The Irish Economy & NAMA [Archive] - Peoples Republic Of Cork Discussion Forums

daithi81

31-07-2009, 10:24 AM

Ok, legislation skimmed over and I am none the wiser. The fact that NAMA can borrow €10bn to finish developments is worrying. Will this mean that NAMA (we) will borrow money to finish other peoples projects and then sell them back to them at a discount, based on 2006 prices? Seems like a sweet deal for developers.

According to the nature of the model, the banks do indeed look like that they will make considerable losses, but their RWA (http://en.wikipedia.org/wiki/Capital_adequacy_rat io) will be vastly improved. However, unless the discounts are kept at a certain level, the banks capital ratios will be in danger of falling below 8%. But this may mean that we cannot apply the correct discount to what may be worthless assets. This again, makes me wonder why temporary nationalisation is so abhorant to the government. I have heard the arguments against this action, and they all seem to be based on doctrine and ideology, not reality.

By reading that draft it appears that Nama are going to purchase the bad loans at a discount from the banks (maybe 60%) What happens if the value of these assets continue to fall and not recover? Like should the government take such a risk? Ok, the banks are going to suffer with the massive write-downs, but their still being rescued. Its said that its going to cost the taxpayer around 90billion initally, what is it REALLY going to cost though?

If you look at the model:

http://www.nama.ie/Publications/2009/Nama_Prospective_Bus iness_Model.pdf

It should explain how NAMA aren't working on a knife edge, wrt breaking-even. They have some room for manovuer. However, it shouldn't cost us €90bn initially. There are €90bn worth of loans to strip out, but these will all be discounted. Of course there is the potential €10bn that NAMA has to play with, should they see the need. I reckon €70bn is a more likely figure, unless some curveball comes into play.

How bad boy

31-07-2009, 02:09 PM

60% write down is better than i had expected.

Improves the chances of making a profit substantially, IMO.

daithi81

31-07-2009, 02:17 PM

60% write down is better than i had expected.

Improves the chances of making a profit substantially, IMO.

If you treat NAMA in isolation, then yes. However, if the write-down substantially affects the equity ratio of AIB/BOI, then the government will have to step in. This will cost more money. If NAMA made a €10bn profit, but ended up costing the govt €12bn in saving the banks from insolvency due to the haircut, it's a loss.

In otherwords, NAMA cannot be treated in isolation.

hemlock666

31-07-2009, 02:22 PM

This thing is going to be a protracted and massive waste of money. The taxpayer pays through the nose yet again. I can forsee this crashing in the flames of government scandal & mismanagement in a year or two while the property developers and banks get a nice easy ride in spite of bringing the country to the brink of bankruptcy. Then the vastly overpaid politicians at that time will blame their predecessors, who will of course splutter their way through the oh so familiar politicspeak about having no other choice and the great Irish circle jerk will continue. The government (and a succession of govts) cuts a deal with child abusers and throws money at fraudsters and monopolies.
Im emigrating in the coming years before they bring in walking tax or the like.

johnmcork

31-07-2009, 02:27 PM

daithi81

31-07-2009, 02:35 PM

excuse my ignorance but;

would i be right in saying that a developer that is in trouble will have his loan transferred to NAMA in order to free up the banks to give MORE credit to said developer so he can buy his own land back at a discount?

is this even a remote possibility because if it is......

No. The developer owes the money to NAMA, and not at the discount rate.

Example:

So, Mr.Developer had toxic property of €100, and he owed 100% of this to AIB. He cannot meet his debts, so AIB are fucked. NAMA comes in to buy the property debt for €60 and gives €60 of government bonds to AIB. Mr.Developer still owes €100 to NAMA. If he wants to, he could feasibly get a loan of €60 from AIB and buy the land back. But now he would owe €160.

How bad boy

31-07-2009, 02:44 PM

Lostmeringtopaddypower

31-07-2009, 02:48 PM

If you treat NAMA in isolation, then yes. However, if the write-down substantially affects the equity ratio of AIB/BOI, then the government will have to step in. This will cost more money. If NAMA made a €10bn profit, but ended up costing the govt €12bn in saving the banks from insolvency due to the haircut, it's a loss.

In otherwords, NAMA cannot be treated in isolation.

Still though - the government now also have major stakes in both banks who - in about 3 to 5 years could (should) be up massively on their current price.
So a NAMA loss could be offset, to an extent, with this dosh.

NAMA is still inflating the value of the distressed property way beyond current market valuations, though.

This has the effect of giving the taxpayer a double whammy of expecting him to finance it and in the process, artificially price the property out of his range or if he can actually still get a mortgage for it, make him pay way more for it over a 30 year mortgage cycle.

And this is FF's idea of a good solution.

They are The Property Developer / Banker Party.

Always were and always will be.

daithi81

31-07-2009, 02:49 PM

I've not had a good thought about this, as you know more than I do, how can the sale of poorly performing loans reduce the equity ratio? Surely it would boost the capital available to the banks, as the government have to pay for the loans?

I really couldn't explain it better than this:

http://www.irisheconomy.ie/index.php/2009/04/07/nama-and-pricing-the-bad-property-loans/

In short, the property is still at book value, for equity capital calculations. So despite trading these assets for ones with superior RW, the discount means that they will be selling a €100m (0% RWA) asset and receiving a €60m (100% RWA), which will leave a shortfall in equity capital, if the discount is too much.

Gaelic Follower

31-07-2009, 03:04 PM

jd26

31-07-2009, 03:22 PM

It wasn't just the banks or developers who fucked up this country, the nation as a whole lived on credit way beyond their means, new cars, two holidays a year, designer gear to beat the band and so on. To say its banks and developers is nonsense, they are just one factor in the crash. As for NAMA, it is going to take over all loans over 5 million good and bad, so to call it a "bad bank" is incorrect. There is a fund of 10 billion that will be used to finish off the sites half built and it will then sell of the finished units. Anyone who thinks that NAMA is a bail out for developers hasn't got a clue of what is happening in the real world. A lot of people are going to loose a lot when NAMA comes calling including their homes. No sympathy for them really, if you live or borrow beyond your means well then be prepared for what comes, and that goes for ordinary home-owners too.

But why not just inject capital into the banks and tell them to function as normal in pursuing delinquent loans?

As things stand, we're taking on massive potential losses for the possibility of small potential gains.

The beneficiaries are the bank shareholders who don't see the value of their asset diluted and the property developers who won't get pursued in the same way as ACC have been pursuing their delinquent loans.

How bad boy

31-07-2009, 03:26 PM

I really couldn't explain it better than this:

http://www.irisheconomy.ie/index.php/2009/04/07/nama-and-pricing-the-bad-property-loans/

In short, the property is still at book value, for equity capital calculations. So despite trading these assets for ones with superior RW, the discount means that they will be selling a €100m (0% RWA) asset and receiving a €60m (100% RWA), which will leave a shortfall in equity capital, if the discount is too much.
My knowledge of finance sucks donkey nadgers, so i'll need this sorted in my head.

What I don't quite get is how tier 1 capital is reduced by selling these assets at a loss. I guess I'm thinking of it from a simple balance sheet point of view, but the net amount of tier 1 capital the banks have isn't going to go down. I, personally, don't see how it goes down. Yes, there is a loss incurred to the bank, but it's a paper loss, not an actual loss of tier 1 capital.

I'm confused as to where exactly that capital goes. I mean, if they were to write down €27 billion worth of losses on the sale of these assets, then what has "physically" happened to the €7 billion euros the Irish government gave them only a few months ago? They have more money in the bank, in the form of government bonds and I see no way that tier 1 capital has leaked out.

I may be asking the wrong question, but it doesn't make clear sense to me. He's just saying that by selling at a loss, you nail your equity capital and so the banks are shagged. I don't get why selling at a loss erodes the equity capital.

As I said, I'm not entirely familiar with finance, tis economics I'm interested in!

How bad boy

31-07-2009, 03:31 PM

But why not just inject capital into the banks and tell them to function as normal in pursuing delinquent loans?

As things stand, we're taking on massive potential losses for the possibility of small potential gains.

The beneficiaries are the bank shareholders who don't see the value of their asset diluted and the property developers who won't get pursued in the same way as ACC have been pursuing their delinquent loans.
Not such small potential gains.

Massive gains if anywhere close to 100% of the money is retreived. Very, very highly unlikely but the Irish taxpayer would make, by my calculations, about €55 billion profit.

Why not sell them on the world market?

Insight: Payback talk could dent rally

By Jennifer Hughes
Published: July 30 2009 17:03 | Last updated: July 30 2009 17:03

Overheard in a investment bank elevator this week: “cash is evil.”
Leaving aside the irony of hearing this from bankers, it is an easy sentiment to agree with given the miserly interest rates currently available on cash deposits. It is also the driver for a large chunk of the rally across the corporate bond world since March.
In March, amid fears government intervention would force them to exchange their bonds for equity stakes, investors were looking at prices of barely more than 20 cents on the dollar/euro for the subordinated debt of top-name banks.
Now, they’re looking at prices in the high 80s for the better-perceived ones.
One of the reasons for the rally is obvious, since the worst – in terms of forced equitisation, at least – has been avoided. Prices in March had, if anything, overreacted to the market fears.
The rally has also been helped by exchange offers from a number of banks including RBS (http://markets.ft.com/tearsheets/performance.asp?s=uk :RBS), Santander (http://markets.ft.com/tearsheets/performance.asp?s=es :SAN) and UBS (http://markets.ft.com/tearsheets/performance.asp?s=ch :UBSN), swapping some of their subordinated debt for new more equity-like instruments. Investors generally appreciated the price floor created by the bids, although you can argue that it was the fast-moving money, such as distressed debt funds, who really gained, rather than traditional sub debt buyers such as insurers, many of whom still held the notes at par value on their books.
But has the rally in bank debt now gone too far? At these levels investors run the risk of once more blithely ignoring the small print of their securities – and the wider political environment.
Policymakers have sounded a different note in the last few months. Following the billions they have pumped in, there is ominous talk of payback, and “returns” for taxpayers.
There are rumblings from Brussels that it might not look too kindly on taxpayer-funded banks paying discretionary coupons and redeeming debt where they don’t have to.
In the US this month, the government declined to bail out CIT (http://markets.ft.com/tearsheets/performance.asp?s=us :CIT). The lender could have been the fifth-largest US bankruptcy ever (behind Lehman, Washington Mutual, WorldCom and General Motors, but ahead of Enron), but it still didn’t merit the treatment of last autumn.
Talk of bondholders “sharing the pain” suffered by equity investors is rife. After all, in theory, that was the purpose of subordinated debt – a cushion between equity and the senior debt holders. In spite of the furore over Deutsche Bank, the first major bank to choose not to redeem its bonds at the first opportunity, this is a point that the current prices imply is being disregarded.
In the UK, the government has done more than grumbled Brussels-style; in May it used new legislation to skip coupons on Bradford & Bingley (http://markets.ft.com/tearsheets/performance.asp?s=us :BDBYY)’s subordinated debt.
The UK is also a good test case because it faces a general election next year. Watch for tougher rhetoric and, perhaps, further action as policymakers justify what they spent on propping up the system and try to match taxpayer anger over banks’ behaviour.
The good news is that governments will, whatever they say publicly, have to be very careful how they tread. Those same investors holding bank paper are among those they are counting on to hoover up a large chunk of the wave of government borrowing now hitting the markets.
What happens to bank debt has huge implications for the future health of the financial system and for the direction of the wider corporate bond market itself, given the huge proportion devoted to financial institutions’ debt and the effect banks’ funding will have on general credit availability.
Don’t expect prices to crash back to the 20 cent level.
But the market seems a little too content to consider the current rally a return to business as normal. Don’t think because Armageddon was avoided, that politicians have yet finished with the markets

daithi81

31-07-2009, 03:42 PM

My knowledge of finance sucks donkey nadgers, so i'll need this sorted in my head.

What I don't quite get is how tier 1 capital is reduced by selling these assets at a loss. I guess I'm thinking of it from a simple balance sheet point of view, but the net amount of tier 1 capital the banks have isn't going to go down. I, personally, don't see how it goes down. Yes, there is a loss incurred to the bank, but it's a paper loss, not an actual loss of tier 1 capital.

I'm confused as to where exactly that capital goes. I mean, if they were to write down €27 billion worth of losses on the sale of these assets, then what has "physically" happened to the €7 billion euros the Irish government gave them only a few months ago? They have more money in the bank, in the form of government bonds and I see no way that tier 1 capital has leaked out.

I may be asking the wrong question, but it doesn't make clear sense to me. He's just saying that by selling at a loss, you nail your equity capital and so the banks are shagged. I don't get why selling at a loss erodes the equity capital.

As I said, I'm not entirely familiar with finance, tis economics I'm interested in!

Ok, this is the most important bit of the article:

However, these calculations value the banks’ huge property loan portfolios (about €80 billion in total property loans, about €40 billion of this in the form of development loans) at book value. Today’s FAQ on the government’s plan tells us that the NAMA will be purchasing impaired loans “at an appropriately written down value” and would replace these loans on the bank balance sheets with government bonds.

This has two offsetting effects on the capital ratios of the banks. Good news for the banks is that government bonds have a zero risk weight compared with a weight of one for risky property loans. This would shrink RWA from €250 billion to €170 billion and raise capital ratios to a heady 15.8%. Bad news is that when NAMA buys the bad assets for less than book value, this reduces equity capital.

Ok, what is important to remember is that when calculating capital ratios, Basel II stipulates that book value of assets must be used. RWA is calculated after you subtract [assets - liabilities]. So, lets remove the poorly performing loans and replace them, at book value, with government bonds.

You will get a double-whammy, RWA will shrink and capital ratios would rise. So you can at least acknowledge that we have a scenario where these variables have been affected, right? Ok, we still have not applied the discount. The question is, how much of a discount can now we now apply to this scenario, without going below 8%. His calculations showed that it was about 0.2? Which of course, is not enough. Does that make sense?

How bad boy

31-07-2009, 03:48 PM

Ok, this is the most important bit of the article:

Ok, what is important to remember is that when calculating capital ratios, Basel II stipulates that book value of assets must be used. RWA is calculated after you subtract [assets - liabilities]. So, lets remove the poorly performing loans and replace them, at book value, with government bonds.

You will get a double-whammy, RWA will shrink and capital ratios would rise. So you can at least acknowledge that we have a scenario where these variables have been affected, right? Ok, we still have not applied the discount. The question is, how much of a discount can now we now apply to this scenario, without going below 8%. His calculations showed that it was about 0.2? Which of course, is not enough. Does that make sense?
In some ways.

It's a pretty odd way of calculating it. I see now why the Basel II regulations are getting lambasted in the press, that's pretty fucking stupid.

I mean, those government bonds are effectively as good as tier 1 equity, so for it to go down so much makes little sense as in actuality, ignoring the exact technicalities, the banks are better capitalised.

daithi81

31-07-2009, 03:56 PM

Proinsias

31-07-2009, 04:05 PM

When you read into Basel II (a whirlwind experience) you can see just how all of this mess occured. The history of banking regulation for the past quarter century is a slow and steady degradation of sanity.

So would it be so bad to convert just enough of those bonds to preference shares?

It seems like a fairly logical conclusion, if the Irish banks go down, then the government is going to take a hit on the bonds anyway, so why not just buy the stock? It certainly provides for a far better "upside risk".

daithi81

31-07-2009, 04:18 PM

So would it be so bad to convert just enough of those bonds to preference shares?

It seems like a fairly logical conclusion, if the Irish banks go down, then the government is going to take a hit on the bonds anyway, so why not just buy the stock? It certainly provides for a far better "upside risk".

I wrote half an answer until I realised I'm not sure about your suggestion. Explain it a bit more.

Proinsias

31-07-2009, 04:23 PM

I wrote half an answer until I realised I'm not sure about your suggestion. Explain it a bit more.

Instead of paying for the loans in bonds, pay in preference shares.

Thus, you boost the Tier 1 capital and if the banks' share price recovers to anything vaguely close to the price it was before, then the Irish tax payer would reap the benefits.

Actually, I see a flaw in my plan.

The market cap of those firms is only about €3bn.

I suppose they could do a share issuance to the Irish government...

daithi81

31-07-2009, 04:38 PM

Instead of paying for the loans in bonds, pay in preference shares.

Thus, you boost the Tier 1 capital and if the banks' share price recovers to anything vaguely close to the price it was before, then the Irish tax payer would reap the benefits.

Actually, I see a flaw in my plan.

The market cap of those firms is only about €3bn.

I suppose they could do a share issuance to the Irish government...

Also, the whole point of getting the bonds is so they may use some of them to get loans from the ECB, so they can start lending again. I'm not sure if the ECB would accept preference shares?

Well, the share issuance has a range of problems, for FF, at least. They already own 25% of these banks and they appear to be ideologically opposed to nationalisation. In addition, I doubt the existing shareholders would go for it.

Proinsias

31-07-2009, 04:40 PM

Aye.

So besides from a cash injection, how else can the equity capital be raised?

ECB buy the bonds and convert them?

daithi81

31-07-2009, 04:59 PM

Which scenario are we at now? The post-NAMA conversion from NPA to bonds?

Killyoursons

31-07-2009, 05:22 PM

Also, the whole point of getting the bonds is so they may use some of them to get loans from the ECB, so they can start lending again. I'm not sure if the ECB would accept preference shares?

Well, the share issuance has a range of problems, for FF, at least. They already own 25% of these banks and they appear to be ideologically opposed to nationalisation. In addition, I doubt the existing shareholders would go for it.

I've noticed this. Is there any good reason to hold to this principle in the current situation?
As for the existing shareholders, can't they be politely but firmly told that their choices are to go along with it, or to have the bank go under? Isn't the state now underwriting these institutions? Surely that ought to give them significant leverage on the shareholders?

daithi81

31-07-2009, 05:41 PM

I've noticed this. Is there any good reason to hold to this principle in the current situation?
As for the existing shareholders, can't they be politely but firmly told that their choices are to go along with it, or to have the bank go under? Isn't the state now underwriting these institutions? Surely that ought to give them significant leverage on the shareholders?

No one knows the answer to this. But they surely must be political reasons, as opposed to economic.

leesider

31-07-2009, 06:47 PM

I still think the best option is setup Nama and then go after the bondholders to a degree as well, thereby not leaving the taxpayer whistling in the wind. The main problem with this is the bond market could then make it difficult for the government to raise money in the market by putting up the interest rates on them, of course affecting the taxpayer again.

So who can do a forecast on how much the taxpayer would take the hit with just Nama and how much with Nama and hitting the bondholders??? ;-)

Nationalisation and Nama are nearly the same thing as far as I am concerned for the taxpayer, they still get left holding the can. The discussion should be about what other options are on the table.

daithi81

31-07-2009, 07:20 PM

http://en.wikipedia.org/wiki/Third_Position

leesider

31-07-2009, 07:26 PM

http://en.wikipedia.org/wiki/Third_Position

fuck left or right, I am ambidextrous! ;-)

poulgorm

31-07-2009, 08:15 PM

Land prices amount to half (or in the case of commercial developments up to 80%) of the price people were charged for houses and offices etc. These lucky landowners screwed the country - they contributed absolutely nothing - in fact had a shocking negative impact. Just happened to be in the right place at the right time. I know one bum who owned 10 acres on the outskirts of a provincial town.. sold it for €5 million. 40 houses built on it..he got, effectively, €250,000 per house.

Revenue have a record of all these deals. Go back over them (say last 10 years), tax these people at 80% (or 90%) of their selling price and you would raise €45 billion (on the basis of land prices accounts for at least 50% of final cost of the houses). Give the €45 billion to NAMA and the problem is largely solved.

