Irish Times NAMA Piece Signed by 46 Economists

The Irish TImes has today published a letter signed by 46 economists (organised by Brian Lucey) warning against the dangers of the NAMA process. Forty six economists can’t possibly be wrong can they? 😉

On a more serious note, one of the issues that will inevitably be raised about this is the position being taken by those economists who were offered the opportunity that didn’t sign. I suspect some will argue that they must all be in favour of NAMA.

My sense, however, is that there is no alternative groundswell of support from (non-stockbroking) economists for the govenment’s approach. Rather, many people are instinctively not petition signers, preferring to express their own views in exactly their own fashion, stressing whichever nuances they think are most important.  Also, it is worth emphasising that most economists are not experts in banking and finance and some simply don’t feel comfortable signing something relating to an area outside their research specialisation.

Still, if such an alternative groundswell of support did exist, I would strong suggest that they should put forward their own piece. I know that Alan Ahearne has been pressed into action but Alan is in a difficult position because publicly disagreeing with the Minister for Finance is outside his job description. I genuinely think that a high profile alternative letter, followed up by an intensive debate about the issues raised, would be very useful.

As a final note, I’d add that the headline for the article, as always, is written by the Irish Times subeditors. As far as I can see, the article says nothing about shifting wealth to developers.

149 replies on “Irish Times NAMA Piece Signed by 46 Economists”

i am reading this article with interest. I have one question to clarify things in my own head. The petitioners propose that “certain classes of bondholders also be required to accept reductions in value”. Could someone clarify which classes of bondholders should take this hit?

Again, I will make the point that “LiamD” is not me. Perhaps others here do not care about their reputation in terms of expressing comments about one of the largest single economic policy decision since the foundation of the state but personally I am not contributing anything else to this forum until people start using clear identifiers.

This is indeed a tough one. Surely we can avoid a Delaney strike via diplomatic negotiations? One suggestion would be for Liam Delaney to adopt his own “nom de comment” which could not be confused with anyone else. Geary Guy? Behavioural Boy? Or maybe just The Liamster.

@the real Liam Delaney
Chill…..some people want to be anonymous, let them.
Liam – there is nothing wrong with people debating in any way so long as its polite, imho.
Now. on the topic of the day…..

I’m glad KW posted this. I have a number of problems with the assumptions in the articles.

The assumptions and my questions of them are as follows:

1. Fair economic value will be greatly in excess of market value.

Some assets will be priced at or below agricultural value. Some will be at greater than market value but there is no evidence that it will be greatly above market value. There has been little analysis of the market from 1974 to date and which years might be considered bubble years to be discounted. However, it seems to be generally accepted hat Alan Ahearne has expertise in this area. In those circumnstances how can the word “greatly” be applied with confidence?

2. That there is an “assumption that that in the short term, property and development prices will rise”.

There is no such assumption that I am aware of. The same comments on Alan Ahearne’s expertise apply.

3. The “fair economic value” will “be based on a very optimistic forecast of the Irish economy in the medium term”.

Where is the evidence for this assumption?

4. The State is opposed to “effectively nationalise” Irish banks.

The state is reluctant to 100% nationalise Irish banks. The State has never said it is not willing to take a substantial majority share. The article does not take account of the fact that even if the values are low and a huge capital injection is required, the State may then be able to entice in fresh private equity along with State to avoid nationalising.

5. “It is clear that the Government is determined to pay a price for land and speculative developments greatly in excess of the market clearing price”.

It is not clear for the reasons stated above.

6. “While the precise national accounting treatment of these bonds remains unclear, it is prudent and correct to treat them as State liabilities for whose repayment the taxpayer will ultimately be responsible.”

If certain of the NAMA bonds are only backed by assets and the state only guarantees a portion of bonds (i.e., the most risky) then it is not prudent or correct to consider the all the NAMA bonds as being the taxpayer’s responsibility. NAMA will not be a systemic bank.

7. “It is also highly probable that the agency cannot “pay for itself”.

This is a straight “we don’t believe you” to the Minister and Mr. Ahearne and possibly to the NTMA analysis although we haven’t seen this. It ignores the fact that one performing loan can currently service itself and possibly a number of non-performing loans. What is the basis for this assumption?

8. There will be a “massive transfer of wealth from taxpayers to private risk-takers”.

Buying assets for consideration is not a transfer of wealth. It is a swap. The article reads as if the assets were worth nothing an we are giving away this money for no good reason.

9. NAMA does not provide that “those that have invested in risky capital in the banks (the shareholders and bondholders) must accept that the value of their asset is gravely impaired.”

Because NAMA is getting assets at real discount and because there will be consequent recapitalisation the equity holders will and have accepted their asset is greatly impaired. Hasn’t 90% gone already? The markets may be making some worng assumptions that the Govt will do everything to take less than 50% equity but there are no official statements to back up that assumption. That is not the Government’s fault. The ball-park discount will be announced in the Dail in September but will be subject to NAMA examining each loan.

10. NAMA doesn’t allow that “certain classes of bondholders also be required to accept reductions in value.”

Why are the banks able to buy back sub-debt at a discount so?

11. The State could successfully work “swiftly to float a reorganised banking system anew”.

Can this really be done? How long do people think it would take if we took over the banks today and how much debt would have to be guaranteed in the process? Would the second wave catch us in the meantime? Would we be stuck in the banks until the second wave had been dealt with?

@LiamD (not GearyD)….personally id take the subbies to the cleaners and push hard as nails on the senior bonds. But thats me.

My last comment was not a dig at the people who signed the petition today. It was aimed purely at the point I have made about 10 times on this forum that people should use a clearly distinguishable name for making comments. This blog is read by about 2000 people per day including pretty much every business journalist and I suspect a large number of policymakers. Whatever about confusing my opinions with another commenters, we have had examples here where it looked like, for example, Colm McCarthy had taken a funny turn. This is not fair, in my view, on people who are commenting and who have to rely on their reputation for their credibility. It is unmoderated for very good reason. But I think a short “rules” post would not go astray (no personal insults, no accusations and use identifiers).

Karl, like many others I too was approached to sign the letter. While agreeing with the essential points made in the letter I did not sign it. This was partially I guess because I am not by nature a “petition-signer” as you put it, but also because, tacticallly, I was not convinced that a letter such as this was the best way to go about persuading the relevant decision-makers to amend the proposed legislation. It remains to be seen whether I am correct or not in this regard.

I agree with you that there is a danger that non-signers will interpreted as supporters of the present version of NAMA, especially given that some Government spokespeople have been extremely selective in their chosen quotes from agencies like the IMF and have maintained that such quotes demonstrate that the IMF approve of Government proposals in this area. But I can state for myself that my non-signing should not be intepreted as support for NAMA in its present guise.

Certainly, users should not use names which may be confused with economists who are listed as contributors on the front page. LiamD should change his name for that reason. I would have no problem changing mine if there was a Zhou Enlai (ecommunist) official contributor!

Alan Ahearne claimed in a radio interview this morning that NAMA would be self-financing (“wash its own face”) from the start.

If true, this means that NAMA can wait as long as necessary for “long-term economic value” to be restored, then liquidate itself, with zero cost to the taxpayer.


I wish to thank the 46.

But the point is that NaMa is an interference in a monumental mess and there is every likelihood that it will make the situation worse.

Given the egregious lack of comprehension of the scope of what has been happening world wide and also in Ireland, it is obvious that no one among TPTB foresaw this. They still do not see what is inevitable.

Principle, that government should not intervene, is underlined by what this government has accomplished, thus far. Let the creditors deal with the loans and the debtors can sell off the assets. Of developers, banks and other institutions that are over geared. That sucking sound that people could not hear 9 years ago is now evident. It is coming to a lender near you. The lender of last resort will eventually face problems. Even the ECB will run out of credit as people refuse to buy crap. Or is that the real reason for keeping zombie banks alive? To buy it from the ECB? A giant kiting exercise?

Japan, 19 years and counting. Easter Island 1000 years and still no trees!

Like Dave, I agreed with the letter, but didn’t sign. I felt that, since I’m not a Finance or Banking specialist, my signing would carry no weight and may even weaken its impact; I emailed Brian to explain this. The fact that I didn’t sign does not imply support for NAMA in its currently proposed version.

As one who signed let me indicate my reasoning. Like David I am not a petition signer & vowed many years never to sign a petition on professional grounds. I am far from expert on the subject & am old enough to remember the 365 economists who signed the famous UK petition.
When a petition of Nazi scientists dismissed Einstein’s work he observed that if he was wrong one name would have been sufficient. Unfortunately in the world we live in it doesn’t work that way and it seems to me that on balance of probabilities this article might do some good. Essentially it makes it easier for people, both inside and outside the tent, to take a more sensible position on the price. Lets say that as a result NAMA paid just €1b less that otherwise. Wouldn’t that be a good day’s work?

Karl raised the issue about the opinion of the N non-signatory economists. I am among them. I lean towards nationalisation, but as I’m not an expert I prefer to keep that opinion to myself. I also think that the petition carries more weight with my name omitted because I’m known not be an expert.

It is unlikely that the government will do a giant about-turn on NAMA (though it is possible), but the more discussion there is about valuations, the more realistic the valuations will be. The biggest issue with NAMA is the apparent likelihood that banks will be overpaid in advance for assets the value of which is either very low or unknown.

Alan Ahearne was on the radio saying that there are international standards for valuing these kinds of things. As a taxpayer, I was relieved hearing that and I look forward to reading about the fine details of these international standards in government press releases in the coming days.

So it is worth pushing on this issue. The cold light of day is having a big effect on the valuations.

The other big problem for the government is a lack of strategy for how to restructure the banking sector, but that is not something anyone outside the Department of Finance can do much about. It is impossible to force the Minister to have a long-term plan if they don’t want to have one or don’t see the need.

@Kevin Denny

If the valuation is your main concern, then would it not have been better to wait until the Minister announced the anticipated haircut in the Dail? Isn’t Patrick Honohan’s line on NAMA 2.0 the most effective article on that poin so far in any event?

Also, the effect of the article may well be to bring down the Government and leave us with FG’s plans. Would you be satisfied with that outcome too?

@zhou: maybe the impact will be to help them arrive at a proper price…this would then give them the considerable satisfaction of being able to turn around to us and say: your ivory tower fears were completely off-target. Which I guess we would be happy with.

Or, maybe it will have very little impact at all. The politicians get to decide, not us.

Maybe so. It was heartening to hear Alan Ahearne say that he liked Patrick Honohan’s proposal at first glance.

I think the Govt are open to suggestion in this debate and that the Minister was genuine in his reasoning for allowing plenty of time for a debate. I think the Minister has at all stages acknowledged that the valuation is the most crucial element in how NAMA works.

It is good that there is a strong debate on it. With that said, I worry that a petition rather than an opinion piece becomes a political tool and each sentence can be used out of context. I guess we’ll find out in due course!

@zhou_enlai : Since I am not convinced that its your real name I decline to respond. I put my name on the line so should you (was it Zhou En lai who said it was “too early” to make a judgment about the French Revolution?)

For the interests of some kind of clarity (and not to run the risk of tarnishing Liam Delaney’s reputation), I will in future call myself LD. In the interests of not getting a kick in the a*s from my boss (too whom I am grateful for continuing to employ me at this time of depression…grovel, grovel, grovel) I will continue not to use my full name as I probably should be doing something at the moment more related to my job….

While I can see the reasoning behind the subbies taking a hit, after all they got an extra pick up for taking on this extra risk and appropriate ranking in the scheme of things. I would have major issues with any attempt to hit the senior debt holders. As far as I can see these people went in pari passu with any depositors from the street and it was with this in mind that they invested the funds. To hit these guys ahead of depositors will send out a very poor message for the future. My fear if we start to go down this road is that we will see a quick flight of the remaining non-Irish liquidity out of the country across the board (commercial paper investors, foreign depositors etc) in both banks and state. After all, you start here where does it stop???

While we have been compared to Iceland many times over the last two years or so, we have managed to avoid actually becoming Iceland II so far. Clobbering senior debt holders today and hoping they come back when you think you have things sorted out is not an option to me. I have a mate of mine in the UK who invested in senior Icelandic debt across the three main institutions (pension fund guy), he has managed to hold onto his job so far, but the thoughts of ever investing in anything Icelandic, even buying frozen grub from Kerry Katona’s ex-shops, would turn his stomach. Just as his stomach turned when the banks stopped paying him back. Why would any investor come back to the trough a second time to be poisoned, even if Ireland looks like a safe bet again, who is to say someone in power will not change their mind a second time???? There is so many country’s crying out for investment at the moment in better shape than we are, why bite off our noses to spite our face? The game when it comes to senior investors in my opinion should be played by the rules. Those rules state that senior investors rank essentially the same as depositors like you and me.

