Here’s a couple of issues relating to the property loanbooks of the banks that will have some bearing on interpreting the average discount paid by NAMA, but which I don’t have good handle on yet.
Month: August 2009
There’s been a flood of recent commentary on NAMA from opinion columnists, editorial writers and broadcast journalists. Unfortunately, much of this discussion has been premised on an incorrect but apparently appealing idea.
This is the idea that it doesn’t really matter which approach we take to resolving the banking crisis because the costs to the taxpayer are going to be about the same no matter what happens. We’ve guaranteed the liabilities, these people will argue, so basically we’re on the hook no matter what. And since all the plans are going to expose us to lots of risk, let’s just get on with the plan the government has.
Advocates of this position often explain the pricing decision facing NAMA as follows: Over-pay and the taxpayer loses, under-pay and the state has to recapitalise the banks, so the price tag is the same come what may. I first remarked on the prevalence of this line of thinking in the media back in March. However, I started to get really worried about it when Peter Bacon regularly made this point during his post-NAMA-proposal media blitz, at which point I named the proposition after its most noted advocate.
(from LorcanRK) The Department of Finance published their review today:
http://www.finance.gov.ie/documents/publications/reports/2009/Dfincapacityreview09.pdf
Well worth reading for any that want to get an insight to the way the place works (or is supposed to work)
With the risk of being ridiculed for self-promotion, readers may want to have a look at some recent computations.
Earlier, Callan, Keane and Walsh had a look the impact of recent changes in taxes and benefits on nominal income. They found a sizeable redistribution from rich to poor.
An Bord Snip Nua argued that benefits should be indexed on the consumer price index, which would be tantamount to a 5% cut.
In the paper with Jennings and Lyons, we compute the consumer price index per income decile. The highest incomes have seen the fastest deflation, up to 5.1% for the period July 2008 to June 2009 for the top 10% earners. The three lowest income deciles have seen deflation in the range of 3.0 to 3.4%.
By the argument of An Bord Snip Nua, a 5% cut in benefits thus seems a bit harsh.
On the other hand, deflation has been slower for lower incomes because local authority rents have continued to go up even as the rest of the housing market collapsed. As local authority rents are indexed on renters’ incomes, a cuts in benefits would in fact induce deflation for this, particularly vulnerable group.
A 3% cut in nominal benefits would therefore mean that the poorest people in Ireland would see a rise in their real income.
In this guest post, David O’Connor and Odran Reid make the case to use NAMA as an opportunity for better spatial planning: you can read it here.