Around the IFSC those who work in the financial sector (incl those in non Irish firms!) are in awe of the plan - not in a positive way. As far as we can see it is a complete waste of time and financial suicide as currently proposed. I outlined the many reasons already on this site.

Removing bad loans from one state backed entity (the irish banks) to another state entity NAMA will have no positive financial effect (i.e. if true market price is paid more capital will be needed in the banks, if instead an inflated price is paid it lead to massive day-one loses at NAMA) and worse it will lead to distressed enforcement as opposed to proper work-out agreementsvwhich put asset/land prices into a death spiral ensuring that NAMA takes second eye popping loss - in the billions - in the process.

In the meantime no or very little finance will be available from any institution for any new greenfield developments for a very long time.

The other clanger is that since the begining of the year nearly every other loan asset class has become infected by the downturn (and of course the bugdet has aggravated this) - so are we to expect a NAMA Mark II, III .. for bad mortgages, company loans, credit cards?

I really hope the government reconsider this NAMA approach soon - there are better and less risky alternatives. If not we will NOT recover for at least a generation - the amounts and unacceptable risks involved will ensure this.

I am against the outright nationalisation option HOWEVER if it was the only alternative to NAMA then bring it on.

John

I am wondering if the whole affair is entirely political. 1. FF et al don’t like the prospect of losing, they hope that NAMA etc., wil confuse the punters and damage will be limited to the upcoming local and europeans… next general election 2012, boats rising…. 2. The ECB is wobbly about a € member with nationalised banks, the ECB would have to pick up the tab if the money lenders baulk at lending to (small) nationalised entities. 3. FF is agin nationalising as a policy, their friends in the money business won’t stomach it.

The only question? what the h is keeping the Greens in there? In principle they should be pro nationalising…. better political management of assets and spending.

OK, ruminations over, back to the economics.

The only intelligent commentary I’ve heard since Tues., the Swede on Finucane yesterday…..explaining that NAMA etc., isn’t the Swedish solution, they nationalised the worthwhile banks first, then sorted their books, then valued the assets…. etc.

This is a story the Government can keep running, largely, on its own terms and it will help to deflect attention from the contractionary impact of the budget, the failure to tackle competitiveness and the lack of any forward-looking investment stimulus. The strategy - if it deserves to be so graced - is to sweat it out both economically - in the hope that any hint of a rising international tide will lift the Irish bádín - and politically - doing the minimum to damage the Dáil arithmetic.

Rational economic analysis and observations - such as those posted on this site - will have minimal traction. The lack of traction may also relate to the possibility that conventional microeconomic analysis has not proved to be sufficiently adaptable to inform competition policy and regulation to deal with over-mighty firms while consumers are being atomised, isolated and manipulated. This is market failure on a huge scale and it is not being addressed effectively. Modifying the Jeremy Paxman approach when dealing with government ministers in the UK of “Why is this bastard lying to me?” I tend to treat every large and overmighty firm as a conspiracy against the public until they prove otherwise.

http://www.irishtimes.com/newspaper/frontpage/2009/0413/1224244559021.html

To my mind, the argument is very simple. The investor appetite for a minority shareholding in a semi-state body (as the banks would be) is very very small.

So, the market price of the banks would always be artificially depressed, as long as the government (ie us) own a significant share of the bank’s equity.

For example. The market price of Bank of Ireland, with a government shareholding of 60% is €1.20. This price is depressed by 40% because of investor concern that the government may go for full nationalisation. So if the government tries to refloat all it’s shares at market price, they will be subject to a 40% discount.

On the other hand (sounding like a proper economist) if they fully nationalise, when they decide to sell the bank, they will get the proper market price (€2) per share rather than the market discounted price..

In my opinion, keeping a free float guarantees a depressed market price..