Some Unpleasant NAMA Arithmetic

Regardless of the rights or wrongs of NAMA, it is shocking how many commentators have accepted the notion that a 10 percent rise in property prices over the next decade will be sufficient for NAMA to break even.  The “logic” is this:  we are paying a little over €51 billion upfront for assets thought to be currently worth €47 billion, so a 10 percent rise in the value of the assets will give us our money back.  Let’s be as spectacularly optimistic as John Mulcahy, NAMA’s senior property valuer, who (alone?) believes that the property market is at the bottom of its cycle.  Would anyone consider it a good deal to lend someone €100 today and have them return €100 in 10 years time?  Obviously not.  Firstly, with any increase in the general price level, €100 will be worth a lot less to you in a decade.  And secondly, you would expect the money to be repaid with interest (especially if you had borrowed it commercially yourself!).  Property prices will have to rise by a multiple of 10 percent for NAMA to break even.  (Apologies for having to state something that must be so obvious to everyone on this website!)

65 thoughts on “Some Unpleasant NAMA Arithmetic”

  1. Karl Whelan, Brian Lucey and myself have also noted this in the various spots scattered among various threads on this website; perhaps others have as well (I believe that Ronan Lyons noted it also on a linked page). Still it is well worth re-stating this.

    My own guess (not very authoritative), based on reading Ronan Lyons thoughtful analysis, following the property market to the extent possible given the government’s price information black-out, and speaking with a few more knowledgeable people, is that NAMA is on course to subsidize (overpay) the banks and their various owners and claimants by about 10 billion euros. This comes from three main sources: over-statement of current market values, optimistic forecasts of price recoveries, and (lastly) perhaps also an oddly-described profit-sharing formula on the subordinate debt which does not consider interest (???).

    It is also worth noting (this is my own contribution to the analysis) that NAMA is buying loans backed by the repossessed properties of distressed sellers — this gives a strong negative selection bias to the true values of the underlying assets.

  2. If NAMA’s cash-flow generating loans can service the interest coupon on the NAMA bonds and the administrative costs of NAMA
    and
    if NAMA can generate enough capital to redeem the NAMA bonds at no loss
    then NAMA will break even.

    However, if NAMA cannot service its outgoings or does not recover enough capital to redeem all bonds then the taxpayer will make a loss.

    Obviously it is not a good return on investment to risk €51 billion for zero profit. However, this is not an investment in assets but a rescue package for our financial system for the sake of the real economy.

    The fact that €100 may be worth less in real terms in 10 years time won’t make a blind bit of difference if we can pay off the capital and therefore reduce our debt. In fact, we might be better off if €100 is worth less in real terms.

    We are borrowing money to invest. Therefore the primary concern is not on the return but on paying off the borrowings. If the return is sufficient to do this then we have succeeded. It would be nice if the financial crisis were an opportunity for canny State investment. However, having making a profit as a principal goal might be getting a little bit a head of ourselves.

  3. @ Frank

    if the NAMA bonds do in fact end up paying ECB+0.5% (not that its incredibly annoying that we still don’t know or anything…), then we aren’t really paying €51.3bn (ie 54bn minus sub bonds) are we? I say this on the basis that normal Irish government debt would yield much higher in the 5-10yr space which NAMA is likely to exist in.

    Regardless of the ‘rollover’ or whatever other mechanisms have been suggested, in reak market terms, while we are giving the banks bonds with a nominal €51.3bn on the face of them, their discounted ‘real’ marked-to-market value is probably more like 90% of this, so €46.2bn, is it not? The banks may be able to take advantage of accountancy tricks like hold-to-maturity etc to get around this, but thats a seperate issue v-a-v the ECB, market valuations etc.

  4. @Eoin
    I agree, it’s totally frustrating not to have an idea of what the bonds will look like.

    But even on the best assumptions, they will average 4.5% over the next ten years (I think that figure is from you? 10 year swaps at 4% + 0.5%).

    On 51.3 bn, that’s 2.31 bn. That’s already up to 14% growth from the speculated trough. Never mind admin costs. Never mind the 10 bn that is supposed to go in to ‘realise the value’ of the NAMA loans…

  5. @zhou_enlai
    Assuming that NAMA will cover its operating and funding costs is a very optimistic assumption.

    Based on the limited information released we can be fairly sure that the funding costs will increase over the term of NAMA as interest rates increase.

