<abstract xmlns="http://www.w3.org/1999/xhtml"><p>A decision not to prohibit or limit high-risk mortgage products in Ireland in 2005 reveals the extent to which three important factors – interests, institutions, ideology – impact on information processing by decision-makers, and reveals irrationality or otherwise in the process. This article summarises the events leading up to the bad decision on 100 per cent loan-to-value (LTV) mortgages in November 2005. This case reveals the nature of the interaction between government departments, regulators and banks at a critical time before the crash, and shows how a department’s interests can interact with institutional factors, and the ideological context, to prompt poor rational and irrational information processing, and lead to a bad decision. In particular, the dominance of a market ideology which raised the threshold for what information was necessary before intervention would be made, combined with the low institutional standing of the department seeking intervention, produced a suboptimal outcome. Finally, the case provides evidence of irrationality (e.g. groupthink, herding) within institutional actors, rather than between them.</p></abstract>

A decision not to prohibit or limit high-risk mortgage products in Ireland in 2005 reveals the extent to which three important factors – interests, institutions, ideology – impact on information processing by decision-makers, and reveals irrationality or otherwise in the process. This article summarises the events leading up to the bad decision on 100 per cent loan-to-value (LTV) mortgages in November 2005. This case reveals the nature of the interaction between government departments, regulators and banks at a critical time before the crash, and shows how a department’s interests can interact with institutional factors, and the ideological context, to prompt poor rational and irrational information processing, and lead to a bad decision. In particular, the dominance of a market ideology which raised the threshold for what information was necessary before intervention would be made, combined with the low institutional standing of the department seeking intervention, produced a suboptimal outcome. Finally, the case provides evidence of irrationality (e.g. groupthink, herding) within institutional actors, rather than between them.

Give credit to the market: The decision not to prohibit 100 per cent loan-to-value mortgages

Administration

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

A decision not to prohibit or limit high-risk mortgage products in Ireland in 2005 reveals the extent to which three important factors – interests,...

Give credit to the market: The decision not to prohibit 100 per cent loan-to-value mortgages

Published Online: Jun 03, 2019

Page range: 25 - 45

DOI: https://doi.org/10.2478/admin-2019-0012

Keywords
Decision-making, irrationality, mortgages, economic crash

© 2019 Cathal FitzGerald, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Give credit to the market: The decision not to prohibit 100 per cent loan-to-value mortgages

Published Online: Jun 03, 2019

Page range: 25 - 45

DOI: https://doi.org/10.2478/admin-2019-0012

KeywordsDecision-making, irrationality, mortgages, economic crash

© 2019 Cathal FitzGerald, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Keywords
Decision-making, irrationality, mortgages, economic crash