Every week now, the Sunday newspapers compete with each other for overyhyped stories on the implications of NAMA. This one from the Sunday Tribune about the plans of a wily group of “solvent developers” has to be the best so far. Titled “Solvent developers to compete with Nama”, the story goes as follows:
Some of the country’s cash-rich developers are putting together war chests and are planning to compete with the National Asset Management Agency (Nama) when it tries to buy their debts from the bank.
At least two development groups have put funding of between €200m and €300m together as they don’t want their investment property loans in particular transferred to Nama, and hope to be in a position to buy their own loans at a significant discount.
Buying the loans, said a senior industry source, would effectively mean that the developers would take control of the properties at today’s prices rather than ones agreed at the peak of the market.
Most likely, this “plan” is either the product of the overactive imagination of said industry source or perhaps has been misinterpreted by the intrepid Tribune reporter.
Still, if there is any chance that this plan could be put into effect, let me be the first economist to recommend that it be extended beyond developers to the whole Irish public. I’m solvent and I’d love to get my mortgage cut in half (i.e. buy my loan at a significant discount.) I’m sure our readers would too. Perhaps we should set up a lobby group and get a senior industry source to brief the Tribune about it?
Note: The Merriam-Webster online dictionary defines solvent as “able to pay all legal debts”. (I’m assuming the Tribune aren’t referring to the second meaning of the word, which is something “that dissolves or can dissolve” but now that I think about it, I’m not so sure.)
14 replies on “Solvent Green Developers”
Solvent Green? Soylent Green might be more accurate.. http://en.wikipedia.org/wiki/Soylent_Green
Your idea isn’t as unprecedented as it might sound, several of the banks have been involved in debt buybacks recently.
Also, a private debt discount purchase could be seen to be not too different to the SSIAs that were introduced a few years ago to increase savings. Is there such a large difference between topping up savings by 20% and discounting debt by 20%? One was introduced to encourage saving, the other, if introduced, would encourage spending.
It is a fallacy to think that all developers are broke! It it also nonsense to believe that there are not many of these waiting to buy toxic assets that are becoming more toxic by the day (still falling). Not all developers bought agricultural land at up to 50 million an acre. Many saw what was happening, got out and are waiting fort the right time to purchase tasty morsels from NAMA.
The question currently is, can a beleaguered government with no electoral mandate, continue with NAMA. The Greens have been effectively composted by the electorate. If they stay in Government against the clear wishes of the Irish people they might as well wind up the party! NAMA just sucks up money that is then not available for job creation or job preservation, leaving Ireland to “suffer” which is Paul Krugman’s calamitous prognosis for Ireland.
Being solvent doesn’t mean you have a big wad of cash to go and buy assets, for that you would need to be highly liquid as well, not leveraged as in the past, because banks want certain assets off the balance sheet altogether and all together. So they won’t lend on them (I can’t see boi lending to a developer to buy assets currently held by aib). For that reason the word oxymoron comes to mind, then again, tom parlon was mentioned and his job is ‘new idea/new headline every week’, same guy who lobbied for homechoiceloan
I see that the fraud facilitators, Standard and Poors, who ranked toxic debt as AAA and caused the sub-prime and Alt-A financial crises, has reduced Ireland’s debt again. Late to discover conservatism, eh, lads?
They seem to think that we can’t afford to feck around with AngIB, let alone NaMa. “Feck” being an Irish financial term for flushing a Billion Euro. So 97 “Fecks to you!
What do S&P think they know, that Mr Bacon does not? D is the lowest grade isn’t it? how many fecks does it take to get there? How long will it take us to find out the hard way?
I also suspect that money is still available to developers who wish to now appear insolvent. This money will have been parked abroad, and may be re-introduced into Ireland, via what ever disposal of assets occurs over the next 5 years or so. They will offer something for land, but I see that disputes will arise as a bit of poaching goes on. I trust that the financing of these purchases will be thoroughly examined by the Revenue?
Tom Parlon is losing support with utterances that prompt such thoughts! Dullskuggery requires the rare atmosphere of complete secrecy “for commercial reasons”. We can find out in ten years or so!
@ Robert Browne
From time to time, the ‘clear wishes of the Irish people’ might also see every developer, banker, professional politician, members of certain religious orders – alas and alack, even economists who failed to see the slump coming and made happy clappy forecasts about soft landings and longterm 2.5% growth rates – swinging from lamposts. But it wouldn’t necessarily be a good idea to start stringing them all up.