    Assuming that the interest received by NAMA will also increase as interest rates increase is bordering on the fanciful IMO.

  6. @ YM

    i agree. I’m just saying that we haven’t actually given the banking sector 51.3bn in cash. We’ve given them assets (NAMA bonds) with a face value of 51.3bn, but with a true inherent value a good deal less than that (assuming the ECB+0.5% coupons hold true). But we can never publicly admit to this, obviously. This underscores why its so important, and so irritating, that we still don’t know how the funding model is going to work!

  7. What was that story about the five gold coin that were circulating at the time of Christ? What they would have accumulated in interest, the world could not afford it, or something. I vaguely remember hearing the story.

  8. @Eoin
    Why do you think the bonds with a 1.5% coupon will trade below par?

    I’m still guessing they are floating rate bonds and 1.5% seems about right for a 10 year bond.

  9. @Eoin
    Fair enough.

    As a total aside, why do all the bonds have to be the same?

    Would a blend of bonds across the yield curve not be a sensible thing to do? With zero-coupon bonds for the subordinate debt rising up to ten years for the lumpen loans?

  10. I do not think NAMA was ever set up to take into account NPVs of future recoveries just as the same as any Insolvency. Get your money back is the name of the game and a 10% increase in Property value over 10 years is not an outrageous assumption be that the property increase may all fall into the second half of the 10 years.

    As an aside it never ceases to amaze me how much has been written about NAMA when the biggest Elephant of all time in the room is the Budget Deficit of €20 Billion per annum. Colm Mc Carthy must be feeling fairly shafted with the attitude of certain Ministers recently who seem to think that there is a printing press in Merrion Street.

  11. @ Dreaded Estate

    well 10yr Irish govt bonds currently yield around 4.68%, and the 10yr semi-annal swap is 3.45%. So we’re talking 120-125bps over where your expected mid market Euribor rates will be.

    And Irish govt bonds paying a floating coupon of ECB+0.5% would likely end up being equal to 6mth Euribor+30bps (Euribor has historically been 20-30bps over ECB).

    So, while you would hope for Irish bonds to pay L+120, the NAMA ones will be more like L+30. So there’s going to be a big discount to par in terms of their true value. The talk of ‘6mth rollovers’ is a tool to get around this, but would make them impossible to sell on the open market (impossible for the Irish govt i mean).

  12. @ YM

    i completely agree, and it again shows how little they’ve given us on the funding! I always assumed that a broad mix of maturities would be used to reflect that some assets would be sold on earlier in the life of NAMA than the rest, but none of the info seems to be pointing that way. Maybe they just figured its easier to have a very vanilla funding book? Guess we’ll find out, eventually!

  13. @Eoin
    I agree with you on the spread for 10 year bonds but I disagree with you on the other assumptions.

    I think we will issue 10 year bonds with 6 month resets.
    The current 6 months European bill rate is about 0.45% adding the 10 year premium of 110bps would give a floating rate of about 1.5%.

    To me that bond would be priced at market value and would therefore trade roughly at par.

    I know we won’t know until the details are released but I would be shocked if the ECB accepted anything other than market terms for these bonds.

  14. @TRP
    A 10% increase may seem reasonable if you think we are at the bottom of the market but if we aren’t at the bottom it is very optimistic.

    Give the level of unsold and empty residential stock and commercial vacancy rates I think we aren’t close to the bottom yet and could fall another 40% from here.

    We would then need approximately 80% over the remaining 7 years which to break even.

  15. zhou_enlai Says:
    September 28th, 2009 at 1:26 pm

    “The fact that €100 may be worth less in real terms in 10 years time won’t make a blind bit of difference if we can pay off the capital and therefore reduce our debt. In fact, we might be better off if €100 is worth less in real terms.”

    So zhou,

    What are Lenihan’s assumptions regarding inflation for the next ten years?

    Will that be factored into the public service pay bill and welfare expense?

    Or do Fianna Fail and the Green Party intend that the citizen/taxpayer will not only suffer additional national debt as a result of NAMA but will also be subject to a stealth inflation tax?

  16. @ dreaded_estate

    If a loan is fully performing and the rate increases then the loan repayment will increase unless EURIBOR doesn’t increase in line with the ECB rate. This assumes loans are either at EURIBOR + #% or are fixed but with the benefit of an associated swap for the bank.

    Assuming that the interest received by NAMA will also increase as interest rates increase is bordering on the fanciful IMO.

