Spokeperson for Brian Lenihan has come out said these economists don’t know what they’re talking about.
As opposed to the economic genuises who got us to this point I presume?
here’s what the imf have to say about it, so doubt they were behind nama
-
Staff noted that nationalization could become necessary but should be seen as complementary to NAMA. Where the size of its impaired assets renders a bank critically undercapitalized or insolvent, the only real option may be temporary nationalization. Recent Fund advice in this regard is: “Insolvent institutions (with insufficient cash flows) should be closed, merged, or temporarily placed in public ownership until private sector solutions can be developed … there have been numerous instances (for example, Japan, Sweden and the United States), where a period of public ownership has been used to cleanse balance sheets and pave the way to sales back to the private sector.” Having taken control of the bank, the shareholders would be fully diluted in the interest of protecting the taxpayer and thus preserving the political legitimacy of the initiative. The bad assets would still be carved out, but the thorny issue of purchase price would be less important, and the period of price discovery longer, since the transactions are between two government-owned entities. The management of the full range of bad assets would proceed under the NAMA structure. Nationalization could also be used to effect needed mergers in the absence of more far reaching resolution techniques.
-
The authorities prefer that banks stay partly in private ownership to provide continued market pricing of their underlying assets. They disagreed with the staff’s view that pricing of bad assets would be any easier under nationalization. They were also concerned that nationalization may generate negative sentiment with implications for the operational integrity of the banks. Staff emphasized nationalization would need to be accompanied by a clear commitment to operate the banks in a transparent manner on a commercial basis. In particular, nationalized banks should be subject to the same capital requirements and supervisory oversight as non-nationalized banks. And, a clear exit strategy to return the banks to private operation would be needed.
[quote=“Special Olympiakos”]Spokeperson for Brian Lenihan has come out said these economists don’t know what they’re talking about.
As opposed to the economic genuises who got us to this point I presume?[/quote]
The guy on Morning Ireland, Alan Ahearne, is on secondment from UCG as special advisor to Lenihan.
He’s previously worked for the Federal Reserve and came on board at the DoF after the bank bail-out last September.
He remains however, the only non-bank employed economist I’ve read that is in support of NAMA in it’s current guise.
Last week he sent an email to over 200 academics attempting to allay their fears over the current draft legislation, and limit the no. of sigs on the letter Art posted above.
Himself and Lucey (first signature on the letter), in particular, have been at loggerheads in the national media for a while now. Both well meaning, both respected, but both differ significantly on what value should be paid for the assets NAMA is to buy up. Unfortunately for the rest of us, that’s a pretty big issue to disagree on.
Interestingly, there’s more than a few names from UCG on that list.
[quote=“artfoley”]here’s what the imf have to say about it, so doubt they were behind nama
-
Staff noted that nationalization could become necessary but should be seen as complementary to NAMA. Where the size of its impaired assets renders a bank critically undercapitalized or insolvent, the only real option may be temporary nationalization. Recent Fund advice in this regard is: Insolvent institutions (with insufficient cash flows) should be closed, merged, or temporarily placed in public ownership until private sector solutions can be developed there have been numerous instances (for example, Japan, Sweden and the United States), where a period of public ownership has been used to cleanse balance sheets and pave the way to sales back to the private sector. Having taken control of the bank, the shareholders would be fully diluted in the interest of protecting the taxpayer and thus preserving the political legitimacy of the initiative. The bad assets would still be carved out, but the thorny issue of purchase price would be less important, and the period of price discovery longer, since the transactions are between two government-owned entities. The management of the full range of bad assets would proceed under the NAMA structure. Nationalization could also be used to effect needed mergers in the absence of more far reaching resolution techniques.
-
The authorities prefer that banks stay partly in private ownership to provide continued market pricing of their underlying assets. They disagreed with the staffs view that pricing of bad assets would be any easier under nationalization. They were also concerned that nationalization may generate negative sentiment with implications for the operational integrity of the banks. Staff emphasized nationalization would need to be accompanied by a clear commitment to operate the banks in a transparent manner on a commercial basis. In particular, nationalized banks should be subject to the same capital requirements and supervisory oversight as non-nationalized banks. And, a clear exit strategy to return the banks to private operation would be needed.
http://www.imf.org/external/pubs/cat/longres.cfm?sk=23044.0[/quote]
good stuff Art.
Biffo has been warbling on about having the full backing and co-operation of the IMF and ECB for a while now, he’s been accused of being “economical with the truth” at the very least.
