Note to Opinion Columnists: It DOES Matter How We Deal With the Banks

There’s been a flood of recent commentary on NAMA from opinion columnists, editorial writers and broadcast journalists. Unfortunately, much of this discussion has been premised on an incorrect but apparently appealing idea.

This is the idea that it doesn’t really matter which approach we take to resolving the banking crisis because the costs to the taxpayer are going to be about the same no matter what happens. We’ve guaranteed the liabilities, these people will argue, so basically we’re on the hook no matter what. And since all the plans are going to expose us to lots of risk, let’s just get on with the plan the government has.

Advocates of this position often explain the pricing decision facing NAMA as follows: Over-pay and the taxpayer loses, under-pay and the state has to recapitalise the banks, so the price tag is the same come what may. I first remarked on the prevalence of this line of thinking in the media back in March. However, I started to get really worried about it when Peter Bacon regularly made this point during his post-NAMA-proposal media blitz, at which point I named the proposition after its most noted advocate.

Since then I’ve tried umpteen times to explain why this idea is wrong but clearly I’ve had no impact whatsoever. Most likely, if you’re still reading at this point you’ll know that overpaying for assets by, say, €15 billion, just nails an additional €15 billion on to whatever loss the taxpayer is going to take, while paying €15 billion less but then using the money saved to invest an additional €15 billion of state money in obtaining an equity stake entitles the taxpayer to dividends and later re-sale of the shares. 

It’s not really a very complicated point—the initial outlay of funds is the same in either case but the final outcome for the taxpayer will be worse off with the overpayment approach—but it’s still pretty widely misapprehended.

An example of the “sure it doesn’t matter how we do it” reasoning is the following from a Stephen Collins article in the IT on Saturday:

The main criticism of Nama is that it exposes the taxpayer to enormous potential risk. The problem is that there is no way out of the banking crisis that doesn’t put the taxpayer at risk. The “bad loans” simply have to be taken off the balance sheets of the banks to enable them to function again, whether that is done through nationalisation, a toxic bank solution or Nama.

This kind of stuff just isn’t very helpful to a public looking to commentators like Collins to inform them about the implications of policy decisions. Yes, there are risks to the taxpayer from all of the approaches proposed but it is just lazy thinking to suggest that the risks are essentially the same from each of them, so it doesn’t matter whether we pick Nama or some other approach.

Collins also went on to reassure readers that

Going on international experience, Nama has a good chance in the long run of being able to recover the money it pays over to the banks for their “bad loans”.

I’m not sure what sample of international experience Collins is referring to but I can assure you that the international record of Asset Management Companies gives no such reassurance.

Lately, I’ve also noticed newspaper stories that go beyond the “it doesn’t matter” meme to suggesting that we’ll actually be worse off if we don’t overpay. For instance, consider this snippet from Saturday’s Independent:

But if the Government pays too little for the loans, the banks’ losses would leave gaping holes in their coffers — potentially forcing the taxpayer to pump further billions into the ailing financial institutions.

The emphasis here is on the how bad it would be for the taxpayer to have to stump up the money to invest in the banks, forgetting of course that these funds have been made available by the decision to not over-pay.

All I can do at this point is admit that I have had no impact in pushing back against this stuff and to ask our readers to identify this stuff where they see it and call it for what it is.

Update: In reflecting on Brian’s immediate response to this post, I think it is legitimate to raise the question of why so much of the coverage of NAMA features this sort of misleading analysis. I suspect that it is partly to do with the journalistic desire to appear “balanced”—the sort of thing that leads to media coverage of the “Opinions on Shape of Planet Differ” variety.  But, of course, as Paul Krugman noted today, this problem is by no means restricted to Ireland.

56 replies on “Note to Opinion Columnists: It DOES Matter How We Deal With the Banks”

Its hard to explain – not. “we will then, if we nationalise, end up with an asset we can dispose of , the banks” as an addendum captures most of the essence of the issue and is easily slipped into print or voice. Works for me

I was appalled by Stephen Collins’ article and fired off a letter to the editor saying pretty much was Karl said in this post but perhaps somewhat less eloquently. Of course, it wasn’t published.

