Property prices soared as a result (Chart 1). Such excesses were possible because a decade of non-inflationary, consistent expansion turned initially well-founded confidence into dangerous complacency. Beliefs grew that globalisation and technology would drive perpetual growth, and that the omniscience of central banks would deliver enduring stability. With a growing conviction that financial innovation had transformed risk into certainty, underwriting standards slipped from responsible to reckless and bank funding strategies from conservative to cavalier. Financial innovation made it easier to borrow. Bonus schemes valued the present and discounted the future. Banks operated in a heads-I-win-tails-you-lose bubble and were capitalised for perfection. And a steady supply of foreign capital from the global savings glut – and in Ireland’s case, the initial euphoria of European Monetary Union – made it all cheaper. When the Minsky moment finally struck, debt tolerance decisively turned and the kindness of strangers evaporated. UK households swung from borrowing 4% of GDP annually to saving 2% of GDP. The comparable swing in Ireland was more than twice as large. 3 In the wake of the crisis, three truths came back to the fore. First, while asset prices rise and fall, debt endures. Second, the distribution of debt and assets matters. And third, it is very hard to reduce high debt in one sector or region without at least temporarily increasing it in another. The debt tail is wagging the market dog. These realities continue to weigh on the European financial system.
Mark Carney: Fortune favours the bold Lecture by Mr Mark Carney, Governor of the Bank of England and Chairman of the Financial Stability Board, to honour the memory of The Honourable James Michael Flaherty, P C, Dublin, 28 January 2015. * 1. *  *  Introduction  It is a pleasure to be in Dublin and an honour to give this Iveagh House lecture in memory of Jim Flaherty. Jim’s attitude and actions typified the Flaherty family motto: Fortune Favours the Bold. Born the sixth of eight children in La Chine, Quebec; Jim Flaherty worked odd jobs and won a hockey scholarship to put himself through Princeton. Successful in private and public sectors; he rose to become Attorney General and Minister of Finance of his province before becoming Canada’s 37th Minister of Finance. Once there, his accomplishments were legion, ranging from creating and enhancing support programs for the disabled and care givers to setting the country back on the path to fiscal balance after the crisis and ensuing recession. His tenure as Canadian finance minister was shaped by that crisis and its aftermath. It was my honour to work with him as Canada weathered the storm. And many of you worked closely with Jim as Ireland negotiated agreements with the Troika and devised policies to rebuild its battered economy. I am confident he would be proud of the progress Ireland has made. I suspect he would be more than a little frustrated with the euro area, however.