I just don’t get why these shareholders / bondholders are deemed sacrosanct.
you invested in Irish banks, you lost money, deal with it.
Seems to be the approach taken with the developers (if Ahearne is to be believed and assets will be bought at a discount) so why not these guys?
The only reason I’ve heard is to “protect the reputation of Irish banknig abroad”
I would have thought that’s shot to pieces already, thanks to Seanie Fitz and the rest of those yahoos.
Surely NAMA and risking a government default is far worse than letting some banks fall and nationalising the 2 larger ones?
You could even merge a few of the small fry with Anglo to form a third bank for competition’s sake.
Not often O’Toole hits the nail on the head.
Gambling all for a prize not worth winning"
http://www.irishtimes.com/newspaper/opinion/2009/0825/1224253194613.html
Tuesday, August 25, 2009
THERE IS an old proverb, much revived by 19th-century Irish nationalists, warning of three things for a man to avoid: the heels of a horse, the horns of a bull and the smile of an Englishman, writes FINTAN OTOOLE
With Nama, we are now betting the house on three equally trustworthy things. The integrity and economic acuity of Fianna Fil; the wise judgments of independent experts from the financial and property worlds; and the rigour of regulators whose traffic lights have two colours: orange for what the hell are you doing? and green for ah sure go ahead.
Call me suspicious, but I think if I had to gamble maybe 60 billion of public money, Id go with the more conservative option. See that smiley fellow called Ralph on the frisky mare, leading the big angry bull? Looks like a pretty safe bet to me.
The big problem with Nama, though, is not the risk that it will not work but the almost equally frightening prospect that it will. For this whole deal is a bit like that Age Action raffle ticket thats been doing the rounds. The second prize is breakfast with Bertie Ahern. Everyone who sees it immediately reaches for the old joke that third prize is dinner with Bertie. The Nama raffle is similar even if we win, the prize would be pretty grim.
The reason for this is simple enough. Given that the intention is to pay way over the market value of the assets behind all the bad loans, the State can get its money back only if we successfully inflate another property bubble. It is probably true that the property market will not need to return to the hysterically hyped values of 2006 or 2007. But it will have to return to the levels of, say, 2002 or 2003. And those levels were themselves unsustainable. Property prices went so far out of kilter that even if we only pay two-thirds of the face value of the loans, well end up with stuff that could be sold at a profit only in a market thats still puffed up beyond what is economically or socially sustainable.
Lets take the admittedly simplistic example of the average price of a second-hand house. If, between 1994 and 2007, that price had risen in line with building cost inflation (itself very high), it would have been 127,000. It was actually 378,000. Even if, in a Nama-type calculation, you take a third off that price, youd end with a price of over 250,000 still almost twice what it should have been.
If Nama bought that house, it would have to be able to sell it at what would still be a bubble valuation.
The effect of this on public policy is catastrophic. It is almost certainly being felt even before Nama has actually been established. How else can we explain the otherwise puzzling absence from the official political agenda of the issue at the epicentre of the whole disaster: the refusal to control the price of building land? This was recommended as far back as 1973 in the Kenny report. Governments of all hues (not just Fianna Fil) failed to implement the report. The issue was examined again in 2000 by the All-Party Oireachtas Committee on the Constitution. Its conclusion was that that Kenny was right to suggest the compulsory purchase of development land at a price modestly above the agricultural value, and that there was no constitutional problem about doing this.
Implementing Kenny should be the first political response to the property crash. It should also be politically easy: the Greens are supposedly committed to it and that Oireachtas committee in 2000 was chaired by Brian Lenihan. So why the silence? Because you can have the Kenny report or you can have Nama but you cant have both. Implementing Kenny would mean bringing down the market value of development land to 25 per cent above the agricultural value. That would, at a stroke, massively devalue the huge landbanks that the State will be hoping to flog off for prices way above their current values.
If Nama goes ahead, in other words, it becomes impossible for us even to learn the basic lessons of the crash. Instead of going back to an idea of housing as a basic social need, well have to continue to see it as a commodity and a speculative investment. Instead of seeing huge mortgages for overvalued properties as a disaster, well have to go back to pretending that they are signs of rugged good health.
The fundamental reform in attitudes, values and priorities that is crucial to our survival will be impossible. All well have is an economic version of Sophies Choice: heads, we lose billions of public money; tails we inflate another bubble.
This is why Nama has to be stopped, and why public opinion has to make itself felt. If Nama goes ahead without the largest public demonstrations ever seen in the State, we deserve what we get. Our kids deserve better.
