More hackery from a bankrupt newspaper.

That is very very interesting.

Is it not time for a bit more number crunching? I know there are huge uncertainties, but a bit more clarification has been extracted since you generated your initial spreadsheet. I know it adds to the complexity, but it might also make sense to factor in the recycling of NAMA bonds via the ECB to finance Government debt issues (that helps to shield the Government from full exposure to the international bond market). I have always seen this as a key feature in the DoF/NTMA thinking on NAMA.

The other key feature is the Government’s determination not to nationalise the banks even if the required recap gives them 99% of the shareholding, but there is obviously a desire to keep this as low as possible as the cost of NAMA bonds is lower than the cost of standard Government debt - and NAMA bonds keep the ECB sluice gates open. There seems to be a commitment to keep the existing boards and senior managements almost intact (apart from some limited external appointments). It has been reported that the Minister has forced AIB to look for an external CEO. Nationalisation followed by privatisation, almost inevitably, would result in some of the banks ending up in external control with the current boards and senior managements being removed. No government will allow this to happen on its watch. That, I suspect, is why FG has gone down the “good bank/bad bank” road. Multiple flotations would be time-consuming and expensive (and might not preserve existing boards and senior managements) when trade sales of cleaned upbanks could be effected quickly.

Given these strategic/tactical objectives NAMA reduces to a turd-polishing exercise to convince taxpayers that they are not being hosed.

The ides of passing smoothing directly to bank shareholders seems to undermine the principle of shareholders being last-in-line. As I understand company law, the high court has to authorise a distribution of capital to shareholders, an action that would be clearly impossible at the present time.

Now of course the NAMA legislation could be written to overwrite that position. But no payment direct to shareholders could in my non-lawyer opinion be made without a 100% guarantee that all the obligations to our favourite subies would be met.

Which might of course be an intended unintended consequence.

(eg here http://www.independent.ie/opinion/columnists/martina-devlin/lets-not-wreck-nama-in-our-lust-for-revenge-1876678.html)

@Maurice
One of the problems I have always had lurking in my mind is that. Lets say, for the sake of argument, that we transfer 90b. Under Honohans plan we would give say 40b to the banks now and 20b to the shareholders, in the form of NAMA-shares. But that would still leave a huge hole in the banks balance sheets. The filling of that would result in defacto temporary nationalistion, which is, we hear, A Bad Thing. However, the subordinated nama-dung that Yogan suggests will be transferred is as good as senior nama bonds so ….

@Pamina
Not sure I follow your point. NAma-as-it-is is nama+overpayment however dressed up. I am not, as I have stated, anti NAMA as a concept (given where we are now). I am against nama+overpayment.

He also discussed the political consequences of the government falling before NAMA was passed. My view is that this was more about getting FG drop the “good bank” strategy, engage in a serious debate about NAMA and safeguard the taxpayer, rather than him supporting NAMA as it. That is my speculation.

@BL
“And PH is no longer able to speak for himself, no. But he is not pro-nama-as-it-is,… ”
“Pro-NAMA as it is” is a small group. Even the minister seems to be saying that he wanted changes as far ago as March that did not make it into the draft. Meanwhile if you are “anti-NAMA as it is”, well, you’re simply anti-NAMA.

I dont understand how any two stage process can satisy the purported advantage of NAMA that it removes uncertainty from the bank balance sheets.

I know Minister Lenihan has claimed that he mooted the idea last spring but this is just politician speak.

So NAMA isn’t doing what it says on the NAMA tin if it involves 2 stage payment

So presumably you mean the vast number of people who dont understand the subtleties of that is going on. So I will champion the cause of the ignorant.

The debate may revolve about technical details, but the big question about who picks up the tab, or rather what proportion of the price of the 10 year party is paid for by different interests groups is one where all the people have a valid point of view.It is not a simple question of economic efficiency. It is a highly political/moral question.

People may not understand the details of NAMA but they do know when their pockets are being picked.