It looks like Lenihan is going to be Chairman of every Bank in the country after he retires. They will probably give him the Chair of NAMA as a retirement gift from the Banks. You know like the gold watch.

It is a No Brainer !!!!

My understanding is that recapitalisation funds are subject to a fixed dividend payment of 8% annually and must be repaid in full within five years or repaid at 125% of the initial injection thereafter. Im sure many feel that it is not a perfect arrangement but it is essentially a loan subject to interest payments and eventual full repayment of the principal. The nama overpayment proposal on the other hand essentially involves the taxpayer giving a bank free money by paying €12 for something that might be worth €10 for example. Anybody who suggests the two are similar does not know the difference between a loan and a grant or donation and shouldnt be passing comment in the national media.
In the wake of the recent criticism the banks have recieved from all angles it is hard to credit that an idea which hands them free taxpayer cash appears to be growing into something of a (what I can only assume is ignorance fuelled) consensus.

From an article I wrote in the Irish Examiner last April when I used the phrase “Banama Republic” : “For now Government has no intention of taking the next logical step which should be nationalisation. Instead it hopes the banks will feel liberated to get credit flowing once again rather than acting to save their shareholder and bond holders skins. Extreme risk aversion is a documented feature of private banking behaviour in banking crisis as they are susceptible to a paralyzing fear that new loans will put their capital at risk. Furthermore as future bank profits will be only be generated as banks have been freed from their toxic assets, their shareholders gain at the expense of the taxpayer who foots the bill for swallowing the bitter pill. Government’s structuring of the deal does not allow for a tax payer dividend unless that is banks are temporarily nationalised which is what happened in Sweden.”

and a week later

“In the brief history of good bank/bad bank models few have involved the outright purchase of entire loan books including both good and bad loans without first nationalising troubled banks. Structuring “good” banks is just as important as structuring a “bad bank” and with no overall picture with which to make sense of the NAMA jigsaw puzzle many are concerned banking stability will not be achieved.

Minister Lenihan must have a fair idea of just how solvent the banks are. It seems if a fair price for bad loans is paid, then the banks are probably insolvent and the state will have to nationalise them. But if a price is set at a premium, then banks may remain solvent, benefiting from state aid or hidden equity support implicit within the premium paid. This may be clawed back in time at a price that probably will not provide a proper return for risk. Thus loan losses will be socialised while bank profits will remain privatised.

The claw back or “Lenihan’s Levy” also means he is not certain of current losses even if his experts’ best estimate of likely losses is higher than stockbroker analyst’s predictions. If so then the Minister will be acutely aware of the effect of NAMA’s pricing will have on bank loan books and how technical insolvency will trigger a need to inject fresh equity, effectively nationalising the banks.

NAMA’s mission it appears is to manage and ultimately liquidate bank assets recovering as much as possible while minimising the cost to the state and tax payers. As it lifts the bonnet on bank lending, it may discover that for every €100 it has paid it can add another €20, more so as a new lender/borrower relationship dynamic evolves between it and those that owe it money. Chances are NAMA will write off more than it will initially price which is why the Lenihan Levy is so necessary – it’s a mechanism to insure against as yet unidentified costs that will inevitably occur. No wonder banking analysts are worried as they have no handle on the total cost of bad debt write offs as the levy represents a future unquantifiable call on bank profits.

Meanwhile much is being made of the Swedish bad bank/good bank model, one of which saw the transfer of a mere 400 customer relationships and 3000 loans from one bank “Nordbanken” to a bad bank “Securum” at a 25% discount. It worked as the Swedes waited until asset prices had floored. As losses were relatively certain, pricing was real and a “one bank” approach meant asset recovery expertise was easily assembled. It also worked as the haircut price was deep enough to allow Securum to succeed.

But NAMA’s scale is far larger, asset prices are uncertain, thousands of customers and complex interlinking exposures from different banks need to be managed. How NAMA builds its bad banking operation is a critical missing piece of the puzzle. Merging the loan activities of differing banking IT and operational systems together with managing the complexity of thousands of lending relationships including good and bad loans would tax the best of established organisations.

