Not surprisingly it contains quite an amount of speculation, but some things are beginning to become more clear. The ECB may be holding its nose at the extent of the transfer from ordinary citizens to bank shareholders that NAMA involves (and at the time and space being awarded to developers to unwind their positions), but its overall stance on Ireland (and the other limping Eurozone members) should be pretty clear.

On a temporary basis it seems prepared to use massive injections of short-term liquidity to part-finance fiscal deficits. But this requires a quid pro quo since these liquidity advances will have to be repaid as the ECB pursues it exit strategy from support of the Eurozone banking system and of the public finances of the weaker Eurozone members.

In practice, I suspect, similar to the view expressed by John McManus, that the ECB will begin to operate very much in IMF mode. (It appears that the ECB has been content to allow the IMF to intervene to support non-Eurozone EU members, but is jealously guarding its Eurozone turf.) The pressure will come on to wind down the NAMA portfolio to release the cash to redeem the ECB’s liquidity advances and to reduce the fiscal deficit (so as to minimise indirect ECB financing). It is unlikely that this pressure will be applied too quickly or forcefully - the ECB is unlikely to want to be seen as forcing a major collapse in the Irish property market or putting overt pressure on the Government to reduce the fiscal deficit - but I would be surprised if its objectives had not been communicated very clearly to the Government. This, of course, severely restricts the ability of the Government to finance any sort of Keynesian-style investment stimulus.

As a result, it also appears that the European Commission (and the Council) is keen to use other instruments to provide some fiscal support (e.g., the Globalisation Adjustment Fund mentioned in another post) and the European Energy Programme for Recovery (EEPR) - from which the East-West electricity interconnector will receive some support (and possibly some renewable energy projects).

The latter is a significant development, but the total amount (approx. €4.3 billion) is being spread very thinly. The peripheral member-states will have to do much more themselves to finance upgrades in infrastructure and utilities. In Ireland’s case this brings the case for the privatisation of, at least, some of the semi-states to the fore.

This doesn’t look good. UK commercial property in negative equity until 2017.

Our nearest neighbour.

http://www.ft.com/cms/s/0/a29bce72-a60e-11de-8c92-00144feabdc0.html?nclick_check=1

“A report from the UK industry group that met with the Bank highlighted that the UK commercial property sector could be in negative equity until 2017 and undercapitalised by up to £120bn ($195bn) based on current conservative banking refinancing terms.”

“The amount of outstanding CMBS that need to be refinanced poses an absolutely huge problem, which is waiting to hit the market,” said Edmund O’Kelly, head of real estate restructuring at KPMG. “A lot of the technology for creating the structures was imported from the US, but they have never been tested in Europe. Restructuring CMBS is unchartered territory.”

The more I think about NAMA the more it feels like a Japanese solution to an Irish problem

“It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.”

Andrew Mellon’s infamous advice to Herbert Hoover, 1929.

You’re following in illustrious footsteps Greg!

“I’m not claiming that “misallocation of capital” isn’t a problem. I just have issues with your solution along the lines of “There must be a mass liquidation of a significant portion of CRE.”. Again, explain?”

Eoin,

I am glad we agrees that the misallocation of capital is a problem. I take the view that the bigger the misallocation the bigger the problem.

Maybe I should have said that NAMA will be a de facto monopolistic provider of CRE and development land. This is economic perversion.

With (I think I’m right) €28Bn going to Anglo and €6Bn going to Nationwide the bulk of the bailout is going to banks that are patently insolvent.

I don’t think anyone would seriously suggest that Anglo, with five branches in the State, will be lending to newsagents in Roscommon, fish & chips shops in Donegal or car mechanics in County Clare.

The €28BN given to Anglo is a massive misallocation of capital. Probably the same for Nationwide.

They should be thrown to the dogs along with their bondholders. I don’t buy the argument that Ireland “Sovereign” would be barred from debt markets as a result, though Government action to date has placed the Sovereign in an awkward position.

Let the liquidation begin. Let the market decide what value is. Rents for commercial space would plummet and allow indigenous (or foreign) enterprise a competitive edge in a Global/European market place. This competitive edge might assuage the negative effects of uncompetitive labour costs.

“Thats seems likely illegal/unconstitutional, and would amount to a temporary nationalisation of private contracts/property, in order to force down their value.”

NAMA itself is likely “illegal/unconstitutional”.

What of the property of the citizen/taxpayer that is being appropriated to the cause of NAMA?

Do the property rights of citizens count for nought?

Eoin,

Forget NAMA. Think about supply and demand. Think about price discovery. Think about a country where the state controls all land and property. Ignore the, very real, prospect of political interference in the allocation of that land and property.

Think about the wider world.

Nobody would invest in such a country. Their interests could be undermined by the state at any time.

Back to NAMA.

NAMA provides the state with the most perverse of reasons to manipulate prices. That is, to corrupt the process of price discovery.

That perverse reason if the political futures of those who propose NAMA.

