Professor Morgan Kelly delivering his lecture in Kilkenny



An Irish academic best known for correctly calling the property crash four years ago has raised fresh concerns over a potential tsunami of debt default from "high rolling" professional classes.

Professor Morgan Kelly said there is about €11bn (£9.6bn) tied up in domestic loans that were handed out to lawyers, doctors and estate agents for homes they can no longer afford – loans the banks are not counting as problematic.

His numbers refer to high-end properties in salubrious parts of Dublin and elsewhere which were snapped up at the peak by the well-heeled; they do not refer to the 165,000 buy-to-let mortgages, many of which are in danger of default.

Kelly claimed that 10,000 loans of an average of €1.1m each were handed out during the boom to the "high-rolling" middle-class professionals, many of whom "could barely afford to buy you a cup of coffee now".

Speaking at a public lecture at Kilkenny Arts Festival, the University College Dublin academic also predicted that Ireland's banking debt would rise to €100bn – far higher than the €70bn currently set aside in five bank bailouts.

And he predicted the government's debt pile would peak at €250bn in 2015 because of uncounted mortgage defaults.

Kelly has become known as Dr Doom for his infrequent but prophetic articles.

Paramilitary groups could prosper on defaults

In a bleak but devastatingly simple analysis, Kelly warned that paramilitary groups may flourish in parts of Ireland if they can strike a position as the "Robin Hoods" of the community. He said he already had three emails from people wishing to organise don't-pay-back-your-mortgage groups and if these were "energised" they would pose major problems for the banks.

What worries me increasingly are mortgages and in particular, interest-only mortgages, given out to professionals, lawyers, solicitors, estate agents at the peak of the boom. About 10,000 of these were given out. This seems trivial; there were three-quarter of a million mortgages given out, why should we care about 10,000? However, it turns out these mortgages were for properties of between €1m and €2m each. These guys put up about 20% of the price. So these 10,000 were about €1.1m each. This means there is about €11bn in loans to these high rollers in the boom, most of whom could barely buy you a cup of coffee now.



Based on the US experience, he said, banks will only get half of the €11bn from the middle-class high rollers back.

Kelly's analysis of middle-class debt chimes with tales during the boom years of professionals piling into property syndicates, some led by the likes of former tax inspector Derek Quinlan, to buy office blocks, apartment blocks and retail parks.

Most of these cases remain out of the public domain, but some have made headlines through court hearings, including the doctor and lawyer couple who racked up debts of €800m on the back of cheap credit buying trophy buildings including a tower block in Canary Wharf.

The eye-catching scale of Brian and Mary Pat O'Donnell's debts has been laid bare in a court case brought by Bank of Ireland in relation to some €70m (£58m) in debts it is trying to recover.

Kelly's hour-long lecture, which can be heard here, is essential listening as a review of how Ireland squandered the 1990s boom which had occurred without bank lending and had huge benefits for the country.

The Nyberg report was 'sickening'

Kelly is adamant that the banks are the main, if not the sole, cause of the crisis now engulfing Ireland.

He argued that even if regulation was non-existent, managers still have "a duty" to ensure that the companies they run survive.

He also renewed his attack on the governor of the Central Bank of Ireland, Patrick Honohan, for putting the taxpayer on the hook for the losses instead of letting the banks go bust.

He described the Nyberg Report, which diagnosed the collapse of Ireland's economy as caused by greed and a complicit public, as "sickening".



Nyberg's view on this – this was a social mania in Irish society, it was group think; that everyone got carried away – that's not true. It was the senior management in Irish banks, most of whom are still in their jobs.

Led by Anglo-Irish and followed "foolishly" by Allied Irish Banks and Bank of Ireland, banks had recklessly sucked billions out of the cheap wholesale markets but had nobody to lend to – because the population was already fully housed. So they created the artificial property development bubble, said Morgan.

You usually you get about 5% of your national income from building houses; by the mid-2000s this had risen to 15%. During 2006 and 2007 we were building as many houses as Britain which is 15 times our size.

Property market hasn't bottomed out

Kelly's speech comes just months after he warned that Ireland was facing bankruptcy and should default on the bank debt. Months earlier, he warned that banks were not admitting a new wave of mortgage default could see their bad debts default.

And he hasn't changed his view. Anyone who thinks the country's property – in some parts down as much as 60% from the peak – has bottomed out, think again.