Three Cheers for NAMA?

One interesting aspect of the government’s current approach to promoting its NAMA plan for dealing with the banking crisis is their tendency to interpret everything said by authority figures as being in full support of their chosen approach.

As an example of this, on RTE’s The Week in Politics, Minister Eamon Ryan said the following (about 15.40 in):

The difficult and unpopular decisions that were excoriated by the Labour Party endlessly—you’re bailing out the banks, you’re bailing out the banks—have been described by the International Monetary Fund as the right way forward; has been described by the ESRI as the first time the government is getting it right, as they see it; has been described by the Swedish finance minister who was over last week, who got them through a similar crisis, as exactly the right thing to do.

It seems to me that the government are over-interpreting (or choosing to over-interpret) the various throat-clearing noises that people from the ESRI and IMF or former Swedish finance ministers make when they speak on these issues.  I’m sure all of these people have said something along the lines of “the government is to be commended for taking steps to deal with the banking crisis.”  But remember that every government in the world has taken steps—what choice have they had?  Far more important is whether they have taken the correct steps.

On this issue, by far the most important issue is whether the government’s plan to use a state agency to buy assets from private banks is the best way to go or whether nationalisation would be a better route. On this, I can’t see how the government sees much support from any of the three cited authorities.

Let’s take Mr Lundgren first.  The Irish Times reported the following:

Bo Lundgren, head of the Swedish National Debt Agency, who helped solve the country’s banking crisis between 1991 and 1994, told The Irish Times that governments could afford to make mistakes valuing toxic assets if they nationalised a bank because they owned the lender.

“For me, it does not sound like the right solution to buy assets from private banks. If you should lose out on that, then the taxpayer should have some kind of other benefit.”

In relation to the ESRI, I’m guessing Minister Ryan may be referring to their recent Recovery Scenarios document but I couldn’t find any comments about banking policy in that document that corresponded to the Minister’s charaterisation. What I do recall is the following reporting, from the 29th of April of the ESRI’s Alan Barrett’s comments:

Questioned on his views as to whether the banks should be nationalised, he told reporters at an ESRI press briefing that he was inclined towards that course of action but was “open to be persuaded” otherwise.

Finally, there is the IMF.  As I have noted already, the IMF have stated that

Where the size of its impaired assets renders a bank critically undercapitalized or insolvent, the only real option may be temporary nationalization.

They have also stated that they believe the underlying losses on loans made by the Irish banks are on the order of €35 billion.  Since losses of this size will leave our main banks “critically undercapitalized or insolvent” it is clear what the implicit recommendation is from the IMF.

Of course, one thing that the government can count on is that the controversy-averse IMF, partially-taxpayer funded ESRI, and the impeccably polite Mr. Lundgren certainly aren’t going to come forward to remind the government that they haven’t really given them such a ringing endorsement after all. 

19 replies on “Three Cheers for NAMA?”

@ karl

Come on, you should knw by now that Minister Ryan is a desciple of the Humpty Dumpty school of economics: “when I use a word it means just what I choose it to mean…no more no less”.

But Karl, the losses will only leave the banks “critically undercapitalized or insolvent” if NAMA pays what the assets are worth.

If, on the other hand, NAMA bases their valuations on what the banks’ capital position can withstand rather than what the assets are worth, then there will be no need for nationalisation.

I’m sure there will be three cheers for NAMA. It just will be important to know who is actually cheering.

I think the core point is that in promoting a strategy one must be able to point to reputable experts as supporting you, viz. Dukes, ESRI, Lundgren, IMF, ECB, EU Commission etc. The positions of those experts are not all identical with some thinking part nationalisation or full nationalisation is crucial or an important option in asset valuation and the Govt saying that part nationalisation only in currently contemplated.

With that said one would be flabbergasted if the Government did not point out the positives and where there is broad consensus on an asset management vehicle. Really, it is hard to get worked up about politicians behaving exactly as politicians do and should: (i) make a decision and (ii) highlight independent support for that decision wherever you can.

