IT Article on Lessons From Carroll Case

Here‘s an article I wrote for the Irish Times on what we have learned from the Carroll case.

105 replies on “IT Article on Lessons From Carroll Case”

The Indo today is suggesting that the Greens may be finding it difficult to support the Government on this issue. I have no idea if that is true or not, but it would not be all that surprising given that the Government has so clearly lost the intellectual argument on this one, and that the stakes are so high.


You have tenaciously tackled every aspect of this ill-conceived NAMA beast and followed through with impeccable logic, but you might wish to pause and, in the time-hallowed words, “be careful of what you wish for”.

The policy objective has to be the minimisation of the present value of future costs to the Irish economy and to all citizens and residents – since all options that may be considered will cause costs to be incurred. In particular, you and Brian Lucey have demonstrated that NAMA will be more costly than other options. These options, presumably, range across Prof. Honohan’s NAMA 2.0 to a complete wipe-out of bank share and bond holders and a structured, but fairly rapid, work-out of developer loans.

Taking the pain early and moving on is generally seen as the most effective way of minimising future costs. However, this would likely result in land and property prices undershooting economic value for a period of time, a huge increase in household negative equity and accompanying mortgage defaults as a result of increased unemployment. It would also, following temporary bank nationalisation, likely result in majority non-national ownership of fewer banks based in Ireland – as the initial nationalisation would probably require significant external financing. There is no reason why this wouldn’t be forthcoming – and more as newly solvent banks were sold back to private ownership.

I wouldn’t welcome this outcome, but I would have no problem with it. Irealnd had a banking system. We blew it. We didn’t just lose a number of banks as has happened in other countries; we lost the lot – all Irish-based banks are insolvent.

In its simplest form NAMA is a means to minimise the extent of short term adjustment and to preserve a measure of Irish national pride and dignity. One can see how the line would resonate: “Let’s kick the problems (in a responsible and humane way) into the long grass and let future citizens and residents pay for it. Imagine not having any Irish-owned banks and being run by foreigners. Brave Irish people didn’t go out in 1916 to allow us to hand the country over to foreign carpet-baggers and private equity vandals.”

There seems to be very little understanding of the implications of this, largely home-grown, crisis and that there is now a once-in-a-generation opportunity to transform politcial and economic structures to avoid a respittion and to ensure future prosperity and social cohesion.

But NAMA is not just a bank-resolution mechanism; it is symbolic of an attempt to preserve the economic and politcial structures that created to this mess and of a desire to return to “business-as-usual” as soon a possible.

The forces alligned to achieve this outcome are the most powerful in the State. They will appeal to national pride and to a crude version of patriotism that often mutates into crass xenophobia. And they will prevail. Appeals to the better nature of TDs on the Government side, rational argument in the pages of the Irish Times or other tactics are almost certain to prove ineffective – although every avenue should be expored. There is far too much at stake.

In the end, however, this will be an Irish solution to an Irish problem.

Hopefully the Greens listened to KW when he made that presentation a while back. Hopefully they realise that, even if their party is politically finished, they can still do some good by the Irish people by collapsing this govt before Nama reaches second stage in the Dail.


Another great piece today.

On a slight different angle, I’d welcome views on Irish Nationwide’s effort to retire early a tranche of senior debt (2012) at 79c to the euro. EBS are doing something similar. Two things strike me about this development:

(1) It debunks the myth that senior bondholders are “sacred” and must be protected at all costs (I accept that this process is voluntary but Nationwide would not be doing this unless it wanted to send a signal to bondholders that they could be in trouble after the Guarantee expires).

(2) I understand that there is a mixed response to the offer. This has been ascribed, in part, to the confidence among senior bondholders that NAMA will bail them out, even in institutions that likely to be heavily insolvent. No doubt comments from Minister Lenihan and the Taoiseach have been very comforting to them.

Without wanting to get party political, it reinforces FG’s long-standing view that there are safe mechanisms to give all bond-holders, including senior debt, the right incentive to sell out at sharply discounted prices, thereby achieving a much fairer sharing of the losses and a route to recapitaisation that may not require nationalisation.

One of the key weaknesses of NAMA is that it is clearly not providing this incentive to a sufficient degree. While some sub-debt buybacks are occurring, they are still leaving far too much money on the table for bond-holders. The likely repayment of €4 billion to Anglo’s sub-debt holders (with a par value of €5 billion) is an absolute scandal in a what is likely to be a deeply insolvent bank.


In the light of the reported rustling in the Green undergrowth, just a brief follow-on…

Most people seem to miss the point that Green TDs will hang on to government come what may as they have a grand Green delusion to establish and they need a full term in government to secure its legislative underpinnings. Saving the planet is a much higher calling – and a far softer option – than securing Ireland’s future economic prosperity and social cohesion. Even if the grassroots were to revolt, one could see GP TDs resigning the whip and supporting NAMA as a trade-off in pursuit of this higher calling.

Even if GP TDs (or others on the Government side) were to lose their nerve and the Government were to fall on NAMA, it would be replaced by..most likely an FG/Lab combination. FG does not favour nationalisation and is proposing a structured bank resolution scheme that would separate the existing Irish banks into good and bad banks with a new National Recovery Bank to do what most people expect healthy retail banks to do. Labour wants to nationalise the lot, but thinks that the international bond markets (and Irish savers and funds) will lend without limit and at low cost to finance whatever they desire. It’s difficult to see what they might cobble together being distinctly superior to NAMA in terms of minimising the economic costs of adjustment.

Therefore the real choice is between NAMA and some cobbled together version that will remove the most egregious features of NAMA but will add others that may prove equally damaging.

The efficient, cost-minimising solution will not be on offer. Ergo, an Irish solution to an Irish problem which will drag the economy down for a generation.

Depressingly, I heard Michael Soden on Ivan Yate’s show this morning saying that the only place jobs are going to come from over the next three years is the construction sector.

Assumably he is tapped into the thinking behind the banks’ and the government’s current plans – NAMA being a thinly disguised way of getting the Carrolls of this world back employing on building sites thereby rescuing Ireland Inc.’s broken business model and avoiding total desimation of FF at the next election.

One can only hope the Greens have been drinking their milk and have enough calcium to grow a backbone between now and the passage of NAMA. Somehow I doubt it.

I have to agree that the government have clearly lost the intellectual argument over NAMA ……….. but will the opposition strike? I bet they don’t. Would you want to deliver the next budget in December? Not likely.

I am truly scared that ‘realpolitik’ will allow NAMA to go ahead by default. My guess is that our best bet is the Green Party pulling the plug/not supporting it and it was interesting to see this just come out on IT’s breaking news as I was typing that up! What do you think of the grassroots chances of getting such an internal debate before deciding whether to back NAMA or not?


An excellent summation of what NAMA is about – the socialisation of the gambling losses of banks (including their backers) and developers.

As you rightly say they fooled the government into providing “an almost-blanket guarantee on their debts from the Irish taxpayer” last September.

This article should be mandatory reading for all government TD’s and Senators as they prepare for the debates on the NAMA Bill. They may be given the benefit of the doubt when they were fooled last September into giving the banks a blanket guarantee on their debts. But not this time. They cannot plead ignorance of the issues or the pitfalls with NAMA thanks to your own efforts and others.

@Paul Hunt

“there is now a once-in-a-generation opportunity to transform politcial and economic structures ”

I wholeheartedly agree with that statement Paul but you go on later in your post to sound a bit defeatist and assume that it will never happen (that’s not a criticism – I appreciate you are just being practical).

When you talk about those who need to be appealed to, I presume you mean TD’s (who actually have a vote and a real say in whether this goes ahead or not) and not members of the public (believe me, most of the public are already anti-NAMA though possibly for some ‘wrong’ reasons but that’s by the by). I come back to the post I made earlier – the best avenue may be to focus on the support the government currently enjoys from the Greens as the lever to both change the NAMA proposals (for something better) and to bring and end to the current administration. I hasten to add I am not in any way involved with the Greens…. or any other party for that matter.