But what of NAMA “Mark 2”. Few believe that a second round of loan purchases will not be required. And what of the growing mountain of consumer and business bad loans which could require a NAMA type solution.

Minister Lenihan needs to produce the jigsaw box and show the big picture. Until the jumbled puzzle has been solved for both good and bad banks, few will believe the Irish banking system has been stabilised not to mind in a fit condition to finance economic recovery.”

Sloppy ,Lazy,ill informed cheerleading from the type of Journo’s that got us into this mess in the first place.Karl the points you make are as true now as they were back in March.Karl if you want to make a dent in this NAMA madness,I would suggest you expose the real structure of this NAMA SPV and how it will securitise toxic do do and tranch and blanche it,enter into partnerships with Developers and allow cash-outs, and all sorts of shennanigans on a need to know basis,with croney valuations at the Ministers discression, the Taxpayers left with the real rubbish at the back end when the true losses are finally revealed.Follow the Money Karl and when the penny finally drops with “how the assets are to be disposed of”a clear picture will emerge on what FF’s plans are.My suggestion is start at the back end with where and how the assets are disposed of and check the recent legislation and see how this will be facilitated.Structured stroke Finance is a wonderfull thing.

@Karl: People like Gene Kerrigan understand.

And that may then tie in to your Krugman point: if the left is visibly outraged, the centre and right may feel the need to argue that black is white, just to maintain their distance from such dangerous radicals.

Tenacious advocacy of economic rationality is admirable, but in the face of the inevitable…. And NAMA is inevitable. The rationale (and I use the word loosely) is primarily political; it is a tactic – not a strategy- and any association with economic theory and practice is either tenuous or for presentational purposes.

NAMA will
1. avoid the near term crystallisation of losses that would reveal the insolvency of the Irish banking system;
2. postpone full resolution of this insolvency until well beyond the next election;
3. maintain the fiction of native banks in Irish and private sector owenrship at arm’s-length from the Government and will maintain access to ECB liquidity that may be converted into funding of the Exchequer;
4. postpone the sale of distressed assets that would drive land and property prices down to economic levels;
5. offer a “free” crock of gold comprising all these distressed assets some of which may be extracted for “socially”, “environmentally”, or “spatially” desirable projects.

I’m not denying that nationalisation with a suitably modified NAMA would achieve at least some of these objectives and would be a far better deal for citizens and residents (I prefer this to taxpayers as citizens who are not taxpayers will also suffer from the effects of the severe fiscal adjustment). But it would require the Government to open more fully the can of worms that has been manufactured on its watch and to confront its complicity in its manufacture. It would also require the Government to make more radical policy decisions and, since it has no popular mandate for the policies it is currently pursuing, it is making a judgement on how far popular consent may be pushed.

Therefore, it is selling NAMA, quite successfully, as the “least worst option”. The hope is that it will allow the clock to be counted down to the next election. And, in the absence of popular, extra-parliamentary action, it will prevail.

In the meantime, the “real” economy will be allowed to go to hell in a handbasket…

Karl W and Brian have been doing great work in the media so far. But it’s true that it has been largely ignored. I think that the media need a simpler story. I mean extremely simple. They won’t latch on to something that takes more than one or two sentences. Here is the sort of message I’m thinking of.

We have two options.

A: Save the banks and the bank shareholders and the bank bond holders.

B: Just save the banks.

Option A is a lot more expensive than option B.

That’s it. You really can’t push it much further, or eyes will start to glass over.

The other guys focus a lot on catchy phrases like “zombie banks”, “credit flowing”, “drastic…last resort”, “not the time for endless debate”, etc, rather than on making arguments. I think that “just save the banks” or some similar mantra is needed to combat that.

If we were not pointing out the upcoming transfer of wealth from taxpayers to bank share holders and bond holders we would be obsessing about the broken contract between the government and the private sector worker. The one where the minister promised that in exchnage for huge tax rises now, future public spending would be tackled. Except that it won’t. And taxes will go up further, a lot, in December.