Change the constitution if we have to, to retro tax these specific wasters. We are in a national crisis, which is causing untold misery. And will for a decade to come.

Desperate measures are called for...

KolaKubes

01-08-2009, 05:33 PM

Still though - the government now also have major stakes in both banks who - in about 3 to 5 years could (should) be up massively on their current price.
So a NAMA loss could be offset, to an extent, with this dosh.

NAMA is still inflating the value of the distressed property way beyond current market valuations, though.

This has the effect of giving the taxpayer a double whammy of expecting him to finance it and in the process, artificially price the property out of his range or if he can actually still get a mortgage for it, make him pay way more for it over a 30 year mortgage cycle.

And this is FF's idea of a good solution.

They are The Property Developer / Banker Party.

Always were and always will be.

I have an idea on this score but it has a lot of corners on it yet. Must discuss it with corporate wanker bro again.

It wasn't just the banks or developers who fucked up this country, the nation as a whole lived on credit way beyond their means, new cars, two holidays a year, designer gear to beat the band and so on. To say its banks and developers is nonsense, they are just one factor in the crash.

This is the biggest lie of the lot.

47% of the country have ZERO debt.

poulgorm

01-08-2009, 11:12 PM

starchaser

02-08-2009, 02:12 AM

it is remarkable that despite an even BIGGER boom happening in China, the Chinese people didnt lose their heads - they saved like crazy.

and its those savings which are bailing our banks out (via the bond market)

i think folks forgot the rule of saving for a rainy day - probably was seen as "old fashioned" but by god is it a right thing to do.

starchaser

02-08-2009, 02:34 AM

i find it remarkable that NAMA turns a right wing free market guy like myself into a major supporter of the likes of Joe Higgins.

there is something seriously wrong with it. and i mean MORALLY. and a sense of injustice can be felt no matter where you are on the political spectrum.

why in gods name should we pick up the tab for the mistakes of bankers for the next 10 to 15 years?

i hear the excuse that "bond holders" might not lend to us. why are we dependent on the same financiers that caused the crisis? where is the EU in all of this ? why cant the ECB step in?

And if the EU is leaving us out to dry, what is the point of the EU?

starchaser

02-08-2009, 02:38 AM

Yes we are all guilty, including the 47% of the people who are debt free. We all benefited from the Celtic Tiger, in the form of wages and salaries which are way excessive relative to our international competitors. This includes both public service and private employees.

no we are NOT guilty.

that is a LIE.

i wanted to move back to ireland years ago. i had saved enough cash to buy a house outright.

and sure enough, my offer, the next week was refused - went up by 10k. you cannot blame the buyers in that market who just wanted to get a home.

i was lucky - i had cash. and even i couldnt get a foothold. no wonder people borrowed to the hilt in order to get their first home.

Haro

02-08-2009, 02:40 AM

starchaser

02-08-2009, 02:45 AM

Yes we are all guilty, including the 47% of the people who are debt free. We all benefited from the Celtic Tiger, in the form of wages and salaries which are way excessive relative to our international competitors. This includes both public service and private employees.

UK quango IT manager earned £350,000 last year
http://www.telegraph.co.uk/news/newstopics/politics/5954321/Quango-IT-manager-earned-350000-last-year.html

i must admit i laugh at the "uncompetitive" stuff coming out - we dont compete on wages - we compete on BRAIN power. that is why tech companies locate in ireland.

if we start racing to the bottom, those tech companies will move to somewhere more civilised - like Switzerland.

Ask yourself - why has Google located its engineering HQ for Europe in Switzerland? Wages dont come into it.

poulgorm

02-08-2009, 09:02 AM

poulgorm that is such bullshit. The average joe on the street did not benefit from the Celtic Tiger, the multinationals coming in who've now fecked off did. The cost of living was just too high to take advantage of any of that. And still is.

Loads of average joes flying out to the sun two or three times a year. Record car sales. Student car parks packed out at third level. Hell, even parking for students in secondary schools was becoming a problem. Restaurants booming. etc etc.

The average joe did not ride the celtic tiger? Get real

poulgorm

02-08-2009, 09:12 AM

UK quango IT manager earned £350,000 last year
http://www.telegraph.co.uk/news/newstopics/politics/5954321/Quango-IT-manager-earned-350000-last-year.html

i must admit i laugh at the "uncompetitive" stuff coming out - we dont compete on wages - we compete on BRAIN power. that is why tech companies locate in ireland.

if we start racing to the bottom, those tech companies will move to somewhere more civilised - like Switzerland.

Ask yourself - why has Google located its engineering HQ for Europe in Switzerland? Wages dont come into it.

Tell that to the 1,800 Dell employees who are let go. And the estimated 3,600 other employees in related industries who are losing their jobs as a result of Dell.

Damn right, we don't compete on wages.

Brain power is fine for the people who have the brains and the qualifications to go with it. But for the average joe, competiveness is a massive problem.

Haro

02-08-2009, 10:55 AM

BRAIN power lol.

It's just too expensive to be in Ireland. Cost of living is too high, meaning wages have to be high. Once things take a turn for the worst they have no reason to be here.

daithi81

02-08-2009, 03:56 PM

Loads of average joes flying out to the sun two or three times a year. Record car sales. Student car parks packed out at third level. Hell, even parking for students in secondary schools was becoming a problem. Restaurants booming. etc etc.

The average joe did not ride the celtic tiger? Get real

Quite right. The standard of living in this country, compared to twenty years ago has risen exponentially, at all levels of society. Of course, it is now on the decline, but it has a lonnnng way to go, to reach back to per-boom era.

daithi81

02-08-2009, 04:36 PM

UK quango IT manager earned £350,000 last year
http://www.telegraph.co.uk/news/newstopics/politics/5954321/Quango-IT-manager-earned-350000-last-year.html

i must admit i laugh at the "uncompetitive" stuff coming out - we dont compete on wages - we compete on BRAIN power. that is why tech companies locate in ireland.

if we start racing to the bottom, those tech companies will move to somewhere more civilised - like Switzerland.

Ask yourself - why has Google located its engineering HQ for Europe in Switzerland? Wages dont come into it.

Anyone who wants to know what factors companies reflect upon when making the decision on where to locate such investment, read this:

http://www.weforum.org/en/initiatives/gcp/Global%20Competitive ness%20Report/index.htm

KolaKubes

02-08-2009, 06:01 PM

Quite right. The standard of living in this country, compared to twenty years ago has risen exponentially, at all levels of society. Of course, it is now on the decline, but it has a lonnnng way to go, to reach back to per-boom era.

I think we would want to be very careful at falling over each other to talk this country down.

Had a French lad and an English lad (this English lad is always at this stuff), loudly proclaiming how particularly ludicrous it was to have such high wages in Ireland. The undercurrent was decidedly "Ireland, of all places, this backward little island".

At the height of the boom, I'd plenty more of my "Centra ad" friends and acquaintances questioning how Ireland could have grown so spectacularly.

The same people who were here because they couldn't get work or funding at anything like our levels in their own country.

It couldn't possibly be because we had a far-sighted attitude to immigration, R&D spending and were bloody good at attracting in FDI. We also have an unusually well-educated work force. Beyond that, we're very sharp, good people skills and creative.

If anything, the fuck up was in putting these self-made men in the construction sector up on a pedestal. These were a symptom not a cause of the boom. Pig ignorant gombeen men who were in the right place at the right time. I see we have the big farmer element of FG sniffing around radical cuts in spending on the likes of R&D now. Stop these lads farting about in college and keep up your fat subsidies for REPS and the like is it?

We need to be very careful now not to panic and imagine that the Celtic Tiger was all smoke and mirrors.

As someone who is rabidly anti-FF and would not shed a tear if their party went the way of the PDs, I must say I have been impressed at their willingness to make the tough decisions. It was Bertie that got us in this mess and, had he still been in charge, it is difficult to see how a bullshitting populist like him could have effected the necessary bloodshed.

daithi81

02-08-2009, 07:01 PM

Anyone who thinks the Celtic Tiger was smoke and mirrors would want their head checked. It was the credit-fuelled post-tiger building boom which succeeded it, that people confuse it with. Almost the entire 1990's was real capital growth, with subsequent raising of living standards. Those standards would be very difficult to erode, though not impossible.

Haro

02-08-2009, 08:30 PM

Loads of average joes flying out to the sun two or three times a year. Record car sales. Student car parks packed out at third level. Hell, even parking for students in secondary schools was becoming a problem. Restaurants booming. etc etc.

The average joe did not ride the celtic tiger? Get real

That was because we were coming out of a recession. The money from the "celtic tiger" was not pumped public infrastructure. We have shit hospitals, shit services all round. Trains and buses are a joke in this country.

daithi81

03-08-2009, 12:15 AM

i_didnt_do_nawtin

03-08-2009, 12:17 AM

daithi81

03-08-2009, 12:18 AM

Says the guy who is worried he'll lose out on life's luxuries when the dole is cut.

Ok, please not another thread about Haro's welfare, I beg of you.

:(

babybliss

03-08-2009, 12:51 AM

Says the guy who is worried he'll lose out on life's luxuries when the dole is cut.

Ok, please not another thread about Haro's welfare, I beg of you.

:(

:twisted:

slick fingers

04-08-2009, 10:22 PM

That was because we were coming out of a recession. The money from the "celtic tiger" was not pumped public infrastructure. We have shit hospitals, shit services all round. Trains and buses are a joke in this country.

Have you walked on the new paving on Patrick's street? Have you traveled the new M8? Have you traveled the new Midleton train? Have you been a patient in the new wing at CUH? I aint saying it's perfect, but Cork and Ireland as a hole ;) has benefited greatly from the boom..

Killyoursons

05-08-2009, 01:23 AM

Shit compared to where? I can think of examples myself, I just want you to name a few.

Based on my (very limited) experience, I'd say the NHS is better than Ireland's health service.
Very interesting article on the topic here:
http://www.irishtimes.com/newspaper/opinion/2009/0803/1224251927150.html

daithi81

05-08-2009, 09:17 AM

Based on my (very limited) experience, I'd say the NHS is better than Ireland's health service.
Very interesting article on the topic here:
http://www.irishtimes.com/newspaper/opinion/2009/0803/1224251927150.html

Thanks. So, did the UK suffer from an extended period of recession (bar maybe some of the 60s) from the end of WWII until the early 90's?

Killyoursons

05-08-2009, 12:40 PM

Thanks. So, did the UK suffer from an extended period of recession (bar maybe some of the 60s) from the end of WWII until the early 90's?

Recession being decline in GDP over two successive quarters? I presume not.
Why is that relevant, anyway?

daithi81

05-08-2009, 12:56 PM

Recession being decline in GDP over two successive quarters? I presume not.
Why is that relevant, anyway?

As you define it, no. But you can define recession in many ways.

Anyway, Ireland underperformed massively, relative to our European neighbours, over this 50 year period (see chart). The nations were able to spend their wealth on capital infrastructure and national healthcare systems, while we simply could not afford these things. We had ten or so years of real growth, and in that time we were able to make consdierable leaps forward in terms of health and infrestructure, but to compare us to the likes of Sweden or the UK is a waste of time, given the head start they enjoyed in the fifty years previous. Of course, we should be aiming high, but a dose of realism is required here.

http://i31.tinypic.com/116m3wg.jpg

It's worth noting some dates while looking at this. The NHS was established in 1948, look at the disparity in wealth at that time.

Killyoursons

05-08-2009, 01:45 PM

As you define it, no. But you can define recession in many ways.

Anyway, Ireland underperformed massively, relative to our European neighbours, over this 50 year period (see chart). The nations were able to spend their wealth on capital infrastructure and national healthcare systems, while we simply could not afford these things. We had ten or so years of real growth, and in that time we were able to make consdierable leaps forward in terms of health and infrestructure, but to compare us to the likes of Sweden or the UK is a waste of time, given the head start they enjoyed in the fifty years previous. Of course, we should be aiming high, but a dose of realism is required here.

http://i31.tinypic.com/116m3wg.jpg

It's worth noting some dates while looking at this. The NHS was established in 1948, look at the disparity in wealth at that time.

Nothing I don't agree with there. It needs to be kept in mind when you hear people complaining about billions being pumped into the health service. Clearly, we have spent a lot more money on that recently, but that's in the context of long underinvestment. Billions (in today's money anyway) is what's needed to build and maintain a decent service.

Actin The Sham

05-08-2009, 01:55 PM

Nothing I don't agree with there. It needs to be kept in mind when you hear people complaining about billions being pumped into the health service. Clearly, we have spent a lot more money on that recently, but that's in the context of long underinvestment. Billions (in today's money anyway) is what's needed to build and maintain a decent service.

Because we couldn't afford to invest over the years, as outlined in the graph. We simply did not and now do not have the money.

It's like borrowing a million so that you can move in next door to a historically wealthy family who have been living in an expensive neighbourhood for generations. While you may be able to move into a similar sized home, you are struggling to pay off the mortgage on it. Meanwhile your kids are looking at the next door neighbours with their huge mercedes or their bentley and wondering why they can't go on a month long cruise every summer.

Just because your neighbours have it doesn't mean you can afford it. Ireland is like that.

We can't afford everything our neighbours have. The sooner we realise that the better.

How bad boy

05-08-2009, 02:35 PM

Have you walked on the new paving on Patrick's street? Have you traveled the new M8? Have you traveled the new Midleton train? Have you been a patient in the new wing at CUH? I aint saying it's perfect, but Cork and Ireland as a hole ;) has benefited greatly from the boom..

My brother is furious at the quality of service his pregnant wife has received at the new maternity ward.

Ii I recall correctly, he said they were "disorganised fuckwits".

The investment in public transport outside of Dublin has been a disgrace. two new bus routes and a reopening of an existing line in the entirety of the boom for the second larges city? Pathetic.

I agree partially with the established riches story, but Ireland's problems with public service provision are mostly organisational and managerial. The 12 hour waits in A&E were not all down to a lack of facilities, they were mostly due to outdated and inefficient work practices.

daithi81

05-08-2009, 02:51 PM

My brother is furious at the quality of service his pregnant wife has received at the new maternity ward.

Ii I recall correctly, he said they were "disorganised fuckwits".

The investment in public transport outside of Dublin has been a disgrace. two new bus routes and a reopening of an existing line in the entirety of the boom for the second larges city? Pathetic.

I agree partially with the established riches story, but Ireland's problems with public service provision are mostly organisational and managerial. The 12 hour waits in A&E were not all down to a lack of facilities, they were mostly due to outdated and inefficient work practices.

Of course, there is really nothing to stop us from gaining efficiency in labour for healthcare. It's relatively costless.

Lostmeringtopaddypower

05-08-2009, 02:59 PM

Of course, there is really nothing to stop us from gaining efficiency in labour for healthcare. It's relatively costless.

Yes indeed,

this fella is all ears, daithi.

http://www.irishtimes.com/newspaper/images/tile/2008/1115/1226700610867_1.jpg

Heh heh heh....

daithi81

05-08-2009, 03:02 PM

Yes indeed,

this fella is all ears, daithi.

http://www.irishtimes.com/newspaper/images/tile/2008/1115/1226700610867_1.jpg

Heh heh heh....

I don't know who that is, I'm really not that big into politics.

How bad boy

05-08-2009, 03:02 PM

Of course, there is really nothing to stop us from gaining efficiency in labour for healthcare. It's relatively costless.

You could say that for much of the (primarily bus based) public transport system too.

It's not as if Ireland is lacking a great deal in educational infrastructure or manpower either.

Lostmeringtopaddypower

05-08-2009, 03:05 PM

I don't know who that is, I'm really not that big into politics.

That'd be the cornerstone of Irish unionism, daithi.

A man who welcomes change and "costless efficiency gains" with open arms.

Jack "The Scuttler" O' Connor.

Actin The Sham

05-08-2009, 03:06 PM

I was in a restaurant on the continent on sunday. VAT was 6.5%.

The restaurant was packed.

Lostmeringtopaddypower

05-08-2009, 03:08 PM

I was in a restaurant on the continent on sunday. VAT was 6.5%.

The restaurant was packed.

I'd say you weren't paying Irish prices, either.

For food OR wine.

Irish mockery.

daithi81

05-08-2009, 03:08 PM

You could say that for much of the (primarily bus based) public transport system too.

It's not as if Ireland is lacking a great deal in educational infrastructure or manpower either.

So, who is most likely to implement such changes?

daithi81

05-08-2009, 03:10 PM

That'd be the cornerstone of Irish unionism, daithi.

A man who welcomes change and "costless efficiency gains" with open arms.

Jack "The Scuttler" O' Connor.

Ah. I said relatively costless, though (>0). Just so you know.

How bad boy

05-08-2009, 03:35 PM

So, who is most likely to implement such changes?

Regulated service providers?

It would be my preference, the auld division of financial and political power n all that.

Failing that, some sort of executive with centralised powers that could use economies of scale to drive down costs and improve service delivery standards through an intelligent model of processes and a dual focus on both the elimination of waste and the maintanence of customer focus on all operations.
But that would require someone with management experience in operations management. It's crazy talk.

Killyoursons

05-08-2009, 03:40 PM

Because we couldn't afford to invest over the years, as outlined in the graph. We simply did not and now do not have the money.

It's like borrowing a million so that you can move in next door to a historically wealthy family who have been living in an expensive neighbourhood for generations. While you may be able to move into a similar sized home, you are struggling to pay off the mortgage on it. Meanwhile your kids are looking at the next door neighbours with their huge mercedes or their bentley and wondering why they can't go on a month long cruise every summer.

Just because your neighbours have it doesn't mean you can afford it. Ireland is like that.

We can't afford everything our neighbours have. The sooner we realise that the better.

Sure. My point is only that people who drone out about 'billions pumped into the health service' are taking a very short-term view. Particularly when they suggest that we can make all sorts of savings there and still be left with a properly functioning system. Hence my posting a link to an article criticising the MacCarthy report for taking something like this view.

jd26

06-08-2009, 01:00 PM

http://www.examiner.ie/ireland/carroll-property-collapse-would-be-best-for-taxpayers-says-labour-td-98123.html#ixzz0NNnF lJPz

daithi81

06-08-2009, 01:10 PM

http://www.examiner.ie/ireland/carroll-property-collapse-would-be-best-for-taxpayers-says-labour-td-98123.html#ixzz0NNnF lJPz

Hopefully the above will occur, forcing NAMA to offer lower prices and thus pushing the government into the position of temporary nationalisation of AIB/BOI.

Lostmeringtopaddypower

06-08-2009, 01:13 PM

http://www.examiner.ie/ireland/carroll-property-collapse-would-be-best-for-taxpayers-says-labour-td-98123.html#ixzz0NNnF lJPz

There is no way in hell, imho, that the (irish) banks will let this happen.

The idea is great, like - but the €136 million owed to ACC will be paid for by one of the Irish banks (probably mainly by AIB who will write it off later at the taxpayer's expense)

daithi81

10-08-2009, 12:32 PM

http://nama.ie/Publications/2009/NAMAFAQs.pdf

Lostmeringtopaddypower

10-08-2009, 12:38 PM

http://nama.ie/Publications/2009/NAMAFAQs.pdf

If Carroll and all the other "developers" were dismantled, the government could shove NAMA up its collective hole.

The whole thing is a folly which falsifies the value of property and land in Ireland to the detriment of the generations to come.

Proinsias

10-08-2009, 12:56 PM

"The Government’s objective is to ensure that the lending needs of the real economy are met. A commercially focused banking system, which includes banks having a market presence, operating within market disciplines and constraints, is best equipped to achieve this aim."

In a recession, lending as little as possible at as high a rate as possible is the best commercial decision.

"NAMA in effect puts itself in the place of the bank that originated the loan, and will have all the same rights to pursue debts, where necessary. Borrowers who continue to meet their contractual obligations, of course, have no reason to worry – their rights are fully protected."