It may be understandable that the Opposition party leaders seek to persuade us we should have government by opinion poll or arising from the results of one set of mid-term elections. Of course they would, they’re politicians. It suits their personal agenda and their hunger and greed for power at whatever cost, especially to those of us whose interests they so adamantly claim to respect. It’s also a peculiar advocacy of mob-rule.
We have constitutional rules and parliamentary procedures on the formation and maintenance of Government. The Government’s mandate comes from the Dail. It’s up to the Dail, not opinion polls or the results of mid-term elections, to determine the fate of any government. Only the loss of a financial motion or of a vote of confidence requires a Taoiseach to seek dissolution of the government of the day from the President, who in particular circumstances, also has the power to refuse a dissolution. As we saw in 1995, the formation of a new majority administration from within the ranks of the Dail is possible without an election. The ‘Rianbow Coaltion’ had no mandate from the public. In all other political circumstances, the decision on when to seek a dissolution is a matter solely for the Taoiseach of the day.
In many democracies, parliaments are fixed and there is no possibility of running to the country within the fixed term – the parliamentarians have to patch a new government together and get on with the job they were elected to do, irrespective of parliamentary or political upheavals that force one party of government or another out of the frame in mid-term. If Fine Gael’s motion of no confidence fails, then another one cannot be tabled for six months; another brake in our system to prevent irresponsible posturing by elected parliamentarians to suit their own narrow ends. And the government can continue in office until such time as it loses a financial vote and the support of the Dail for its economic policies. So it would be a great help if there was less of this dangerous old guff about a general election from opposition desperadoes who feel the political wind at their backs right now, and a little more clarity from them as to how we’re going to work our way out of this mess.
As for NAMA, you won’t have ‘job preservation’ or ‘job creation’, or hospitals or an education system or anything else worthy of the name if you don’t have a functioning banking system. Nama is far from the perfect solution to the banking mess, as economists on this site have rightly pointed out in their critique of the proposal, but right now it is the least obnoxious and least damaging to our economy of all the solutions that have been put forward by the carious political factions. A general election now would fatally delay a whole host of actions and decisions that must be made by Government to deal with our economic problems over the coming months and get the country back on track. Any incoming new government will be faced with the same difficult decisions – except that the distraction of the election process will have exacerbated our economic deterioration in the meantime.
And yes, personally I want a change of government. The sooner, the better. I’d happily go to any number of lynching parties as well. And I’d feel oh so much better as I watched those who got us into this mess in the first place swinging in the breeze. But when those feelings subsided I – and all of us – would still be faced with the same problems to resolve.
Finally on Paul Krugman , no-one in the US adminsitration listens to him; so why are we all agog?
@ Veronica
During a crisis period, there is surely a right to publicly protest to force an early general election, which is being resisted by the same people who have significantly contributed to the severity of the calamity — as happened in Iceland.
To argue otherwise, is to leave people with just the option of civil disorder.
The patriotic duty may well be to peacefully protest to force an election.
If Michael Hennigan’s view was applied worldwide, then there’d now be a general election in virtually every country in the world. Even in his favourite country, Finland, which today reported its GDP in 2009 Q1 down 7.6% year-on-year, greater than Ireland’s current year-on-year GDP fall. And certainly in the U.K, where the Labour Party got 16% of the vote in the Euro elections, against Fianna Fail’s 25%, and where the projected budget deficit in 2009 is higher than in Ireland.
It would not facilitate good government if, every time a government had to make tough decisions, it was forced to go to the country just because it lost a bye-election or was on the receiving end of protest votes in Euro elections. If that was the case, there’d be a general election every two years. The obvious solution is to have fixed-term parliaments of four or five years, so incumbent governments can’t simply go the country when it suits them.
The clamour for an immediate general election is not based on the belief that it would help the economy, but is inspired by fear that ESRI’s forecast that the economy will be growing by almost 6% a year from 2011 on might come true, with obvious political implications. They see mid to late 2009 as their once-in-a-lifetime window of opportunity to finish off the hated Fianna Fail once and for all. By 2010 or 2012 it will be too late. Fine Gael/Labour will almost certainly win any election then, but with just the normal majority of a few seats, rather than the landslide that would keep Fianna fail out of power for decades if an election were held now.
As for ‘civil disorder’, its just pub talk.
@Michael
Fine. Peacefully protest away – and see how many people you can get to participate. My guess is: not so many. We’re not Iceland 2 – not yet anyway! Even in the wake of the disastrous October Budget it was specific interest groups that took to the streets, OAPs and students and teh feeble marches of the trades unions, not the general population.
