Finance Dublin Editorial on NAMA

Here’s an interesting editorial from Finance Dublin, the in-house magazine of the IFSC. A quick excerpt:

It is now time to call a halt. The provision in the NAMA legislation that enables equity shareholders in the banks at the time of the crash (Autumn 2008) to emerge with anything more than a non zero sum should not be invoked at the expense of the taxpayer.

A moral hazard also exists in regard to the subordinated debt and deposit guarantees. This publication supported the decision to introduce it in October 2008, because it was necessary to protect the systemic integrity of the money system at the time of the bank guarantee. The blanket guarantee introduced then now has a little more than a year to run, and proposals should begin to be put in place to make an orderly withdrawal from that arrangement too, with a target for the reasonable medium term of scaling back the extent of the Irish guarantee to comparable international levels.

If moral hazard was cleared out of the equation regarding the banks entering the NAMA/Guarantee scheme, then the taxpayer-owned NAMA and the taxpayer-owned banks will not have an embedded conflict of interest in determining the valuation of assets. This could facilitate an orderly re-financing of the banking system, and the restoration of stability to the property market (which will be a required element in any economic stabilisation plan for the Irish economy).

At the end of the day, such a solution will require ‘nationalisation’. In normal circumstances it would be anathema for this publication to suggest such a course, but the system is broken, and must be put under repair, before a new privatisation of the banks concerned takes place.

When the time for re-privatisation of Irish banking comes, and it should at the earliest available opportunity, the new framework that should be established must have moral hazard stripped out of the equation for once and for all, and that applies to all aspects of the new framework. That will include the remuneration of the executives that will run the Irish banks of the future. One of the lessons of the present crisis is that incentivising management with equity options was a recipe for encouraging the imprudent risk taking that bedevilled the global and Irish banking systems.

Can we safely put this advocacy of nationalisation down to left-wing ideology or naivety about how international financial markets work?

46 replies on “Finance Dublin Editorial on NAMA”

Actually, I think that I could just about swallow a non-zero residual value for shareholders. (I am not one, but I personally know many who are). The price is the thing, as it always has been.

I am not saying that it’s ideal; just that I could *just-about* swallow it.

Repetition for the purpose of emphasis.

Although tangential to the purpose of Karl’s post, the moral hazard issue the article discusses extends way beyond Ireland, and I guess there is a big risk now that moral hazard has been increased worldwide as a result of the generally successful policy response to the crisis. Trying to figure out the appropriate regulatory implications of this is going to be hugely important for Europe, which is one reason why the Patrick Honohan appointment is so welcome.

Mad raving commies the lot of em Karl!

One wonders if they have any fears re liquidity …..guess not.

Mind you, as I have said before, if Jesus and Jimi Hendrix came in on a chariot to the cabinet rooms saying this sort of stuff, they would STILL ignore it…

@ Karl,

The last lines merit a quote:

“The daily mounting horror of the Finance Dublin debt clock (www.financedublin.com/debtclock) is ample evidence of the continued drain on the nation of politician, judiciary, and “public servant” pay and perks. The time has come for greed and monetary interest to take a back seat in both the private and public sectors. ”

I think this rhetoric provides ample evidence that an academic hasn’t hacked the editors pc. It also happens to coincide with my thinking 🙂

There is a limit to the amount of debt and guarantees that the Irish government it good for. It makes sense to reserve some of this to guarantee certain future bank bond issues than pay the losses of existing bondholders.

@Brian Lucey
Don’t get too cynical- you are getting there
Quote from Col Keena’s article in IT-
Asked yesterday if the selection of Prof Honohan indicated that the Government agreed with his suggestion on risk sharing, Mr Lenihan said: “I proposed that idea myself last March” when speaking on the Nama proposal and that he had never ruled out risk sharing.