I believe it will be criminal if the Goverment do not nationalise the banks to protect the tax payer as Karl suggests. I believe that the Irish banks will return to profitability in the future.
.We can see the start of it already with Foreign banks pulling out, Irish Banks increasing their interest margins on loans . While not the exact same situation, how long did it take AIB to recover from the ICI debacle?
If as Tax Payers we are taking out this toxic stuff then at the very least we should be able to take part in the upside when the banks do return to profitability, as surely they will, even though it may be my kids generation that will benefit

Maybe I am thinking in too simple terms. I can understand that the current setup is very good for the government and the banks, from the points that Paul Hunt outlined above. However if we disregard these elements and focus on what the commentators are saying about, “get credit flowing”, “zombie banks”

If we disregard property investments and multinational activity, how much credit is really necessary to keep the native industry going? It would be interesting to see that number in comparison with Nama figures, but somehow I have the suspicion that a lot of Business owners have got involved in property schemes. So the business have to fund the extra cost associated with that as well as ordinary business costs. So maybe property has polluted all aspects of Irish Business, so the separation of property from the normal economy is not so straight forward.

On a side note, in a small town (5k population) in Ireland, I noticed that there were 6-7 pharmacies, and surely none of these pharmacies can honestly claim that it is a lack of credit would be their main problem.

@ Bill Hobbs

I think you touch upon something that is not discussed enough in the potential need for a NAMA II.

NAMA will deal with c. 90B of the total loan book of c. 375B, with 120B odd of mortgages. The stockbroking analysis that I have seen assumed pretty minor impairments of the loan book, seeming to compare to the losses in the UK after the 1990’s collapse there.

I think it is going to be worse here, no facts to back this up, just the statistics of mortgages issued over the past five years, the income deflation, fiscal deficits, high unemployement and 20 odd years of construction stock wiping out any recovery for the foreseeable future.

And this is my real worry about NAMA, I think it is likely to have little impact on the backs attitude to issuing credit to business.

I have concluded that part of the reason for NAMA and the unrealistic haircut is that the Brians dont want to own the banks when they infict the inevitable widespread pain then the banks adress their wider loan problems.

I think that you may be over-estimating the financial and economic literacy of the general population. The economists who describe the NAMA downside do it in too technical a manner while the government and their allies are keeping the message simple and repeating it ad nauseum.

But the key point is: “Overpaying is giving a free gvernment handout to bank shareholders.”

If you want to be heard by the media then pick the most politically inflamatory aspect of the NAMA legislation and concentrate on that. A lot of the issue is that you guys try to answer the questions put in front of you in an honest manner – in particular follow on questions from interviewers cause issues. Might be better to think politically and advance your agenda.

@ Karl
Kevin O Rourke puts it perfectly above.
Gene Kerrigan, Fintan O Toole and Vincent Browne seem like extreeme left wing loons in comparison to the vast majority of the rest of the print media.
The fact that their opinions are slightly less radical than the mean of general population ( I know thats a generalisation but it would take a thesis to start getting more specific) is neither here nor there apparently.

The idea that the other opinion writers are just trying to ‘give balance’ does not cut it.
Their opinions are based on the same reasons they were hired in the first place. Their ideology.

BTW its not just the ideology of opinion writers that is the crux of the issue. Its the Ideology of, political, economic, regional and every other type of reporter and editor.
The level of sku does a heck of a lot more than ‘give balance’
Its more like droping Brian Cowan from 20 feet on to a see-saw with Gene Kerrigan sitting on the other side.

The fact that FG who have developed a reasonable alternative to NAMA can’t get any traction for their plans shows how difficult it is to push back against the chorus of “Resistance is pointless – Nama is inevitable” coming from the Daleks emerging from the Taoiseach Bunker.

But I was gobsmacked that such an influential person as Stephen Collins writing the main opinion article in Saturday’s paper of record would repeat this mindless twaddle.

