Dail debate on NAMA: May 12 and 13

Prof Lucy, Your right – sorry about that! Some Words-of-Wisdom (WOWs) over on Cynicuseconomicus.blogspot.com. Your comments are mild by comparison.

Brian P

This I posted as a comment on another post but it bears directly to the issues here

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I spoke today to the man who invented the term Zombie Bank, Ed Kane, of Boston College. He has been following the debate here a little, and considers the government position to be “regulatory gambling”. But sure, what would he know

“Edward J. Kane is the James F. Cleary Professor of Finance at Boston College. From 1972 to 1992 he held the Everett D. Reese Chair of Banking and Monetary Economics at Ohio State University. A founding member of the Shadow Financial Regulatory Committee, Kane rejoined the organization in 2005. He served for twelve years as a trustee and member of the finance committee of Teachers Insurance. Currently, he consults for the World Bank and is a senior fellow in the Federal Deposit Insurance Corporation’s Center for Financial Research. Kane has served as a consultant for numerous agencies, including the Federal Home Loan Bank Board, the IMF, various components of the Federal Reserve System, and three foreign central banks as well as the Congressional Budget Office, the Joint Economic Committee, and the Office of Technology Assessment of the U.S. Congress. He is a past president and fellow of the American Finance Association and a former Guggenheim fellow. He also served as president of the International Atlantic Economic Society and the North American Economics and Finance Association. Kane is a longtime research associate of the National Bureau of Economic Research. Besides authoring three books, he has published widely in professional journals and currently serves on eight editorial boards. He received a BS from Georgetown University and a PhD from the Massachusetts Institute of Technology. ”

Ed is coming here for a conference in June and will be keynote at the conference next year. By then we can see the full effects of the zombification of Irish banks. Dead men walking….

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they (FF/GP) wont listen to good advice. I truly hope Finance give them good advice and they are simply ignoring it. I have no evidence that that is so but either they are getting and acting on bad advice or getting good and ignoring it. Both are observationally equivalent.

@Antoin : indeed, Karl Whelan has noted this a few times : nationalise, recapitalize, reorganize and refloat (or whatever).
Its not just bogus, its downright lying to say that there is no way back from nationalisation….

Properly recapped banks are a necessary but not sufficient condition to have credit flowing.
As things stand, they arent and the pref share recap (the warrant element in particular) has exacerbated the problem.
If the banks are not healthy then the economy is in trouble. The economy will be in less trouble in a healthy banking system but still in trouble. So its not a magic bullet.
Finally – just because a business wants capital doesnt mean it shoud get it. There is a credit squeeze (reduced supply) and a credit quality decline (effective demand reduced for a given quality level) so …

you need an invite. Why bother tho….it will be on the interwoogie . Plus as I mention we could script it….

BJG has a point. As P J FitzPatrick says, we are united without any dissenting entries, that this is going to be a poor option for our banking system. So maybe this will help influence those who wish to be heard in that debate?

@the cost of bad advice
Yes, selection of the right people is crucial. Personality testing for independent thought, a history of debt realization etc We can only guess at the types actually inserted into NAMA. I find I have nothing further to say bearing in mind that I do not wish to engage this site in vulgar abuse nor in libel about these unknowns.

Is it streamed by audio or video on the oireachtas website? Or is it just a text update?

These are some items I’d hope to see discussed.

A marker laid down is that any NAMA legislation/bill does not delegate responsibility to NAMA to agree the price paid for toxic debt. In other words – no blank cheque. Ideally, the initial legislation would enable the setting up of a body to negotiate the purchase price for the target loans and report back to the Dail.

Transparency. At some point, there must be transparency. Are TDs happy to vote for something they don’t have detail on? I don’t mind if they do this in the normal course of events, but this is not a normal event.

Focusing on TDs (sorry), but how many are qualified to make decisions on this issue? Personally, I’d like to see a level of ownership for those TDs who vote for this legislation. It would be difficult to formulate, but I’m thinking there should be some form of profit share if NAMA makes a profit. Or share of losses in the form of liens on TD/ministerial pensions.

The idea of NAMA recovering its losses from the banks needs to be precise. The government has highlighted this as a failsafe, but I see a real risk that it will be dumped at a future point. When the guarantee was introduced, the banks were supposed to reinsure each other. This was (rightly) removed, but the price of the guarantee didn’t increase. NAMA recouping such losses from banks will be messy to implement. Each loan could be a legal nightmare as banks dispute the work-out processes/maximizing recoveries. Also, at what point in time would NAMA seek such recoveries from banks. I’d suggest that this should happen as soon as a loan is worked out.

Although it might make things a little too complex, we need to see a credit strategy for banks post-NAMA. Are we hitting the reset button just to get a property credit bubble going again? Looking at the HomeChoiceLoan scheme or the €1bn for First Time Buyers requirement in the BOI&AIB recapitalization, I think a certain leopard still has its spots. In all likelihood, credit will remain tight. We need to target it correctly. This could be done through adjusting risk weights. Another area to be addressed is Systemic importance (& moral hazard). Although I would like to see no bank with systemic importance, I’ll settle for two. Any systemic bank should be required to have very high levels of capital.

@Marcus : my IP lawyers are watching this CAREFULLY!
Note : I am not a member of, in the pay of, or giving solo advice to any party. I have talked to Labour, and to GP and to FG. I work for coffee (and blueberry muffins).

The Government amendment, which reverses the sense of the Labour Party motion, has been accepted 73 to 59 (Fine Gael voting against the Government but with a number of abstentions).

Last night’s debate is here:http://debates.oireachtas.ie/DDebate.aspx?F=DAL20090512.xml&Node=H12#H12

These debates tend to be ritualised with little real dialogue but I think the Minister was nuanced in his initial comments. I think the crucial point in his opening speech is the following:

“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. This is not a position held no matter what the cost, but is rather a balanced approach to the existing circumstances….It is not a simple matter of suggesting that there is a stark contrast between the total nationalisation of the institutions concerned and the continued private ownership of them….I made it clear in my recent Supplementary Budget Statement that any further State capital introduced into these institutions would require the issuance of ordinary shares, which would, inevitably mean a greater degree of public participation in these financial institutions.”

In regard to Anglo-Irish, I note that there staff are rushing to join the IBOA whose Secretary General described Anglo as a “commercial semi-state”. I very much doubt if this is the case but If the staff want the security of being State employees they had better realise where their duty lies i.e. stop protecting their former bosses.