10 replies on “Somers at the Public Accounts Committee”
Dr Somers “Ben Tre” moment….
he hath done the state some service here.
Perhaps the most significant thing he said was that one-third of Irish Government bonds are being bought by Irish banks who are able to use them as collateral to raise funds from the ECB.
Would the ECB continue to play ball with the banks if they were nationalised. Would that not be the same as the ECB buying Government bonds directly?
The Department of Finance has issued an FAQ document about NAMA which I have summarised on my blog. The FAQ asks the right questions but the answers are vague or confusing on all the key issues. No wonder Somers was distancing himself from NAMA.
He appears to be free in November. I wonder what he will say?
NAMA will fail and so will the banks.
BREAKING NEWS:
A US BANK has dishonoured a capital repayment.
Oooops! Apocalypse.
@ Pat
“BREAKING NEWS: A US BANK has dishonoured a capital repayment.”
I assume this is some sort of reference to the bizarre, and completely discredited, rumours going around the internet over the past fortnight of a US bank failing to repay an overnight loan? Quality stuff you’re contributing here…
Michael Somers skepticism about the practical feasibility of the NAMA scheme is quite worrying. Mr. Somers seems a thoughtful person with good business sense and a proven track record of success. His concerns about practical and legal difficulties should be taken very seriously.
Perhaps it would have been better if the ECB had taken the lead on bad bank plans rather than individual national governments within the Euro zone acting separately. Some or all of the national governments will make costly errors in the design and administration of these unusual “bad-bank” entities. The ECB might have the technical resources to perform the task more reliably on a Euro-wide basis.
NAMA design is quite problematic and a successfully run NAMA requires a wide range of banking skills. Somers’ suggestion about keeping the loans administered from within the banks (where there are staff with experience in bad loan work-out) might be a good direction to take.
Why associated yourself with something that cannot work, plainly and simply.
Transfer assets at a realistic value and you destroy the capital of the banks, forcing them into technical default and insolvency (not like that aren’t already pretty much there). End game is that the tax payer vis-a-vie the govt g’tee steps into the breach and has to recapitalize. In reality you’re just moving cash in a different way. But this method creates massive volatility, will push up credit spreads and in turn increase all Irish debt funding costs and govt bond haircuts….to what end!
The cleanest and simplest thing is to create some sort of SPV with a TRS agreement with the incumbent banks. Take the bad assets onto the balance sheet; get a fee to cover the funding costs and haircuts that are needed to raise the capital from repos to the ECB and work the loans down over time.
One can’t apply a reasonably MtM to distressed assets in a distressed environment. One can force the market and in the end will end up with P.Equity funds and other arbitrageurs coming to the table, manipulating the asset prices and costing the taxpayer even more.
Problem has already happened, values of already dropped, let’s not crystallize our losses and bankrupt the country.
We wont bankrupt the country. But it will hurt like bejeazus.
NAMA is dead, kept alive only politically. And that may be over by 5/June/2009 – Dan Boyle has been forging ahead with the irish political equivalent of Captain Renault “I’m shocked, shocked to find that gambling is going on in here! ” , substitute education cuts as required.
If nama is dead in the water what next however?
The Bond issue/Repo/access ECB cash facility which the Irish Government are now availing of via the Irish Banks (speculated on first in this blog on April 29th last and now confirmed by Dr Somers to the PAC last week), raises at least the following questions:
1) Is the curreent Irish Bond spread over Germany an accurate measure of the relative risks of the two borrowers, or a distorted outcome of the Irish government/Irish banks current machinations in accessing ECB cash?
2) Having access to such a facility, why should any government deal decisively with its fiscal deficit, and not just leave the ‘tab’ to the taxpayer of the future?
3) Why are Frankfurt/Berlin allowing Dublin this facility?
4) Has this facility any relevance to the NAMA vs Nationalisation debate?
1) im not sure that its a real relative risk premium
2) why indeed.
3) its teh Euro….
4) oh yeah
You mean our recent Bond spread tightening may not be down to our gifted Ministerial Roadshow! Please don’t tell those loyally reporting his ‘successful’ travels for ‘the paper of record’ …
10 replies on “Somers at the Public Accounts Committee”
Dr Somers “Ben Tre” moment….
he hath done the state some service here.
