Feeling the Pain As Irish Property Values Plummet

SUTTON, Ireland -- Denis Finn spent about $4 million on a grand house in this pretty seaside town north of Dublin three years ago, but it was the mansion's grassy grounds where he saw the real money to be made.

Ireland's "Celtic Tiger" economy was roaring, home prices were soaring and banks, it seemed, were lending generously to anyone with blueprints, a hammer and a bit of buildable land.

So Finn borrowed even more and sunk $1.4 million into what seemed like a sure bet: build two ultramodern, four-bedroom homes next to the rambling St. Lawrence Lodge and sell them for $2.4 million each.

But for Finn and others like him all over Ireland, disaster was just around the corner. The financial meltdown that began in the United States last year has spread worldwide, slowing foreign economies where people bought bad U.S. mortgage debt and pushing local financial institutions toward insolvency.

In countries such as Ireland, the punch has been twice as hard, because the faraway problems combined with homegrown ones that were just as severe. In Ireland, an overheated property market crashed and left banks saddled with massive amounts of bad debt.

This summer, as the Wall Street crisis came to a head, Ireland's did, too. The government announced that the economy was in recession for the first time in 25 years.

Last week, as the Irish stock market dived and some of its banks appeared on the brink of collapse, the government stepped in with a $550 billion guarantee of all deposits in six major Irish banks.

With credit dried up and house sales plummeting, Finn, a successful developer for more than a decade, could no longer afford to pay his bank loans.

His company went bankrupt and he dismissed his 34 employees. Finn made no money when he sold the old lodge, and then lost more than $1 million when the bank recently repossessed his two unfinished houses and sold them for less than half the price he had envisioned.

"I have never seen property values in my life go down, and they just took a nosedive," said Finn, a father of four. He said if the economy had not turned sour, he would be sitting on multimillion-dollar profits from luxury property sales. Instead, he said, he has millions in debt.

"I had a good little company; now everything is gone," Finn said. "It's just painful."

The Irish government's response to its financial crisis has surprised European leaders. It guaranteed all bank deposits, no matter how large, for two years -- a promise potentially worth more than twice the country's gross domestic product. On Sunday, German officials, in emergency meetings over their troubled banks, announced that their government would also guarantee private bank accounts.