Lehman fall ‘did not’ cause crisis

CENTRAL Bank Governor Patrick Honohan’s report says the collapse of Lehman Brothers did not cause the Irish banking crisis.

It would be a significant mistake to suppose that the steep economic downturn is wholly due to underlying domestic imbalances, the report states.

“After all, there has been a severe worldwide recession, the causes of which involve the correction of imbalances in the US, UK and elsewhere – excesses which have their own complexities not shared in the Irish case.”

But, even without the worldwide downturn triggered by Lehman Brothers, property prices would have had to fall “disproportionately in any event” given how far they had been running ahead of GDP during the boom years.

“Moreover, prices had already started to fall well before Lehman Brothers – more than 18 months in the case of residential property and perhaps nine months in the case of commercial property,” the report adds.

“Lehman Brothers was just the trigger for a more sudden and deeper fall as the economy had to adjust not only to the inevitable re-balancing of demand away from construction but also to the decline in world demand.

“In sum, the argument that property prices would have remained much higher and for much longer had it not been for Lehman Brothers is not convincing.”