Private Profit, Public Punishment

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Image by paloetic via Flickr

Is it true, as Taoiseach Enda Kenny said at Davos, that Ireland went mad with borrowing?

Far from it. We went mad with lending. A very different thing.

No seriously. The Taoiseach’s choice of words suggest that it is right for the public as a whole to have to pick up the tab for this, because we bear a collective moral responsibility for it – by going a bit mad. Whether he intended it or not, this is insulting nonsense. For a start, many were too sensible to borrow more than they could afford. Others were too poor to be lent money at all, even with the lax standards of last decade.

Some of us were both.

People did not suddenly become extra-greedy last decade for no apparent reason. People were always greedy, and until recently banks made their money by exploiting these human desires – but exploiting them sustainably. This changed when they managed to convince themselves that they could turn a profit on less secure lending.

This is not to exonerate people who borrowed recklessly. It’s still foolish behaviour and people should not be rewarded for it. But neither should the rest of society be punished. The idea that this could all have been avoided if the public had, en masse, just budgeted more sensibly is patently ludicrous. It was the lenders who had their hands on the control valves; they precipitated the crisis.

They, and of course the people who encouraged these lending practices by investing in them. Bondholders, as we call them.

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