    @Greg

    I don’t get your point. Are you talking about something else.

  17. edit:
    D_E said: “Assuming that the interest received by NAMA will also increase as interest rates increase is bordering on the fanciful IMO.”

    I meant to quote it before the first para of my last post above.

  18. @zhou_enlai
    Not necessarily
    The rate the loans are MEANT to pay is linked to EURIBOR but I to say that the money received will increase is an entirely different assumption.

    As interest rates increase borrowers will struggle to keep up payments in my opinion.
    This coupled with declining rents means that even if EURIBOR increases in line with the ECB rate these is no guarantee that we will receive anymore money and we could in fact receive less.

  19. @ DE

    ok, i see where you’re getting your figures from. The only problem is that at the moment, German bills trade at L-55bps, having previously traded at an average of L-12bps or so. I don’t think anyone expects this situation to last forever, and its still a bit of a feature of the high risk aversion that some investors have. Irish bonds would also attract a higher liquidity premium than other Eurozone bonds. How else do you explain a gap of 140bps between German 10yr bonds and Irish bonds?

  20. @Eoin
    From what I have heard from the government so far the initial rate is ECB+0.5% but the government still hasn’t indicated that this will be the rate for ever.

    I think the description of ECB+0.5% is nothing more than an easy way to explain it to the public.

    In reality I think the rate will be linked EURIBOR to match the loans we are receiving interest from.

  21. @ DE

    thats a fair enough point. From the almost complete lack of information we’ve had to go on so far, either any of us could be right, or we could all be wrong! Its a strange and stupid situation to have.

  22. @DE

    I guess one would need to know more about the loan book and how strong the fully performing loans are. One would also need to know what rates they are set to, particularly in the UK and USA. Either assumption, that interest payments will increase or decrease as rates go up looks to be pretty unsafe at the moment. The cost of funding is of fundamental importance and the legislation flags it as such. The NTMA are experts in this are. One would hope and suspect that the possible effects of fluctuations in the cost of funding has been considered.

  23. why would anyone buy 1.5% 10 years Nama bonds when you can buy 10 year german sovereign bonds yielding 3.3%. If this is a clever way of financing at low cost how come good class corporates are not issuing 10 year bonds that reset. Are we getting a free lunch or is BL feeding us rubbish when he states they will be traded on the international bond market.

  24. People. We are in the dark here, scandalously so. Everything I hear points to short marturity issues. But we dont know. Clearly they have to issue paper that will have a face value as close to par as possible.

  25. zhou_enlai Says:
    September 28th, 2009 at 3:28 pm

    @Greg

    “I don’t get your point. Are you talking about something else.”

    Sorry zhou,

    Could have made that more obvious.

    I’m talking about the real value of money as your €100 analogy illustrates.

    If Fianna Fail & the Green Party intend using inflation to make up the gap between current (real) market value of the security and the eventual (inflated) market value, will they protect the citizen/taxpayer from this inflation tax by index linking public service pay and welfare benefits?

  26. @Greg

    I have heard nothing to suggest that the Govt intends using inflation (other than increases in property values) to make up a gap.

    I don’t know what an inflation tax is but given that the Govt has said we need to reduce wages and costs to increase competitiveness, I think we can safely say that it is not in the Government’s arsenal.

    Increasing public service pay might be considered a novel way of protecting taxpayers at the moment. However, I think that is a different debate which I have so far avoided.

  27. zhou_enlai Says:
    September 28th, 2009 at 6:22 pm

    zhou,

    Don’t want to get to far off topic, but inflation is a tax on those who hold cash as there main asset class. It appropriates real value from those who do not have non cash assets to those who have assets which have a positive correlation with inflation.

    I will grant you that “Inflation tax is not a rigorous economic concept” but nevertheless wiki explains it quite well.

    http://en.wikipedia.org/wiki/Inflation_tax

    “I have heard nothing to suggest that the Govt intends using inflation (other than increases in property values) to make up a gap..”

    zhou,

    An increase in the value of property in the absence of inflation is a “real” increase not one due to inflation. Your €100 analogy breaks down.

    “The fact that €100 may be worth less in real terms in 10 years time won’t make a blind bit of difference if we can pay off the capital and therefore reduce our debt. In fact, we might be better off if €100 is worth less in real terms.”