[quote=“treaty_exile”]The guy on Morning Ireland, Alan Ahearne, is on secondment from UCG as special advisor to Lenihan.
He’s previously worked for the Federal Reserve and came on board at the DoF after the bank bail-out last September.
He remains however, the only non-bank employed economist I’ve read that is in support of NAMA in it’s current guise.
QUOTE]
Think Ahearne was in my class in College. If that is the case, the banking system is in safe hands.
[quote=“Special Olympiakos”]The effect of this on public policy is catastrophic. It is almost certainly being felt even before Nama has actually been established. How else can we explain the otherwise puzzling absence from the official political agenda of the issue at the epicentre of the whole disaster: the refusal to control the price of building land? This was recommended as far back as 1973 in the Kenny report. Governments of all hues (not just Fianna Fil) failed to implement the report. The issue was examined again in 2000 by the All-Party Oireachtas Committee on the Constitution. Its conclusion was that that Kenny was right to suggest the compulsory purchase of development land at a price modestly above the agricultural value, and that there was no constitutional problem about doing this.
Implementing Kenny should be the first political response to the property crash. It should also be politically easy: the Greens are supposedly committed to it and that Oireachtas committee in 2000 was chaired by Brian Lenihan. So why the silence? Because you can have the Kenny report or you can have Nama but you cant have both. Implementing Kenny would mean bringing down the market value of development land to 25 per cent above the agricultural value. That would, at a stroke, massively devalue the huge landbanks that the State will be hoping to flog off for prices way above their current values.
If Nama goes ahead, in other words, it becomes impossible for us even to learn the basic lessons of the crash. Instead of going back to an idea of housing as a basic social need, well have to continue to see it as a commodity and a speculative investment. Instead of seeing huge mortgages for overvalued properties as a disaster, well have to go back to pretending that they are signs of rugged good health.[/quote]
This is so crucial and its not getting any attention.
[quote=“Rocko”]Yeah I’d agree with a lot of that. Watching Prime Time there a few weeks ago and one of the lads on it made the point that usually investment valuations are “marked to market” and in NAMA’s case they were looking at “marking to hope.” (repeated below)
Anyway the economists are out in force in the Irish Times today:
Nama set to shift wealth to lenders and developers
OPINION: Forty-six academic economists and lecturers in business think the Government has got it wrong on the National Asset Management Agency. Here, they explain why
SINCE THE publication of the draft heads of the National Asset Management Agency (Nama) Bill some issues relating to how it will work have become clearer, while others remain less so.
Three main elements have attracted commentary. The first is the perceived lack of transparency concerning Namas operation and oversight by the Oireachtas of the agencys actions. To be fair, Minister for Finance Brian Lenihan has stated that he is willing to take amendments, and in particular on this area.
Another issue, which remains opaque, is the duration and scope of Nama. In terms of duration we remain unclear as to how long it will linger. Minister for Defence Willie ODea has suggested that Nama could dispose of its task in seven to 10 years.
However, other sources have stated that it will not be bound to any time-frame, but will take as long as required.
This is bound up with the third element, the most opaque of all the price that Nama will pay (in aggregate) for its assets.
The price and duration are interlinked as Nama will not necessarily pay market (or as they are now being called fire clearance) prices for land and development (as explained in section 58 of the Bill). Instead, it will, in the memorable phrase of Dr Peter Bacon, mark to hope.
This it will do by taking the market price as a basis and then adjusting upwards to fair economic value. This concept works on the assumption that in the short term, property and development prices will rise. Thus, Nama will make a profit and it would be somehow unfair to now pay a low asset price.
This has been criticised as flying in the face of evidence from previous similar crashes, and as being based on a very optimistic forecast of the Irish economy in the medium term.
The key difficulty facing the Government is that to pay existing market prices would leave the banks sitting on losses large enough as to effectively bankrupt them. This would then require the State to invest in the banks to such an extent as to effectively nationalise them.
Consequently, it is clear that the Government is determined to pay a price for land and speculative developments greatly in excess of the market clearing price.
Nama has unfolded against the slow but steady deterioration in the States finances. We now look to be on course for a Government deficit of close to 30 billion. In short, this means that for every 1 the State spends, it takes in tax only 50 cent.
To close this gap in State expenditure would require the implementation of more then five times the identified savings of the McCarthy report.