Actually, rather than abusing this article, could you explain your point of view? For those of us who aren’t economists (and your track record as a profession is demonstrated by the article referenced in this blog by the way) could you explain why, for example, this demonstrated naivety as to how international financial markets work? Are you saying that the international financial markets have some kind of confidence in AIB and BoI leading to a benevolence of liquidity which would be destroyed by nationalisation? If so, are you being naive? If you are not naive of course then you won’t be offended as you can cogently explain why I am misguided and clearly don’t have your level of understanding. Maybe I am naive and if you demonstrate this to be the case I can take it on the chin 🙂

@Justin

Apologies. I was using sarcasm. Just to clarify, I agree with the thrust of the article and was writing as though everyone who reads the blog knew I was in favour of nationalisation. So in fact it was probably me that was being naive. I should remember that we have many readers beyond our hardcore regulars who are aware of all our insidery debates.

Thanks Zhou. Looks like it’s behind a firewall, otherwise I’d link to it. All the name of the sacred god that is “balance”. 😉

Anyone who has it, feel free to pass on text or excerpts.

Here’s the text of the latest Finance Dublin editorial.

NAMA – the ECB roadmap The European Central Bank on Monday August 31st published its opinion on the draft NAMA legislation, that thankfully, along with the cash it proposes to backstop the whole enterprise, provides a balanced overview of the principles involved.

At its heart it addresses the question of moral hazard that must be placed at the centre of the architecture for a restored Irish banking system, as this publication has consistently argued.

We have also argued that the principle of avoiding moral hazard should apply not just to the interests of past shareholders and other risk investors in the banks, e.g. subordinate debt holders, but it should also apply to future risk investors, with regard to any future clawbacks that may be contemplated (e.g. through a future bank levy), which, while on the face of it will be paid by ‘the banks’, will in reality be recouped from customers and ordinary taxpayers.

The fact that the ECB’s Opinion also addresses this point is also to be welcomed. Perhaps the most satisfactory aspect of the ECB document is that it provides the Government and NAMA with a roadmap by which it can proceed. In essence, this is because it ensures that the principles of diminishing and avoiding moral hazard are adhered to in the detail of the operation, construction, policy, and detailed oversight of NAMA.

The ECB Opinion preserves the essential capitalist principles that most observers in the debate on NAMA would subscribe to (this would include most of the 46 academic signatories to the petition organised by Prof Brian Lucey of TCD, as indeed it may the Labour Party’s Joan Burton, who, in June in the 2nd stage of the Financial Measures (Miscellaneous Provisions) Bill debate in the Dail asked whether moral hazard had any place in the Minister’s universe). The key elements of the ECB Opinion are as follows:

The ECB’s overall position:
“ The Eurosystem has developed a number of guiding principles aimed at attaining the following objectives: (i) safeguarding financial stability and restoring the provision of credit to the private sector while limiting moral hazard; (our emphasis added) (ii) ensuring that a level playing field within the single market is maintained to the maximum extent possible; and (iii) containing the impact of possible asset support measures on public finances.

“The Eurosystem has identified seven guiding principles which can be seen as sufficiently broad to apply to all schemes falling under the wide category of asset support measures. The NAMA asset removal scheme is broadly consistent with these principles:”, it says.

Amongst these are the following three:
(a) Avoiding moral hazard in relation to asset valuation
‘Regarding the valuation of eligible assets, asset-specific haircuts on the eligible assets’ book values appear to be contemplated, and independent third-party expert opinions play a role in the valuation process for the NAMA scheme. The detailed provisions of the draft law regarding valuation issues reflect the fact that the pricing of eligible assets is a crucial and complex issue that is likely to determine the overall success of the NAMA scheme. Although the measures contemplated by the draft law should restore confidence in the Irish banking system, the ECB considers it important, in line with previous opinions that the pricing of acquired assets is mostly risk-based and determined by market conditions. The preference expressed in the draft law for the long-term economic value of assets, rather than current market values, requires careful consideration in this context. In particular, it should be ensured that the assumptions to determine the long-term economic value of bank assets will not involve undue premium payments to the participating financial institutions to avoid creating inappropriate incentives from their side as regards the use of the scheme.

