Oireachtas Joint and Select Committees

Wednesday, 11 February 2015

Committee of Inquiry into the Banking Crisis

Context Phase

Photo of Joe HigginsJoe Higgins (Dublin West, Socialist Party) | Oireachtas source

The professor referenced that the international crisis was a huge factor in the crisis that happened here and its extent. At the same time, he referenced Professor Morgan Kelly of UCD and articles he wrote in December 2006 and then in 2007. The articles he wrote predicted that a huge crisis would be due to what was going on in Ireland without the international crisis. I ask Professor FitzGerald to comment on Professor Kelly's article dated 28 December 2006 in which he said:

If, however, we look at what has happened to other small economies where sudden prosperity and easy credit drove house prices to absurd levels, we should be very worried indeed.

Then he mentioned the potential for house prices to fall by between 40% and 50% and a collapse of the housing building industry. He referenced Finland and continued:

With low interest rates, and loans available for the asking, house prices soared. Then, as the Soviet Union collapsed, unemployment rose and house prices started to fall, creating problems first for builders, then for homeowners, and finally for banks. But why can't we just have our soft landing, where prices stay fixed or rise slowly for a while? Definitely not: a soft landing is not so much unlikely as contradictory.

On construction, he continued:

In Ireland, if and when the fall occurs, it will be from about 18 per cent of all national income. We could see a collapse of Government revenue and unemployment back above 15 per cent.

He concluded:

Pilots define a soft landing as one that you can walk away from. Looking at the collapses in Finland and The Netherlands and the building bust in Arizona, Ireland could be heading for what they call CDIT: controlled descent into terrain. You are happily descending through cloud, thinking yourself at a safe altitude, until suddenly you smack into a hillside.

The article was published on 28 December 2006. Some of those views were repeated in the medium-review article of 2007. Should it have been clear to people like the professor and others, not to mention the Government and other pillars of the establishment, that a disaster was in train?

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