Capital flows and bubbles...

Consider this:
economic-incentives.blogspot.com … banks.html

That’s a lot of overseas deposits in the Irish banking system in January 2008, right? Add in the interbank borrowing, which has to have been all from overseas and you have a big wodge of capital flow in the country.

Now add in that in 2001 the esteemed FF government allowed Irish banks to issue covered bonds, vastly increasing their capability to expand their balance sheets.

Commercial covered bonds were permitted in an amendment to the 2001 act in 2007: finance.irlgov.ie/Viewtxt.as … nuary+2007

(Kathleen Barrington had this to say about the amendment in what I consider to be an excellent piece sbpost.ie/news-features/bowi … 54486.html ).

(As a side issue, I begin to suspect that Anglo was in deep trouble in 2006/7 and that this amendment was required to keep Anglo going for a while longer. By being allowed to enter the covered bonds market, Anglo could get cash to cover its derivative losses… sadly, I suspect it used that cash to bet on IRS in a substantial way and came unstuck with the GFC…).

When you consider both the extended level of securitisation available and the extent of capital flows into Ireland, you might want to have a look at this:
ftalphaville.ft.com/blog/2011/03 … isconnect/

The referenced VoxEU paper is here: voxeu.org/index.php?q=node/6195