People will remember the shock in Ireland when, at an earlier stage in the banking crisis, Professor Paul Krugman wrote about Ireland in an article entitled "Erin Go Broke". Today, in an article entitled "An Irish Mirror for the Crisis", he made an interesting argument. He analyses what led to the crash, stating that "Ireland's bust wasn't a tale of collateralized debt obligations and credit default swaps; it was an old-fashioned, plain-vanilla case of excess, in which banks made big loans to questionable borrowers, and taxpayers ended up holding the bag." Why did the banks make the big loans to questionable borrowers? It was because most of those big loans were for construction driven activity and that activity was egged on and boosted by the extraordinary plethora of construction-based tax breaks.

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