Article on NAMA in Sunday Independent

Following up on this post from a few days ago, I have written an article for the Sunday Independent discussing the Minister for Finance’s confidence that no further banks will be nationalised.

I’d note that since I’ve “gone to ground” following Dr. FitzGerald’s appearance on Morning Ireland, I have written fourteen blog posts and a newspaper column and have also appeared on two national radio shows. Next week, I’ll be maintaining the low profile, briefly emerging from my cave to make appearances at a gathering of the Labour Party Parliamentary Party and a Green Party membership event as well as writing another newspaper column (wifi isn’t so good in the cave.)

Update: In an interview in the Sunday Tribune, Minister Lenihan persists with the circular logic, this time in a more entertaining form. He says:

I have made it quite clear, a majority state stake is not a problem. But if the valuations of certain commentators were accepted, the Bank of Ireland board, the Allied Irish Bank board would have resigned by now, because they couldn’t perform their duties as directors, presiding over insolvent banks.

Can anyone spot any flaws in this line of thinking?

30 replies on “Article on NAMA in Sunday Independent”

This is indeed a defining moment in the country’s future. If, in the face of all objective reasoning and fiduciary responsibility to the taxpayer, the establishment is allowed to push this legislation through on the back of obviously flawed thinking of the flavour you refer to in this article, what hope is there that Ireland will do any better for capital planning, fiscal reform, reform of the public sector, etc.?

What makes the Nama case so interesting is that it so neatly divides the camps in two, opposing those who use clear economic logic to defend efficiency and social justice, against those who will say just about anything to protect their vested interests.

The government needs to be asked a very simple question.

What benefit does the taxpayer get for paying LTEV rather than market value for the loans?

Well done Karl

I just hope the general public can follow the case you outline.

Nama is the cart with an unknown load, the Irish taxpayer is the horse expected to push it over the winning line.


Excellent article, but please give your sub-editor a good clip ’round the ear:

“… matters over which they provide”

surely you wrote:

“… matters over which they preside”?


If we take Lenihan quote to its logical conclusion then the Directors of Anglo, including the Public Interest Directors) should not have signed off on the Anglo loan of E68m to Liam Carroll since Anglo is clearly insolvent.

During the Prime Time interview, the ministers was careful not to assert to the condition of the banks, merely to repeat the assurances given by the banks (wrt eg, the LTV, amount of lending at the peak etc). In today’s post he is not stating that the banks are solvent, he is simply happy to infer it from the continued presence of directors on the board.

In the US they stress-tested the banks to determine the amount of capital needed to keep them solvent. Wonder why they went to that bother? No place for such rude tactics in a cosy place like this. Lets just take their word for it and go with the “back-door recapitalisation” (AA’s term) by pretending that there is LTEV supporting the assets on their balance sheet, and that someone – the taxpayer – is happy to buy at a price which supports their apparent solvency.

Readin Mr Lenihan’s quote reminds me of Lord Denning’s “appaling vista” in the Bermingham 6 case. Lawyers’ logic does not change.


Comments he made to preventing developers from re entering the market suggests he does not have much grasp of the law either.


Interesting to hear you will be addressing the Labour Party Parliamentary Party.

Taking into account their desire for full Nationalisation, they have repeatedly pointed out how it cleaned up the banks in Sweden, Norway, Denmark and Finland in the eighties. That cannot be doubted, it is a matter of fact.

What they, and other proponents of Nationisation have failed to point out is the fact that with the exception of Finland, the Banks in the other countries have had to be bailed out again in the current crisis.

I am neither for nor against Nationisation. I see merits in both arguements.

Above all else, I believe we need tougher regulation and we need it urgently.

Well done – again. If you provide the analysis let us tabloid types provide the soundbites:

Bank share prices have only risen because of the promise of overpayment by taxpayers for the loans.

@Michael Harvey

“Comments he made to preventing developers from re entering the market suggests he does not have much grasp of the law either.”

On this point, the minister sounded like a teenage boy confronted about his smoking behind the bike shed.

Voice goes up half an octave, direct eye contact is broken off, and the denial is blurted out on reflex … “no, Miss, I was never near the bike shed. Ever. I don’t even own a bike.”

Not for a second does the minister’s inner lawyer believe those defaulting developers can be kept out of the game permanently. They can’t and they won’t, and he knows it better than most.

Minister Lenihan didn’t go to Cambridge and become a law lecturer and a senior counsel for nothing. He knows he is talking rubbish. He is his father’s son.

As School marm points out, he knew he was latking rubbish in relation to the pat assurances that developers could be kept out of the trough when the game starts again.

My explanation does not comfort me.

@Graham Stull.
Perfect summary of my position.

Far be it from me to defend the boards of the banks but from their perspective its hard to conclude the banks are necessarily insolvent. The dog in the street knows they are bust but with NAMA there is every possibility that they are not as the taxpayer bails them out – hence a share price greater than 0. KW neatly exposes this tautology – clearly when Anglo was €17 our esteemed Minister for Finance must have slept soundly knowing the market was right and the banking system was in fine fettle!


Now we have Alan Dukes sticking his tuppence worth in. Two former FG leaders lending support to a FF plot.

What is the country coming to!

Then again, I would not believe for one moment that Mr Dukes views have been influenced by his appointment as the governments watchdog to Anglo Irish.

There will be a nice tasty commissioner posting to the EU very shortly. Am I being too cynical.

The flaw in the thinking of |BL is that he knows as everyone does they are insolvent on any objective valuation but the Directors are shielded by the guarantee and the promise of recap. So no need to resign.Pure PR BS.