The Greens really need to focus on damage limitation and how they are going to recover before the next election anyway and maybe being seen as the ‘heroes that stopped NAMA and saved the Irish taxpayer’ is a powerful play for them? I’m sure people with better PR skills than I have could put the right spin on that one.

But coming back to the original point – the opportunity to transform political and economic structures – my guess is it can’t be done with most of the current incumbents (in all parties) who perhaps are in hock to too many others and have too much baggage (or simply aren’t equipped to do the job anyway). I also think we need to do it quickly, before the ‘forces aligned to achieve this outcome’ have a chance to regroup (a bit of a reversal of ‘shock therapy’) if NAMA (and maybe even Lisbon 2?) is lost.

I think that can only be achieved if an individual (well known) charismatic leader comes quickly to the fore as an alternative for the Irish electorate (to energise and capture the ‘popular’ vote i.e. a very clear majority) and provides people who have never considered politics before to stand in the next general election as part of a broader base party that actually isn’t run along party/whip lines – it would take too long to write this up in detail but I hope you get my drift. But obviously one that has a clear set of policies for change and has some high quality, openminded political and economic advisors – as opposed to soundbites and slogans along the lines of ‘We need change’ and ‘Yes we can’ but not being very specific about what it is (sorry for the dig Obama).

Where will we find Mr or Mrs Charismatic? I hesitate to say they may need to be currently popular too. What should the cornerstones of the political and economic change agenda be? What sort of society do we want?

I honestly wish I knew how to move this forward and make the kind of transformation you are suggesting.

can somebody help me? obviously i just don’t get it, but I always thought that market value and economic value were two different things?

”his Zoe group could only pay back about one-quarter of the money it owes to the Irish banks. Keep in mind that many analysts have predicted Nama will purchase loans for an average discount of one-quarter. If Nama were to purchase the Zoe loans for such a price, it would imply the Irish taxpayer paying three times the amount that they could currently be sold to anyone else for”

correct: if you had to sell everything today in a fire sale (market value) but if managed over time does it imply the same thing? (economic value).

Excellent article – I see it is getting a good response on the IT website.

I particularly agree with your point that Liam Carroll may be in much better shape than his fellow developers. Not only has he escheweed the usual helicopter, racehorse, mansion and trophy wife, his properties all have the merit of location, location, location. Yet he could only pay back 1/4 of his loans in the morning.

The ACC case exposed the likely true value of these properties.

Yet if NAMA goes ahead, as already pointed out here, not only do we get to pay the LTEV (with another 1 page analysis to suppport it), but Minister Lenihan will have the right to arbitrarily increase the amount paid – and every thing will be hidden under the cloak commercial confidentiality.

It is time to start offering up novenas that the Greens will baulk over NAMA. Quite apart from its lack of merit, this government has no mandate to create the largest property company in the world.

The formation of good banks, buying up performing loans, when exceptionally well secured, and above all, starting new business with what precious capital we have left id the way to go. With toxic investments disposed of at market prices, the economy will pick up again with a new level of competitiveness. The actual assets will then be used!!!! Otherwise they will not be used for a very long time.
Householders may be ina position to renegotiate new loans reducing their exposure and decreasing any negative equity.
But the old banks will all be gone. Good riddance.

@ Andrew

“The likely repayment of €4 billion to Anglo’s sub-debt holders (with a par value of €5 billion) is an absolute scandal in a what is likely to be a deeply insolvent bank.”

I’m sorry, but where are these figures coming from? As far as i can see, the only sub-debt buybacks announced by Anglo have seen €1.1bio nominal cash exchanged for €3.2bio in outstanding debt, ie a buyback at 34.5 cents?

Great article Karl

The point on valuation is the important one for me.

“Of course, it could be argued Carroll’s property empire might be in worse shape than those of other developers. It seems perfectly possible, however, the opposite is the case. His properties mainly consist of Dublin projects likely to get developed in years ahead. Consider, in contrast, the position of those developers who have pinned hopes on developing the proverbial field outside Mullingar.”

To my eyes, most of the loans under nama are going to be worth less than Carrolls and he recons he could only get about 25% of what he invested back.
And if the units are finished and released then it will cause further downward pressure.

Paul I have to disagree,
I know there will be a lot of pain but putting off this longer and longer is only making the problem worse.

I agree with Graham above. Karl obviously struck a chord with the Greens when he spoke to them, that no amount of counter weight from Alan Ahearn could remove from their minds.

4 of 5 required brances of the green party have already asked that this matter be brought to an emergancy conference according to morning Ireland.

BTW what is Dan Boyles opinion on Nama?
Well according to his twitter page (yep Dan has twitter) “NAMA draft legislation published today. I believe it’s the least worst of a number of bad options.”

As the leading economist in his Party this is worrying.

The govenment case for NAMA is being progressively lost (forensically dismantled once again by KW today) – Carroll combined with the re-awakened Greens heightens the probability of the NAMA proposal collapsing in ignominy in the Dail next month – time for thoughts to start turning to the implications of an October General Election?


Many thanks for your thoughful and insightful response. However, we need to avoid deviating too far from the original post in this thread. This, for me, is the culmination of concerted efforts by Karl Whelan, Brian Lucey and many others to disect this NAMA beast and, much more importantly, to outline an alternative, efficient, cost-minimising resolution of this banking crisis.

All I am highlighting (cf my second post) is that such an approach is not on offer – and, with the current or likely future composition of the Dail, is not going to be on offer. As an aside, I always find it interesting that the calibre and capabilities of public representatives only comes into focus when major economy changing decisions have to made. But this is for another day and another forum.

I think the focus now should be on ensuring that the alternative, efficient, cost minimising approach should be fleshed out and developed in the public and political domain.

This does not have to be party politcial. The Government, although it almost certain that it will not deviate from its current course, should be given an opportunity to consider a better alternative. On the opposition side, both FG and Labour will feel obliged to present themselves as being capable individually of forming an alternative government, but the reality is that neither has any realistic prospect on its own and the maximisation of the number of seats is the real proximate goal.

We have been graced on this thread by a post from FG’s chief policy adviser, Andrew McDowell, quite legitimately highlighting an advantageous feature of FG’s proposed approach.

This is all well and good, but what might be more useful would be serious negotiations between the finance spokespersons of FG and Labour supported by their advisory teams and accessing some of the intellectual resources posting on this site to develop a credible, alternative, efficient, cost-minimising approach.

Defeating NAMA and bringing down the Government may avoid a disaster, but it will not present a credible alternative to Irish voters. Politcially, NAMA is winning – and is likley to win – because the Government can credibly claim that there is no viable alternative on offer.

A credible, politically endorsed alternative is required.

@karl deeter: The long-term economic value might well be significantly lower than today’s “fire sale” value. Liam Carroll was not able to convince judges in the high court and supreme court otherwise despite having the best accountants and lawyers at his disposal. What makes you think that your assumption that today’s prices are “fire sale” prices is correct? Evidence please.

If NAMA was to collapse next month, i think it would be a complete disaster for Ireland. Not because i think NAMA is somehow the perfect answer to all our problems, but because if we decided to ditch this plan, at this stage, two years after the financial crisis started, it would send out a truely horrible message to the rest of the world (and the ECB and IMF) that we are a complete basket case of a country, a banana republic rather than simply a baNAMA one.

A NAMA collapse, and so the government goes with it. Elections possibly this side of Christmas. Would FG get a majority? Unlikely. So who governs with them, and how would such a coalition work? What happens to the budget for starters? What happens to the alternative to NAMA? What happens to the Irish bank guarantee which will now be sub 1yr in duration? What happens to proposed government capital injections into ILP, IRNW, EBS? What happens to the sale of Irish government bonds scheduled for the next few months?

I’m not saying we should be in any way happy about NAMA now being the ‘last, best hope’, or that there isn’t going to be a grizzly tab left for the taxpayer at the end of it all, but i really do shudder to think what’ll happen if it doesnt go through. Sometimes we have to accept the realities of the situation we are in. This applies to an awful lot of people on both sides of the aisle, and across every aspect of our economy, right now.