(b) Avoiding moral hazard in regard to a ‘bank levy’:
‘Regarding risk-sharing between NAMA and the participating institutions, the ECB understands that in the longer-term, if NAMA were to fall short of recouping all of the costs of the scheme, the Irish government intends that a levy should be applied to recoup any shortfall. The ECB considers that a guiding principle for the scheme should be that there is an adequate degree of risk sharing in order to limit the cost to the government, to provide the right incentives and to maintain a level playing field across the participating institutions.

In regard to a market principles-led solution:
‘The ECB notes that the Irish Government shares the guiding principle that the preservation of private ownership is preferable to nationalisation. If the NAMA scheme will be successful in this respect, this strategy should help to avoid, in the short-term, the high costs involved in nationalisations and, in the medium-term, the risk of banks’ objectives being diverted from profit maximisation to alternative goals that might distort the market structure and jeopardise the level playing field.
The final NAMA legislation should, and must, take on all of these principles.

It is now possible to amend the draft legislation on NAMA to ensure that the ECB’s advice is adhered to in principle, or, in effect.
It will not be possible to avoid a cost for the taxpayer. The 46 academics in their letter estimated a cost of E30 billion (their estimate of the difference between the ‘haircut’ cost of the acquired NAMA assets of E60 billion, and the market (‘firesale’) value that they put at E30 billion.

Given that E45 billion of the E90 billion in assets is still performing (and that approximately a third of the assets in question are located in other jurisdictions, mainly the UK), this further ‘haircut’ seems excessive.

Nevertheless, even if the further haircut comes out at around half this (say E15-20 billion) there will be a cost to the taxpayer. It will nevertheless, if it can be seen that past shareholder risk capital is not rewarded in any way for future investment by taxpayers, be possible for such expenditure to be seen to be of the nature of capital investment that will provide a return to the taxpayer in the future.

If E15 – E20 billion turns out to be the capital cost of the great NAMA gamble then it can be seen as a wise and necessary investment. After all, the same sums is being wasted in 2009 alone (as distinct from being risked over a decade by NAMA) by the much more serious problem of the daily mismanagement of the public finances , an issue that so far remains unaddressed by the Minister for Finance and his colleagues (see http://www.financedublin.com/debtclock).

This report from Bloomberg seems to be at variance to DoF interpretation of EU rules/guidance –

Sept. 4 (Bloomberg) — Royal Bank of Scotland Group Plc, the largest bank bailed out by the U.K., won’t call $1.6 billion of subordinated bonds after regulators objected to using state aid to pay holders of the lender’s lowest-rated securities.

The Financial Services Authority, the U.K.’s market regulator, told RBS not to redeem early four series of bonds after the European Commission stated Aug. 19 that banks shouldn’t use government money to repay equity and subordinated debt, the Edinburgh-based lender said in a statement today.

I become more cynical by the day.

Why was this editorial not picked up by the mainstream media. Was it just ignored, for fear of upsetting the market? Or would it allied to the 46 ers have created an even bigger noise.

Okay, the latest issue balances it, but surely if the Editorial Karl highlighted had been picked up at the time and was in the public domain it would have raised more questions.

Looking back, it did not seem to have a great impact on either the Aib or Boi share price.

I meant to pick up on this comment the other day, but got sidetracked. BOI and AIB shares had dipped on speculation that the haircut may be bigger than expected.

“In its crudest sense, anything that protects the taxpayer will be coming at the expense of the equity or subordinated bondholders,” Eamonn Hughes, an analyst at Goodbody Stockbrokers in Dublin, said in a note.

Enough said.

Both banks are up over 4% today

@Zhou
“I understand the latest editorial in the same publication is less critical of NAMA.”
Indeed….but what it is not less critical of is what the core of my argument is against nama-as-it-is, namely overpayment.

@Brian Lucey

I don’t think anyone is against guarding against over-payment generally. I think we are all agreed with the ECB that if NAMA is to go ahead and if there the concept of long term economic value is to be used then we need to guard against that turning into an unjust premium for shareholders.

I don’t think the article comes down in favour of abandoning the concept of “long term economic value” altogether. I note you said you could live with NAMA if it got the valuations right.