To me, this is a time for cool heads, NAMA may not be the perfect solution to the country’s problems but if I was working on coming up with a perfect solution I really would prefer not to have to start from here. BLenihan has left himself, from what I have read, open to adjustments to the NAMA plan. These suggestions should take account of the international investment community too. After all they do have a stake in this too. Whether we like it or not, we are not living in Dev’s Ireland anymore, the comely maidens are not dancing at the crossroads and we cannot try and close ourselves off from the rest of the world. We are where we are and these issues have to be addressed but we cannot simply disregard the international investment community because we will definitely need them again.

I made a comment here today on ‘Private Equity’ whose financing is to be transferred to NAMA and will make up perhaps 20% of the total .

Unlike say ‘development’ loans this class of asset , making up as much as 20% of what NAMA is supposed to take over , is fully recoursed and to the richest people in the state .

Furthermore these loans are not ‘non performing’ and should not be .

Why is the taxpayer privatising the risk that these people can easily afford to cover out of their own resources. They are often doctors and barristers with enormous income streams , even now . They can cut their own hair many times over .

This class of property loan is utterly unlike a property developer whose ‘security’ is completely underwater and who is many times insolvent compared to the ‘private equity’ fodder .

I am surprised that no academic economist has ( at least in public) attempted to tease out the ‘private equity’ strand in the overall NAMA structure and commend such priority research to the denizens of this site .

EU’s guidance on the valuing of assets, which all EU member states are following:

Also, the Fed in the US has opted for “a hold to maturity” valuation, Ben Bernanke:
“First, banks will have a basis for valuing those assets and will not have to use fire sale prices. Their capital will not be unreasonably marked down. Second, liquidity should begin to come back to these markets. Third, removal of these assets from balance sheets and better information on value should reduce uncertainty and allow the banks to attract new private capital. Fourth, credit markets should start to unfreeze. New credit will become available to support our economy. And fifth, taxpayers should own assets at prices close to the hold-to-maturity values, which minimizes their risk”.

I note Alan Ahearne’s final statement during his interview that based on any sort of reasonable assumption NAMA will work and I find it hard to doubt him given his expertise and track record.

I’m very interested to hear your views. Having worked in bond markets, I think there is an urgent need for a proper debate on the funding/liquidity impacts of all the bank resolution options. Many of my former colleagues are saying that they are holding Irish bonds on the assumption of NAMA being passed and they will get out at any sign of trouble, thus leading to very significant increases in funding costs for both the State and financial institutions.

@ Brian
Well done
To paraphrase Haughy ‘You have done the state some service’ ditto the other 45
@ Zhou
If the price (firesale price) is so low at the moment then why are international investors not making an orderly queue?

The property market still has a way to fall there are rising defaults down the tracks from domestic and commercial lending.
Using previous assumptions of growth from 1974 minus the bubble (whatever that will actually mean? Does it presume we are at the bottom of the bubble now? ) is very very optimistic.

Alan Aherns timing for liking Nama 2 seems like they are back peddling due to pressure.
I recon the next moves will be to make very light consessions

Karls encouragement of a pro nama article with signatures is a good idea.
The trap has been laid. 🙂

@ Ted McCarthy
State Aid Legistlation?

That cant be right?

I think you should have been looking up the state ‘investment’ legistlation.
We are purchasing loans that have a wonderful longterm economic value.
What do you think this country is? A charity?

Karl Whelan: “As far as I can see, the article says nothing about shifting wealth to developers.”

Perhaps, but this line “All are agreed that Nama on its own is but an enabler of that. A healthy working banking system is not dependent, we suggest, on a massive transfer of wealth from taxpayers to private risk-takers.” Certainly seems to suggest/imply that.

At best, NAMA can be described as an investment by the tax-payer in private risk-takers. Most of the arguments seem to centre around whether it will prove to be a good investment or not, rather than if we should be making the investment in the first place.

@Eamon Moran

I am not an expert on valuations. I would like to see as much protection for the tax-payer as it practicable.

I don’t know of anyone having questioned Alan Ahearne’s knowledge or expertise in trends in property values.

Despite that, as far as I can see nobody believes the Minister or Alan Ahearne when they say properties will be valued correctly. Perhaps there is a lack of clarity as to how any trend line will be calculated and how far into the future LTEV will go or will it mark it at today’s point on the trend line. People might like to see those issues dealt with in the legislation but I think that going to that detail in legislation is lethal. A clear statement might be more helpful.


As a self-confessed “post-modernist with a deep suspicion of all ideologies” you have battled long and hard for the government’s NAMA option.

Question assumptions, parse and deconstruct away to your heart’s content.

The real issue is one of trust . I, and many other citizens, simply do not trust the banks , developers or this Fianna Fail led government (even the Greens are suspect at this stage) to protect the interests of the ordinary citizen.

I have full confidence in Brain Lucey’s and his co-signatories’ approach to the sorting out of this banking mess which was not created by the vast majority of Irish citizens, but by the reckless few.

I am in favour of an approach to resolving the bank crisis articulated by Richard Bruton in his letter of 25th August to Brian Lenihan. This approach is based “ not on a dogmatic attachment to a particular model, but rather on a set of core principles: protecting the taxpayer from huge, unmanageable risks; minimising and ensuring a fair distribution of the losses associated with reckless lending by the banks and reckless investments by developers; and improving financial stability and credit availability for struggling businesses and families.”

Alan Ahearne has correctly identified many inaccuracies in this article. To my mind, the most prevalent inaccuracy in the media is that NAMA will be buying property. NAMA will be buying loans which are mainly secured on development property and whilst it may be argued that a market valuation of the property could be obtained, unless all the conditions of the loan are accurately known, no reasonable valuation can be made of that loan. As such, valuations can only be done on an individual basis and any global valuation is clearly only guesswork and in many cases sensationalist.

As an aside, I wonder what qualifications are required in order to call oneself an economist….46??

So Alan Ahearne should go off and round up his own posse of economists in support of NAMA. And what then? The pro and anti-Nama factions will slug it out, like small boys on a football pitch, who’ve long forgotten the purpose of the game and are only interested in besting one another? The media would be delighted of course. But while such a spectacle might prove entertaining for the rest of us, it won’t put bread on the table.

At the end of his Morning Ireland interview, Alan Ahearne stated that Nama is ‘not a toy for academics to play with; this is the future of the Irish economy we’re talking about.’ I would sympathise with him in that view, but only if it’s the case that the 46 signatories to the Irish Times article, especially its principal authors, have not already made substantial submissions to the Minister and the Department of Finance on the draft legislative proposals for Nama that were published for public consultation several weeks ago now? One presumes that a detailed and lengthy response to the public consultation has been made?

Nama as a solution to the banking crisis could hardly be described as popular. The concerns voiced in the debates on this forum about Nama, and alternatives or modifications to Nama that might offer greater protection to the taxpayer have been very well-informed and constructive. Both Alan Ahearne and more improtantly, the Minister, are clearly open to constructive suggestions to improve Nama and have pledged to incorporate as many protections as are reasonably possible for the taxpayer within the proposal.

I’ve certainly learned a great deal from the arguments advanced here by all sides and shades of political opinion on the most appropriate mechanisms for resolving our banking problem. It would be a pity if the debate degenerated into the equivalent of a schoolboy row. I also share the concerns of other posters that time is being lost, time we can’t afford anymore.

So we have the debate again 🙂

Not quite sure how NAMA is line with the EU guidelines. If it is a recapitalisation scheme then the state should be expecting some renumeration:

As per paragraph 34 regarding pricing of state aid the State is to be adequately renumerated for its intervention. As per the current proposal the government only claws back at maximum its own infusion of state capital. A renumeration of 0.

This came out later and is also mentioning adequate renumeration for recapitalisation (chapter 4):

If the NAMA transactions would be done at market price then there is no state aid, if higher than market price is being paid then I believe that recapitalisation rules should apply and that as a consequence the government should be renumerated.

NAMA 2.0 might work, the problem would be if the banks would become insolvent. Why should the shareholders then receive anything? They are last to receive anything in an insolvency. Anything they were to get would be free money from the taxpayer.

@Aidan C

I think people are right not to trust banks or developers.

I think the the Government, having made mistakes before, is not in a position to demand the people’s trust (I don’t know if a group of economists would be trusted either). That is the reason the Minister has engaged on an extended consultative process and why there is no question of rushing this bill notwithstanding that out problems are urgent.

My support of NAMA is not ideological. If I were dealing in pure ideology I would probably subscribe to the view that all capitalist investors should be hoisted on their own petard. Unfortunately, I worry that approach might do serious damage to the economic wealth of our nation.

Did I hear the term ‘ivory towers’ used somewhere by the spin machine this morning in relation to this IT piece? I’m pretty sure I did.

That’s a bit ‘going for the man instead of the ball’ isn’t it?

The 46 must be winning the intellectual argument then is all I can say.

@Brian Lucey
Taking the AIB 2008 accounts as an example:
Customer accounts 92.6
Deposits by banks – secured 8.6
– unsecured(2) 17.0 (but ~10.7 net)
CD and CP 21.0
Asset covered securities 7.2
Senior debt 9.6
Capital 14.8

When you say we should take “the subbies to the cleaners and push hard as nails on the senior bonds” – are the ‘subbies’ the CDs and CPs or the unsecured deposits from other banks?

Ted McCarthy kindly referenced the EU regulations. Below is the text and I boringly deliver it in case others find it useful.

I wish to highlight one point (and I won’t apologise for going on about it because it is just too important if NAMA legislation is enacted) – item 41 reads “to use a transfer value of the assets that exceeds their real economic value ……… can only be accepted if it is accompanied by far-reaching restructuring and the introduction of conditions allowing the recovery of this additional aid at a later stage, for example through claw-back mechanisms. I want to stress ACCOMPANIED. I have written to Mr. Leninhan (no repy) demanding that they legislate for clawback ab initio and now I learn it is an EU requirement.

I sadly think NAMA is inevitable despite the worthy efforts of the 46 and many others who talk complete sense. At the very least I exepect to see Mr. Leninhan back down on clawback and include it in the NAMA legislation.


5.5. Valuation of assets eligible for relief and pricing

37. A correct and consistent approach to the valuation of assets, including assets that are more complex and less liquid, is of key importance to prevent undue distortions of competition and to avoid subsidy races between Member States. Valuation should follow a general methodology established at the Community level and should be closely co-ordinated ex ante by the Commission across the Member States in order to ensure maximum effectiveness of the asset relief measure and reduce the risk of distortions and damaging arbitrage, notably for cross-border banks. Alternative methodologies may need to be employed to take account of specific circumstances relating to, for example, timely availability of relevant data, provided they attain equivalent transparency. In any case, eligible banks should value their portfolios on a daily basis and make regular and frequent disclosures to the national authorities and to their supervisory authorities.

38. Where the valuation of assets appears particularly complex, alternative approaches could be considered such as the creation of a “good bank” whereby the State would purchase the good rather than the impaired assets. Public ownership of a bank (including nationalisation) could be an alternative option, with a view to carrying out the valuation over time in a restructuring or orderly winding-up context, thus eliminating any uncertainty about the proper value of the assets concerned [21].

39. As a first stage, assets should be valued on the basis of their current market value, whenever possible. In general, any transfer of assets covered by a scheme at a valuation in excess of the market price will constitute State aid. The current market value may, however, be quite distant from the book value of those assets in the current circumstances, or non-existent in the absence of a market (for some assets the value may effectively be as low as zero).

40. As a second stage, the value attributed to impaired assets in the context of an asset relief program (the “transfer value”) will inevitably be above current market prices in order to achieve the relief effect. To ensure consistency in the assessment of the compatibility of aid, the Commission would consider a transfer value reflecting the underlying long-term economic value (the “real economic value”) of the assets, on the basis of underlying cash flows and broader time horizons, an acceptable benchmark indicating the compatibility of the aid amount as the minimum necessary. Uniform hair-cuts applicable to certain asset categories will have to be considered to approximate the real economic value of assets that are so complex that a reliable forecast of developments in the foreseeable future would appear impracticable.

