US markets fell on Monday on fears that Ireland may be bankrupt and European countries in general may be in far worse shape than previously thought.
ABC News reported that fears about Ireland’s risk of default sunk the markets lower.
Two articles are believed to be responsible, a front page New York Times piece reported that Ireland’s long-term debt was far worse than expected and an opinion piece in the Irish Times warned of up to 100,000 home mortgages going under in the next year which may only be the tip of the iceberg.
The New York Times stated that recent negative developments in Ireland have “stoked fear that it might even need to follow Greece and request a bailout from the European Union and the International Monetary Fund.”
The Irish Times article was by respected economist Morgan Kelly, one of the every few to predict the Irish crash when times were still good there.
Kelly stated that in addition to the current bank crisis , at least 100,000 mortgages are currently under water and things have barely started with an expectation that 200,000 mortgages could eventually go under.
Kelly predicted that thousands of Irish, incensed by the deal the banks got will soon stop paying their mortgages.
“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. Facing a choice between obligations to the banks and to their families – mortgage or food – growing numbers are choosing the latter.
Kelly predicted that banks will be unable or unwilling to go after those who default.
“If one family defaults on its mortgage, they are pariahs: if 200,000 default they are a powerful political constituency. There is no shame in admitting that you too were mauled by the Celtic Tiger after being conned into taking out an unaffordable mortgage, when everyone around you is admitting the same.”
Kelly predicts that either the IMF or European Union will have to step in.
“By next year Ireland will have run out of cash, and the terms of a formal bailout will have to be agreed.”