"It will have all necessary commercial powers of a financial asset management company to establish subsidiaries, to operate through agents, to buy and sell assets, to manage loans and work with borrowers, and to take full and determined action in relation to debts owed."

"NAMA itself will maintain a streamlined organisational structure and will outsource work as appropriate."

Government-backed, outsourced debt collectors is likely to be the order of the day then. Dodge City if they get too heavy-handed.

"This will enable NAMA to develop the property over the medium term to enhance the return to the taxpayer, rather than requiring a fire-sale of such assets in the immediate short term."
So NAMA might subcontract to property developers. Hmm... Interesting.

It's also going to have CPO powers, which is also interesting. Especially if, say the government wanted to do a bit o' building work.

"The institutions will be required to indemnify NAMA in respect of losses which arise on foot of failure to adequately disclose relevant information or in respect of actions taken by the participating institutions which give rise to liabilities for NAMA after transfer.
They will also be required to co-operate with NAMA in respect of subsequent litigation and to deal with specific loans in accordance with directions issued by NAMA."

This bit is good, hopefully keeping the banks in line. If there are problems, then the banks have to share the burden (in theory).

"It is expected that the stream of income from the loan assets transferred to NAMA will be sufficient to meet the interest payments on the NAMA bonds as based on information provided by the financial institutions, the cashflow generating loans pay an average margin of 2% above the floating rate of interest."

Isn't that how everybody did their property investing until 2 years ago, get enough money in to cover the interest?

Clearly there are some negotiations going on behind the scenes here:
"Basically, NAMA will purchase assets through the issue to the banks of Government securities and/or guaranteed securities. Under Eurostat rules this could result in a very significant increase in gross national debt without the offset represented by the assets purchased being recognised. However, the guidance issued by Eurostat on 15th July requires some further study – it may mean that when NAMA issues securities to pay for bank assets this is essentially an exchange of one form of financial asset for another and Eurostat may treat this as a swap so that by whatever levels your debt may go up because of debt issued it will decrease by the same amount as you have acquired financial assets to an equal value."

The government are obviously putting pressure on Eurostat to not include the NAMA debt on governmental debt, arguing that the assets outweigh the debts. I don't think that argument washes, however if you have the assets to cover it, there's nothing wrong with running up debt per-se.

I think this is the most important line in the entire document:
"The stream of income from the assets and the proceeds from the eventual sale of the underlying assets will accrue to NAMA. If on the wind up of NAMA, it is profit making this profit will also accrue to the State. In the event that NAMA makes a loss, the Government intends that a levy will be applied to recoup the shortfall."

corkoniense

10-08-2009, 04:40 PM

http://www.examiner.ie/ireland/carroll-property-collapse-would-be-best-for-taxpayers-says-labour-td-98123.html#ixzz0NNnF lJPz

What's sauce for the goose is sauce for the gander; but not for Irish banks and developers it would appear. This case - and the background shenanigans involving the govt and ACC - just highlights how depressingly corrupt a society we inhabit. Throughout the whole Celtic tiger sham, we were constantly hammered with ideas of the "free" market, that the "hidden" hand of said "free" market would do the job that Governments couldn't do, even though our own govt constantly tried to stoke said "free" market with all sorts of tax breaks for apartment and hotel construction. they seemed to have moved onto hospitals now, to their eternal shame.

Now that everything's gone south, they are desperately trying to put a floor on said "free" market, through the introduction of the bank guarantee scheme (whatever about guaranteeing deposits, guaranteeing liabilities with our money is nothing short of treason) and now the infamous NAMA. One bank outside the comfort zone of the guarantee and NAMA, namely, ACC, is doing what any lender in an ordinary capitalist country would do: go after the delinquent developer's assets that were given as a guarantee, liquidate them as is their right and cut their losses in that way. That's what's happening with all the reposessed cars and houses up and down the country involving ordinary people who fucked up and overextended themselves and are now paying dearly for it(that's life); yet developers who fucked up by getting insane loans from banks for overpriced land have sought and are now receiving the protection of the taxpayer thru NAMA, in which the taxpayer assumes all the liabilities for those loans and a flimsy IOU from the Govt which states that the developers will be "pursued" for those loans. And this "pursuit" of dodgy developers loans in the shadow on n+1 tribunals, the tent at the Galway races, bank overcharging scams and the barefaced corruption of Ahern, Burke, Lawlor, Lowry, Haughey etc?

If the hard pressed taxpayers of Ireland finally revolted and put these people's heads on a spike, I wouldn't blame them for one second. At least we would have finally discovered our outrage. In the absence of such a revolt, it looks like we're gonna have to collectively bend over once again and take it in the ass from those who presume to be our leaders in perpetuity; the Lenihans, the Andrews, the Cowens et al.

jd26

13-08-2009, 09:58 AM

Fatal flaw in Nama plan exposed - Bruton
STEPHEN COLLINS, Political Editor

POLITICAL REACTION: THE SUPREME Court decision to refuse further protection to Zoe Developments has exposed a fatal flaw in the plan to establish Nama, according to Fine Gael finance spokesman Richard Bruton.

He said the decision showed there was no evidence to suggest that property prices would recover.

The Supreme Court judges had said it was “obvious that some evidence of likely improvement in the property market is absolutely essential” before a court could give the Zoe Group temporary protection from creditors.

“It is equally obvious to me that in the absence of any credible evidence from Government that property prices are only temporarily depressed, the Government cannot justify the use of this elastic concept of ‘long-term economic value’ in paying above market prices for the assets to be bought by the taxpayer,” said Mr Bruton.

“The huge threat from this ill-conceived Nama project is that taxpayers will be forced to overpay the banks for toxic developer loans,” he added. “Rosy and baseless optimism about a recovery in property prices can hobble the public finances for a generation.”

Mr Bruton also said the action by ACCBank also raised huge questions about how the Government and Nama would deal with smaller banks that were part of lending consortiums to troubled developers. Smaller banks may feel that they could gain even greater advantage from a court bankruptcy process than from Nama.

“The nightmare scenario now for the hard-pressed Irish taxpayer would be if small banks like ACC were bought off by the bigger banks and the whole lot passed on to Nama and the taxpayer in a few months’ time,” said Mr Bruton.

Labour TD Ciarán Lynch also said the court decision had put a serious question mark over the Government’s strategy on Nama.

“This decision will provide an opportunity to get an indication as to the state of the property market, before Nama puts us into hock for decades to come. This can only be a good thing,” said Mr Lynch.

He said despite the “bluster” from the Department of Finance it was now clear there was a serious question mark over the entire Fianna Fáil bad bank strategy.

“The Cowen/Lenihan strategy based on the setting up of Nama is one massive gamble with public money, that will only pay off with a return of the property boom. Given that this is the kind of mindset that got us into these difficulties in the first place, one must now seriously question, not only the Government’s direction on this but the basic logic of their whole approach,” said Mr Lynch..

POL

13-08-2009, 10:03 AM

.

we heard you the first time Mr Fine Gael

Cliff Barnes

13-08-2009, 10:13 AM

If Carroll and all the other "developers" were dismantled, the government could shove NAMA up its collective hole.

The whole thing is a folly which falsifies the value of property and land in Ireland to the detriment of the generations to come.

In a fucking nutshell.

Rebelred

13-08-2009, 10:17 AM

Cliff Barnes

13-08-2009, 10:20 AM

Serious questions are going to have to be asked of the Government plan, are we really going to allow the State to pay 70 Billion for land that is worth maybe (and lets be honest, we don't really know what it's worth) half that figure, in the hope that it'll all be worth something again some day down the line?

I want to see a map of Ireland especially Dublin where the majority of these sites are anyway and a chart showing estimated valuations.

Time for some specifics.

daithi81

13-08-2009, 10:44 AM

.

Dear Mr.Bruton,

Please learn the difference between short-medium term (Carrolls proposal) and long-term (NAMA's proposal).

Regards,

daithi81

jd26

13-08-2009, 10:54 AM

Dear Mr.Bruton,

Please learn the difference between short-medium term (Carrolls proposal) and long-term (NAMA's proposal).

Regards,

daithi81

Surely, the point is that we have no idea of what the long-term value is. One of the key points of the Carroll judgement was that the Zoe's claims were based on rises that are not guaranteed to happen.

How long have Japan's property prices been under their 1990 level? What increase has their been in German property prices in the last few decades?

Proinsias

13-08-2009, 11:06 AM

Surely, the point is that we have no idea of what the long-term value is. One of the key points of the Carroll judgement was that the Zoe's claims were based on rises that are not guaranteed to happen.

How long have Japan's property prices been under their 1990 level? What increase has their been in German property prices in the last few decades?

Those situations are definitely risks, however as NAMA is government run, then a 30 year timescale isn't out of the question.

I'm not sure many people would be happy with a 30 year payback period but that sort of timescale would wreck a commercial entity.

daithi81

13-08-2009, 11:07 AM

Carroll lost his case because his proposals were ridiculous, he was somehow going to turn it all around in 2-3 years. FFS...

NAMA is clearly looking at a lifespan of 10+ years, not 2-3. This is more useless point-scoring by the opposition, a reason why I despise politics. Bruton should really know better.

jd26

13-08-2009, 11:12 AM

NAMA is still based on the idea that property prices will recover in 10 years. Yet the examples of Japan and Germany give us cause for concern.

It's ripping off taxpayers to benefit the shareholders and bondholders of banks who knew they were taking a risk. Just nationalise the things. Then set up NAMA and privatise them later.

daithi81

13-08-2009, 11:28 AM

NAMA is still based on the idea that property prices will recover in 10 years.

Therefore any comparision between Carroll and NAMA is pointless.

jd26

13-08-2009, 11:36 AM

Therefore any comparision between Carroll and NAMA is pointless.

No.

Because the Supreme Court judgement discredited the idea of making provisions basedon assumptions of future value, regardless of the timeframe.

daithi81

13-08-2009, 11:38 AM

No.

Because the Supreme Court judgement discredited the idea of making provisions basedon assumptions of future value, regardless of the timeframe.

So nothing can be based on FV anymore? Whatever shall we do?

jd26

13-08-2009, 11:43 AM

So nothing can be based on FV anymore? Whatever shall we do?

Businesses can operate as they please.

For the government to use future value turns the government into a speculator. That's way beyond what a government should be doing.

daithi81

13-08-2009, 11:47 AM

Businesses can operate as they please.

For the government to use future value turns the government into a speculator. That's way beyond what a government should be doing.

So, bearing that in mind, how do we:

Just nationalise the things. Then set up NAMA and privatise them later.

?

jd26

13-08-2009, 11:49 AM

That's not speculation. It's stabilising the economic situation in a way that stops the taxpayer paying to buy off someone else's risk.

daithi81

13-08-2009, 11:51 AM

That's not speculation. It's stabilising the economic situation in a way that stops the taxpayer paying to buy off someone else's risk.

So, none of it is based on FV?

Do, go on...

(I really don't believe you are thinking this through, the risk doesn't change and probably increases. This is why Prionsias is against nationalisation, we have debated this quite a lot in 'an bord snip' and maybe here)

jd26

13-08-2009, 11:56 AM

daithi81

13-08-2009, 11:58 AM

Maybe the assumption of future privatisation is, but that is not an essential part of what I'm calling for. It's more a statement that it's preferable to not have a government running a bank and that should privatisation be possible, it should be pursued.

As things stand, any shareholder value that is preserved in the banks is money that could have gone to cover the state's risks in NAMA. Shareholders know they are taking a risk and don't deserve any special bail-out.

What's important to the state is that the banks are kept running, not that they are kept running in their current form.

Well, I agree more with the above. I actually think that shareholders should transfer their shares from banks to NAMA, with the state taking over the banks, and the shareholders taking on the risk of NAMA, though not a controlling interest.

So it's on to you and Proinsias to duke it out.

Proinsias

13-08-2009, 12:24 PM

Well, I agree more with the above. I actually think that shareholders should transfer their shares from banks to NAMA, with the state taking over the banks, and the shareholders taking on the risk of NAMA, though not a controlling interest.

So it's on to you and Proinsias to duke it out.
If NAMA proves to be disasterously loss making, the shareholders won't have to pay for it. If it's privately owned, it can just declare itself bankrupt and the systematic risk is back on the state again. Otherwise, we're in a Eurotunnel situation with a private company saddled with massive governmental debt.

It's not a bad solution, however legally, I'd be very surprised if it was possible. I'm sure a plan could be arrived at, but the shareholders only have about €2.5 billion worth of value invested in the banks. That's a tiny percentage of NAMA, arguably nothing, so effectively the shareholders are neither responsible for it (the government still would be) nor in control. If NAMA does pay off, there would be political hell to pay, as the government effectively subsidied the profits through the transfers of loans.

Actually, as an AIB shareholder, I could go along with that. If NAMA pays off (as I think it will), I'd make a killing.
Maybe the assumption of future privatisation is, but that is not an essential part of what I'm calling for. It's more a statement that it's preferable to not have a government running a bank and that should privatisation be possible, it should be pursued.

As things stand, any shareholder value that is preserved in the banks is money that could have gone to cover the state's risks in NAMA. Shareholders know they are taking a risk and don't deserve any special bail-out.

What's important to the state is that the banks are kept running, not that they are kept running in their current form.
I agree with your last point, however I'm not sure the part highlighted in bold holds up.

You're assuming the ownership of the banks doesn't matter. I argue it does and that the incentives to perform under private ownership are more likely to produce a profitable bank than under public ownership.

For starters, the ability to chase debts is heavily diminished by political pressure. I don't know the exact research in this area (if anyone does, send it my way), but my thoughts on the incentives present lead me to think that the risks of the banks continuing to rack up the losses are much higher under public, rather than private ownership.

It's a difficult argument to make, involving value judgements, but I think it adds risk and risk mitigation should be the name of the game. Taking on the banks as well as NAMA has to be extra risk, both on the up side and the downside. It's like doubling up your bets. I don't think that's a good idea right now.

There are other issues too with havng a totally public banking system, some good (South Korea being an example) and some bad (South Korea being an example...).

From the point of view of sending a clear signal to the international investment community that hte Irish government is opposed to nationalisation, it's a useful signal. Probably a marginal point, but it's a finely balanced argument, IMO.

daithi81

13-08-2009, 12:29 PM

For starters, the ability to chase debts is heavily diminished by political pressure. I don't know the exact research in this area (if anyone does, send it my way), but my thoughts on the incentives present lead me to think that the risks of the banks continuing to rack up the losses are much higher under public, rather than private ownership.

http://ideas.repec.org/

daithi81

13-08-2009, 12:42 PM

Independent.ie
Grassroot Greens bid to block 'bad bank'
Liquidator takes control of over 50 Carroll companies

By Fionnan Sheahan, Dearbhail McDonald, and Tom Molloy
Thursday August 13 2009

A NEW revolt from Green Party grassroots members poses a serious threat to the Government's plans to set up a 'bad bank'.

Several sections of the party's organisation have formally called for a special convention to firmly hammer out the Greens' policy on NAMA, the Irish Independent has learned.

If enough members vote against the 'bad bank', Green Party ministers and TDs will be blocked from supporting the Government's NAMA legislation, plunging the coalition into crisis.

The escalating concerns within the junior coalition party come amid claims the Supreme Court's decision to withdraw protection from Liam Carroll's companies exposed a massive risk of NAMA overpaying for the loans and properties it takes over.

The provisional liquidator who took over parts of Mr Carroll's Zoe group yesterday has been granted extensive powers by the High Court.

Appointed at the request of ACC Bank, he has been granted powers to take control of some 51 companies loosely known as Zoe Developments.

In addition to taking over all subsidiaries of Vantive Holdings and Morston Investments Limited -- the holding companies that distributed loans across the Zoe group -- the provisional liquidator has been granted powers to fire staff and appoint additional directors to the boards of those companies.

The High Court yesterday heard that even though ACC is owed only €63.9m by Vantive, that company is exposed to total debts of €569m.

The fear is that if a court liquidator is formally appointed following a full hearing of the winding up application next month, a liquidator might -- in order to secure ACC's money -- be obliged to conduct "fire sales" worth several hundred millions of euro.

Banks owed €1.2bn are not expected to immediately appoint receivers to Carroll's companies following a crisis meeting yesterday.

It is understood that while the banks owed money have receivers on standby, they agreed not to move against the group until a full hearing of the application of the liquidator is heard on September 9.

Finance Minister Brian Lenihan's officials insist the Carroll judgment will not affect NAMA.

But some senior Green Party activists are worried about the country being saddled with a debt of €50bn in bad property assets and want the legislation changed.

Under party rules, five constituency organisations can call a convention and already four have passed such a motion -- Waterford; Dublin Central; Dublin South-Central; and Dublin South-West.

At a convention, party sources say a motion would be put forward demanding the TDs not vote for NAMA in the Dail.

If two-thirds of the membership were to oppose NAMA, the TDs would be under orders not to vote for it, casting serious doubt on the possibility of passing the bill.

Risk

"The aim of the convention is to alter NAMA, to stop it in its tracks. There are a large number of moderate Greens involved in this process because we think the party leadership has got it wrong," a party source told the Irish Independent.

"The taxpayer will take the risk and foot the bill. It is the single biggest political issue of our time."

Among those calling for the special convention to be held on the issue are local election candidates: James Nix in Limerick City; Gary Fitzgerald in Dublin Central; Arthur Doohan in Dublin South-West; and former councillor Tony McDermott in Dublin South-Central.

But party headquarters are claiming the motion passed in Dublin South-West is not valid, leading to accusations it is "hiding behind the rulebook".

Those calling for a convention believe "there won't be a problem" getting five constituency organisations to demand a convention be held before the Dail votes on NAMA.

The Green Party confirmed three motions were received by party headquarters and there was a query on a fourth.

A party spokesperson said it would not be commenting on whether a convention was needed on NAMA.

- Fionnan Sheahan, Dearbhail McDonald, and Tom Molloy

http://www.independent.ie/national-news/grassroot-greens-bid-to-block-bad-bank-1858517.html

Proinsias

13-08-2009, 12:44 PM

http://ideas.repec.org/

Gwanyalangerya!

For starters, Dunning's OLI paradigm puts ownership as one of the key drivers of profitable investment (which I should have known off the top of my head...).

Hey, you're the one here with the economics degree, I've been doing it less than a year!

Lostmeringtopaddypower

13-08-2009, 12:45 PM

http://www.independent.ie/national-news/grassroot-greens-bid-to-block-bad-bank-1858517.html

I post one thread to Dan Boyle and this happens.....

*stares at self in mirror in AWE*

daithi81

13-08-2009, 12:58 PM

Gwanyalangerya!

For starters, Dunning's OLI paradigm puts ownership as one of the key drivers of profitable investment (which I should have known off the top of my head...).

Hey, you're the one here with the economics degree, I've been doing it less than a year!

And I'm clearly too lazy to search. As it happens, I have never read anything on the topic of nationalised banks performance, in terms of policing debts, etc. Although I'm sure it's out there. My hunch would be to say the incentives would be dulled, although higher NPA's would mean more public money being funnelled in, which I assume would lead to great public pressure. Or am I being to idealistic?

daithi81

13-08-2009, 01:04 PM

Consumer Price Index July 2009

http://www.cso.ie/releasespublications/documents/prices/current/cpi.pdf

Ok, tis getting a bit too steep now. Are the ECB looking to act on this, or what?