41. Consequently, the transfer value for asset purchase or asset insurance [22] measures should be based on their real economic value. Moreover, adequate remuneration for the State must be secured. Where Member States deem it necessary — notably to avoid technical insolvency — to use a transfer value of the assets that exceeds their real economic value, the aid element contained in the measure is correspondingly larger. It can only be accepted if it is accompanied by far-reaching restructuring and the introduction of conditions allowing the recovery of this additional aid at a later stage, for example through claw-back mechanisms.

42. The valuation process both with regard to the market value and the real economic value, as well as the remuneration of the State, should follow the same guiding principles and processes listed in Annex IV.

43. When assessing the valuation methods put forward by Member States for asset relief measures, and their implementation in individual cases, the Commission will consult panels of valuation experts [23]. The Commission will also build on the expertise of existing bodies organised at Community level in order to ensure the consistency of valuation methodologies.

A great letter!
One line surprised me…
“We now look to be on course for a Government deficit of close to €30 billion”.
Is this in 2009 or 2010, or on an annual basis? And what evidence would you cite now for a figure some €10bn more than what the government has been suggesting?

It might interest you to know that 10-year Irish underperformed comparable sovereigns by some 7bp in the morning. A large move in such dull trading.
Guesses as to why?
If, as the letter concludes,“the Government should not burden the State with more debt than is absolutely required”, shelving NAMA ought to be excellent for Irish sovereign credit.
But now with the Green Party Minister Eamon Ryan and Alan Ahearne on RTE suggesting a NAMA2, that prospect looks dim. Even the most ardent opponents to NAMA must recognise one advantage… no immediate upfront cost. The next government instead will have to deal with the legacy.

The 30b figure for 2009 is mine = spending around 60+b, tax very low 30’s = “on course”.
Of course, the forecasts from teh dept of finance could be right and we might get away with a mere 20 or so.

dont say anything re the bond markets -someone will accuse us of taking positions!

@Brian lucey

Alan Ahern has rubbished the estimated loan values that are suggested in the letter because it would be very difficult to ascertain the value given the complexities of that estimation.
He also seemed to suggest that the government would only pay agricultural prices for agricultural land.
Are Businesses who get agricultural prices not likely to default if they have paid a lot more than that?
Would it not be prudent for developers to move all their good loans in to one company and bad ones in to others and then default on the bad ones?
Is there anything to stop them doing this in Nama legistlation?

You do not need to be an expert on banking and finance to see that the government’s position lacks logical consistency. This is the reason I signed the letter (despite working on social choice and game theory). I think more should have done so.

The government is saying three things:

1. The banks will not be nationalised.
2. NAMA will buy loans at long-term economic value.
3. The government will recapitalise the banks if necessary.

The problem is that the conjunction of 2 and 3 might entail the negation of 1, unless you’ve already decided that “long-term economic value” will be fiddled to ensure that nationalisation doesn’t happen (which is essentially the point of the letter).

But let’s give the government the benefit of the doubt for the moment.

What I’d like to ask Alan is this: if, on the basis of the 300 pieces of information and an honest application of “long-term economic value”, any subsequent recapitalisation leaves the banks nationalised, is this an outcome that he (and the government) would be willing to accept?

The fact that they are not addressing this leaves them open to the charge that they are rigging this process to produce a political outcome.

One person on the original email has contacted me to say that they disagree with the op-ed ….
46 more and its a tie…

@Henry Withinshaw
Good work. Keep up the pressure. I agree with you that some form of NAMA is going to happen (if only because Anglo has been nationalised and needs to be cleaned out). A combination of modifications *could* reduce the risk to the taxpayer.

The reason everyone’s numbers are rubbish is that the loans to be transferred are clouded in secrecy. We have been given no breakdown of the loan types, the supposed LTVs at point of sale, refinancings, loans for equity, derivatives etc. etc. Of course people can only make guesses.

So what should we do? Shut up and wait for the government to get their act together and give us the info the night before the vote? Or never? (Never seems to be the favoured ‘commercial sensitivity’ response).

Given that the banks will only supply the last of the information this week, I also don’t see how Mr. Ahearne can rubbish the figures in the letter. Nobody knows. But that hasn’t stopped the supporters from spinning – Davy’s 15%. Bloxham 20%. Bacon 50 bn. And all designed not only to minimise the cost, but to ensure the state does not have majority ownership – de facto nationalisation.

There has, for sure, been a rolling back on majority ownership. At one stage it was “if required” equity stakes. The debate has moved on from “if at all” to “how much”. For that (and other things) I am grateful to the 46 and others who have given time and effort to scrutinise the experts in the department of finance.

You of all people should be the first to recognise an administrative coup. It may already have happened, but the Minister of Finance running the country is not a section of the Constitution I am familiar with.

nice work, not a single industry practitioner… it comes across as academics wanting a result from within industry but now willing to consult or garner the opinion the very people they hope to affect. you might want to get a few people who don’t work full time for a university to sign and that would do a world of good towards a petitions credibility.

I have said before that there is a divide when it comes to academia and those in practice, it was brian lucey who assured me that there was no such divide. I guess it’s true except for when it comes to petitions.

on the practitioner front, i was at an interesting talk for the CFA by Stephen Drew head of credit markets at Thames River Capital, formerly head of credit markets worldwide for JP Morgan, his opinion was that you ‘can’t go burning all of the investors or there will be no new creditor willing to back the new institution’, i don’t know how that rests with this forum.

in any case, not getting industry included is an error, it makes the signatories come across like a boxing commentators telling the guys in the ring how they should and shouldn’t fight but not willing to get in the ring themselves. Not every economist works for the state, inclusion in future might be a good idea.

Alan Ahearne’s argument today was largely based on the impossibility of estimating the value of the loans/property to be taken on by NAMA at this stage. Isn’t it all the more reason not to proceed unless we know what we are being asked to pay? We are being asked to trust that NAM will wash its own face (!) At this stage I am reminded of the words ‘pig’ and ‘poke’.


I don’t think there has been any roll-back by contemplating the necessity for majority ownership. I consider the Minister’s position to have been consistent on this all along.

The Minister has also said that he will announce give the estimated haircuts when he introduces the bill to the Dail. That is not the last minute. Indeed, if the article had been held off for a week or two there might have been a lot more substance to discuss. In the meantime, I don’t think the “spinning” (as you call it) is a satisfactory basis for debate.

@Declan Jordan

For completeness, I would point out to readers Alan Ahearne also said that NAMA contains the appropriate mechanisms to properly value the loans one by one.

karl d.
Give me a comprehensive list for industry and im happy to do what you ask. Problem is there isnt such a list.

@Brian L: if you have the time to call up 250 people in universities and have one fifth of them sign up then I’m sure that a quick web search would turn up a an equal amount of industry people in a short amount of time.

I think you said it best here:

when you said ‘Re composition, banking and other industry economists are hardly independent, i think we,ll agree’

and thus it re-enforces the divide that you have said doesn’t exist (here)

let me put it to you another way: Did you even bother trying to speak to a few industry people? I suspect not.

I very much appreciate the work Brian Lucey, Karl Whelan and others are putting in. I suspect that you’ve already shifted a few billion of losses away from the taxpayer. At worst, you’ve presented a coherent case that will endure and referenced if needed.

There’s more than one skint cat at the table… many junior, backbench and even senior drivers have been flying kites… I think you’re right, I think Mr. Lenihan has always had in mind majority stakes. I don’t think his colleagues realise this or the level of dilution they will face (80-90%).

I don’t think spinning is either, but one must respond to the pressure that is put on by bank economists giving their opinions on what would suit them. I will continue to estimate the losses on the loans, by type, using best international practice.

I guess you are right that people have to react to the spinners. As I said before, they may be trying to create a market expectation with which to beat the Minister. However, I don’t think it is substantial enough to form the basis of the assumptions/trenchant criticism of NAMA which I listed in my first post above.

they’re playing street fighting man by the stones under fintan o toole talking about nama on rte drivetime right now

they say they’ve got thousands of mails since his appearance yesterday and now there is voice after voice of ordinary people criticising nama, government, banks etc.


What’s the big issue with govt taking majority stakes anyway? Happened at RBS and Lloyds / HBOS.

Karl D
Theres a great thing called email now. It means you dont have to call up people one by one.
Universities are also nicely packaged into “departments” and they have contact lists for their staff.
As for speaking to industry people….:)

At a general level, don’t expect any radicalism from NAMA.

Secret supply contracts have already been issued, because that is the 19th century routine of the civil service.

An accountant has been appointed Interim MD who has had no work experience outside of the public sector and Lenihan announced in early
May, he would supply an advisory group “shortly.”

@Brain Lucey/KD

It’s unlikely that any wage slave from financial services, would sign a letter.

Stephen Roach of Morgan Stanley is a rare specie in financial services and credit is due to the bank for putting up with his contrarian views rather than hiring a PR merchant, like many in the sector.

Brian Lenihan was a mite peeved at us on TV3. WE did no analysis and HE is getting real professionals (auctioneers, bankers….weep ye not) to evaluate the true falls in value.
Interestign that the spin is now : ah, well, the LTV you see, that means that the loans are only 75% of the assets so to pay only 30b would imply falls of 75% (which was ITIR Morgan’s point estimate…) and if that was the case the country would be fecked altogether.
Karl D theres a job there for ya! 🙂

Alan Ahearne said this morning on his Radio Interview that 46 academic economists could not possibly understand the complexities of Nama in a real sense.
However , he is quite willing to let a bunch of “so called Politicians” make irrevocable financial decisions for the country when they are untutored in the fine art of international finance.
Who is delusional and irrational?
Mr. Alan Ahearne is not being honest with his contemporaries as we all know who butters his bread!
The old joiners adage-measure twice cut once-should be applied to the Nama set up and consult very widely indeed and for God’s sake LISTEN
Nationalise and Nama-ise at our convenience.


I find your attitude very difficult to understand. Let me pick out three things you wrote.

1. “The pro and anti-Nama factions will slug it out, like small boys on a football pitch, who’ve long forgotten the purpose of the game and are only interested in besting one another?”

Really, honestly, what are you talking about? From a personal perspective, I read this to imply that you think my only interest here is “besting” pro-NAMA advocates? It’s hard not to read this an an unnecessary personal insult.

2. “only if it’s the case that the 46 signatories to the Irish Times article, especially its principal authors, have not already made substantial submissions to the Minister and the Department of Finance on the draft legislative proposals for Nama that were published for public consultation several weeks ago now? One presumes that a detailed and lengthy response to the public consultation has been made?”

I have made my opinions on the draft legislation clear on a number of occasions and, as I have reminded you before, I have put forward alternative plans, updating them so often to reflect events and good ideas from others. Your notion here — that the only useful and acceptable type of commentary is incremental calls for small changes to particular clauses of the draft bill — is one that I would completely reject.

3. “It would be a pity if the debate degenerated into the equivalent of a schoolboy row. I also share the concerns of other posters that time is being lost, time we can’t afford anymore.”

I really don’t understand the “schoolboy” comment. This is serious business and I, for one, have always tried to discuss the issues by focusing on the substance rather than the personalities. (I have, for instance, chided a number of commenters who have been personally rude about Alan Ahearne and have deleted any comments on my posts that insult him. This is not acceptable.)

And as for the time business, one almost gets the impression that you think it is the fault of academics that it took the government all this time to publish draft legislation and then decided to go on holiday for a month. There is plenty of time over the next few weeks for a serious debate and chastising those who engage in it as acting like schoolboys is both mean and silly.

Incidentally, I believe that Alan willl come to regret his “not a toy for academics to play with” line.

Two points on potential losses.

1. One does not have to get anywhere near as low as Brian’s €30 billion figure for the banks to be insolvent. While I think this figure may not be too far off (see below) I think it is a tactical mistake for anti-NAMA economists to focus too much on this type of figure because your position then becomes caricatured as relying on extreme assumptions, when in fact this is not the case.

2. What’s the value of development land? Well, let’s quote from Anglo Irish Bank’s Interim report, published on 31 March:

“Since September, land values, particularly in Ireland, have fallen by up to 40% bringing the total estimated fall in values to between 50% and 70% from peak levels, and this has been taken into account in assessing the impairment charge for the period.”