NAMA (in its current form) is an economic albatross around the neck of enterprise for at least a decade.

In short, in terms of economic recovery, price discovery (the essence of a free market), and fairness to citizens, NAMA is about as useful as tits on a bull.

NAMA is not Quantitative Easing.

NAMA will not provide credit to enterprise.

The warrants on equity of AIB & BOI are close to valueless.

could you kindly put a link to my website …

http://www.fixnama.ie on the links section of home page

( see contribution above ” Citizen Ruane ” )

Fix the Banking Model -> FixNama ( all party support ? )–> get a * Stable* and *AFFORDABLE* supply of credit into the Irish Economy ( creditworthies etc )….otherwise the clearing/commercial banks will be the cash cow to support Corporate activities…..manage the Corporate Black-Hole in a less hurried and more trustworthy fashion. The State is the White Knight….and should set the terms and outcome…not a deal done ala the “City”. …which got us into this swamp in the first place.

Will the Bill even be passed??

I’m not claiming that “misallocation of capital” isn’t a problem. I just have issues with your solution along the lines of “There must be a mass liquidation of a significant portion of CRE.”. Again, explain?

This response would be more suitable in the post about the Dell workers but…….. I met (Sir) Terry Pratchett once. Did you know he used to work in the nuclear power industry? By a remarkable coincidence, his boss from those days was a friend of mine. He knew Terry wasn’t happy and cooked up such a good redundancy deal for him that he was able to take time out to write. The rest is history. Lovely man.

Misallocating Capital.

as we all know, demographics for rabbits are ridiculously positive, and there will soon be 400k rabbits occupying that site. Problem solved.

I’m confused about what your suggesting. I don’t think the purpose of NAMA should be to enforce liquidation on performing loans. Thats seems likely illegal/unconstitutional, and would amount to a temporary nationalisation of private contracts/property, in order to force down their value. While this would of course improve competitivesness, i think this sort of government intervention in the economy would scare all but the furthest left on the political spectrum. Or am i reading what you’re saying wrong?

Eoin,

The reason that I (Joseph, and I have no doubt many others) would be concerned about the lack of information on this is, if you are correct and it is indeed “performing” commercial real estate, that that €28Bn will corrupt the market for the next decade. Prices will be artificially maintained. Nobody will enter the market until the overhang has been used up. The Government (NAMA) could destroy investment with the stroke of a pen, and would have every incentive to do so. Apart from the €5Bn+ of finishing out (creating yet more of an overhang) there will be no development for maybe twenty years.

The perverse effect of this will be to make the Irish economy less not more competitive for a decade if not more.

There must be a mass liquidation of a significant portion of CRE.

If there is not, the businesses that are currently paying over “Global”/”European” odds for rent will suffer and die.

NAMA’s entire LTEV argument rests on current rental yields.

These yields are a fiction imposed on the market by law.

If rents cannot be negotiated downward we will end up with the worst of all worlds, business will fold rather than cut costs and struggle on.

The perverse economic incentives of NAMA aside I really would like to know what, if any, share portfolios were given as security for the €28Bn. If that figure is in any way significant the stock market will also have been corrupted.

I will now go and read the Fitz article.

i always assumed the associated loans to be to a large degree commerical real estate investment? While stuff like the O’Dwyers loans may be in trouble, other stuff could include Liam Carrolls renting of the Google HQ down by the Grand Canal Docks which is not doubt fully performing and likely to remain so. The problem is, like you say, we get big headline figures of “Associated loans of 28bn” and zero detail beyond that.

As per Dr Fitz’s article in the IT today, FG and Labour need to push for amendments that give much more detail beyond this (at this point i expect lots of people to say “but NAMA hasn’t passed yet!! Arrgghhh!!”…but anyway…), whether through closed door sessions for their front bench, or, even better, a publicly released report with the confidential details redacted.

I dont see why a two paragraph piece on each of the top 100 loans can’t be produced along the lines of “Developer A, total NAMA exposure 500mio, owns prime Dublin office block asset, initial value 50m, MV 35m, 80% occupied to long term tennant (IT sector) and yielding X% off current MV. Full occupation of asset would yield Y% off current rental rates”. I don’t see why this couldn’t be done over the next month.

The division has always been there, but there will now be more pressure to crystallise a “loyal opposition” - those who will have been forced to accept NAMA as a done deal and who seek to improve its implementation in the public interest - and a band of principled anti-NAMAites - who are determined to advance a more efficient and effective alternative. The objective is to marginalise the latter to the greatest extent possible.

For me, it has always been clear that any consideration of an appropriate alternative to NAMA would require a change of government - and, even then, there was no certainty that there would be a rational consideration of alternatives. It is, in my opinion, entirely inappropriate to pursue that line on this site.

However, I believe there are issues in relation to the development and application of economics that are worthy of consideration( e.g., the thread on the Stiglitz Commission for Pres. Sarkozy) and which may have been overwhelmed by consideration of NAMA.

http://www.irishtimes.com/newspaper/breaking/2009/0919/breaking7.htm

That is, are we talking here not only of “development” but of every bad commercial real estate loan advance in the last five years.