It is also clear that while world economic conditions might well begin to improve in 2010, this will not easily translate into improved conditions here. A significant structural deficit remains in place in the Irish State finances with as yet little in the way of solid policies implemented to close this.
Nama is expected to transfer about 90 billion (in book value) of loans from the banks. In exchange, the banks will receive a percentage of this value in the form of Nama bonds which can then be exchanged for cash at the European Central Bank.
While the precise national accounting treatment of these bonds remains unclear, it is prudent and correct to treat them as State liabilities for whose repayment the taxpayer will ultimately be responsible.
It is also highly probable that the agency cannot pay for itself. The loans being transferred are impaired, and by definition not paying their way. Even with the contribution of added value from performing loans, it remains probable that Nama will run at a loss. Consequently, the taxpayer will face an annual bill.
Regardless of this, and as noted, it is clear that the Government will pay significantly above market value for these loans. Current estimates are that the State may issue agency bonds worth upwards of 60 billion in total for the 90 billion book value.
However, judgments from court cases reveal that bond buybacks and debt for equity swaps in the majority of cases is not two-thirds of the book value, as would be implied by the Nama payment of 60 billion, but is closer to 30 billion.
Thus, by overpaying, the State will wind up transferring to private individuals a sum close to the entire tax take across all tax heads.
In a period of fiscal collapse this is surely not a decision that should be taken lightly, if at all.
At the conclusion of Nama or any alterative approach, all are agreed that what is required is a working, healthy, banking system.
All are agreed that Nama on its own is but an enabler of that. A healthy working banking system is not dependent, we suggest, on a massive transfer of wealth from taxpayers to private risk-takers.
A number of proposals have been put forward which would avoid this in whole or in part and which would, we argue, be at least as effective as Nama in laying the ground for such a banking system. These models have been well discussed through a variety of blogs on the web and in the mainstream media.
All share a number of key characteristics.
First, they work from the premise that those that have invested in risky capital in the banks (the shareholders and bondholders) must accept that the value of their asset is gravely impaired. At a minimum the equity element of the Irish banks, were they required to take on any significant part of the losses made in speculative lending, would be wiped out.
Second, they propose that certain classes of bondholders also be required to accept reductions in value. It is probable that the losses of the banks are such that even eliminating all equity value would not absorb said losses. Unlike the equity, most of the bonds are in great part covered by the 2008 State guarantee. However, the vast majority of this debt matures outside the September 2010 expiry date for this guarantee.
So the Government is in a strong position, if it chooses, to negotiate with bondholders to engage in some debt for equity swaps.
This on its own, however, is still unlikely to provide sufficient capital for the banks to operate without State support in an international environment that now demands far higher levels of capital than prevailed prior to the crisis.
Consequently the third element is that the State, on a temporary basis, becomes the pre-eminent shareholder in the banks, working swiftly to float a reorganised banking system anew. Alternative proposals have different twists to them. But the essence is that all three contain the three points mentioned above. Thus, to say that there is no alternative to Nama is incorrect.
We therefore urge the Government to reconsider its approach to payment for loans to be taken into Nama, to pay no more than current market value which can be ascertained even in these times and to require the investors in the banks to bear some of the cost of restructuring the system. Moreover, we also argue that the Government should not burden the State with more debt than is absolutely required.
To do otherwise would be economic folly.
LIST OF SIGNATORIES
Prof Brian Lucey, School of Business, Trinity College Dublin.
Prof Karl Whelan, Department of Economics, University College Dublin.
Prof Bernadette Andreosso-OCallaghan, Department of Economics, Kemmy School of Business, University of Limerick.
Prof Colm Harmon, Department of Economics, UCD.
Prof Frank Barry, professor of international business, Trinity College Dublin.
Prof Gregory Connor, Department of Economics, NUI Maynooth.
Prof John Cotter, professor of finance, Smurfit School of Business, UCD.
Prof Kevin ORourke, Department of Economics, Trinity College Dublin.
Prof Rodney Thom, Department of Economics, UCD.
Prof Rowena Pecchenino, head of department, Department of Economics, NUI Maynooth.
Dr Constantin Gurdgiev, lecturer in finance, School of Business, Trinity College Dublin.
Dr Alexander Sevic, lecturer in finance, School of Business, Trinity College Dublin.
Patrick McCabe, senior lecturer in accounting and finance, School of Business, Trinity College Dublin.
Dr Jenny Berrill, lecturer in finance, School of Business, Trinity College.
Dr Anthony Leddin, senior lecturer and head of department, Department of Economics, Kemmy School of Business, University of Limerick.