Is it your position that you could live with a hold-to-maturity value or a long-term economic value provided it was done correctly according to the valid economic principles in a transparent was and there was no unjust enrichment?

If so (and I know that is a large assumption), then is your over-riding concern your belief/fear that the Minister/DoF/NTMA are determined to skew the process to avoid 100% nationalisation at all costs?

Here is the same question put another way:

If NAMA 1.x, or even NAMA 2.x, goes ahead and the valuations determine that AIB shareholders are not wiped out 100%, then what measures would need to have been in place for you to accept that this is a genuine outcome based on reasonably low hold-to-maturity valuations? Can any such measures exist?

Then look at it from the other point of view:

Imaginee you are a bank shareholder, or a bank, and you agree to sign up to NAMA on a voluntary basis because NAMA has promised you that the assets will be valued on a hold-to-maturity basis and therefore you will retain the proper value of my shares. NAMA has qualified this by saying if it turns out that the bank is insolvent you will be wiped out or get nothing because “nothing can come of nothing”. What mechanisms would you want to see put in place to assure you that the assets have been valued fairly at something close to hold-to-maturity valuations?

These are difficult questions in many ways. In particularm there are legal difficulties, because one cannot interfere with the rights of borrowers (including rights to confidentiality) without their consent.

podubhlain posted the following:

September 4th, 2009 at 12:43 pm
This report from Bloomberg seems to be at variance to DoF interpretation of EU rules/guidance –

Sept. 4 (Bloomberg) — Royal Bank of Scotland Group Plc, the largest bank bailed out by the U.K., won’t call $1.6 billion of subordinated bonds after regulators objected to using state aid to pay holders of the lender’s lowest-rated securities.

The Financial Services Authority, the U.K.’s market regulator, told RBS not to redeem early four series of bonds after the European Commission stated Aug. 19 that banks shouldn’t use government money to repay equity and subordinated debt, the Edinburgh-based lender said in a statement today.

My question is – does this imply that NAMA bonds can not be used to repay bank debts and can only be used for a coupon?

@Zhou
For the record, as I have stated elsewhere, I am a bank shareholder.
“If so (and I know that is a large assumption), then is your over-riding concern your belief/fear that the Minister/DoF/NTMA are determined to skew the process to avoid 100% nationalisation at all costs?”
Yes. that in essence is it. Time and time and time again the minister has stated his belief (unsupported by any evidence other than repeated assersion) that there must be residual shareholders left on the stock exchange. As late as last night he reiterated “to maintain confidence in the market some element of private ownership must be maintained”.

“What mechanisms would you want to see put in place to assure you that the assets have been valued fairly at something close to hold-to-maturity valuations?”
I would like an independent, non irish, commission of banking, accounting, economic, real estate, legal and valuation experts to do a 25% random audit; to publish the details “borrower A” style’ ; to make themselves available to the oireachtas 3 monthly and to have ZERO input from any locals, with criminal proceedings against people who try to influence them. Now, that aint gonna happen.

@BL

I like the audit suggestion.

As usual, I take a different slant on the Minister’s comments.

First of all, the Minister has asserted clearly that his basis for saying the banks are solvent is that all the information furnished to him by PWC and the banks indicates that to be the case. He has said that whereas the estimates to be presented to the Dail will be based on that information he is determined that NAMA will check it loan by loan as one must always guard against the banks’ optimism. He repeated on Prime Time that he would not accept the banks’ evidence on faith.

Also, he has said that he is very reluctant to nationalise the entire banking sector and repeated that again on Prime Time. He may be in a position to say this because he is confident that BoI is solvent but is not so confident about AIB. He may have it in mind that ultimately he may well have to take over AIB but is as sure as he can be that he won’t have to take BoI and this is why he can make promises that the entire banking sector will not be nationalised. Like I said, I take a different slant as usual 🙂 !

@BL

The Minister is operating on information garnered during the stress test.

I agree that the share price logic is circular and the Minister should perhaps not have mentioned it. To my mind, the only relevance of the share price is that the perception that the banks are/will be solvent is a barrier to pre-emptive nationalisation.

