Madam, - Analysts of the Irish economy who point out problems are too often condemned as Jeremiahs, bringing about what we fear by sapping "confidence".
This is about as rational as shouting down someone who, pointing to approaching rain clouds, recommends the carrying of an umbrella. The result is an increased probability of everyone getting wet.
If only more analysts had the courage to speak up about what was staring us all in the face two years ago, namely that the housing market was overvalued; that banks were acting irresponsibly in lending too much money from overseas at margins far too little over their cost of funds; that ECB rates were likely to rise as the German economy improved; and that rising oil prices would feed inflation. Perhaps, then, fewer young couples who now face economic ruin would have accepted 100 per cent mortgages to buy overvalued houses.
As it is, the prospects are now far worse than two years ago, but still the pundits try to put a brave face on it and tell us it is all a matter of confidence. The fact is, however, that a collapse of one of the big Irish banks is not out of the question.
The big four are paying higher margins over ECB benchmark rates for their wholesale funds than any other euro nation's banks for the reason that the Irish banks are regarded as a bad bet by wholesale money sources. What's more, the shares of these banks have collapsed in some cases by as much as 75 per cent. This reflects market expectations that the banks desperately need more shareholder money and no one wants to give it to them. Who would sensibly want to give them money?
The funds are needed to bolster reserves so they can finally face facts, put some or many of the zombie property development and investment borrowers into liquidation and force the sale of property assets to repay part of the debt, then write off bad debts.
When this finally happens, as it surely must, there will be a fall in commercial and residential values that dwarfs anything seen so far, and the recovery will take many years. Service industries will suffer as demand falls and unemployment will increase dramatically. A rising number of people will be unable to service their mortgage payments and the rate of bad debt will soar.
Commentators blithely assume that the Government "won't permit a disaster"; this is naive. When Northern Rock went bust, the Bank of England was just up the road to rescue the depositors, and the same applied in the case of Bear Stearns in the United States. If one of the Irish banks goes pop, there will be no point visiting the Central Bank of Ireland as under euro rules Frankfurt is now the address of the lender of last resort. This is an untested system. What is more, EU competition law forbids the Government to subsidise or invest in the banks (for the same reasons the Government wasn't allowed to prop up Aer Lingus) so talk of the National Treasury Management Agency or another government agency sorting out the problems fails to take account of international law.
Ordinary people should know the risks so they can take prudent action now while there is still time. I recommend the following: radically cut spending and save all you can to pay down your mortgage. The safest use for your money (and the best hedge against a risk of job loss) is to pay off your debts. If you haven't bought a home yet, don't; rents will fall as immigrants leave a faltering economy. Learn to grow your own vegetables and learn with some friends to play bridge. Very tough times are ahead but they aren't impossible to survive. Candles give off a beautiful light and playing bridge defers the onset of dementia far more effectively than shopping in Dundrum.
This is a personal view. I lived through the recessions in Britain in the 1970s and 1980s. They were tough but not impossible if you were careful and prudent. My chess improved as the stock market fell peak to trough by 75 per cent. As far as I know, nobody died of recession. - Yours, etc,
JOHN HUGHES, Harlech Downs, Clonskeagh, Dublin 14.