This is a fully state-owned bank saying that land values had fallen by 50% to 70% back in March, well before further rounds of tax increases, expenditure cuts and increases in unemployment. By all rights, the Minister should also be focusing his ire on Misters O’Connor, Dukes and Daly as well as Prof. Lucey.

Sorry guys I’m back with the subbies and Senior debt holders again. I had another look on the Department of Finance website this afternoon and looked at the FAQs on the current guarantee. The list of covered liabilities under the Scheme includes senior unsecured debt, covered bonds (thought these had there own back-stops in place??) and dated subordinated debt. The department tells the reader that the guarantee is unconditional, irrevocable and ensures the timely payment of the covered liability. I don’t know maybe I am innocent but if I am sitting in London, Paris, Frankfurt and I read this I would think- fine, that’s my sub-debt or my senior debt in Irish domestic issuers covered for the time being…..

The idea of hitting sub-debt holders or senior debt holders now would represent an event of default by the state in my interpretation. There is no point debating the rights or wrongs of last September’s guarantee at this stage as this horse has already bolted, therefore we cannot now turn around and not honour this guarantee. Just reading Karl Deeter’s post re comments from Stephen Drew backs up the point I made earlier, if we go around clobbering all the existing investors they just WILL NOT come back. We would be very foolish to think we can go on as a nation without listening to foreign investors.

@ Ted McCarthy
I spoke to a few people I know in the investment industry today while this was fresh in my mind. The outside world is paying particular attention to our lil nation at the moment apparently. Over the next number of weeks two of the biggest decisions it has ever taken are coming down the track – Lisbon2 and NAMA. I am not going into the ins and outs of Lisbon at the moment as I am sure it will take on a life of its own over the next few weeks (a source of more worry). I am currently worried about the direction we could possibly take in alienating the world’s investors. The impression I have been given today from guys I was in college with and their colleagues (both sellers and buyers of credit) is that they expect to see some kind of progress made on NAMA in the next few weeks. What these guys want to see is certainty (don’t we all), it doesn’t take a genius to work out that Ireland got “a bit” carried away when it came to its own property market but now the international view is that at least our government is being realistic and admitting we have a problem unlike say, Spain, where they keep telling the world “there is nothing to see here, keep walking”. According to one guy at a French bank, his investors are saying that everything they are hearing about NAMA and the new guarantee has been constructive and shows a willingness from the Irish government to be proactive. Investors are now looking forward to September 16th to see how it works. While I think it is accepted that NAMA is not the perfect solution, the best time to really address this issue was back last September not now. Now we have to deal with the cards we have and to a certain extent, dealt ourselves. Wiping out foreign investors to my mind is not the way to do this, we need them to pay for the day to day running of the place aside from anything else. Anyone who thinks they can come up with a single solution to our problem in one go is deluding themselves and that is why I credit BLenihan (difficult to do this) in saying that he was open to suggestions in how to tweak NAMA but ultimately in one form or another it will go through.

@Karl W.
It is regrettable that personal insults have entered this serious debate. The fact that BL announced on RTE news that taxpayer protection would be built into the final version of the legislation is clear demonstration the the work you and Brian Lucey( and 46) have done has changed the debate from writing whatever cheques are necessary and no nationalisation at any cost to a position where Minister Ryan announces taxpayer protection and it is confirmed by BL all in the one day.


“According to one guy at a French bank, his investors are saying that everything they are hearing about NAMA and the new guarantee has been constructive and shows a willingness from the Irish government to be proactive.”

Taxpayers/citizens of Ireland, be very very worried.

Yeh guys, I agree with podubhlain. personal insults will get none of us anywhere, ultimately something, in some form has to be done. I dont want to seem like I am criticising your intentions. I just think on some things you may go a little to far. There does have to be protection for the taxpayer and our kids but there must be a way this can be done without completely alienating the guys who give us the money to pay for our day to day public expenditure which we as a nation have also let get out of control….


The lack of detail available makes it difficult to make a reasonable guess at losses. Although 30bn may appear low, 33% recovery rates are not unheard of. The behaviour of NAMAee banks in relation to Zoe Group suggests they’ve found a greater fool.

I expect ‘performing’ versus ‘non-performing’ loan discounts will be a key variable for banks to remain private. This and a mixture of discounts weighted by loan type and lender. For example, an aggregate 70% off development land could be assigned as 90% off Anglo loans and 50% off AIB.

@brian L: you’ve basically just said you took a few email lists and blasted them out getting a one in five response in that case!

as for working for NAMA, I’ll gladly stay in the private sector thanks!

@michael hennigan: everybody serves somebody, to think that an industry economist can’t be honest and make profit is a ruse. why would (for instance) a person working for Santander not be willing to comment honestly on the irish situation? doing so can help find profit on short sells etc. It implies that the ENTIRE world of finance is in collusion with commentary on ireland.


I am glad you have stopped allowing insults of Alan Ahearne. Some of the comments made by certain people elsewhere are contemptible. We may all come to regret things we have said but let’s hope vicious insults aren’t amongst them.

KW: “This is a fully state-owned bank saying that land values had fallen by 50% to 70% back in March, well before further rounds of tax increases, expenditure cuts and increases in unemployment. By all rights, the Minister should also be focusing his ire on Misters O’Connor, Dukes and Daly as well as Prof. Lucey.”

Alan Ahearne appeared to demonstrate how a 50% drop in property values could easily be accommodated in a 30% haircut. Elsewhere, others have suggested that a 75% mark down for property can be accommodated in a 30% haircut. From Jon Ihle on thepropertypin:

“It goes something like this: imagine a loan of €100m on an underlying asset with a peak value of €133m (in other words a €100m loan at 75% LTV). A peak-to-trough price decline of 70% wipes out the €33m in equity and a further €60m, leaving the collateral value at €40m for a 60% nominal loss on a fully defaulting loan. You would expect NAMA to buy that loan at a discount to €40m and then try to recover some value by either getting the borrower to pay up or selling the collateral at some point.

However, NAMA does not assume 100% default on 100% of loans. In other words, not every loan is going to have a 60% nominal loss. If Goodbody’s numbers are anything to go by, the working assumption is a 33% probability of a loan incurring a total loss (or, put another way, there should be an aggregate 33% loss on loan values – which are NOT the same as asset values – across the NAMA portfolio). So 33% of the 60% nominal loan loss on a peak-to-trough decline of 70% in the underlying asset equals a 20% overall haircut. That doesn’t seem crazy to me, whatever the overall craziness of the NAMA concept.”

Perhaps the assumption of less than 100% default on 100% of loans is what you should be looking at rather than inferring an assumption that property prices will return to early bubble prices?


The Minister has never said no nationalisation at any cost. He has said that 100% (“wholesale”) nationalisation of the State banks is to be avoided if possible. I have always seen his comments as allowing for a large equity stake as was done in the UK. Can we hit this canard on the head once and for all?

Brian Lenihan speaking on 26 May 2009:

“I would like to comment on what many commentators seem to be suggesting is an alternative to an asset management agency approach – that is the wholesale nationalisation of the State guaranteed banks. The Government does not accept that the nationalisation of the whole of the Irish banking system will be the short term panacea that many envisage.

The Government believes that it is important, where possible, that the banking sector has a market presence and that it operates within market disciplines and constraints. The Government’s objective is to ensure that the lending needs of the real economy are met. A commercially focused banking system, which includes banks having a market presence, operating within market disciplines and constraints, is best equipped to achieve this aim.

Nationalisation will not in itself make the problems faced by the banks go away. I should remind Members that many of the difficulties relating to managing impaired loans, cleansing the balance sheets of the banks and dealing with legal challenges will also arise in the context of a nationalised banking system and perhaps even to a greater extent. Nationalisation I believe is something we should avoid if possible.

This is not a position held no matter what the cost, but is rather a balanced approach to the existing situation. Indeed I have made clear that if any further capital injections are required from the State for either of the two main banks, these will be in the form of equity capital which would have the effect of increasing State ownership of these two banks.”


Apologies – “stopped allowing” should read “don’t allow”. I am not aware that you ever did allow them!

“There does have to be protection for the taxpayer and our kids but there must be a way this can be done without completely alienating the guys who give us the money to pay for our day to day public expenditure”

Do you have a view on the foreign investors who were shareholders rather than bondholders?
At the moment the present view seems to be shareholders know the risks when investing and should get nothing. Many of these investors are international.
On the other hand we must not do anything to upset bondholders who after all also know the risk and charge accordingly.

So the score seems to be shareholders 0%, bondholders 100%.

It isn’t really surprising the international financial community like Nama – they get their money back. That doesn’t mean they’re going to reinvest in Ireland. More likely they’re going to say “phew got our money back. Let’s find somewhere safer for our money.” I don’t think they care too much about the poor Irish Taxpayer.

The reality is we can debate long term economic value of property till the cows come home but we won’t know the real answer till it happens. It could be up, it could be down, it could stay the same. Nobody knows nor can they know with any degree of accuracy. If they are right it will be a fluke.

Presumably all these brilliant advisors on valuations in the DoF are the same ones who saw Irish property values rising forever. Why do we think they’re going to get it right now?

PS I’m an accountant. Fair do’s to the economists for coming out with an opinion. There is nothing stopping other groups from doing the same.

Seeing as Podubhlain mentioned nationalisation and seeing as it underlies the concerns of Ashley Piggins above, here is what the Minister said on Today FM:

Matt Cooper: “…but if you’re in a situation where private individuals still own the bulk of the shares in AIB and Bank of Ireland, if you overpay for those particular loans then you’re more or less giving money to those people.”

Brian Lenihan: “Yes but that’s why we have to be very very careful in doing the valuations and that’s why we have to be open to increasing the public stake in these institutions. What I am objecting to is 100% Nationalisation”

Matt Cooper: “Why”

Brian Lenihan: “Because the experience… no other country in the world has tried it….and the experience with Anglo has already been that it’s very difficult to fund from international markets banks that are 100% state owned.”

The way I read some of the posts here makes me even more cynical than I thought possible.

The international investors who at the moment are not covered in any government guarantee seem to feel they would get unfair treatment if they are not included by the government guarantee. They seem to feel so strongly about this that they’d even refuse to buy bonds with an actual guarantee.

To the part where I get cynical, they are not even embarrassed about saying this. These people claim to be professionals who are making financial decisions based on facts. Their behaviour would be more indicative of emotional basis for decisions. If I had hired them, I’d let them go as their judgement have been proven to be clouded by emotions.

Do these people claim they did due diligence? If they did, then I’m not impressed by their skill. If they did not, then they should encounter the same caveat empor as any other buyer.

NAMA is being pushed as the one and only solution and that there is no time for a debate. Those arguments fail to convince me of the wisdom of 90bn of spending. I’d like to see the other arguments.

In addition, I believe there is some confusion here. I believe there are those who believe that the incurred lossed can be made to disappear by using a magic solution. Unfortunately there is no such solution. The losses have to be carried by someone. The possible sufferers are:

-the shareholders
-the ones currently not covered by the government guarantee
-the taxpayers

If the shareholders and all the ones not covered by the government guarantee are absolved from losses who will then suffer the losses?

Alan Ahearne has given quite a few hostages to fortune.
Insulting colleagues is one – they tend to have long memories and this game will run for 10-15 years.

But stating that NAMA will pay for itself from Day 1 at a time when he says there are no valuations etc. sounds too good to be true.

And surely if we have learnt anything it is this:
If it sounds too good to be true, it is too good to be true.


You forgot the borrowers form banks! They are first in the line. Also, the banks have been able to buy back unguaranteed debt at a discount thereby enforcing losses on the unguarantted debt holders. Shareholders have lost 90% from peak and that is a hell of a lot of hard working Irish people’s savings down the drain. Their shareholding will be diluted post NAMA by recapitalisation. This is not necessarily fully factored in by the market to date so there could be more pain for shareholders to come.

here is the quote from Gene Kerrigan Sunday Independent-Incredibly, a spokesman for Mr Lenihan was quoted last week as saying “the Government is determined to avoid nationalisation at all costs”. This is how bull-headed, one dimensional and insane the current policies are. “Whatever cheques are necessary.” “At all costs.”
This was also reported earlier- cannot find the piece.

Surely you can recognise that the problem with Anglo Irish bank is not that is 100% nationalised but that it is a completely failed entity that has more in common with a John Grisham novel than an economic entity. Only FF believe that this is a bank of systemic importance and has an actual future outside of liquidation.