Is this not becoming a bit repetitive? We know there isn’t consensus on the nationalisation issue. KW has done a good job of pointing that out. Should we not at this stage be looking at the substantive pluses and minuses of partial versus total nationalisation. constantly attacking the Governments position and not admitting it may have any justifications or any benefits looks partisan and undermines one’s point.

If we issue banks with 80bn NAMA bonds at 6% (in line with recent 10yr Irish bonds) and banks can access funding at 1%, the taxpayer will contribute 4bn in profits to these banks per annum (4.8bn interest less 800m cost). I’m not sure how this government thinks the taxpayer can afford such largesse.

Some comments:

1. You may think I am (or at least appear) “partisan”. Well I know what partisan looks like. We have people on this site, for instance, who always support FF or always support FG no matter what the issue. In contrast, sometimes I agree with the government and sometimes I don’t and similarly for the opposition. I suspect you view me as “partisan” simply because I have maintained a consistent position on this for, oh, months. To misquote Mr. Keynes, when the facts don’t change, I don’t change my mind.

2. If you go back and look at my posts on this, I opposed a bad bank without nationalisation as early as January, prior to any mention of Bacon or NAMA. I also opposed it in an IT piece the week Bacon was appointed to assess this option. Hopefully, this clarifies that my stance on this has nothing to do with being pro or anti any political party (or my thoughts on any politician—for instance, I think Minister Ryan is one of our better politicians).

3. As regards “substantive pluses and minuses” of various approaches, I did a long series of posts discussing various objections to nationalisation and conceded some of them are very serious but that ultimately, I still viewed this as the least-worst outcome. (But I suppose that was just me being partisan again.) I have never said the government’s approach has no justifications and also never stated that there are no benefits from implementing NAMA. Recapitalising our banks will have major benefits. Does that mean we can’t discuss how this is best done?

4. The government’s claim to have serious independent backing for its approach now appears to involve taking people whose preferred position is closer to Nama-plus-nationalisation and then forgetting about the nationalisation part. You think this is not worth remarking on and that to do so is repetitive and partisan.

Fair enough — you’re welcome to your opinion. But remember that this is the most important fiscal and financial decision in the history of the state and that we are still early enough in this process—Nama legislation has not been published, debated or voted upon. If you think the discussions of this issue here are boring, you don’t have to read them.

“But remember that this is the most important fiscal and financial decision in the history of the state and that we are still early enough in this process—Nama legislation has not been published, debated or voted upon.”

Well said!


I note your position has been consistent. I have read many of your posts and have not commented on them all. You will forgive me if I have not had time to read every single one. I agree that nationalisation certainly bears consideration because it could assist greatly in getting the asset values, which are absolutely crucial.

I am sure you will accept that even if you didn’t like the tone of my post that I only suggested that the debate should be focused on the issues which so concern all of us, namely the cost of the valuations to the taxpayer and how nationalisation will or won’t benefit us. I would be interested to know if you or other economists thought there was any merit to avoiding wholesale nationalisation.

Perhaps you cannot comprehend the Govt’s reluctance to espouse a policy of 100% nationalisation and see no reason for their current stance. If that is the case then you are being 100% even-handed and your focus on the spinning by Government of the various reports is entirely objective rather than being emotionally attached to the position which you have publicly adopted. I fully accept your bone fides.

However, I think that the Government must have some valid reasons for not espousing full nationlisation at this point and over the last 3-4 months.
I don’t agree that the Govt has “forgot about the nationalisation part” in all its commentary. I think they have said they would prefer not to opt for whole-sale nationalisation but that it is always an option. I think it has to be considered that once the Government starts openly considering wholesale nationlaisationt in public the die will effectively have been cast and all timetables will be contracted and brought forward.

