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Ireland – A Childs Perspective

Sad HouseFor those of you not familiar with this site let me first explain the premise…I am a 2 year old with Angelman Syndrome, which is a severe neurological condition which has left me profoundly mentally delayed. However, despite that, the thing that troubles me most is this - what was going through the collective mind of Ireland for the last 12 to 15 years?? I should state at the outset that my father is Irish, and he loves to tell people he left Ireland 12 years ago, and hilariously (he thinks) there is a correlation between him not being there and the whole thing going south. Personally I think it’s more complicated than that, but unfortunately not that much more complicated!

Basically everyone went a bit nuts. Houses similar to the one pictured above were selling for up to 500,000 euros in rural Ireland...OFF PLAN!!. Take a look at the following unreal conversation that must have taken place countless times in Ireland during the last 12 years:

The Scene: Planners meeting at the local county council in Roscommon circa 2002 (Roscommon is a sparsely populated county in Ireland with a population of about 65,000 people). The cunning planning developer has just finished reading the back of “How to Win Friends and Influence People”.

Property Developer (PD): Ladies and Gentlemen of this illustrious and bountiful planning permission meeting, may I say first that you all look thoroughly delightful this evening. Ye look and smell like a bunch of winners. On top of that I can see that you are all very wily and clever with it. Now, I have a proposal that will blow your socks off….I would like your kind permission to build 30,000 4 bedroom homes in this great county of ours.

Head of the Council (HOC):Why thank you Mr Property Developer for those kind and true words. However, 30,000 seems like a lot of new homes to build. There are only 65,000 people living in the county, and as it stands, they all live in houses already.

PD:Yes, normally I would have said that was an excellent point. But what I haven’t told you is that these houses are going to be investment properties. People will buy them as investments.

HOC:Oh…investments you say? Well in that case I don’t see any problem. It seems to me that this will be wonderful for the region. The building of 30,000 new homes will provide a lot of employment for the area, and there will be wonderful investment opportunities to boot. Now….before we rubber stamp this sure fire winner of an idea, I have to ask where you are going to get the funding to build these houses?

PD:Funding is not a problem. The houses will cost about 120,000 euros each to build, so the total cost will be in the region of 3.6 billion euros. I will simply ask Anglo Irish Bank for 3.6 billion euros and they will give it to me.

HOC:Hmmmm….now I know you said these were investment properties, but even so, it seems a bit risky for Anglo Irish Bank to give you 3.6 billion euros to build all these houses? Are you sure about this?

PD:[Getting frustrated now…wondering if these people get it at all] Of course there will be no problems getting the money. As soon as the houses are built they will be immediately worth 240,000 euros, so I will sell them all straight away and pay back Anglo Irish the 3.6 billion (and pocket 3.6 billion for myself). Anglo Irish are the real winners here of course, as they get to give loans of 7.2 billion euros to the clever investors who are going to buy the houses, and they will make a nice 1% or 2% on those loans….no risk. In fact, if you want a piece of that action, you should consider taking a second mortgage (from Anglo Irish Bank) on your own home and buying Anglo Irish shares with it….that’s what the real smart people are doing.

HOC:Ah…I see it now. So Anglo Irish will give you the money to build the houses, and then give loans to the investors for double that amount to buy the houses from you. And I suppose when those investors want to sell the houses the following year, Anglo Irish will give an even bigger loan to another investor. Yes…it all seems reasonable. Now, one final question…where are Anglo Irish getting the money?

PD:Oh that’s easy. Every night they borrow the money from a bank in Germany or the UK. They pay it back the next day and borrow it again the following night. In fact, for a 30 year mortgage that they might give an investor, Anglo Irish will have to borrow overnight funds about 7,500 times over the life of the mortgage (and hope nothing goes wrong). Makes perfect sense if you think about it.

HOC:Yes…makes perfect sense to us as well. I imagine Anglo Irish and the Government have a hoard of economists and accountants working for them who also see the good sense in this. Well, permission granted (and put me down for a couple of those investment properties).

Contrarian Economist On the Council (CEOC):Hold on just one dang minute! If no one wants to live in those houses then in reality they are worthless and the whole thing is a big…..[we never get to hear what he says as he is drowned out by heckling from the council, property developer and the court reporter (who is a metaphor for the Irish media in case that wasn’t obvious enough].

Now while that made up conversation might seem a little simplistic, in reality that is pretty much what happened. What was everyone thinking?? It’s not like some obtuse Ponzi investment scheme, or enchanted Tulips that no one knows the value of. Everyone knows what a house is, how a house works, what a house is for etc. I don’t believe anyone said this:

Person A:Would you like to invest in a lovely house? The returns will be great.

Person B:A house? What’s a house?

You get the idea. Anyway, I feel ashamed now for writing about that…it was too easy to be smug in hindsight (although I am only 2, so I get a pass!!).