Dr Helena Lenihan, senior lecturer in economics, Department of Economics, Kemmy School of Business, University of Limerick.
Dr Mel Kilkenny, lecturer in finance and taxation, Department of Accounting and Finance, Kemmy School of Business, University of Limerick.
Dr Sheila Killian, senior lecturer in accounting and finance, Department of Accounting and Finance, Kemmy School of Business, University of Limerick.
Dr Stephen Kinsella, lecturer in economics, Department of Economics, Kemmy School of Business, University of Limerick.
Dr Donal Palcic, lecturer in economics, Department of Economics, Kemmy School of Business, University of Limerick.
Dr Eoin Reeves, senior lecturer in economics, Department of Economics, Kemmy School of Business, University of Limerick.
Eithne Murphy, lecturer in economics, Department of Economics, NUI Galway.
Dr Terry McDonagh, lecturer in economics, Department of Economics, NUI Galway.
Dr Ashley Piggins, lecturer in economics, Department of Economics, NUI Galway.
Dr Cathal ODonoghue, head of Rural Economy Research Centre Teagasc and Department of Economics, NUI Galway.
Dr Thomas Flavin, senior lecturer in economics, Department of Economics, NUI Maynooth.
Dr Tom OConnor, lecturer in economics, Department of Economics, NUI Maynooth.
Paul OSullivan, lecturer in economics, Department of Economics, NUI Maynooth
Dr Fabrice Rousseau, senior lecturer in economics, Department of Economics, NUI Maynooth
Dr Cal Muckley, lecturer in finance, Smurfit School of Business, UCD
Dr Frank Walsh, lecturer in economics, Department of Economics, UCD
Dr Kevin Denny, senior lecturer in economics, Department of Economics, UCD
Dr Moore McDowell, senior lecturer in economics, Department of Economics, UCD
Dr Sarah Parlane, lecturer in economics, Department of Economics, UCD.
Dr Shane Whelan, senior lecturer in actuarial finance, School of Mathematics, UCD.
Dr Vincent Hogan, lecturer in economics, Department of Economics, UCD.
Dr Ray Donnelly, senior lecturer in accounting and finance, Department of Accounting and Finance, UCC.
Dr John Masson, lecturer in economics, Department of Economics, UCC
Dr Declan Jordan, college lecturer in economics, Department of Economics, UCC
Eoin OLeary, senior lecturer in economics, Department of Economics, UCC
Stephen OCallaghan, lecturer in accounting and finance, Department of Accounting and Finance, UCC.
John Doran, lecturer in accounting and finance, Department of Accounting and Finance, UCC.
David Humphreys, lecturer in accounting and finance, Department of Accounting and Finance, UCC.
Tony Foley, senior lecturer in economics, DCU Business School.
Dr Valerio Poti, lecturer in finance, DCU Business School.
Claire Kearney, lecturer in finance, DCU Business School.[/quote]
One point on this, Lucey sent the email to 250 “economists*” 46 of them , or less than 20%, supported it, and it is being presented as gospel now. JUst saw his big fat fucking head on Prime Time there, he is not at all convincing IMHO.
- I used the “” because a shed load of the lads above are accounting & finance lecturers, not economists. I know 2 of them and they wouldnt know any more about this than the average man on the street who reads the business section of the papers. No more than I would expect Brian Lucey to be able to explain IFRS or do a trial balance and a trading profit and loss account.
nationalise the banks
the government should serve the people & not protect the bankers & the developers
[quote=“treaty_exile”]good stuff Art.
Biffo has been warbling on about having the full backing and co-operation of the IMF and ECB for a while now, he’s been accused of being “economical with the truth” at the very least.
I just don’t get why these shareholders / bondholders are deemed sacrosanct.
you invested in Irish banks, you lost money, deal with it.
Seems to be the approach taken with the developers (if Ahearne is to be believed and assets will be bought at a discount) so why not these guys?
The only reason I’ve heard is to “protect the reputation of Irish banknig abroad”
I would have thought that’s shot to pieces already, thanks to Seanie Fitz and the rest of those yahoos.
Surely NAMA and risking a government default is far worse than letting some banks fall and nationalising the 2 larger ones?
You could even merge a few of the small fry with Anglo to form a third bank for competition’s sake.[/quote]
I have no issue with diluting the shareholders. Fucking with the bondholders would have serious imoplications though as so many of them bought when the gtee was in place. Our reputation is improving if you watch the yields on the Bond sales tighten over the past months. This is probably the most obvious reflection of our credit rating. Iv seen several instances in the past few months though where Anglo and I think BOI have bought back their own bonds at discounted rates which has had a v good effect on their capital levels.