I don’t agree that full nationalisation is the solution, but there should be no upside limit to the stake that the state takes in the banks. An underwriting mechanism similar to the one the British government used would be appropriate. This would allow existing shareholders to maintain their shareholding proportion should they so wish. Otherwise they get the dilution that risk capital that fails to control risk in the institutions it owns deserves.

A 70% recapitalisation would require 6.5 bn of new money
80% 8 bn
90% 18 bn
(given current values of 2 bn for each of the banks).
Note, this is after existing loan loss provisions and shareholder equity has been wiped, so the reality is that the amount of losses those equity injections would permit is higher.

@john
Nama a corrupt scam? It looks more like the child of a perverse consensus whose objective is to protect wealth through socialising losses. Some are rightly arguing for the lowest possible socialised loss outcome and arguing for gain/loss sharing, others insist risk takers should take the pain before losses are socialised. So far NAMA’s engineers have failed to convince it has been designed to optimally limit socialised losses.

On a side note, it is interesting to see the British Government have moved into profit on their RBS stake. Also, the Swiss Goverment did well out of their stake in UBS. Also, the Irish governments warrants are now showing a healthy profit.

Some other questions.

Why did no other country nationalise its entire banking system like some of you economists are advising?

Why can’t we (taxpayers) participate in upside recovery of banks through a minority shareholding?

Two dominant trends in the developed world are
1.) Population Growth 2.) Urbanisation

Will the ‘long term economic value’ not be influenced by these trends within a global economic growth scenario that will return?

NAMA appears to me to be a valid option with the govt. taking a maximum 40% stake in financial institutions.

Finally, do you not think that the ‘window of opportunity’ for nationalisation is now well past. It is a extreme measure and it appears that the crisis has now passed. From an internation PR measure it would be suicidal and unnecessary in my opinion.

to extend the footie metaphor, what chance the captain will stomp off home from Saipan to Clara?

pro NAMA
26% of the Irish people.
FF+GP(?) ledership.

anti NAMA
74% of the Irish people.
FG
LP

To answer your question, no I don’t think anything I have written is an insult to Prof. Honohan. I am a big fan of Patrick and his plan.

I don’t think the rest of your comment is worth responding to.

I don’t know Mr. Honohan from Adam. I assume both of you know him well. From your acquantance with him, do you think it likely that he would have accepted the position if he was very unhappy with the likely NAMA and considered it some sort of corrupt scam, which various opponents of NAMA have been arguing? I find it difficult to believe. I’d have thought it would be like a reputable and successful football manager accepting the post of Man Utd manager, having just been told by the directors that they were planning to use the next 10 years’ income to purchase Eamonn Dunphy. But, I assume that he will make his opinion known in due course.

On the anti side you forgot Bo Lundgren…

Its a bit rich some third party saying that the plan is much inferior to his (Mr. Honohan’s plan) when he (Mr. Honahan) has just accepted the job of Governor of the Central Bank. Surely, he wouldn’t have accepted the appointment if he felt the Government’s plan was massively inferior to his own (whether the original form of the Government plan or a future modified form that he was informed about when negotiating his appointment). Is it not an insult to Mr. Honahan to suggest that he would take up the position of Governor of the Central Bank if he felt the Government was in the process of coming up with some scam to transfer money from taxpayers to the Government’s supporters in the construction industry, which many of the wilder elements on here appear to believe.

There appears to be a bit of a mismatch developing in terms of the stature of those involved on the two sides of the NAMA debate.

In the pro-NAMA corner:

Garret Fitzgerald (ex-Taoiseach and from opposite party to Government),
Alan Ahearne (widely regarded as Ireland’s foremost economist)
Gerry Robinson (distinguished businessman - see yesterday’s IT)
Patrick Honohan (future Central Bank Governor - see above)

In the anti-NAMA corner:

various academics whom, with the greatest possible respect, few have ever heard of, have never stood for election and have never run anything)

No contest!