the door of the banks and then I think at government before regulator because I think the government should have oversight over the regulator and I think that if you only give the regulator certain tools then you’re kind of tying one hand behind their backs in terms of what they can do with the banks.  Also I think the regulator was too close to the banks just like Anglo is too close to its customers the regulator was far too close to the banks and this light touch regulation of principles based regulation or a better way of describing it is regulation for grown-ups, we’re going to have a little code here on the wall we want you to go and look at it every week just to tell you what you should and shouldn’t be doing, that’s the extent of our involvement as a regulator, I mean that’s no good either.  But I think what the banks and what particularly Anglo did here is it convinced people that it had established a new secure form of banking that was incredibly profitable and others believed it, the other banks believed it and then everyone else believed it because of the money they were making.  And I think that that kind of turned Irish banking on its head a bit but again like if you look at the UK, RBS and HBOS, and there was a report into what happened in the commercial banking division of Lloyds which is primarily HBOS they say all the same things happened in Anglo, too much lending to a very small number of people and you were too close to them and that’s the problem, the concentration.  I mean concentration just kills in banking and you spread your risk, you know if you’re an investor you don’t buy 28 per cent of Anglo Irish Bank and that’s why the losses are so great for Sean Quinn.  Just as investor you spread your risk; it’s simple, simple so.  But I think we had ... we took it to a different level in this country.  Sorry?Participant 7: Do you think it struck me down your last point there about taking it to a different level, could it have been a large part or one major reason why it happened was Anglo wasn’t a retail, a high street retail bank I mean it didn’t deal with customers off the street, it dealt with basically investors.  I remember when they used to have a little ad in The Irish Times front page, you know in the left hand corner and nobody knew who they were just that it was a nice picture.  Surely if they had been watched more closely or supervised from outside more closely if they had been retailers or somebody would have heard earlier what was going on and maybe the regulator might have had more experience maybe to observe what was going on there before, could that have been part of it do you think that they weren’t doing anything?  I just remember that you were talking about lawyers earlier on, in the beginning of my career I worked in the merchant banking liquidations and I was very junior but people used say that he ran that bank, the person involved, as his own private bank, the profession at the time around Dublin, and ...This is Patrick Gallagher, yeah.Participant 7: ... it seems that they had been doing something fairly similar; I don’t know what you want to do comment on it at all or give an opinion on what they said?Well I think that the regulator was certainly hands-off when it came to Anglo and it was too late when it did react.  The two things that the regulator did that I would say now oh we did these things, and you know we attempted to take the heat out of the market, they told the banks, regulators and principals of debt regulation they really only measure their ‘can dos’ say well if you’re going to do that kind of lending we want to force you to put more aside in reserve in case those loans go bad.Participant 7: But would you trust an Irish government to supervise the regulator properly as you had said, would it not be better to have Mrs Merkel do it, she doesn’t trust us to do it or any other government probably either, be regulated from abroad in terms of the regulator?Well there was talk of this kind of European wide regulator and the European Banking Authority which is supposed to be doing a stress test is coming into all sorts of trouble and it’s woefully understaffed, I think there’s only 40 people working in London.  So you know people said things in the crisis and what we need to do but I mean they’re not following through and responding.  I mean there’s talks now, you know, people saying at conferences and privately people saying we can’t have a knee-jerk reaction, we can’t have over regulation, well I think we can, I think 63 billion is an awful lot, a big price to pay for Ireland.Participant 7:  How many are there are working in Dublin?  So maybe they have it everywhere, because they are civil servants they’re appointing that they appoint someone they know won’t to do anything anyway so they can get on with the government themselves.Yeah I think you’ve got to establish a proper regulator and you know regulation is set up by legislation, government legislates.Participant 8:  Yes, thank you very much Simon for your presentation, it’s so technical and everything, and I liked your tone.  I was just wondering do we know who the ten golden circle are?Yeah we do.  If I can name them now I’d be doing well.  Paddy McKillen is one of them, who is being sued by the Barclay brothers over in ... sorry he’s suing the Barclay Brothers over in London at the moment, he’s one.  Gerry Gannon.  Sean Reilly.  Joe O’Reilly, the Dundrum Shopping Centre guy.  Other names on it ... there’s an auctioneer up in Malahide I better not ... because this is being recorded.  (laughs)Participant 8:  No that’s fine.It’s in the book somewhere.  They were described as kind of the loyal customers, or longstanding customers.Participant 8:  And did they actually pay physical cash or these paper trails again?No loans.Participant 8:  Loans.Just loans.  They got loans to buy the shares.  Brian O’Farrell is the auctioneer.  He owns the Northside Shopping Centre in Coolock.  Gerry Maguire who owns the Laurence Shopping Centre in Drogheda.  Patrick Kearney, a Belfast-based property developer.  Seamus Ross, Menolly Homes.  John McCabe.  Gerry Gannon, I said that.  Yeah that’s them, that’s ten.Participant 8:  Thank you.  And are they being followed, you know, in terms of those loans?They, as I understand it, are witnesses not suspects so they are not the focus of the investigations but in other words it’s not viewed that they did anything wrong.Participant 8:  But they haven’t repaid the loans?Well the loans were given on a non-recourse basis meaning ... well a quarter of the loan was recourse which is so you’re on the hook for a quarter so each of them got about 45 million so just over ten.Participant 8:  On the securitisation you’re saying that it just so happens 34 I presume is that million or billion?Billion, all billion.  No more millions anymore.  (laughter)Participant 8:  Billion.  Okay, it’s just that I ... yeah, 34 billion it matches another one – not to do double entry yeah.... that’s just I mean it’s a neat coincidence but it could possibly help the solution.Participant 8:  Yeah but two questions on that is it was securitisation and the collateral that was behind it that caused the financial crash around the world, in other words people kept on sending mortgages to mortgages to third parties etc.,Yeah.Participant 8:  The assumption here is that securitisation of the tracker mortgages we’ll actually produce what is supposed to be on paper producing, so that’s question number one, so there’s a risk there but number two why do the banks or the lenders on tracker mortgages not allow an individual to pay off these 25 year loans if they so ... say they won the lottery without ... at a proper discount or the net present value on it?Yeah well I think they’re going to come around to that, like some of the banks have been saying ... some of the banks were offering deals to customers privately case-by-case and ...Participant 8:  But only if you’re in trouble not if somebody just wanted to get out of it.... yeah well I think that eventually they’ll come around to that.  I think that if you have a tracker mortgage the banks don’t want to do it because again it’s an admission of a problem and a mistake that they made by selling these things, they would say well we’re going to lose 100 grand on your mortgage, tell you what, we’ll pay you 25 grand if you come off the tracker now and go to another institution or we will help you find a loan elsewhere.  I think those deals will eventually have to come about.  It’s 34 billion of loans that have a much longer life than some of the property development loans so you have to deal with them.  In terms of the securitisation question, I don’t think it applies here because you’re talking about swapping loans around three institutions that are already owned by the State so if they weren’t owned by the State I’d say that’s a relevant concern, oh securitisation got us into this trouble, why are you shuffling from one institution to the other, we own them all it doesn’t matter.Participant 9:  Yeah just going back to the early part of the lecture, thanks I enjoyed it, with turnover developments and wasn’t that related partly to the Capital Gains tax, why they did that?  Secondly just the savings to lending ratio, what was the impetus that changed that which was back in the end of the 90s or the beginning of the new decade?  And then in relation to the type of capitalism here, isn’t there a particular type in the sense of like the closeness of Fianna Fail and developers and so on, some of the motivation in there, a culture of poor regulation and also in terms of being a what would you call it like not offshore but low tax rate and so on.  And finally, it’s a bit too much, in terms of Europe the sense of because they made mistakes both politically and economically and they don’t want contagion, they don’t want the banks to fail so essentially then they’re going to make the ordinary people, and particularly in Ireland, pay for it.Yeah that’s basically it, that we have to pay for it because we borrowed it. Participant 9:  Could I just ... sorry for cutting in, does that make not the political arrangement corrupt really?Corrupt?  I don’t know about that word but I guess you know if you think about the European Central Bank is largely influenced by German policy measures both Central bankers and again the view of how the crisis should be worked through is based on the fact that you pay back everything you owe unless you can’t, and this is the whole debate about debt sustainability and whether we can or cannot repay it, and this is why the restructuring of the notes are going ahead.  I think that ... is it corrupt?  I don’t think it’s corrupt I think that there’s a fear that we could go back to a point where the crisis would start to kick off again and the contagion can’t be stopped, that’s the fear, that if you start saying well okay Ireland can burn senior bondholders and then suddenly a French bank blows up and say well they’re going to burn senior bondholders and then suddenly when the banking market is kind of trying or on the verge of recovering it can’t recover at all if that happens.  I mean I think you’re talking about ... you’re looking at the whole kind of fabric of capitalism.Participant 9:  Oh yeah but it’s sacred.Well I think that if you assume that you can only fix the system with the system you have you do everything to protect the system and that’s why they’re not ... Sorry?Participant 10:  What effect did the rating agencies have in the whole crisis?  Did they have any effect on the Irish system?Oh absolutely, they would have given Anglo a AAA rating in the early noughties, I think 2003/2004 and with that Anglo went to the banks in Europe and said we’ve a AAA rating, Ireland has a AAA rating, we’re good for it, we’ll get your money back, can you give us the money to do all the lending we want to do and they played a key role and then I suppose it’s more international the issue with credit rating agencies that they didn’t ... I think the credit rating agencies did point to the fact that Ireland had a big exposure to property much like the Central Bank did although you’d need a degree in Central Bank speak to understand what they said sometimes but I think the credit rating agencies did point out some of the potential land mines in Ireland with property, internationally they didn’t, they gave AAA ratings to bundles of loans, that they’d no idea what was in those loans.Facilitator:  Okay folks I think we’re going to finish it up there, thanks very much Simon, we appreciate that.  (clapping) (recording ends here)Thank-you for listening to the Dublin City Public Libraries and Archive Podcast. To hear more, please subscribe on iTunes or SoundCloud. You can also visit our website - dublincitypubliclibraries.ie and follow us on Twitter and Facebook.

Listen to Gregory Connor Talk.Welcome to the Dublin City Public Libraries and Archive Podcast. In this episode Gregory Connor, Professor of Finance at NUI, Maynooth, talks about the effect of Ireland joining the Euro, and how things may have worked out differently if our banking regulatory system had been stricter. He also addresses the housing situation, mortgage arrears and how Ireland might get out of debt. This talk, one of a series on the Irish Economy, was recorded in front of a live audience at the Central Library in March 2012.Great thanks so much Padraic, thanks for having me, I hope you all get something from this talk and thanks for coming, so I really wanted to cover three things here.  I want to talk about the Eurozone that’s the currency we are in, along with 16 other European countries not including the UK and as you know it’s in a bit of a crisis at the moment, so I’ll talk about the Eurozone, what’s wrong with it, how the crisis evolved, then I’m going to talk in particular most of what I want to talk about is the Irish situation in particular, how the Irish banks got Ireland into so much trouble and where things stand at the moment from the perspective of Ireland in the Eurozone crisis and then last thing I’ll talk about the future, is Ireland and is the Eurozone on a path to get out of this and what are the likely outcomes I’ll just briefly discuss on that. So I want to start with a picture of John Kenneth Galbraith, he’s a late 20th Century witty Canadian American economist.  Actually coming back into favour now, but he talked a lot about fads, social fads and the influence of social delusions and business fads on the economy and he did a lot of work in particular about how the 1920’s, roaring 20’s led to the Great Depression and it has a lot of resonance now in fact in what happened in the noughties as they call it, the 2000, the 2008 period and how that led to the current crisis, but in particular as I said he was quite witty, one of his witticisms was “The great thing about being an economist is the more you screw up the more they need you” and it’s true the last few years as an economist, you get more and more attention to what you are saying, whereas people always ignored you during the noughties.  All of a sudden we are very stylish in giving talks like this okay which is a bad thing okay and maybe that needs to go away.  I want to lay my cards on the table and say I’m not one of the economists who’s going to come in here and say I told you this would happen, I missed it okay, I screwed up, in fact I do risk modelling, financial risk modelling so I just say, I am not one of the people who can claim I saw it coming.  