I think you are dead right about the smaller banks being merged. I dont think that is too far away. I saw today that Nationwide are going back into the home loan market ‘aggresively’ as I imagine the bulk of their loan book is being stripped out by NAMA
[quote=“north county corncrake”]nationalise the banks
the government should serve the people & not protect the bankers & the developers[/quote]
I think I have said it at least twice on this thread already, if you nationalise the banks you rule out a huge amount of investors i.e. pension funds etc as it is outside of regulations to invest in nationalised debt.
[quote=“dancarter”]I have no issue with diluting the shareholders. Fucking with the bondholders would have serious imoplications though as so many of them bought when the gtee was in place. Our reputation is improving if you watch the yields on the Bond sales tighten over the past months. This is probably the most obvious reflection of our credit rating. Iv seen several instances in the past few months though where Anglo and I think BOI have bought back their own bonds at discounted rates which has had a v good effect on their capital levels.
I think you are dead right about the smaller banks being merged. I dont think that is too far away. I saw today that Nationwide are going back into the home loan market ‘aggresively’ as I imagine the bulk of their loan book is being stripped out by NAMA[/quote]
our reputation is improving because bondholders are getting a sweetheart deal which the taxpayers will be paying for for years - fuck the bondholders
[quote=“Special Olympiakos”]Not often O’Toole hits the nail on the head.
Gambling all for a prize not worth winning"
http://www.irishtimes.com/newspaper/opinion/2009/0825/1224253194613.html
Tuesday, August 25, 2009
THERE IS an old proverb, much revived by 19th-century Irish nationalists, warning of “three things for a man to avoid: the heels of a horse, the horns of a bull and the smile of an Englishman”, writes FINTAN O’TOOLE
With Nama, we are now betting the house on three equally trustworthy things. The integrity and economic acuity of Fianna Fil; the wise judgments of “independent” experts from the financial and property worlds; and the rigour of regulators whose traffic lights have two colours: orange for “what the hell are you doing?” and green for “ah sure go ahead”.
Call me suspicious, but I think if I had to gamble maybe €60 billion of public money, I’d go with the more conservative option. See that smiley fellow called Ralph on the frisky mare, leading the big angry bull? Looks like a pretty safe bet to me.
The big problem with Nama, though, is not the risk that it will not work but the almost equally frightening prospect that it will. For this whole deal is a bit like that Age Action raffle ticket that’s been doing the rounds. The second prize is breakfast with Bertie Ahern. Everyone who sees it immediately reaches for the old joke that third prize is dinner with Bertie. The Nama raffle is similar – even if we win, the prize would be pretty grim.
The reason for this is simple enough. Given that the intention is to pay way over the market value of the assets behind all the bad loans, the State can get its money back only if we successfully inflate another property bubble. It is probably true that the property market will not need to return to the hysterically hyped values of 2006 or 2007. But it will have to return to the levels of, say, 2002 or 2003. And those levels were themselves unsustainable. Property prices went so far out of kilter that even if we only pay two-thirds of the face value of the loans, we’ll end up with stuff that could be sold at a profit only in a market that’s still puffed up beyond what is economically or socially sustainable.
Let’s take the admittedly simplistic example of the average price of a second-hand house. If, between 1994 and 2007, that price had risen in line with building cost inflation (itself very high), it would have been €127,000. It was actually €378,000. Even if, in a Nama-type calculation, you take a third off that price, you’d end with a price of over €250,000 – still almost twice what it should have been.
If Nama bought that house, it would have to be able to sell it at what would still be a bubble valuation.
The effect of this on public policy is catastrophic. It is almost certainly being felt even before Nama has actually been established. How else can we explain the otherwise puzzling absence from the official political agenda of the issue at the epicentre of the whole disaster: the refusal to control the price of building land? This was recommended as far back as 1973 in the Kenny report. Governments of all hues (not just Fianna Fil) failed to implement the report. The issue was examined again in 2000 by the All-Party Oireachtas Committee on the Constitution. Its conclusion was that that Kenny was right to suggest the compulsory purchase of development land at a price modestly above the agricultural value, and that there was no constitutional problem about doing this.