I admit that the Minister quoted the share price to enforce the point that there is due diligence evidence or market analysis or market sentiment that the banks are currently insolvent. The ‘circular logic’ point defeats the ‘market sentiment’ point, but it does not affect the basic logic that the Minister must take an approach based on the best hard evidence available to him.

@Brian Lucey,

“I would like an independent, non irish, commission of banking, accounting, economic, real estate, legal and valuation experts to do a 25% random audit; to publish the details “borrower A” style’ ; to make themselves available to the oireachtas 3 monthly and to have ZERO input from any locals, with criminal proceedings against people who try to influence them. Now, that aint gonna happen.”

I couldn’t agree more with this. This is precisely what’s required, though I, also to some extent, share your pessimism/realism. However, the establishment of such a commission would raise the debate onto a new level and contribute to achieveing the desire of, I suspect, most posters on this site to protect the interests of all citizens in the resolution of this mess.

As it is most of us don’t have access to the hard, crunchy data necessaryto form a view a detailed prescription on what’s required, but we all, I hope, have some concept of what would make economic sense and be in the public interest. Therefore, it may be best to delegate the detailed scrutiny to properly qualified, independent and genuinely disinterested professionals.

The first step is to make the case for an amendment to the NAMA Bill that would establish and empower such a commission and hope that it might gain some traction among the various parties. Failing that, Plan B is to encourage public support for a referral by the President of the NAMA Bill enacted by the Dail and Seanad by the President to the Supreme Court.

I know I’ll get shot down for advocating any type of campaign on this site, but if you don’t ask, you’ll never know.

@Paul Hunt

I dread when Bills get sent to the Supreme Court. They rarely get shot down and if they don’t they enjoy a cloak of constitutionality that can never again be pierced. That means they only get considered in the abstract and not in the context of real life facts that might demonstrate the true injustice of a provision.

This Bill will probably be sent to the Sup Ct in any event if the provision about CPOs is left in. I am not aware of any other provision that is suspected of infringing on the Constitution.

@Paul Hunt

I like it. One has to look at it and see is it practical in terms of documentation, man power etc but if it is then I am all for it. I am all for provisions which effectively improve oversight and transparency.

We need buy-in by the public now and in the years to come.

Everybody should want effective measures because various Ministers and civil servants are going to be responsible for operating this over the coming years. It is too important and too complex to simply entrust it to the man in charge of the day be he from the Greens, SF, FF, Lab, FG, SWP or whoever.

I don’t know if anyone picked up on this on another thread, but on Prime Time last night Brian Lenihan again claimed that nationalisation was the cause rather than the consequence of its financial collapse. Can he really be so misinformed as to think that?

I’ve always thought of Lenihan as a guy of perhaps unusual integrity in FF (indeed in politics), but I find it hard to explain this as anything other than a deliberate attempt to mislead. Am I wrong?

Woops, I left out the word Iceland, which was rather vital to the point: to clarify, he again claimed that Iceland’s financial collapse followed the nationalisation of its banks.

@Zhou
“First of all, the Minister has asserted clearly that his basis for saying the banks are solvent is that all the information furnished to him by PWC and the banks indicates that to be the case. He has said that whereas the estimates to be presented to the Dail will be based on that information he is determined that NAMA will check it loan by loan as one must always guard against the banks’ optimism. He repeated on Prime Time that he would not accept the banks’ evidence on faith.”

I think the difficulty the Minister will have convincing the public on this is the fact that we have been repeatedly fed the same line. One bank chief was talking about “over his dead body” and we have since injected 7,000,000000 into the two main banks since we were assured that reputable auditors stood over the figures etc. We now are being asked to accept assurances without detailed information which is available to the Minister. Not good enough.

We (the State) are purchasing 90 billion of loans from banks. |They obviously have a value. There is a huge bank debt secondary market worldwide. I noticed recently that UBS purchased a huge chunk of toxic type assets from a hedge fund. With all the information now available to the Minister it must be possible to get an accurate price/valuation on the loans.