What I say about the past is with hindsight and I don’t want to pretend otherwise.Okay so first I want to talk about the Euro, okay the Euro is this currency zone, now in seventeen countries which is a locked in set of exchange rates where these basically all the countries are in the same currency and as you know it’s causing enormous dislocation problems in many of the countries, really throughout the zone from Germany to Portugal the Euro is problematic.  Why did we do it? What was the reason for the Euro?  Okay, let’s look in particular the financial reasons, because there are successes associated with the Euro.  This is one of the big reasons for the Euro and if you understand this graph, you will understand not only the reasons for the Euro or one of the reasons for the Euro but the problems in the Euro.  This is the relationship between the Italian Lira and the German Deutschmark from 1980 till 2009, throughout that period Italy, the Central Bank in Italy and the Italian Government had one goal with their exchange rate policy, this graph was not to slope downwards, okay that was their goal that was their overriding goal.  This line was to be straight okay and that was what they tried to do for 20 years, did they succeed, no they failed and they failed and they failed and they failed and they failed.  It just went, it continued to slope down for 20 years as they fought and fought and fought to keep it strong, to keep the Lira strong, a hard money policy and they just couldn’t do it okay.  The political system just didn’t allow them to do it.  The Union said ah we know they are not credible, we know they are going to relax the exchange rate, so we are going to bid up our wages okay, because we know they won’t go through with it.  The pensioners as well said we need more pension money because we know they are going to, they are going to inflate away any gains, everyone the political system, everything worked against what was their key motivation and it failed, except at the end, once they locked into the Euro it worked, okay all of a sudden Italy had a hard currency, note at the end once it’s in the Euro, because they are the same currency as Germany, they now have a hard currency relevant to Germany, so in fact there’s a success, Italy now has a hard currency, as does Ireland, as does Portugal, as does Belgium and even France because France had the same desire and the same though not as dramatic the same failure throughout this period.  So all these currencies which wanted hard money now have hard money okay so there’s your success, now there are other issues of course.  There’s the issue of trade and the no need to exchange currency as you move across borders, but this is really from the financial side, the key motivation for the Euro and in a sense it worked, we got what we asked for, okay but many people see why did it have to be such a brittle system?  Why did this Euro system have to be so inflexible and brittle, that was not a bug in the Euro design, that was a feature you know the term, the joke that programmers say, when you say there’s a bug in your programme, your computer programme that’s not a bug it’s a feature okay, that’s true of the Euro.  Its brittleness was intended, it’s a feature of the Euro that it’s brittle, okay that was how the Italian State was able to lock in a hard currency by forcing the system so that it cannot leave.  If the Euro were a system where Italy could be in the Euro but it can leave any time it would never have had a hard currency, it would have lasted three months and then the demands of the system for a soft currency would have overwhelmed it, so the locking in is part of the success of the Euro, and this is actually a very old strategy.  This is a third century mosaic and that is Odysseus and if you remember the story of Odysseus what does he do, he locks himself onto the ship’s mast and I have a quote here about this is from Homer’s Odyssey okay, okay it says this is Circe telling Odysseus how he can listen to the siren’s, the siren’s are these lovely singing magical creatures on two sides of the straight and they are sailing through the straight and anyone who hears the sirens is so enchanted by the beautiful singing that they are drawn off the straight and narrow path and into the rocks okay so what does Odysseus do?  “He must drive straight on past but melt down sweet wax and honey and with it stuff your committed companions ears so none can listen, the rest that is but if you yourself are wanting to hear them, then have them tie you hand and foot on the fast ship standing upright against the mast with the ropes ends lashed around it, so that you can have joy in hearing the song and the sirens but if you suffocate your men and implore them to set you free, then they must tie you fast and even more lashings.”  This worked too okay.  Odysseus got to hear the sirens and he sailed safely through the straights by locking himself onto the mast okay and that’s what we’ve done, we now have a hard currency, so does Greece, so does Italy.  We didn’t matter in that sense but Italy mattered and France mattered, so one of the key motivations is to lock in, create a brittle currency system where we have to have a hard currency system okay. This was not really the key issue for Ireland.  For Ireland why did Ireland go along?  Well Ireland was very I’m sorry where’s Ireland, okay I want to talk about Germany, then I’ll talk about Ireland, what about Germany?  Why did Germany go along with such a system?  Okay well you probably remember Fawlty Towers, there’s a running joke on Fawlty Towers, they have German guests come in and Basil Fawlty would say don’t talk about the war okay, don’t talk about the war with the Germans and then of course you would end up talking about the war because he would put his foot in his mouth okay.  Well I worked in the city in the late nineties, in the city of London and I used to visit clients, I was selling risk management systems okay, and I’d visit clients and client support would always whisper to me, don’t talk about the Euro as a problem, they are German clients, don’t talk about problems with the Euro, so I’d stand up here and I’d have to make sure I didn’t say anything negative about the Euro, because the Germans just had this emotional commitment.  It was really the same thing, it was basically liberal anti-nationalism, the Germans just felt we are good Europeans, we want everyone to be one body, so it’s actually a good thing, but it did make them blind okay, the Belgian’s, the German’s, the Dutch, the hard currency countries were blind to the failures of the Euro, why?  Basically for good motivation they believed partly it’s not the whole story but partly, they believed in liberal anti-nationalism, they wanted to take the hard currency, the Deutschmark and share it okay to bring Europe together, so the German’s are partly to blame but partly their blindness was in a sense motivated positively to a good extent okay, so there isn’t really just goodies and baddies, there’s blindness for good motivation, okay that’s another thing that happened.  They certainly were blind, the Germans allowed Greece into the Eurozone.  Now looking back at that, that was a ridiculous decision, again with hindsight the idea that Greece, Italy coming in is marginal and it seemed to possibly work, but Greece coming in was clearly you know grossly in error, so they clearly were blinded okay by something okay. What about the Irish?  Well the Irish didn’t really matter okay they didn’t matter much but they were welcome okay Ireland was welcomed, why did the Irish join?  Well it wasn’t so much the hard currency, Ireland did not have the same experience as Italy with a constant depreciation of its currency, it didn’t manage in many cases to keep a peg for instance to the British Pound but Ireland was also enthusiastic.  Most financial economists in Ireland and it was basically because they saw it as the chance to lower their cost of investment.  This is their cost of investment under a small more peripheral currency like the Punt.  Joining a big currency area like the Euro okay was going to lower the cost of investment and that was going to increase investment.  This was what many Irish economists, myself among them and someone who is at this point interested in visiting Ireland okay, this is what we believe, we are going to lower our cost of investment and increase investment because the cost of the funds was going to decline when we move from being a small peripheral currency with all the risk associated with that, to a member of a big currency block okay locked in at hard currency rates.  What did we get?  Well something worse, something that we didn’t really predict which was over investment a credit flood okay, Ireland got a credit flood.  In fact looking back we realised there was so much investment for bad reasons, bad business decisions, bad regulatory decisions, that in fact many of the investments were negative in their returns, so we were actually getting, we were throwing money at investment projects okay with negative return.  When I see we there, that’s the business interests and the business community in particular the banks and property developers together, were taking German money and poor money and throwing it away because of self managerial, self interest okay. I’m going to look in a little more detail what happened in Ireland but basically this is the key thing, it was essentially a credit flood, we had a flood of foreign credit when we joined this big currency zone and had bad financial regulation, okay let’s look now in more detail of Ireland, sort of work out the steps of where this, how this affected our banks and one in particular happened.  This is the asset side of the Irish banking system, keep in mind with banks assets and liabilities, it’s like my right side is your left side, the same with banks, their assets side is your liability side, so you have mortgages you think on them as liabilities, for a bank mortgages are assets.  Credit card debt we think of them as liabilities, those are assets to banks.  You might have a savings account, to a bank that’s a liability, but that’s an asset to you.  You might have a checking account that’s your asset, their liability, so this is their asset side business and individual’s liability side and let’s look at what happened to these banks.  The red bar is the key thing here, this is property development.  In traditional commercial banking it should be zero.  Property development is not considered an appropriate activity for a commercial banks, they are only supposed to lend for property in the traditional view, where they already have the red one locked in, so short term last minute banking otherwise it’s supposed to be equity.  And what we can see is that exploded over the noughties period, so the red part just grew enormously okay, so on the asset side you had a big growth of property development which is in fact not even an appropriate activity for banks and as we now know there was some very bad investment decisions.  There was also a lot of growth of mortgages okay, so on the asset side way too much property development growth and also quite strong, probably too strong growth in mortgages.  What about on the liability side?  Where was the money coming from?  It was coming from foreign borrowing, the banks were paying for these very risky investments by borrowing from foreign mostly Eurozone banks okay, so they were taking short term money from foreign banks and using it for very speculative investment so this is if you follow kind of you know the entrails of what happened in the crisis this is a little bit old news but that’s the key thing and here again this red area is the key one along with the yellow one this is foreign borrowing okay.  Now the yellow one is a little bit less bad because it is not coming out of, it’s all going into foreign lending okay, whereas red is actual foreign borrowing being used recycled back into the domestic lending.  Note this borrowing is what’s called “Hot Money”, these are quickly reversed okay and note here you can see it climbing down, this is the hot money drifting out of Ireland okay.  A lot of these are very short term institutional deposits and short term bonds that the foreign banks can you know liquidate at their pleasure okay. Well what we do in economics, to look at policy and sort of understand what went wrong is what’s called counter factual policy analysis.  What we do and you know a standard tool is we take a decision in the past and we want to think about was that a good decision or a bad decision, what were the implications of it, we remove it and then we create a new history.  We say let’s change an old decision and let’s see how key it was because we know how the decision feeds through the system, let’s change that decision and see what the system would look like okay.  It’s just like, I like the picture of Gwyneth Paltrow Sliding Doors okay, that is basically the same idea.  There’s this movie where Gwyneth Paltrow is running onto a train and in one reality she makes it onto the train okay and then she gets home and she finds her boyfriend cheating on her with another girl and her life goes one way, okay and the other reality she hesitates and misses her train and her life goes another way okay well that’s basically counterfactual simulations.  Now I’m going to do that for a minute this was work with Brian O’Kelly on the Irish banks.  What would have happened if we had been slightly more sensible in financial regulation during the bubble period okay, well in fact with a little bit of a change in bank regulation okay most of the Irish problems would have gone away okay.  Most of the crash would have gone away and thinking through that reality, so now we are in a different reality, we are in a made up reality, where the Irish Central Bank and the Irish Financial Regulator prevented the banking sector from taking these extremely risky bets on property development funding by net foreign borrowing okay.  Just make them more sensible, reasonable regulation it’s called prudent regulation, that little change would have really changed the outcome okay, so here’s the asset side when we enforce the condition that property development cannot be more than ten per cent of stable liabilities which are domestic deposits which are on the other side okay.  So you can only have ten per cent property development assets relative to domestic deposits okay and we also put in the condition a note you change the, you drastically reduce this scary red part okay, which caused the problems on the asset side.  We do the same thing on the liability side here we forced the net foreign borrowing to be cut.  Again this should have been controlled by the financial regulator and it wasn’t, so let’s control it okay, so this is our simulated reality which is allowing the system to be more prudent in its behaviour okay and those things go away, what would happen to the Irish economy?  Well you would have much, you know obviously by construction you would come into the 2008 Lehman Brothers cut crash with a much more stable banking system, so you are coming along here, here’s the crash, the system is much more stable, than in that reality in terms of your exposures to property risk and for hot money foreign borrowing okay, you would also have a more stable borrowing okay.  This is the borrowing side, so here we have our net foreign borrowing, the GDP that’s both on the asset and liability side a much more stable environment okay.  