    For the sake of argument let’s assume a zero inflation environment for the next ten years. An increase in the real value of property can only occur for pretty much one reason. Real property values increase because the REAL underlying economic conditions make it more valuable. It could of course increase because of loose credit, but we don’t want to go back there. That would be inflationary.

    Will underlying conditions allow for an increase in real property values of (say 25%) in the next ten years, after taking out the overhang in the market?

    The valuation “logic” underlying the Fianna Fail & Green Party proposal is nonsense.

    Nowhere has Lenihan given his assumptions on economic growth, inflation, employment etc etc.

    His “valuation” is based on questionable yield analysis and the spurious interpretation of the historic record.

    As Garo said on a previous thread.

    “WaMu shareholders got zero. Heck their preferred and some subbies got a zero too. The sense of entitlement of Irish bank shareholders…..”

    Equity and bond markets exist to price risk.

    Remove the risk and you remove price discovery.

    Remove price discovery and the citizen/taxpayer gets screwed.

    Bond markets expect to make profit and take losses.

    Let them take a loss on this one.

    The sky will not fall in.

  28. @ Greg

    you need to understand the game of bluff we’re playing here, cos you dont seem to.

    No one is going to bail out INM. If it goes bust i don’t get my Sunday paper. Ill live.

    If the banks actually go bust, we’re talking about large parts of the economy shutting down. Its not quite as simple to stare the bank bondholders down and try to re-negotiate senior debt which has always been legally equivalent to a cash deposit in terms of seniority.

    At least try and compare like with like. The banks aren’t the Sunday Independent and they’re not Boo.com, so if people could stop comparing them that’d be a bit more helpful.

  29. @ all

    meanwhile, the recovery continues despite the shrieking and wailing.

    BOI to issue a 3.5yr bond at +255bps (indicative). Slightly longer maturity, slightly tighter pricing than AIB’s last week. Gently does it, slow steps.

  30. Eoin Says:
    September 29th, 2009 at 7:49 am

    “you need to understand the game of bluff we’re playing here, cos you dont seem to.”

    Eoin,

    I think your losing it.

    A “game of bluff”?

    No thanks. Not with my country.

  31. The banks can be replaced. Land will always be there.

    But the population will not be. Neither will the capital of those who still have it for the next decade or so. But everyone who merely discusses interest rates, shades the capital values etc is decorating, deckchairs etc.

    The country is being put at risk, for 50,000,000,000 euro, in order to ? Bluff? play? show how clever we are? put money into dodgy foreign bank accounts? for bagmen/pollies/bankers?

    Please concentrate on the RISK!

  32. I feel that this debate is taking place in something of a vacuum, unless it is linked rather more to the real economy. Surely, whether or not the required small increase in property prices required for NAMA to show a profit will be largely determined by the performance of the real economy over the next decade? If it is a decade of economic recession, then the increase in property prices is unlikely to occur. If it is a decade of economic growth, it has every chance of occurring. Agreed? In respect of this, there have been a number of developments in the past week. Surely, these should have some impact on the NAMA debate. The developments are:

    (a) The latest GDP figures for 2009 Q2 were published last Thursday. These were much better than expected. They showed that the fall in GDP came to an end in Q2. Ireland recorded 0.0% growth in GDP in Q2, which is worse than in a few countries like France and Germany, but better than in most (including U. Kingdom, Spain, Italy, Netherlands).

    (b) As a result of this development, the leading economic forecasters are now busily tearing up their previous forecasts. Davy published their new forecasts this morning (link below). Previously, they forecast a fall in GNP of 3% in 2010. They’ve now changed this to a rise of 0.5% in 2010. That is a massive revision. They now forecast the end of the recession in 2010 Q1, which (tempus fugit) is only 3 months away. More importantly, they now forecast that GNP will rise by 4% in 2011. I wonder if ESRI will follow suit when they publish their next forecasts. Their forecasts are usually quite similar to Davy’s.

    http://www.finfacts.ie/irishfinancenews/article_1018000.shtml

    This (4%) might not seem fantastic by Celtic Tiger standards, but, in any other country, it would be called a boom. Moreover, as Davy themselves point out, to achieve 4% growth in calendar year 2011, the economy will be growing at close to that rate by mid-2010. In other words, by the time the Irish soccer team (hopefully) fly off to South Africa for the World Cup in just 8 months time, the economy will be allready growing at a rapid rate. Should Ireland win the World Cup, of course, add another 2% to the Davy forecast.

