Irish property developer Liam Carroll

One of the most telling sights here in Ireland last week was the newspaper pictures of Liam Carroll, once Ireland's leading property developer, being shielded by his wife from the press who had gathered outside his Dublin home.  

Carroll is a trim 58 but last week he looked like a confused, broken old man. His gaunt, frail appearance was shocking, visible evidence of the fallout from the bursting of the Irish property bubble.  

Carroll's empire has crashed, and as the banks and the courts tried to agree on what to do about the mess last week he ended up in the hospital. His lawyers told the judge he was not in a position to be present in court.   

The papers speculated he had suffered a temporary breakdown from stress. How the mighty had fallen. 

What has happened with Carroll, of course, is no different from what is happening to the other big property developers here, almost all of whom are in serious trouble. But with Carroll the scale is bigger. 

His immediate problem is that he owes the banks here around €1.2 billion in property related loans, and the indications last week were that the current value of the land, sites and buildings he bought with this money is around €300 million.  

He also got into the stock market in recent years, investing particularly in companies with surplus land and sites. Those shares have also tanked, and last week it was estimated that the total liabilities of his businesses could be close to €3 billion.  

This meteoric rise and fall says it all about the property bubble here. This is a guy who started off in a small way as a builder about 25 years ago - I remember going to see one of his first developments, a block of waterfront apartments in the Dublin docklands, one of the first of its kind and a talking point at the time. 

He became famous for building shoebox apartments in Dublin's city center, along the Liffey and in the docklands. He built thousands of them, cramming as many units as possible into the available space. Famously, he did not bother with architects.     

Carroll, originally from Dundalk where his father ran a betting shop, was also interesting because unlike most of the nouveau riche developers here, he did not splash his cash on choppers, horses and villas in Marbella.

Instead he avoided publicity, continued to live in a relatively modest home in south Dublin and drove an eight year old Toyota.  He may have been one of Ireland's richest men, but he seemed to have no interest in a wealthy lifestyle.  

What he was interested in was making money from development, the buzz from success. When the boom was at its height he was making money on a huge scale. 

But like the other developers in Ireland he badly over-reached himself and failed to see that the bubble was about to burst. Over the past year Carroll has been working with his banks to keep his house of cards from falling.  

It was a classic case of when you owe the banks a million it's your problem, but when you owe them a few hundred million it's their problem. The Irish banks were desperate to stop his empire collapsing, because that would mean they would have to write down the loans on their books. 

But the problem was that one small Irish bank called ACC, which had been taken over by a major foreign bank and was not covered by the Irish government's initiatives to protect our banks, wanted the €130 million it had loaned Carroll back. Immediately. So it moved to have his companies wound up and a liquidator appointed.

Just over a week ago Carroll went to the courts to get protection for his companies but the High Court rejected his plea, calling his survival plan "fanciful" and saying there was no evidence the market would improve enough to allow him to pay back the loans within a few years, if ever. 

Carroll's lawyers, with the support of his main banks, appealed to the Supreme Court last week, but it agreed with the High Court's verdict.   By Wednesday of last week a provisional liquidator was appointed and it looked like the game was up. 

It was the worst nightmare possible not only for Carroll but for the government, whose plans for the National Asset Management Agency (or bad bank) to buy up the bad loans on the books of the main banks here was starting to look like it was too late.  

If a fire sale of Carroll's unsold apartments, offices and sites happened, already low prices would go through the floor. How could NAMA pay enough for the bad loans in that situation to keep the banks afloat? 

We were staring into the abyss, a potential Irish property price crash that would be twice as bad as the collapse we have seen so far, and one that would create shock headlines around the world. But Carroll's lawyers went back to the courts again to plead for another few days in which to work out a much more detailed survival plan that would allow him to reapply to the courts for protection. 

And against all the odds (and while Carroll was in hospital), this extra time was granted late last Friday night. He now has until Thursday of this week to prepare a plan that will convince the courts that his business deserves protection from creditors and can trade out of its enormous difficulties. 

What will happen in court this week is anyone's guess. Of course the main banks could club together and buy out the €130 million loan due to ACC, and that would solve the problem at least temporarily.  But one way or the other the Carroll empire will still be teetering on the brink.  

This dramatic story last week also put the spotlight very much on NAMA, and particularly on what price the government will be paying for the €90 billion in bad loans it will be taking off the books of the banks.  

Based on the estimates being given in the Carroll case that should be as low as €25 billion.  But rumors are that the government intends to pay at least €60 billion any maybe as much as €70 billion, based on the very nebulous "long term economic value" concept.   

If they pay the lower, more realistic figure, they will have to recapitalize the banks so much that the banks will be nationalized.  If they pay the higher figure, everyone will say the taxpayer is being ripped off to protect the image of Irish banking on the international markets.   

The government's argument is that to protect this image we must not wipe out the international bondholders and shareholders in the Irish banks through nationalization.  The government feels that a realistic figure for the long-term value of the property loans can be reached which will be fair to the taxpayer in the long run.  But the Carroll situation last week has made a lot of people here very dubious about this. 

Many people are coming around to the view - and I agree with them -- that the bondholders should be left to swing in the wind and that a realistically low price should be paid for the €90 billion in impaired loans.   If the Carroll group goes wallop this week, that could set the floor, although the banks are unlikely to start an immediate fire sale of his properties, which will probably end up in NAMA.  

But even if they are not put up for sale straight away, these properties and those of many other developers will be overhanging the market for years, depressing prices and extending the time that NAMA will have to hold properties before they can be sold back into the market at break even. 

All of which is a strong argument for NAMA paying rock bottom prices and the government then recapitalizing, nationalizing and eventually reselling the Irish banks.  At least then the taxpayers have a chance of getting their money back when the government's equity in the banks is sold back to the private market in the future. 

And in the meantime we will all know exactly where we stand and how much our homes are really worth. Only then will Irish people really understand the absurdity of the property bubble we all helped to inflate.