It actually would have after the 2008 crash eliminated a lot of the ... we would be just like most other European countries with just a little bit of a change in our financial regulation, you will see this has implications as we think about whose fault it is and what needs to go, happen going forward okay.  With this obviously there would be a big change in net foreign borrowing right, by construction, so we wouldn’t have this big overhang that the banks all of a sudden as you remember in September 2008 the banks all went bust, they effectively all went bust, because all that “Hot Money” all that net foreign borrowing left and the Government was how are we going to replace it?  Well first it put in the guarantee, that didn’t work and then it went into an IMF Programme okay, because it had to replace all that “Hot Money” which disappeared in a flash okay.  But here’s the interesting thing, it wouldn’t have been such a lovely period for you all okay, you remember those years they were wonderful growth years, why were they wonderful growth years?  For false reasons, it was fake income okay, it was generated by imprudent borrowing of the domestic banks from foreign banks, so all that wonderful 2003 to 2007 growth was phony okay and if we eliminate, if we bring in prudent regulation a whole lot of growth disappears okay, so in a sense this was already spent okay and now we have to in a sense pay it back and that’s where the ECB, that’s where the you know European Commission and even IMF were telling us you already had the good times, now you have to pay the cost okay, that’s one way to interpret it.  Right in fact if we look here this is your GDP, there’s your extra GDP you got by having bad decisions.  Note it’s only negative at the end okay obviously you continue here, it’s got to in a sense if you believe in you know a just universe, all of this has to be balanced on the negative side right, that would be the Greek tragedy solution right.  If Homer did this, that would all go away so we would pay it all back right.  In fact here it is just graphically, there’s Ireland if we would have done things right.  Now again this is a simulated reality and what do we see in the purple line, this purple line here is Ireland without imprudent banking regulation which allows this credit inflow right, a lot less growth and in fact you know it’s sort of you are losing more than you are benefitting so far, so obviously this has to continue for quite a while, right this yellow line to make it equal because the yellow is the reality, the purple is the simulated reality.  Well if you are going to get rid of all that growth, that fake growth, you know it’s going to be paid back and it clearly is right because something you know, we are in a sense going to pay all that back one way or the other okay.So that’s sort of a review of the Euro, a little bit about Ireland, now I want to just for my last little bit, I want to talk about the future and where things stand and what it looks like going forward okay, well we had this big party really.  Right Ireland had a party based on phony money that was poured in via the Euro currency from foreign banks okay.  Now we have to pay it back or some feel we don’t have to but the standard view at least by the ECB and the IMF is we do have to pay it back.  Can we pay it back?  Is it feasible?  That’s the question, well this is the key number okay which is Government debt relative to GDP, if this number is more than about 120 per cent, so you have more debt than you have national income right, annual national income most people feel it can never be paid back.  The reason is what happens it grows with interest and your income doesn’t grow and you can never get to equilibrium, you can never get out of debt, you can never get yourself out of debt as a country.  Okay so above 120 it’s normally considered not feasible and you can see well Ireland are just about hopefully maybe going to miss that, right we will look at some of the other detail.  This is just a generated problem, note this is not the original problem, this debt is generated by poor bank regulation okay, it was not even high when we started back here in 2008 when the problem started the debt wasn’t even high, so this is all coming out of bad decisions in our banking system okay. Let’s look at the banking system it’s just another big problem, when all the net foreign borrowing disappeared it had to be replaced, it had to be paid off with cash.  Banks don’t have cash, a lot of people think when you give cash into a bank, they put it in a big you know drawer in the back, that’s not what happens, the cash goes out immediately.  You put money into your savings account, the next day or the same day they paid it out into someone’s mortgage okay, your savings account isn’t in the bank, it’s in a mortgage okay, so what happened when all these foreign banks say oh give us our money back, they didn’t have any money, in fact their assets were collapsing at the same time right.  They had to get money as extraordinary liquidity support from the Central Banks, that’s one of the roles in the Central Bank, it provides liquidity when banks assets are illiquid okay and an enormous amount right, Irish banks have like 110 billion Euro’s of this emergency liquidity support both from the European Central Bank and in the case where the assets aren’t good enough for the European Central Bank from the Irish Central Bank, okay so these are the assets which aren’t even good enough quality for the ECB to accept them, right and that has to be changed.  That’s supposed to be quote “short term”, that’s supposed to be the Central Bank providing short term liquidity, well it’s already been five years, how many more years is it going to be right, probably five or six.  These are backed by assets, right these are backed by mortgages, property development assets, business loans but they are illiquid right and some of them are of dodgy value, so this is a big problem too.  It isn’t just the Government debt, it’s also the banking system becoming liquid again okay, somehow getting rid of this overhang of emergency liquidity support right.  How can it do that?  Well it’s pretty hard it has to shrink, it has to shrink its asset size to generate cash as people pay off their mortgages and business loans it has to use the funds to pay off this big overhang, to remove this big overhand of emergency liquidity support from the ECB and that’s a really slow process.  You can see here look at how slowly the assets are declining, even though this red line is the stock, the flow of new lending is shrinking drastically, but the stock of outstanding lending is only very slowly inching down and of course it builds on itself as they shrink lending the economy contracts and that feeds back into itself, because of the whole sector you get this aggregate affect.  If they all try to shrink, all that happens with the economy shrinks and it’s very hard for them, so it’s really difficult, there is a difficult problem, so I’m not claiming things are easy here okay, obviously property prices which bubbled up have also you know gone down and that hits banks, right now I’m not going to talk too much about that, I know Ronan Lyons talked about that a week or two ago, but we know property prices have gone down sharply and that’s an issue for banks as well.  More seriously okay, oh yeah and of course another thing about getting back this big overhang of assets, it’s hard for look at here how they’ve caused ,they’ve shot down and this is affecting property prices, the flow of new housing lending, mortgage lending has collapsed, but that isn’t really affected very strongly the assets of the bank, because it’s hard to make property shrink by not building them, because they last for eighty years okay, so this overhang is a very slowly solvable problem, getting into debt is easy and quick, okay getting out of debt as a sectoral system is slow and difficult okay. Now here’s another really serious problem and again I’m just, at this point I’m speculating about the future, this might sink the banking system, this is the increase in mortgage arrears, right mortgage arrears are continuing up and there’s an enormous supply of mortgages, if you go back to those balance sheets and you look at mortgages and you look at the sliver of banking, equity capital, mortgage arrears coming out of those assets any fall in mortgage payments has to come out of that tidy sliver of equity capital and if it overwhelms it the banking system is broke, right and there is a risk here, so this is a real serious risk going forward.  Do I have a solution and do I have an answer?  No but it’s certainly something that is trouble okay.Okay what about you know this is something I put here because just as I finish up, Colm McCarthy who isn’t here but would certainly want this slide, what are we paying for with all this debt?  And we have this big supply of Government debt, you know we are swimming in Government debt, we are approaching sovereign insolvency, where’s it coming from?  Well a lot of it is coming from these bank repayment costs.  This grey line, these green slashed lines here, note that huge chunk in 2010, there was also a big chunk in 2009 and another big chunk in 2011, if it weren’t for these bank repayment costs, even though Ireland would have suffered a big recession, the debt overhang wouldn’t be serious, it would be very you know feasible.  This is making the system close to or possibly insolvent right.  Now this is questionable Colm McCarthy says a lot of that was us paying back foreign banks, it was their fault, they leant us money when they shouldn’t have okay, so it’s partly their fault and we paid them back when we were a State, this is the Irish State, it was private banks, it was Irish Nationwide and Anglo in particular and the other banks making bad decisions, those are private institutions.  What are we as Irish tax payers paying them back okay, well partly to help the other European countries because it’s European banks that lent that money, well that’s questionable and Colm McCarthy feels and it’s very much in the news now we don’t have a responsibility as tax payers for those privately taken on debts okay and that’s a lot of the problem, right I’m not going to take a stand there, you can see it’s a mixed case, we spent that money right, we spent it on ourselves, but it was private money, so you can decide what you think is right or wrong about it, Colm McCarthy thinks we shouldn’t pay it back or maybe not all of it, it’s in the news even now we are fighting with the ECB saying a lot of this money should be paid by the ECB indirectly with money creation, because it isn’t really Irish and the Irish are doing their part let’s have some help and there’s talk about pushing big chunks of it out far into the future using ECB money creation.  So will we make it?  Will Ireland make it as a sovereign through this crisis?  Well this is what’s called a fan chart where you have some possibilities right and the answer is maybe okay as an economist right.  If things turn out well, if growth is reasonable Ireland is going to muddle through this crisis okay, if things turn out badly and growth is poor and the debt goes up there’s going to be another programme and another restructuring and more difficulty, so I don’t feel I’m strong enough and wise enough to make that call.  I do want to finish on an up note, there are good things in Ireland, what’s going to save Ireland if there’s a saviour it’s going to be our export growth, pharma, tech in particular and other export industries.  I know a lot of people talk about agri-food industry it’s had very good years but it can’t generate, it doesn’t have the scale potential to deal with 120 billion debt overhang, whereas tech and pharma and the other export sectors which are actually doing very well at the moment okay, can spin off into the domestic sectors and might make a difference, so if we can get growth and this is a picture of a bunch of techie type people, if we can get growth in the key future industries and this is something that Ireland has done well over the last ten years it’s got lucky, it has picked some good industries okay, it picked a lousy industry in the fifties when it went very heavily on agriculture as the key industry, that was the big mistake we now know okay, but now it seems to have picked some good industries so that’s the hope, it’s the export growth and the possibility that might make the difference and making us coming out on the right end of this painful but feasible grab.  Okay that’s it so let me see if there are questions or comments?  Go ahead.Q & AParticipant 1: My question is multi-pronged, one of them is we know the banks have lent the money and what happens if the banks now have so much mortgages, say for example they have say 20 million mortgages and all of those 20 million, say 10 million comes back and says listen we can’t pay here, how can we pay back, now we have a huge chunk of houses that we can’t offload.Yes okay.Participant 1:  So how do they work through that, that is 1, and, 2, if they don’t lend how does liquidity recycle within this?Yeah that’s absolutely, I mentioned that and that’s very true, one of the problems with the banks is they all want to shrink, so how do they want to shrink, oh they want to stop lending, but if they all stop lending house prices fall, no one can buy houses and then their assets which are effectively the houses, also the client who are they going to sell these repossessed houses to, yeah that’s a very difficult circular problem.  When one bank is in trouble it can just repossess houses and sell them and the whole banking system is in trouble yeah there is an issue that they can’t all sell the houses and not worth, you know not generate new houses, so that just had to be mulled through and there’s no simple solution to that.  Of course there’s no repossessions in Ireland anyway, effectively none, so it’s not a live issue.Participant 1: Finally this is based on the assumption of what if, what is instead of having invested heavily into the mortgage, you know the construction industry, if they had passed the investment onto the production and other sectors, what would it have been like going by the graph?Yeah we didn’t do that, we have put it into business investment and we didn’t do that, I don’t think that was feasible, it was such a flood of credit, it was going to go into, you know it was going to go to speculative property and that’s quite standard if you look around the world, credit flows tend to go into speculative property, because business investment is slow and difficult and you have to establish relationships, it doesn’t tend to have as volatile behaviour that the property development does, so most of the big bubbles generate property related bubbles.  Yes a question here…Participant 2: How do you see financial regulation changing your response to events in the last couple of years, especially when for example when the Euro say in the late nineties, we had the example of the Asian crisis which showed that you know if you liberalise financial markets it might lead to a bubble so how come we didn’t see it then and what makes it different now that we might see it again?Yes well financial regulation in Ireland was particularly bad okay, particularly bad, so if you go back to 2003, 2002 in Ireland you know it wasn’t even at the state as it should have been at that point.  