    I’m no financial expert or NAMA expert, but I feel that these developments in the real economy ought to be given more weight in the NAMA debate.

  33. “Should Ireland win the World Cup, ”

    Ok. you lost me there. I mean c’mon! I think the rest of your post is just as pie in the sky. This is a false growth we are witnessing due to massive government backstops. But the piper will have to be paid and I expect 2010 will turn out much worse than you expect.

  34. John,

    There is indeed an important relationship between Nama, property prices and the real economy, but I think you are missing the causality.

    Property prices are not a result of economic growth, they are much more a causal factor.

    This is because we are a small open economy and when you boil it down, property prices are about the only element of our cost base over which we have control.

    What Nama proposes to do is prop those prices up and pin our hopes on them staying high (they are currently high, make no mistake!).

    This of course will impede whatever hope for recovery we might otherwise have.

    This is what ought to be given more weight in the NAMA debate.

  35. For a somewhat less positive take on the state of the economy, a net 7,600 jobs were lost in Industry (principally manufacturing) between Q1 and Q2. 23,500 were lost in construction. 4,300 were lost in agriculture/forestry/fishing. There were also job losses in most domestically traded non services sectors, roughly in proportion to the total national fall in employment levels.

    There were areas where employment grew. The most notable to my mind were public administration and defence, health and social services (by a stonking 5,500) and financial, insurance and real estate activities (2,900). I found this surprising, given the hiring restrictions that are in place in the public service, and the business difficulties facing much of the financial sector.

    The main State-dominated sectors of public admin/defence, education and health/social services employed 24.9% of those in work in Q2, up 2.8% on Q2 2008.

    Data from QNHS.

    It’s only one quarter, but it looks to me like we may be experiencing the effects of a subtle stimulus package.

  36. Edit function where are ye? Should be: “There were also job losses in most domestically traded *market* services sectors, roughly in proportion to the total national fall in employment levels.”

  37. Regarding the pricing and even the plausibility of a 10-year floating rate bond, the Italians have been issuing 7-year floaters (called CCTs) for some years now. The most recent was issued in July last, to mature in 2016; it pays semi-annual interest at 30bp over the 6-month Italian T-bill rate. It currently trades at 98.10, yielding 1.17%, according to Bloomberg.

    The issue size is now €8.25bn.

    For anyone looking for details on the bond its ISIN code is IT0004518715.

  38. @ Aiman

    cheers for that, was wondering if there was any comparable floaters out there.

    Ok, so this thing has a coupon of 6mth bills+30bps, but its trading slightly below par, so its real yield is more like 6mth bills+70bps (Italy 6mth bill @ 0.46% today).

    Further, Italian 10yr debt trades at 4.00% at the moment, while Irish debt yields 4.66%.

    As such, wouldn’t a 10yr Irish floater NAMA bond likely trade at 6mth bill+70bps+66bps? ie 6mth bill +136bps or there abouts.

    Irish 6mth bills are roughly 60bps, so the initial coupon would need to be 1.96% to trade at par. Obviously some Ireland/Italy 10yr basis adjustments might shift this a bit lower, but it still seems to me that an ECB+0.5% coupon is worth less than par. Any thoughts?

    As such, we haven’t “really” given the banks 51.3bn in bonds in terms of there inherent value.

  39. @eoin

    It will be treated at par under Eurostat rules on the government’s side. From the recipient banks’ point of view they would, in the first period of ownership, have no incentive to test the open market to determine a price, if that price were to result in the ECB imposing a haircut on repo.

    Self-interest (with apologies to Greenspan) should ensure that in the early stages that the bond(s) issued be priced at par by all the three parties concerned.

    No doubt some of the stock will in time leak into the marketplace, and a true, or at least different to par, price then established.

  40. @John
    You forgot to mention that to arrive at the number of 0% growth in GDP, seasonally adjusted taxes rose by 3.8% contributing 0.3% to the otherwise -0.3% GDP number (Table 4).

    Hurrah for higher taxes. If they keep going up, we’ll be booming…

  41. @John
    “If it is a decade of economic recession, then the increase in property prices is unlikely to occur. If it is a decade of economic growth, it has every chance of occurring. Agreed?”

    I would disagree with this statement.

    The bubble is still deflating. It is very possible, I would say probable, that property prices will decline by 40% from current market values over the next 3 years. This is mainly due to the vast oversupply in both the commercial and residential sectors.