Eoin, knowledgeable people already know that Ireland is a basket case. Why are people so obsessed about what the rest of the world thinks of them? Isn’t doing what is right more important than making a good impression internationally? In my opinion it is symptomatic of deep insecurity and dare I say a residual colonial mindset.

My understanding of the difference between market value and economic value (I’ve yet to find the definition of economic value) is that market value will always be less. The reason why market value is less would be because market value also includes the risk that the economic value would not be realised.

Since there are few buyers at the current prices (which seems to be at the sellers estimations of economic value) I believe there are very few who believe their estimations of economic values will be realised.

I believe the Irish state will surely benefit of the ‘value in use’ of assets in Ireland no matter who owns them. The question is if the Irish state should subsidise banks, which would probably lead to subsidising large borrowers with cashflow problems & negative equity or allow the market to work. If the market would be allowed to work, then the maybe the assets would actually get some use instead of being idle.

If there ever were those (companies or individuals) who considered relocating to Ireland but decided against due to the high rents, this is the time to remove that obstacle. If there ever were those who considered expanding in Ireland but decided against due to the high rents, this is the time to remove that obstacle.

In my opinion, the shareholders of the banks took a gamble, they lost and now they want a do-over in the form of absolution from their losses through NAMA.


I am having problems deciding whether your post above is Political fatalism, distrust of the democratic process or a thinly disguised support for, and loyalty to, the existing administration.


As in a previously (and totally unrelated) case, it may be better to face the ‘appalling vista’ now than deny the reality for years to come? Maybe an Autumn ’09 Election will be be looked back upon as the cathartic moment when Ireland broke with a discredited past and began to chart a better future?

Enda Kenny as an Irish FDR?!

@ Garo

im ‘obsessed’ with what the ECB, EU, and IMF think, because we are currently accessing their direct help from some (ECB), may ultimately require additional assistance from others (EU), and it would do us no harm to have the seal of approval of others beyond that (IMF). On top of this, we’re going to require massive foreign capital to recapitalise the Irish banking sector and re-inflate the Irish economy as a whole, regardless of whether that comes via the general government debt, private equity infusions into the banking sector, or a grand scheme of any sort ala NAMA.

Doing whats ‘right’ is all well and good on paper, but unforunately real world practicalities eventually have to be addressed. Doing whats ‘right’ was what needed to be done 5 years ago, but doing what ‘works’ is whats required right now. I’ll see your allegations of deep insecurity & residual colonial mindset, and raise you national bankruptcy via a sudden stop of international capital inflows. I know which i’d prefer to be afflicted with.

Guys I’d go easy on Eoin. In my opinion, he is expressing valid concerns.

A NAMA collapse, followed by a government collapse, followed by elections and months of uncertainty would be a bad thing.

But let’s be clear. Being against NAMA as currently constructed is not the same thing as being in favour of that scenario. It is up to the government to put forward and pass a systematic and fair solution and it should not be beyond them to do so in the next month or so.

For instance, changing the legislation to be clear about paying realistically low prices and including Honohan’s two-part payment scheme would probably lead to most of the critics being far less unhappy (you’ll never win them all over.)

So, while valid concerns, I don’t think we should let NAMA-or-panic set the tone for the debate that we’re having about what is still, remember, a piece of draft legislation that has been circulated for discussion.

@ Vincent and John

I don’t care who is in power in Ireland, i really have no political axe to grind. I will say that i don’t see any of the alternative leaderships as being all that appealing though, but i suppose it’d be difficult to make the current situation any worse than it currently is! I’ve actually been reasonably impressed with the FG economics (note, not Enda) talking points, so i’d be more than willing to put them in the front line. However, I just think an election right now, at a crucial point when the rest of the world is actually starting to gets itself in order, would risk setting us back a year or more in terms of cleaning up the banks and the exchequer balance sheet.

As i said, NAMA appears to be the pony that we’ve hitched ourselves to, so trying to figure out how to make it work is the best solution in my mind, rather than trying to unhitch ourselves from it altogether and hoping that we can come up with Plan B before the whole economy goes belly up.


I see you are getting in the neck, but I think your post is motivated by the absence of a credible, efficient, cost-minimising, politcially endorsed – and, crucially, politcially implementable, alternative that I am proposing. This is vitally necessary, obviously, in the interests of Irish citizens and residents, but ensuring it is credible in the eyes of international institutions and markets does not imply a feeling of insecurity or a need to tug the forelock; it is simply behaving as a responsible citizen in the international community. And, given the scale of the economic problems, we need external support much more than they need us.

Okay accepting we need Nama as the least worst solution part of the outcome should surely be that the same Muppets who got us into this mess are not the ones to run the new “clean” system.

That includes the banks, the regulators, developers, government, IAIM et al. So far we’ve seen a few executive and non executive board directors fall on their swords but otherwise as far as I can see everybody else is as is while the replacements come from the same stable. Even the new government appointed non execs sound very like the old ones (all a bit Animal Farm) Listening to the radio none of the Muppets seem to think they might have been culpable including our current and former Taoisigh – it was the international credit crunch. If that’s the case nothing will change except the taxpayer is a few million euro lighter and Nama mark II will be somewhere down the road.

@Eoin & KArl

The title of Karls article in the Times contains the term “unholy pact between bankers and developers”. The reality of the financial crisis and the weakness of NAMA as a response is the unholy alliance of politics, developers and bankers. Perhaps it is time for that political culture and bond to be broken. The financial crisis is symptomatic of a deeply flawed political culture.

I welcome the debate that has been commenced by economists on this site and others and also welcome the heightened role of economic thinking in the public policy discourse. The long term solution, however, lies I believe, with political science.

It will perhaps take a poltical earthquake of sorts to bring about the change required in political culture. That may necessitate some of the negatives that Eoin has outlined above.

I disagree that elections would necessarily be a terrible thing for the country. Have a little faith in democracy, lads. For one thing, it will force parties and – dare I say – even individual TDs – to think about the issues outside of the rigid framework of the current Dail arithmetic.

As for the delay in enacting Nama, Nama a la Honohan or something completely different, I think both the markets and world opinion are mature enough to realise this is worth getting right the first time.

Let’s not forget too that the crisis requires more than just good financial sector reform, it also requires tough budgetary decisions. The current crowd were elected on the false promise of eternal economic hypergrowth. They have, quite simply, lost their mandate to govern and thereby credibly push through tough reforms.

@ Stuart

i wholeheartedly agree, and would be very willing to see a general election in May next year, when we have NAMA, another budget, Lisbon, and another round of Irish govt debt offerings out of the way. At that point, i’d probably be hoping for a large FG victory, a new regulatory set up for the banking system, and a whole new set of management at the now-majority-owned banks, preferably with a strong emphasis on foreign experience or origination.

However i think society as a whole (or at least a large section therein) needs to accept its role in the crisis. We consistently voted for low tax, low regulation governments, and we consistently accepted a highly leveraged, lowly regulated financial/banking system that supplied us with cheap and easy credit. While some of the trade unions occasionally suggested that house prices were too high for low earners to afford, their solution was typically a tax cut and wage hike.

We can’t scrub the banking and political system clean unless we face up to the fact that we allowed them to come into being in the first place. We need to decide what we actually want from our society, and how this should therefore reflect on the make up of the tax system, the public service, and the cost, access and allocation of credit into our economy.

@Karl W,

I agree that we should not be discussing “NAMA or bust” – and that’s why I’m advocating the development of a credible, politically-implementable alternative. I also agree that this is just draft legislation for public consultation, but, given the huge amount of time, effort and professional resources that have been expended, the ducks that have been gotten in line in the banking and developer community (shame about the courts) – and among international institutions and markets – and the political capital that is being invested, on what are you basing your hope that the Government will be persuaded to deviate from its chosen course? And I won’t even mention the Government’s penchant for whipping or guillotining controversial legislation through the Dail unamended.

