Shane Coleman on NAMA

While the government’s approach to the banking crisis is struggling to get much support from economists outside the pay of the Department of Finance or financial institutions, they’re doing much better with opinion columnists. The Sunday Tribune’s Shane Coleman is the latest to join the pro-NAMA opinion columnist brigade. Coleman promotes NAMA as the “least worst option”. Most of the article is about the evils of nationalisation.

Let’s take a look at the arguments put forward.

The first relates to a direct cost of nationalisation. Coleman writes:

The state would have to pay in the region of €5bn to shareholders of AIB and Bank of Ireland.

This is simply wrong. The current market value of €5 billion is based on the assumption that long-term economic value purchases by NAMA will keep losses down. A simple announcement that the government is not planning to proceed with long-term economic value pricing would likely see the share prices collapse to well below €1 billion, as they were in February before Peter Bacon appeared on the horizon.

Also, when banks are nationalised, there are lots of ways to compensate shareholders apart from paying them the last share price. These include appointing an independent valuer (as in Northern Rock and Anglo) or perhaps giving the shareholders a stake in an asset management company set up to take on their bad assets (as in Honohan’s NAMA 2.0). So the €5 billion figure is just not correct.

Coleman then strays into Baconian equivalence territory:

And that would be before the state did anything about the toxic loans because – and this point has been lost – nationalisation would do nothing to address the balance sheets of the banks.

I can just hear the dulcet tones of Peter Bacon now “There are losses. Nationalising doesn’t change that fact.” Well, yes but what it does change is the distribution of those losses. Deliberately paying over the odds to avoid the losses exceeding equity falling on the bank shareholders just pushes the overpayment as an additional cost on to the taxpayer. In all honesty, and with all respects to Shane, I think that is the point that usually gets lost.

Coleman then says that

The nationalised banks’ ability to lend would be further hit by the fact that they would immediately have to pay off many of their bondholders, because the terms of those bonds explicitly require repayment in the event of a bank being nationalised. Anglo Irish Bank, for example, lost €1.6bn in funds when it was nationalised.

I am not aware of a common clause in bank bonds stating that the bonds need to be repaid in the event of nationalisation, nor would there have been much reason for such clauses to have been written into most of these bonds, which were issued mainly during boom times. And Coleman’s figures for Anglo appear to confirm that this is not a particularly important factor. Anglo’s most recent report shows that it has total liabilities of €88 billion in March 2009, including €19 billion in debt securities, so the €1.6 billion cited by Coleman was a pretty minor component.

The article then moves into its apocalyptic scaremongering section. Coleman informs us that

if we want to hang up a sign to the world saying ‘Ireland is the new Iceland’, the best way to do that is to nationalise AIB and Bank of Ireland.

This is the old line about “the signal it would send to the world.” Because, of course, as we all know, the world is currently under the impression that these banks are in great shape and not at all dependent on government life support. Perhaps Shane thought this was good tough opinion column stuff but to my ears, it sounds eerily reminiscent of something Brian Cowen would say in one of his crankier Dail moments.

Then we get the “bank bonds are basically government bonds” shtick.

The government would be asking to borrow many billions of euros – as it needs to do over the coming years – from the very funds and institutions the Irish banks would be burning. Let’s get real.

Get real indeed. No matter how often respected bond analysts, such as Ciaran O’Hagan, explain that this argument is bogus, it still seems to be favoured by opinion journalists.

Coleman then refers to something called NAMA’s “charging system” and how this means “NAMA will certainly wash his face”. What “charging system”? Is this what getting real is about? Inventing new sources of revenue for NAMA?

Finally, Coleman tells us the legislation will

include claw-back measures, such as staggered payments to the banks for the loans and a possible bank levy if the ‘haircut’ proves over-optimistic. That will happen.

Despite the certainty implied here, we have actually been definitively told that a bank levy will not be included in the legislation. A flag about the idea of a staggered payment is being raised this weekend. Let’s see.

If these arguments represent the official thinking on NAMA, then they’re a pretty depressing insight.

46 replies on “Shane Coleman on NAMA”

The political economy is in full flight expounding the new consensus including its self-appointed gatekeepers. Symptomatic of Groupthink it echoes a status quo that once used the illusional metaphor of a “soft landing” to deal with dissenting opinion. Recall the WMD story spun to invade Iraq – and the “Ireland is the new Iceland” threat unless NAMA is adopted.