Now of course you know it’s going much, obviously we’ve learned from that mistake and where everyone is tightening including Ireland.  Others made mistakes, the US made huge, you know more globally, more damaging errors in their financial regulation, so there were many errors and the Greek situation which was not on the financial regulation side, rather a national income fraud okay, where they actually fraudulently created their Government debt accounts.  There was a whole another situation, where do I see the financial regulation going?   Well I think probably there will still be problems as there always has been, you know people will find ways around the rules and create problems so that will never disappear.  There will always be smart operators who sneak around the system and create occasional crises, but I don’t think in my lifetime, you know my working life or even my mortal life that will see another financial crisis of this type, however another side which is the regulation of Government borrowing, now that’s changing fundamentally as you know and now we have this fiscal compact that’s just absolutely changing, you’ve heard the word austerity, it’s absolutely the rules are going to change fundamentally, in ways which are not all good alright there’s no one who is going to be flexibility about ah we really ought  to have a new anti-poverty programme and build some new hospitals this year and even if it costs a little more than we have, we will borrow it, that is going to go away okay, it’s going to be a very tight rein on Government spending in the Eurozone.  That’s part of the brittle system, we have locked ourselves on the mast and we made that decision and now we’ve realised part of that decision is we can no longer spend money unless we have it and that’s just locked in now and my opinion.Participant 3:  Is that not a good thing fundamentally for us, I mean we needed to grow up?Yes I think a lot of the economists are now thinking yeah in the long run probably we actually maybe in our mindset, we think about the German’s back you know when they were not talking about the Euro, Germans to characterise them unfairly but you know they do have a little bit of a mindset, a, b, we go this way, we are making, we are walking this way okay and I think they realised that was part of the deal.  The part of the hard currency zone was also you know fiscal austerity that you don’t spend what you don’t have, so that’s what we bought into.  We didn’t know we bought into it but now yes that’s what we bought into okay.Participant 3:  Can I just ask you that wasn’t my question, it’s just I haven’t had the time to read the paper yet, the other day and Mr. Osborne or somebody like that said in England announced that because the banks were not doing their part of the bargain and they were not lending to the small and the medium sized business over there even and we are crying out for that here even more probably, they were going to do a Government level a kind of scheme that they are putting millions in that can be lent to bypass the banks and get this money out to the businesses that need it to run.  We obviously do need our small businesses to get going again to get, if we are to get any to do that curve that they are talking about.  Could we borrow the same thing here?Again we have no funds.Participant 3: But how are they doing it?Well see they have funds because they are an accountant and they control, they can borrow freely to some extent, I mean there are limits even for the British but we have locked ourselves in now to this hard currency system, which means that we don’t really have borrowing opportunities.  The ECB though there is in fact, you know potential the ECB still has flexibility and they have, the ECB to give them credit have recently generated a lot of new credit flows to the banking system, but the banking system is still in an unstable situation, a lot of that has just been transferred effectively to Germany where there’s no need for new credit, so it’s still not flowing properly but the ECB has forced money, forced credit into the banking system through this long term refinancing operation so that and a lot of money like a trillion Euro’s worth of credit over the last few, you know in their programmes will be forced into the Eurozone banking system, but it isn’t a solution a Government programme, no Ireland cannot do that under the fiscal, I don’t think it’s feasible.  Question here.Participant 4: A consequence of the austerity that is sweeping through the Eurozone and the world it seems to me is huge unemployment and can that be countered?Well that you know that’s part, you’re right and a lot of people Paul Condron is a major commentator in the US is very against austerity because of that, it does cut back your budget deficit but at the same time in recessionary times it forces up unemployment.  No there’s no you know, you can Paul Condron thinks we should just go ahead and continue borrowing and there’s a probably a middle ground, I don’t have a solution for you but no they are linked, you can’t spend money to raise employment and at the same time lower your budget deficit, no you can’t get both, you can’t have your cake and eat it too question.Participant 5:  I was under the impression that the Celtic Tiger era began roughly around 1996, 1997 and finished around 2007.  When you were speaking about credit flood you focused on the years 2003 to 2008.Correct, yes there’s the good credit, there’s the good Celtic Tiger and the bad Celtic Tiger, there’s phase one and phase two and Morgan Kelly has a good paper on that.  The first phase was based on productivity growth, so 1997 to 2000, he says 2000 but it might be 2002 okay, 2002 is the date when the Central Bank actually became more liberal in its policies but maybe he claims it’s about 2000, so there was a good Celtic Tiger and a bad Celtic Tiger.  The first one was based on real productivity gain and the second one was based on hard credit influx and you might look at Morgan Kelly’s straight forward paper you know.Participant  6:  They always said before the “R” word was admitted or used there would be jobless recovery, not just in Ireland and America, everywhere they said. Is that the case?In recessions the jobs of the last thing to come.Participant 6:  But will they come eventually, nothing like they were obviously?No I am a financial economist and you really need to ask a labour guy you know, so I won’t answer that question because if someone found out I was claiming I knew about employment you know trends I’d get in trouble yeah.Participant 1: In relation to what you said about unemployment now, I know countries like Japan, China and even Germany at a certain time had to say okay we are in this mess now, what if we just look inwards instead of having to say okay we actually have ... because yeah  I understand this metric thing and the Eurozone policies but if Ireland as a nation is also looking within these walls, shut the doors and let’s see what we can make from home here.Small open is Ireland’s solution, I really think small and open, if we are small and open and small open is the future, in fact that’s the future small and open.  I mean what are these guys doing you know, they are selling around the world that’s the key thing.  Little technologies that are not particularly hot, not particularly fancy sold everywhere.Participant 1:  Reduce the imports.Reduce the what?Participant 1:  Imports rather than...Oh no because they need imports, no, no I don’t think that’s the solution for Ireland, no I have to say, I’d say absolutely not, absolutely not yes.Participant 7:  Just there recently, you know a couple of months ago you had the Government basically calling the banks to reduce the interest rates, you know for the lending like, how can the banks get the money to lend, to try and increase their profits, if they are brought in and say look you can’t do that.Yeah that’s true, yeah that was a very, you know they want bank profits because how are you going to get the banks back to decent situation by having them generate profits, but at the same time you want lending and you don’t want it to be too high cost, yeah you know this whole system is nothing but a balancing act of difficult interlinked problems, that’s what debt, you know unravelling the debt problem is a difficult but when it’s aggregate in this whole economy is a difficult and slow process and whether we will get there is you know, going back to your point you know unemployment Government debt, we have a huge Government debt problem and we have an unemployment problem, how do you solve an unemployment problem?  Government expenditures.  How do you solve a debt problem?  Not having Government expenditures, you know what do you need to get your debt low, you need growth.  How do you get growth?  Spend more but that’s also how you get debt, so yeah there’s all these difficult decisions at the margin, right that’s where we have to hope these guys, you know do a good job selling whatever they are selling.  Go ahead, I better just take two more and we’ve got to stop go ahead.Participant 3:  Tell me you said part of the problem is a kind of what they call a political class, do you see younger political groupings coming up of people in their thirties or forties who are ready to take power or are they all just leaving?  I don’t see anybody new in the media that seem ready to go into Government and replace but when our present crop retire as they will have to eventually and are there people there, are they coming in? Are there people there who could give leadership? Are they coming in? Do you meet people...?That question is beyond me, I do, I didn’t mention but the political class in the noughties, in the second half of the Celtic Tiger did fail in a really spectacular way in financial regulation and property, I mean the Mahon Tribunal issues they are also related to property, so there was a very corrupt system for a developed western economy in the early years of the 21st Century, but how can we replace, sorry I’ve only lived in this country 20 years I’m not old enough, go ahead.Participant 8: Actually similar to what this gentlemen was talking about, I’m just wondering about competitiveness, I mean isn’t that a big issue in terms of the price of everything went up in Ireland and we became less competitive.Correct in the second part of the Celtic Tiger.Participant 8:  Tied back into vested interests and the political class is the sense that there’s still like doctor’s fees, like dentist’s, professional fees are still much higher than they are in the rest of Europe and this is still obviously an issue in terms we obviously have to pay for it, professional fees and we ... the Government has to pay for them.  So I mean it’s tackling that problem.Yes absolutely, I think that absolutely is really you know one of the things to get the economy continuing to, it has had a big improvement in competitiveness over this terrible five year period, but at the same time that has to not stop, but that’s something where they are making progress, there is some slow progress I think on that one, you know.  Okay so thanks very much and I hope you enjoyed and got something.  Thank you.  (clapping) Thank-you for listening to the Dublin City Public Libraries and Archive Podcast. 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Listen to Ronan Lyons talk.Welcome to the Dublin City Public Libraries and Archive Podcast. In this episode economist Ronan Lyons talks about the Irish property market, the changes over time to house prices in Ireland and what might happen in the future. This talk, one of a series on the Irish Economy, was recorded in front of a live audience in the Central Library on 15 March 2012.Thanks very much.  I’ve got a good bit to get through and because obviously it’s a topic we are all very interested in, but I also am conscious that it’s a topic that everyone has a lot of opinions about.  So what I might suggest is that if you have questions do put up your hand.  I’ll try and avoid getting into very detailed discussions during the talk, but I do want to let you guide the talk as well as obviously my own thoughts on Ireland’s property market, and how we got here and where to next. In terms of what I hope to cover today, really there’s just a few simple rules that I want to get out into sort of the general discourse when we think about the property market.  And this is from the point of view of buyers or sellers of property, or renters of property, but also from the point of view of policy makers.  If we can get these types of rules or stylised facts as the social scientists like to say, if we can get them in to government thinking, it’s unlikely we’ll find ourselves in the similar situation again.  So the four stylised facts that I’m going to base the talk around, the first is that real estate is a bad investment.  The second is that the property market is imperfect.  Third is that a combination is a service and we need to remember that.  And then the last is that governments actually can have a proactive role in managing the housing, the property market.  But it needs to view itself as an organisation or a regulator that is managing a market rather than I suppose, intervening for the sake of intervening, or not intervening for ideological reasons. The context of this, given that it’s the Dublin City Libraries, the context of this is that we’ve seen it all before.  If you look at the price of a Mountjoy Square townhouse after it was built in the 1790’s, in all its grandeur before the Act of Union, it would have sold for around 8,000 pounds, back in the day.  Less than a lifetime later, it had fallen by 94 per cent, to 500 pounds.  So, we’re not living in unprecedented times from the point of view of the property market.  Certainly the crash that we’re seeing in Ireland now is among the biggest in the developed world at a national level, and it’s certainly in the top tier, the premier league of property market crashes if you start counting for example, cities or states within US as their own economies comparable to Ireland.  Ireland is certainly mixing it among the countries that have had the most violent bubble and crash.  But certainly if you keep your perspective long enough, this is not something that is unprecedented.  Property prices rise and property prices fall, and we’ve seen pretty dramatic episodes of that in Ireland in the past. So going back to the, sort of the four, this will be the sort of an outline of the talk as well.  So real estate is a bad investment.  It’s sort of odd and particularly if you associate me with a sort of a daft.ie hat on and for me to be coming up here saying, you know, don’t get your hands on property, it’s not a very good asset to have.  And particularly when you see the conventional wisdom if you go online you’ll see either Mark Twain said this buy land they’re not making any more, or occasionally you’ll see either attributed to a Don at an Oxford college or a Cambridge college, saying well we’ve done pretty well, they’re not making any more land, let’s just hold that.  So that’s the sort of conventional wisdom around property and around real estate, is they’re not making any more of it, grab it now because the price is going to go up.  But I suppose an economist would say, well if everyone knows that, then surely the price would already reflect that rather than nobody realising this and you’re sort of ahead of the curve.  