Doubt any of this will be news to European readers, but for those in the US wondering what housing bubbles and recession look like globally, here’s an interesting tale. Evan Sparks sent me a link last week to the Weekly Standard’s analysis of cultural change in Ireland during the last decade, the rip-roarin’ economy that drove it and the current state of things.

It sounds like for the last ten years, Ireland went from being an outpost of the Catholic Church to one big non-stop party. With low taxes, little regulation, and great companies ready to move in to manufacture such fine products as Botox, Viagra, breast implants, weight-loss drugs and such, capitalism appears to have done its best to replace Catholicism as Ireland’s official religion:

At the same time, Ireland abandoned the “backward” parts of its culture. Partly through a string of sex scandals in the 1990s, but largely through its hostility to consumerism, the Catholic Church was discredited, and the culture built on it faded. (One small illustration: There are placards on public garbage cans all over Dublin bearing the catchy but not very Christian sentiment “Litter is disgusting–so are those responsible.”) Ireland is not prudish anymore, either. A couple decades ago, 1 in 60 Irish babies were born out of wedlock; today 1 in 3 are. The country has some of the most liberal gay-rights and environmental laws in Europe. Nor is Ireland provincial. Its economy draws immigrants. There is a whole wall of books at the Waterstone’s on Dawson Street in Dublin marked “Polskie Ksiazki.” Dublin has numerous mosques. Tiny Waterford (pop. 45,775) has an African Women’s Forum, not to mention two “adult stores” (in case you’re ever in Waterford and need to buy an adult).

Adult stores near the former home of Waterford crystal? How many grandmas clutched their pearls and uttered an “Oh, my stars!” over that?

Handily for the economy, though, adult-store-patronizing capitalists purchase more houses than monks and nuns and the like, who tend to live communally. Property values increased fivefold. Ireland had something like an 80% rate of home ownership, then you factor in the vacation homes, immigration, the newly discovered ability to get one of those things called a “divorce” that renders a need for two condos instead of one cottage, and of course speculation, and it was bound to happen. The photo I’ve chosen above is of the glorious “U2 Tower”, never to be completed. How the market looks post-bubble:

The result of the bubble was that, by the time of the U.S. subprime collapse, Ireland already had as many as 100,000 vacant houses. It also has empty golf courses, empty hotels, and empty shopping malls. Every last developable acre in the country, it seems, has been bought up (and bid up) by speculators. The bad loans attached to this overbuilding might reach 20 billion euros, or 10 percent of GDP. Housing prices are predicted to drop 50 percent from their peak, and development land 70 percent. Alan Ahearne, a former U.S. Federal Reserve economist who is now an adviser to the Irish finance minister, predicted over the winter that, “with possibly one exception, this country will record the largest cumulative drop in national income in an advanced economy since the Second World War.”

Sounds kinda familiar. But hey, at least theirs is a mechanically cranked bubble. It wasn’t inflated by MBSes and other synthetic instruments, it was inflated the old fashioned way – good-old-fashioned artificial demand, peppered with a bit of graft and collusion:

But there is a dark side to having your small economic pond fouled by only a handful of big fish: The whole social, economic, and political system looks like a con. Why, people now wonder, was so much of the financing in this supposedly open economy done by local Irish banks? The easiest answer to hand–and probably the correct one–is that the bankers and developers bought the protection and indulgence of [ruling political party] Fianna Fáil. (The two main Irish political parties don’t really have ideologies, but Fianna Fáil is the more historically nationalist and machine-oriented of the two.)

This unease has been heightened by a shocking lack of accountability. The banks’ top brass has hardly changed from the days when they were actually making money. One of the few executives to resign was Sean FitzPatrick, chairman of the spectacularly reckless Anglo-Irish Bank, or “Anglo,” but he was an extraordinary case. FitzPatrick got “director’s loans” worth 83.3 million euros (which the bank’s accountants, Ernst and Young, failed to notice) at a time when he was running the bank into the ground. Anglo peaked at 7.50 euros a share and was nationalized this year at 22 cents. When Bear Stearns collapsed, Anglo lost 23 percent of its value. When Lehman Brothers collapsed, Anglo threatened to take the whole Irish banking system with it. The government gave a blanket guarantee to Irish banks, using as security the country’s National Pension Reserve Fund.

So now they’re in trouble, and even though it’s not the kind of trouble like we have in the US where we have to obfuscate like we’re going to “clean up” the “toxic” assets and take advantage of the whole nobody-really-understands-it factor in an effort to (probably) inflate our way out of it, it’s not going to be easy for them to fix, either. They don’t have many choices. They’re an Eurozone country, so printing currency is kind of out. Raise taxes? Cut spending? In the middle of a recession? That’s gonna go over real well. It gets better – most of their tax revenue has been raised not from income taxes but from transaction taxes, e.g., taxes on capital gains, on stamping documents, etc. In other words, their tax revenues were highly dependent on – yep – the housing bubble. Yay! (The Standard quotes an unemployment figure that approaches 25%, so it’s not like income taxes would be burgeoning the coffers right now either.)

Hopefully, the economic situation’s not as bad over there as the article makes it sound, because it sounds pretty dire. I recommend reading the full article – it makes some interesting sociological points related to how, at least, in times of extreme poverty, the masses used to have religion to fall back on, and Ireland kinda to be our first test case on how it goes when you have neither gold nor God.