Paul. I’m afraid I don’t possess a crystal ball. I have no idea whether the government can be pursuaded to change a single line of the legislation. They have released the legislation for the public to comment and I’m commenting. Hope doesn’t even come in to it.

Would it be better if people like me just decided it wasn’t worth the hassle commenting?

BTW, here’s a quote from Simon Johnson (former head of IMF) in a recent article on the TARP and regulatory capture in the US, which another poster linked to in a previous post:

“If you hid the name of the country [USA] and just showed them the numbers, there is no doubt what old IMF hands would say: nationalize troubled banks and break them up as necessary.”

@ Paul

i agree. If someone could spell out to me the entire process of NAMA collapsing, FF collapsing, elections being announced, policies being announced, elections taking place, coalition negotiations taking place, government being formed, the first piece of legislation being announced, the first piece of legislation being voted on and enacted, how this would affect the next budget, how this would affect the likely operations of the NTMA and the cost of Irish debt, how this would affect the exchequer balance, what the alternative to NAMA would be, what would it cost, how would it work, when this would be in effect, when we could expect the banks to be recapitalised and relending, effect of nationalisation etc etc etc, and show that its better than a workable-but-probably-expensive NAMA, including the accompanying risks, than i’ll get behind it. At this moment in time, i see no alternative being offered even remotely close to this, and fear for what would happen in the 3 months that span NAMA collapsing and FG/Labour putting in their first vote.


I think you already know my response to your rhetorical question, but, given the tribal nature of Irish politics, I think that, when you advised Sindo readers “It’s time to let your local representatives of the Soldiers of Destiny, An Comhaontas Glas and their remaining independent supporters know what you think of this plan.”, you may have crossed a line between disinterested and informed comment and observation and political advocacy.

I suspect that, however unjustifiably, your subsequent comments are being, and will be, discounted by Government (and other) advocates of NAMA as it is currently proposed.

Why not exploit the freedom of being across this line?

Why is everyone so afraid of a general election?

To me, this is just another of the usual FF lines that people Just accept without thinking. A bit like saying, sure they are all the same.

A GE campaign takes 4 weeks + 2 weeks to form a government.
We could have called one after the Local and European Elections, voted in early July and have had a new government in place a month ago.

We tolerate the government sitting on the An Bord Snip report until December at a time when we are borrowing 400 million a week.

NAMA was announced in April, yet the earliest date for passing the Dail is now sometime in October, 6 months later. It is not emergency legislation even if a resolution to this problem is required urgently. The guarantee is in place until at least September 2011 – not sure if it was recently extended.

NAMA is the biggest decision we will ever make.
This government has no mandate to force NAMA through the Dail.
I think we can afford 6 weeks to let the people decide who they trust to make the decision.

@karl w: granted, you can make any assumption in ‘economic modelling’ in fact, Shane Whelan gave a fascinating talk to the CFA in Feb. in which he said that ALL forecasting is basically unreliable, but substituting market values for modelled ones and not stating the difference is wrong.

do you feel that most of the people who read an article where drawing the distinction between market value (at what will be fire sale prices) versus an economic value (with whatever assumptions you want put in – y’know you could equally give your own) is specifically avoided is fair to balanced opinion? I don’t.

the evidence shows that countries that addressed the situation rapidly had the best chances and that is why I fear the stasis we are currently in, i don’t think taxpayers will get a great deal irrespective of how it works out, even if we didn’t have a banking crisis tax payers are not getting a great deal because we have a national and structural deficit to deal with as well.

In any case, decreased cost might be equally eroded by decreased output if banks continue to retrench so something must be done and done soon.

it is also unfair to think that one liquidation (albeit a big one) spells disaster for the whole future of the nation, if that is actually the case then we are worse off than any of us thought.

the ‘nationalisation as part of the cure’ line needs to end, there is no historic precedent, and with so much short term debt to roll over you can’t start wiping bond-holders/shareholders/sub-debt etc. at will. in fact, the only reason it was done with Anglo was due to EU guidelines! if we are to convince investors to ride it out with Ireland then you can’t slap them with one hand and offer friendship with the other, moral justice is one thing- as a tax payer i don’t relish the idea of paying more for shoddy assets – but doing so at the expense of the wider economy is another

@ Maurice

though it can be extended at the MoF’s undertaking, as things stand right now the government guarantee lapses in September 2010, so only 13 months from now, or 10 months from the earliest formation of any government formed in the wake of a collapse of NAMA in ealry october. As such, we need some idea of how things are going to work beyond that date, whether it involves a guarantee, NAMA, both, or neither. Having an election will muddy that picture significantly. Thats not to forget Lisbon, the budget and the likely continued recapitalisation needs of the banking sector. It’s a busy autumn session for the political sector of our economy.

I’m not at all trying to scaremonger away debate over having an election, simply noting the many serious risks that will come with such a decision.


With regard to Ireland’s reputation and attraction for the debt markets, I suspect the links between future perceived credit worthiness and previous credit history is worth exploring, whether for individual private banks or for countries as a whole. I suspect it’s not as straight forward as you suggest. Certainly, no bond investor ever invites losses, and will issue every threat possible to insecure politicians to avoid them.

But I suspect that as long as an individual institutions, and their political masters, play by the “rules of the game” i.e. never default except in rare and exceptional national or company-insolvency circumstances, then it is not obvious that “debt cleansing” will close off future funding from a country or its financial system. After all, it is a generally accepted element of capitalism that when companies go bust, their nvestors and unsecured creditors can lose money.

Indeed, it was the scale of the contingent liabilities to future bank losses that made Irish sovereign debt so unattractive in the markets earlier this year.


I wish the NAMA articles in the national press carried the following charts, after all a picture speaks a thousand words. They highlight the Japanese property bubble, arguably the most similar to our own. Two years into a crash it shows that “long term economic value” is a complete joke and “current market value” not exactly comforting either. Common sense says you bid down for distressed assets not current market prices and certainly not above them. There is no common sense in the current NAMA proposals.

@karldeeter: Again with the “fire sale” prices! You are implying that Karl W. is assuming whatever prices he wants – utterly ignoring fundamental economic theory on Net Present Value – but you do not supply any evidence that current prices will be fire sale prices. You talked about Sweden’s securum recently. But did you look at the the fundamentals of the Swedish economy and land prices and compare them with Ireland now? Did they have such high multiples of median house price to median wage? Were they staring at double digit drops in GDP and massive deflation? The last two are game changers and a “fire sale” price today will look like a great price for a seller in two years time. You can count on it and I’ll see you back on this board in two years time.


The risks are insignificant compared to leaving the solution to the people who led us into this catastrophe.

The biggest decision in our lifetime – you want to hold on to Nurse Cowen’s hand for fear of something worse.

This is the same attitude as led Breakfast Roll Man and his neighbour Wooden Decking Man to vote for the FF party in 2007 to keep the party going. It might have been understandable then, but have we learnt nothing in the last two years about FF’s inability to manage our economy and its finances.

Why would you want to entrust our future to these people?

@Eoin: I just want to clarify that the “obsession” I talked about was not directed at you personally but at a segment of Irish population which talks like that. I have lived in four countries and only one other was as concerned about what others think. And you guessed it, it was an ex-colony.

As regards the substance of your post, I think Karl W. and others have already said that it is not an either/or situation.

by the by, just out from NCB…

“When recent Irish data is combined with better than expected data from the US and the Euro area it causes us to upgrade our annual 2009 and 2010 forecasts to -7.6% (previously -8.1%) and -2.0% respectively (previously -3.1%)…While we are upgrading our GDP figures we do not see the trajectory of the recovery being any different than previously – the bottom in the economy will be formed in H12010, with sustainable growth not expected until H2 2010….”


Granted there a full plate of economic nibbles on the govt table, but Maurice is right. A €70 bn decision can surely wait to hear the voice of the Irish people.