POL

13-08-2009, 01:09 PM

You have to laugh at the idea that the Greens are going to pull the plug, people need to realise that politics in Ireland is concerned with looking after number 1, first and foremost, screw the system for every penny they can get, John Gormley will never be elected again in his life, its like Turkeys voting for Christmas

Proinsias

13-08-2009, 01:17 PM

And I'm clearly too lazy to search. As it happens, I have never read anything on the topic of nationalised banks performance, in terms of policing debts, etc. Although I'm sure it's out there. My hunch would be to say the incentives would be dulled, although higher NPA's would mean more public money being funnelled in, which I assume would lead to great public pressure. Or am I being to idealistic?

That's how it worked in Japan and South Korea, and what's probably happening in China. Politically driven investment works, up to a point. Nationalised banks can't really avoid politically driven investment, so with South Korea, the chaebols grew rapidly using the government banks. Once that growth slowed and the tide went out, the banks were left with loans so big, they posed a systematic risk to the country and the IMF were called in.
It's still happening in Japan, although not as badly as it was in the late 80s.

A quick google throws up the following book as the first hit
Enterprise size, financing patterns, and credit constraints in Brazil ...
By Anjali Kumar, Manuela Francisco, World Bank
The bit I read on it states that public banks have looser lending constraints and favour larger businesses over smaller business, compared to private banks.

Had a read off a paper on the subject:
Bank Ownership and Efficiency
Yener Altunbas, Lynne Evans and Philip Molyneux
Journal of Money, Credit and Banking, Vol. 33, No. 4 (Nov., 2001), pp. 926-954

The conclusion runs contrary to my argument, so I suppose I should take that into account:
In general, we find little to suggest that privately owned banks are more efficient than their mutual and public sector counterparts in the German banking market. Private, public, and mutual banks all appear to benefit from widespread economies of scale, and within each ownership type the larger banks tend to realize greater economies. Inefficiency measures indicate that all sizes of public and mutual banks have slight cost and profit advantages over their private commercial banking coun- terparts, a feature which may be explained by their lower cost of funds. Technical progress also appears to have made an important contribution to cost reduction in the German banking system although its influence varies considerably according to dif- ferent model specifications. Overall, our results do not indicate agency problems for nonprivate banks operating within the German banking market.

I do think the Irish government run a risk by privatising the banks. As I said in the other thread, if the banks make a profit and NAMA makes a loss, there are mechanisms in NAMA for clawing the loss back.

Proinsias

13-08-2009, 01:20 PM

Consumer Price Index July 2009

http://www.cso.ie/releasespublications/documents/prices/current/cpi.pdf

Ok, tis getting a bit too steep now. Are the ECB looking to act on this, or what?

That's not a slowing slope either.

The ECB need to flood the Irish market with cash, in a way that doesn't leak easily.

daithi81

13-08-2009, 01:27 PM

That's how it worked in Japan and South Korea, and what's probably happening in China. Politically driven investment works, up to a point. Nationalised banks can't really avoid politically driven investment, so with South Korea, the chaebols grew rapidly using the government banks. Once that growth slowed and the tide went out, the banks were left with loans so big, they posed a systematic risk to the country and the IMF were called in.
It's still happening in Japan, although not as badly as it was in the late 80s.

A quick google throws up the following book as the first hit
Enterprise size, financing patterns, and credit constraints in Brazil ...
By Anjali Kumar, Manuela Francisco, World Bank
The bit I read on it states that public banks have looser lending constraints and favour larger businesses over smaller business, compared to private banks.

Had a read off a paper on the subject:
Bank Ownership and Efficiency
Yener Altunbas, Lynne Evans and Philip Molyneux
Journal of Money, Credit and Banking, Vol. 33, No. 4 (Nov., 2001), pp. 926-954

The conclusion runs contrary to my argument, so I suppose I should take that into account:
In general, we find little to suggest that privately owned banks are more efficient than their mutual and public sector counterparts in the German banking market. Private, public, and mutual banks all appear to benefit from widespread economies of scale, and within each ownership type the larger banks tend to realize greater economies. Inefficiency measures indicate that all sizes of public and mutual banks have slight cost and profit advantages over their private commercial banking coun- terparts, a feature which may be explained by their lower cost of funds. Technical progress also appears to have made an important contribution to cost reduction in the German banking system although its influence varies considerably according to dif- ferent model specifications. Overall, our results do not indicate agency problems for nonprivate banks operating within the German banking market.

I do think the Irish government run a risk by privatising the banks. As I said in the other thread, if the banks make a profit and NAMA makes a loss, there are mechanisms in NAMA for clawing the loss back.

Well, one needs to consider the Irish situation when discussing political motivations in banking. Were there no political influences at play, over the past decade? Are they not at play now? Is it even possible to remove these, wheter private or not? One could argue that a national bank could be more transparent.

There more sources for potential studies:

http://www.worldbank.org/reference/
http://www.imf.org/external/pubind.htm
http://www.federalreserve.g ov/pubs/research.htm (see 'working papers' below)

Proinsias

13-08-2009, 01:36 PM

daithi81

13-08-2009, 01:41 PM

Er, thanks. I guess.

I don't really have the time to obsess about this. I probably will end up reading way more about it than I should, instead of doing what needs to get done over the next few weeks!

You don't have to look it up, I just thought I'd provide some links!

Are you one of these people who must clear his plate, even when stuffed?

Proinsias

13-08-2009, 01:42 PM

Yes, yes I am.

corkoniense

13-08-2009, 07:00 PM

http://www.irishtimes.com/newspaper/opinion/2009/0813/1224252497177.html

Carroll saga reveals unholy pact between bankers and developers

Thu, Aug 13, 2009

OPINION: The Carroll judgment is very good news for the taxpayer: the cat is out of the bag as to why the banks are cosying up to Nama, writes KARL WHELAN

IT IS too early to assess the impact on the Irish property market of the Supreme Court’s decision to deny examinership to Liam Carroll’s Zoe group. However, despite a lot of coverage focusing on potential complications stemming from the decision, I believe that the Carroll case has been very positive for the public interest.

The first positive aspect is that the case has finally given us a clear picture of the likely financial state of the Irish property developers whose loans the National Asset Management Agency (Nama) is supposed to purchase.

Carroll’s accountants have admitted that, as of today, his Zoe group could only pay back about one-quarter of the money it owes to the Irish banks. Keep in mind that many analysts have predicted Nama will purchase loans for an average discount of one-quarter. If Nama were to purchase the Zoe loans for such a price, it would imply the Irish taxpayer paying three times the amount that they could currently be sold to anyone else for.

Of course, it could be argued Carroll’s property empire might be in worse shape than those of other developers. It seems perfectly possible, however, the opposite is the case. His properties mainly consist of Dublin projects likely to get developed in years ahead. Consider, in contrast, the position of those developers who have pinned hopes on developing the proverbial field outside Mullingar.

The second positive aspect of the Carroll case and the judgments passed are the insights they have given us into the current unholy alliance between the Irish banks and property developers.

The first instalment in this story will be familiar to those who have followed banking crises elsewhere. As the property market began to fail and the prospect of substantial losses loomed, the banks decided to take it easy on developers because the revelation of large losses could have scared off international money markets from providing them with funds.

By the time these international markets were scared off, in September 2008, the banks continued to deny they were facing enormous losses. This denial of reality paid off for them. By fooling our Government into believing they suffered from a short-run liquidity problem rather than a long-term solvency problem, the banks managed to receive an almost-blanket guarantee on their debts from the Irish taxpayer.

The Carroll case revealed the latest, and most disturbing, aspects of the unholy banker-developer alliance. Justice Peter Kelly concluded that the survival plan put forward by the Carroll group was “fanciful” and “lacking in reality” and he was supported in this assessment by the Supreme Court.

However, despite the reality that Carroll’s business simply could not be saved, all the Irish banks involved, apart from ACC, actively supported this survival plan, allowing Carroll to continue rolling up interest and also taking the highly unusual step of providing the funds to pay off unsecured trade creditors.

Why would the banks do this? Why would they extend further money to a clearly failing developer with a fanciful survival plan? The only possible answer is these banks were determined to maintain the illusion Carroll would one day pay back the money he owed. And the reason for this illusionist act? Nama.

With Nama apparently determined to put an optimistic spin on all loan purchases, viewing them through the rose-tinted spectacles of “long-term economic value”, the incentive for the participating banks has been to maintain that loans such as Carroll’s are good and to then sell them to Nama for far more than they will ever repay.

The only reason we were ever allowed see the inside workings of Zoe’s alliance with the bankers was because Dutch-owned ACC was left out of Nama and so didn’t have any incentive to pretend the Zoe loans were any better than they are.

We don’t know what’s going to happen next in the Carroll saga. Quite possibly, the other banks involved in lending money to Carroll will now pay off ACC and revert to business as usual, ordering liquidators to let the fanciful survival plan be put into action. And quite possibly, Nama will end up purchasing Carroll’s loans at a large premium without the Irish public ever knowing, because the information will never be revealed, thanks to “commercial sensitivities”. Still, to some extent the cat is out of the bag because the public has now been able to see how little the Nama loans are really worth.

Much of the commentary on the Carroll judgment has focused on two potentially negative implications. The first has been the concern that a liquidation of Carroll’s assets will result in a “fire sale” that will somehow make the underlying situation in the Irish property market worse than it is already. I think this concern is misplaced.

What we now know is that the banks have been actively working to keep development properties off the market, so that their true values are kept out of the public domain. However, to work through our current problems, these property assets are going to have to be dealt with – either sold at a reasonable price or else demolished or returned to agricultural usage.

Carroll’s properties represent a small fraction of the overall €90 billion in assets that need to be dealt with. If the Supreme Court decision gets us finally started on the road to working through this overhang of property assets, then it will have done the Irish public a big favour.

The other widely expressed concern is that the potential sale of Carroll’s assets will be a “problem” for Nama’s valuation method. I suspect the problem these commentators are worried about is that when such sales reveal the true low value of Irish property assets, this will make it more difficult for Nama to pay high prices under the guise of long-term economic value. Well, this may be a problem for bank shareholders but I can assure readers that it’s good news for the Irish taxpayer.

Karl Whelan is professor of economics at University College Dublin

© 2009 The Irish Times

Proinsias

13-08-2009, 07:12 PM

corkoniense

13-08-2009, 08:10 PM

Sorry, he lost me here.

He's comparing firesale prices to their value if put back onto the market in a gradual and phased fashion.
One of the big aims of NAMA is exactly this, to stop the forced selling of large chunks of property.

"Value" is reflexive, it's based upon sentiment, market direction and fears about the future. As a result, it's highly dependent upon timing.

The "true value" he talks about later assumes such a thing exists.

It doesn't.

Unbelievable. Could you just speak English for a minute? Forget about "reflexive value based on sentiment", firesales and so on. He's pointing out in layman's terms that Nama will now pay three times the current value of land that would be received if it was sold in the morning. ACC will only get one third of what nama will pay covered banks for the same amount of land. That's tough on ACC, but nobody held a gun to their head to lend Carrol this insane amount of money, and besides, now that they can seize his collateral, they can try their best to get what they can for it (I'm sure they can play the "long term value" game too if they want). What is absolutely nuts is that Nama, ie me and you and our families, are going to pay the banks far more for these bad deals in the vain hope that their "long term value" will be realised at some indeterminate point in the future; 10+ years according to Daithi, but sure why not 30 years?

And anyway, here's the human interest angle for ye. My girlfriend's dad sub contracted for Carrol's Danninger, was owed thousands for almost a year, and hey presto, got paid almost all the money owed only a month ago. We now see from this article why he got paid; other banks poneyed up the money (our taxpayers' money, mind) to indulge in the fantasy that Zoe Developments was some kind of solvent entity and that the High Court would go easy on them. Well I say thank God for Justice Peter Kelly.

Finally, all your economic wizardry ignores "sentiment, market direction and fears for the future" that you refer to in your post. We simply CANNOT divorce the fact that Nama is being created and controlled by a government/civil service/banking elite that, through its own incompetence and corruption, led us into this nightmare in the first place. They have betrayed us already; they cannot be allowed to do so again.

daithi81

13-08-2009, 08:31 PM

leesider

14-08-2009, 12:46 AM

Does anyone at all agree that the bondholders are the ones that should be stumping up not the taxpayer????

ho chi feen

14-08-2009, 01:51 AM

Does anyone at all agree that the bondholders are the ones that should be stumping up not the taxpayer????

In theory, possibly so... in practice, probably not.

madcyril

14-08-2009, 03:02 AM

Ok, I agreed and even brought the point up on irisheconomy.ie and got:

This would come back to my point about discounting. If the total assets that NAMA takes on is the likes of the above, then the discount will need to be heavy, with all the implications. While a return is very likely to be made on urban developments, the market that created the demand for vast housing estates in Longford, et al, has vanished and may never return.

Thoughts?

Level the developments and return the land to agriculture .. if that's where it came from.

Give the tax breaks that the developers got, back to the farming community .. get the export market running again.

Vote no to lisbon ... get ourselves out of europe ... get the fishing industry back on track.With a government that has some balls we may get our waters back from the Spanish and Portuguese.

Increased tax revenues from these ventures should go a long way to financing renewables ... aka wind/current/wave energy generation.

We have enough housing.

Next, to tackle the homeless. My God, surely we still have the resources to house a few hundred 'in dire need cases'.

As for the smart economy .. stupid is as stupid does. The media has filled itself for the last week, focusing on the lack of interest in the sciences. Well .. that's always the way. There is no such thing as a smart economy ... and never will be.

It/Pharma/Biotech sectors will always fuel the 'smart' sector because demands for there service to the aforementioned industries need them.

People always tell us we are an island. That may have certain isolationist connotations. I disagree. If we self suffice and use our resources (energy is no longer being mined or sucked from the ground) to maintain our 'island', then I think we've a great base to create a great nation. Not one dependent on others.

A thriving agriculture industry, we have our food.

Heat, energy, food, water ... what more do we need? A frothy cappucino with marshmallow toppings and chocolate flakings?!?! (while I use my suv).

I cycle btw :{

Professor Piehead

14-08-2009, 03:22 AM

Ok, apart from the verbal diarrhea from the usual suspects, can anyone explain what the minister for finance means by 'long term'. Is there any evidence, whatsoever, that the property the govenment will buy will be worth more than it pays for it in twenty years time?

No.

Thanks for that.

rubbish mouth breath

14-08-2009, 03:28 AM

sure we'll all benefit..never..watc hed prime time tonite, economists, people that know whats happening...and are living this shite and brian linehan..down the tubes were going.

Professor Piehead

14-08-2009, 03:32 AM

sure we'll all benefit..never..watc hed prime time tonite, economists, people that know whats happening...and are living this shite and brian linehan..down the tubes were going.

Gah, feckin Hardy will hide behind 'the targets the Eu has set in place', it's cack, and he knows it. Only FF gimps and the twats who voted for them belive it's the right thing to do.

daithi81

14-08-2009, 09:17 AM

daithi81

14-08-2009, 09:18 AM

Level the developments and return the land to agriculture .. if that's where it came from.

Give the tax breaks that the developers got, back to the farming community .. get the export market running again.

Vote no to lisbon ... get ourselves out of europe ... get the fishing industry back on track.With a government that has some balls we may get our waters back from the Spanish and Portuguese.

Increased tax revenues from these ventures should go a long way to financing renewables ... aka wind/current/wave energy generation.

We have enough housing.

Next, to tackle the homeless. My God, surely we still have the resources to house a few hundred 'in dire need cases'.

As for the smart economy .. stupid is as stupid does. The media has filled itself for the last week, focusing on the lack of interest in the sciences. Well .. that's always the way. There is no such thing as a smart economy ... and never will be.

It/Pharma/Biotech sectors will always fuel the 'smart' sector because demands for there service to the aforementioned industries need them.

People always tell us we are an island. That may have certain isolationist connotations. I disagree. If we self suffice and use our resources (energy is no longer being mined or sucked from the ground) to maintain our 'island', then I think we've a great base to create a great nation. Not one dependent on others.

A thriving agriculture industry, we have our food.

Heat, energy, food, water ... what more do we need? A frothy cappucino with marshmallow toppings and chocolate flakings?!?! (while I use my suv).

I cycle btw :{

Join the debate!

http://www.irisheconomy.ie/index.php/2009/08/12/it-article-on-lessons-from-carroll-case/#comments

slick fingers

14-08-2009, 11:05 AM

Going off topic, but AIB went to €2.36 this morning on the news that The Royal Bank of Canada is interested in buying a stake in AIB! It aint all doom and gloom!

daithi81

14-08-2009, 11:05 AM

Canadian bank makes surprise AIB move
ARTHUR BEESLEY, Senior Business Correspondent

Fri, Aug 14, 2009

A major Canadian bank has proposed to take a stake in Allied Irish Banks. The investment would take place only after AIB’s development loans move to Nama, the National Asset Management Agency.

The news boosted shares in AIB which rose over 13 per cent when the market opened before easing back to €2.30 by 9.20am, a gain of 9.5 per cent. Bank of Ireland shares also rose this morning adding 6.6 per cent to €2.20.

The conditional approach to the Government and AIB from the Canadian bank was received about a fortnight ago.

The name of the bank could not be confirmed last night but it is understood to rank among that country’s top five lenders.

The proposal is considered to be serious, although it is unlikely to develop in the immediate term given that it is predicated on the outcome of AIB’s engagement with Nama.

“It’s a much longer-term thing. I don’t think they’re going to be moving quickly until they see the full extent of Nama. They want to take an equity interest. We deem this to be of a lot higher standard than other approaches,” a source said.

The source added that the outcome of Nama’s involvement with other financial institutions and any capital-raising exercise they attempt may be a further consideration for the Canadian bank as it examines a possible AIB investment.

Nama is being established by the Government to take over toxic development loans to developers.

Canada is the only state in the Group of Seven largest industrialised countries not to support its banks with guarantees, recapitalisations or the purchases of toxic assets. Among other factors, this has been attributed to stronger regulation, strict capital requirements, fiscal conservatism and the absence of tax-deductible mortgages.

Only the largest of Canada’s institutions, Royal Bank of Canada (RBC), has incurred a quarterly loss this year, its first since 1993. The other main Canadian lenders are Toronto-Dominion Bank, Bank of Montreal, Bank of Nova Scotia, and Canadian Imperial Bank of Commerce.

RBC is known to have examined the Irish banking system in recent times, although any interest it may have in AIB could not be verified last night. Last month, RBC chief executive Gordon Nixon said Irish banks stood out “as an example as having way too much leverage in relation to the size of the institutions”.

The Nama process will significantly derisk AIB. It remains unclear whether the Canadian bank has an interest in taking a majority or strategic minority stake in AIB, which has come under severe pressure on international markets as a result of its large exposure to the beleaguered Irish property market.

On the face of it, however, a fully-developed investment proposal from a large well-capitalised Canadian institution would be welcomed by the Government as it would have the potential to reduce any requirement for further State capital after AIB’s loans move to Nama.

Although the Nama process is designed to stabilise the financial institutions so that they can recommence normal lending practices, the removal of loss- incurring “toxic” loan assets from their balance sheets would make them a more attractive investment proposition to private investors.

Efforts by AIB and Bank of Ireland at the start of this year to raise fresh private capital under the terms of the Government’s original recapitalisation plan were unsuccessful as investors shirked the proposal in the wake of Anglo Irish Bank’s nationalisation.

The existing recapitalisation scheme is designed to incentivise existing investors in the big two banks to provide new capital to them. However, any new capital-raising process would also be open to new investors.

AIB, which declined to comment last night, is in the process of recruiting a successor to outgoing chief executive Eugene Sheehy. Colm Doherty, head of AIB’s profitable capital markets division, is widely held to be the internal favourite for the job. He has been on the AIB board since 2003.

© 2009 irishtimes.com

Hmm, given the frugal nature with which Canadian banks have been managed, this past decade. Would this be a good thing? It might be.

