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One flew over the Davos nest - Enda Kenny and the lunatics at the asylum

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Irish leader Enda Kenny (Photo: AP)
Greetings from the asylum. They've let me out for an hour or two to write you this column. Then I'll be dragged off again by the guys in white coats.

I'm not alone, of course. This whole country is one big lunatic asylum. We're all mad here, and that's official.

The diagnosis comes from the very top, from the taoiseach (prime minister) himself, who managed to insult and embarrass the entire Irish nation last week by declaring at the World Economic Forum meeting at Davos in Switzerland that the Irish people had "gone mad" during the boom.

Davos, in case you don't know, is the annual gathering of top level movers and shakers from around the world, billionaires, political leaders, academics, leading economists and outside-the-box thinkers who gather in the snowy alps for a few days every year to suggest solutions to the world's problems.

This year, of course, all the talk was about the global economic crisis, with special emphasis on the mess in Europe.
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It's not a place for economic illiterates. Although there are usually a few church leaders in attendance, most of the discussions are conducted at a sophisticated level among people who have the technical expertise to understand what they're talking about.

But that did not stop the former junior schoolteacher Enda Kenny giving us -- and the rest of the world -- the benefit of his economic analysis of what had gone wrong in Ireland.

"What happened in our country was that people simply went mad borrowing," he said. "The extent of personal credit, personal wealth created on credit was done between people and banks -- a system that spawned greed to a point where it just went out of control completely with a spectacular crash."

So there you have it, assuming you can follow his clumsily expressed line of argument.

We're all to blame. Not the politicians, not the regulators, not the bankers or the developers ... it's the ordinary people of Ireland who caused the mess by being greedy.

This appears to be the level of Kenny’s thinking. It's not just sad, it's deeply worrying, since he's the one who is supposed to be leading us out of this economic swamp.

What he said has provoked a lot of anger among people here who feel not just that he is completely wrong, but that he has embarrassed both himself and the rest of us on the world stage.

Kenny survives in the Dail (Parliament) by sticking to his script. He learns off the lines and he trots them out.

Ireland is not going down the same road as Greece. Ireland will pay its way. We're on track and meeting all our obligations under the terms of the bailout. And so on.

He keeps it simple and avoids detail because he's not good at it. If he's put under pressure he repeats the same lines over and over again and he puts on his seriously threatening look.

His many years in Leinster House, home of the Dail, have also given him the ability to score points off the opposition, not by offering a convincing analysis of our problems but by smart alec put downs. He's not bad at the political banter across the floor of the Dail, as long as he keeps away from complicated economics.

But Switzerland and the World Economic Forum is a world away from Leinster House. The open debate Kenny took part in at Davos -- while the TV cameras recorded everything -- was a much less structured affair and, perhaps heady with the excitement of rubbing shoulders with the big boys, Enda went off message and started to make it up as he went along.

As an economic analysis of what had gone wrong in Ireland -- the country had "gone mad" during the boom -- the result was infantile.

When the outrage emerged at home his ministers tried to claim that his remarks had been taken out of context, that they applied only to some Irish people and not all the Irish people, and so on.

But they were bolting the door long after the horse had gone. Behind the scenes they were making a mental note never to let him out without a jockey again.

There were some masochists here last week who tried to fly the idea that Kenny was only telling the truth and that the reaction at home just proved that as a nation we can't handle the truth. But they're wrong.

Before we look at why Kenny’s analysis is haywire, let's just first deal with the notion that ordinary people here "went mad" on credit during the boom.

To describe what happened as "mad" behavior is incorrect. What most people here did during the boom was not mad, it was logical.

When the boom was getting boomier (as Bertie Ahern once said), pay in the construction sector soared. I know because I built a house at the time and I remember complaining in this column about being unable to get a block layer or a carpenter or a plumber for less that €1,000 a week, plus all expenses. In fact the block layer wanted €1200 a week.

Even the go-for on our site who made the tea, mixed the plaster and fetched and carried was on around €800 a week. It was mad money, but the demand for building workers was so intense you had to pay it.

In the boom, the construction sector inflated until it was a huge part of our economy, and that meant people in other sectors were influenced by the big money pay packets in building and they wanted the same.