I bought “The Best Has Yet to Come” and the tears run down my face with laughter when I even look at the book on my bookcase. Shane is a wonderful optimist and I like him, but he is even more wrong about NAMA than he was the soft landing. Our political conjurers now give us NAMA as their latest personification of “a sure thing.” have we learned nothing? The book that should be on the shelves now is “NAMA”, subtitled “The Worst is Yet To come.”

Here are comments made by Bo Lundgren who was in charge of the Swedish Bank nationalisation.

The other main conclusions that I believe you can draw from my experiences of the Swedish banking crisis are that:

Government intervention is unavoidable if you are facing a systemic crisis.

Prompt action is important. A comprehensive approach is better than a piecemeal strategy.

Transparency enhances confidence and promotes the public legitimacy of the measures that have to be taken.

Broad political consensus and resolute political actions taken by the political system are probably more important than any of the technical aspects on how to deal with the crisis. This also enhances confidence, not least internationally, in our ability to deal with the crisis.

In order to limit moral hazard and get public support, it is important to have a stronger approach and deal with the banks firmly, enforcing the principle that losses are to be covered in the first place by the capital provided by the shareholders. If that means that banks must be nationalised, then so be it. They can be privatised again at a later stage.

@Mickey Hickey

Clearly Sweden got it wrong then…… er, as we are doing something very different…… as B Cowen says, we are following the best international advice…. which I guess must have changed somewhat since Sweden had its problems.

It just makes you shudder doesn’t it.

Just to remind the casual reader that there is no obligation to nationalize banks nor rescue developers. The government want to do these things. They haven’t given a believable reason. They protest too much on natioanalization as they say it may be necessary.

Let the developers pay off the loans and builders build. If the banks foreclose then let the law be followed.
Let the market decide.

Instead of raising taxes just to repay the ECB, the government should trust the system that brought us the celtic tiger in the first place.

I feel quite low coming out of my weekend reading of a fair chunk of the Irish press. The good guys (KW et al) seem to be winning the intellectual and ‘fairness’ argument but the baddies seem to be getting out in force now to win the spin and rebuttal war. They must all be back from holiday.

No surprise I suppose, the government has millions to chuck at the spin machine and knows where various journalists’ skeltons are.

It’s hard to believe that investors with a higher ‘attitude to risk’ than your average personal pension policyholder are going to walk away laughing all the way to the bank as it were whereas the pension holder has probably lost chunks of value in 2008/early 09.

Economists looking for a status role in future governments will toe the Nama line. Unfortunate, yes.
I think what we are seeing emerging, albeit wrongly, is the idea that Johnny foreigner might get hold of our most vital institutions.
Fake patriotism….
The major Irish developers will not be allowed to go under.
As I understand it, Nama will not take all the loans from the Banks books.
If the Banks are allowed to keep performing loans, what is to stop them after re-capitalisation from lending more to partially troubled developers to keep paying Nama? Nothing.
Will we hear Minister Lenihan being asked that question?
I very much doubt it.
At the same time I fear that events may overtake Nama yet. I am sure many of you are watching what is happening in the U.S.
If Deutsche Bank are correct, then there is another crisis coming. We will not be able to avoid it.

@Michael Harvey
Spin cycle in full mode alright. Ah well, at least those of us who speak out now can look future generations in the face !
As for Deutsche Bank, thats Ackermann’s early august prediction? In essence he suggested that the second wave (or large surge perhaps) of mortgage related crises was soon upon us as hard pressed households faced difficult, unemployment lagging growth.
As for the USA, one can only imagine here.
A story : recently (ok, in a pub but…) talking to one of my ex students. He and his good lady had a combined annual income of €180k (hes in finance she a primary teacher). They, in 2008, were given and took a mortgage of just under €1.5m from a covered institution…..he is now looking at losing his job…..

@ Brian Lucey

Re your story

This is what is depressing me recently. Our institutions are turning out what we imagine to be good economists….but so many seem to be lacking in basic common sense.
Is it any wonder we are in such a mess. I am not suprised that mortgage amounts of such magnitude are still being offered. I forget the exact figure, but I think somewhere around 10% of AIB appoved mortgages in the first quarter went to buy to let investors.