The fact that it was nationalised in January is just a measure of the perverse advice which is dictating policy to Lenihan. In December he wanted to put preference capital into Anglo when FG were telling him just to wind it up.

Northern Rock in the UK is a fully nationalised bank and we don’t have Alastair Darling on every second day saying that he cant get for funding for Northern Rock.

Lenihan has no qualms about distorting and ignoring facts.
Maybe we should just blame it on heredity, but he is not to be 100% trusted.

BTW – NAMA will be 100% state owned.


What is happeing in in Anglo is as close to an orderly winding up as you get. It is being reduced in importance in everything but name. BTW – won’t the other banks be “completely failed” entities if we nationalise 100%? Why is Anglo different?

Not only FF but others thought Anglo was systemic. Patrick Honohan revisited this and said the risk from Anglo was genuine and it may well have turned out ot be systemic even if we will now never know. Alsn dukes, who is now a director, said it didn’t take toom uch to work out that it was systemic.

Brian Lucey on the other hand said it wasn’t systemic and that we should have let it go to the wall last September. I take it you are with BLucey on that one!

You suspect the Minister is not being 100% accurate about the problems involved with running state owned banks? Do you have anything at all to back that up?

As for NAMA being 100% state owned, are you suggesting that Nationalised banks could or should be funded in the same way as NAMA to the extent necessary to allow them to carry on all the lending required by the real economy?

@Maurice O’Leary

“But stating that NAMA will pay for itself from Day 1 at a time when he says there are no valuations etc. sounds too good to be true.”

You have identified the issue that needs to be nailed. The Minister has stated that he will issue bonds at 1.5%. How?. INBS paid 3.5% with a Gov. Guarantee this week for one year money.
The two issues are
1. Overpayment for loans
2. Ongoing cost of funding of NAMA
The difference in rates (1.5 v 3.5) on such astronomical amounts would cost dearly on an ongoing basis. Then there is the issue of borrowing short and lending long.
I noticed some bank traders earlier. Perhaps they could enlighten us.

For those who think that the 46 should have been adding private economists to the list – nothing stopping them from writing their own letter. There’s no monopoly on public service (except the Civil Service, but that’s a whole other debate).

Brian Lenihan has expressed a strong view that the banks are better off having a market presence and operating within market disciplines and constraints – speech of 26/5 quoted in Zhou’s post.While it is to be expected that many market participants will perform very much better in the future,market disciplines and constraints (not just in Ireland) have been found woefully inadequate.As long as the institutional shareholders who carry most of the voting rights continue to give the governance agenda a very low priority this will not change .{How they voted when the bank boards came up for re-election does not augur well}. BL & AA are in my opinion imistaken in being so wedded to the value of retaining public company status.

Anglo should never have been taken into public ownership.
We said it loud and clear in December that it should be wound up.
We don’t know what happened on September 29th – it may have been necessary to have extended the guarantee to Anglo. But that is as far as the state needed to go.

You recognise that Anglo is effectively now being wound up but it is costing us taxpayers maore than is necessary. As I have said repeatedly here and elsewhere, a compulsory wind-up of Anglo under special resolution regime powers would have resulted in a 100% lose to the sub-ordinated bondholders as none of their bonds were due to be repaid in the guarantee period.

Every penny Anglo is now using to buy back these bonds at a discount is still a waste of our money and a free gift to those people. In a proper wind-up they would have got nothing.

But then isn’t Seanie Titzpatrick one of the bond holders?

@ Brian Lucey
Suppose we are more cautious on the estimate of the government deficit (the letter goes for €30bn). The government itself forecasts a deficit of some €20bn this year, and has a working hypothesis of as much next year. That works out at some €9,700 per employee per annum in the Republic. i.e. the government is borrowing fresh money to the tune of almost €10,000 for every person working, when the average industrial wage has been around €32,500 (you can add another €12,000 for other wage benefits if you like).

@ LD
I have to disagree with a good deal of your premises. Yes the blanket guarantee was unfortunate, and developments since have singularly complicated matters.

Sub and senior debt across the globe has performed spectacularly well of late. The higher the yield, the better the performance has been. Investors that hold such debt can take profits should they so wish.

The letter today strikes the right chord, concluding, “the Government should not burden the State with more debt than is absolutely required”.

In Sep 2008, there was a large transfer of risk from the financial sector to the State, and many other sovereigns followed suits in the following days and weeks. Sovereign credit Europe-wide was trashed as a result.
That move has since largely reversed, more so in some countries than others. It ought to be of little comfort that the improvement in global risk appetite has been prefixed on a strong pick-up in the world’s economy.

There may be no immediate upfront cost to NAMA. The scheme will help reduce sovereign debt costs if it is seen as a good deal for the taxpayer over the coming years. Some hope.

More generally, policy over the past year has been marked by a desire to keep everyone somewhat happy. But the scale of the losses unfortunately may not allow for that in the coming years. The State can rescue at the same time the taxpayer, the workers, social welfare recipients, the banks, the bank’s shareholders, … did I leave anyone out?
Far larger adjustments – in living standards or in levels of wealth – will be required at some stage, I fear. Who do you want to bear that burden?
Slashing contingent liabilities is one step towards fiscal probity. Such moves will be greatly appreciated by buyers of Irish sovereign debt in good time.

@ Michael Hennigan
Economists can have free rope in taking about macro issues. Finance has too much nitty gritty to make that feasible.

@ karl deeter
It was not practicable at all to extend the letter outside academics.
Yes everybody, wherever, in finance, has responsibilities and duties.
And if professional, will be all the more guarded if they feel they don’t know the issue or the country well enough.

Economists agree/disagree on many issues. Who was it that said if you asked a 100 economists a question, you would get 100 answers, or maybe 200 answers from the two handed economists. The government has clearly chosen the one economist that agrees with their particular views to gain political legitmacy, much the same as their selective quoting of international bodies.

Problems with nationalised banks raising funding.
Really, how can any intelligent person fall for that one.
That is a pure Lenihanism – a lie so outrageous that his father must be smiling down from him from the FF version of heaven – after hours drinking and wild games of poker.
I already gave you the example of Northern Rock, a 100% nationalised bank. They don’t have any particular problem raising funding.

Among individual bank staff, you get worried about staff members who don’t take holidays. The corresponding warning light for a complete bank is a very large amount of director and other insider loans.

Anglo is different because in the last few years it was more of a criminal conspiracy than a bank, run for the benefit of directors, senior management and a relatively few of their borrowers. There was a conspiracy to mislead investors and depositors, which for some reason we can not conceive (or hint at) the authorities were aware of and yet chose to do nothing about. The level of director loans is absolutely unprecedented and has no parallel outside of criminally fraudulent banks such as the US S&L’s. Unsurprisingly, this level of insider action had spread down from board level to much of the next tier of management.

BTW – it is a matter of public record for those who care to trawl share registers that my family were substantial investors in Anglo so I have an interest. I obviously can’t claim to be very wise but I felt completely betrayed by the revalation of the concealed loans – it completely blew my financial future out of the water. A comfortable retirement and being able to pass a substantial sum on to my girls has been replaced by working till I die.

No matter how stupid AIB and BoI were, there is no real comparison with Anglo and while they are currently in a zombie state, they are not rotten to the core. And that is why, in spite of the sovereign backing which Anglo now has thanks to nationalisation, no one with a brain in their head wants anything to do with it. There are plenty of other places people can put their money and not have to worry about it.

I did not sign the letter to the Times as I did not get the email from Brian Lucey. I would like to think that I have as good if not better paper qualifications in economics and finance than a lot of those who signed. But if I do not I do know that I have a lot more real business experience having run a business here for nearly 30 years, employing many people mostly university graduates, creating wealth and paying loads of taxes in various forms to this shoddy Government who could not organise the proverbial pi**up in a brewery. Over the last 24 months due to the inaction of this Government or maybe just inertia I now like a lot of other business people see my business melting away leaving me limited options including the breakup of great teams of people who now face the dole including myself but I do not qualify for it. It is not academic arguments I am interested in. I want action from this Government to govern this country, implement the Mc Carthy Report and sort the Banks out using NAMA with whatever tweaking is required to save the taxpayer and the country from complete meltdown. There is no sense of urgency from Academics who do not understand how fast the business community is being sacrificed for a media beanfest and noteriety. The Confidence of those of us in business is shattered to the point where it is close to the point of no return. When that happens this country will be a wasteland .

Not sure if you are in an academic economic/finance dept but if you were then you would have gotten the letter. KarlD aside its not possible in any realistic way to survey every single actor in the economic sphere.
Its a little unfair to say “There is no sense of urgency from Academics who do not understand how fast the business community is being sacrificed for a media beanfest and noteriety.” In fact, its wrong. Your argument is predicated on an assumption that none of us have friends or family in SME’s or in other areas feeling the pinch. Can I assure you that that is not the case, at least for me. I know very well from personal familial and friendly experience the issues. But I would rather wait, get it right and do it then than rush . Not that the DoF are rushing mind….

I don’t see a problem with it at all. I don’t even see an ideological objection from Mr. Lenihan. More to the point, I don’t think the ECB will see a problem with it either. The question then is what form of cash/paper/navel lint can be used to ‘buy’ the equity stakes? Can NAMA-swap-or-rama bonds be used?

It appears that private equity loans (up to 20 bn?) will also be transferred to NAMA. These may constitute the other 30% LTV of commercial/development properties. If this is the case (prove to me otherwise!) then NAMA will be taking on 100% LTV…

If not, are you really telling me there is (or was) 38 bn of equity in buildings and land that wasn’t used for leverage? In the biggest property bubble the world has ever seen?

My view on foreign shareholders versus bondholders was summed up in my post at about 11.00 this morning, the sub-debt holders got paid a higher pick-up for taking the extra risk. It was only later I went on the Dept of Finance site FAQs that I remembered fully the implications of the current “irrevocable” guarantee. That is sub-debt holders are covered until September 2010. My view is that these investors “should” have understood the risk they were taking on, the subbies and equity investors took higher risk stakes in the banks. The fact that we (our government) decided to cover the lower tier investors too in the form of sub-debt investors is now a done deal. If I go into BOI, AIB, or whoever, and open a savings account under the terms of the contract I don’t believe I am taking on any particular ownership of the institution (this may be not the same for Building Societies???). Senior bond holders essentially take on the same relationship as my savings account, they rank first along with my account when the money is handed out in the event of anything being left at wind-up stage. The state has now also guaranteed these senior debt holders therefore the suggestion that these guys get knocked-off while my savings account is covered does not sit right with me. The score being “shareholders 0%, bondholders 100%” is a situation that was partially created already by the reaction of the state in September 2008, it is not something I am necessarily proud of as a citizen of this country but as it stands until September 2010 it is something we cannot undo if we mean to maintain any credibility with outside investors. You are right there is the potential these guys could simply cut and run and never come back, it is difficult to know how it will pan out, but I would be fairly certain if we renege on what we have already agreed in the Sept 2008 guarantee there is no hope of seeing them again.

On a lighter note; doffing a deferential cap to the have been/will be enumerators….


Tyger! Tyger! burning bright
In the forests of the night,
What immortal hand or eye
Could frame thy fearful symmetry?

In what distant keeps or skies
Burnt the desire of thine eyes?
On whose wings dare he aspire?
With what hand dare seize desires?

On whose shoulder, from whose art.
Could twist the sins of thy heart?
And when whine heart began to beat,
What land bank? What development feat?

Under the hammer! What’s the gain?
In what future was thy brain?
What envy-eyed councillors grasp
Dare envelope? In errors lapse.

Then the stars threw down their jeers,
and watered Ireland with their tears,
Did he smile his work to see?
Did he who gave the banks give thee?

tyger! tyger! Burnt so bright
Lesser forests, in our plight,
What immoral hand or eye
Dared to frame thy un-fearful lies?

By Well,iam Broke

Many thanks for your views, they are very interesting. I think it ties into the wider point being discussed of the need to get more people in the frontline (i.e. active in bond markets) involved in this blog so as to get a view on how each of the options will operate in reality.


Anglo and the consequences of letting it crash (unfortunately we don’t have orderly wind up legislation) has been discussed elsewhere. I don’t see the point in rehashing it here. You have my sympathies on your loss of investment. I hope that there will be civil actions in relation to reliance people put on statements as to Anglo’s financial strength and how it promoted and funded investment in itself.