In all likilihood, the things you mentioned will be more (not less) doable once the political air has been cleared by an honest, post-Tiger, all-gloves-off, general election.


Just a request – in future articles of this nature for public consumption, could you wind forward into the future and go post-NAMA and ‘what-if’ a little bit i.e. spell out the potential consequences over a period of, say, the next 10 years if it is implemented. Maybe showing a realistic best (there is no upside on this bet) and worst (nightmare scenario) outcomes in some kind of chronological order. I presume you could weave interesting nuggets in there like how banks might be able to dilute the taxpayers’ shareholding after money from the public purse had been used to recapitalise them, what if they didn’t increase their lending to business, shed a load of jobs after getting what they wanted out of government, developers being on the output side of NAMA and getting back their assets for next to nothing, the IMF stepping in, etc.

The government have no scruples about scaring the whatsit out of the public to get their way so I don’t see why you can’t too.

It’s just a thought – you’re more than welcome to ignore it but I think a lot of lay people are starting to notice your articles as the debate gets closer and enactment looms. Certainly, judging by the comments being posted against your article, people are really interested in finding out more/both sides of the case. Most of the people I speak to, your average guy, only seem to be aware that if it goes wrong it ‘might cost us millions’ but have no real concept of what the real downside might be if it did get set up on the proposed basis. I hate to say this but I think you need to ‘spell it out’.

I’m suggesting a realistic best case v nightmare scenario so that you don’t get accused of imbalance but I guess you could provide even more balance with a ‘and this is what really needs to be implemented’.

Your fan mail will probably go into overload!

The biggest decision in our lifetime – you want to hold on to Nurse Cowen’s hand for fear of something worse.

@ Maurice O’ leary
“This is the same attitude as led Breakfast Roll Man and his neighbour Wooden Decking Man to vote for the FF party in 2007 to keep the party going. It might have been understandable then, but have we learnt nothing in the last two years about FF’s inability to manage our economy and its finances.

Why would you want to entrust our future to these people?”

This is absolutely true. The political culture that led to this situation and is written all over NAMA needs to change if public policy making is to reflect the type of economic analysis inherent in the discourse on this site.

@Karl D.

You seem to be arguing that I’m misleading people. However, the passage you’re referring to is the following:

“Carroll’s accountants have admitted that, as of today, his Zoe group could only pay back about one-quarter of the money it owes to the Irish banks. Keep in mind that many analysts have predicted Nama will purchase loans for an average discount of one-quarter. If Nama were to purchase the Zoe loans for such a price, it would imply the Irish taxpayer paying three times the amount that they could currently be sold to anyone else for.”

This passage is factually correct as far as I can see (I wouldn’t have written it if I thought it was wrong — trust me, you don’t come on here and knowingly write stuff that’s wrong because you’ll be called out for it straight away.). The bit about the statement from Carroll’s accountants is correct. The accountant’s figures fairly reflect what someone today (apart from Nama) would buy these loans for. And people (e.g. Davys) are expecting a haircut of 25%. So what exactly is misleading here?

As for this whole thing about not putting forward a “balanced” opinion, I guess I don’t get it. I don’t pretend to do anything other than give my personal opinion. I clearly take a particular angle on this topic. If you don’t agree, you’re free to say so, and we’re glad that you do because otherwise we wouldn’t be having as good a debate.

But to criticise me because I don’t spend a lot of time putting your opinions forward is silly, particularly when you’re not shy at articulating them youself. It’s all the more unfortunate when it gets couched in language inclined to suggest to people that somehow I’m a Bad Guy because I put my opinion forward.

“it is also unfair to think that one liquidation (albeit a big one) spells disaster for the whole future of the nation, if that is actually the case then we are worse off than any of us thought”

But as Karl Whelan Pointed out,
Liam Carroll is more likely to be one of the better capitalised developers.
If his prospects of survival are ‘bordering if not tresspassing on the fanciful’ ( you got to love the way the judiciary uses the english language) then how would you discribe the prospects of the rest of them?

So if you dont think it is worse than this, if you think it is just one liquidation, you are behind the curve on how many are thinking and you are underestimating how bad some people feel it is.

One thing I don’t get – and it seems to be running through a number of posts on this thread – is the idea that bond investors and equity investors form some sort of homogenous entities. In simple terms the idea seems to be that, if one group of bond or equity investors suffers losses – or are even wiped out in the case of equity investors, all the others will feel the pain and run away. Yet we talk about international bond and capital markets. Have we, as economists, lost a basic grasp of what a market means?

Surely it means “competition” and rivalry to secure the highest (one hopes, risk-related) returns. When one player stumbles or gets knocked out it will create opportunities for other players.

This is the world we are playing in. If some bank shareholders and bond holders take a serious hit (or even get wiped out) and the property market (and the developers) get a thorough shaking out, we can’t say we believe in the effectiveness of markets and simultaneously say that all bond, equity and property investors will avoid Ireland like the plague. In fact even the tiniest amount of reflection will reveal that, with such a shaking out, opportunities for profitable investment will abound.

If sentiment, nationality, tribal association or some other criterion or association is being used to guide policy decisions it should be made explicit and the cost burden it creates will be priced in the market.

You need to remember that the banks lent to a business which has an asset but also has day to day running expenses. So let’s say developer A buys a piece of land for 100m and never develops it but goes through the process of getting planning, looking for investors/lessees and so on. They have a head office to fund, staff, company cars/helicopters, advisors, legal fees, marketing, travel, political contributions etc. The business will be losing money which needs to be funded.

They will therefore have borrowed in excess of the price of the land to fund the company operations. No idea how much that would be but in a liquidation it is money down the drain and becomes part of the haircut.

@Stuart Blythman

You seem to forget that even at the peak no bank (I hope) lent 100% on development land. So the developer had some equity in the deal.

He may also have been able to fund the early stages from equity.

Great article Karl keep up the good work. This is one of the few places where there’s any intelligent debate about NAMA and other options.

Also well said @maurice. I’m fed up of listening to my friends say “ah sure what can you do, they’re all the same, do you think Inda would do any better”. FF definitely rely on this kind of hopeless intertia to keep them in power. From a political point of view, I think FG & Lab (as the most likely competition) should put forward a clear, coherent alternative to the current NAMA proposal. For me at least, it could be a synthesis of the all of the debates on this forum including some of Karl’s suggestions and Honohan’s NAMA II. Then we’d at least have a clear choice on the table for voters.

@John – “Then we’d at least have a clear choice on the table for voters.”.

I think that one sentence clearly hits the nail on the head. By the time the opposition stand up in that debate in September, they need a clearly laid out, socialised and credible alternative that even FF would have to defer to because it’s a no-brainer. If all the opposition end up doing is picking holes in the draft legislation and generally whining then we are going to get stuck with it as it is. They don’t have much time to get their act together. A month.

As an aside, I was doing some research on the web this afternoon and came across a sushi bar called Nama! So that’s what that fishy smell is!

Suppose NAMA happens. The toxic debt is transferred and the banks are solvent again with loads of near cash assets. What will a responsible banker do? One possible scenario:

The market risk in Ireland is completely dependent on what NAMA does so any investment in property will still have the same uncertainty and risk. So, since the bank manager is paid to make investment where the risk/reward ratio is favorable the investments are unlikely to involve much property in Ireland.

The uncertainty (risk) in the Irish propertysector will still be around even if the owner of the toxic debt is NAMA instead of the banks.

It is anyones guess where the liquidity will go, but with the free movement of capital within EU the only certain thing is that it will be where it is best for the bank.

My guess is that the liquidity (the debt raised by the Irish state) will flow out from Ireland as quickly as it came in. The assets will still be in Ireland but will they be priced as now, which in my opinion is, too high and out of market? I can’t see the upside for the Irish state, I do see a big upside for the shareholders in the banks.

Nationalise the banks and offer the toxic loans as payment to the unsecured/unguaranteed bondholders with the pricing of the toxic loans as per the ‘long term economic value’ formula.

