Basic Question On Our Economic Crisis

dartsfan

Hi,

I haven't been following the economic crisis as well as many on here as I live abroad, but have been following the budget the last few days.

One aspect that I don't understand fully is the government's culpability in getting us into this mess.
I know for sure that they are an incompetent shower, but Cowen made the point tonight on Primetime that this crisis was caused largely by irresponsible lending by private banks, who are overseen by an independent irregulator, of which the government have no influence.

If the above is true, can someone please explain to me then how the government are so much to blame for the mess we find ourselves in?

Thanks.

Scofflaw

dartsfan wrote: »

Hi,

I haven't been following the economic crisis as well as many on here as I live abroad, but have been following the budget the last few days.

One aspect that I don't understand fully is the government's culpability in getting us into this mess.
I know for sure that they are an incompetent shower, but Cowen made the point tonight on Primetime that this crisis was caused largely by irresponsible lending by private banks, who are overseen by an independent irregulator, of which the government have no influence.

If the above is true, can someone please explain to me then how the government are so much to blame for the mess we find ourselves in?

Thanks.

Pro-cyclical policies, failure to query the bank regulator, failure to accept that the bubble was a bubble, movement of the tax base onto property transactions, failure to address issues raised by bank regulators. In essence, a failure of supervision - the government is responsible both for the scope and powers of bank regulation, and for the supervision of that regulation - and a failure of policy - adopting short-term pro-cyclical policies and extensively narrowing the tax base.

You should read the Regling Watson report and Patrick Honohan's report. It's worth appreciating that that the reports are an investigation into how the horse bolted - a more timely request for how likely the horse was to bolt, and whether the stable door was shut, would have been the work of a more responsible government.

Examples:

The weaknesses of Irish banks that were exposed by the near-collapse of global debt markets in late 2008 need to be viewed against the background of the overall domestic macroeconomic imbalances that had built up during most of the decade (Chapter 2). The Government‘s procyclical fiscal policy stance, budgetary measures aimed at boosting the construction sector, and a relaxed approach to the growing reliance on construction-related and other insecure sources of tax revenue were significant factors contributing to the unsustainable structure of spending in the Irish economy.

macroeconomic and budgetary policies contributed significantly to the economic overheating, relying to a clearly unsustainable extent on the construction sector and other transient sources for Government revenue (and encouraging the property boom via various incentives geared at the construction sector). This helped create a climate of public opinion which was led to believe that the party could last forever. A less accommodating and procyclical policy would have greatly reduced the need for preventive action from the CBFSAI.

Some also still feel that, without the external shocks of September 2008, the system would have survived without imposing a cost to the Government. The Report does not share this view.

cordially,
Scofflaw