@Brian Lucey

Do you know where I can find some hard data on this problem in Ireland? I’m convinced that there will be a wave of debt default from ‘the recent unemployed’ soon (even Permanent TSB were laying their problems at the feet of the unemployed the other day) but can’t find much in terms of numbers of unemployed with a mortgage, average debt size, % of in arrears, etc. Any help appreciated.

@ Karl,

My feeling is that the recent increase in pro-Nama spin on the Op Ed pages is a reaction to the fact that they are losing the intellectual debate, and moreover the wider public is beginning to wake up to the fact that a massive scam is about to be perpetrated.

I have been made aware of a number of local initiatives in the Dublin area to contact TDs to voice opposition to Nama. This is the trickle down effect from the good work by yourself and Brian Lucey. It is constituents’ anger, ultimately, which will get a Dail vote against and in favour of a more equitable bank rescue scheme.

The phrase that really irks me, that I now see everywhere I look, is “the only game in town”. Honestly, these guys are so transparent.

I dont wish to denigrate this site with nasty politics but I think that it should be noted that almost all of Shane Colemans articles in the past year have made him sound like a card carrying member of Fianna Fail. The reality is that the quality of political commentary is appalling and partisan throughout the print media.

@Karl yes I thought the bit about having to pay shareholders 5Bn was a bit naive. The bit about “nationalisation” conditions in Bond Ts&Cs should have read Change of Ownership conditions, which probably are pretty common.

Isn’t the real debate here whether we can screw the Senior Debt. Nobody objects in principle to punishing equity (already down 50Bn, 5 left) and Tier 1/U2 loan capital (already down €4Bn, 4Bn left?) but Senior Debt? that is a whole new ball game – that would be a National default. Even FG who rashly discharged this “silver bullet” are now backing off.

@Brian Woods
“Isn’t the real debate here whether we can screw the Senior Debt.”
I dont think so, no. We cant, it seems. So lets move on
“Nobody objects in principle to punishing equity”
Err….I do. Im not into punishing anybody or anything. Its about getting risk capital to do its job.

Overall imho, the columnists have been out of their league in relation to these issues. They normally report on the average gobshitery that goes on.

Now, to earn their coin filling column inches they must authoritavely declare their wisdom like they do on all other matters.
Now, in this foreign ground they are circling the wagons in a way not unlike the political wagons have.
Would it be too much for them to express their ignorance at the start of the article and then develop from there?

@ Brian Lucey
Pat Kenny just called you out on radio!!!

No, he didnt. he (partially) quoted a statement I made to them this morning. He also insinuated that his team couldnt raise anyone who signed the oped as (paraphrasing) “its early in the morning and schools out”. this despite the fact that I knew that the PK team had rang at least two others (one abroad, the other otherwise engaged) . Unable Pat, is not always equal to unwilling.

He also said I was unwilling to go on air – unable due to too much else to do (typing this at my home office desk where I have a coffee, and have been here since 0815h….) is more accurate.
For the record, what I said was “the issue of the deficit being .. is ultimately a sideshow in the debate on NAMA.” As it is. the real issues are payment, risk sharing and absorbsion, and so on.

Now back to that damned chapter thats due tomorrow!

@Brian Lucey – of course I didn’t mean “punishing” in the moral sense.

But back to what I think is becoming one of the main issues here. Let’s say you’re right and the hole is €60Bn. Somebody has to suffer that. There simply isn’t nearly enough equity/loan capital in the system to fill that hole. So it’s either the taxpayer or the other liabilities of the banking system. Depositors, thankfully appear to get the protection of all sides of the debate, so that leaves the Senior Debt.

@Brian Woods
“Let’s say you’re right and the hole is €60Bn. Somebody has to suffer that. There simply isn’t nearly enough equity/loan capital in the system to fill that hole. So it’s either the taxpayer or the other liabilities of the banking system.”

Exactly. And the debate should be about the proportions of the contributions.

@ Brian Lucey

It is also a little unfair to look at the 46 as some incorporated group. There seems to be a presentation in the media of the 46 as something bigger than a signature on a letter.

Almost like there is an address with an office, a secretary, and a website…

When it is more like ‘300’ 46 brave warriors holding back the persians!!!



A bare-chested Brian Lucey in a leather skirt is an ‘interesting’ image..

With regards to Coleman’s article and the levy v staggered payment argument. The banks need a clean break with their past if NAMA is to have any chance of succeeding in its stated aim (which isn’t to make a profit AFAIK).