You seem to think that nationalising AIB and BOI (and I expect consequently the other guaranteed institutions) will not make it more difficult to borrow cash or expose the State further. You base this on the experience of Northern Rock in the UK. I don’t think it is comparable to having the three biggest banks in Ireland nationalised but you are welcome to your opinion. All I did was relay the Ministers comments. It will be a pretty threadbare discussion beyond that.


I am not telling you what the aggregate LTV of bank loan books were. I am only pointing to the examples given by Jon Ihle and the statements of the Minister and Alan Ahearne. I don’t know what the overall LTV is. I expect that it will have to be assessed for each loan that is acquired. You are speculating and I guess we all are to date. Hopefully the figures to be announced by the Minister on 16 Sept 2009 will give us a clearer picture.


I think a lot of people share your view and God knows a lot of people are experiencing that pain. People are extremely angry with the Government and will give them a kicking in due course but for now they still want them to get on with fixing the mess and to be let get on with fixing the mess. I think that is why a petition such is we are discussing is hugely important as it could well contribute towards scuttling NAMA and the Government. I know the author and signatories have serious concerns but just how perfect does the plan have to be before people will work with and not against the Government?

@ciaran o’hagan, mark dowling and brian l:

it wouldn’t have taken more than an hour or two to ring up a few of the people you were in college with and who now work in industry and email them too, the truth seems to be that you didn’t bother to try. if you want to have influence on something it is best to have at least some public support from within – which you likely do but nobody knows about it. and thus it ends up as i said before: people at the ringside trying to influence the outcome of the fight.

Separately on anglo: how can they offer such high deposit rates given that they have equal (if not greater) default rates to the other banks? on demand accounts they are paying 1.35% over the next irish bank, over 1.5% more on the 6mth… and yet nationalisations are not expensive? Where is the money coming from to attract and hold that capital? its a transfer from the taxpayer and hence anglos bail out was bigger than the rest, if nationalised banks didn’t have a problem attracting capital then why is our only nationalised bank paying well above the odds on deposits?

I am coming to this thread late and with a slightly tangential comment. This blog and the various contributions to the print and broadcasting media have been invaluable in promoting public discourse on this most important public policy issue. I am wondering, however, if anyone has thought about doing a little more? I am thinking of the town hall meetings currently taking place accross the US on the health care issue. Is there any group out there who could organise meetings to which Government and pro-NAMA speakers could engage in robust debate with those who disagree? This is probably the most important debate that will take place in this country for very many years. It needs to be extended, perhaps?

Does anyone have any stats with regard to how financial investors react if they get burned?

I mean do they avoid the country where they get burned like the plague afterwards or do they reinvest if there is a perceived reasonable rate of return for the risk?
Do new investors avoid a country like a plague just because there has been default in the past?

Did those who lost out in Lehmans reinvest in other American financials?

Its just that it is all very well for LD and Brian lenihan to say that the water from the tap will be cut off and all investors will treat us like pariahs but is there evidence to suggest that this is correct?

Alan Aherns comment about “academics treating the economy like a toy” indicated to me that he knows that he has important information that the rest of the academics do not.

Threats/lobbying from these investors perhaps?

@Eamonn Moran

Who are these “bondholders”?

James Carville said: “I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody.”
Wall Street Journal (February 25, 1993, p. A1)

[Original version ( – James Carville: “When I die I want to come back as the bond market because apparently it’s more important than the f_cking Pope!”]

Karl D
yes, it wouldnt. But that would be a biased subjective universe from which to draw inferenec. Imagine you would then be saying “well sure if you ask yer mates”…..
So KarlD until you can give me a decent universe to survey, im not going to so survey. It would be , to paraphrase AA “sloppy” to do so.
Tell you what – why dont you go do it?
“Mortgage Brokers and Estate Agents for NAMA” will hardly be news tho KD.

@Karl D
“how can they offer such high deposit rates given that they have equal (if not greater) default rates to the other banks? on demand accounts they are paying 1.35% over the next irish bank, over 1.5% more on the 6mth…”

Post hoc (anglo are using the state guarantee to act in an uncompetitive manner)

ergo (therefore)

propter hoc (all nationalised banks, not just vampire zombies, will rape and pillage)

Anglo could have been wound up.
(1). Companies are wound up every day.
(2). He needed legislation to nationalise Anglo – he could have passed special resolution regime legislation in the same time.
Don’t tell me that the AG’s office had none prepared – if there was not any previous work done, he had 3 1/2 months from the guarantee to do it. It was FG policy from 4 weeks before nationalisation to wind-up Anglo in an oderly fashion. I refuse to believe a man as clever and astute as Paul Gallagher would not have done the preparatory work.

I am not arguing in favour of nationalising BoI and AIB.
I am just saying that Lenihan is lying outrageously when he claims that 100% state owned banks have difficulty raising funds.

The shareholders haven’t a hope of getting a penny in this state from the directors who created accounts designed to deceive the investors [I hope that this bald statement does not break IE rules – I have tried to say this in the most acceptable way].

The 46 economists did the country a considerable service if their action served to bring about change in what we have been told so far about NAMA.While some of the refinements suggested by Patrick Honahan and others would most definitely improve NAMA,the core issue is nationalisation or the State acquiring a majority ownership.
The fact is that having invested €7 billion already into 2 banks which had a market cap of c. €2 billion at the time and which only continued to be in busines because of the State guarantee of deposits,we should own most of AIB & BOI already.This was a dreadful transaction in which once again the taxpayer was sold short.
Yes,AIB & BOI will be very profitable going forward and attractive to investors once the toxic problems have been parked. However in any rescue situation,the party who takes the risk which enables survival/turnaround ends up with most of the equity – its called capitalism.

@Brian Lucey, Karl Whelan

Regarding the op-ed in the IT yesterday, it was stated that: “Another issue, which remains opaque, is the duration and scope of Nama. In terms of duration we remain unclear as to how long it will linger. Minister for Defence Willie O’Dea has suggested that Nama could dispose of its task in seven to 10 years.”

Regarding your alternative proposal of nationalisation, how long do you estimate before re-flotation – I would have thought it could be the same timeframe as above – do you agree that it could take 10 years? – the duration of nationalisation is unclear, so the above argument also applies as a criticism of nationalisation (as I see it)

Do you think also that another (essentially unrealistic) asset bubble needs to form for a) NAMA to succeed b) Your nationalisation proposal to succeed? If so, how do you suggest such a bubble could again be formed – I expect that the same conditions of easy credit that prevailed to create the previous bubble will not occur again in the next decade…


I don’t think going over the nationalisation of Anglo as a side issue on this discussion is worthwhile.

On the point of whether it nationalised banks find it hard to raise funds, I admit that I am not in possession of much information for or against the proposition. Similarly, I think you have zero information on which to allege that “Lenihan is lying outrageously”. I respectfully suggest that you should stop making such statements here. If you have info then you could just quote the info or just say you doubt the accuracy of Lenihans remarks.

I also note that Karl Deeter’s remarks indicate that it is more difficult for Anglo to get funds despite its 100% State ownership and the Guarantee. I note you put this down to Anglo being Anglo but I think it is relevant as the only factoid we have.

Whether or not there is a cause of action in relation to happenings at Anglo, I think it is regrettable that there is no legal mechanism for class actions in Ireland.


Do you think the Minister is wrong in saying Nationalised banks find it harder to raise funds? As a finance guru, what do you base your opinion on?


You are mistaken in concluding that the schoolboys in the yard analogy is directed at you personally or your actions. Granted the image arose from your statement: “if such an alternative groundswell of support did exist, I would strongly suggest that they should put forward their own piece.”

First, the media’s primary interest is in confrontation – if there’s no fight, there’s no story; so their (perfectly legitimate) interest is in the confrontational aspects of any issue, not a debate on any matters of substance; on certainties, not probabilities or subtleties. Hence the provocative headline that you may feel didn’t accurately reflect the substance of Professor Lucey’s article, but that from a media perspective appears entirely fair. My concern, and I think it’s a reasonable one, is that any issue debated solely through the op-ed columns of the mainstream press risks massive distortion, inevitably becomes personalized and eventually boils down to the equivalent of a schoolyard scrap.

Second, as we all know you can’t prove a negative. Is there anyone out there who would contend that Nama will not pose any risk to the taxpayer? My fear would be that if such a group were to emerge, what would ensue is a tit for tat exchange between competing factions where more heat than light would be thrown on the issues, adding to the public confusion, rather than promoting a broader understanding of the decisions that have to be made in our long term interests.

This is where my question about a formal submission comes in. I am not, as you infer, suggesting you should advance incremental changes to the existing draft Nama legislation alone and I have taken on board your responses to questions I have raised previously. I believe you and your colleagues are entitled to respond to the draft legislation as a whole, and in a far more detailed and comprehensive way than you can do through any public medium, (and certainly not within the confines of an op-ed piece in the Irish Times, or this website) to set out your alternatives to Nama. You obviously don’t agree with me on this point, but I think your group would have a great deal more influence on the outcome if you made a formal submission and used it subsequently as the basis for op-eds. Further, it would be very difficult for anyone in the government, or associated with it, to seek to question the credibility of any of your arguments.

As an aside, and as I have commented elsewhere, personally, I think a great opportunity has been missed: it would have been very helpful to an informed and intelligent public debate if the Oireachtas Committee on Finance had convened over the past couple of weeks to examine the published draft and invited experts, including the academic economists, to come in and share their views on amendments and alternative ideas to ensure an asset management agency works as well as possible in the public interest, when it is finally established.

As for your comment ‘one almost gets the impression that you think it is the fault of academics that it took the government all this time to publish draft legislation and then decided to go on holiday for a month’, your impression is wrong. I despise blame games of any sort. They may a natural reaction when life goes wrong for us but they’re a terrible waste of energy.

By conventional standards, the draft of the NAMA legislation has been produced relatively quickly. It also came with a public consultation billing. The time interval is reasonable in that it allows for public debate and for interested parties and those with appropriate expertise to respond with objections and proposals. I would also argue that politicians, whether in government or opposition, are entitled to take their holidays the same as everyone else if they’re going to function properly or at all. If Nama is entirely scuppered, new legislation for an alternative asset management vehicle will have to be drawn up, and that – and the likely intervening general election and formation of a new government that would precede it – would cause further delay. It’s the consequences of that delay that I’m afraid of, Karl.

By the way, I’ve been called a lot of things in my time, some of which would be quite unprintable! Silly, definitely I’m silly occasionally. Perhaps self-indulgently, I regard it as a badge of my humanity and anyway it allows me to laugh at myself. But ‘mean’ – now that’s a new one!

@brian lucey: actually anglo are not using the state guarantee, what is happening is that their debt is classed in with sovereign and investment funds won’t go beyond certain % holdings on irish debt – thus anglo have to pay over the odds and essentially create a transfer from the taxpayer to the depositor in order to hold the capital they have because the market is not interested.

regarding the survey – you are getting me wrong, i’m not talking about a counter petition of people ‘for’ nama, that list already exists,

some academics

the counter list (other than your petition) are – broadly…
sinn fein
joe higgins
Fine Gael

i know in which list my trust rests.

what i am saying is that it is a lazy approach to an important and pivotal petition to just mass mail college faculties and not even try to engage with industry, if i was to do such a petition you can be certain i’d be looking to have some academics on mine, but again, i don’t need to do that, the support base speaks for itself.

The Minister is incorrect when he says that nationalised banks have difficulty raising funds. He is also incorrect that the markets cannot distinguish between sovereign and corporate debt. e.g. that a partial default by an irish financial institution automatically means higher sovereign bond spreads.

Since the minister has no bond market experience, these must simply be lines he has been fed, probably originating from financial industry vested interests.

As someone who ran the scandi interest rate (bond and derivative) book at ** during the late 1990s we had regular dealings with Nordbanken, a temporarily nationalised bank arising from the swedish banking crisis. It was hard to distinguish between liquidity the market offered to Nordbanken and any other swedish bank.

When nationalised banks issue bonds, they will trade at a discount to sovereign debt. Buyers will always be found, the discount reflects risks such as possibility of re-privatisation etc.

In a world where many institutions are already in majority public ownership worldwide, there will be nothing unusual about temporarily nationalised irish banks.