    Even if property starts to increase after that it would need to increase by 83% over the next 7 years for the NAMA to break even.
    Highly unlikely I would say.

  42. @Pat Donnelly

    “We should now try to stop it. Discuss!”

    Persuade The Green Party?

    Surely well-disposed GP activists are on this Blog and P.ie, to name but two.

    Are they persuaded by the arguments put forward by the economists here?

    If the Greens were in opposition, does anyone doubt which side of the NAMA argument they would be on?

    Do GP members and delegates not anticipate opposition politics in the near future, and the need to rebuild their shattered Party, based on moral principles and decisions?

  43. @Pancake / Donnelly / Greg

    Do any of you agree that time is rapidly running out for Ireland to come up with a solution to its banking system problems if we are to take advantage of the anticipated EU and world economic recovery?

  44. Another interesting NAMA arithmetic:

    NAMA is a bet that property values have bottomed out and will increase by 10% in 10 years.

    This bet has been hedged by also betting on that the banks can cover any losses in 10 years time. The banks make a significant part of their business in property related areas.

    So, if NAMA loses money from a property market falling further, how will the banks, whose profits are also reliant on a recovery on the property market, be able to pay up?

    Or maybe the banks have started to reduce their reliance on the property related loans by offering more loans for other type of businesses? If not, then the hedge might not be as good as it has been implied.

  45. @zhou

    I absolutely agree with you there, and I think NAMA is probably a done deal, requiring only the Greens to sign up now.

    But there is also the reality of “events dear boy”, to paraphrase another Great Leader, almost as venerable as yourself.

    Lisbon, the GP upcoming meeting, Budget, etc

    I most earnestly hope for a Global Recovery, and I am sure there is evidence out there to support this.

    I also hope that Ireland will be in a position to take advantage of this recovery, but I have my doubts, given our current dire situation, with the huge Property overhang of overpriced property, which will be underpinned by NAMA “going forward” (sorry), increasing emigration, very little funding for job-creating business, increasing long-term unemployment, despite emigration, PS union sabre-rattling, strikes, etc. etc.

    I better stop, as I’m depressing my self now.

    For the sake of my two sons, and my little grandchild, I hope the Banks get fixed, but I am not optimistic.

  46. @Pancake

    In that case do you agree with Garret FitzGerald that bringing down the Govt and stymying NAMA now could do untold damage?

    If people want FF out then surely the best way for it to happen is for the Greens to reject the new program for Govt rather than the NAMA or Lisbon hitting the wall now.

  47. @zhou
    I don’t believe the domestic property banks have any interest in either the world economy or Ireland’s contribution to it. So no.

    Sadly, I think the clock is ticking for the solvency of the state a position that NAMA makes worse (and nationalising the banks would make, eh, worser still!).

  48. zhou_enlai Says:
    September 30th, 2009 at 1:52 pm

    NAMA aside I think a great deal of time has been wasted. You may disagree but I think it was because Cowen & Lenihan were in denial, and maybe still are.

    We could miss the boat of a wider recovery because businesses are dying every day and starting again may not be an option for many.

    However, I think the recovery may be more anemic that is hoped for.

    The IMF seems to think that banks are far from out of the woods.

    http://www.ft.com/cms/s/0/3d7b9bde-ad44-11de-9caf-00144feabdc0.html?nclick_check=1

  49. zhou_enlai Says:

    September 30th, 2009 at 4:21 pm

    “If people want FF out then surely the best way for it to happen is for the Greens to reject the new program for Govt rather than the NAMA or Lisbon hitting the wall now.”

    Will the Greens not be offered both NAMA and the new program at the same meeting?

    If they accept NAMA and reject the program the result will be the same, non NAMA.

  50. Zhou
    There will be no recovery. Debt has been created to make bubbles that people welcomed as a boom, each time it happened. Instead of paying off that debt, more debt has been created. Each time, the debt allows only a smaller proportion of income with the investment. Eventually, rampant mal investment means that for every unit borrowed, only three or so units were created in income and the net income finally turns negative, even at zero interest rates. More money can be borrowed, but no one wants it as attitudes have changed.
    At this stage everyone who does not understand what has happened, becomes a “Keynesian” and gets the taxpayer to lend money!!!!!
    We are at that stage. Even fools now want real money not paper. Only idiots remain invested in paper. And folks who are victims of OPM. Funds. Governments. They are over invested. Evryone else is reducing debt.
    This point has been predicted and it has arrived. Hard experience means that this point can last for a while, until further credit fails. Kredit Anstalt in 1931.
    We await that point now. But we cannot save the capital now invested. Bid it goodbye!
    Marc Faber is prophesying hyperinflation for the USA. Not the world! Just the reserve currency. The PTB have plans for wars. Asia and Africa. Dole queues will reduce and hospitalizations will increase. But it is more stimulus. 9/11 was an opportunity for debt reduction or war. TPTB chose war, naturally.

