The 2008 Crash, Ten Years on: Who Paid?

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DAVID BEGG - Doctrine & Life, October 2018

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ON 18 November 2010, the Irish public awoke to hear their Central Bank Governor, Professor Patrick Honohan, announce on the Morning Ireland radio programme that the country was shortly to be a ward of court of the European Union and International Monetary Fund (IMF). The fact that the governor was the messenger was symptomatic of the state of disarray of the Irish Government. All the previous weeks, ministers had denied that this event was in prospect. It was symbolic too that he was speaking from the headquarters of the European Central Bank (ECB) in Frankfurt. It emphasised who was in charge. 

Ireland had been the poster child of Europeanisation and globalisation. The rapid transformation of the Irish economy over the previous 20 years earned it fulsome praise in Europe and elsewhere. The rapid onset of the 2008 financial crisis, and the consequences that flowed from it, came as a great shock.1  

The financial crisis that unfolded in 2008 had its origins in the US subprime mortgage market. From 2004 onwards half of all subprime mortgages had incomplete or zero documentation, and 30 per cent were interest-only loans to people who had no prospect of making basic repayments. The banking theory behind this was that, by bundling risk into a variety of exotic products and selling them on, risk would be so dispersed that no individual entity would be over-exposed. Moreover, banks did not rely on deposits to fund these subprime mortgages; they borrowed short-term funds from wholesale money markets. This was the truly lethal mechanism at the heart of the crisis. It led to nine million Americans losing their homes2 and had ramifications in the wider world, especially in the peripheral countries of Europe, including Ireland. 

The US subprime crisis crystallised in the collapse of Lehman Brothers Bank on Monday 15 September, 2008. Lehman got its funding wholesale by tapping cash pools. What pushed it over the edge were collateral calls by anxious lenders. 

The shockwaves reverberated around the world. Interbank money markets froze, precipitating initially a liquidly crisis, but ultimately a banking solvency crisis. Stock markets and house prices slumped. Irish pension schemes lost a third of their value and house prices, having quadrupled between 1994 and 2007, halved between 2008 and 2012. Richard Fuld, who was the driving force behind Lehman’s business model, earned $484.8 million in salary and bonuses between 2000 and 2008. Overall, the banking elite of New York received $66 billion in bonuses in 2007. 

The Eurozone crisis was a massive aftershock of the earthquake in the North Atlantic financial system of 2008, working its way out with a time lag through the labyrinthine political framework of the EU. The economics editor of the Guardian, Larry Elliot, likened it to the lead-in to the Great War in 1914:  

It marks the cut-off point between ‘an Edwardian summer’ of prosperity and tranquillity and the trench warfare of the credit crunch – the failed banks, the petrified markets, the property markets blown to pieces by a shortage of credit.3 

Yet as late as 2010 the Irish banks were considered to be solvent by European stress tests. They weren’t, and the case of Anglo Irish Bank is now notorious. As is now also well known, the President of the ECB, Jean-Claude Trichet, refused to allow bank investors to share any of the burden of the subsequent bailout. On 10 November the ECB Governing Council threatened to withdraw liquidity support from the Irish banks unless Ireland submitted to an aid programme directed by the EU/ECB/IMF Troika. Ireland lost her economic sovereignty in that moment. 



The bailout cost Irish citizens 64 billion. The austerity programme imposed by the Troika forced an increase in unemployment from 4.5 per cent to 15 per cent, a cut of 26 per cent in consumption, and massive retrenchment in public services. Public debt rose from a modest 25 per cent of GDP in 2007 to 98.6 per cent in 2010. If investors in the main banks had been made share in the burden of adjustment, the budgetary relief might have amounted to 12.5 billion, a significant sum in the context of a total tax revenue of 32 billion. Not surprisingly, the Irish government, once a paragon of austere public finance, was forced out of the bond market. 

Writing on the Social Europe website on 17 September Mariana Mazzucato, Professor of Economics and Innovation at University College London, reflects that after the 2008 global financial crisis, a consensus emerged that the public sector had a responsibility to intervene to bail out systematically important banks and stimulate economic growth. But she notes that this consensus proved short-lived, and soon the public sector’s economic interventions came to be viewed as the main cause of the crisis, and thus needed to be reversed. She argues that this turned out to be a grave mistake.4 

Was Trichet justified in inflicting the Troika on Ireland? In his defence he probably wanted to prevent the kind of banking contagion that might cause a Lehman’s event somewhere in Europe. But Ajai Chopra of the IMF later remarked: ‘Yes, there would have been spill overs. But … the ECB could have stepped in … That’s what a Central Bank is for, to deal with these sorts of spill overs.’5 

Although 10 years on, the Irish economy has largely recovered, and unemployment is back down to 2007 levels, we are still dealing with the social consequences of austerity in homelessness and aspects of health service provision. 



In his recently published book, Crashed: How a Decade of Financial Crises Changed the World, Professor Adam Tooze of Columbia University is highly critical of Europe’s handling of the crisis. He observes that, through wilful policy choices, it drove tens of millions of its citizens into the depths of a 1930s-style depression and it inflicted social and political harm from which the project of the EU may never recover.6 

This is not a danger that can be lightly ignored. Steve Bannon, President Trump’s former advisor, has established a political organisation called The Movement with the overt intention of uniting nationalist and right-wing parties with the ultimate objective of breaking up the EU. Indeed, as The Economist, a very pro-Europe newspaper, has noted, the modern world is turning against liberal democracy. Europe and America are in the throes of a popular rebellion against liberal elites, who are seen as self-serving and unable, or unwilling, to solve the problems of ordinary people.7 This is the toxic legacy of the 2008 crisis. 

In hindsight it is hard to avoid the conclusion that the whole thing was grossly unjust. But the question is what is the learning for Ireland from this experience? The late Frank Cluskey, leader of the Labour Party, had a saying, ‘You don’t go through hell for the practice’ – which is apposite in this case. The most important lesson must surely be that we must never again allow our country to fall into a state of such economic dependency. The second lesson is that it is unwise to put too much store on promises of solidarity from other nations. It is not that such promises are insincere, but they are only valid for as long as they don’t collide with perceived broader interests e.g., saving the large European banks in the case of the 2008 crash. 

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 *david begg served as secretary general of the Irish Congress of Trade Unions from 2001 to 2015. 



1 Comment
  • Breege Madden - Apr 20, 2021

    Thank you for your accurate and easily understandable article on the finacial difficulties experienced post 2008. Now 2021 following Covid 19 do you have any insight of what is ahead of us
    Thanking you
    Breege madden

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