I’m with you there. We need to have a bank resolution framework on the statutebooks.

I think if the principle of proper debt workout is applied then in theory the issue as to what projects are completed is done on a commercial basis. for example, if tenants sign up in advance or somebody agrees to buy it when built then it is viable. If the project is 70% completed and can be sold at a discount then it may be viable. It is indeed the sobcontractors I have the most sympathy for. As for political interference, it is hard to know what would satisfy you that it could be avoided. Hopefully the opposition and the government will both propose additional proper oversight provisions.

On holidays so reluctant to get involved. But at 137 comments, we may be losing readership here — slipping down the front page.

Thanks to AL for a useful contribution. I’ve written a short post on the issue of the levy—perhaps you guys might move over there.

KW

Please read what I wrote - I didn’t mention developers.
I said “paying builders”.
And yes, I actually have some idea how development finance really works.
Give a thought for the legion os mall sub-contractors who have not been paid.

But the key point is how can you say that any of these projects are viable.

Anglo Irish Bank aren’t going to need their new HQ - just a secure warehouse to deposit records after it is wound up.
Why build any more apartments when even the better parts of Dublin are oversupplied?
I notice that the Cosgrave group are starting to develop their D/L Golf Club site but that is an exceptional location.

There is a surplus of office development.
And we certainly dont need any more shopping centres.

Do you really trust FF to be uninvolved in deciding which projects to finish?
NAMA plans to spend 10 billion - the boyos will be licking their lips.
It wont do the developers much good but the builders will have a field-day.
And who will pay?

“It is worth noting here that Irish individuals and pension funds represent a large proportion of the equityholders in the banks, and not some Gordon Gekko character, and they have suffered significant losses already, impacting the wealth in the economy further”

I really don’t see why I should subsidise people who made poor investments and didn’t demand proper oversight. Let them sue the pension fund managers, sue the bankers or sue whoever they want. It’s not my fault they got screwed. They can have my sypathy but not my money.

Let NAMA pay the right price for the asset and then recapitalise and dilute existing shareholdings to whatever degree is necessary. I am willing to pay to have a functioning banking system and a functioning economy again. I am not willing to pay for a pension for members of the generation that had it better than any other generation before them and likely better than any other generation to come.

The Swedish government invested in equity, in some cases it meant they became the sole owner. The resulting owners then decided to split banks into good and bad banks.

To answer the question why the Swedish government split up the banks in to good and bad: They owned equity shares in both and got the upside in the good banks and dealt with the bad banks as well as could be done.

NAMA is getting the bad bank while leaving all the upside with shareholders of the good bank. I don’t see anything else in NAMA resembling what was done in Sweden. NAMA is a gift. Investing in equity is an investment. It is that easy.

“If we get the pricing wrong on the way in - there is the understanding that a levy will be imposed on the banking system (affecting equityholders in the future) to recoup any shortfall on the wind up of NAMA.”

but why not use PH’s idea on the way in instead of a levy?

Just a point of note the Canadian bank (presumed to be CIBC) is potentially (not definitely) interested in taking a minority stake - not in buying AIB.

“Depositors pay for the insurance that they get”

It is difficult to see how depositors “paid” for their insurance in circunstances where the upper limit of that insurance was unilaterally increased by the government during the crisis

My point was that imposing losees on senior debt holders without imposing losses on depositers looks like treating two classes of creditors in different ways even though they are pari passu in the capital stucture of the bank.

i mean it is one thing to guarentee depositors, its another to push them above all other senior debt holders in the capital structure, so that losses that should be shared across that creditor tier are concentrated on bond holders

90bn worth of spending. The government does not own this money, they are managing this money on the behalf of the Irish taxpayer.

Should the Irish taxpayers as a responsible owners make sure that the Irish government is spending their money wisely?

The blame game is as irrelevant as it is simple:
Banks took risks on the behalf of their owners (the shareholders). The owners were either supporting their hired managers on their risk-taking and then they should be liable for the loss of their investment. Or, alternatively, the managers took risks against the owners wishes and then unfortunately the owners are still liable for the loss of their investment as they should have used their ability to control or replace the banks managers.

NAMA is a bailout of the banks owners:
They would get something now & the cost for them would be to repay some unspecified amount some time in the unspecified future. If the amount equals the cost for the taxpayers, then the banks might not be able to afford it so therefore the discussion is to let the banks pay something less. Get money now, pay back something less in the future. How can this be anything but a transfer of taxpayer money to shareholders?

Buying something for more than market price is a gift from the buyer to the seller. If the owner of a limited company were to sell something to his limited company at higher than market price the owner would be liable to pay tax on the difference between sold price and market price as it would be seen as a form of dividend. For those who doubt, check with Irish Revenue.

We do have to deal with the impaired assets on the banks balance sheets. Barring simply giving money to the banks for nothing, NAMA is the most expensive way of repairing the banks balance sheets.

Buying an equity share & inserting more equity capital will do the same as NAMA but at less cost. Without NAMA the price of buying the banks is probably next to nothing so why spend more than necessary?

AIB has someone interesting to buy it post clean up of balance sheet, the period of temporary nationalisation would be very short. Stop NAMA, prepare for the nationalisation, split and resale of banks.

While I agree that we will have got some benefit on bond spreads from increased investor risk appetite, I don’t want to see their reaction if NAMA (in some form or another) were not to go through, at least without a workable alternative that can be put in place fast to replace it.