Secondly, the notion that one senior bondholder losing one euro spells financial catastrophe for the country is a nonsense. There is an optimum level of default which balances taxpayer interest against higher future funding costs for irish financials. This should be determined, but it is obviously non-zero.

There appears to be an irrational fear of financial markets in government circles, which must be fed by ignornance. So much financially illiterate non-sense from government that one starts to doubt that any capital in this country is safe.

Jon Ihle on the difficulties for nationalised banks raising cash:


Is it possible to be anything other than ignorant on how default will affect future borrowing? Is there a market index of this “optimal” level of default?

– are senior bonds a form of subordinated debt?
– are senior bonds and senior debt different things?
– in what form is the “non risk” debt owned by insurance companies et al which the Minister does not want to default on?

I also dispute the idea that Anglo is having difficulty raising funds because it is nationalised. Indeed, I posit that the only way it can raise funds at all is because it is nationalised.

Anglo went bust because the interbank lending markets closed to it. There was an institutional run on it. Confidence evaporated. Why? Because its management lied about directors’ loans; they lied about their funding position (corporate/retail deposits); they lied about loan losses.

The failure of the authorities in Ireland to regulate/investigate has indeed damaged confidence in the banking system in Ireland. Given what little we have been allowed to find out about Anglo, what skeletons lie elsewhere?

Nationalisation would open up funding for the banks, IMO, both in quantity and in cost. But given the likely losses from the banks, it would expose the state to huge risks, so I think it is a bad idea overall.

But NAMA as structured is not the way to fix this.

Better to strip the big two back to their traditional roles in retail banking. Fund them with recapitalisation in return for equity. Set up an SLS so they can pay the state to park assets. Turn them into RBS and Lloyds. Look elsewhere to get credit flowing in the economy (if there are any credit-worthy borrowers left who want credit…).

@ Karl andBrian
Listening to Newstalk!!
Perhaps both sides of argument have been made now and thats it…
Sort it out between ye, in the pub or outside it.
To break the ice over who buys the first I will offer 10 Euros for the first round of drinks, which may just about buy 2 drinks in dublin.


the fair drinking value of 10€ depends on location location location is that what your saying? 🙂

Alan Ahearne is reported in the Irish Times on 26 Aug 09 as suggesting that “there is no market at present either for land and development or for loans secured by land and development. That is why Nama is being set up. A ‘market price’ does not exist.”

I have two queries about this. First, is it correct to say that there is no market price? Reports of the Liam Carroll examinership application(s) suggests that his companies hope to dispose of most of its residential stock employing what was described as “aggressive marketing and competitive pricing” over a three year period. It was also indicated that the group had already sold 53 units at 2008 prices or higher, generating €11 million in sales.

Secondly, does anyone know what the government thinks is the reason for this alleged lack of a market? The terms of the draft NAMA legislation, and, in particular, the reference to the value that property can reasonably be expected to attain in a stable financial system when current crisis conditions are ameliorated, suggests that the government thinks that the depressed market is caused by international factors. Is this a fair assumption? What if the true cause of the lack of property transactions is that potential purchasers believes that house prices have more to fall, and are holding off buying until then? Such sentiment may, of course, be wrong, but if it were to be correct, and a national property bubble is the cause of the depressed market conditions, would this not undermine the assumption underlying NAMA, i.e. that the “current market value” is artificially low and because of this discrepancy the government is justified in paying “long-term economic value”?

I note that Alan Ahearne’s statement that no one associated with the establishment of Nama has ever said that prices will rise in the short term, and he goes on to state that “for the record, property cycles are 7/9 years in general”. I must be missing something, but surely the entire premise of NAMA is that the value of the property underlying the loans to be purchased by NAMA will rise? If not, how does the government hope to recoup its investment?

long-term economic value of the property comprised in the
security for a credit facility that is a bank asset is a reference to

Good to see someone with trading experience comment. Your concluding remark is apt. With the Germans expecting a second wave credit crunch in September we may have less room to manoeuvre. The lack of urgency is incredible. What is your take on the reported funding cost of the NAMA bonds of 1.5%

Quoting from Zhou’s post:

@Brian Lenihan: “….and the experience with Anglo has already been that it’s very difficult to fund from international markets banks that are 100% state owned.”

Is this true? It is already public information that Anglo’s customer deposits were boosted by 7.3bn last September due to unusual transfers from ILP. So Anglo’s deposits were under pressure in Q2 & Q3 2008. The final 3 months of 2008 and up to Anglo’s nationalisation were turbulent times for Irish Banks. It seems reasonable that this period would have seen a higher rate of deposits leaving Anglo.

Anglo’s March 09 interim statement shows deposits had decreased significantly over the prior 6 months. What it doesn’t say is how much had left before nationalisation. What was Anglo’s funding position at the point of nationalisation? After nationalisation, I thought I’d heard other banks complaining that Anglo was grabbing their deposits.

But back to the Minister’s comment, I am of the firm belief that Anglo would be under much greater funding pressure if they were not nationalised. 😉

@ YM & Ahura

The fact that Anglo would have access to no funds without the Guarantee does not mean that funding nationalised is easier than funding privately owned banks. The logic just doesn’t follow. If another bank cannot access funds we will ikely have to nationalise it too.

The rest of Ahura’s post about the flight of deposits from Anglo is interesting although it is not clear that deposits are where the problems the Minister has been referring to arise. Maybe somebody can clarify this.

YM’s statement that “Nationalisation would open up funding for the banks, IMO, both in quantity and in cost” goes even further and says it would be easier and cheaper for AIB /BoI to get credit if the 3 biggest banksin the country were nationalised. I find this hard to believe. I certainly would not offer a lower rate to a banking sector controlled by politicians, particularly when politicians elsewhere in Europe (Iceland & Latvia) are under huge pressure to allow defaults. That is not to mention the fact that the main opposition party in Ireland is promising default on bonds and has been fuzzy as to where it stands on senior debt.

As site cost accounts for about 50% of new house costs, compared with 15% in pre-boom times, NAMA’s control of liquidated land will have a big influence on future house prices.

By seeking to show a positive return itself, it will be aping the the existing land rezoning system, by imposing a stealth tax on property purchasers.

A US Federal Reserve study said that in a similar trend in the US, the future course of home prices — their average rate of appreciation and their volatility — was likely to be determined even more by the course of land prices than used to be the case.

The study also said it took a full ten years for the real land price index to return to the level at its previous peak in many cities. In a number of large cities – – including Los Angeles, Philadelphia, Providence, RI, and Sacramento – – real land prices did not reach their 1990 peaks until 2001 or 2002, well into the recent housing boom.

On his blog, Dr. Constantin Gurdgiev wrote in July: “…average peak to trough for ‘long term nominal economic value’ is 17.8 years. Again, given our peak at 2007 we have to look forward to NAMA recovering peak valuations at around, hmmm… 2026… But wait – not all corrections were steep enough to match ours… so let’s isolate those that were:

Australia 1980s: 18 years;
Finland 1990s: 16 years;
Germany 1970s: 36 years;
Italy 1981: 29 years;
Japan 1990: 20 years;
Netherlands, 1978: 21 years;
Norway 1987: 17 years;
Sweden 1979: 31 years;
UK 1973: 15 years

“Secondly, the notion that one senior bondholder losing one euro spells financial catastrophe for the country is a nonsense. There is an optimum level of default which balances taxpayer interest against higher future funding costs for irish financials. This should be determined, but it is obviously non-zero.
There appears to be an irrational fear of financial markets in government circles, which must be fed by ignornance. So much financially illiterate non-sense from government that one starts to doubt that any capital in this country is safe.”

Irrational fear of financial markets in govvie circles or not these senior bondholders have been guaranteed by the state until September 2010. No matter what way you carve it up, defaulting on this debt now represents an event of default to the state which I cant see being a good thing when we are borrowing a couple of hundred million euro a week just to kept the place running. below is the link to the guarantee FAQs:

I am assuming BLenihan is taking a certain amount of his advice from the NTMA and not solely from Department Officials and fellow TDs?????? My view of the NTMA and their head man, Dr Somers, is that they are a long way from being “financially illiterate”. They have many years experience steering the country’s course in the financial markets and have been very successful through both good times and bad.

Besides all of the above, would we not have to cannibalise our own pension reserve fund to really get at any of these bondholders whether Senior or Sub. Do we not have a couple of billion in pref shares in BOI and AIB that would have to take the hit first? Could someone clarify the position on this for me please?

“If another bank cannot access funds we will ikely have to nationalise it too.”

You don’t see any contradiction in your dismissing my point about it being easier to get funds as a nationalised bank than as a struggling private one? If it was not easier, why would we nationalise?

Psst. I think nationalisation in full would be a bad idea. Because I don’t want to expose the state to any further balance sheet risks. Never mind to the risks of incompetent management.

But that doesn’t mean that the banks wouldn’t temporarily find it easier with what would in effect be a long-term guarantee…. tell me any senior debt the banks have managed to issue beyond September 2010 and then tell me that private sector funding is easier and cheaper…


everyone knows we cannot renege on the guarantee. but bond cashflows occurring after sep 2010 can be renegotiated to limit taxpayers losses.

after the trauma of russian default in 1998, investors were piling back in two years later.

“They have many years experience steering the country’s course in the financial markets and have been very successful through both good times and bad.”

fatuous rhetoric about irelands reputation is fine. it only becomes a problem people start wasting billions of taxpayers’ euros because of some sacred cow.

ecb will have effective control over what’s left of the irish banking system for the foreseeable future. in the sense that frankfurt determines haircuts on 60Bn refi, draining or adding liquidity as they see fit.


I see no contradiction. If banks are struggling to get finance then of course nationalisation will help them get finance. However, that doesn’t mean that they will find it as easy to get finance as they would if they were still part owned and their loan book had been cleared up, i.e. in terms of ability to get funds the relationship could still be as follows:

NAME+Recap+Part Private > Nationalised > Pariah Private Bank

On your last point, are you suggesting that a private guaranteed bank is the same as a nationalised bank? It isn’t. The issue is not whether a state guarantee helps. Of course it does. The issue is whether the potential negative effects that 100% nationalisation may have on banks ability and determination to act along commercial lines will outweigh the benefit of that guarantee.

Ireland actually is different to the USA, UK et al in this regard because we would of course have to nationalise our entire banking system. The liability that the state would be taking on, which you and I correctly fear, would also be feared by the market and would affect our credit-worthiness.

I share your reluctance about nationalisation as I too want to see an end to this guarantee and a limit on State liability. The analogy that keeps springing to mind is that Nationalisation is akin to the USA invading Iraq: once you own it you are responsible for it – you can’t just walk away when you discover that things aren’t quite as you expected and people won’t behave as you want them too. Is Brian Lenihan to Brian Lucey what Colin Powell was to George Bush 🙂 ?

“However, that doesn’t mean that they will find it as easy to get finance as they would if they were still part owned and their loan book had been cleared up”
Come now, that’s changing the rules. You might as well say that if our banks were the safest in the world, run by the most prudent bankers, they would not find it difficult or expensive to raise funding! My point was in reference to their current insolvent condition.

I agree with your relationship, though.

Our entire banking system is smaller in assets than the assets the FDIC nationalised in the US last year. In terms of the eurozone, it is negligible (not that the rest of the eurozone is free of insolvent zombies either!). The difference is the FDIC has the method and the power to turn around banks quickly, selling them in whole or in pieces and swallowing the bad bits. I put it to you that a eurozone-wide version of the FDIC is required?

As for the guarantee, the liability we have already taken on has affected our creditworthiness. It has been centrally mentioned by the rating agencies in downgrades. Are the banks effectively nationalised by this? At the moment, yes. NAMA will undo that if it does not result in majority equity stakes to dilute existing shareholders (whether the state or other private capital).

But we don’t want to do that. At least, I don’t. Anglo clearly needs a bad bank if there is to be any return on its assets and on the physical infrastructure of the bank itself. The other banks also clearly need a bad bank. But I don’t see any reason why this should be a state bad bank. Let the banks put their toxic debt into a SPV with the state acting as guarantor for bonds issued on that debt and losses recognised over time. Let the banks recapitalise through equity placements. Let them eat cake, so we can continue to look for bread…


I don’t think I changed the rules. The issue I was focussing on was difficulty in raising funds for banks under NAMA -vs- under Nationalisation. I think Anglo -vs- Nationlised Anglo sent us off in different directions. We shouldn’t fret though – we wouldn’t be human if we didn’t think we had two different conversations!