You may consider me partisan but I have criticised the Government on failure to consider involving the opposition in the valuation process, in their failure to bring forward legislation for the orderly winding up of financial institutions, in their failure to set about reforming bankruptcy, and in their failure to have a Plan B in the event that Morgan Kelly’s warnings of bankruptcy appear to manifest themselves. I too do my best not to be partisan though I admit that I generally support the Governments actions to date.


I’m not emotionally attached to any one position but I have a preference for solutions that are efficient, fully recap the banks (I fear Nama will not do this as well as other plans) and minimise cost to the taxpayer. In recent months, I have also repeatedly suggested debt-for-equity swap offers to bondholders as a way to further minimise cost to the taxpayer while dealing with the objections of those who don’t want 100% state equity ownership. Part of the reason I’ve been posting so much stuff about bonds is that it’s worth getting this type of discussion out there.

On your Father Knows Best attitude to the government and nationalisation (they must have some valid reason ….) I’ll repeat what I wrote to commenter Veronica recently:

“In terms of formal statements, the government moves the goalposts on this every so often. A few weeks ago, the Minister for Finance was telling people that the government had “decided against” it. Other times, it’s phrased more as a last option.

But let’s look a bit closer at the process that we’re engaged in. As you know, the government has sent out Ministers on many occasions to detail lots of reasons why nationalisation is A Very Bad Thing. I’m guessing you believe that the NAMA process could trigger losses large enough to lead to nationalisation. But the government controls the NAMA process. If the government says nationalisation is a bad thing that it doesn’t want to happen, then it can set the prices paid by NAMA to ensure that it doesn’t come to pass. Indeed, this is what pretty much every analyst that has looked closely at this believes—not just crazy radicals like me but investment bankers like Davy’s, JP Morgan, Dolmen etc.”

Zhou — this is the process we’re engaged in right now. Every analyst worth their salt says the government is going to substantially overpay to avoid nationalisation. And when they tell us that the IMF, ESRI and Mr. Ludgren fully endorse everything they are doing, I’d prefer to point out the truth rather than sit around hoping they’ll get it right in the end.


First of all, I should have said earlier that I am delighted you are so focused on this issue. I think it merits the attention you are giving it.

I note what you say on the analysts and the overpayment. I am a bit puzzled as to where the analysts are gettng their insights. It seems thare is a combination of leaks, kite flying, bank lobbying and agenda setting, analysts tryingt oset the agenda and over-intepretation of the Minister’s words. I share your concern that the assets should not be valued to the intent that their value will be sufficient to avoid nationalisation. I also share the concern that vested interests in the banks, in the brokerages and in the markets might try to back the Minister into a corner by generating a market expectation that the Minister might be afraid to undermine.

I agree that the goal posts keep shifting but I don’t see anything wrong with that. The Government has been fire fighting on a number of fonts recently and survival has been the name of the game for the last while.

I don’t accept your charge that I have subscribed to the Father knows best school of analysis. I think the Minister has ,from the day that he announced the setting up of NAMA, always made it clear that the Govt may take a majority sttake in the bank and it is only 100% nationlisation that he has ever said he is reluctant to contemplate. other Ministers and Junior Ministers may not fully understand the position but I believe the Minister for Finance has been consistent. I also hope and expect that he is taking on board the views of Lundgren, the IMF and the Germans et al on the merits of nationalisation. However, even if he does change his mind or has already changed his mind or has always intended to nationalise, I cannot imagine that he would say that announcement until he was ready to start that process. I also don’t think it is fair to say the Minister has shied away from issues. He has been as open and frank as the arena of politics and international finance allows.

Anyway, we may differ on our opinion of the Government but I do not want you to think I am trying to deter you from your continued focus on this issue of national importance. I note that you would “prefer to point out the truth rather than sit around hoping they’ll get it right in the end”. That is of course a valid position. I might suggest a different view and tack (for fear the government would come to view you as you have come to view me :)) but I respect your position and commend your efforts.