We can only hope that the Supreme Court doesn’t indulge the Emperor of Shoeboxonia and Speculative Office Developments any further extension to his fantasy.

Many political correspondants seem to be ruled by the idea that implementing unpopular policies is the height of virtue in politics. They therefore take it upon themselves to police all criticism, opposition etc. of such policies, such criticisms being by definition opportunistic, populist, irresponsible etc. I think it must be something akin to the fetishisation of “moderate” views and bipartisanship known in the US as High Broderism.

Hence if people are saying the government is gifting billions to bank shareholders while cutting [insert cut of choice], this must be denounced as opportunistic, populist etc., regardless of its being true.

One thing that struck me about the Carroll hoohaa over the last week is the proposal presented to the Court that Carroll’s cerditors were willing to agree a moritorum on the debts.

I haven’t seen anyone question the apparant paradox in that, given that anything agreed by the banks will imminently be sold on to our freindly NAMA.

Hell, the banks should just agree to write it off completely.

We’re talking about a government that in the middle of a financial crisis is regulating Mass Cards and blasphemy. Why would anyone who wanted to be taken seriously be accepting the word of this government on spec? And yet the papers are full of such people…

The banks and/or NAMA will take over bad debts and property and will then complete projects already under way and begin new building projects. The problem is the country is overbuilt and the situation is being exacerbated by high unemployment which led to foreign workers returning to their homeland and native Irish unemployed going abroad for work. Every family unit that leaves the country leaves a vacant abode behind.

The Gov’t and the banks are on drugs the main one being taxpayer money. So like any addict they blindly pursue the behaviours that worked in the past. Gov’t policy and developer greed has flooded the country with vacant properties and we are now pursuing an encore performance. There will be no recovery until wages and property values are competitive with our trading partners. Wages are sticky but property values in the present environment can be made competitive in less than six months by letting the market operate unimpeded. As far as the normal family is concerned their property value will go up and down with the market and the value will matter only when they cash out because of age or emigrate. Houses were never cash boxes and should not be treated as such now.

The only significant change in the Irish media in the past decade is the addition of web platforms like this.

Politicians give serious attention to RTÉ and they generally call the tune.
Ministers favour door-step interviews and they generally avoid detailed forensic formats.

They are often aided by RTÉ news staff who lack the necessary arsenal of economic facts. Although in a few minutes slot, running out the clock is often worthwhile for the guest.

In the newspapers, beyond the business journalists, there is probably little interest or grasp of finance/economics.

This is all against a backdrop of an Oireachtas where only 5-10 (I’m inclined to say 5) of the 216 members, could competently speak on economic issues.

NAMA, Bord Snip, taxation change proposals, the Government on holidays and as the Live Register heads towards 500,000 it’s business as usual – – and while we can expect some more slow-motion fire-fighting from the arsonists in the autumn, reform is not on a the agenda.

NAMA is the main issue but what will it take for the Irish to take a good look in the mirror?

All discussions on how to maximise the use of NAMA tends make make NAMA more legitimate.

Those that offer opinion about anything regarding NAMA (legislation, costs, pricing model, transparency) should use part of the answer to state which other option is preferred. Think of how Cato (the Roman senator) argued for the destruction of Carthage; he managed to include “Carthago delenda est!” in all his speeches.

I can’t see a single advantage in even a perfectly used NAMA compared to a botched nationalisation.

-NAMA will cost more.
-NAMA is even politically bad. I believe there are few things the public like more than to see rich who believe they are above the law be humbled. NAMA will do the opposite.

The legislation has not yet passed. Acting like it has only adds to its legitimacy. NAMA is not inevitable.

The economic issue is to save the banking system, the financial issue is to do it at the least cost.

The cost for NAMA will be higher than for nationalisation for one simple reason: With NAMA all losses are passed on to the government, with nationalisation the first losses are taken by wiping out the shareholders and the rest the government can negotiate with bondholders how the losses are to be shared.

If the banks are solvent, then they don’t need NAMA. If they are insolvent, then nationalise.

I think the July Exchequer returns should focus minds that we need to get extraordinary value for money for every cent spent by the government.