Anything that can be viewed as a contingent liability on the banks will seriously effect their ability to raise future funds. So, for the future, the best option should be for NAMA to be a one shot trick for the banks. NAMA gets one chance to get the price right and no comebacks.

Anything else and NAMA is going to fail in its raison d’etre. And so would be pointless.

The government is subject to a pincer movement.
They have clearly lost the intellectual argument.
The quality of pro-NAMA statements are pathetic.

Dr. Bacon is no longer under contract but he always gave the impression of having one hand tied behind his back when he defended NAMA – that one hand is to my belief the off the record instruction to find any solution except nationalisation.

Alan Ahearne has been more successful, but he had to stoop to the smoke and mirrors lexicon to get through most of his interviews.

Minister Lenihan is definitely his father’s son.

The other arm of the pincer is popular opinion.
Noel Whelan recognised it on Saturday.
The electorate wouldn’t buy tenners for a fiver from this government.

But don’t underestimate the government.
Paul Hunt made the point tellingly on another thread.
Their experience of “competent government” is limited but they know know how to fight and they have all the resources of the state and a lot of vested interests at their disposal. They don’t care who they bring down with them in order to win this fight.

This is the biggest decision ever – I normally say that to mean that we should all give it our greatest attention.
But there is a sinister side – it is also the biggest decision ever for the vested interests. They will deploy every weapon in their armoury to ensure that their interests are being defended.

Sorry to intervene on this particular discussion.

But, has anyone noticed that the posts here always show exactly 1 hour less than when they are actually made, for example I am making this at 11:45 am

Bet you the post will show 10:45am.

This may go some way to explain the timing conspiracy theories of posters trying to put faces to contributers on and

@ Brian Lucey

“Exactly. And the debate should be about the proportions of the contributions.” Okay, and since in another thread you state the clear fact that subs are relatively small beer, you do mean the Senior Debt. And I agree, IF the hole is of 60Bn proportions then I am afraid we are at the stage of national default as a lesser of evils. The problem is that forcing a senior debt/equity swap now is precipating that final resort on the basis of a big IF.

Perhaps there is a way for Senior Debt to continue to be exposed to the hole without turning it into equity (which would IMHO be definitely a default) but I can’t think of that trick myself.

BTW this time difference also gives a very good impression of you guys toiling away very early in the mornings, when the rest of us are in the scratcher 😉

@ Brian Lucey

PK has just stated again that you were unwilling to appear this morning, even quoted you.

Also, his researchers could not get in contact with ANY of the other? 45

Pancake – I commented on this on another thread. PK partially (read however you wish) quoted me. And I KNOW for fact that at least two others (guess who…) were contacted by were like me unable to drop the dayjob and go on air. We do have day jobs, on which as you so rightly note we toil day and night.

@Brian Lucey

Cheers and thanks for that.

Just thought it was pretty slimey of PK to reiterate this at the end of his slot.

Keep the flag flying, you and your colleagues are doing a fantastic job by informing the public in this debate.

And, I actually do believe your contributions are having a significant effect.

There will not be a NAMA as originally proposed.

@ Irish Pancake

Another part of this was the implication that although contacted none of the 46 were available.
It should have been clearly stated:
How many were contacted?
Of these, how many were actual contact: phone as opposed to email etc.
How many of these did refuse?

But it was left loose, and the implication being all 46 not available.

Saying this, is it to be expected that this is part of the beating for signing the letter?


@Irish Pancake

Our blog software appears to have been designed by conscientious objectors to Daylight Savings Times. We’ll be back in tune with the rest of the world when the clocks change again.



It’s actually kinda nice that some IT guy has not already been dispatched to fix this little quirk.


Pat Kenny is not an entirely un-opinionated person.

He is very disposed to arguments which favour “getting the motor industry going again and I think that deep down he feels the same way about the property market.

@ Maurice,

get the motor industry and the property market going again and RTE advertising picks up. PK salary recovers as well.

@Vincent Byrne
I’m not sure if you’re similarly confused to Robert Browne in thinking of MARC Coleman, the former IT economist – I would regard myself as non politically affiliated but very against this Government and I’ve agreed with Shane Coleman more often than not. Far from being a “card carrying member” he, consistently with the general tone of the Sunday Tribune, has been very, but fairly, critical of the Government.