Proinsias

14-08-2009, 11:30 AM

Unbelievable. Could you just speak English for a minute? Forget about "reflexive value based on sentiment", firesales and so on. He's pointing out in layman's terms that Nama will now pay three times the current value of land that would be received if it was sold in the morning. ACC will only get one third of what nama will pay covered banks for the same amount of land. That's tough on ACC, but nobody held a gun to their head to lend Carrol this insane amount of money, and besides, now that they can seize his collateral, they can try their best to get what they can for it (I'm sure they can play the "long term value" game too if they want). What is absolutely nuts is that Nama, ie me and you and our families, are going to pay the banks far more for these bad deals in the vain hope that their "long term value" will be realised at some indeterminate point in the future; 10+ years according to Daithi, but sure why not 30 years?

And anyway, here's the human interest angle for ye. My girlfriend's dad sub contracted for Carrol's Danninger, was owed thousands for almost a year, and hey presto, got paid almost all the money owed only a month ago. We now see from this article why he got paid; other banks poneyed up the money (our taxpayers' money, mind) to indulge in the fantasy that Zoe Developments was some kind of solvent entity and that the High Court would go easy on them. Well I say thank God for Justice Peter Kelly.

Finally, all your economic wizardry ignores "sentiment, market direction and fears for the future" that you refer to in your post. We simply CANNOT divorce the fact that Nama is being created and controlled by a government/civil service/banking elite that, through its own incompetence and corruption, led us into this nightmare in the first place. They have betrayed us already; they cannot be allowed to do so again.There was a bit of jargon there alright. The reflexive stuff relates to the fact that monetary values without sales, in and of themselves, are meaningless. Pure speculation. The value is whatever someone considers to be the value. If the price of markets declines quickly, the perceived value of houses will also decline, pushing house prices down. If house prices are propped up, the perceived value of houses will stay high.

Neither situation is wrong or right, it's based on the psychology behind value.

That's why I think, when he goes on about the price the tax payer could have gotten and the "true" value, he's completely ignoring the vitally important psychological factor in valuations.

Ok, I agreed and even brought the point up on irisheconomy.ie and got:

This would come back to my point about discounting. If the total assets that NAMA takes on is the likes of the above, then the discount will need to be heavy, with all the implications. While a return is very likely to be made on urban developments, the market that created the demand for vast housing estates in Longford, et al, has vanished and may never return.

Thoughts?
The discount will be heavy.
As the government will effectively own those houses, if monetary value can not be extracted, social value can. It may sound like a cop-out, but it's not. The government forms the spatial strategy. Unlike private sector operators, they can game the market legally. If vast housing estates need to be filled in Longford, then policies need to be put in place to attract people to Longford. In the private sector, these sort of market distortions are not usually feasible. Governments engage in this behaviour all the time.

I've not got much time this morning (and a shonky internet connection), so I'll deal with this in more depth later.
Level the developments and return the land to agriculture .. if that's where it came from.

Give the tax breaks that the developers got, back to the farming community .. get the export market running again.

Vote no to lisbon ... get ourselves out of europe ... get the fishing industry back on track.With a government that has some balls we may get our waters back from the Spanish and Portuguese.

Increased tax revenues from these ventures should go a long way to financing renewables ... aka wind/current/wave energy generation.

We have enough housing.

Next, to tackle the homeless. My God, surely we still have the resources to house a few hundred 'in dire need cases'.

As for the smart economy .. stupid is as stupid does. The media has filled itself for the last week, focusing on the lack of interest in the sciences. Well .. that's always the way. There is no such thing as a smart economy ... and never will be.

It/Pharma/Biotech sectors will always fuel the 'smart' sector because demands for there service to the aforementioned industries need them.

People always tell us we are an island. That may have certain isolationist connotations. I disagree. If we self suffice and use our resources (energy is no longer being mined or sucked from the ground) to maintain our 'island', then I think we've a great base to create a great nation. Not one dependent on others.

A thriving agriculture industry, we have our food.

Heat, energy, food, water ... what more do we need? A frothy cappucino with marshmallow toppings and chocolate flakings?!?! (while I use my suv).

I cycle btw :{There are some good points you make, but self sufficiency is not necessarily a virtue and is essentially pointless and inefficient in a globalised world.

Think of the car and clothing indistries, for example. Ireland has a massive advantage in the pharma and software sectors. By ignoring those in persuit of self sufficiency, you're likely to end up with less stuff than you otherwise would. There hasn't been a food shortage in Ireland for a very long time.

Incidentally, have you ever worked on a farm for a living? A lot of people like to idealise the lifestyle. It's very, very hard work.
Ok, apart from the verbal diarrhea from the usual suspects, can anyone explain what the minister for finance means by 'long term'. Is there any evidence, whatsoever, that the property the govenment will buy will be worth more than it pays for it in twenty years time?

No.

Thanks for that.

There is plenty evidence.

But you're not going to listen to it, so there's no point in presenting it.

Carry on, as you were.

daithi81

14-08-2009, 11:38 AM

he discount will be heavy.
As the government will effectively own those houses, if monetary value can not be extracted, social value can. It may sound like a cop-out, but it's not. The government forms the spatial strategy. Unlike private sector operators, they can game the market legally. If vast housing estates need to be filled in Longford, then policies need to be put in place to attract people to Longford. In the private sector, these sort of market distortions are not usually feasible. Governments engage in this behaviour all the time.

Yeah, this was my initital reaction, but it's all a bit utopian, when you think about it. When you factor in Irish political culture, it seems even less likely to occur.

leesider

14-08-2009, 12:05 PM

In theory, possibly so... in practice, probably not.

I agree due to international political reasons it probably will not happen but I still think a split, with a NAMA type operation making up 50% of the funding and the bondholders being hit for the other 50%. It just beggars belief how people who actually invest in the banking system get off scot free!

Proinsias

14-08-2009, 01:00 PM

Yeah, this was my initital reaction, but it's all a bit utopian, when you think about it. When you factor in Irish political culture, it seems even less likely to occur.

I wouldn't say it's utopian at all.

Offer enough people on benefits in dublin an incentive to move to a nice big empty house in Longford and you can flog their old houses in Dublin on the open market.

Offer companies tax breaks to go to those towns. Estates full of empty houses tend to attract crime at the best of times. With NAMA, the market can be manipulated to put people in those houses.

Without NAMA, what's happening in Spain and the USA is likely to happen, entire towns of brand new, well built, modern houses are being destroyed.

That's just wasteful.

Alternatively, Ireland could loosen immigration policy with regards to refugees and give those people the empty houses.

There are a million other uses those houses could be put to, under a socially-inclined government. While it might seem like poor economics, it can be excellent social policy.

If you want the economic argument, his point about those houses never being filled assumes demand for housing is going to stay low in Ireland for the forseeable future. This depends on the supply of willing and capabile buyers, along with available credit.

The number of potential buyers is limited, the Irish market is already saturated and the population is declining. That's a short run effect though and assumes that the trend of emigration continues. To bring the housing market back, immigration needs to be encouraged.

Not only will immigration boost GDP (and thus tax receipts), it will also support house prices and thus, the Irish taxpayer.

The private sector can't do this. The government can.

Other possible moves would be to increase the availability of schemes for young buyers to obtain houses at reasonable rates of interest. This is well within the capability of the government, mandating a 1% above base rate mortgage rate for the first 10 years of a mortgage for first time buyers, for example, wouldn't be that difficult a task and would be very popular politically.

That would bring in a lot of pent-up demand in the market, Ireland's demographics still have over half the population under 25 years old, with a population peak at about 29 years old (hey, look, it's me!).

That's what I mean by market manipulations. All those moves would artificially raise property prices. Is that a terrible thing if it achieves stability?

daithi81

14-08-2009, 01:03 PM

I wouldn't say it's utopian at all.

Offer enough people on benefits in dublin an incentive to move to a nice big empty house in Longford and you can flog their old houses in Dublin on the open market.

Offer companies tax breaks to go to those towns. Estates full of empty houses tend to attract crime at the best of times. With NAMA, the market can be manipulated to put people in those houses.

Without NAMA, what's happening in Spain and the USA is likely to happen, entire towns of brand new, well built, modern houses are being destroyed.

That's just wasteful.

Alternatively, Ireland could loosen immigration policy with regards to refugees and give those people the empty houses.

There are a million other uses those houses could be put to, under a socially-inclined government. While it might seem like poor economics, it can be excellent social policy.

If you want the economic argument, his point about those houses never being filled assumes demand for housing is going to stay low in Ireland for the forseeable future. This depends on the supply of willing and capabile buyers, along with available credit.

The number of potential buyers is limited, the Irish market is already saturated and the population is declining. That's a short run effect though and assumes that the trend of emigration continues. To bring the housing market back, immigration needs to be encouraged.

Not only will immigration boost GDP (and thus tax receipts), it will also support house prices and thus, the Irish taxpayer.

The private sector can't do this. The government can.

Other possible moves would be to increase the availability of schemes for young buyers to obtain houses at reasonable rates of interest. This is well within the capability of the government, mandating a 1% above base rate mortgage rate for the first 10 years of a mortgage for first time buyers, for example, wouldn't be that difficult a task and would be very popular politically.

That would bring in a lot of pent-up demand in the market, Ireland's demographics still have over half the population under 25 years old, with a population peak at about 29 years old (hey, look, it's me!).

That's what I mean by market manipulations. All those moves would artificially raise property prices. Is that a terrible thing if it achieves stability?

Yes, all lovely ideas. But a highly unlikely outcome of this project. Lenihan has made only fleeting comments about using some of the property for social use. You may as well be postulating about the possibility of housing Martians there.

daithi81

14-08-2009, 01:06 PM

Hmm, given the frugal nature with which Canadian banks have been managed, this past decade. Would this be a good thing? It might be.

Wall Street Journal reporting that the bank is Royal Bank of Canada.

Proinsias

14-08-2009, 01:14 PM

Yes, all lovely ideas. But a highly unlikely outcome of this project. Lenihan has made only fleeting comments about using some of the property for social use. You may as well be postulating about the possibility of housing Martians there.

Maybe.

But I'm definitely not postulating when it comes to social re-housing or incentives to foreign investors. I would be willing to bet good money that the government will do just that, to make sure they get a good return on their investment.

I know I would.

daithi81

14-08-2009, 10:18 PM

Very interesting article:

http://www.irisheconomy.ie/index.php/2009/08/14/canadian-enthusiasm-for-nama-mountie-move-rules-out-nationalisation/

doppellanger

15-08-2009, 01:45 AM

I wouldn't say it's utopian at all.

Offer enough people on benefits in dublin an incentive to move to a nice big empty house in Longford and you can flog their old houses in Dublin on the open market.

Offer companies tax breaks to go to those towns. Estates full of empty houses tend to attract crime at the best of times. With NAMA, the market can be manipulated to put people in those houses.

Without NAMA, what's happening in Spain and the USA is likely to happen, entire towns of brand new, well built, modern houses are being destroyed.

That's just wasteful.

Alternatively, Ireland could loosen immigration policy with regards to refugees and give those people the empty houses.

There are a million other uses those houses could be put to, under a socially-inclined government. While it might seem like poor economics, it can be excellent social policy.

If you want the economic argument, his point about those houses never being filled assumes demand for housing is going to stay low in Ireland for the forseeable future. This depends on the supply of willing and capabile buyers, along with available credit.

The number of potential buyers is limited, the Irish market is already saturated and the population is declining. That's a short run effect though and assumes that the trend of emigration continues. To bring the housing market back, immigration needs to be encouraged.

Not only will immigration boost GDP (and thus tax receipts), it will also support house prices and thus, the Irish taxpayer.

The private sector can't do this. The government can.

Other possible moves would be to increase the availability of schemes for young buyers to obtain houses at reasonable rates of interest. This is well within the capability of the government, mandating a 1% above base rate mortgage rate for the first 10 years of a mortgage for first time buyers, for example, wouldn't be that difficult a task and would be very popular politically.

That would bring in a lot of pent-up demand in the market, Ireland's demographics still have over half the population under 25 years old, with a population peak at about 29 years old (hey, look, it's me!).

That's what I mean by market manipulations. All those moves would artificially raise property prices. Is that a terrible thing if it achieves stability?

Lovely ideas but this is Ireland we are talking about. Instead of houses in Sligo being used to house people from inner city Dublin it is much more likely that a report will be commissioned which will conclude that there are too many houses in Ireland and that all those builders who were laid off over the past year can now be re-deployed to demolish the houses brick by brick.

slick fingers

21-08-2009, 01:02 AM

Banks must raise rates to improve the economy
AIB to suffer 20pc 'haircut' on loans transferred to NAMA -- Goodbody

Independent.ie (http://www.independent.ie/business/irish/banks-must-raise-rates-to-improve--the-economy-1864638.html)

IRISH banks will have to raise their interest rates to become more profitable and resume a level of lending which will help boost the national economy, according to a report from Goodbody Stockbrokers.

A detailed review of Allied Irish Banks and Bank of Ireland loan books carried out by Goodbody, which is itself owned by AIB, concluded that AIB will suffer a "haircut" or discount of 20pc on the loans transferred to the toxic loan National Asset Management Agency (NAMA). This means it will secure 80pc of the value of the loans destined for transfer to the new state agency.

Burden

However, in a separate report, also published yesterday, Ulster Bank said NAMA will be an important tool to help cleanse the banks of bad loans although it could add considerable burden to the overall Exchequer position in the medium-to long term.

Goodbody estimated that Bank of Ireland will suffer a slightly smaller 17pc haircut on its non-performing property loans, meaning it would receive around 83pc of the value of its transferred loans.

AIB is reckoned to have around €33bn worth of toxic debt on its balance sheet which will be transferred to NAMA while Bank of Ireland has just €20bn worth of debt for transfer. The agency is also expected to accept some €27bn worth of loans from the now State-owned Anglo Irish Bank.

Assuming the Goodbody estimates are accurate, then NAMA would issue €26.4bn worth of government bonds to AIB and a further €16.6bn to Bank of Ireland. The two would then use these bonds to go to the markets and secure fresh funds to boost liquidity and resume more normal lending practices.

Goodbody analyst Eamonn Hughes said NAMA would help ensure that there would be no call on the government guarantee of the Irish banks, a "much underestimated benefit," he said.

But even with this fresh capital, Mr Hughes said, in order to ensure that we have a healthy banking system and a return to normal lending practices, the banks will still need to boost their profitability by raising interest rates to customers. "This is not something we want to hear, but it's something we need to see take place. It's an absolute given that this has to take place," he stressed.

The banks, he said, must make a reasonable return in order to attract further investment and reduce the demands being placed on the State.

Meanwhile, launching Ulster Bank's latest economic update yesterday, chief economist Simon Barry said: "There had been a race to the bottom in terms of economic forecasts for Ireland, but things have started to stabilise."

Ulster Bank predicted that GNP will be 3.2pc lower in 2010 than in 2009, but that represents a minor improvement over its previous estimate of a 3.5pc fall. Mr Barry said he still expects Ireland's GNP to shrink by 8.9pc this year -- a forecast he has left unchanged since his last update.

Mr Barry added that Ireland's unemployment rate will spiral to 15.4pc late next year from 12.2pc last month. That will bring the number of people out of work to over 530,000. The Central Bank predicted last month that unemployment would peak at 15pc.

Looking at the wider economy, Simon Barry said that Ireland's exports, which are heavily dependent on the pharmaceutical and chemical sectors, have not been as adversely affected as in other economies such as the UK or Germany.

House prices could fall a further 10 percentage points from their 2007 peak, according to Mr Barry who said that they've already probably fallen by 35pc. He also reckons that just 10,000 homes will be built in Ireland next year. The figure would represent the lowest number since 1970, when records began.

While Mr Barry remains optimistic that the economy may begin to emerge from the trough of the current downward economic cycle, he stressed that government fiscal tightening remains a crucial element of maintaining a recovery trajectory.

"The scale of the required adjustment is over €16bn in the coming four years: that is, €11bn over and above the McCarthy group recommendations which we think should be implemented to the fullest extent possible," he said. Mr Barry added that the Budget to be delivered this December is shaping up to be "unavoidably tough".

Professor Piehead

21-08-2009, 01:33 AM

daithi81

21-08-2009, 09:53 AM

Wikionomists... I have been arguing for a different means of handling this issue from the beginning. In fact, I don't think anyone in this thread is happy with how the govt are going about it. Are they?

jd26

21-08-2009, 10:42 AM

Apparently NAMA is now going to be buying derivatives as well :rolleyes:

ANVIL

21-08-2009, 01:19 PM

Purely anecdotal evidence of how Ireland doesn't appear to be getting the economic message - I was chatting to an American couple who were touring around West Cork yesterday.
They couldn't believe the Ford Ka they'd hired from a national chain in Dublin was costing them €300 for five days.
It probably explains why tourism has been hit so badly in this country as well.

jd26

21-08-2009, 01:29 PM

daithi81

21-08-2009, 01:44 PM

Apparently NAMA is now going to be buying derivatives as well :rolleyes:

This all goes beyond my knowledge of finance, but I saw this simplifed explanation:

Let me explain, as best i can, how a reasonably simple (in banking terms) financing structure for a developer may look.

As a result of the boom in financial engineering, very very few developers will have financial structures as simple as a variable rate loan of X secured against an asset Y. Typically they’ll have some sort of fixed rate hedging in place, via an interest rate swap, possibly going more exotic by buying an interest rate cap. Indeed, most banks would urge, or even insist, on the developer taking on at some element of this, it’s often even a provision in the loan documentation. Trust me, this is pretty standard and indeed quite prudent if done correctly.

However, without getting into AIG type territory, they could easily also have sold back an interest rate floor to the bank, and bought a swaption with the proceeds, and if some of their property holdings are abroad, a cross currency swap and an FX option could be on their books as well. I work for a bank (non NAMA), and this is done realtively frequently. To make matters even more interesting, these derivatives may not even be with the original lending institution! As such, i can fully understand why NAMA would seek to have all these derivatives housed under the one roof in certain cases, so that a better grasp of the customer’s financial situation in totality can be understood. Indeed, by having all these derivatives under NAMA’s control, this could place the state in a stronger position overall.

daithi81

21-08-2009, 02:35 PM

Fine Gael to vote against NAMA

Friday, 21 August 2009 13:03

Fine Gael leader Enda Kenny has said his party will be voting against the National Asset Management Agency when it comes before the Dáil next month.

Speaking in Co Mayo, Deputy Kenny said the Government had refused to consider any alternative to its bad bank solution and described it as a €90bn 'double or quits gamble' with tax payers' money.

AdvertisementThis is the first time the Fine Gael leader confirmed that his party will vote against NAMA, which he called a 'sweetheart deal for the banks'.

Enda Kenny described NAMA as a gamble by Fianna Fáil on the property market and said it was fundamentally 'unfair' and 'unwise', because it transfers responsibility for dealing with toxic loans from the banks who made them and the investors who funded them to the Irish taxpayer.

Enda Kenny also criticised the McCarthy report's recommendation to cut the number of local authorities from 34 to 22, saying it was 'misguided' and undermined local democracy.

The Labour Party Deputy Leader told the conference that the nationalisation of the banks remained the safest policy for dealing with the crisis.

However, Fianna Fáil Minister of State Dara Calleary insisted that NAMA was the best way of tackling the current problems and he believed the Government would win any Dáil vote.

Meanwhile, the Green Party convention to debate the setting up of the National Asset Management Agency is likely to be held in early September.

A party spokesman confirmed that it had received the necessary five requests from local Green Party groups to hold such a meeting.

The matter will now be considered by the National Executive Committee which will decide and exact time and venue.

Story from RTÉ News:
http://www.rte.ie/news/2009/0821/banks.html

.

