Morgan Kelly - Irelands Modern Day Prophet

Morgan Kelly is a professor of economics at University College Dublin. He is known by some as a prophet of doom due to predictions he made in 2007 which claimed that the bottom was about to fall out of the Irish property market resulting in economic ruin. It turned out Morgan was right, and his predictions since then have been spot on.

Its a pity we didn't heed the words of Mr Kelly sooner. In 2007, Bertie Ahern criticised his articles about the coming recession, instead suggesting that there would be a "soft landing" for the Irish property market. He famously said, "Sitting on the sidelines, cribbing and moaning is a lost opportunity. I don't know how people who engage in that don't commit suicide because frankly the only thing that motivates me is being able to actively change something."

This was the general feeling about Morgan Kelly in 2006/07. He was seen as an annoyance, a crank who didn't enjoy the Celtic Tiger lifestyle and didn't want the rest of us to either. How wrong we were. In December 2006, Kelly became one of the first people to point out the most catastrophic effect of a property crash on the Irish economy; Between building new houses and selling existing ones, housing then generated almost one-fifth of our national income. Even during the glory years of abundance, no planning had been put into place for what would happen to these workers if the construction industry could no longer function. Kelly predicted that a fall would result in mass unemployment and the collapse of government revenue.

In September 2007, Kelly warned of a potential Irish Banking Crisis. He wrote, "Along with the many loans to builders that are already in the non-performing category, the exposure to commercial real estate poses a grave threat to bank solvency".

In August 2008, he warned that the banks now had a €25 billion hole in their balance sheet due to their unwise lendings to builders. He warned that an Autumn banking crisis was a real possibility. Coming just six weeks before the Government was forced to unconditionally guarantee the deposits and bonds of the Irish-owned banks, Kelly's prediction was bang on the money.
Responding to the bank guarantee, Kelly said that it was the wrong solution to the wrong problem. He said,
"It [the guarantee] has put the Irish taxpayer at risk of considerable losses, and does nothing to solve the real problem of the Irish banks, which is a shortage of capital". He also said only weeks later, "By doing this the Government has put the taxpayer at risk of substantial losses, and compromised its ability to provide adequate capital to the banks that need to be saved."
At the 2009 Kenmare conference Kelly refused to circulate his paper on NAMA in advance to the other participants. When it was revealed, its colourful description of NAMA as "cash for trash" led to scuffles with pro government economists.

From the very start Kelly nailed his colours to the mast on NAMA, describing it as "Fianna Fail's monument to a decade of waste, corruption, and ultimate ruin". Instead of establishing NAMA to purchase their bad loans, which he then reckoned exposed the taxpayer to losses of at least €30bn, Kelly recommended that the Government transfer ownership of the banks to their bondholders and let them salvage whatever value they could from the wreckage.
In May 2010, when Greece was unable to pay its debts and was forced to go cap in hand to the EU, Kelly warned that a similar fate awaited Ireland. "It is no longer a question of if Ireland will go bust but when. Unlike Greece our woes don't stem from government debt, but instead from the Government's open-ended guarantee to cover the losses of the banking system out of its citizens' pockets."

Following the transfer of 55 billion into toxic banks last Autumn, Kelly made his most pessimistic prediction yet. It was, wrote Kelly, the costs of the bank bailout and not the budget deficit that had pushed Irish bond yields up to record levels. He then went on to predict a second stage of the banking crisis.
"This time the bad loans will be mortgages, and the foreign creditor who cannot be repaid is the ECB."
Ireland was now, he concluded a "ward of the ECB" and our financial predicament left us dependent "on the kindness of strangers".

Kelly warned that it was too late to save the nation, and that the eventual default of the Irish state was the inevitable outcome.

Two days ago the housing charity Respond claimed that the mortgage crisis in Ireland was worst than official figures revealed as the effects of the Universal Social Charge and recent interest rate increases had not been taken into account.
"As tough as it is now, the problem is only going to get worse as further rate increases are expected from both lenders and the European Central Bank," the Respond spokesperson said.

It would seem that Morgan Kellys final prediction might be on the verge of coming through.