But here is some curious thinking-“The point really is what you need are viable, well-funded banks, and arguably they should have lower capital ratios for a recession and a higher one when you are out of recession,” he says. “But we are not there at present. It’s an interesting theory to have these higher capital levels, but I’m not sure it’s being implemented in many parts of the world.”

So on this thinking we may end up with zombies post NAMA 1 or 2.
Contrast with Tim Geithner’s call for increased bank capital ratios at G20.
Will he outline the pro-forma capital ratios of the banks on Sept.16.

@ Pamina

The US stress tests were a complete shame.

They were promised to Congress to encourage various of the alphbeth soup of backdoor recapitalistions.

Their worst case scenarios have already blown up.

85 US banks have gone bankrupt this year. Maybe 200 more to go.

I will try to find some links.

Michael Harvey Says:
September 6th, 2009 at 4:37 pm

The two kindest words I can think of are coat & turn.

I notice Dukes didn’t say anything about the reward the Public can expect for taking on the toxic risk.

But then what would Dukes know about Public Interest?

@Michael Harvey
I believe BL has dusted down his copy of The Prince

@ Greg
Bloomberg recently carried a story that they now have 400+ on the watch list I think the potential cost was put at $300b.

Pamina Says:
September 6th, 2009 at 10:40 am

Some links.

“By way of background, William Black is a former senior bank regulator, best known for his thwarted but later vindicated efforts to prosecute S&L crisis fraudster Charles Keating. He is currently an Associate Professor of Economics and Law at the University of Missouri – Kansas City.”

“Now this begs the question: why has the Treasury Secretary set in motion an obviously bogus process? It suggests the result is pre-ordained.”

It is difficult to believe anything coming out of the Obama Administration regarding the health of their financial institutions.

Here’s the Bill Moyers interview 3rd April 2009

We need to be vigilant that any risk-sharing scheme that involves deferred payout to banks does not trigger executive bonus schemes at the point the payout accrues to the bank.

@ Pamina

The US stress tests were a complete shame.

That should have been sham.

Though shame also works.


And …if NAMA has an issue with the Ministers valuation adjustment it’s CEO is to be legally gagged from saying so. The legislation all too neatly allows the minister to massage due diligence valuations to fit with his estimate he’ll announce on the 16th.

Has he not told the market that he thinks they have correctly priced in “solvency” – one reading is this was a coded message picked up by stockbrokers who have priced in a 20-23% haircut. What would happen on the 16th if he announces an estimate that is worse than predicted by the market?

To what extent have banks been required to recalibrate regulatory capital in line with impaired collateral quality?

The Ministers logic of lower capital in times of stress appears to indicate that he believes the NAMA subsidy will result in thinly capitalised banks.

bill hobbs Says:
September 6th, 2009 at 10:59 pm

“What would happen on the 16th if he announces an estimate that is worse than predicted by the market?”

He won’t.

His statement will be exactly as expected because the “market” has already been informed. The “casino” is rigged.

And yes it may be a little worse than what the sheep have been led to believe. It’s called burning the shorts, or taking the Public for another go on the merry-go-round.

After that it’s back to business as usual for Fianna Fail and the Green Party.

All of this valuation nonsense is a complete distraction.

What is happening is a massive transfer of wealth from future generations to a privileged informed few of the current generation by stealth and additional national debt.

Brian Lenihan does not know what the value/price of property will be in ten years, no more that his estate agent adviser knows.

It’s a joke. And the joke is on you, your children, and your grandchildren.

podubhlain Says:
September 6th, 2009 at 8:11 pm

“@ Greg
Bloomberg recently carried a story that they now have 400+ on the watch list I think the potential cost was put at $300b.”

Xerxse couldn’t handle 300 Spartans.

Do you think Obama/Geithner/Bair can handle 400+ corrupted banks?

Obama is lying (or ignorant), Geithner is lying (or ignorant), and Bair is lying (or ignorant).

So of these three people whom do you think is lying and whom do you think is ignorant.

Cowen Lenihan Gormley

Maybe they’re all ignorant because I can’t work it out and I’m not ignorant.

Lucky for Obama/Geithner/Bair that not only do they have their own currency and printing presses but they have the global reserve currency.

Some day the Chinese will let the Yuan float. How powerful will western credit formation be then?

@bill hobbs “one reading is this was a coded message picked up by stockbrokers who have priced in a 20-23% haircut”

My sources say 23-24% on the basis that they would have liked it to have been 20 but didn’t think they could get away with that and 25 looks like too much of a round figure. 23 or 24 looks as though it might have some ‘sums’ behind it and easier to sell to the public. I’m looking for a spreadbetting shop!


Your point about the circular logic seems fair. But maybe you are inferring too much from the change in share price between March and now. As you know, the value of a share is in a context – and in March last year there was a whole lot more uncertainty about the state of global financial markets. And there was far more uncertaintly about the potential depth of the global recession. There has been considerable improvement in these since and so all share prices have rebounded very considerably. The dow reached a low of about 7200 on march 9th but is now back up around 9400. In terms of the Irish economy, the picture, dark though it is, has stabilised considerably over recent months. We also see that the government seems very determined to address the banking issue (even if not everyone agrees on the how). So built into that share recovery is a whole lot of things and therefore to say concretely that it is a result of an expected 20% haircut might be to go to far?


I don’t think the international share recovery has much to do with the rise in Irish bank shares. The key thing affecting the valuation of the banks is the extent of bad loans. As far as I can see, the news since March has been bad on this front—Anglo’s admission that development land values are down 70%, the exposure of Liam Carroll’s accounts, etc.

I do agree that the fact that the government has been “determined to address the banking issue” has had an effect because they have chosen to do so in a way that directly transfers money from the taxpayer to the bank shareholders.

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