Month: August 2009

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.

Thanks to pro-NAMA commenter AL for a useful contribution in a comment thread below. I think we probably need some more pro-NAMA commenters here, at least to give Zhou some company! But seriously, AL raises some useful issues. One in particular is the question of whether we should be worried about the pricing. AL states:

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

I think this is worth discussing more.  My worries here are (a) It’s an “understanding” rather than anything that will appear in legislation, so I have no faith that it will ever appear or, that if it does, it will be based on anything like the actual combined cost of NAMA to the taxpayer. (b) If it really becomes apparent that a levy will apply and then NAMA is running losses, this will cast a shadow over our banks for years, so that NAMA will have failed in its goal to draw a line under the problem.

Here’s a question I’d be interested in getting more discussion on. Why not have risk-sharing as suggested by Patrick Honohan’s NAMA 2.0 (pay a low price for the assets today—Patrick phrases it as “what we can confidently expected to obtain”) and then compensate shareholders (not the banks) with a share in NAMA’s potential profits, should they ever appear? This protects the taxpayer, achieves risk-sharing, and gives us cleaned up banks with no “legacy” problems.

Margaret Doyle provides an analysis of NAMA for NYT/IHT readers: you can read it here.