And in fact, we can have a look at it over the long run, I’ve already mentioned something from the 1800s and this is the Herengracht which I think means the gentleman’s canal in Amsterdam.  And this was built just in the heyday of the Netherlands, I suppose the early heyday of the Netherlands in the 1620’s, just after it had broken with Spain and it was the global financial centre.  And they built this canal and one of the reason that I mention it is, that they have every transaction ever on the Herengracht, they have recorded in the archives.  All the way from 1628 right through to 2012.  And in the 1990’s an economist did a study of transactions on this one street, so you know you’re not comparing sort of, different cities or you know you’re not comparing different house types.  You’re actually looking at sort of 50 properties traded over and over again for hundreds of years.  And at first glance you could make the case that you know, property prices seem to go up and there’s ups and downs there, but definitely if you look and this is indexed so, the price when it was built, when these houses were built is set to 100, and you can see that it goes up and it seems to go up albeit with a wild swing, it seems to go up there towards the end of the period.  And if you actually extend that a little bit, that goes to 1962.  If you extend it a little bit more to 1972 you’ve to reset the scale and you can see, well actually you know, those final twenty years prices did seem to rise dramatically.  So what am I here saying that you know, property prices don’t go up over time, it’s not a good asset to have.  Well, this guy who did the study, what he also included was, this is nominal prices and this is just what you see on the accounting ledger.  But he also included real prices, so controlling for inflation.  And obviously general inflation comes and goes, and it’s also sort of swings and roundabouts.  But when you adjust for inflation this is property prices in the Herengracht in Amsterdam over almost, well certainly 350 years.  And soon when they update this it will be nearly 400 years.  And you can see there’s certainly ups and downs and there was a long period there where it was above the average and then there was a long period, that’s about a lifetime, this is about a lifetime as well, but it was below the average.  But certainly that red line is the average for the whole period and as of 1972 you can’t really see any difference from the long run average.  There’s a little bit but not a lot.  And in fact if you were to just take a simple trend and say what’s the trend in this?  the trend is actually down.  And the real price of property goes down.  Now clearly it’s not a line, there’s sort of peaks and troughs.  So there are property market cycles.  There’s certainly no evidence from this one street in Amsterdam for which we’ve really just information that real property prices, once you’ve accounted for inflation are that they go up.Participant 1:  Sorry Ronan, a very quick question.  Are you including rent in that?That is property prices relative to the cost of living.  Now the cost of living as you measure it going back into the 1600’s it is probably going to be based off a simple basket of goods.  I don’t think rent is in that.Participant 1: No, no, no what I mean is, this is an investment on which somebody was getting a rental return on.Oh yeah, let me come to that a bit later on, yeah, yeah.  So this is, this is just the conventional wisdom that if you buy your own property that you can make lots of money out of that.  And that when you die your property will be worth an awful lot more than when you bought it.  And what this is saying is that, well certainly you can make the case that house prices match inflation.  So your house is a good store of value.  So if you were to get all your savings now, let’s say you have 100,000 in savings and you put it all into property now, what this is saying is that at any given point in the future, we don’t know what’s going to happen in the future, but our expectation is that in 20 years time or in 50 years time or 100 years time, that 100,000 would have kept its value.  So if we’ve switched to the new Irish punt or if we’re in a Euro 2 or if we’re in the Euro or whatever happens that property will more or less keep its value.  But it certainly won’t increase its real value.  And if you look at the literature, there’s not a big literature on this.  Studies like the one for Amsterdam are kind of rare.  And one of my research ambitions is to construct something similar fore Ireland over the same period.  But certainly there’s evidence from the US over a shorter period, say 100, 150 years that the same thing happened.  If you look at, there’s one on commercial real estate in New York and there’s one on house prices in Boston.  And again and again on these studies, you find that property is very good at matching inflation but never really beats inflation.  And by contrast, if you have a savings account that will typically beat inflation.  Now this is obviously not taking into account any explicit rents.  If you’re a landlord rather than an owner/occupier, a landlord will get rents and that might change the calculus.  But certainly if you’re just looking at it for capital gain, you’re unlikely to get it in property. But surely Ireland is different? And this is, you know, what if this would be the slide I would have shown in 2007.  You know, is Ireland going to be any different? And it looks there, you’ve got this very nice sort of expediential curve of house prices.  This is based off the, I should have put the source at the bottom, this is based off the Department of the Environment statistics, merged with later data points like the Daft index and the CSO index.  So that gives us one index going from 1975 to 2007.  But again, this is just without correcting for inflation.  And also, it’s ignoring what happened after 2007, which we’re obviously all very familiar.  So if you do both those adjustments, if you add in the extra couple of years, but more importantly if you correct for changes in just everyday crises, what you see is a very different picture emerges.  This is in current euro terms.  So the figures there are what, 100,000 euro is now or what 400,000 euro is now today.  And you can see that the average house price was about 100,000 euro in 1975, got up to sort of 375,000, and has fallen right back down to about 175,000, as of the last quarter of 2011.  And what’s particularly interesting in this graph, we can come back to this bit later on, is the first bit.  That looks a bit familiar, doesn’t it? That looks exactly like the Amsterdam picture.  Up to 1995 you had sort of bubbles and crashes, or booms and busts maybe if we want to have a boom to be a small increase and a bubble to be a big increase.  We had sort of booms and busts here.  But certainly the overall trend is flat.  So again, I don’t want to be too repetitive on this, but from a policy maker point of view and from our everyday lives point of view, we shouldn’t be expecting anything more than house prices to match inflation.  And this has big implications if you bought during the bubble.  If you bought in 2004, 2005, 2006, what is your expectation about the value of your property in 10 years time or in 20 years time or in 50 years time.  Typically, certainly up to 2006, 2007 people would have said well property sort of increases at 5 per cent a year, we’re a bit above that now, but that’s what we think property prices do.  That’s sort of the conventional wisdom.  But what I’m saying to you is really we should be thinking more like 2 per cent a year.  Because that’s what the rate of inflation is, well that’s what we’re targeting as the rate of inflation.  So that’s what we should be targeting as the rate of increase in house prices.  It also has an impact for everyone in Ireland in some sense.  If you bailed out a bank, which we all have, and if you took over some of these loans, and if you now manage these loans, as we do through NAMA, what is our expectation for the value of property in 10 or 15 or 20 years time.  What’s our expectation about long term economic value which is NAMA’s watchword.  Well, really you know, if we’re thinking 2 per cent a year growth in property prices, that’s very different to perhaps what Brian Lenihan envisaged originally when he introduced the NAMA legislation.  I think he had, sort of a 5 per cent a year model in his head. And this graph just takes a scenario where property prices fall by about 60 per cent to 150,000, in next year, and then increase by 2 per cent the year after that, nice and smoothly.  Now obviously we know there’ll be future bubbles and future busts, but we don’t know when they’re going to be.  So without knowing them, let’s just say okay 2 per cent a year.  And it’s a useful exercise because it tells us when we might see property prices reaching their peak level again.  And they reached their peak in 2007 and by this stage I will be hopefully retired in the 2050’s.  We don’t know how long people my generation will have to work before we get to retire.  But I hope to be retired by the time we see prices reach the same level again.  And that’s important for policy, as well as important for our own everyday lives, when we buy property. That’s the first sort of bullet point.  The second one is that the property market is imperfect.  And here I’ll talk a little bit about, sort of economic theory.  In a way I was implicitly giving out about policy makers, for the last few minutes, saying what their plans were about NAMA, and so on.  Now I get to give out about economists.  So economics is about assumptions in a way.  That might sound like a bad thing, but obviously we need to make assumptions.  If we want to make any sort of model of the world around us.  If we want to understand how the economy works, without actually just replicating it completely, we need to make some sort of assumptions.  The issue around assumptions is that, some assumptions are made just to simplify, to strip out unnecessary detail we don’t need to know every last little bit of, so we’ll just simplify and assume that, whatever it might be.  The other category of assumption is made not out of simplification, but out of necessity.  We actually don’t know how something works, so in the absence of knowing how it works, we’ll just assume that this happens.  And the danger in economics is when you mistake one for the other.  When you say for example, that oh well there’s no mark-up that producers when they sell their goods don’t enjoy any mark-up.  You might think that’s just stripping away unnecessary detail and there is going to be some mark-up, but let’s say it’s 10 per cent, but that 10 per cent doesn’t matter.  When we want to understand markets, we’ll just assume that there is no mark-up that producers enjoy.  Well maybe the mark-up matters in a way that affects the outcome.  So if we’re looking at equilibrium or if we’re looking at disequilibrium or a market in flux, maybe these things matter.  And, I think a lot of what went wrong in economics was this mistake.  Mistaking a simplification out of necessity for one out of luxury.  We don’t need to worry about this detail, but actually if was detail that was crucially important, we just don’t understand it.  And an obvious example of that in sort of very big macro models is that most models, this is going to sound funny, but most models in economics, most macro economics models don’t have any money in them.  Because money is regarded as an unnecessary detail.  And that you can express prices in something else.  Money is just a form of wealth or a unit of account.  Let’s just say there’s something over here called wealth, and we know how to express the price of goods and services anyway, so we don’t need money.  That’s all well and good until you’ve got a crisis in your financial system, until banks stop lending to each other and to households and to businesses.  In which case, understanding how money works is very important.  And that was a classic mistake that macroeconomics in particular made, over the sort of period up to 2007.  And it’s really just sort of getting on top of all this now.  Realising, one guy in Oxford has a paper called, putting Goldman Sachs into a model of the economy, you know it’s this idea about how do you put investment banking, how do you put liquidity crunches and liquidity traps in credit crises, when do you put these into a model of the economy? That’s all very highfalutin.  How does this relate to the Irish property market? Well, one of these expectations that economists like to make is called rational expectations.  And rational expectations means that people aren’t stupid.  That’s its motivation and that sounds like a reasonable assumption to make.  But de facto what it means is that consumers and firms, but in particular consumers can process all the information that’s out there, and come up with a completely balanced judgement out the other side.  And this might be the case 30 years from now when we’ve got super computers that can take all these market signals and give us an answer whether to buy or sell.  But certainly now and definitely 30, 40 years ago people didn’t have little models in their head that were crunching these types of regressions and coming up with out with coefficients, we just don’t do that.  And the question is do we not do this to an extent that affects the outcomes? And the argument that I would make is that in property, yes.  In property what we tend to do, not just in Ireland but generally in property is take the last 5 years, or maybe a longer period, but certainly the last 5 years, and use that as the basis of our expectation for the future.  And this obviously gives the property market some sort of like, it’s an extrapolative path.  That because we buy now, based on what we think prices are going to be in the future, that has an impact in terms of the prices today.  So if you think property prices are going to go up by 5 or 10 per cent a year, over the next 5, 10 years, you’re going to pay a lot more now than if you think prices are even going to maybe stable or even fall.  So our expectations are hugely important in the property market.  And if our expectations aren’t rational in that economic sense of the word, if they’re adaptive that has a big implication for boom and bust cycles.  Boom and bust cycles will tend to be amplified if we have rational expectations.  That’s really just that point there in the headline.  In terms of, I suppose one of the questions in the title was how did we get where we are? We got where we are, we got such a vicious bubble and crash cycle by managing to tick every box in the sort of theoretical bubble.  There’s a book by a guy called Kindleberger (Manias, panics, and crashes: A history of financial crises), I presume there’s copies in the library and it’s a classic text and it’s reissued every sort of 5, 10 years to update with the latest bubbles.  And the start it outlines what is in a crash, what’s in a bubble and what’s in a crash.  And one of the first things that happens in a bubble cycle is something comes along, some shock comes along.  It could be, traditionally it was you know, a new king is put on the throne or maybe a new government is elected.  More recently we tend to think of technological shocks that we discover something we didn’t know before and this changes peoples’ expectations about the future.  Ireland’s sort of favourable change in conditions was moving from 1980’s stagnation to 1990’s growth.  