And that includes NAMA. We should do the absolute minimum that we have to do, we simply don’t have the money to do anything else.

“I think the July Exchequer returns should focus minds”
yes. A thread on this would be useful methinks…some one care to start it?

Another half a billion hole – so we carry on regardless. With the shortfall in receipts trebling over the last month is it tme to hit the panic button. I seem to remember the Minister acknowledging the VAT increase was a mistake. Looks like a very big one.

I think the problem is a little less sinister than Eamon suggests (reporters being hired because of their ideology). I’d suggest a combination of reasons.
1. The journos don’t understand the issues.
2. To try and understand they ask, or are offered explanations by the Spin machine (which is VERY good). I’ve seen this from both sides when I worked for businesses as a PR and now on the other side. Unless a journo already knows an issue inside out its far too easy to be led down a certain path.
3. Those who do understand (e.g Kerrigan/Browne) aren’t taken seriously because their language is too inflammatory and because they have laid out “their ideology” so often and for so long they are seen as pushing an agenda instead of neutrally explaining the pros and cons. Whereas those who don’t have an identifiable ideology AND can phrase everything in the moderate language of pragmatism are seen as more reasonable.
4. There is probably a deeper wish – not a blatant ideological position – that sees the journalist desperately WANT the policy to be right. This is the policy we’re getting. It HAS to be right, right? Because the thought of it being wrong is horrific. If the journo wants to sleep at night, he has to believe Lenihan knows what he’s doing.

This site is doing a great job at informing journos, and as some of you know I’ve done some reaching out 🙂 I have the luxury of a week to think between columns but many reporters are under enormous time pressures. The only way you’ll “convert” the guilty parties is to reach out yourselves into bilateral communications. You might feel you shouldn’t have to do that, but maybe the country needs your PR skills 🙂

Hi Sarah

I really enjoyed that article you had on our zimbabwe style land reclaim we had in the thirties under DeValera. I genuinely never knew that happened.

I have to admit a small bias in that I am a huge fan of Noam Chomsky.
I think when he passes on, the planet will loose about half its capacity for critical thinking.
In a book he wrote years ago, manufacturing consent, He pointed out the many ways Journo’s end up writing in very biased ways completely innocently just because they are “led down a certain path”. He called them ‘Filters’.
However when it comes to the owners of media and the pressures exerted by PR and Advertisers it is the lack of cynisism that is deafening.

The rather public exit interview Eamonn Dunphy and Vincent Brownes article in the Times last Wednesday with regard to Denis O Brien were to my eyes candles in the dark and more journalists would do well to come into the light.

But even if they did what could they do without damaging their careers?

But on my point about hiring people with a certain ideology, I dont even think it is that cynical.
I mean if the person doing the hiring has a certain ideology arent they more likely to like someone of similar ilk?

With regard to point 4 I would suggest that the best thing for a good nights sleep is a clear conscience.

One more thought – these are opinion pieces. Is it possible – just a teency weency bit possible – that the “overpaying is ok” opinion might be the right one? If we agree that paying a market value leads to massive recapitalisation which leads to nationalisation. The government’s stance appears to be starting at the last point – what do we need to do to avoid nationalisation – answer: overpay. I keep asking different “stakeholders” WHAT is the obsession with avoiding nationalisation. One employee of a pension company said ” The government can’t nationalise because the largest shareholders are pension funds and if they nationalise they wipe out everyone’s private pensions”. Is this true? Does it make sense?


Your “pension company” contact seems a pretty poor one.

Pensions will not be wiped out. Total exposire to ISEQ stock is pretty small on aggregate for Irish occupational and personal (e.g. PRSA) schemes.

At an individual level there are still pockets of anachronistic strategies that hold overweight ISEQ positions, but that would be around 9% of total assets and falling rapidly as people finally accept that “buying Irish” like this was just stupid.

Also Sarah.

If journo’s (like you) don’t understand the issues – and you clearly don’t judging by your articles on economic and financial issues that you seem prone to write – then don’t do it.