Implementing Kenny should be the first political response to the property crash. It should also be politically easy: the Greens are supposedly committed to it and that Oireachtas committee in 2000 was chaired by Brian Lenihan. So why the silence? Because you can have the Kenny report or you can have Nama but you can’t have both. Implementing Kenny would mean bringing down the market value of development land to 25 per cent above the agricultural value. That would, at a stroke, massively devalue the huge landbanks that the State will be hoping to flog off for prices way above their current values.
If Nama goes ahead, in other words, it becomes impossible for us even to learn the basic lessons of the crash. Instead of going back to an idea of housing as a basic social need, we’ll have to continue to see it as a commodity and a speculative investment. Instead of seeing huge mortgages for overvalued properties as a disaster, we’ll have to go back to pretending that they are signs of rugged good health.
The fundamental reform in attitudes, values and priorities that is crucial to our survival will be impossible. All we’ll have is an economic version of Sophie’s Choice: heads, we lose billions of public money; tails we inflate another bubble.
This is why Nama has to be stopped, and why public opinion has to make itself felt. If Nama goes ahead without the largest public demonstrations ever seen in the State, we deserve what we get. Our kids deserve better.[/quote]
Just for balance SO
OPINION: I MUST be unfortunate in having missed the balanced debate surrounding the National Asset Management Agency. Either that or it has indeed been incredibly one-sided. One can understand the concerns and as long as the facts are used to present criticisms of Nama in a balanced manner, then one can have little complaint, writes RORY GILLEN
It is in that regard that I found Fintan O’Toole’s recent article on Nama ( Gambling all for a prize not worth winning , Opinion and Analysis, August 25th) disappointingly cynical and drawing conclusions on questionable facts. The Irish taxpayer deserves better. In response, I would make the following points:
-
Ireland is not “now” betting the house on Nama;
-
It is far too simplistic to say that the Government is planning to pay “way” over the odds for assets being transferred to Nama; and
-
Arguing that replacement cost is a sensible way to value homes is at odds with the fundamentals that have actually determined house prices in Ireland over the past several decades.
For right or wrong, in the midst of a global banking crisis, the Government guaranteed, for two years, the funding sources of the Irish banking system in September 2008. Sebastian Orsi of Merrion Stockbrokers rightly points out that Irish taxpayers also benefited from the Government guarantee at that time as their deposits were then secured.
The direct implication of that guarantee was that had the funding sources for the Irish banking system come under further subsequent pressure, the Government would then have had no choice but to nationalise the banks. Nationalisation would, in effect, have seen the Government and the taxpayer owning all the banking assets as well as the liabilities. Any subsequent decline in the value of those assets was, therefore, a risk the taxpayer already had. Thus Ireland is not “now” betting the house on Nama – that bet was largely made in September 2008.
In yesterday’s Irish Times , 46 economists made the point, among others, that banking shareholders, and, perhaps, some bond holders, should shoulder further losses before the Irish taxpayer is hit.
There is merit to the argument that shareholders should be wiped out first. But it is hardly a transforming solution from the taxpayers’ viewpoint and claims for nationalisation fail to make this point.
At today’s prices, the combined market value of Allied Irish Banks and Bank of Ireland is €4 billion, an amount that would make only a modest dent in the losses likely on the €90 billion of assets being transferred to Nama. And upon nationalisation, the Government, in effect the taxpayer, would have to provide further capital to the banks. The Government is rightly trying to avoid that. The related argument that bond holders should also be scalped is, in my view, a very short-sighted one. The cost of Ireland’s debt would most certainly increase, further hitting the majority of mortgage holders and businesses.
In the eyes of the international community, it would also link us to such bedfellows as Argentina, Russia and Iceland. I, and surely our descendents, would rather not be stuck with that particular stigma.
There is no doubt that it is difficult to place a value on development land being transferred to Nama. And I have had no Einstein moment on the issue myself. But, in my view, pointing to distressed sale prices due to the bankruptcy of property developers such as Liam Carroll to quantify possible losses on Nama’s assets is deceptive, possibly wrong and certainly fails to take into account a critical part in the jigsaw. It was, after all, the actions of the Government itself that resulted in the near complete absence of overseas buyers for Irish property assets.
How can you value illiquid assets when the Government itself has seen off the likely acquirers of Irish property? Through its reckless management of the country’s finances, which has resulted in a disastrous budget deficit, the Government has played its part in ensuring Ireland Inc is off the overseas buyers list.
So the part problem maker morphs into the buyer of last resort and gets to determine the price as well. Force the banks to sell their illiquid assets to the Government but scare away the natural potential, the buyers first. Bring in the monopolies commission!