At the same time credit was very cheap, so the combination of that and high pay meant there was no sense in waiting to get the things you always wanted.

So you borrowed to buy the big flat screen TV and the new car and the state of the art kitchen and all the rest of it. Your pay was going up, the economy was booming, so why wait?

And it was the same with buying property. Sure, property was expensive. The mortgage would eat up half your pay.
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But the price of property was going up year after year, so the sooner you got on the ladder the better. At worst, you could cash in after a few years and make tens of thousands when you sold the property again.

It was a no brainer. People were desperate to get on the first rung of that property ladder. So of course house prices kept going up.

While all this was going on, the country was getting a huge influx of immigrants from Eastern Europe and elsewhere, all attracted by our booming economy. At one point the government was running recruiting drives in other countries to get more people to come to Ireland because we were supposedly short of workers.

And of course all these new people would need somewhere to live, so after you bought your own home you could buy a second property and rent it to the new arrivals and make even more money!

With the benefit of hindsight, none of this made sense. But at the time it was perfectly logical behavior.

It was not the Irish people going "mad," as Kenny told his elite audience in Davos. It was ordinary people here doing the smart thing, doing what everyone else was doing.

And it was behavior that was encouraged, not hindered, by the government, by the banks and by those in charge of our economy and our financial regulation.

This was not an individual madness by people across Ireland. This was sensible, rational, planned behavior by people who were trying to do the right thing for themselves and their families. The easy money was pushed on people relentlessly, particularly the cheap credit.

Like most people here I can remember a few years ago getting junk mail regularly from my bank offering me a €10,000 loan to buy anything I wanted. The banks were literally pushing the money out as fast as they could.

You didn't need a business plan. This money was unashamedly being offered for consumer spending.
All you needed was to be buying, or own, a property and to have a job. If you had an address and you were working, you filled out the form and the cash was yours.

It was madness. But it was not individual madness, as Kenny suggested with his "people went mad" line in Davos.

If anyone in boomtime Ireland was mad it was not ordinary people trying to better themselves.
The real lunatics were the politicians who kept stoking the boom to hang on to power, the bankers who fought for market share and borrowed billions from foreign banks to fund their activities, the Irish Central Bank and the office of the Financial Regulator who failed to apply the brakes. In the case of some of the banks the regulator even failed to spot not just reckless but criminal behavior.

The poster boys for all this were the property speculators and developers, most of them ordinary guys who were just a few shovels up from the mixer. In spite of this they were given billions to develop property not just in Ireland, but in the U.K., the U.S., the Middle East, Eastern Europe and so on.

They were joined by accountants, surveyors, tax experts, lawyers and other professionals, all with an angle on how to extract the maximum from the property boom. Their hubris was extraordinary.

They were Midas men with the world at their feet, yachts in Monaco and ski chalets in the Alps. And it was all funded by money borrowed in tens of billions from the foreign money markets by Irish banks.

While all this was going on, the government and the civil servants were keeping the masses happy with vastly increased pay for anyone on the state payroll (up around 60% in five years) and vastly increased benefits for anyone on any kind of welfare (up a similar amount).

With tax revenue pouring in from the property boom, state spending went up year after year, in huge leaps.
So when it all went pear shaped to such a degree that we had to put out the begging bowl and call in the IMF to stop us collapsing, who was to blame?

It wasn't the little guy. He didn't go "mad." It was the politicians and the civil service who failed to run the country on sensible, sustainable lines.

They let state spending rip to such a degree that we now have a massive budget deficit and are bankrupt. It was the bankers who failed to act in a responsible manner and then, when they were about to collapse, lied to the government so that they would get a state guarantee of all banking debt (the move that destroyed our country).

It was the Central Bank bosses and the Financial Regulator's team who failed to do their jobs (and have now sailed off into the sunset with fat pensions).

It wasn't the little guy. It was not caused by the Irish people who "went mad."

Kenny can't stand behind his macho posturing and his blond hair-do. He's no Superman. He's more Clark Kent.

He put his foot in his mouth big time. He should now have the grace and humility to apologize.

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