Actin The Sham

21-08-2009, 03:01 PM

In fairness, I have no idea how they paid that price. Presumably they walked up to the counter and didn't pre-book.

They could have had an Alfa 159 from Hertz for 50 quid cheaper than that.

Car Hire is one area where we're not all that pricey. However, that's because there are massive excesses on the insurance and all the extras are really pricey. The Ryanair school of how to make things look cheap.

Car Rental Ireland:

Group A - Ford Ka or similar car rental
Features: � Manual transmission � 0-2 years � 900cc - 1000cc � Anti Theft Ignition System � Power Steering � Stereo � Stereo / CD / Cassette � Unlimited Kms

2+ days €52.16 per day
3-6 days €34.74 per day
7-13 days €29.77 per day
14+ days €29.77 per day
These prices are for pick ups this week. Rates include: VAT Local Tax, Liability Insurance, Collision Damage Waiver(CDW), Unlimited Mileage(subject to Safe Usage Policy), 24 Hr AA Road Side Cover, One way Dublin depots, Location Fee, Theft protection.

€173.70 for a Ford Ka rented in Dublin for five days this week.

And that's without shopping around.

corkoniense

21-08-2009, 03:14 PM

Nice to see banks refusing to grant mortgages below 175,000, therefore keeping prices artificially high.

Lower than whale shit, they should be destroyed. A decent government would have set up a 'good bank' and let the crooks rot.

Anyone that thinks a toxic dump that cost 18 million an acre is ever going to be worth anywhere near that ever again, must be a first class idiot. But sure, there are models the wikionomists on here can find that will tell us it will be. NAMA, FFS, they saw you coming.

http://www.irishtimes.com/newspaper/ireland/2009/0801/1224251858397.html

For once I agree with Pie Face. The question is: when will some public figure have the gumption to call the banks/developer/FF crowd traitors? Because that is what they are.

Nama Bill a 'critical test' - Burton
JASON MICHAEL

The upcoming National Asset Management Agency (Nama) Bill will be a "criticial test" of the State's political institutions, The Labour's Party's finance spokeswoman Joan Burton said today.

Addressing the Humbert Summer School in Ballina, Co Mayo, Ms Burton said: "I wish I could say to you here that every clause will be scrutinised with care. That is unlikely. Take the bank guarantee. I recall going for a briefing to the Department of Finance. I suggested a few amendments that might impose some limits on taxpayer exposure only to be told that the Government would not accept any amendment.

"The role of the Dáil was to rubber-stamp the Bill and no other. It would be intolerable if that same attitude prevailed next month."

Ms Burton said the Bill rested on Section 58, which sets out the rules for valuing the bank loans, and labelled this "a shoddy piece of work that does no credit to the Minister".

"It could hardly be otherwise as Brian Lenihan is attempting, like Janus of the ancient Roman myth, to show two faces to the world looking in opposite directions." Ms Burton said Mr Lenihan on the one hand had to insist on the protection of the public interest but accused him of presenting another face through a second basis of valuation of property contained in Section 58 of the legislation.

She said the "potentially bogus concept" of long term economic value was the "convenient cover he and Mr Cowen use for a policy to pay way over the odds for the banks' dodgiest loans on the pretext that the assets so acquired have an enduring value that is not reflected in the current market".

"That is political and economic mumbo jumbo.

"I cannot believe that Dáil Éireann will pass so flawed a clause as section 58," Ms Burton said. "Surely there are Cabinet Ministers who have qualms. Surely there are FF and Green backbenchers who will baulk at the shocking abdication of public interest that is inherent in Section 58. This is the coming test of our parliamentary institutions: To fight or to abdicate on Section 58.

"To abdicate responsibility and to allow this clause to stand is to abandon the legislative role of the TD and to install a Cowen-Lenihan parliamentary dictatorship that is allowed to rule by decree without scrutiny or amendment."

Recalling Shelley's poem Ozymandias , Ms Burton told her audience that Nama will stand as a monument to greed. "Ireland is today littered with monuments to similar folly and the delusions of the past decade. As part of the Nama process we are likely to take into public ownership many properties, hotels, apartment blocks and office blocks of little or no value.

"Perhaps Nama will choose to hold on to some and erect a plaque to remind a future generation of the greed that created the situation we now face with the Nama Bill."

The Labour frontbencher also called for the "secret world" of political lobbying to be examined, and for the introduction of a register of lobbyists as a first step.

"We have had 12 years of tribunals and still we don't have a modern enforceable anti-corruption Law. . . . It beggars belief that this Government has done nothing to update the law on corruption, the penalties for corruption, the criminal procedures and the standard of proof required to secure conviction. Such a law, in my view, is a basic requirement of political reform."

In a separate speech at the summer school, Fine Gael leader Enda Kenny said his party will vote against the Nama legislation. Mr Kenny said the "unfair and unwise gamble" of Nama would see people's taxes used to "shore up a massive spending spree" by developers outside the State.

jd26

21-08-2009, 03:34 PM

So, FG, Labour, SF and Maureen O'Sullivan are presumably voting against, meaning 77 votes against it.

It's hard to imagine Finian McGrath backing it, so 78.

But then I'd lay heavy odds that all the "Independents" who have walked out on Fianna Fail will vote with the government.

Fundamentally, this comes down to the Green membership who can instruct their TDs to vote against. I wonder is it too late to join the Green Party to do that...

Professor Piehead

21-08-2009, 05:13 PM

ANVIL

21-08-2009, 06:00 PM

Car Rental Ireland:

Group A - Ford Ka or similar car rental
Features: � Manual transmission � 0-2 years � 900cc - 1000cc � Anti Theft Ignition System � Power Steering � Stereo � Stereo / CD / Cassette � Unlimited Kms

2+ days €52.16 per day
3-6 days €34.74 per day
7-13 days €29.77 per day
14+ days €29.77 per day
These prices are for pick ups this week. Rates include: VAT Local Tax, Liability Insurance, Collision Damage Waiver(CDW), Unlimited Mileage(subject to Safe Usage Policy), 24 Hr AA Road Side Cover, One way Dublin depots, Location Fee, Theft protection.

€173.70 for a Ford Ka rented in Dublin for five days this week.

And that's without shopping around.

And the same car in Spain for €102 and that's without shopping around.

doppellanger

21-08-2009, 09:28 PM

Hang_Sandwich

24-08-2009, 02:08 PM

If they were Americans the car was probably automatic and they're always more expensive.

not really just means it was not tiny.. a run of the mill sized car costs a fortune to rent over here.. but then again they cost a fortune to buy aswell..

Actin The Sham

24-08-2009, 05:17 PM

And the same car in Spain for €102 and that's without shopping around.

How much in "deepest Epernay?"

Tee hee, that still makes me chuckle, fair play to you Annie.

:lol:

How bad boy

24-08-2009, 05:31 PM

How much in "deepest Epernay?"

Tee hee, that still makes me chuckle, fair play to you Annie.

:lol:
Probably not too different to the price in deepest Ennis.

Heh, heh, heh...

ANVIL

25-08-2009, 01:15 AM

How much in "deepest Epernay?"

Tee hee, that still makes me chuckle, fair play to you Annie.

:lol:

What are you on about Shammy ?
Have you completely lost the plot ?

Professor Piehead

25-08-2009, 03:42 AM

The Government's promise to write 'any cheque necessary' to the banks is insane, writes Gene Kerrigan.....

After a couple of weeks away from this post, batteries refreshed, perspective enhanced, loins girded -- with autumn on our doorsteps and an apparently swinish winter ahead -- what vision of Ireland can the Soapbox offer the tired, depressed citizens of Cowenland?

The unrelenting destruction of small and not-so-small businesses, with consequent mass unemployment. Cuts in vital services, unnecessary deaths of the kind foisted on us by government cuts in the 1980s. Emigration, fear, social unrest.

And next year, stage two of the recession kicks in.

Not to worry, Nama is on its way. At long last (some time before the TDs go on their Christmas break, if not their Easter break) Nama will be plugged in. The engine will purr, the lights will flash and billions will flow from the State to the banks, in return for worthless loans. And . . . then what?

It's now been a year since word spread among the business elite that their banks were having a wee problem. All hands on board, to save Seanie FitzPatrick's Anglo Irish Bank.

And in the weeks that followed, as troubles became evident in the other banks, the strategy that's currently tearing the country to bits was put in place. The banking elite met with the politicians, the Department of Finance mandarins, the Central Bankers -- the people responsible for the reckless policies of the bubble years -- and came up with a plan.

It's some strategy. The Government props up the banks. The banks prop up the builders. And . . . eh, y'know, like.

At every stage in this crisis, the establishment has stuck with this strategy. Any hint of a radical option has been briskly rejected -- which is no more than you'd expect from these people. When the State should have ensured stability and the availability of credit, by setting up its own bank, it did nothing. When the private banks should have been left to the tender mercies of the markets, they got an unlimited state guarantee. When Anglo died, it was nationalised.

Enda Kenny quoted a wonderful Cowen remark that I missed while away. To ensure financial stability, said the Taoiseach: "The Government has to write whatever cheques are necessary."

So it was in June when Mr Lenihan handed Anglo a cheque for three billion. That's more than the cost of all the public service cuts they're planning. Just this month, Mr Lenihan gave Anglo another cheque, this time for €827m. (All this to a bank that lost four billion in the six months to March.)

Anglo says it will need more, and the other banks also have their hands out.

When the radical option was to nationalise one or two big banks and leave the rest to their beloved market to sort out, Cowen said no. When the slightly radical option was to temporarily nationalise the banks -- to stop them subverting the public welfare during the supposed recovery process -- Cowen said no.

Incredibly, a spokesman for Mr Lenihan was quoted last week as saying "the Government is determined to avoid nationalisation at all costs". This is how bull-headed, one dimensional and insane the current policies are. "Whatever cheques are necessary." "At all costs."

Meanwhile, as the dynamic duo write whatever cheques are necessary to keep the bankers happy, businesses are going to the wall for lack of credit. Worse, banking policy is killing viable businesses.

Example: Hoteliers point to investments made by gamblers who got government capital allowances, a tax manoeuvre, to set up and fit out hotels. Now, failed, zombie hotels stagger on, losing money, kept open -- sometimes reopened by banks -- because they have to stay open for seven years or pay back the tax breaks.

So, they stay open and push down prices, putting long-established and viable hotels, and jobs, at risk. Throughout the economy, businesses that need normal credit facilities are put at risk by banks hoarding money.

"Whatever cheques are necessary." "At all costs."

Radical cuts could have been made to a bloated, inefficient, overpaid wealthocracy. Instead, safe people were appointed to suggest public service cuts and tax adjustments. The result is a sustained deflation of the economy.

There is no anti-recession policy, other than the continued bleating of the word "competitiveness". Which is translated merely as wage cuts. Which will depress demand and cost jobs.

This deflation of ambition and expectation will in turn drive out the people the establishment needs if its "smart economy" rhetoric is to be anything more than a glib soundbite.

Ah, but, sure, won't Nama save us?

The debacle of the property bubble was based on the bizarre belief that property prices would rise forever. It didn't matter how much you paid, prices would always rise, and you would always be able to sell at a profit.

Which is why allegedly smart people like Sean Dunne and Liam Carroll took on ever-greater burdens of debt. And why reckless bankers shovelled billions at people like them -- they couldn't lose. Prices would always rise.

Nama is based on that same mad belief -- the premise that property prices are currently too low. That's the gamble on which our future is being made.

The banks are insolvent because they lent billions to builders who spent it on property they can't sell. So, Nama will pay the banks billions for those bad loans. And get our money back as property and land prices rise over five, 10 or 15 years -- who knows?

But who says property and land prices will go up? Prices can go down, too. And should.

Prices reached bizarre heights and came down a bit. Anyone paying even current market prices for a lot of the rubbish on offer today is foolish. To pay above that -- sucking your thumb and guessing what prices will be in 15 years time -- is mad.

And they're hiring dozens of estate agents, those reliable guys, to guess the future prices. (Any chance they'll hire some of the lads who lied the Irish Times into repeatedly printing false house prices?)

And there's no sign of an end to the recession here. Next year, the effects of mass unemployment, emigration and wage deflation will kick in. And, as Nama converts private debt to sovereign debt, followed by a couple of decades of belt-tightening of those who didn't cause the problem, what will this do to long-term prospects? Where will the property price rises come from?

Yet the Nama project is based on this bizarre belief, that the property bubble can be re-inflated. Good luck with that.

On Wednesday, Nama advertised for tenders for the position of "Derivatives Valuation Service Provider", that is, an expert in the valuation of "derivatives". These are financial instruments with a controversial record. It could be this is a necessary move, for unspectacular technical reasons. It could also suggest that some loans being bought by Nama are not so much toxic as radioactive.

We don't know and won't know, it's none of our business. "Commercial sensitivities", y'know. We just pay up and shut up.

Establishment cheerleaders repeatedly tell us there's "no alternative". And, of course, it's not a bank bailout, or a builder bailout. (I love Colm McCarthy's careful wording: "There will be no bailout of the banks as such, unless the Government overpays for the loans." Ah, what a wonderful cover-me-arse phrase -- "As such". And, since it's stated government policy to overpay for those loans . . . oh, well.)

On we go. We pump billions into the insolvent banks. The banks use our money to prop up insolvent builders. And, as businesses shut down and the dole queue grows, each night our leaders kneel by their beds and pray that a miraculous renewal of the property bubble will bring us salvation.

As such.

The BanaNama Republic.

How bad boy

25-08-2009, 12:16 PM

Mr. Kerrigan makes a lot of assumptions in that article.

Some valid points,mixed in with the same rhetoric parrotted again and again.

One central point in that article is just plain wrong:
"Yet the Nama project is based on this bizarre belief, that the property bubble can be re-inflated."

It's not.

hurlerondeditch

25-08-2009, 02:01 PM

If the project is not based on re-inflating the property bubble, what is it based on?

How bad boy

25-08-2009, 02:40 PM

hurlerondeditch

25-08-2009, 03:19 PM

It doesn't depend on reinflating the property bubble. It depends on recovering some value from the investments made. If the property market was to reinflate, as Mr Kerrigan claims NAMA is designed for, then NAMA would make the Irish government a vast amount of money. The loans NAMA buys are at a very significant doscount from the peak. Prices do not have to go back to bubble levels for NAMA to turn a profit, they merely need to stablilise and rise a little bit.

So saying that it's based on reinflating the bubble is just wrong. It's misleading and incorrect.

We still don't know what the actual discount will be, or where the stabilization point is.

How bad boy

25-08-2009, 03:26 PM

hurlerondeditch

25-08-2009, 04:27 PM

Nobody can know where the stabilisation point is.

However those people who criticise NAMA are certain that property prices will stay down.
Those who support NAMA say that there will be a recovery in prices.

Right now, both positions are quite valid (if argued well). Neither is the central point of NAMA. It's not a money-making scheme. It's to stabilise the banks and thus restore confidence in the Irish economy.

His assertion that it's about reinflating the bubble doesn't come into it.

If it was, the Irish government would be justified in paying a premium for those loans, not a discount, which would be an insane situation.

I would think that Kerrigan, despite his understandable fears, also hopes the central point of Nama is to stabilize the banksetc. His assertion is that this stabilization is based on reinflating the bubble, through the same insane policies that "worked" since the turn of the century. If I follow your last point correctly, my understanding is that the outstanding loan will, indeed, be much larger than the long term value in many cases.

i_didnt_do_nawtin

25-08-2009, 04:40 PM

It doesn't depend on reinflating the property bubble. It depends on recovering some value from the investments made. If the property market was to reinflate, as Mr Kerrigan claims NAMA is designed for, then NAMA would make the Irish government a vast amount of money. The loans NAMA buys are at a very significant doscount from the peak. Prices do not have to go back to bubble levels for NAMA to turn a profit, they merely need to stablilise and rise a little bit.

So saying that it's based on reinflating the bubble is just wrong. It's misleading and incorrect.

NAMA may not be buying loans at peak prices but that doesn't mean it's getting the best deal for taxpayers. This is why the banks are scrambling to help out O'Carroll, they cannot let it be made public what percentage of a house price is pure bollocks. NAMA isn't a charity, they're in on the scam too.

How bad boy

25-08-2009, 05:09 PM

I would think that Kerrigan, despite his understandable fears, also hopes the central point of Nama is to stabilize the banksetc. His assertion is that this stabilization is based on reinflating the bubble, through the same insane policies that "worked" since the turn of the century. If I follow your last point correctly, my understanding is that the outstanding loan will, indeed, be much larger than the long term value in many cases.No.
My last point was to illustrate the ridiculousness of Kerrigan's assertions. If what he says is right, that the people crafting NAMA are assuming the bubble can be reinflated, then paying a premium is justified. I think that's a crazy assertion.
NAMA may not be buying loans at peak prices but that doesn't mean it's getting the best deal for taxpayers. This is why the banks are scrambling to help out O'Carroll, they cannot let it be made public what percentage of a house price is pure bollocks. NAMA isn't a charity, they're in on the scam too.Anywhere between 0% and 110% of the price of a house is pure bollocks.

That's the problem with much of the commentary on this. It fails to recognise that the house price situation in Ireland will be different with and without NAMA over the long run, as will the situation if O'Carroll does or doesn't get bailed out. None of those situations are right or wrong as such.

To illustrate this, why don't people get outraged about the government propping up mortgage interest relief? It's a distortion on the market and an impediment to the "true" value of housing. The bank's policies on being leniant on foreclosures are also impediments to the market finding the right value for housing.

Why are the government propping up property developers, allowing them to keep prices artificially high by not selling off their portfolios and paying back the loans?

These commentaries all make the assumption that they know what the true value is of the property in the future and that government action is preventing that value being realised and thus propping up developers. The true value is based on a multitude of factors, most important of which is psychological.

hurlerondeditch

25-08-2009, 06:32 PM

No.
My last point was to illustrate the ridiculousness of Kerrigan's assertions. If what he says is right, that the people crafting NAMA are assuming the bubble can be reinflated, then paying a premium is justified. I think that's a crazy assertion.
Anywhere between 0% and 110% of the price of a house is pure bollocks.

That's the problem with much of the commentary on this. It fails to recognise that the house price situation in Ireland will be different with and without NAMA over the long run, as will the situation if O'Carroll does or doesn't get bailed out. None of those situations are right or wrong as such.

To illustrate this, why don't people get outraged about the government propping up mortgage interest relief? It's a distortion on the market and an impediment to the "true" value of housing. The bank's policies on being leniant on foreclosures are also impediments to the market finding the right value for housing.

Why are the government propping up property developers, allowing them to keep prices artificially high by not selling off their portfolios and paying back the loans?

These commentaries all make the assumption that they know what the true value is of the property in the future and that government action is preventing that value being realised and thus propping up developers. The true value is based on a multitude of factors, most important of which is psychological.

The obvious answer to the 1st question is because it would, in the short term hit mortgage holders, in their pocket. In the long term it is probably a good idea, if phased in during a more stable economic climate. I hope the answer to the second question is an attempt to stabilize the economy. That, in itself, poses the question of whatever happened the mantra of not interfering in the market during the property bubble. Therein lies the genuine fear of many people that the primary reason is to look after the golden circle. While you are quite correct in your assessment of true value, the commentaries are in fact aimed at the assumption that property values can only go up. The general perception is people were taken for a ride during the property bubble, and now that it has burst, fear they are about to be saddled with the clean-up bill, while the profiteers reap further riches from their government buddies through nama.