This sort of changed the path of the economy.  If you asked people in 1987 what they thought the economy would be like now in 2012, they would have had a very different answer than if you asked people in 1997 what they thought 2012 would be like.  So that was an initial change and that gave us an initial momentum in the mid 1990’s both in terms of economic growth and employment, but also in the property market.  Now, that in and of itself is not enough to cause a bubble.  To sustain a bubble you need an increase in the supply of whatever you’re having the bubble in, be it tulips or property or shares of a particular company.  And you also need some way of getting credit.  Because really prices only get crazy when people can borrow, otherwise there’s only a limited amount of income.  If people are borrowing and leveraging up, so that they’ve got savings of 20,000 and they can borrow 200,000.  That’s really what adds fuel to the fire of a bubble.  And in Ireland we managed to tick both those boxes really, really well.  So entering the Eurozone gave Irish banks which had a history of never really being able to get credit on international capital markets.  They found it very difficult to borrow because Ireland was a small economy and was quite volatile and susceptible to attack by speculators or the markets in general.  All of a sudden these Irish banks are in the Eurozone and had access to, in particular German savings, but just generally access to credit.  So that was the accelerant and then to really seal the deal, to suck everyone into the bubble you needed a fresh supply of houses because if there was only a set amount of houses then not everyone would have been able to take part in the bubble.  It might have been bad in a price way, but wouldn’t have been bad in terms of sucking in as many people.  So they suck in as many people as possible you need an increase in supply.  Typically bubbles are about shares, so the company issues new shares.  What we did in Ireland was we managed to have a huge increase in the supply of property.  And that brought a lot more people in, and when that ran out we just brought property abroad.  So there were all these factors, there were all these boxes we were ticking about the stereotypical bubble and crash cycle, but as of 2005, 2006, 2007 all these factors were here - that’s not the clearest is it? there’s three different shades of grey there - but it’s analysis of the ESRI and IIB, which is now KBC.  They did consumer sentiment surveys.  And they did them every month.  But in January they asked them, what were their expectations about the property market.  And you can see it doesn’t really matter which group you look at, long term owners, recent owners, people who want to but, people who are looking to invest, people who aren’t in any way interested in buying property.  They all didn’t see the end of the bubble.  They saw a slowdown, particularly optimistic were the people who wanted to buy.  They said no I think property prices are going to increase by just 3 per cent rather than 7 or 8 per cent.  But all of these factors that I mentioned on that slide, they were there throughout this period, and yet people just looked at the last five years and said, what happened over the last five years is the best guess for what will happen over the next five years. Participant 2:  Sorry could I just ...Sure.Participant 2: ... is there one factor that might be left out, an important factor.  Because of the sort of hierarchical or inequitable nature of the society, that a lot of people both in the media and in the economics area had a vested interest also in speaking up the market.  And sorry I don’t want to mention because taxes and, you know, everybody’s getting cut.Yeah.  I think the weakness there is not so much that they wanted to talk up the market knowing that they were talking up the market, I think it was a blind spot.  So they were talking up the market because they honestly believed it.  I think if you were ... let’s say you’ve got the sort of, when things go wrong, it’s either because people were evil or people were stupid.  So either we didn’t see something coming, or we saw it coming but still went that way anyway despite knowing the consequences.  And I think of it as a stupidity rather than the evil.  Yes there was a vested interest, but I think it was blindness, that the people who were or had a vested interest couldn’t see any weakness.  And if they were able to see the weakness, they would have got out of it.  They would have kept talking it up but they would have got out of it.  But all these people, and you still meet them.  I meet people now and they, some of them saw a bubble in property but sold their house and bought bank shares.  So instead of seeing a 60 per cent fall they saw a 99.9 per cent fall.  You know, it wasn’t that, and it wasn’t that no one saw it, Morgan Kelly turned his attention in 2006, but David McWilliams had been saying it since 2001.  The people who were talking it up honestly believed it.  Otherwise they would have sold out and they didn’t sell out.Participant 2: So that seems, you know, there were so many could believe so strongly in it, where does that come from?  It sounded like a mania, a madness or fanaticism attached to a particular idea.Yeah, and maybe that’s a bullet point that’s left out of there.  I don’t know if it’s fourth on that list or if it’s just a separate point that needs to be made, but part of what makes a bubble and a crash so bad, is its intoxication.  Is that if everyone is seen to be making money then everyone does start believing that this time it is actually different.  And the best example I can come up with for that is Isaac Newton wrote about this bubble, I think it was the South Sea bubble in the 1720’s.  My timing could be all off, he could have been long dead by that stage.  No, but I think it was the South Sea bubble of the 1720’s.  And he wrote about how stupid it was in 1721 and said he couldn’t believe that everyone was being sucked in by the South Sea bubble.  And in 1724 he took his life savings and invested in the South Sea because he thought maybe he was wrong.  And in 1725 he lost all his money and for the rest of his life you weren’t allowed mention it in his presence.  So if it can turn really, really smart people stupid that just shows the power of the bubble.  And it also shows why we should be so vigilant in doing the best we can to prevent, as bad a bubble from happening again.  And a lot of that was at an EU level, but also at a domestic, regulatory level it was about getting used to life within the Eurozone.  We prepared for entering the Eurozone, but we never prepared for life in the Eurozone.  And what it would mean for our Irish banks to have access to practically infinite credit.  And what would it mean for the Eurozone, for all these banks to be able to deal with each other without any currency risk.  Nobody really prepared for that.  And certainly if you could have tackled that, you could definitely have tackled this.  And you would have taken the sting for the last five years out of the bubble.  You wouldn’t have been able to prevent the bubble entirely.  That was, there was always going to be some element of increasing credit, increasing property and increasing growth that would have led to a, some sort of bubble.  But perhaps maybe no more than, sort of this kind of bubble.  Maybe a little bit bigger, but that kind of bubble and crash. Participant 3: Sorry, there didn’t seem to be an analysis or study of the situation that had changed, like they didn’t go in and analyse the situation, the people, say government?Yeah, so government should have been aware of Kindleberger’s book for example and should have been saying rather than, obviously Bertie has his famous quote about how he doesn’t know how people don’t go off and commit suicide.  But there was another quote where he, in 2006 said because of all these experts telling us house prices are going to fall people didn’t buy in 2005 and now house prices are even more expensive in 2006, and I hope those experts you know are ashamed of themselves, basically.  You don’t want that kind of attitude among your elite.  You don’t want them for whatever reason, to be just picking some bizarre, arbitrarily picking some asset and telling people to buy it.  And that’s not the kind of country you want.  You want a country where if there’s dissent, that dissent is factored into policy making decision.  And that wasn’t the case and, if not for this talk but a broader talk about public service reform would be getting dissent into the system.  If someone disagrees, get them in, get them to explain why they disagree and see if you need to strengthen your policy proposal on the basis of their disagreement. So people didn’t see the end of the bubble and currently people find it hard to see the end of the crash.  So recently, this is with my Daft hat on, we surveyed 2000 users of the site about their expectations of the property market.  And they perhaps correctly, feel that average prices are going to fall by about 10 per cent in 2012.  But then you ask them about the next 5 years, what do they think, where will house prices be in 2017 relative to now.  And only about 1 in 6 saw house prices being any way higher in 2017 than now.  And that’s only slightly bigger than the proportion of people who thought house prices would be at least 35 per cent lower in 2017 than today whereas than January when they were doing the survey.  So there’s a, that works on the upside and the downside.  As prices are increasing people find it hard to see the end of prices increasing.  And when prices fall, people find it hard to see the end of property prices falling.  And we are going to, we’re going to turn around one day and realise that the crash is long over.  We won’t turn around and realise the crash ended yesterday.  It’ll be a situation where only after a year or 18 months do you realise, do you know what actually, the crash ended about 18 months ago.  And that’s the way it works because the statistics are murky.  It’s difficult to know exactly when things turn.  And also because of adaptive expectations people find it difficult to change their sentiment towards the market.  So a combination is a service.  So I’ve said that, you know, when we think about the property market in our day to day lives, don’t think of it as investing in real estate, think of it as buying accommodation and accommodation is a service.  This is, for those of you who know your national accounts, we calculate our GDP by adding up consumption, investment, government and trade so leave out the government and trade for the moment, housing is consumption it’s not investment.  Building houses is investment, that’s fine.  But we need to think of property as a service not as an investment.  And I would caution against, you know, sort of we talked about Newton there a few minutes ago, I’d caution against Newton style economics, what goes up must come down, it seems appealing but in terms of what we should expect in terms of house prices I’m not saying that real house prices necessarily have to go back to 100,000, that’s what we did see in Amsterdam and that’s what the literature generally points to but we shouldn’t just think that is always going to happen.  If we go back to that Amsterdam graph there were periods when the average was higher and periods when the average was lower.  So economics is not what goes up must come down economics is supply and demand and we can pretty much take supply as fixed.  The sort of urban economists and housing economists tend to do this anyway, the supply of housing is quite slow to move, even if people start building now it takes a number of quarters, maybe even a number of years, to get a real change in the supply of housing but specifically in relation to Ireland there’s so little construction activity at the moment and that’s unlikely to change any time soon that we pretty much know the supply of housing in Ireland for the next 5 years.  So if supply is fixed then we need to look at demand and typically people look at sort of the income to house price ratio, that’s the easiest for an individual household to do because they know their income and then they just multiply out and say okay well let’s say four times our income and then we get a house price and that’s our budget for housing.  And that’s about affordability and if we look at house prices relative to incomes we can go back to 1988, I haven’t yet found good income data before 1988, but if you look at 1980 to ’95 and ’95 is sort of that cut off before things changed the average house price was about 3½ times household income.  And household income is different to the average industrial wage, household income is if you’ve got let’s say 12 jobs for every household that means every fifth household has two people working in it you need to factor that in and that did change a bit, we went from sort of every sixth house having a second income to every third house having a second income, a second full income, between 1990 and 2005.  Now that’s sort of a ...  that’s just for your own ...  that’s more sort of like a postscript or a footnote that when you’re calculating your household income we’re looking at the country you don’t get sidetracked by the average industrial wage, you do actually know that you’ve to multiply it up by something.  Anyway that’s for the mathematicians among you.  The point of this slide was that up to ’95 you were talking about 3½ times household income was the relationship between the average house price and the average income.  In 2005/2007 we’d gone to twice that, we’d gone to about 7½ times the average household income.  And what you can do is you can actually do a nice exercise and say well if we had never gone above sort of this long run average what would house prices have been in Ireland.  And that’s the dotted line in here.  So how should house prices have evolved if you believe that this income ratio is the best way of calculating house prices?  And you can see that it was roughly right up until about 1996 and then house prices increased a lot faster than they should have but the fall has been a lot greater because the fall of income hasn’t been as large as the ... even taking into account unemployment, it hasn’t been as large as the fall in house prices and perhaps optimistically we can see that the gap here in 2011 quarter 4 is actually quite small.  Now if you believe this house price to income ratio is what matters.  What I would say is that we need to be careful with the income ratio, it’s a symptom, as I say its affordability, it’s not actually the route of what gives a property a value, it’s not the cause it’s the symptom.  And some of the increase in house prices may actually be due to the fact that Ireland went from a high interest rate environment to a low interest rate environment.  Suppose incomes never changed but we went from Ireland having an average interest rate, as you can see there of, say 12 per cent to Ireland having an average interest rate of let’s say 6 per cent, 12 per cent and 6 per cent, then you would expect house prices to possibly double because the affordability ... banks ultimately go by what you can afford on a month-to-month basis and if the interest rate is half of what it was then those first few mortgage repayments are going to be, roughly speaking, half, not quite but something like that.  