Guardian UK: Ireland's new toxic loans will spark social conflict, says economist

[marmar]

A leading economist who predicted Ireland's property collapse is forecasting a new wave of toxic debt could sink the country entirely, this time related to domestic mortgages. As the premium demanded by investors to hold Irish debt hit fresh highs today, Morgan Kelly predicted a 19th-century-style land revolt by the public, warning their patience over the bank bailout is wearing thin.

Irish household were stretching themselves to the maximum to pay mortgages they cannot afford because of the stigma attached to default. "That will change," Kelly wrote in the Irish Times. "The perception growing among borrowers is that while they played by the rules, the banks certainly did not, cynically persuading them into mortgages that they had no hope of affording."

A professor of economics at University College Dublin, Kelly's comments have been seized upon as evidence that the country's financial woes will get worse before they get better. He says the cost of the bank bailout, estimated at €50bn (£43bn), will be far higher than the government has admitted, with losses at Allied Irish Bank and Bank of Ireland equalling those of toxic bank Anglo, leaving the taxpayer with a €70bn bill.

Economist Stephen Kinsella described his views as significant. "They are unpleasant, they are scary, but they come true, and recent history has proven him right time and again. I began life as an economist critical of Kelly's stance, then I saw his data and the accuracy of his predictions and became convinced by much of what he has to say. " ..........(more)

The complete piece is at: http://www.guardian.co.uk/business/2010/nov/08/ireland-toxic-mortgages-country-ruin-economist