Back ot the central point on this thread.

The source of all the problems seems to be a wide spread belief, deployed by government, that we can navigate through this mess without anyone bearing any loss. Hence, failure to nationalise, over the top deposits guarrantees, liability guarrantees (!!), tax payer purchase of assets on “mark to myth” basis etc. etc.

Of course we can’t agree, because with each and every new “policy”, we find that the losses haven’t actually gone away , but shuffled somewhere else. NAMA is just the latest.


That’s hardly a constructive approach. If the theme of this thread is to despair at the lack of knowledge of opinion writers then the solution is to educate them. A superior and insulting tone will only drive them away. Let’s add some more points to my offering on why opinion writers seem so desperately ill-informed.

1. Asking questions risks exposure of their own ignorance. (Which given the small number of economic journalists is a fairly widespread condition)
2. They might be insulted and mocked.

– don’t ask in the first place
– ignore the issue and then hey! the whole thing will get pushed through without the public any the wiser of what is going on! Definitely one way to manufacture consent.


I don’t mind journalists asking questions.

I mind when journalist write normative articles on subjects where they get there facts wrong. I have seen many do it.

Those that hold the megaphone need to use it with prudence and humility.

Ok Mr. Gekko,

Let’s leave it at that, if you don’t mind. We can all get our facts wrong — I’ve done it here sometimes and have to come back and admit it. And Sarah is to be commended, not discouraged, for using a forum like this to get useful information.

@Sarah: your question about the obsession with not nationalising is the right one. The government claims to want to avoid running banks, almost admitting they won’t be very good at it. But this won’t wash. So we are left to guess. Your other question, about whether it is possible that overpaying is the right strategy, deserves an answer: no it is not. Karl Whelan, in particular, has provided a cast iron rationale for this. Nationalisation does not provide an answer to the ‘market price or economic value’ question, it takes it away: it becomes utterly irrelevant. We don’t need to worry about valuing a single piece of land or any crumbling apartment blocks.
So why do they want to avoid nationalisation when it would get them off the valuation hook? A summary of the various theories runs as follows:
1. They don’t know what they are doing.
2. They know they don’t know and have an explicit strategy to simply hope something turns up, hopefully the world economy.
3. The real size of the hole, the bad debts, is so big that they are in a state of panic.
4. Doing as little as possible until the general election absolves them, in part, from history’s judgement that they messed it up. If you don’t make a decision you can’t be acused of making a mistake (policitians believe this, apparently)
5 Having dug themselves into an ill though-out position they are reluctant to concede an error of judgement.
6. They really do believe NAMA will work.

I’d go for a combination of 1 through 5. Nobody believes 6.


may I add another few valid reasons why Lenny the Lion wants to over pay rather than nationalise.
1) he wants to avoid the Joe Duffy show becoming the forum for debate on the pricing and allocation of credit.
2)The Anglo debacle shows that deposits walk from a national bank because investors rightly fear the the politicisation of credit
3) He knows the gaping hole in the public finances means he cannot access the cash to recap the system now. Better to overpay & defer the bill to the next generation.
4)he looks around at other quangos & state bodies and worries that the state cannot manage anything in a competant fashion.

Re jl’s point 3.

This is not the first time today that the idea has come up that re-capitalisation requires “cash” while overpaying requires only “bonds”. It’s not true. You can acquire an equity stake in exchange for government bonds. Why would anyone think that this couldn’t be done.

Jl’s point 4 is the one I’ve argued before. They are terrified they’ll make a hames of it and so are trying to intervene as little as possible. So while Karl’s arguments are all technically watertight ( which I fully accept) would anyone accept that maybe Finance is right on this point. (especially given the IPA report published today – god help the poor cratures in Merrion St! What a time they are having!)

A well run nationalisation is the right response but given that a ballsed up nationalisation is a possibility then which is the least worst scenario? Bad nationalisation or no nationalisation? It’s funny that as Karl pointed out when I wrote on this before, its the one argument finance can’t make…

Then I keep thinking, is there something they’re not telling us?

