We're now paying dearly for blinkered bankers' denial
IN the summer of 2007, then Taoiseach Bertie Ahern lashed out at murmurs that cracks were showing in the economy.
"Sitting on the sidelines cribbing and moaning is a lost opportunity," he told a conference of the Irish Congress of Trade Unions. "I don't know how people who engage in that don't commit suicide, because, frankly, the only thing that motivates me is being able to actively change something."
He apologised, but the comments underscored the strength of the delusion in public circles about the health of the economy at a time when bankers were already fretting.
House prices had been falling, but it was seen as a natural correction of an overheated market. By July that year, when Mr Ahern made his remarks, they had notched up a price decline for the fifth month in a row.
That year, Irish Independent columnist David McWilliams noted in his book, 'The Generation Game', that the vast majority of €161bn in personal and mortgage debt was held by the under-40s. Most of the wealth was held by those over 40.
"The young are getting into huge debt while the old are basking in unparalleled housing wealth," he wrote.
Economist Morgan Kelly also sounded a prescient note, but the warnings were disbelieved by the vast majority who were still being told by bankers and politicians that everything was smelling of roses.
"It would seem many people have borrowed more than they can afford, and they are going to be in trouble," said Mr Kelly. "They'll be stuck in their homes for years with negative equity."
But people still gorged on credit, buying cars and homes and going on holidays they could not really afford. As 2007 rolled on, they kept piling up the bills, still confident that the good times would keep rolling. And why wouldn't they think it?
Within days of Mr Ahern's speech, then Central Bank governor John Hurley had sought to reassure consumers that they had no reason to fear a crash.
He said that while in 2006 the Central Bank had been concerned about rapidly escalating prices, the trend by 2007 was "more consistent with stability in the market".
"We continue to believe the most likely scenario is a soft landing for the housing market," said Mr Hurley.
Then Finance Minister Brian Cowen echoed the comments a couple of months later, even as economic growth forecasts were pared.
He said the slowdown was an "impressively soft landing for an economy that has gone through one of the most dramatic shifts in performance in the history of the developed world".
Fast-forward to the end of 2007 and house prices were still falling while mortgage draw-downs were tumbling. But the full extent of the mess that banks such as Anglo had got themselves into remained largely shielded from view.
Anglo's Declan Quilligan told John Bowe in November 2007 that international financiers were laughing at the Irish economy: "Even when we talk about the Irish economy we get laughed at. AIB do too and Bank of Ireland do too, we're always getting f***in' laughed at. We're in denial."
The bankers were in denial. At least the rest of us had some excuse: the very people dishing out the money were still telling us everything was fine. Now we're all paying.