Joseph,

You are already aware of these numbers but I put them here to emphasise your point.

These are the only mentions of “Associated Loans” in the entire document (unless Ctrl+F deceives me).

“This €77 billion, estimated by the institutions, is made up of approximately €49 billion land and development and approximately €28 billion associated loans.”

Total Associated loans

Ireland 67%
NI 5%
UK 20%
USA 2%
Europe 6%
Total 100%

Loan book category Total

Land 36%
Development 28%
Sub Total L&D 64%

Associated loans 36%
Total 100%

Brian Lenihan (and others) have stated that 40% of the loans to be transferred are performing.

Could this mean completed developments? That is, no longer under development.

If that is the case it seems sloppy that no definition of Associated Loans was not given.

Maybe there are some NAMA gremlins in here.

Do Associated Loans include loans to developers for the purposes of buying shares on the ISE, a la Liam O’Carroll?

Dangerous if this is the case.

Specifically do Associated Loans include loans given for the purpose of investing in Anglo Irish Bank?

It is unfortunate that we have to guess.

Far from “improving in tandem” we have diverged from (Especially) greece in the summer.

While I admire your optimisim, sometimes what look like green shoots are just bits of mould.

http://www.youtube.com/watch?v=1d536PKwRAg&feature=channel

Sorry, that’s twice I’ve @’ed you this morning. Not picking on you !

“Perhaps I am dumb, but when I look at a figure like €9 billion, I wonder how long has that been building up ” - 2 years??

I thought your most interesting question was “Has anyone asked minister Lenehan at the Dail debates…..”. I have to say, I was looking for incisive questions to be asked by the opposition but not seen much so far. Do they not get any training in asking really flipping awkward questions?

What I still don’t know is the breakdown of that big chunk of the 77bn being ‘associated loans’. I presume this unpaid interest is part of that. Is the rest of it loans from other banks to make up their (the developer) supposed 25% equity in the deal i.e. they just borrowed the money from another bank instead of putting it up themselves so what ‘associated loans’ means is a load of cross-dependencies bank to bank that looks a bit like a deck of cards? Maybe the answer to that is somewhere here on irisheconomy.ie but I haven’t got sufficient time today to read all the posts since the debate started.

Is is not the case that some of these countries’ economies have unexpectedly started to grow again?

I gather for example that Greece’s economy has returned to growth in the second or third quarter of 2009.

Accordingly, since Ireland’s spread position has improved in tandem with these countries despite no such unexpected return to growth here, isn’t it possible/likely that bond market’s happiness with NAMA is what’s allowing us to keep up with these countries?

In recent times the credit risk on the US Treasury, as indicated by its CDS price, has frequently been rated highed than many Corporate issuers (the pricing in the US Treasury market would contradict this entirely). Originally seen as “default insurance” the prices only truly reflect the speculative view of a small number of hedge-funds. The yield on real bonds trading in the market represents a much more realistic view of the risk premium the Irish Government is required to pay.

I agree. My limited understanding is that, in the context of such a major bank resolution challenge, the bond market would wish to see clarity, finality and some assurance of a long term debt service capability. In addition to politcial survival, the objectives of this woe-begotten exercise are to keep the main banks and the developers’ Irish activities (such as they are) out of foreign control. Irish taxpayers will pay a huge, economy-damaging premium to achieve these objectives. Maybe they would be content with that, but the size of the premium isn’t being spelled out so they have no basis on which to make a decision - apart from a well-founded suspicion that they are being gulled.

“Does the info above assist you?”

Yes. Thanks for that.

It really does seem that the market reaction is not nearly as positive as we are led to believe.

I’m not sure how much of the drift is down to uncertainty. I would not be surprised if the market has cottoned on to the fact that the Government is planning to pay twice for the bonds it will sell to the banks out of the NAMA bonds repo’ed at the ECB; the first payment is the coupon on the NAMA bonds and the second is the (presumably) full coupon on the bonds sold to the banks. This signals a fear of the market that is the same as leaking blood in the water in the vicinity of sharks.

Is there any link available for bond yields and CDS rates for a mere citizen?

I’m fed up being misled by our dear leaders on a daily basis.

It’s worse than I thought.

There is an incentive to pay off the preferred before the fifth anniversary.

An incentive of €1,750,000,000.

“Repurchase:

Repurchase at option of bank at par in the first five years and at 125% of par thereafter. Repurchase may be made from profits available for distribution or from replacement capital which qualifies as Core Tier 1, in each case subject to the approval of the Financial Regulator.”

If I hear anyone from Fianna Fail or the Green Party claim that the State has 25% of AIB or BOI or if I hear them say we have a warrant for 25% of AIB or BOI, I will have to conclude that they are deliberately lying.

If I hear it from RTE I will have to conclude that they are failing utterly in their duty as a public broadcaster.