When it comes to debt and saving in Ireland, it’s all about greed and speed.

During the boom, greed—and the expectation of excess future profits—forced up the price of land, which increased the price of housing and most other durable assets. Would-be homeowners needed to borrow more and more to get on the property ladder, and banks were more than ready to supply that borrowing in the form of cheap loans.

Incomes increased over the boom period, but this increase just couldn’t keep up with the levels of debt being run up by households. People were spending like gangster rappers at the time—remember Eddie Hobbs’ programme on 30 things to do with your SSIA?—and so they weren’t saving very much.

A household’s disposable income is what it has left after paying off its bills plus any transfers it gets from the State. When the boom turned significantly less, well, boomy, after 2007, the ratio of Ireland’s household debt to disposable income was above 210%, dwarfing other countries like the US at roughly 170%, or the UK at 130%.

This ratio matters because when you decide to pay down debt, you do it out of disposable income. If, after paying your bills, you owe 2 euros for every 1 euros you have, things become difficult for you. Either you really cut back on your current expenditure and feed the kids on dog food and gruel for a month, or you work harder and longer to increase your income to pay down the debt. In both cases there’s an adverse affect on the wider economy. (Not to mention how unhappy your kids will be with all that Pedigree Chum for lunch).

Ordinarily people working harder produces extra output, which leads to economic expansion. But with so much debt on the books of the household sector, the decrease in consumption caused by the debt overhang really reduces demand for goods and services. Working harder during depressed economic conditions makes sense individually, but collectively, this tends to decrease prices in the private sector-because no one is buying much of anything, and no one is asking for higher wages because they’re delighted to have jobs—so we have a paradox of toil.

Retailers all over the country are feeling the debt hangover as well, as debt levels hamper any increases in consumption. If I hand you 1,000 euros today, you’re just not going to buy a big screen TV when you’re up to your neck in debt. This rapid decrease in demand for goods and services after the boom faded explains much of the increase in unemployment, the collapse of many sectors in the economy, and the failure of the economy to grow rapidly enough to get itself out of its current situation with 14.8% of the working age population unemployed.

So, by attempting to pay down debt, everyone’s actions lead to lower investment and, in time, to lower savings. That’s exactly what we see in the data: the ratio of gross disposable income to saving is falling over time in Ireland from 15% in 2009 to 11% in 2011.

I said at the start that it’s all about greed and speed. Greedy borrowers, who want as much credit as they can get their hands on, and greedy lenders, eager in 2006 to hand out 100% mortgages with a 2,000 euro signing on bonus in some cases. The excesses of the period leave banks’ balance sheets damaged, because some households can’t afford their mortgages anymore. International evidence shows that speed is crucial in resolving debt crises.

Speedy resolution is the one thing our scelortic housing markets didn’t have. In a sense the sheer scale of the problem caused this lack of speed. After the banking guarantee of September 2008, the banks’ commercial property problems and the Irish government’s budget problems were first and foremost. As a policy maker, you simply couldn’t have banks saved by the taxpayer throwing that same taxpayer out on the street. A policy of maximum forbearance was adopted. However, the latest mortgage arrears statistics from the Financial Regulator show that almost 85 thousand mortgage accounts have been modified in some way because of an inability to pay. Of the 1.7 million households in Ireland, roughly 1 in every 13 is in some form of mortgage difficulty.

This means that the debt problem for households has yet to be resolved. Speed is of the essence, and speed is exactly what we lack in our system. Greed, now that we have a lot of.

Published in the Irish Independent.