Karl your looking for optimum solutions to this Banking problem,as are a lot of well meaning people in Ireland.The problem is, there is no optimum solution for the greatest good if the main objective of those making decisions is to try and preserve a crony capitalist system that has clearly failed.Time and Money is what they are buying at the moment at the Irish and European Taxpayers expense.They have little concern for any legacy they leave behind as long as their own self interest is consolidated.Sucess will be judged by how many of these cronies remain viable long after their debts have been passed onn to Taxpayers.The only question of any concern to these people is “how managable the future debt will be for Taxpayers”. Given that these debts will probably cripple the great “cash cow” or Taxpayers to you and Me ,it will come as no surprise to hear of many of these cronies leaving for pastures new.Hopefully these will be the last of “the dark cows to leave the moor” and as for the remaining “pastures poor with greedy weeds” I would suggest the upper tier of the Public Service as a good starting point for reform or the use of a good systemic weedkiller to keep with the theme of our much loved but sadly silent poets.Ireland has Im afraid become a tragedy of the common.

I have to say that you come across very Ideologicly biased when it comes to this issue.
This issue is way to important to allow ourselves have a starting point based in ideology.
It requires a return to first principles that Karl and some others have genuinely tried to do when they realised the size of the issue.

Trying to find intellectual shelter in Ideology is the last thing we need but is exactly what the government are doing.
Can they really (politicly) afford to admit they were wrong again and say that we should go the nationalisation route?
In reality the game was up when they agreed to pay more for a 25% stake in the two big banks that it would have cost to buy 100% as a private investor.
As Ahura mazda states above the likly long term repatriation of tax payer money to the banks due to the difference in interest rates alone will be colossal. As to how the government thinks the taxpayer can afford the largesse?
It is difficult not to be cynical.
However cynisism is useless in a situation like this so we have to keep trying to find objective evidence and that is what some are doing.
Exposing statements of support in government action as far from it is a good start.
Some say people are already aware of the government being economical with the truth.
I disagree. Someof the ‘plain people of Ireland’ still believe them.
Critiques of their every statement should be front page news especially in the tabloid world.


What ideology do you think I am espousing? I assure you that I am a post-modernist with a deep suspicion of all ideologies.

With that said I do believe that abstractions created and submitted to by men should serve all aspects of men’s welfare including their spiritual, intellectual and social needs.

@ zhou_enlai
Now we are going places or is it post “places”?

Would that postmodernism you subscribe to be:
1.”a style and concept in the arts characterized by distrust of theories and ideologies and by the drawing of attention to conventions.” (Compact Oxford English Dictionary )
2.”of, relating to, or being an era after a modern one” or “of, relating to, or being any of various movements in reaction to modernism that are typically characterized by a return to traditional materials and forms (as in architecture) or by ironic self-reference and absurdity (as in literature)”, or finally “of, relating to, or being a theory that involves a radical reappraisal of modern assumptions about culture, identity, history, or language”. (Merriam-Webster)
3.”Of or relating to art, architecture, or literature that reacts against earlier modernist principles, as by reintroducing traditional or classical elements of style or by carrying modernist styles or practices to extremes: “It [a roadhouse] is so architecturally interesting … with its postmodern wooden booths and sculptural clock” (American Heritage Dictionary)
or a totally different definition of what guides your way of thinking.

For completeness it is only fair to include the 3 explanations of ideology in the Shorter Oxford English Dictionary:
1. The branch of philosophy or psychology dealing with the origin and nature of ideas.
2. Ideal or abstract (esp impractical) speculation.
3. A system or way of thinking pertaining to a class or individual, esp. as a basis of some economic or political theory or system ,regarded as justifying actions and esp. to be maintained irrespective of events.

In human affairs ideology rules? Ok?

Don’t tempt me Aidan!

There may be an economic study to be done on the impact of [misunderstood] economic ideologies on the wealth of nations !
(Didn’t some joker write a book with that title already? 🙂 )

In the meantime, I think I’ll bow to KW’s suggestion (having deconstructed and parsed same).

Karl W ; for shame, for shame sir.
Sure werent the very first economic thinkers philosophers as well?

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