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.

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

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.

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 ….

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.

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.

http://www.irisheconomy.ie/index.php/2009/05/15/thoughts-on-fine-gael%e2%80%99s-bank-plan/#comments

http://www.vanityfair.com/politics/features/2009/04/iceland200904

‘…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?

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.”

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.

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.

http://www.rte.ie/player/#v=1054699

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?

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.

OK. So Plan B might look dodgy, but what about Plan A?

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.

“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.

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.

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 !

“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.

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?

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.