Morgan Kelly is an Irish academic economist who warned two years ago that the absurd lending of Irish banks to builders and property developers would sink them if the property bubble burst. Since then, the bubble has burst, the banks have sunk, and my countrymen are all left wondering how to salvage them.

Two ideas for fixing the banks have been suggested: a bad bank or National Asset Management Agency (Nama) and nationalisation. “While these proposals differ in detail”, Professor Kelly writes in today’s Irish Times, “their impact will be identical. Irish taxpayers will be stuck with a large bill, and in return will get an undercapitalised and politically controlled banking system”.

He continues:

The taxpayer is likely to lose well over €25 billion on Anglo alone. Among its “assets” are €4 billion lent for Irish hotels, and almost €20 billion for empty fields and building sites. In fact, I suspect that the €20 billion already repaid to the casino that was Anglo represents winners cashing in their chips, while the outstanding €70 billion of loans will turn out to be worthless. And it is well to remember, as the architects of Nama have not, that although the problems of Irish banks begin with developers, they do not end there.

The same recklessness that impelled banks to lend hundreds of millions to builders to whom most of us would hesitate to lend a bucket; also led them to fling tens of billions in mortgages, car loans, and credit cards at people with little ability to repay. Even without the bad debts of developers, the losses on these household loans over the next few years will probably be sufficient to drain most of the capital out of AIB and Bank of Ireland.

Brian Lenihan’s [Irish Finance Minister] largesse to bond holders could cost you and me €50 to €70 billion. What do numbers like these mean?

The easiest way to put numbers of this magnitude into perspective is to remember that in 2008 the Government generated €13 billion in income tax. Every time you hear €10 billion, then, think of paying 10 per cent more income tax annually for the next decade.

In other words, the fiscal capacity of a state with only two million taxpayers, and falling fast, is frighteningly thin. Ten billion here, and ten billion there and, before you know it, you are talking national bankrutcy. Even without bankrupty, Nama will ensure a crushing tax burden for everyone in Ireland for decades.

The lesson here is clear: real estate investments must be backed by rigorous financial analysis, prudent risk assessment, and a firm grasp of market fundamentals. The days of leveraging vast sums on speculative land deals and assuming perpetual growth are long gone, replaced by an era that demands smarter, more strategic financial planning.

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Kelly’s view is that “the drift into national bankruptcy looks increasingly unstoppable”.