Basically, the Irish Government and European Central Bank are fixing a problem that has struck worldwide. In the end, the Irish economy will bounce back.
As around the world, Ireland had a massive amount of bad bank debt. This bad bank debt has created a crisis within the Irish economy. This phenomenon has been worldwide. Banks have been making irresponsible loans, Irish banks were no exception. Kirby (2010: 4) reports “Government subsidies fuelled a frenzy of building around the country and banks lent recklessly to developers to buy land at grossly inflated prices and to customers to buy the houses and apartments built on this land at equally high prices.” When the economy was better, mortgage interest and collateral were seen as a win/win situation. However when the economy started taking a downward turn the banks began having too much collateral. Bankers do not want collateral, they want mortgage payments. Once these mortgage payments started to decrease, Irish banks started to fail.
The banks were not tightly regulated before the recessions. Loans could be given on inflated prices. McCormick (2009) explains, “Overreliance on construction, cheap credit and securitization of housing loans exposed Ireland to a sharp reversal of economic activity. Irish housing prices collapsed and the banking sector faced losses and liquidity pressures.” The more given, the more the banks expected to receive. If regulations had been in place on how much could be loaned, property assessed correctly, and other common sense rules, the Irish economy might not be in a recession. McDonald and Moya (2010) reports:
Hard-pressed Irish taxpayers are now rescuing the banks from the consequences of their greed and folly. In return, we must now insist that they go back to basic business, and that means keeping every fundamentally profitable company in business.
As a result of the failing banks, the Irish Government and