And I am not persuaded, and nor should the taxpayer be, by the alarmist arguments that Nama should buy banking assets at the price set by the marginal seller.
In March 2009, marginal sellers sold shares in Norkom, a small and highly successful Irish security software developer, at under 40 cents a share. This represented a price near the net cash value sitting on Norkom’s balance sheet at that time. No rational businessman would have valued Norkom, in totality, using that 40 cents a share price. That is not to say that Nama is not going to overpay. But the arguments presented, and not just in O’Toole’s article, are alarmist and unbalanced.
Fundamental to the valuation of development land is the average house price. In Ireland, at least, the average house price since 1970 has been determined by the interplay between average earnings and interest rates.
For the Irish, the purchase of a house has always been a lifestyle decision. Hence, the bubble era aside, we pay what we can afford to pay relative to our earnings and other affordability measures such as interest rates. To suggest that replacement cost determines house prices is mischievous at best.
There is no ideal solution to dealing with the banking crisis but deal with it we must to return the banks to a position where they can lend again. And the fact remains that Nama will buy its assets at a discount.
Furthermore, it is highly likely that the banks will end up at least partially funding any subsequent Nama losses through a levy even if that is not enshrined in the Nama legislation.
why protect professional finaciers to the tune of 100billion euros - we are losing billions to protect capitalists that lost out through greed- wil nationalisng the banks cost 100 blllion
[quote=“dancarter”]One point on this, Lucey sent the email to 250 “economists*” 46 of them , or less than 20%, supported it, and it is being presented as gospel now. JUst saw his big fat fucking head on Prime Time there, he is not at all convincing IMHO.
- I used the “” because a shed load of the lads above are accounting & finance lecturers, not economists. I know 2 of them and they wouldnt know any more about this than the average man on the street who reads the business section of the papers. No more than I would expect Brian Lucey to be able to explain IFRS or do a trial balance and a trading profit and loss account.[/quote]
Dan
I don’t think that’s entirely true- there are a fair few well respected Economists up there. Profs from UCD, Trinity, Maynooth.
I think its the fact that there is an opposing view presented is what makes this worthwhile. That Ahearne chap was an obnoxious fucker on the radio yesterday. I’d be glad to hear an opposing view to his
we have bailed out AIB before - they didnt learn - now they want us to save them again without any pain
One other point that I think hasnt been emphasised in the media.
Take a Commercial Property loan that will be taken into NAMA.
Normal practise would be that Loan to value would be 80%
So value of property is 100 mln
Value of loan is 80mln
Nama will purchase loan at (estimated) 70% of value = 56 mln
So the property must drop 44% before NAMA in under water. That is assuming asset was purchased from say Jan 06 onwards (assuming peak of market is late 06)
So there is some scope there for significant reduction in asset value before NAMA takes a bath on the deal above. If it makes a loss it can then pursue 1. The client 2. The Bank for the shortfall.
[quote=“W.B. Yeats”]Dan
I don’t think that’s entirely true- there are a fair few well respected Economists up there. Profs from UCD, Trinity, Maynooth.
I think its the fact that there is an opposing view presented is what makes this worthwhile. That Ahearne chap was an obnoxious fucker on the radio yesterday. I’d be glad to hear an opposing view to his[/quote]
Never said otherwise WBY, plenty top class guys up there. But its still less than 20% of those canvassed, and I couldnt tell you anything about 35+ of that list.
No argument with your first point, the pain they have is they are on the hook for any losses nama makes on the loans they buy from them and they have given up an option to the government on 25% of its ordinary shares at a very low price so their is plenty upside for the government if this works out well. You cant strip all the upside out though or no one else will invest.
As I have said already on this thread, NAMA is not ideal, but once the guarantee was given we were fucked, and I havent heard a better plan to get out of this situation.
[quote=“dancarter”]One other point that I think hasnt been emphasised in the media.
Take a Commercial Property loan that will be taken into NAMA.
Normal practise would be that Loan to value would be 80%
So value of property is 100 mln
Value of loan is 80mln
Nama will purchase loan at (estimated) 70% of value = 56 mln
So the property must drop 44% before NAMA in under water. That is assuming asset was purchased from say Jan 06 onwards (assuming peak of market is late 06)
So there is some scope there for significant reduction in asset value before NAMA takes a bath on the deal above. If it makes a loss it can then pursue 1. The client 2. The Bank for the shortfall.[/quote]
Why dont Nama purchase the property debt at the current property prices?