@ karl

If you overpay, you issue bonds to a captive buyer-the banks & take your chances that time and inflation bails you out. You can even issue the bonds at a low coupon (floating rate) to your captive buyer.

If on the other hand, you pay the appropriate price, the banks need equity now. You then have to issue bonds, possibly at a higher coupon on the open market to an unwilling or uncertain buyer.

In both cases you have to issue bonds, but it seems to me the former strategy is an easier one to implement.

When they issued the guarantee last year they effectively took ownership of the banks in the sense that took ownership of all the risk. Having gone this far, to take ownership of the equity is actually a very small step. And, just like the guarantee, it can be ownership without control. Like it or not, the taxpayer already owns the banks.

@ Sarah Carey

A well run nationalisation is surely an oxymoron!!!!


So the NTMA issues bonds to the banks to buy equity. The Banks then run to the ECB to repo the bonds. So the Irish govt ends up owning a long term asset (bank equity) financed by the ECB overdraft.

Actually, what they should really do is liqidate the NPRF to buy bank equity.
Come to think of it, if if Quantitative Easing follows through to its logical conclusion in inflation, NTMA should liqidate all its fixed income and cash and issue as many bonds as possible and buy equities, commodities and SHOUT it ….PROPERTY.


[…] This is the idea that it doesn’t really matter which approach we take to resolving the banking crisis because the costs to the taxpayer are going to be about the same no matter what happens. We’ve guaranteed the liabilities, these people will argue, so basically we’re on the hook no matter what. And since all the plans are going to expose us to lots of risk, let’s just get on with the plan the government has.  link to full article […]

Nationalisation is an outcome of a logical and fair pricing of the loans. So we are caught in a cleft – if the govt do not want nationalisation they cannot pay a sensible price.
What cost fear? About 30b

your earlier post – points 1-3 are apt, especially 3. “The real size of the hole, the bad debts, is so big that they are in a state of panic.”
The hole is getting deeper.
@ sarah
“Then I keep thinking, is there something they’re not telling us?”
You can be sure you are not being told the whole story. The AIB results give an indication of some of the problems coming down the tunnel relating to loan book impairment.

What price an unfinished hotel/leisure center in Kilternan with a reported 180 million of borrowings attached and now in liquidation.

@ Brian Lucey

You are right that nationalisation is the logical outcome if you pay a certain price. However, as the Anglo model shows and indeed the blanket guarantee of almost all liabilities shows, investors conclude the obvious that its time to exit Dodge.

Morover, you and your compatriots in the “cartel of 20” have failed to answer the key question-“is a state owned banking system an optimal solution?”

Lastly, you and your “20” have also failed to answer the question of whether we can raise the money now to fill the hole. We may not have any option but to kick the can to the next generation & hope that inflation bails us out.

What are the real reasons behind a reluctance to temporarily nationalise or adopt a PPP model?

Well “cartel” has pejorative connotations. So lets not go there. No, in an ideal world a state owned system is not optimal. Good job we werent suggesting that. And we will spend a lot less money the way we suggested than the way is now being suggested.

@Sarah and most others that have commented in the last 20 comments.
Old ideologies die hard.
Anthony Cronin makes a good arguement in his piece in the Sindo that National banks set up in the late thirties in Ireland had an excellent important impact on the country at the time and released the credit into the system that was needed.

Popular opinion in the last few comments seems to be that privately owned financial industries are run in a far better than nationalised ones.
The ability to have these opinions in a bubble apart from what has happened in the last year is just not well grounded in any of the facts.

Take a look at the not for profit financial enterprises in Ireland at the moment.

An Post and the Credit Union.

How can people think that these institutions were run less well than the banks in the last 10 years?

How can well educated people still think that terribly run banks with the profits they take out for shareholder dividends and bonuses for executives will do a substantially (30 billion euro) better job than a nationalised version?

Wake up!

Nama is a clear transfer from the prudent poor masses to the irresposible wealthy few.

The reason they will get away with it, apart from the fact they always have, is because not enough people understand and almost everyone is scared.

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