I am afraid that I have to disagree with you and no I am not confusing Marc and Shane

rather than let a bank close it would be wonderful to see actual capitalism happen, liquidate everything, down to the last desk and chair, pay off depositors, senior bond holders, subord debt and lastly shareholderse. that is actually what SHOULD have happened, but didn’t.

instead we had a government intervention that took the most expensive route available and now more and more people are realising that it isn’t about what’s ‘fair’ or ‘right’, its about what ‘is’ and what needs to happen so we are not turned into any more of a joke nation than we already are.

hence even traditional enemies are crossing over to become pro-nama.

Perhaps Shane thought this was good tough opinion column stuff but to my ears, it sounds eerily reminiscent of something Brian Cowen would say in one of his crankier Dail moments.

Try replacing “Brian Cowen” with “Dermot Ahern” and you might hit the nail squarely on the head.

@Mickey Hickey

What about these other comments by Bo Lundgren, which I have copied from his testimony?

“On the question on the moral hazard, I read an article a couple of days ago in The Irish Times by Professor Morgan Kelly, since I went through the web to see what the debate was in Ireland. There was one mistake in the article. He said the Swedish bank had only deposits, no bond financing. Of course, Sweden had bond financing as well.

 Deputy Joan Burton:    Were there guarantees for the bonds?

 Mr. Bo Lundgren:  Yes. All creditors, except shareholders and perpetuals which are said to be similar to equity. What Professor Morgan said in his article was that bond holders should take responsibility since they have high interest and should be able to take a blow if the bank goes bust, so they have to lose money. That is not feasible. If there is a systemic crisis one has to guarantee all creditors. It is out of the question that anyone should lose. Let us look at Northern Rock where people stood in line, it was the modern time bank run. There may even be Internet bank runs and we had some in Sweden with Lehman as well. I have always proposed that deposit insurance schemes should have 90% compensation because one should take a 10% risk. Over a certain limit, in the British system, one had 90% compensation and obviously that was enough to have many people standing in line waiting to get money out. The experience of Lehman and Northern Rock shows the need to have this guarantee for all creditors. Everyone, including Germany, knows there is an implicit guarantee that is 99% sure but making it explicit gives another percentage and that is a vital percentage. That is a good way of handling the situation.
Obviously bond investors should be able to analyse a bank, think and then invest. The economy will not suffer as much from the problem of moral hazard on the account of the bond holders in a bank compared to what is happening in the real economy. On the other hand I see another moral hazard question, that is, that if shareholders are bailed out and can recover their value later, they can make the same mistakes again because they were bailed out. Management in banks, boards in banks and shareholders must learn the tough lessons.”

“Deputy Richard Bruton: 
Mr. Lundgren has acknowledged our crisis is deeper than that of Sweden. There is a debate as to whether the taxpayer can save everyone. In its model, Sweden drew the line and provided that everyone, bondholders and depositors, would all be guaranteed and protected. We have not given a guarantee to bondholders unless they are within the dated area. The Swedish model would have extended that guarantee further than we have gone. On reflection, the Swedish model worked at the time but, perhaps, other countries were not in a liquidity crisis as they are now. Sweden could manage its liquidity within a world that was not entirely stressed out. If it was trying to do that now against a background of stressed markets everywhere, what would be the stress points in the Swedish model that might have to be tweaked and can Mr. Lundgren offer any advice to others who are looking at the process in a much more stressed international environment?
 Mr. Bo Lundgren:  It is difficult. The Bank Support Authority is looking at what might happen in Sweden. I will elaborate. If one does not guarantee bond holders — I can see reasons for not doing it — will that investor invest in banks again? Probably not, it will take some time. They will ask for more security or higher interest to invest. Given the total volume of the problem, Ireland cannot do it. If the losses are so great that it cannot be done, it takes longer to revive the economy. I am in no position to give any advice on that issue but I dare say one has to think about it. If Ireland does not have a blanket guarantee that covers all bond holders then it might have a problem in furnishing the liquidity mentioned, because liquidity is needed not only from central banks and the government communities around the world, it is also needed for the private investor in the long term. It is a difficult question to which I have no answer.”

I am not a bond market expert myself but I think that Bo Lundgren is now head of the Swedish National Debt Office so presumably should know what he is talking about?

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