I agree we desperately need an orderly wind-up mechanism though I don’t know if now is the best time to publish the legislation. Maybe when we are approaching the guarantee deadline moght be better. The banks and bondholders would really have to take us seriously then.

A European wide mechanism would be good. However, one wonders would we have been told that we had to let all the Irish banks go wallop and depend on foreign banks to support the Irish economy? The truth is that nobody is going to bother their b_llocks about Ireland but us. We may well deserve it but self-flagellation isn’t going to put the bread on the table!

I don’t think that a majority state stake will hamper the banks too much as the bankers will work like 10,000 Daley Thompsons (the fact he was a great decathlete is the point before anyone gets stupid) to get to a position where the state can sell off its shares at a profit.


Apologies. I meant to say that we must socialise gains as well as losses. Why should the State guarantee a private SPC bad bank and let private investors make a profit off it? That sounds like taking all the pain but getting no gain!

In August 2007 I started a thread on “”, the title of the thread was “Toxic Option Arms” The thread is here
What I find bizarre is that not one of the leading economist’s in this country,at the time had copped on to the fact that the USA was going to go into meltdown because of this, and flagged the consequences for Ireland that would follow.

Possibly because there had never been contagion before? Mr. Ahearne doesn’t even mention the possibility in one of his warnings of 2005:

More fool the economist community for treating every economy as an island. We see a continuation of that to some degree today with the idea that China (and everyone else) can export their way to recovery when the consumers of the world are over-indebted and not buying…

In a globalised economy, no economy is an island. Recovery in France and Germany may well lead to higher interest rates in the medium term. What is that going to do for the debt situation in Ireland? Or indeed for the NAMA floating rate notes?

@Brian Lucey

No I was not expecting to get the email from you. I do not doubt your bone fides. But what I do believe is the fact that 46 people signed up to a letter having been asked to do so does not necessarily really mean anything but that. My real concern is that academic commentators and probably most of those that signed that letter/article have no hands on experience of business and in particular just cannot understand what is going on at present for the average business in Ireland.The damage being done is enormous due to the lack of definite direction in dealing with the real issues for the economy. Personally I do not favour NAMA but just now it is the only deal out there and bickering by economists about it is causing a greater lack of Confidence in the Irish economy because the Irish Media latch on to anything and make a meal out of it. Witness Yates, Duffy, Browne, O”Toole,Keane etc etc on a daily basis. I sign contracts on a weekly basis and I can assure you that I could draft a few sections for the NAMA Bill to protect the taxpayer and make the Banks pay for their mistakes down the line. In the short term there might be deficits from the NAMA approach but over medium term these deficits can be paid for by the Banks that caused them. The worst case scenario is that the NAMA Bill is abandoned because the Politicians loose their nerve. The second worst scenario is that Lisbon Treaty is rejected. Not implementing the Mc Carthy Report will be the final nail in the coffin for the Irish economy.

To take your concerns in the wrong order:
– The final nail is being hammered in as we speak. Do you really think a FF government is going to take money from every constituency they’ve bought so assiduously over the last few years?
– I think people are good and scared. It may not be a good basis for passing the treaty, but I think it is the case.
– Worst for whom? I see no credit-worthy borrowers who want credit. I see not great shortage of capital for the sectors that produce what passes for wealth. I see no bankers ready to build a new society. I do see a load of bankers that would happily pump up house prices if they could, as that would enable them to offload the stock they have loaned money to or now own. Long-term low rates! Long-term millstones. Get them while you’re fresh…

“The worst case scenario is that the NAMA Bill is abandoned because the Politicians loose their nerve. The second worst scenario is that Lisbon Treaty is rejected. Not implementing the Mc Carthy Report will be the final nail in the coffin for the Irish economy.”
TBH I would probably reverse those but yes all three are vital. However, its not my fault, or any signatories fault, that the govt cant do their job and …..govern
FFS they couldnt even put out a spokesperson on NAMA tonight, the one they had planned to pulling out early afternoon. Open debate my glutenus (very) maxima

Having caused a disastrous property bubble the government have come up with a new plan to fix the property market/banks. Only a few of the details of the true state of the banks have been dragged reluctantly from them. The plan relies on starting a new property bubble. They promise that they will reveal an unspecified amount of extra detail when the Dail bill is introduced. They also promise that they are open to unspecified changes. To me it looks like they will make the minimum amount of change to get their proposal through. The Taoiseach has already said as much. Would you rehire Bernard Madoff or the Enron management to fix their former businesses? If you were forced to rehire them would you be happy if they kept you in the dark about the true scale of the problems while they worked on a plan to solve them? Would you sit back while they calmly arranged to railroad you into accepting their plan? If you were an investor you wouldn’t. But now taxpayers are being asked by an utterly discredited government to risk losing €30 Billion in a bet on the property market with not a cent of additional business lending guaranteed. It is astounding. This whole process stinks. We will be paying off the resulting debt for many years – if Nama doesn’t bankrupt the country entirely. Stop this madness and start again with a fully transparent process leading to a Nama we can all believe in.

Although driven to despair by the government there is one bright spot. Congratulations to the economists who signed the petition. You showed courage and leadership. But what about the economists who didn’t sign? I feel that economists in general did not do enough to warn people about the property market bubble, given the damage its bursting has been caused. You should have chained yourselves to the Galway tent or climbed to the roof of the Central Bank carrying an appropriate banner. I would urge all remaining economists in the universe to sign up with the 46. The preference to appear objective, unemotional and apolitical is outweighed by the damage that Nama as suggested will cause and your previous failure to speak out strongly. The whole process leading to the creation of Nama has been flawed. You do not need expert knowledge of the specific area to see this and speak out on it. If you have bought or rent a property and have lived in Ireland a few years you are more than qualified. The government should make enacting Nama contingent on the approval of a representative panel of economists. If they insist on going ahead with a flawed plan Irish economists should follow the example of the Pakistani lawyers – grab their caps and gowns and take to the streets in protest.

“Do you really think a FF government is going to take money from every constituency they’ve bought so assiduously over the last few years?”

They have been getting people ready for serious cuts for a long time. I don’t think they are. They also showed their mettle when they screwed everybody with a tax hike the weekend before the local elections. I don’t think it is question of “do they have the bottle”. People want to know if they have the brains.

“I see no credit-worthy borrowers who want credit.”

You should get out and about. The banks’ line is that they have no (nada, zero) money to lend. They are telling people that if they had money they would loan facilities but not now. Some customers are being told to keep their heads down about problems they may have in the hope that those higher up in the bank won’t notice because if they do it will mean liquidation of all facilities.

It is a clear risk in exiting recessions that banks lag behind the real economy in recovery, i.e. they are still applying the hairshirt when times have improved. This slows recovery as does too much austerity in bad times. That is what we are up against now and that is what we are fighting. NAMA isn’t a panacea for credit flow but it or another credible banking solution is a prerequisite for getting credit going as soon as possible.

@ Karl Whelan, Brian Lucey,

Just asking again what the expected timeframe would be for your nationalisation proposal – how long would you expect the banks to be nationalised?

There was criticism in the opinion piece that the timeframe of NAMA was uncertain – with Minister O’Dea saying 7 to 10 years – do you think that the nationalisation proposal would have less of a timeframe than NAMA?

If, for argument’s sake, the timeframe for your nationalisation proposal is 10 years (before re-flotation) – how will that affect shareholders?

The lag is a good point. I hadn’t thought of that.

I suppose another point to consider is the export sector given that international recovery will probably (hah!) precede domestic recovery. If banks are assessing based on domestic businesses, they will be reluctant to lend to international businesses whatever their prospects.

However, my fear is that we will have zombie companies propped up with unsustainably high cost bases and the ‘creative destruction’ will not take place…


I don’t think there will be any shortage of “creative destruction” unless we set up a state owned “good bank” or nationalise 100%. If we do then I suppose it will be hard to rule out political interference (and it be impossible to avoid a perception of political interference even if there is none!).


I agree with you about Bank lending and their unwillingness to lend. They say that they cannot find punters to lend to and there is no problem on credit availability. They were saying for a year that they had no problem with bad debts and eventually we got the “goods” on that story. So does anyone think that there is no problem on the availability of credit particularly to business customers. I know from someone in the garage business that 9 out of every 10 car loan applications are rejected by the Banks in that sector. So they are saying if we line up 10 people looking for a €10 -20,000 for a car that 9 are likely to default. The reality is that they have no cash to lend because of non-performing loans and as a result are constricting the entire economy from getting out of recession. NAMA needs to be installed to sort them out yesterday. Tweak the legislation in whatever way necessary to protect the taxpayerover it’s life but for God’s sake get on with it.

I wish to congratulate the 46!!!!!!

Bloody well done lads and lasses!

To get the executive to say they will alter their valuation method is a reward for sticking out your necks! Thanks!

It also demonstrates ol’ Biffo has some integrity too. Did I say my folks are from the faithful county?

Love begins at Zhivagos!!!!!

I just wish to congratulate Karl Deeter and Chow and Lie on their forthcoming nuptials! May they provide many happy small but perfectly formed mortgages! We need more credit

Basnks are right not to lend to people who: have a propensity to emigrate, may lose their jobs in public service cuts or who have negative equity.

They cannot lend for mortgages except where the borrower has an existing mortgage with them that has a smaller safety margin.

Please put yourself into the position of being a banker. You are facing an economy where asset values decline by 10 to 20% annually. Unemployment is increasing bythousands every week. Banks are insolvent and will soon “let staff go” even if they want to take a pay cut to stay on. Who better to know that than you, a banker? You simply cannot lend except by wasting capital.

And I say, well done thou true and faithful servant! You have protected what has been given to you in trust.

I notice that many commentators are not bewailing the lack of bank action. They know what I have said is true. They know that things are worse than they have said. But they wisely leave it to others to say what they think but politically, cannot say. The banks are liquid but insolvent and cannot lend except for the exceptional guaranteed pay back. Deflationary spiral, people, look it up! I’ve explained it elsewhere. It may last a few more years or a few decades! It has happened before. History trumps economic theory!

South of Dub

I agree and have asked for responsible non warners to put up their hands so we can stone them, but they all say privately to me that they had no duty to warn people. Which is true. And that the cheerleaders of the bubble would target them. Elliot Spitzer was Governor of NY and drew peoples attention to George Bushes personal involvement in trying to diminish state as opposed to federal safeguards on loans made to people. Predatory lending. Spitzer was one of the straightest american prosecutors, not that that is much of a compliment, but for his action he was outed as a user of a jewish brothel. As a result, he resigned.
All the cheerleaders of the bubble made fun of him. On TV and in print. But he was trying to show what was going on in the states. This entire thing was predicted and many managed it to arrange to take out capital before the peak. They know that as assets fall, that capital has doubled in worth. Tax free. Quite a temptation! Allowing people to be greedy and ignorant is not morally wrong. But encouraging as Bush and others did, while knowing how it would end, as in Katrina, is a tremendous moral evil. But they are wealthy and if you ask nicely, they may give you a job, at mexican wage rates.

Pretty soon, Ireland may be competetive with these rates if capital is destroyed in NaMa.


The government cannot fix the banks. No one can.

We can find out how bad things are and trade from there. But NaMa will make things worse. The banks very likely will not be able to trade into profit taking into account the lack of worth in their securities.

They perform a useful function, that is of clearing payments. That should be safe guarded as strike action, lockouts and insolvent liquidations will take their toll.

But government cannot make a market. They can lend money, just look at FannyMae. This federal lender is now insolvent due to Bush stuffing! Now that is an example of government help. They were making an ownership society. Yeah! Good, huh!? Huh?

@Pat Donnelly

Anybody that writes 5 negative posts here at times ranging from 6.22 am to 7.02 am has to be in the business of WUMING

@Ray what is WUMING?

Btw it is 0546am and my newly born daughter just woke me up. A different kind of WUME involved there!

The letter is a great piece. Some are quibbling with detail and technicality, but the substance of it is spot on.

Who can argue with the final para:

“We therefore urge the Government to reconsider its approach to payment for loans to be taken into Nama, to pay no more than current market value – which can be ascertained even in these times – and to require the investors in the banks to bear some of the cost of restructuring the system. Moreover, we also argue that the Government should not burden the State with more debt than is absolutely required.”

Well done!

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