So maybe some of the increase we saw in house prices is just to do with the fact that we’ve gone from being our own economy battling against all the odds to being a bit like one of the US States safe in the comfort of the Eurozone, of course we all know it’s not as straightforward as that, but let’s say safe inside the comfort of the Eurozone.  And really when we think about the value of property ultimately it comes from rents, it comes from the value of the service that someone is enjoying.  So, for example, income multiples won’t tell you why two houses next door to each other are very different in terms of price or why one city is more expensive than another city.  So when we’re calculating the GDP figures and we’re adding up consumption and investment and government and trade one of the most important services is what’s called imputed rent and this is what owner occupiers enjoy as they hold some of their wealth in property.  They enjoy a rent that they never have to pay.  But what is that rent?  Can we understand what that rent is?  How much it would be if you were to try and rent out the same accommodation you currently own, if you own accommodation.  And in that sense the ratio of rents to house prices is much more fundamental to what property is worth than the ratio of incomes to house prices.  This is just a summary of some of the academic research I’m doing, it’s trying to figure out what gets capitalised into house prices and there’s all these different services that we have that are reflected in the price of houses but how to read this is if this is going from one kilometre away from a particular property to 100 metres away so if you move a property from a kilometre away from the coast to a 100 metres away from the coast the effect is about 10 per cent, you increase the value of the property by 10 per cent.  These are the different services.  Coast is one.  If you’re close to a polluting factory or facility you get like a 1 or 2 percentage point penalty for being close to a polluter.  Being close to a primary school seems to have a big negative impact which is about counterintuitive, you know, why would being close to a primary school be ... it’s noise, it’s congestion, it’s the lack of parking spaces.  These things get factored in.  Part of my next phase of research is to separate out small schools and big schools and with secondary schools progression rates to third level education, see if people are willing to pay for good schools rather than schools which have a poor record or which are maybe large classes or whatever it might be.Participant 4: What’s the second one the list?That’s bathing, that’s actually beaches and bathing facilities, so being close to a beach rather than the coast or in addition to the coast has a huge impact especially in the bubble but also in the crash.  And then there’s a comparison of urban versus rural and then prices versus rents as well.  So as I say a lot of the detail here is superfluous in today’s talk but the point of this slide is to show that an awful lot of things get factored into house prices and into rents because these are services that we’re paying for and the value of a property is the number of bedrooms, it’s the type of property it is, it’s the size of the garden, it’s the amenities that it has access to and that’s, if we can think in those terms we’re much less likely to ever get caught out with bubbles and crashes in the future.  We will never be able to prevent them entirely but we certainly won’t accelerate them as we did in the past. So this is maybe if there are any potential first time buyers in the crowd this is maybe the most important slide, think like an investor.  If you have a property that rent for 800 euro a month that’s annual rental cost or annual rental income, if you’re the tenant or the landlord, of about 10,000 euro and what’s happening in the fire sale auctions at the moment is people are looking at these 10,000 euro rental income apartments or houses and saying right okay that gets me 10,000 a year I will give you ten times that, I’ll give you a 100,000.  In a healthy property market they may say I’ll give you fifteen times that.  I’ll give you 150,000.  But they work it out as a multiple of the annual rent and that’s a very sensible way for a first time buyer to think.  It’s easier to think in terms of your own income because you know what your own income is and you can multiple that by four pretty easily but if you lose your job how much is someone else going to be prepared to pay for that property, it’s nothing to do with your income it’s to do with how much it would rent for, the services that that property offers you.  Yeah?Participant 5:  What about the effect of Rent Allowance on it?Yeah, yeah that is ... it was the ... if I had an hour and a half I would have gone into Rent Allowance.  So the Rent Supplement Scheme is potentially keeping rents higher than they otherwise would be in most parts of the country with the sort of honourable exception of Dublin, south of the Liffey it seems, if you look at the thresholds for Rent Supplement and you look at prevailing rents they seem very close and Minister Joan Burton is actually reducing the thresholds for Rent Supplement and the idea there is to try and let rents determine themselves naturally.  Find out what people are willing to pay and then give people assistance based on what the natural price is rather than the tax payer footing the bill and keeping rents higher than they otherwise would be.  And that obviously has an impact of competitiveness as well if accommodation costs are higher than they need to be.  But it’s a very good point; it’s something to be aware of.  If you are looking at a particular property is Rent Supplement keeping the rent higher than it otherwise would be?  We should find out in the next 6 months.  But, I don’t know where I’m going with this, is that you can also look over the last sort of 50 ... not 50, would it be 35/40 years and see well what is this relationship between rents and house prices look like and does that tell us anything about the bubble. So this is the ... the yield is just the annual rent for the average property relative to the house price, the purchase price, that’s the blue line.  And the interest rate is the prevailing interest rate for mortgage borrowing in Ireland and these go from 1978 so that’s why we start then.  And you can see there seems to be, I don’t know, something weird happening in 1978, the CSO is just getting on top of its various indices, I wouldn’t worry too much about that, but what you can see is generally speaking particularly the crucial period, comparing say the 80s and the early 90s with the late 90s and noughties, you can see that the yield is very closely related to the interest rate and in fact maybe rising house prices in 1996 were actually justified by Ireland being in now instead of this 12 per cent interest rate country by being something like a 6 per cent interest rate country and that’s what you’re seeing here.  Interest rates go down significantly and house prices rise but you can see there with ... you can’t really see it easily with the yield but we know from the last graph that house prices start rising in ‘96/’97.  The damage was probably done, in my own opinion, when interest rates were kept lower than would normally have been the case because the German and French and Italian economies were anaemic when Ireland was booming.  So this, I would argue, the 6 per cent is where interest rates will probably be in the Eurozone in the long run but we had interest rates of sort of 4 per cent rather than 6 per cent and that lured the yield down from where it seems to have been quite comfortable, down for at least a couple of years.  But then people said well hang on a second it looks like we’re going to have really low interest rates, not 6 per cent we’re going to have 4 per cent interest rates, so that then sucked the yield further down.  And the problem is as soon as interest rates when back up to normal levels, this is the green line going up here, the property market was hugely exposed because prices had increased relative to rents far more than they should have.  And you can do a ... you can add in a third column, not just the income ratio and actual prices, you can add in a third column which says what should house prices have been sort of since 1978 or whatever, what should they have been, and you can track that and you can see that yes quite a good bit of the good bubble mightn’t actually ... certainly when you think back to should they be at 100,000, quite a good bit of the bubble was probably just Ireland changing from a high interest rate environment to a low interest rate environment but certainly there was a substantial chunk of the bubble left over that was pure bubble, it was nothing to do with incomes, it was nothing to do with rents.  I could go ... if anyone is interested in the mechanics of exactly how it’s worked out I can do that, it’s probably well beyond what we’ve got time for today. Okay so this is maybe why you’re here, some crystal ball gazing, I don’t know, when is it all going to end in terms of price falls ? Well asking prices are down by 52 per cent certainly they were down by 52 per cent on average by the end of 2011 from their peak in mid 2007.  And that sort of hides an average of ... it masks difference between Dublin and the rest of the country, Dublin is something like 56 per cent and the rest of the country is something like 48 per cent and there will be a Daft report actually - get the plug in - a new Daft report in the first week of April which will have the figures for January, February and March.  But let’s say that house prices have fallen by a further 5 per cent since the end of 2011 and let’s say that when people actually trade, when you go and you buy a house, now you don’t go ‘I’ll give you your asking price’, you say ‘I’ll give you your asking price less 10 per cent’ and there is some research that I’ve been doing with the Central Bank that says this is roughly accurate and certainly up to the end of 2010 the average discount between the asking price and the closing price is about 10 per cent.  I mean if those two things are the case then the average price is down actually 58 per cent and this, for those of you who were avidly watching our news yesterday, Brendan McDonagh the Chief Executive of NAMA was in to an Oireachtas Committee and he used the same figure, he said 57/58 per cent is what he thinks house prices are actually down, property prices are actually down at the moment.  I know there was another report that said more but that was based only of cash sales and mortgages are still an important part of the market.  So that means based off the ...Participant 6: Was the transaction price in 2007 not actually higher than the asking price?  And wasn’t there a trend in ’05, ’06, ’07 auctioneers put houses in the paper at 250,000 ...And got more.Participant 6: ... and then people starting bidding 260,000, 270,000, 280,000.  That would suggest the fall is even bigger.Yeah that is certainly ... certainly in 2005/2006 that was the case.  2007 you have period where you’ve got the transaction prices started to fall but asking prices don’t realise this and asking prices go up to where transaction prices were and stay there for a while and then come down.Participant 6: So in 2007 there was a 10 per cent.Yeah, so, sorry so as of ... really asking prices were completely static throughout 2007, technically the peak was the middle of 2007 but you’re really talking about very small differences throughout the whole calendar year but transaction prices had already got to that level and had started to fall so it was taking time for sellers to realise that buyers weren’t paying as much.  So there may be a small element of that but I’d argue that, you know, 58 per cent is roughly right.  So that means the average transaction price which has as you can see peaked there, at whatever, 365,000, so it’s down at about 155,000 now, so now meaning April, May, June this year maybe.  Well 155,000 doesn’t look too bad at all relative to these income multiples or if you don’t like income multiples rental multiples, both of those would suggest that we should be in or around that.  So am I saying that, you know, house prices are going to level off as early as April, May or June?  Well I think I’ll give the typical economist answer the two hands, on the one hand I think yes, I think prices are quite close to the fundamental level, there’s a caveat there about Rent Supplement, if rents go down a lot that will affect this red line here and there’s obviously a caveat about incomes.  Yeah?Participant 7: Just with prices stabilising, if you’re looking at say just the best job security and then in the public sector where there is job security there’s no income security.  Almost everybody expects to be earning less in 2 years time than they are now one way or the other.  Surely it’s going fall due to that.Yeah.  So it comes down to statically we don’t look like we’re too far away from fundamental property values.  There’s a caveat about Rent Supplement and that would affect the red line and then there are people’s perceptions of what their income is going to be and that affects the dotted line here, so if you feel that your income, if you feel that incomes in general are going to be maybe 10 or 20 per cent lower then that’s the correction we still need from where we are.  Or if you feel that rents are going to fall, for example due to Rent Supplement revisions by 10 or 20 per cent, well then there’s further downside.  Perhaps the more important thing that whatever happens say on incomes, I actually don’t think incomes are going to fall, I don’t think this figure, the dotted line, is going to change by too much.  I think on average like we are where we are, you know, on average I think incomes are going to be roughly the same, they’re going to maybe plus or minus 2 or 3 per cent on the average but I don’t think they’re going to change dramatically.  I think the big correction in incomes has already happened.  I think there is scope for rents to fall and that will probably have an impact but I think much more important than that is that whenever we get to ... I think we’re there now and we may have to move as the fundamentals move, but I think we’re close to fundamental value.  But the problem with housing markets is they’re boom and bust and they overshoot on the way up and they overshoot on the way down.  I would never recommend trying to gain on market and find out when it’s overshooting on the way down and buy really low in the hope that you’ve got quick gains, I’d recommend looking at the fundamentals but I do think we are going to have a situation where property prices overshoot relative to the fundamentals, they go down just because of that momentum because people look at the market now and say I couldn’t possibly see prices increasing over the next 5 years so I’m going to hold off and that has an impact.  So in terms of the crystal ball gazing, you know, are we close to fundamental value?  Yes.  Does that mean property prices have bottomed out?  Probably not.Participant 8: Isn’t there some rational in the sense that there’s no great confidence in the economy because of the debt, money being taken out of the economy and the state of the banks, you know, so there’s no great sense of, you know, that you could base that, you know, because if there’s money taken out it’s probably there’s going to be less jobs and, you know, they’re going to be cut back in spending power which is a vicious circle.Yeah and that’s ... yeah, and that is sort of affecting these fundamentals.  