The political option is to do what FG have done and table a no confidence motion. If they succeed, the government will fall. If not, then it will either implode all by itself or it will carry on for another six months before FG can put down another no confidence motion. Maybe that one will be successful. Or maybe the Greens will cross the floor and offer their support to Enda Kenny as Taoiseach; an offer he can accept or reject as he sees fit. If he accepts, there is a change of government without an election; if not then we go to the polls. That’s our system and those chosen to be our public representatives have a responsibility to provide government. The rules are set out in the Constitution and as far as I’m concerned they work just fine.
The processes of democracy in this State may be frustrating to those of us who’d like to kick the government out tomorrow morning; but they also protect us from mob rule and political instability. Also, tomorrow morning we’ll still have the same problems to resolve. If we don’t like the way the next crowd are doing it, then what do we do? Take to the streets again to force them out? Patriotic duty my eye!
A key element of the NAMA business plan is the planned exit and disposal of the financial and physical assets that pass into its ownership. One would hope that who the target market of potential purchasers will be in consideration at the moment – the exit valuation must be a key element in the overall asset valuation process?
Of course you would think that those with cash reserves would be reviewing possible purchases at the moment. There is still demand for good product in the market at the correct price level and some of the projects in the pipeline/sites are good projects and sites at the right site value – one can drive through cities and see boarded up sites in good locations with good planning permissions. Distressed asset purchase is not such a strange concept and could shortcut the length of time it takes to get a project up and running as opposed to the length of time it will take to move things in and out of NAMA.
Meanwhile as all the discussion goes on in the press and on this website there are no new projects happening, professional services companies (among others) providing services to the industry are burning cash at a fast rate to keep some core capability within their companies while having to face the pain of 50% salary reductions and redundancies with the prospect of total meltdown in 2010. Yes sort out the Bank situation is key – but any suggestion which may shortcut the NAMA initiative and create some pipeline of projects is worthwhile running with and discussing how it might work even better.
@Barry T
Totally agree with you. The problem is NAMA may be delaying distressed sales. There is money out there and opportunity at the right price. The government needs to get some of these on the market fast and get some sort of activity going. Anglo have written down €4billion. It is state owned, time to turn some of those written down assets into cash.
By all means have distressed sales. And NAMA is delaying this. But I would submit the reason for this is every bankster in the country sees NAMA as the fool who will pay over ths odds and which will sell it back to them in a few years for f all…
Yesterdays revelations with Anglo show how the game is being played… hook the taxpayer with th guarantee, then rob every last cent, while threatening that if Anglo goes, it will take us all with it.
There is the small matter of whether Ireland Inc needs another retail park, hotel, car park, office block or housing development built in the next 10 years. We may need a very small number, but certainly not enough to make any economic impact… Drive around the country, look at the occupancy rates. We are all built up…
But if someone thinks otherwise, let them at it… provided its their money and their ass on the line, and not the taxpayer.
@Garry
“But if someone thinks otherwise, let them at it… provided its their money and their ass on the line, and not the taxpayer.”
That’s the point, at the right price they will make money or at least they will take the risk to do so. If you can buy distressed development land at 30% to 40% of its previous valuation the financials change completely as to what you have to sell/rent it for. They will of course end up undercutting the current batch of unoccupied units forcing prices down further and more distressed selling etc…. But that’s the way it’s meant to work.
It is similar to stock clearances – the people who buy distressed stocks buy it a fraction of the original value and then sell it off cheap. They make money, the punter gets a bargain and the wheels of commerce get moving again.
But you are right – NAMA has become a better option for the banks and we will stagnate as a result.
The difference is with stock clearances, the shopowner goes out of business, is shut down and a liquidator appointed. Someone else buys it up and has a go….
Typically you dont see shopkeepers with hopelessly bad debts getting kept alive by bankers, then conspire with those bankers to sell stock to the government at “long term value”.
And then attempt buy it back for half nothing and flog this new stock from the same shop!
Distressed sales and reposessions are an essential part of business, and must apply to bankers and developers as to everyone else.
In business, creditors etc would not stand for shennagians like that.. It would be a recipe for never getting paid… So why should the taxpayer?
@Garry
Lest you misunderstand me, I’m assuming the new inestors are developers who haven’t gone bang or brand new people into the market.
All those who are hopelessly insolvent (and that means good loans+bad loans still equals overall bad loans) must be put out of business and the sooner the better.