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.