“4 weeks to election, 2 weeks to form a government.”

Uh-huh. And how long until the FG/Lab front bench, not overstocked with ministerial experience, gets to grips with how the levers of power work?

Brian Cowen should withdraw the NAMA bill and instead declare that a Financial System Recovery Bill will be drafted and introduced via a collaboration of the main parties and will not be passed without assent from all parties. There should be extensive hearings on the bill with some of the folks here as star witnesses. The Bill should ensure that (among other things):

1. Any failed bank can be kept in suspension so that the books and loan files are examined for fraud on the part of the borrower or breaches of regulatory law.
2. The depositor guarantee is put on a foundation similar to the US FDIC, with similar intervention powers.
3. The banks participate in an asset management scheme on a shared risk-shared reward basis, not this fictitious levy which will only ever be implemented by way of hitting the customer with more stamp duty and credit card levy type taxes. Essentially the bank would receive market value in bonds, with profit-sharing for realisations above market.
4. The credit unions would be allowed to take equal participation as the banks in any asset management, and would be subject to the deposit protection agency’s mandate.

A report on the Indo website today states-
Ireland’s banks are in a “vegetative state,” surviving on European Central Bank (ECB) “life support,” according to analysts at RBC Capital in London.
“In light of the recent business franchise impairment, likely atrophy going forward and deposit outflows, we question the going-concern endurance of the banks,” the analysts said.
“The ECB appears to be acting as the lender of last resort for the Irish banks as their funding models have collapsed.”

In the light of this dire pronouncement it is imperative that Recapitalisation of our main banks is effected without delay. We simply cannot wait months for NAMA (in any form) to be implemented. We could use the cash that Dr. Somers has wisely hoarded to implement a proper restructuring of the main Banks and let a properly devised NAMA creature follow.
No other country has waited months to restructure systematically important financial institutions i.e. Bank of America, Citi, HBOS, RBS etc.

BoI has come out with a statement that they are well capitalised. But, as Karl pointed out today in his article in the IT, the bank supported business plan of the Zoe group was found to be “fanciful” and “lacking in reality” by our highest courts.


Would it possible for one of the named contributors to kick off a thread outlining possible alternatives to NAMA that might be acceptable to both FG and Labour (insofar as we are aware of their current alternatives to NAMA)? Quite a bit earlier in this lengthy thread I argued for a credible politically-implementable alternative and it seems a number of posters are of a similar mind. We can’t do their work for them, but it would open up the debate and might encourage them to move beyond entrenched positions in the public interest.

@ Mark

100% agree on the need for cross party agreement on whatever measures get enacted on both the banks as well as the public service. I think it would have made this whole process quicker, more innovative, and less party political in nature on all sides.

Whatever happens or is decided, there will be some risks to be taken, and some unpleasent choices that need to be made. At least if we took them as a nation there’d be less chance of people trying to stick to the sidelines so they could say “i told u so” at some stage down the line.

I’m surprised that no one in FF saw the merits of a “government of national unity” as a way out of this whole sorry mess, or someone in FG didn’t see it as a way of inching themselves into power bit by bit or showing their competence at the highest level. Unfortunately i think our political class are still somewhat power hungry and don’t like to share.

@Karl W: i guess its the subtlety with which you put market values into an economic value context:

“If Nama were to purchase the Zoe loans for such a price, it would imply the Irish taxpayer paying three times the amount that they could currently be sold to anyone else for.”

the ‘anybody else’ implies a market value here and now, not a ‘bad bank economic value’, and on those grounds you are essentially taking a price today and implying that it is the best we can expect in the NAMA time-frame which clearly isn’t ‘today’ –it’s a medium to long term solution.

NAMA premise wasn’t to buy at today’s distressed prices, and yet that’s the pricing which is being put forward as what NAMA will overpay on (which should correctly be economic price) thus ensuring it looks like an even bigger rip-off than it has to be!

@Mark Dowling

The performance of this government shows that experience does not necessarily transfer into speedy action, not to mention competence.

In any event, Enda Kenny, Richard Bruton, Eamon Gilmore and Joan Burton have all been in government before.

You seem to want a national government solution to the NAMA problem.
But that brings enormous political problems.
Brian Cowen is a my way and no other way person.
Equally why should the opposition provide political cover to a government with no credibility – responsibility without power.
Why should FG risk being sucked into a de-facto FF-LP coalition and being over-ruled by them at every turn?
Why should the people accept a stitch-up job from the major parties without an election for the biggest decision of our lives.

So lets hope that the GP decides to let the people decide who is trustworthy to sort out the problem.

@Garo: yep, you’ll see me in two years time and the prices likely won’t be any good, that is because a ‘bad bank’ or NAMA style co. doesn’t work within a two year time frame, they are medium to long term solutions.

my assumption -and i think karl w. will agree – isn’t based on ‘whatever value’ it is based on todays market value, that is clearly stated in the article, you can’t use a PMC/NAMA type vehicle and crystallise all of the loss instantly or it defeats the purpose, instead banks will just keep the assets on their balance sheets and you create a zombie.

the swedish fundamentals were (like most of the nordic crises) centralised around the liberalization of the credit markets with a huge increase in bank lending, these were followed by large fluctuations in macroeconomic variables and ultimately banking collapse. Sweden had the added issues (that ireland doesn’t) of interest and currency problems in 1992, in any case norwegian and swedish banks were profitable again by 93/94′

Finland did face a serious collapse, in fact, i prefer ours now to theirs then, in any case, much of the economic shocks were unconnected to the banking crisis (such as collapse of the USSR affecting finland as they were a large trading partner) and we don’t have that, so I would wager we’ll be just fine eventually.

you ask me: “Did they have such high multiples of median house price to median wage?” – i assume that you ask that question already having the answer, as you clearly have some research on multiples in ireland today v.s. swedish multiples and land values in the late 80’s/early 90’s upon which to form your opinion, i haven’t read any research comparing the two, i would ask that you post it, I’d love to read it.

“If Nama were to purchase the Zoe loans for such a price, it would imply the Irish taxpayer paying three times the amount that they could currently be sold to anyone else for.”

seems like a reasonable paragraph to me….

“NAMA premise wasn’t to buy at today’s distressed prices”

I take issue with your word distressed….

Horse traders are currently experiencing distressed prices but not quite as bad as cattle traders a good few years ago…. where you had to lock the trailer AFTER you took the cattle out… to stop people just dumping calves on you…. Thats distress!

Were far from at distressed prices… though there is genuine distress out there, for those who bought stuff at mania prices…

@Paul Hunt
Good idea- we don’t have time to waste. A credible alternative (in every sense) could be formulated.

Excellent article Karl.
I am pleasantly surprised to see that the courts are not corrupted. There is still hope for the country.


I agree with your sentiments even though I do not think NAMA is the ideal solution. I have a preference for a New Good Bank. But we are where we are now and a U turn by the Government will really destroy what is left of a fragile economy. The latest figures from AIB to the 30th June illustrate how bad things are. They have shareholders funds of €11.1 Billion and a Core Tier 1 ratio of 8.5%. So discount their NAMA loans by what some people here want of say 75% and they are grossly insolvent. Refinance or Nationalise them after this discount and who pays NOW – us the Taxpayers. In my view if we had gone for a well capitalised New Bank nine months ago here the economy and business could at least go forward and have sources of credit and the existing Irish Banks would have to deal with their problem loans as best they could but not at the taxpayers expense.

Is it fair to compare the value of assets to be sold in a fire sale, to that of assets being sold by an agency, in an incremental fashion over several years?

I don’t think it is.


No one wants the 1500 unsold houses in Longford.
They don’t want them now.
They wont want them in five years time.
They may never be wanted.
They will be worth less (maybe even worthless) in 5 years time.

@ Maurice

its an absolutely fair point about that type of Celtic Tiger, eh, investment. That’s the sort of stuff that may ultimately never come even remotely close to being at its ‘peak’ valuation.

