Michael Lewis has a must-read article on the Irish economic crisis in Vanity Fair this month. The Irish situation is much, much worse then the United States. The country is in debt to the tune of a hundred billion Euros for a population that is one hundredth that of the US. This would be equivalent to the US being ten trillion dollars in debt, which is three times the US budget. Ireland had lagged behind the rest of Europe economically for most of its history and then astonishingly became one of the richest countries in the world right before the crash. It is now back to being a developing nation. The crisis was a result of an out of control real estate bubble fueled by completely irresponsible lending. Right after Lehman Brothers went under in September of 2008, the Irish banks came under extreme stress. Then in possibly one of the stupidest acts in modern history, the Irish government decided to guarantee all of the banks losses. This included both depositors and bond holders, the latter which included foreign countries and Goldman-Sachs. I think this is a sad example of how a decision based on either incomplete or fraudulent information can lead to such dire consequences. One bit changed the life of an entire nation. Here is an excerpt
Vanity Fair: Back in September 2008, however, there was evidence that he wasn’t. On September 17 the financial markets were in turmoil. Lehman Brothers had failed two days earlier, shares of Irish banks were plummeting, and big corporations were withdrawing their deposits from them. Late that evening Lenihan phoned David McWilliams, a former senior European economist with UBS in Zurich and London, who had moved back home to Dublin and turned himself into a writer and media personality. McWilliams had been loudly skeptical about the Irish real-estate boom. Two weeks earlier he had appeared on a radio show with Lenihan, and Lenihan appeared to him entirely untroubled by the turmoil in the financial markets. Now he wanted to drive out to McWilliams’s house and ask his advice on what to do about the Irish banks.