  51. There is a possibility of endless war. The USA have 130 countries with armed camps therein. The end result will be a world sick of war and in which much excess capacity will have been destroyed.
    Better to accept deflation, as in Japan. Many areas of the world will grow but not the advanced, over-financed countries.
    Check out what Elliot Spitzer tried to do. TPTB are in control of a process and they have a plan. The Irish government really have no chance of refusing loans of this size. Unless there is no government. President McAlees may dissolve the Dail. The Supreme Court will not intervene, but may delay this Nama disaster by considering the matter at length! We cannot afford wasted capital. Growth is over except for those countries that can entice capital and skilled workers. Land is everywhere. It is nothing special as we can now see. It is an excuse to lend and to borrow. All that money was a malinvestment. Perpetuating it is the height of economic stupidity. Let the system take care of the developers and the banks. Banks do not succeed by economy of scale. Look at the Japanese banks that used to be number one tow etc. and then the US banks. Bubbles and bubble makers. Sound banks are needed in a sound economy. Nothing fancy thank you!

  52. The Greens are human, emboldened by a concern for the environment. They are not masters of the Universe. They are much more in touch with people who care. They are not for growth at all costs. They prefer sustainable development. And so on. Analysis of the nature of the Greens shows what they do not have in common with FF.
    That is what the Greens must think about if they are to ever obtain power.

    FF are also human but they have sold out. To rescue the party, they must now abandon cheque book politics. There are no incentives for them to do this in the absence of police activity into corruption. So how is this to happen? There has to be an awareness of what is going to happen. Time will show that, possibly in the next few weeks. Otherwise, we need a Ben Dunne! A developer who has lost everything, but who has the goods on the pollies and uses it. Who is so exposed? Who knows them? Who is sick of the lies and realizes what Naama will do to the country when the depression continues?

  53. Zhou and the shills
    If there is a recovery, then all is well. But what if there isn’t? Will a delay kill the banks? The Guarantee lasts for another year. What is the hurry? Are the banks crying out for more capital? Or is it that they are reducing lending? Why is Nama such a good thing for the banks, if there is a recovery in prospect? They may be able to recover 120% of their loans? Capital and interest! Why should the state intervene when it is common cause that the state knows nothing worthwhile about selling and developing land? There are too many public servants and commitments already.
    Let us wait three months? A recovery will be measurable if there is one. If there is not one then we can re evaluate.
    There is no apparent shortage of capital in the country, or am I wrong on this? The need for Nama is when we need to allow the banks to operate freely, but they would be insane to lend into the disaster that is currently the economy?

  54. @yoganmahew

    I assume you are saying we have time to try other solutions because AIB and BoI are useless anyway.

    I don’t agree that AIB/BoI are not interested in or experienced in provising credit to the productive sectors of the real economy. I would not be giving them any medals either, but I think writing them off as not having a role in the recovery is unwise.

    Even if one does not think they will do the right thing then shouldn’t one’s position be that they need to be motivated by carrot and stick to lend to viable businesses? Otherwise you are throwing the baby out with the bathwater.

    You would have to try to set up a new credit institution and would rely on the AIB and BoI to do outsourced work. The net effect would be that the new institution would take all the risk for AIB/BoI at the crucial period at the start of the upturn. I don’t like the sound of that.

  55. @zhou
    Yes, that is what I’m saying. Good for nothing, unless you have an office building in Timbuktu with a yield of 2% and you are setting up a facilities management company in it to manage it (using all the available space)…

    But perhaps mine is an extreme view and you are right, there are good business lending departments that aren’t replicated in any other bank in the country.

    In which case, the carrot is that the government provides cheap funding to those departments to provide business loans on a profit share basis. This is the model that has worked so well for the property market after all… I don’t think the EU will have a problem with this, given the 500 mn in first time buyers loans that the government funded in the last bailout.

    What level of loans do you reckon is required for the business sector anyway? (Excluding property and development companies).

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