However, its also an unfair comparison in the context of something like Zoe, as the vast majority of their assets could actually be descirbed as core Dublin residential and commercial development. As such, there’s an awful lot more ‘distress and illiquidity’ factored into the values being put on them right now.


I suppose the point is why should the taxpayer take the risk when there is still equity in the banks? Why not give existing shareholders a stake in NAMA and give the state ownership of the new banks?


I don’t disagree there, I would certainly be on the side on Honohan, on that one. In fact, I think issuing shares in NAMA would be a quick way of raising cash for the exchequer, so long as controlling interest is maintained.

@Eoin and Daithi

I am not an estate agent but I suspect that there is also incredible over supply in Dublin.

I regularly travel to Toronto.
I have been struck for years by the relatively few tower cranes visible on the skyline in Toronto compared to the forests of cranes visible in Dublin for the last few years.

While I don’t expect a continuous population decline for over a hundred years such as we experienced after the famine, no one should under-estimate the devastation this catastrophe is causing to real people. The demographics of the next few years are likely to show as profound a decrease in population as the increase which we “enjoyed” over the last ten years.

I doubt very much if that is the type of demographics Minister Lenihan had in mind when setting the valuation method for his beloved NAMA. But populations can be like markets in small open economies and our population bubble may well burst just as spectacularly as our bubble economy.

So even Zoe’s well located assets may not be in much demand for a long time.

@Karl Deeter

“the ‘anybody else’ implies a market value here and now, not a ‘bad bank economic value’, and on those grounds you are essentially taking a price today and implying that it is the best we can expect in the NAMA time-frame which clearly isn’t ‘today’ –it’s a medium to long term solution.

NAMA premise wasn’t to buy at today’s distressed prices, and yet that’s the pricing which is being put forward as what NAMA will overpay on (which should correctly be economic price) thus ensuring it looks like an even bigger rip-off than it has to be!”

I’m trying to make sense of what you’re saying.

I think this is what it means.

NAMA is going to pay more for some fields (and unfinished shopping centres and blocks of flats) than they’re worth. However, we’re going to pretend that that overpayment is not really an overpayment, so we’ll call it something different: a “medium to long term solution.” And once we’ve decided on a “medium to long term solution” price, we can work out how much to overpay on top of that.

So there will be two layers of overpayment, but we’re going to pretend — using a “NAMA premise” — that the first layer is something completely different. Then citizens won’t notice how much is being nicked from them.


@Karl D – Y should LTEV necessarily be expected to exceed current mark to market prices, as a poster said it earlier and astutely above? Prices today may be the best ever achieved for those proverbial fields in Longford and other God foresaken places outside (and inside) the pale. The lack of trasparency is a huge problem with NAMA. Whatever about the virtues of stable continued government (ie. better to pass NAMA and not collapse the govt), there is no virtue in the “muppets”, as a poster referred to them, who got us into this continuing to run the show that outweighs such possible virtues in maintaining stability. If Caesers wife had to be above suspicion back in the day (inter cert latin), those who run NAMA must be too. The spoiled princes and princesses whose parents bankrupted the country a generation ago are beyond non-suspicion now. Let’s hope the Greens discharge their duty and collapse this shower, wipeout bond and quity holders in the banks and reopen the banks as V2.0’s with clean balance sheets the next day.

“You can crunch the numbers any way you like but Nama works out as the most preferable solution. We have already briefed our members on the issue and I am confident their views can be accommodated,” John Gormley told Stephen Collins.

Mayor of Kilkenny Malcolm Noonan said he appreciated it was a serious issue but added: “I am happy to allow the parliamentary leadership to move ahead with this.”

Picture Gormley today if he hadn’t entered the Faustian bargain with FF, fulminating on every media outlet on how the economy was being sold down the river.

Today, as a minister, he would not likely agree to a detailed forensic interview to probe the issue, despite the gravity of the issue.

An unnamed spokesperson would answer most media queries.

Politicians in power call the shots as they have always done and the media continue to act as supplicants.

This man fatuously set out to save the planet and ended on Planet Bertie. On the small speck of the real planet where he can make a difference, he cannot even argue his position.

The leak to the Irish Times on the possible interest of a Canadain bank in a stake in AIB, post the transfer of the property loans to NAMA, appears to be a response to the arguments aired here.

Why would the leaker tip-off a journalist with half a story i.e. without naming the claimed suitor?

It suggests the intent of the leak is strategic and likely comes from an official source.

It does though show that if the aim is to keep the major banks in Irish hands there is no guarantee of this and in fact it is more likely that future investors will be from overseas and either way there may be no major Irish owned bank in 5-10 years. A definite downside of all this mess as Irish banking will be at the whim of the Dutch or Spanish or Canadians or whoever.

@ Stuart

wasnt this exactly what Michael Soden predicted a few years ago when suggesting the AIB/BoI merger? If i remember correctly he was given a very fair hearing from trade unions, staff and politicians alike…

I think we’re loosing sight of the fact that NAMA will happen & the only thing in our control is to influence the correct price is paid for the “assets”. What is clear is that some development land prices are down to about 10% of their peak prices. Properties with rent rolls are not down by as much, some development would have future viability, but more has negative value. The word ‘average’ needs to be banned. The only concern the banks have is that a forced sale of some of Carroll’s ‘assets’ will reveal the true nature of the collapse in prices, but even in today’s paper receivership sales of properties are being advertised, so it needn’t just be Carroll sales that will determine the comparable evidence for valuers.

@Michael: ah, but, the Canadian interest plays both ways, in that it shows that if we pay the right price for these junky assets, and in consequence nationalise, we will be able to sell the banks on (which is what those in favour of nationalisation had always argued should eventually happen).

True but the process of keeping the Greens, FF and the developers in the same tent, could be spun on the “bird in the hand” argument: lower short-term State commitment etc.

The optics would be particularly important to Gormley and Ryan.

@ Kevin @ Michael,

Kevin makes an extremely important point I haven’t heard expressed elsewhere—the events we’re discussing {Nama, Nationalise, Sell off} will probably all happen in some shape or form.

If you care about taxpayer’s welfare, then what matters from the ‘taxpayer’ point of view is the sequence and timing of those events–if you nationalise before ‘nama’-ing, then shareholders of the banks lose out, and if you ‘Nama’ before nationalising, then taxpayers stand to lose out. It’s clear from the ‘Canadian interest’ story being slung about (and AIB’s share price jumping by15% as I write these words) that the markets expect the sequence to play out in favour of the shareholders rather than the taxpayer.

@brian j goggin you have taken the most extreme example and painted it as the norm! unfinished fields will be part of NAMA but not the ONLY thing going in. Securum in Sweden shows that their 15yr window wasn’t required, it only needed just over 4yrs, they turned a small profit, problem solved.

to suggest that the ‘taxpayer gets good value’ is a ruse, and frankly i have issues with anybody touting that line because it deflects from the wider issue of what revenue raising is about, and it isn’t, and never was, about ‘value’. What value will we be getting from our national deficit? What value does a taxpayer like me get from a government borrowing 400m a week? What value is there for the taxpayer when there is a structural deficit ensuring i pay more taxes for less services? ‘tax payer value’ is a joke, if that was ever on the cards we would have kept our surpluses to engage some countercyclical policies, but we didn’t and it only proves that the national agenda has never been ‘value’, if it isn’t then why start now?

@stephen douglas if you choose to believe that the world is falling down and will never recover it is up to you, personally i believe the natural condition of a market society is expansion, when it happens too fast in one asset class and versus the fundamentals of that asset you get a bubble, and that is what we have seen. it doesn’t mean housing is no longer required and that infrastructure has no future value. despite the dot-com bust i still send emails (and post on blogs!), and despite a property bust the property market will continue and -eventually- return to some type of normality, its just not easy to see that in the here and now but it will happen.