Perhaps the most significant thing he said was that one-third of Irish Government bonds are being bought by Irish banks who are able to use them as collateral to raise funds from the ECB.
Would the ECB continue to play ball with the banks if they were nationalised. Would that not be the same as the ECB buying Government bonds directly?
The Department of Finance has issued an FAQ document about NAMA which I have summarised on my blog. The FAQ asks the right questions but the answers are vague or confusing on all the key issues. No wonder Somers was distancing himself from NAMA.
http://lefournier.blogspot.com/
He appears to be free in November. I wonder what he will say?
NAMA will fail and so will the banks.
BREAKING NEWS:
A US BANK has dishonoured a capital repayment.
Oooops! Apocalypse.
@ Pat
“BREAKING NEWS: A US BANK has dishonoured a capital repayment.”
I assume this is some sort of reference to the bizarre, and completely discredited, rumours going around the internet over the past fortnight of a US bank failing to repay an overnight loan? Quality stuff you’re contributing here…
Michael Somers skepticism about the practical feasibility of the NAMA scheme is quite worrying. Mr. Somers seems a thoughtful person with good business sense and a proven track record of success. His concerns about practical and legal difficulties should be taken very seriously.
Perhaps it would have been better if the ECB had taken the lead on bad bank plans rather than individual national governments within the Euro zone acting separately. Some or all of the national governments will make costly errors in the design and administration of these unusual “bad-bank” entities. The ECB might have the technical resources to perform the task more reliably on a Euro-wide basis.
NAMA design is quite problematic and a successfully run NAMA requires a wide range of banking skills. Somers’ suggestion about keeping the loans administered from within the banks (where there are staff with experience in bad loan work-out) might be a good direction to take.
Why associated yourself with something that cannot work, plainly and simply.
Transfer assets at a realistic value and you destroy the capital of the banks, forcing them into technical default and insolvency (not like that aren’t already pretty much there). End game is that the tax payer vis-a-vie the govt g’tee steps into the breach and has to recapitalize. In reality you’re just moving cash in a different way. But this method creates massive volatility, will push up credit spreads and in turn increase all Irish debt funding costs and govt bond haircuts….to what end!
The cleanest and simplest thing is to create some sort of SPV with a TRS agreement with the incumbent banks. Take the bad assets onto the balance sheet; get a fee to cover the funding costs and haircuts that are needed to raise the capital from repos to the ECB and work the loans down over time.
One can’t apply a reasonably MtM to distressed assets in a distressed environment. One can force the market and in the end will end up with P.Equity funds and other arbitrageurs coming to the table, manipulating the asset prices and costing the taxpayer even more.
Problem has already happened, values of already dropped, let’s not crystallize our losses and bankrupt the country.
We wont bankrupt the country. But it will hurt like bejeazus.
NAMA is dead, kept alive only politically. And that may be over by 5/June/2009 – Dan Boyle has been forging ahead with the irish political equivalent of Captain Renault “I’m shocked, shocked to find that gambling is going on in here! ” , substitute education cuts as required.
If nama is dead in the water what next however?
The Bond issue/Repo/access ECB cash facility which the Irish Government are now availing of via the Irish Banks (speculated on first in this blog on April 29th last and now confirmed by Dr Somers to the PAC last week), raises at least the following questions:
1) Is the curreent Irish Bond spread over Germany an accurate measure of the relative risks of the two borrowers, or a distorted outcome of the Irish government/Irish banks current machinations in accessing ECB cash?
2) Having access to such a facility, why should any government deal decisively with its fiscal deficit, and not just leave the ‘tab’ to the taxpayer of the future?
3) Why are Frankfurt/Berlin allowing Dublin this facility?
4) Has this facility any relevance to the NAMA vs Nationalisation debate?
1) im not sure that its a real relative risk premium
2) why indeed.
3) its teh Euro….
4) oh yeah
You mean our recent Bond spread tightening may not be down to our gifted Ministerial Roadshow! Please don’t tell those loyally reporting his ‘successful’ travels for ‘the paper of record’ …