How bad boy

25-08-2009, 07:15 PM

The obvious answer to the 1st question is because it would, in the short term hit mortgage holders, in their pocket. In the long term it is probably a good idea, if phased in during a more stable economic climate. I hope the answer to the second question is an attempt to stabilize the economy. That, in itself, poses the question of whatever happened the mantra of not interfering in the market during the property bubble. That mantra is pretty much incorrect for any "free" market. There is no such thing as a free market. If they had that mantra, then it's a good thing that they've ditched it. You can never completely seperate economics and politics, no matter how hard you try.

Therein lies the genuine fear of many people that the primary reason is to look after the golden circle. While you are quite correct in your assessment of true value, the commentaries are in fact aimed at the assumption that property values can only go up. I don't think anyone has that assumption now though.

The general perception is people were taken for a ride during the property bubble, and now that it has burst, fear they are about to be saddled with the clean-up bill, while the profiteers reap further riches from their government buddies through nama.
It's a valid concern. The problem is that there's a risk that by taking out the profiteers, everyone else may be taken with them.

This is a very complex point. There are two interrelated factors at play here. The first is the reflexive nature of valuations. The second is how the actions of players within an economy, be they government, developers or ordinary punters can change the potential outcomes.

The first point I've talked about before. how valuations are based upon confidence. If confidence is restored and the average punter is confident his house won't collapse in value, then he's likely to be more confident in other areas of his financial affairs. If your house is losing €5k in value a month, you're likely to save your hole off to avoid being in the shit at the point where the value drops below the mortgage. This puts downward pressure on the price of everything, resulting in redundancies, lost profits and price deflation. If this goes too far, you get into a deflationary spiral. Ireland could well be in one of these. Restoring confidence is vital to this and, as much of Ireland's wealth is in housing, further downward pressure on house prices is unlikely to aid this.
Yes, people will profit from the propping up of house prices, however the bigger picture, that of restoring confidence, means that society also gains. In stopping the developers from making any profits, society at large suffers. It's annoying but that's what happens. By making people feel richer, they are likely to act richer and, through consumption kick starting the economy again, become richer.

The second factor is the behaviour of the actors in determining the direction of the housing market. The housing market is not some mystical being with a natural value, as is suggested by most commentators. It's the result of a number of factors, which determine the value from without and within.. The problem is, both sides of the NAMA debate could be right, but not for the reasons they state. Their actions can become self-fufilling prophecies (which is itself a reflexive action).
Here's how:
Say NAMA goes ahead.
House prices are propped up.
Developers profit.
Banks reap the rewards.
Consumer confidence returns.
House prices creep up a bit (not to pre-bubble levels) and the government sells off at a profit.
Unemployment falls.
Those advocating NAMA shout "Told you so" at the other side. Other side screams about profiteering.

Say it doesn't go ahead.
House prices continue to slide.
Developers continue to go bust
Banks are fucked, lending continues to be scarce
Consumer confidence continues to be rock bottom
Unemployment stays.
Those who opposed NAMA breath a sigh of relief that this massive debt didn't kill the government. Which it would have done. They turn out to be right.

The thing is, the government can bring about policies to stabilise house prices. Tax breaks. Subsidies. Advertising campaigns. Changing legal lending criteria. There are dozens of things that could be done to avoid a German or Japanese style slump, if they wish to.
If NAMA comes about, they have some skin in the game, as the saying goes. They have an incentive to, at the very least, stabilise prices. Which will be good for the economy in the short term. They could well recklessly reinflate the bubble, but they don't need to to make a profit on NAMA. NAMA isn't designed to reinflate the bubble, nor does it depend on it being reinflated.
Just a stop on house price collapse will suffice.

Admittedly, it gives the government every incentive to reinflate the bubble, but that's a different story.

hurlerondeditch

25-08-2009, 08:12 PM

Jaysus, I nearly got a dose of reflux, trying to digest some of that reflexive nature of valuations stuff:wink:. I appreciate the effort you put into it btw. You really believe there is no alternative to this government gambling billions through Nama, then? It scares the shit out of me, especially when I wouldn't buy a used car from them.

slick fingers

25-08-2009, 09:19 PM

That mantra is pretty much incorrect for any "free" market. There is no such thing as a free market. If they had that mantra, then it's a good thing that they've ditched it. You can never completely seperate economics and politics, no matter how hard you try.
I don't think anyone has that assumption now though.

It's a valid concern. The problem is that there's a risk that by taking out the profiteers, everyone else may be taken with them.

This is a very complex point. There are two interrelated factors at play here. The first is the reflexive nature of valuations. The second is how the actions of players within an economy, be they government, developers or ordinary punters can change the potential outcomes.

The first point I've talked about before. how valuations are based upon confidence. If confidence is restored and the average punter is confident his house won't collapse in value, then he's likely to be more confident in other areas of his financial affairs. If your house is losing €5k in value a month, you're likely to save your hole off to avoid being in the shit at the point where the value drops below the mortgage. This puts downward pressure on the price of everything, resulting in redundancies, lost profits and price deflation. If this goes too far, you get into a deflationary spiral. Ireland could well be in one of these. Restoring confidence is vital to this and, as much of Ireland's wealth is in housing, further downward pressure on house prices is unlikely to aid this.
Yes, people will profit from the propping up of house prices, however the bigger picture, that of restoring confidence, means that society also gains. In stopping the developers from making any profits, society at large suffers. It's annoying but that's what happens. By making people feel richer, they are likely to act richer and, through consumption kick starting the economy again, become richer.

The second factor is the behaviour of the actors in determining the direction of the housing market. The housing market is not some mystical being with a natural value, as is suggested by most commentators. It's the result of a number of factors, which determine the value from without and within.. The problem is, both sides of the NAMA debate could be right, but not for the reasons they state. Their actions can become self-fufilling prophecies (which is itself a reflexive action).
Here's how:
Say NAMA goes ahead.
House prices are propped up.
Developers profit.
Banks reap the rewards.
Consumer confidence returns.
House prices creep up a bit (not to pre-bubble levels) and the government sells off at a profit.
Unemployment falls.
Those advocating NAMA shout "Told you so" at the other side. Other side screams about profiteering.

Say it doesn't go ahead.
House prices continue to slide.
Developers continue to go bust
Banks are fucked, lending continues to be scarce
Consumer confidence continues to be rock bottom
Unemployment stays.
Those who opposed NAMA breath a sigh of relief that this massive debt didn't kill the government. Which it would have done. They turn out to be right.

The thing is, the government can bring about policies to stabilise house prices. Tax breaks. Subsidies. Advertising campaigns. Changing legal lending criteria. There are dozens of things that could be done to avoid a German or Japanese style slump, if they wish to.
If NAMA comes about, they have some skin in the game, as the saying goes. They have an incentive to, at the very least, stabilise prices. Which will be good for the economy in the short term. They could well recklessly reinflate the bubble, but they don't need to to make a profit on NAMA. NAMA isn't designed to reinflate the bubble, nor does it depend on it being reinflated.
Just a stop on house price collapse will suffice.

Admittedly, it gives the government every incentive to reinflate the bubble, but that's a different story.

Thats a great post, and certainly food for thought! ;)

Professor Piehead

25-08-2009, 09:33 PM

Thats a great post, and certainly food for thought! ;)

His naivety gets a gold star from me at the very least.

hurlerondeditch

26-08-2009, 09:10 AM

Economists warn against Nama
STEPHEN COLLINS, Political EditorA group of 46 economists has signed an article in today’s Irish Times calling on the Government to reconsider the National Asset Management (Nama) project.

They argue that Nama should pay the banks only the current market value for the loans it will assume.

In response, economist Alan Ahearne, special adviser to Minster for Finance Brian Lenihan, said last night that a number of claims in the article were incorrect. He added that most of the economists in the country had not signed the article drafted by Prof Brian Lucey of Trinity College.

Prof Lucey said he had contacted about 250 lecturers in economics and not one had come back to say they disagreed with the views expressed in his draft. He said a number did not sign because they did not want to get involved in a round-robin exercise.

In the article, the economists say the Government will pay significantly above market value for the bad loans advanced by the banks.

“The key difficulty facing the Government is that to pay prices now prevailing would leave the banks sitting on losses sufficiently large as to effectively bankrupt them, which would then require the State to invest capital sufficiently large as to in effect nationalise the banks,” the economists argue.

“It is thus clear that the Government are determined to pay a price for land and speculative developments greatly in excess of the market clearing price.”

The economists say that by overpaying, the State would wind up transferring to private individuals a sum close to exchequer’s entire annual tax-take.

The economists went on to urge the Government to reconsider its approach to payment for loans to be taken into Nama and to pay no more than current market value, which they said could be ascertained even in these straitened times.

The article suggests that bank shareholders should forfeit their investment. Bondholders should also be asked

In his e-mail to fellow academics asking them to sign the article, Prof Lucey pointed to the impact of an earlier article on the issue signed by 20 economists.

“The 20 economists piece in The Irish Times has been constantly referenced in the debate, so we as a group do have influence. How much more influence on the debate might we have if we had 200 signatories.”

Mr Ahearne was one of the economists contacted, but he responded by sending an e-mail to colleagues taking issue with what he described as “some of the deficiencies in the note you have been asked to sign”.

He disputed a number of claims in the article, including the assertion that the true value of the loans being taken over by Nama would be close to €30 billion.

“I’m afraid that anyone who is trying to suggest that they can make a reasonable guess at the ‘true value’ of the loans without knowledge of any of the details about the individual loans is either delusional or is being disingenuous,” he said.

Mr Ahearne also said the notion of making the bondholders swap debt for equity showed “a startling lack of understanding” of the bondholders’ position, given that they were covered by the State guarantee and bonds might have been bought after the introduction of the guarantee.

“I hope you agreed that what you have been asked to sign is a rather poor piece that unfortunately does nothing to inform this crucial debate,” he concluded.

With the Cabinet expected to be briefed on Nama today by Mr Lenihan, Fine Gael finance spokesman Richard Bruton last night accused the Government of running away from a debate on the issue.

markinmanc

28-08-2009, 07:43 AM

Isn't it great to have an unbiased view on NAMA!? He's convinced me that buying overpriced if not worthless property is in fact the best option for the Irish elite - er economy.

Will developers really let NAMA take their performing loans/property from them?

http://www.irishtimes.com/newspaper/frontpage/2009/0828/1224253408978.html?d igest=1

ONE OF the State’s biggest property developers believes Nama will take over most of its assets, but that the process will benefit both it and the economy.
The Government’s plan to recapitalise the banks hinges on the proposed National Asset Management Agency (Nama), which will take over up to €90 billion in property loans.
Listed property investor Real Estate Opportunities (REO), whose biggest shareholder, the John Ronan and Richard Barrett-controlled Treasury Holdings, is Nama’s landlord, believes the agency will take over the loans it has from the banks.
John Bruder, managing director of Treasury Ireland which is part of the Treasury Holdings group, told The Irish Times yesterday that the company has studied the draft Nama legislation. He said the agency could take over good and bad loans. “It’s our expectation that a lot, if not all, of our portfolio will end up being subsumed into Nama,” he said. Mr Bruder added that, unlike other players in the market, none of REO’s loans are distressed. The company owns a large number of commercial and retail properties, including the landmark Central Park complex close to Leopardstown in Dublin, Montevetro on Barrow Street in the city centre, and a range of others in the capital’s main business district.
In Britain, it owns the flagship Battersea power station, which it is redeveloping as a new urban centre.
REO yesterday reported that its Irish properties, including investment assets and those under development, were worth just over €1.3 billion at the end of June, an 8 per cent fall over the previous six months. Its British interests were worth £388 million, a decline of 14.5 per cent.
Mr Bruder said that if loans related to part or all of its portfolio are taken over by Nama, it will simply mean that the company will be repaying the agency instead of the banks. If the Oireachtas passes the legislation on schedule, Nama will begin its work towards the end of the year on a phased basis, taking on the larger loans first. On that basis, REO expects to begin dealing with agency around December or January.
Under the terms of the proposed legislation, Nama will assume the banks’ rights and obligations in relation to any loans it takes over.
Mr Bruder added that the Nama process should be positive for both the company and the economy generally, as it will allow the banks to raise money that can then be loaned.
Nama’s critics argue that it will result in the taxpayer taking on too much risk as the State will overpay for the loans. However, the Government and the system’s supporters say that the proposed valuation method will not expose the taxpayer to excessive risk, and that the full amount of the loans will be recovered.

How bad boy

28-08-2009, 10:30 AM

It's a terrible article, covering a non-issue. Developers have little say in the matter and it shouldn't affect them a great deal one way or another.

Besides, the administration and collection of the loans is likely to e carried out by the banks themselves.

His argument is the same one most other people in favour of NAMA has made, that once these loans are off the banks' balance sheets, it'll free them up to lend again.

Personally, I don't buy that argument, but I do think it'll be good for the economy, if handled properly and the government distort the property market in the taxpayer's favour.

markinmanc

28-08-2009, 10:44 AM

if handled properly and the government distort the property market in the taxpayer's favour.

But by buying them at inflated prices, the govt is already stoking the next property bubble and subsuquent crash. Either that or the govt will sell the loans and property to (I wonder who?) at vastly reduced prices to kick start the property market.

The money would be better spent guaranteeing loans to SMEs and housebuyers for the next three years or so.

I spent some time years ago studying economics - not much, but probably more than FF and their 'back of a fag packet' macroeconomics.

But rather thanprotecting jobs, FF would rather secure the wealth of it's backers.

markinmanc

28-08-2009, 10:54 AM

FG and IT in unholy alliance shocker? ;)

http://www.irishtimes.com/newspaper/opinion/2009/0828/1224253408843.html

THE GOVERNMENT has to write whatever cheques are necessary in the interest of maintaining financial stability.’
This quote, from our Taoiseach just over a month ago, (July 14th on Newstalk Radio) neatly sums up the concerns Fine Gael have with Fianna Fáil’s insistence that the National Asset Management Agency is the only way to fix our banking system. The banks and the developers come first for Fianna Fáil, the taxpayer a distant second. But we’ve been here before. Fianna Fáil knows best. Any criticism is unpatriotic. In the recent past it was even wondered aloud by Bertie Ahern why such critics of Fianna Fáil didn’t just commit suicide.
This is the type of bombast that allowed Fianna Fáil to implement reckless, economically illiterate and politically motivated policies that succeeded in crippling our economy. It’s the type of approach that insisted the housing market was built on “sound foundations” as Brian Cowen said before the general election. And it was the type of approach that backed Anglo Irish Bank to the hilt. And it is now the type of approach that is saying, trust us, we know best, Nama is the only way to go. Well I don’t believe that. And I don’t think we need another reckless and economically illiterate policy from Mr Cowen and Mr Lenihan.
Our main concern about Nama, reinforced by 46 independent economists, is that it will pay too much for the €90 billion or so distressed developer loans to be bought from the banks. While this would be good for the banks’ investors, it could have devastating consequences for our public finances over the next decade, and result in greater tax hikes and service cuts.
The Government has tried to justify overpayment to banks on the basis of a very questionable concept of “long-term economic value”. But this is impossible to quantify in practice. The crashes in other countries like Japan and Finland are a cautionary tale for those who believe that prices will inevitably rebound from current prices in the short-to medium-term.
Five months ago Fine Gael offered a two-track alternative to Nama.
Under track one, we propose, as a temporary measure, to improve credit availability for struggling businesses and households by the establishment a wholesale “good bank”, or national recovery bank, with initial investment from the State and further funding from the ECB and markets, using a model that is well established in EU countries. Enforcing the lending commitments already made by AIB and Bank of Ireland in return for the €7 billion given to them in new capital would be another priority.
In parallel, under track two, the banks would be given until the end of the guarantee period in September 2010 to pass a rigorous “stress test” to show that they had repaired their own balance sheets by selling assets (such as foreign subsidiaries), raising more deposits and negotiating with their investors to write off their losses.
In the event that the banks cannot pass such a stress test by the end of the guarantee period, Fine Gael’s proposal is to split each failed bank into two, leaving the assets with the most uncertain values (the developer loans) in legacy asset management companies owned largely by the shareholders and other classes of risk investors. Deposits, other short-term liabilities, personal loans, mortgages and business overdrafts, the branch networks and the vast majority of the staff would all move safely and seamlessly into a new, going concern “clean bank”, initially owned and guaranteed by the taxpayer.
These new “clean banks” would be free of toxic developer loans and fully open to resume lending to small businesses and households.
We are confident that this break-up procedure would never prove necessary for most and perhaps all of the banks, as they and their investors would have every incentive to avoid it.
All the major banks have already announced plans to buy back debt from their bondholders at a discount in a way that pushes some of the banks’ losses onto those that funded the reckless lending.
These types of negotiated “debt buy-backs” and debt-to-equity conversions would accelerate dramatically under our policy and at greatly discounted prices.
The big advantage of this model over the current Nama proposal is that the risks associated with working out distressed developer-related loans would remain with those professional bankers and investors that funded them.
Rather than engaging constructively in debate on the alternatives to Nama, Fianna Fáil has instead chosen to invent an economic bogeyman to try and hysterically caricature our policy as the Government reneging on its own debt. We are, of course, making no such proposal. When the blanket guarantee expires, bank liabilities revert to being purely private, not sovereign, obligations.
It is accepted international practice for risk investors in the banks, including some classes of bond-holders, such as owners of subordinated debt, to absorb loan-related losses ahead of taxpayers.
Putting banks into managed administration, where depositors are protected and losses are absorbed by investors, including some bond-holders, has been a common feature of recent banking policy in the US (Washington Mutual) and Britain (Bradford and Bingley).This is, after all, the nature of capitalism.
Until confidence has been restored and the banks returned to health, funding for the banks would be secured by targeting an extension of the guarantee to all deposits, other short-term liabilities and new “term funding”. Only those long-term risk investors like shareholders and subordinated bonds that remain locked into the banks at the end of the guarantee period would lose the guarantee and be exposed to losses.
I am not pretending that any solution to the banking crisis will not involve pain for the Irish taxpayer. But by allowing some investors and speculators to walk away scot-free from this crisis, the Government could be exposing the taxpayer to additional, unnecessary costs of up to €10 billion.
This “write any cheques” approach has already damaged perceptions of Ireland’s creditworthiness and provides terrible incentives for banks to engage in more bouts of reckless risk-taking.
Fine Gael’s approach is based on a set of core principles: protecting the taxpayer; minimising and ensuring a fair distribution of the losses; and improving credit availability for struggling businesses and families.
These principles underpinned our written submission to the Minister on how to transform Nama.
It is not a dogmatic approach, it is one open to genuine debate and discussion. For the sake of the taxpayer I hope he embraces this genuine offer for real engagement.

How bad boy

28-08-2009, 12:05 PM

But by buying them at inflated prices, the govt is already stoking the next property bubble and subsuquent crash. Either that or the govt will sell the loans and property to (I wonder who?) at vastly reduced prices to kick start the property market.

The money would be better spent guaranteeing loans to SMEs and housebuyers for the next three years or so.

I spent some time years ago studying economics - not much, but probably more than FF and their 'back of a fag packet' macroeconomics.

But rather thanprotecting jobs, FF would rather secure the wealth of it's backers.
While I can't totally disagree with this, it's just a variation on the theme. It would end up with the government paying banks and people not bothering to pay their loans because the government will pick up the bill, prompting more moral outrage.

In this situation, what is needed is a large injection of cash into the economy. The government has gone down the NAMA road to do it, there are loads of other ways to do it, all of which will outrage some people and make some profit more than others.

Personally, I think there should be large, one-off payments to social welfare recepients and those on salaries below 50k. That would enrage lods of people too.

Keynes advocated burying money in bottles at random locations and getting people to dig them up. I wouldn't go that far, but NAMA makes sense from a macroeconomic standpoint. I don't know if that's by accident or by design.