NaMa is to redress a much larger toxic loan problem in a much smaller country than Sweden. It will take far longer and hang over the matket to a far greater extent than in Sweden. We are glsd to be jostages to ECB money policy and interest rates will rise a couple of per cent in the next few years as a result of measures to moderate the recession. Or else we face a depression and a deflation trap. This will not help NaMa.
It is designed from the outset to be opaque and we will never know why sites are sold nor otyhers were not sold. To reach a comparable value as the current book value will require banks to lend slmost as freely as they have done in the recent past. Does anyone see this happening? In the face of a possibly declining population, as the rest of Europe recovers faster?

What of that international pariah, Argentina, (pause to spit!). They went so far as to take on international loans as sovereign debt and then say can’t pay, won’t pay! Everyone despises them …. but they did it. And nothing happened except they will have escaped much of the bubble that occurred elsewhere. All we are saying is that the government has not demonstrated the need for the risk to our precious capital. Their continued refusal damns the proposal.
We need that capital to make use of those assets tied up by bankrupt developers. We hav e laws that sufficed for over 100 years in these circumstances.
Nolumus Mutare!

@Michael. RBC Capital Markets have a note out on Irish Banks this morning which provides a nice counter to the IT/Canadian bank red herring. (I call it a red herring, not because there’s no truth in it, but because a post NAMA AIB which is what they might be interested in, is going to be a very different beast to the current AIB)

Anyway, from the note:

“Irish Banks
Vegetative State – Reducing to Underperform
Irish banks are in a vegetative state from several dimensions. First, each bank reports low-to-no free capital available for unsecured debt-holders in our view. This means that there is no capital available to protect debt-holders from potential losses in excess of recurrent earnings. Second, recurrent earnings are in decline to the point of business model atrophy. Third, silent runs remain in evidence while debt maturities shorten. Fourth, it is increasingly uncertain that AIB and BKIR could raise market capital if they participate in NAMA.
Allied Irish (AIB), Anglo Irish (ANGIRI) and Bank of Ireland (BKIR) appear to be on ECB life-support. The ECB appears to be acting as the lender of last resort for the Irish banks as their funding models have collapsed. This lending is well over-collateralized. Liquidity generated by NAMA may be used to repay ECB borrowings, limiting its benefit to the wider economy. Nationalization could keep the ECB in the game and allow more liquidity to remain in Ireland. All non-guaranteed debt holders are effectively subordinated to the ECB.”

Just wading in here and not having read all comments (as I do have work and life getting in the way). I am still looking for anyone to really address the question: “what if we don’t go down the NAMA route?” beyond the standard “it will be bad” answer.
Can any of you eminent economic & financial brains shed some light on this?

A market society also requires periodic clean outs not just continuous expansion. Instead you are advocating moral hazard in big dollops.

After your post about Sweden yesterday I did some digging over at the Rijksbank web site, the Swedsh stats office and also the Norwegian bank site. Here is an article you and others may wish to read:

There are five features of the Norwegian resolution I would like to highlight:

* Private solutions were explored before the government intervened.
* Share capital was written down to zero before committing public funds.
* The government acted swiftly to limit contagion, but did not provide a blanket guarantee.
* Liquidity support was given to illiquid, but solvent institutions.
* The government did not use an asset management company – as the other Nordic countries did later on.

Post above was in response to Karl Deeter talking about Securum.

Also, when the Swedish government took over Securum, two things happened that NAMA is not doing.

“Sweden’s government assumed bad bank debts, but banks had to write down losses and issue an ownership interest (common stock) to the government. Shareholders at one bank (Gota) wiped out at another (Nordbanken) received a payment equivalent the price of the previous rights issue. Shareholders at the remaining large banks were diluted by private recapitalizations (meaning that they sold equity to new investors). Bondholders at all banks were protected.”

@Maurice O’Leary – note I wasn’t proposing a national unity government, merely an all-party effort on a single bill. As for Cowen, if he opposes it he can take his resignation to the Park and we can have an interim Taoiseach pending elections.

As for Toronto, as I live there I hope you don’t mind my lifting a Spockian eyebrow on the cranes comment. Within line of sight from my work is the 51 storey Bay-Adelaide tower in final stages of completion, the first couple of stories on the 70-floor Trump Tower and if I could see through another building the construction at Maple Leaf Square.

See also here:

You see, if you don’t have irrational NIMBYs calling 10 stories “skyscrapers”, you don’t have to build so many buildings…

@Mark Dowling

Proposing an all-party consensus on the biggest decision for our generation was tantamount to proposing a national government – the same objections obtain.

T/O and Minneapolis are my favourite cities. Unusually, I haven’t been in T/O for nearly 3 years, so I was working from memory. The link to urban toronto was interesting.

But did you see the flocks of cranes in Dublin in the last few years?

I see that now Carroll’s team have submitted “an economist’s analysis on economic prospects” as part of a package of “new evidence”.

As many people on this site have already pointed out, serious economic analysis would probably find that (a) the bubble has still a ways to go before deflating completely (b) the long run no-bubble price could just as easily be headed down as up.

Somehow I doubt that is this is what this ‘economist’ has concluded.

Last night’s NAMA Drama was straight out of Boston Legal.

It is a measure of the stakes that Zoe (and the Irish banks) returned to the High Court on a Friday evening in mid-August having failed in a similar petition two weeks ago and in an appeal to the Supreme Court last week.

Legally, all that happened was that the Zoe Group were given leave to make a new application to have an examiner apppointed. But it took something extraordinary for Judge de Valera to grant the application after the failure of a similar application last week before the Supreme Court. There is a real risk that our Superior Courts might be perceived (unfairly) to be conniving in Zoe’s stalling tactics.

I think the key to yesterday’s decision is not the economist’s optimistic report (sorry guys, but ACC can pay their own economists to make affidavits averring precisely the opposite). Nor the valuations by Hooke and McDonald and CRBE (how much credibility have estate agents in court?)

No, the substantive difference in the two applications is the decision of the banks to provide letters in regard to future financing. The absence of such commitments from the banks was fatal to the original application and, without them, I doubt Zoe would even get a hearing for its new application.

The interesting question now is what commitments are the banks making to Zoe that they were clearly unwilling to make prior to the Supreme Court defeat?

Is this the same as asking “how much taxpayers money will be available to prop up Zoe for the foreseeable future”?

I wish Liam Carroll a speedy recovery from his sudden illness but we cannot keep the Zoe Group on life support. If only this human drama did not have real consequences for an entire country.

ACC and Zoe have ensured that we have no silly season this year.

If the application goes to a full hearing, I wonder if ACC will present their own expert evidence as to the likely trajectory of property prices over 5-10 years given that we are only 2.5 years since the peak.

Goodbody’s economist as an expert witness – shouldn’t be too hard to pick holes in his/her testimony.

Ireland is a small country. And most of the companies on the Irish stock exchange are headquartered in South East Dublin (“D4”), and are filled with people who went to one of two universities (Belfield or Trinners – but mostly Belfield). And over 97% of the directors on Irish companies went to boarding schools (I think Kerry Foods, and Elan are the only exceptions).

The purpose of a lot of what is happening is to preserve the layers in Irish society, exactly the same as they have been since the 1960s.

There seems to be preception that ‘firesale prices’ are a disaster. I disagree. Firesale prices are a great idea. Firesale prices will take a lot of people out of poverty in this country. The only problem is that ‘firesale prices’ will make all the people who obeyed their betters, and who believed the media, look like a pack of idiots. (Podge and Rodge would use cruder terminology no doubt).

And that is the overriding objective – keep the sheep asleep. Why does everybody thinks this is a disaster. The PAYE sector has been waiting for affordable housing for years. The underclass has given up and gone chasing politicians (FF, ILP) to get government intervention (which usually drives the prices to the point of them becomming unaffordable, and increases the tax take on working people).

If you felt like an idiot for believing the media, economic and political establishment, you would eventually change your thinking. That should not be allowed to happen !!!

Maurice O’Leary – maybe Zoe and ACC should both follow Mama Harney’s advice and obey the market ??

Er, alright that only applies when it tells us what we want to hear :)))

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