If people’s income is cut it will actually be reflected in the red line as well, that rents fall when incomes fall, and it will also obviously affect this line here and the more you believe or anyone believes that our fundamentals are going to be affected, it’s not just a cyclical thing, that we are actually going to have to step down then that is going to get reflected in the property market.  So just because I think they’re close to fundamentals doesn’t mean that anyone has to, the fundamentals can easily move, as things get worse the fundamentals obviously are getting worse.Participant 9: I think there’s a big difference between rural and the city in Dublin, urban, like people say that in Dublin they seem to be getting help from their parents like with mortgages, down the country there’s not as much money there, prices are probably half of what they are in Dublin.The interesting thing is that when you look at how far they’ve fallen from the peak prices in Dublin have fallen by a lot more than prices in say Tipperary.  Prices in Tipperary and in Limerick and Mayo and Kerry I think are the most reluctant to fall, they have fallen by perhaps 48 to 50 per cent, whereas ... no sorry, 40 to 42 per cent, whereas prices in some parts of Dublin are down by 60 per cent.Participant 9: But perhaps on a bigger figure is it, no?Yeah now I actually would be of the view that the cities are going to recover first for a number of reasons, (a) they seem to be further down the adjustment process but more importantly over supply is tiny in a relative sense in the cities compared to some counties.Participant 9: That would be true yeah.Yeah and that’s going to have an impact on the supply obviously and an impact on the price.Participant 9: Yeah.The other side of the demand, people want to live in cities because cities are better job creators than small towns and villages so if you are young now and you’re looking at setting up your future you’re unlikely as you were ... we’ve sort of got a buy, we got like a 10 year pass on the economic laws of gravity about cities, cities suck people in.  During the sort of last 10 years of the Celtic Tiger we got a reprieve and people were able to live wherever they wanted and work but that’s not going to be the case over the next 10 years and that’s going to mean that demand in the cities is greater than demand rurally.  And supply is worse, the oversupply is worse rurally.  So I actually think if I were to map it out I would see Dublin and Cork city levelling out first and remember recovery is levelling out not increasing, if you go back to the very start.  I’ll just go over to the ... yeah go to that slide and then we can ...Participant 10:  Can you clarify on your income graph there a lot of people that work their salaries are frozen at the ’07 level and so in absolute terms they’re still receiving the same amount but in inflation terms they are short by about 4½ per cent, how is that income graph factored and is it absolute or is it inflated?I was aware of this point and the short answer is one of them (laughs) ... the first graph was actually inflation adjusted but the second one wasn’t because it’s harder to do when you’ve got rents in there as well.  So for ease and comparability I ... so you can see that it doesn’t really matter when we’re looking at 2011, the gap doesn’t really change, the inflation thing is certainly relevant when you’re looking at the past and it might be relevant in the future depending on your belief about inflation.  But it doesn’t really change the conclusion too much about where we are now if you use nominal or inflation adjusted. I know I’m pushing quite close on time so I’ll ... I mean you’ve got a sense of my overall view on, you know, getting these ideas into the policymaking system so this doesn’t happen again.  Very briefly, in terms of quick ideas for what the government can do proactively, one thing is to be aware that intervention was part of the problem and the Irish property market was one of the most intervened property markets as of 2006.  The tax incentives were so skewed that’s not what that’s ... intervention for the sake of intervention is not a solution but you can do things.  The market does need to be managed because it’s not a very good market, it’s got boom and bust cycles because of adapted expectations.  Sensible land use you can promote via site value tax, that penalised people leaving land banks empty, penalising bad or inefficient or socially unrewarding use of sites and it encourages people to use the land as best as possible.  You could encourage sensible lending by requiring banks to do covered bonds, this is what the Danish system does, if you want to lend over 30 years you’ve got to go out and borrow over 30 years and when you go out and borrow over 30 years you find out pretty quickly what people believe the interest rate over that period is going to be and therefore you pass that on to your consumers and it means that we’d be a lot less susceptible to what happens in the ECB in terms of month-to-month decisions.  And the last one is sensible borrowing, and this is softer, this is about sort of the information  infrastructure that people have but the publicly available house price register will be a large part of that, giving people the information to make the decisions.  So that’s where I’ll leave it because we’ve used up all our hour but I’m happy to deal with questions as well but I know some people may have to get back to work.Participant 11:  Just one question, it’s not mentioned in any of your slides, but do you not think our problems really began in 1977 when rates were abolished?  Local councils had no money, they did build houses.Yeah.Participant 11: Now I know there’s a lot of people saying they couldn’t get a house but if we had continued the way we were going they wouldn’t have been forced onto a market so inflating the price of houses.  I know I worked in the bank and I was told before I left, thanks be to God, I thought that the way they were managing the thing was wrong and I was told politely from my boss if you don’t want to do it Teresa there’s 1,500 out there who will and I was telling them that it’s wrong to add that into somebody’s ... they tried to bring them up to the mortgage rate, they were bringing in their bonus and overtime and every little ha’penny they could get, and I fundamentally disagreed and I was told very politely if you don’t want to do it somebody else will.  Well I was leaving so it didn’t matter but to me I think back in 1977 was when we made the first mistake because then they took no taxes on any house even.Yeah.Participant 11:  We’d no rates.  The local economy had none and now we’re complaining about 100 euro tax on houses or the thing, which is minimal.  And it’s just to keep our roads clean, the grass cut in our parks and keeping libraries open and I’m quite sure the 100 won’t cover it.Yeah I completely agree and it comes back to the second last slide there about intervention and one of the interventions, one of the worst interventions was removing any form of taxation.Participant 11: Yeah.Because then it became a vote winner.  You could get elected by saying ‘I’ll abolish whatever last tax there is in the property market’ we saw that right through to 2007.  If you go back to the ... there was the table with all the different amenities, other research has shown that if you’re close to a park your property price is higher.  But if you have a tax, like a site value tax, that reflects the value of your land you’ve got a direct way of funding local authorities to maintain parks, to build new homes, to do whatever it might be to maintain the amenities that they have.  Yeah?Participant 12: Ronan, an excellent presentation.  Thank you very much, I really enjoyed it and learned a lot from it.Thank you very much.Participant 12: I agree with you generally but I don’t think you should be making a bald statement in its own silo investing in property is a bad investment, I think you have to say property compares to cash bonds and equities as follows.Yeah.  No that’s fair enough yeah.Participant 12: I think you have to look at the two of them.  I mean you said for example that cash has kept up with inflation but you didn’t apparently but in the rent of property so if I had 20,000 which I think was the average price of a house in 1975, in a house, today it’s worth 150,000, if I had 20,000 of a deposit it’s still worth 20,000 in nominal terms so ...Yeah, no that’s a fair comment.Participant 12: ... I think and, you know, I defer to you but I think property has outperformed cash over the last 30 or 40 years and I would say historically it has outperformed cash as well.  I don’t know what a few Dutch Guilders were worth in 1640, you know, but I would imagine it’s the same over there.  I would imagine whatever price you could buy a house on the Herrenstrasse or whatever it would be a lot higher now.Yeah, no that’s ... I mean that’s a fair comment and really the point I was making was it was trying to bring some contrast to the sort of stylised idea that people have.  As you say it is true that if you bought a property in 1970 and it was whatever it might have been, 20,000, and now it’s 150,000 or 200,000, you know, that is true but I am ... I guess the point of my slides was that don’t expect that to happen again.  It might happen if inflation does it so they were real ... well they weren’t even real values but let’s say you go to real values and you say you’ve got an increase in the real value of housing that mightn’t ... we shouldn’t be expecting that to happen again but I complete take it, I’m going to ... if I give this I’m going to be adjusting and in fact I wanted to include a point about equities but I had a data source but I didn’t have the time to crunch the numbers.Facilitator: Folks maybe we’ll finish up there.  So thanks very much to Ronan for coming along.  (clapping)  Thank-you for listening to the Dublin City Public Libraries and Archive Podcast. To hear more, please subscribe on iTunes or SoundCloud. You can also visit our website - dublincitypubliclibraries.ie and follow us on Twitter and Facebook.

Of all the wonderful shops in the city I love the bookshops best. In the past they congregated in Skinner Row, but now, since the mid 1770s, they have more visible presences on Dame Street and in the little courts off it. I love the way they display their new publications outside the front door or pinned to the door post. You can smell the fresh ink and feel the lovely texture of the new paper. I love the leisurely atmosphere as readers slowly work their way around the shop examining all the exciting new books and pamphlets.  Crampton Court is the ideal place to browse, hidden away from the bustle of Dame Street, you have the peace and quiet to peruse all the latest books. Luke White’s bookshop at Number 6 is the best. He stocks all the fashionable books and magazines. He imports his books from France and Switzerland so you can be sure of having the most up-to-date reading matter; my favourites are Jean-Jacques Rousseau (link to the catalogue for Rousseau) and Madame de Genlis (link to the catalogue for Madame de Genlis). It’s great when his new catalogue of French and Italian literature comes out, you can browse it from the comfort of your home, and then go to the shop and touch and feel the exotic object that has made its way across the sea from Paris or Venice. In case you find these too expensive he prints a Dublin edition of the best sellers, which are much better value, even if they lack the cachet of the imported editions. (Check the catalogue for Luke White's publications) You can have a little flutter here as well because he sells lottery tickets. He has just moved out to Dame Street to a more high profile location and John Archer has moved into White’s old bookshop in the court at Number 18.  This is another of my favourites. Archer’s has a great range of stock too and it’s quite different from Luke White’s because he imports his books and pamphlets from different places. He has all the best sellers of course, but he’s good on London publications, as well as imports from Paris, Venice and the Netherlands. (Check the catalogue for John Archer's publications) In a room upstairs some of the intellectuals meet to read the newspapers and discuss literature, science and politics. Richard Kirwan, the chemist, is talking about forming a library society so that they can have a shared library for members. Archer issues catalogues also, they’re always crammed with the most exciting new publications, but using the catalogue does not compare with the joy of visiting the shop in person.   

I feel at home in the 18th century. I’ve no desire to live here permanently, without 21st-century comforts and modern medicine, but to come as a visitor to a beloved destination. I am acquainted with many of Dublin’s citizens through their writings and through newspaper reports of their actions and concerns. I feel I know them well, I know their wives or husbands, and their children, and I know what they enjoyed to read, which gives me an insight into their minds and hearts. The layout of the city is also familiar to me and I can make my way around without getting lost, or feeling like an alien.Crossing the Liffey from the north side you come over Essex Bridge. Rebuilt in 1755, it’s now a good wide roadway, which allows two coaches to pass safely and ample footpaths that allow street traders to sell their wares. They have got rid of the equestrian statue of George 1 in the centre of the bridge as it was causing an obstruction in the river. (View the Rocque Map in our online catalogue)Click thumbnails to view larger images.I love to stand on the bridge and watch the ships tied up at the Custom House unloading their cargoes. The crane is working steadily lifting the heavy loads. Tea, spices, wine, sugar, paper and books are all unloaded here and sent off around the city in trundling carts. The city’s merchants bustle around all day looking important with clipboards and anxious frowns. Their new Royal Exchange building, just opened last year, is looking very fine at the top of Parliament Street. I believe there is a new coffee room running the length of the north front of the building upstairs where they can carry on business in comfort. I still like the old exchange in Crampton Court and I know lots of the merchants say that the new building is an expense that they cannot afford, although we all know that most of the money was raised through lottery schemes. (See Views of Dublin from 1780).Parliament Street is our newest street, forged through the old tangle of lanes and streets on the recommendation of the Wide Streets Commissioners. The street is wide and airy, its proportions taken from width of Essex Bridge. Its purpose was to give a grand view of Dublin Castle from the river, but now the view focuses on the classical façade of the Exchange.Into Skinner Row you can stop for coffee and a look at the day’s newspapers in Dick’s Coffee House. Upstairs to the drawing room, or first floor, of Carbery House, with its lovely wainscoting and large windows letting in plenty of light, you can sit by the fire, sip your coffee, glance at the papers, and listen to the conversations all around you. I have heard that this fine old timber-framed building is due for demolition. What a loss that will be!