Professor Piehead

29-08-2009, 11:22 AM

http://www.irishtimes.com/newspaper/ireland/2009/0829/1224253466035.html

'The economic illiteracy behind the Nama developer/banker bailout was exposed by Frank Fahey when he claimed that the property market had rebounded and that money borrowed by the Irish Government to fund Nama was not going to have to be paid back by Irish taxpayers. If this is the level of understanding of the issues facing the Irish economy then it should come as no surprise that Fianna Fáil have driven us into a deep depression'

This from Frank 'I've got twenty properties, shares in Kingspan, Grafton and AIB bank, and was behind the selling the land to Shell' Fahey.

Another interesting coment from Ned O'Keefe, foreign banks are to blame for the crisis here. Straight from the Bertie 'It was nothing to do with me' Ahern school of deception.

You'd have to have been a complete gimp and a traitor to Cork and Ireland to have voted for this bunch of gangsters.

Cos

29-08-2009, 01:41 PM

Big gamble imo. Look at America. They started out printing a few billion to cope with there toxic debts, last i read it had reached around 8 trillion, which the tax payer could end up servicing. Even 90 billion, the figure they arrived at for Eire, is a lot of debt, especially as where hemoraging jobs and businesses are moving to cheaper climes. There is also a chance that the dollar will collapse totally very soon.

Sound

02-09-2009, 03:59 PM

NAMA money pit could be our economic Stalingrad

Economic Crisis

Wednesday September 02 2009
The collapse in property values, the fact that the market here is in free-fall and developers and banks are bankrupt presents the single biggest opportunity this country has had in a generation.

With so much prime land now available to the State for a song, the obvious thing is for the State to profit from the bankers' and developers' stupidity and greed by buying the land for next to nothing and then putting it to public use.

This will mean the orderly winding down of some banks over the course of the next year. In almost every banking disaster we have seen in the past two decades, the obvious thing to do is let banks go. The State guarantees deposits, transfers these deposits to a new bank and the economy starts again. From the Swedish crisis of the early 1990s to the Asian Tiger collapse and the USA today, banks go bust and the countries recover.

The banking system and the economy are not the same. Our government has migrated from a logical position of trying to save what looked like it might possibly be a good banking system, to trying to preserve what we know to be a bad banking system. This makes no sense and, more crucially, investors don't like what they see. Investors want to share in success not be party to a policy which is neither credible economically nor clever financially. It is for this reason that no institution bar the ECB will touch the NAMA bonds.

Before I explain why letting a bank go will encourage money to flow into the country (rather than flow out of the country as the Government seems to think), let's appreciate why this is an opportunity, not a crisis.

Potentially, this could be a one-off windfall gain for the people and the first step towards economic recovery. Yet for some reason, instead of raising a bond to buy cheap land at this once-in-a-generation fire- sale price, the State wants to protect the people who got us into this mess so they can hold on to some gains in the chaos.

Where is this analysis coming from? Think about it, in the boom we couldn't build infrastructure at a decent price because the price of land was artificially inflated. So the people transferred billions of euros to landowners and developers to allow us to build bridges, schools and roads on hugely expensive land. In effect, this was a tax on the average person to subsidise the very rich.

Now the opposite is the case. We can subsidise the poor by taking the land back now. But instead of seizing the opportunity to buy this land for the State's use for the next generation, we are being asked to put the interests of the corrupt, greedy and plainly stupid bankers over the interests of the average citizen.

We are being asked to stump up for NAMA based on the reasoning that if we don't do this then investors will flee the country. This line is hilarious for anyone who has worked in international finance during a banking crisis; it implies that international investors are prepared to risk their money in a country that is being turned into a large debt-servicing agency for old debts.

One of the most depressing aspects of the present policy disaster is that people who are constructing it have clearly no idea how traders or the financial markets think. It is policy framed by civil servants and lawyers, not by traders and as such it scares proper investors who might be willing to take a punt on Ireland. At the moment the place doesn't seem safe because the State is trying to prevent the inevitable and as long as it does this, money will stay on the sidelines. (The promises made in the good times look silly now when everything has changed and trying to keep them looks incredible.)

In every episode of debt-induced crises, governments break promises made in the boom and the simple reason is that is what they have to do. They don't have the money and they are not prepared to put the interests of investors above the people.

Most proper investors realise this, which is why money flooded back into Sweden after it let a bank go bust. It is why money flooded back into Finland, the US and Ireland (in 1993) after we broke our promises to bond and currency investors and devalued our currencies. Likewise, in the Asian crisis, investors took their losses on banks and moved on.

When investing, you take the rough with the smooth. You win some you lose some and only the naive believe that they will never make a loss. Having worked in international banking in various countries which experienced banking crisis throughout the late 1990s and early 2000s, I know that no country reacted as we have.

Our desire to protect all bank investors is the behaviour of fanatics. By this I mean that trying to pretend we have the money and the resources to bail out the banks when we do not is the economics of Stalingrad. We are trying to throw everything we have into the banks, exhausting our resources in the process. When investors see that we are being ruled by financial fanatics, they stay miles away because they know investing is pointless.

Inexplicably, NAMA is our economic Stalingrad and it scares all sensible people. It is based on the "big lie" that to lose here would spell disaster. In fact, the opposite is the case. Why wouldn't you want to invest in Ireland once the banks are wound down? You get a smart population, that isn't being mortgaged for the mistakes of the few.

The reason we must fight NAMA at every turn is because it is the economics of fanatics and the whole world can see this. It will keep money away from the country, not the other way around.

- www.davidmcwilliams. ie

Coople

02-09-2009, 05:31 PM

That is a very good summary of the situation.

slick fingers

03-09-2009, 02:13 PM

POL

03-09-2009, 03:09 PM

Frank "45 Apartments and Bank Shareholder" Fahey was it? fucking gombeen prick

Cliff Barnes

03-09-2009, 03:11 PM

Anyone hear Frank Fahey on Newstalk earlier? Oh my fucking god, it was cringeworthy. He was debating with Eammon Dunphy about Nama. He claims that the taxpayer are not funding Nama but the ECB. How can we have fucking spacers like him running our country?

I listend to that for almost an hour.

The 2 Eamonn's ran rings around him.

Frank sounded pityful in the end.

There will be a revolution soon here if they do not cop on in Dail Eireann.

A lot of pissed off people out there.

Coople

03-09-2009, 05:39 PM

Apparently 38 politicians who will be voting on NAMA have property interests that could be affected by the outcome of the vote.

Frank Fahey (FF) - 30 properties in Ireland, Brussels, Dubai, France and Portugal

Jim Walsh (FF) - Shares in Irish, UK and Dutch property funds; director of property firms in Wexford; 30 acres development land in south Dublin

Francis O'Brien (FF) - Ten separate parcels of development land; six properties

Frank Feighan (FG) - 15 properties in Ireland, Hungary, France, Bulgaria

Alan Shatter (FG) - 14 properties in Ireland and US

Noel O' Flynn has a number of properties in Cork and Dublin, and Fine Gael spokesman on Health, Dr James Reilly declares a commercial interest in Lusk Town Centre in north Dublin. As well as accommodating a surgery, the centre houses a supermarket, offices, a bookmaker's, a gym, a restaurant and some apartments. Reilly also declares a quarter-share interest in Green Hills nursing home in Tipperary and a 1.3-acre commercial site in Swords for a one-stop-shop medical centre.

I got this from the Sunday Tribune.

The full article is here:

http://www.tribune.ie/news/home-news/article/2009/aug/30/vested-interests-38-politicians-voting-on-nama-hav/

markinmanc

04-09-2009, 06:58 PM

Sums up the Irish body politic really, voting to bail themselves out.

slick fingers

05-09-2009, 12:49 PM

In fairness though, is anyone going to make a stand, are there any protests organised in town?

hurlerondeditch

06-09-2009, 02:21 PM

Maybe we could all start carrying spades about the place.

By Gene Kerrigan

Sunday September 06 2009

If you see me mooching around town these days, you may notice that I'm carrying a garden spade over one shoulder. Why, people ask me, are you carrying a garden spade? I reply that it's with this spade that I must try to rescue the national economy. Then, I tell them the story of The Amazing Disappearing Swedish Politician.

It will not have escaped your attention that the Government is in the process of setting up Nama (An Bord Bailout).

Yesterday's Irish Times poll results showed that a whole 26 per cent of citizens are behind Nama, while 40 per cent are against it and 34 per cent don't know -- it seems they think Nama is a new organic breakfast cereal.

It doesn't matter that Nama has little support. And it doesn't matter that the Cowen Government is slightly less popular than the average genital rash. Nama, we're told, cannot be stopped. It's necessary because the banking system is in meltdown, and the State must rescue it. Only then, we're told, will credit flow again, the economy recover and employment grow.

Readers with long memories and very empty lives will remember that this column solved the banking crisis way back in November 2008. We suggested the State should let the banks collapse.

To hell with them -- they were insolvent, dodgy outfits, run by greedy, incompetent gobshites. Let their beloved free market flush them away.

The State, we said, should set up its own good bank. Call it the Continuity AIB, we quipped. Or the Real Bank of Ireland. People would take their savings from the dodgy banks and hurry to this new, safe bank. Investment wouldn't be a problem -- international investors would know that the incompetent gobshites were out of the picture and the that new bank was guaranteed by the State.

But radical notions are out of favour these days. The State is allowed to pump billions into private banks, but it would be ideological sacrilege to have the State set up a bank -- no matter how beneficial for us that might be.

Instead, Nama -- known as a "bad bank" -- is to buy the banks' bad debts, for tens of billions of euro. Frankly, I think we already have enough bad, truly crappy, banks. But I'm not a financial genius like the Two Brians, or Frank Fahey or Willie O'Dea, the people who've made this great little nation what it is today.

And the State will pay an inflated price for the bad debts -- to make sure the bankers are fattened and smug and can resume paying each other nice bonuses (you may think this is hyperbole, but it's not).

Some of us object to being stuck with the bill for the wrecked economy, while the banks and developers are rescued with our money. The Government insists that Nama won't bail out the developers -- and they're right. Nama will bail out the banks.

And the banks will bail out the developers.

Nama generated argument. Labour wants to temporarily nationalise the banks; Fine Gael wants a "good-bad bank" (I'm not sure why we need a bank with personality problems, but there you are).

And a bunch of academic economists -- loosely grouped around the irisheconomy.ie website -- debated the matter intensely. Some support Nama, others don't. Their rigorous, courteous debate forced reconsideration of some aspects of Nama.

Twenty of the academics issued a statement suggesting the banks should be temporarily nationalised while the rescue was being carried out. Then, 46 of them signed a letter suggesting caution about the price to be paid for bad debts. Some are politically middle-of-the-road, some on the right. The Government, however, is ideologically opposed to anything that sounds like it might be lefty.

The very word "nationalisation" makes them itch. And over the past couple of weeks, Lenihan and Cowen have successfully mounted a PR blitz to steamroller opposition to Nama. The 46 academics, it appears, are just eejits -- anyone else opposing the Government's version of Nama is politically motivated.

Garret FitzGerald joined in, with a warning that it's too late. Either we support the Government's actions or the IMF will come in and, well, it seems the IMF will boil our children down for soap, or something like that.

Democratic debate is dispensable; political opposition is dangerous. Nama has been declared "the only game in town" -- it is futile to question Nama and "irresponsible" to politically oppose it.

It's a peculiar thing, but when a PR blitz works it produces a zombie effect on the media and politicians. As though they've stumbled on a great truth, people who don't know very much about the issue mutter: "It's the only game in town," as though it was evidence of anything.

And over the past 10 days or so, you could almost hear the heels clicking, as the media fell into line. Politicians and journalists solemnly nod their heads and repeat, "Nama is the only game in town", as though they weren't simply uttering a meaningless phrase.

The PR blitz successfully divided us into "serious people" and cranks.

The politicians, bankers and developers may have wrecked the economy and condemned hundreds of thousands to the dole, poverty or emigration, but they're "serious people". And if you don't fall in line, well, you're not a serious person, you're an irresponsible crank.

Enter good old Bo Lundgren. Bo was a Swedish politician who masterminded a similar bank rescue in the Nineties. He's a conservative and our "serious people" love him.

In July, Green Minister Eamon Ryan claimed that Bo ("who got them through a similar crisis") described Nama "as exactly the right thing to do".

Bo's success was evidence that it would be foolish to nationalise the banks.

On Thursday, RTE's Morning Ireland ran an interview with Bo. He said that Sweden temporarily nationalised the banks in the Nineties.

In this crisis, you have to, to ensure the taxpayer isn't ripped off. "If you own both entities," -- the bank selling the bad debt and the one buying it -- "valuation is not a problem". But our Government says no one would later buy the clean banks. Bo dismissed this as nonsense. "I can't see that as a problem".

Labour's Joan Burton said Bo's intervention would put nationalisation back at centre stage. After all, Bo is the Government's hero. They claim they're following in his footsteps.

Academic economist Brian Lucey said: "I suspect that he will be loudly ignored."

And he was. RTE didn't pick it up as a significant development in the debate. Not a word in the newspapers next day.

Had Bo weighed in behind the Two Brians, I've no doubt he would have made the headlines.

The point is not that we should do what a Swedish conservative says -- the point is that Bo vanished. Debate is over. There can be no alternative. This isn't a conspiracy -- it's just that the "serious people" have

switched off. They've been convinced by the Two Brians. And for intellectual support for their position, they repeat to themselves the phrase "the only game in town".

Which is why I now carry a spade around. When I meet the "serious people", they look puzzled and ask me about it.

"What's the spade for, Gene?"

"I'm going to hit you in the face with it."

"What? Why? You can't do that!"

"Well -- it's the only game in town."

Short pause, then the magic words make their eyes glaze over. "Oh, I see -- well, in that case, go ahead."

But, I hear you ask, will hitting "serious people" in the face with a spade really save the national economy?

slick fingers

08-09-2009, 12:14 PM

ynjIoymWHvU

leesider

09-09-2009, 12:07 AM

Professor Piehead

09-09-2009, 01:32 AM

What happens if the banks are allowed collapse and a new bank is set up??

From what I have read I am beginning to favour this method for resolving our problems but what are the downsides of it?? Would the international financial system look upon us as pariahs?? Would we struggle to sell government bonds to finance the country?? Would we default on our national debt?? We know the reason it won't be done is due to too many vested interests and the wealthy elite.....as Bertie would say it would upset the apple tart!! But can someone answer the above questions.......mora lly I think it would be the correct thing to do but economically would it be???

They don't already?

Nama is legalised coruption, simple as that. You're right though, it would be the right and moral thing to do, but this is FF we're talking about.

Didn't the gimp who's tasked with valuing the NAMA assets used to work for a large auctioneer? You'd think they'd get guys from outside the state to do this kind of thing if they want to get back any credibility.

Professor Piehead

09-09-2009, 08:24 PM

What part of cheap land does the Green Party not understand? The Green Party values the land we walk on, not in the way Fianna Fail does, not for its price but for its value. And the cheaper our land is, the more value it has for the collective good. The more expensive the land is, the more value it has for individual owners.

If the Green Party is really interested in the collective good, it would never support a proposition which prevents land from falling in value.

This goes to the core of the NAMA debate. In Ireland today, we have an opportunity to "lock in" the huge competitive gains that falling land prices give us. Cheap land, commensurate with our sparse population density, is the one thing that will ensure that we never blow the resources of the State on property speculation again.

The Greens are trying to impose a windfall tax on property speculation in order to dissuade people from speculating. However, the best way to prevent people from speculating on land again is to make sure that the collective memory of the land bust is so agonisingly painful that we never touch the stuff again.

If the Greens walked away from NAMA now, the price of land would fall quickly and dramatically and, in the process, we would achieve huge competitive gains which otherwise will have to come from higher unemployment or less capital investment.

And this is the issue. If we are to build a 'green economy' as the Greens say they want, then we have to be attractive to outside investors. We have to reduce or eliminate any impediments to investment in Ireland's brainpower. This means that we should be trying to make permanent the falls in land prices because every percent fall in the fixed cost that is land and the variable cost that is rent is one extra euro to be spent investing in our people.

By supporting NAMA, the Green Party is supporting the land and banking oligarchy whose interests are anathema to practically every Green voter that ever donned bicycle clips.

The Greenest policy that the party could follow would be to see the fall in land prices and the collapse of the old regime as a brilliant, once-in-a-generation opportunity to achieve a real change in the way Ireland runs. This is something that they have always purported to believe in. The way the leadership is going, they risk losing not only the general electorate but their own members as well.

The best gift any middle-aged politician could give the young of this country -- the generation coming now into the labour force, looking for work and accommodation -- is cheap land and houses. Interestingly for the Greens, this is the way the market is going,, so why put NAMA in the middle and try to stop this and in the process bail out the oligarchy?

Think about where the property market is heading now. We have a credit crunch and there's a property tax on the horizon, as well as rising unemployment and falling tax revenue, which will only be plugged by more taxes and a reduction in government spending. So house prices are heading only downwards. Not only are the Greens supporting the reflation of the property market through NAMA, the party is guaranteeing that we overpay for the assets no matter what the haircut, because we clearly are nowhere near the bottom. Let's do a little calculation to see how far house prices have yet to go and, consequentially, how much NAMA is likely to overpay for land and give us the bill.

So how low are prices likely to go? The best way to answer this crucial question is to start with the premise that the age of property speculation is over. There can be no more 'hope value'. There can be no more belief in the notion that there will be a big capital gain in buying a property, any more than there will be capital gain in buying a sofa.

The value of the asset will have some relation to the yield the asset returns. In houses, the yield is the rent. So let's take a yield of 7pc as being a reasonable return on an asset that costs money to update and is not generating a significant capital gain. This 7pc would be a long-run average yield, particularly as government bonds which form the benchmark for yield of other assets are on their way back up to that figure.

Using this 7pc yield idea we can value a house at some multiple of the rent it generates. Typically, the value of a house was calculated at 12 to 14 times its annual rent. (The 12 to 14 times equates to a yield of around 7pc.) This relationship has held in the US for over 100 years. There is no reason to believe that this shouldn't be the way to value Irish houses.

This is a normal price/earning ratio that we would use in the stock markets to assess value. What the US valuation model is saying is that, over time, property should trade on a price/earnings (P/E) ratio of 14 times.

So, let's see where Irish houses will end up. Take a typical house in a commuter town. On daft.ie there are hundreds of them. Let's take Newbridge in Co Kildare, a typical deckland suburb where unemployment has tripled in the past year. You can buy a new three-bed house for €335,000. This is a steal, according to the ad. Beside the house is yet another predatory ad from AIB saying that it will finance the house for €995 per month.

According to the same website, the average rent for a three-bed in Newbridge is between €950 and €1,000 a month. This house, if it can be rented, will yield €11,400 a year. This implies that, applying the US valuation to the asset, the house should be valued at €159,600. However, in Ireland, we are expecting the house to sell at €335,000.

The Irish house, at a "bargain" price of €335,000, is still way overvalued. It will have to fall by almost half again to make the sums add up.

The real fair value means that, in a world where house-price speculation is over, Irish house prices in commuter land will have to fall on average by 50pc from where they are today to be worth buying. Madly, even after a year of house price contraction, the P/E for the average Irish house stands at over 29 times -- twice the historical average for property -- and the yield at just over 3pc, which is still far too expensive. And this is before the likely property tax is slammed on houses at a rate of 1pc of the average value of the house.

So, let's snap out of it. Why can't we just mark down prices to where they should get to, take the bankruptcies and move on? Why should we be any different in coming to terms with the new reality?

The Greens could help achieve this competitive bonanza and protect future generations from being conned by the land and banking oligarchy again. It is their decision.

http://www.independent.ie/opinion/columnists/david-mcwilliams/greens-turn-their-back-on-cheap-land-of-opportunity-1881179.html