This would set the true value and a determination could then be made as to the appropriateness or otherwise of proceeding.

However, I suspect that the banks are well aware of the value of their loans on the international market. Common sense dictates that they would not be clambering aboard NAMA with the enthusiastic support of their stockbroker friends if they believed they would get more on the regular market.

It surely is about guaranteed overpayment.

@James
I dunno….
Iceland was already in deep trouble before Glitner was nationalised. There is an assumption somewhere at the heart of government thinking that if you do respond to a financial crisis that response is somehow a precipitating factor in any further crisis events
A casual glance at the timelines for the crisis would to me indicate that the nationalisation was a step taken by the icelandic government to stop what Geir Hardee called the “whirlpool of national bankruptcy”. Most of the major damage was done, afair, before the nationalisation spate in september-november.
Meanwhile, in the desolate waste of Iceland, with its nationalised banks, unemployment stands at 9 percent….

OH for God’s sake who wants Nationalisation of the Banks !!! Are you mad? Who wants 30,000 more Civil/Public Servants to put this State deeper in the mire. I give up when I hear of some of the suggestions here.

@zhou_enlai,

WE got diverted by someone, presumably, facing north who take a left tuorn for Iceland. It seems to be forgotten that the Icelandic deluded Vikings who wallowed in the glut of international liquidity bought up businesses in the UK in contrast to the Irish super gombeens who could see only land and buildings and assumed a continuously growing demand in Ireland and everywhere else their beady eyes rested.

But back to Plan A. I see this idea of a banking commission having far wider application given the inadequate empowerment/functioning of the existing regulatory/competition bodies. However, monitoring of NAMA is a good place to start.

@James Conran

Been there. Bought the t-shirt.

From Aug 23
http://www.irisheconomy.ie/index.php/2009/08/23/lenihan-not-anticipating-further-nationalisations/

“An unnamed foreign country that nationalised its banks, leading to disaster, was mentioned by the Minister. I’m guessing the country the Minister has in mind is Iceland. Minister Lenihan may think a decision to nationalise the banks was the cause of Iceland’s problems. I’d wonder though.”

@podubhlain

‘…old RBS not to redeem early four series of bonds after the European Commission stated Aug. 19 that banks shouldn’t use government money to repay equity and subordinated debt, the Edinburgh-based lender said in a statement today…’

Nice 1. I wonder is it that Aug 19 statement bi the EComm which inspired Richard Bruton (whose capaciti to keep his i on the ball while questioning lenihan in the oireachtas last Monda was impressive) to ‘misspeak’ on the news at 1 2 sundas ago when he said the ECB had ordered anglo not to repai bondholders? How if EComm said that is it that AIB et al are able repurchase bonds frm their bond holders albeit at a discount when the’ve had that 7 billion I wonder?

I, for one, am heartened that the two main ‘system’ banks are solvent, although with limited ability to lend.

If this is the case, then these banks don’t really need NAMA.

They will be able to trade away on their own, and gradually deal with their debt problems and try to show some sort of profit every year. This is all that NAMA was going to do anyway. The only difference is that this way, a lot of the problem assets can be kept within the private sector, as publicly quoted companies. As everyone in the government knows, it is much easier for privately owned, publicly quoted companies to access funds on the international markets.

The only problem is that these banks will have limited capacity to lend to Irish businesses. That is not necessarily a problem. A foreign bank could come into Ireland to fill the gap, and a new bank could be started with Irish management and capital from abroad. One or other of these could acquire Anglo Irish Bank from the government, and perhaps some other institution, and use this as a base for expansion.

The new banks could focus on business lending and online consumer banking. They could provide cash services and the like through the two original banks’ extensive branch and ATM networks. The old banks would carry out day-to-day administrative tasks on behalf of the new bank in return for a fee (their profitability would benefit greatly from any non-loan income they could attract).

The amount of capital that the taxpayer (or ECB, or whoever) would have to put up in this scenario would be very small. Almost all of the risk would be taken by the existing shareholders in BoI and AIB, the new international investors and the businessmen involved.