I agree with much of what you say even if it means I will be labelled a TINA member. With that said, I think the fact that the three main parties are espousing three different solutions is helping us have a proper debate.

We should note that once NAMA has been up and running for a period it is possible that private equity will consider taking part in a recapitalisation of the banks along with the Government. This could further reduce the strain on the public finances.

As for providing funds for future development, I think the principle is that any AMC should work out loans properly and in accordance with best practice. If this means completing a development so more money can be recouped then so be it.

Most people accept NAMA is a solution to this but we could get the same results but using a fraction of taxpayers money.
So while NAMA does this the clean up but it is also a significant subsidy to shareholders and bondholders.

The moves in the Irish debt markets are reflective of a greater risk appetite for all assets worldwide rather than improved prospects for Ireland.
A few months ago ourselves and Greece were both considered equally risky but now we are way out there on our own as the most risky country in the EU.

That’s always been my understanding as to what this is all supposed to be about.

But the $63 million* question is “Will it? Or will banks continue to sit on their hands post-NAMA and just build those balance sheets back up (maybe because of what they fear is coming next on the mortgages and unsecured loans/credit cards side)?”.

Are there sufficient ‘mechanisms’ built in to the legislation (I don’t think so) to force this if necessary or are we just taking their word that they will get credit flowing again?

Another question is “Is there actually any appetite out there to take up that credit if it were available?”. A straw poll I did the other day saw lots of individuals and small businesses not keen to take on any further credit/overdrafts/etc. and more keen to pay off what they have now.

* adjusted from $64 million due to deflation

Does anyone know what the non Nama loan losses are (inc the banks). The size of these will decide if they have ample capital to lend. I somehow doubt they will have ample capital and there will be a second bite of the cherry either by
1. Nama mark II for personal debt
2. New capital into the banks probably from abroad

But I do agree that
A) The delay in our response will have serious repercussions down the road - think rising interest rates while we’re still playing politics
B) Nationalisation is no panacea either. Anglo is not a shining example so far.

The next step is ensuring that the banks are sufficiently capitalised to be able to deal with loans losses on the rest of their books resulting from the recessionary environment, while still having ample capital to lend to creditworthy borrowers. This may or may not entail a government shareholding in the banks, depending on the takeup of exisiting shareholders and other private investors in any equity issuance. It is worth noting here that Irish individuals and pension funds represent a large proportion of the equityholders in the banks, and not some Gordon Gekko character, and they have suffered significant losses already, impacting the wealth in the economy further.

Nationalisation does not eliminate the need for NAMA, as any nationalised bank would still need to be adequately capitalised as it requires access to international funding in the same way as a private bank does. While on funding - I would be slow to draw much from the markets reaction to the hit taken by unsecured senior debtors in WaMu - it was already a very volatile time - but more importantly, the readthrough from that for the US sovereign creditworthiness could be very different in the situation where an Irish bank defaulted on its senior unsecured debt obligations. Is that a risk worth taking?

NAMA is not a bailout for banks, their shareholders and developers - its way out for the Irish economy, by getting money flowing again. The reaction of sovereign debt markets to its announcement and developments is evidence of how the markets perceive its benefit for the longer term outlook of our economy. Despite the increase in gross debt due to NAMA, spreads vs German bunds have come in.

People need to shift their focus from retribution and get towards positive action. The longer we wait before taking action or defer (by not voting NAMA through), the more we prolong our economic recession and below-trend growth. We’ll have plenty of time to see what went wrong pre-crisis and allocate blame if that’s what people want - we need to focus on getting to recovery first.

It is not money being paid to developers. As is normal money would be drawn down on foot of invoices from engineers, contractors, sub-contractors, architects certificates etc. That is how development finance works. You don’t give the money to the developer and tell him to spend it as he sees fit. Maybe it would be better to bulldoze the country and deprive professionals and contractors of funds for viable projects? That way we could cleanse the country of the 50% of architects who have not lost their jobs and those tradesmen who cheekily did not go out and get degrees.

NAMA is entirely the result of a purely political decision.
If the decision were based on economics, we could all go home.

Paying builders 10 billion to finish projects at a time of chronic over-supply will play well in Parlon country - begob they might even be able to afford to bring the tent back at next years Galway Races if NAMA would sponsor them.

Did Fintan O Toole call you at the weekend looking for a topic to write about?

So I guess the big questions are;
Even if a political party was willing to take this on (which I doubt) How much would it devalue current property? Could the banks afford the write down?

I am fairly sure the answers are a lot and no.

So is it that you are suggesting since we are up a creek anyway we might as well try to fix all the underlying problems because they would never be fixed in normal economic conditions?

The €10bn (or whatever the figure is) will be money spent by NAMA for the benefit of NAMA and will feed directly into the real economy. Calling it money being given to developers and politicising it is wrong imho.

I’ve heard this phrase “working with developers” a number of times. I don’t see much to gain from this. What particular skills do developers have? Their project managers and other key personel are the ones to work with.

I agree that the use for the 10bn isn’t clear. How is it funded (strange that they can find 10bn for this, but 10bn towards bank recap is more difficult to come by)? Can we be sure that it won’t be used to pay bond coupons? Is it a float of 10bn (i.e. as projects complete, will part of the 10bn be rolled on to the next project)? If they make losses on this 10bn, how are they treated? Will the loans be non-recourse