The government could then get its nose out of of the world of property dealing and corporate finance and return to what it is supposed to be doing, restoring confidence and getting Ireland back to work.

This all assumes one thing of course, that Brian Lenihan is correct and that AIB and BOI are actually solvent in their own right.

“In normal circumstances it would be anathema for this publication to suggest such a course (nationalisation) , but the system is broken, and must be put under repair, before a new privatisation of the banks concerned takes place.” Finance Dublin

Citizens beware when private banking interests support nationalisation.

Socialise the losses ( €15bn, €20bn, €25bn ..who knows) onto the debt burdened citizens of Ireland and then privatise the banks when the system has been cleaned up. Great idea if you are a gambler/speculator in financials.

Moral hazard is a risk that somebody will behave immorally because insurance, the law, or some other agency protects them against loss that the immoral behavior might otherwise cause.

Nationalisation or the proposed “National” asset management agency are both instances of moral hazard with flashing lights.

NAMA or nationalisation (that includes the toxic loans) is a bailout for the immoral behaviour of bankers and developers facilitated by FF/PD governments since 1997 who cheered on the housing bubble and the banking regulators who looked the other way.

In depressions, banks fail as they tend to lose loans as customers fail. The question is one of timing. When desperate things have been noticed as this GFC has, there is a lot less blame for sensible action. Dump the guarantee?

I now bravely assume that the bad joke of NaMa fails. What then?
BOI can buy the AIB business for a Euro and the shareholders have a quoted company with no liabilities. Put in more share capital and we have our good bank. I would avise that it not be too big! Keep some branches etc. BOI then becomes the toxic bank. No NaMa. We know share values will decline in AIB as NaMa recedes.

The ECB gets to hang onto 90Bn it may need to give later. We have a good and a bad bank and they are Irish. If BOI fails then the government can pump in more tax money! They will love that….. In the meantime, land is sold and developments are comleted probably on a suitably smaller scale. Funds are repaid and economic activity is generated.

Should NaMA go ahead: more rezoning of land all over the country as an incentive employment/welfare program for gombeens and bagmen. And the NaMa land will never be sold at a profit. NaMa land may never be sold but it will be a useful example of the failure of public enterprize …. and let me be the first to suggest that it should be privatized so that it can be run properly …….

The mignight court with apologies to merry men everywhere!
Land in Ireland, more so than anywhere else on this green ad blue globe, is just another facet of fiat currency. It is a bastard, born of an illicit coupling at midnight, by banking and government interests mediated by brownbags full of cash. NaMa is a daylight orgy with ECB blessings ….

Arguing about whether Iceland’s problems came before or after their bank nationalisation is a bit pointless. The root cause of the Icelandic crisis was that their balance-of-payments deficit reached 21.7% of GDP in the year to 2008 Q2, having run similar deficits for a number of years. That’s going to cause a crisis regardless of what is done with the banks.

Ireland never had a deficit anything like that. We were in surplus for years up to 2004. Then, a relatively small deficit from 2005 on, reaching a peak of about 5% of GDP in 2007. ESRI and the Central Bank both forecast a return to surplus in 2009 and 2010. So, apart from the spelling, there never were any similarities between Ireland and Iceland.

It was in September 2008 that the Iceland crisis emerged. At the time it was fashionable among certain media economists, who are greatly lacking in statistical expertise, but who fancy themselves as great wits, to repeat the joke: Q: what is difference between Ireland and Iceland? A: 6 months. Ha, ha, ha. How funny! Well, 12 months are now up, and there is no sign whatever of the prophesy coming true.

“Arguing about whether Iceland’s problems came before or after their bank nationalisation is a bit pointless.”

Not if the minister for finance uses it as a means of bashing nationalisers.

Just a question…if everyone is so sure that NAMA will effectively transfer wealth from the taxpayer to the bank shareholders, why don’t we all just purchase shares? I know there are still market and psycholigical forces at play but hey…

Personally I think we need to do something right now. We’ve been slow enough already and I wonder if we waited for the NAMA ‘alternative’ would we just be digging a deeper hole.

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