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!)
Month: September 2009
Q & A UCD Tuesday 29th 1pm, Theatre Q, UCD Arts Block
The Economic, Legal and Social benefits of the Lisbon Treaty
Speakers:
Dr. Gavin Barrett, Expertise in EU Constitutional Law.
Prof. Patrick Paul Walsh, Expertise in International Development Studies.
Prof. Brian Nolan, Expertise in Public Policy.
Hosted by Generation YES and UCD Students’ Union
Thanks to commenter Blake for flagging this article from Bloomberg about the NAMA plan.
The reference in the article to the original US Trouble Asset Relief Plan (TARP) is a useful one in light of our current public debate and one that I’ve thought about blogging about a few times lately. It is indeed the case that US Treasury Secretary Hank Paulson wanted to use large amounts of US taxpayers money to purchase distressed assets from US banks, an idea that sounds a lot like NAMA. However, the US Treasury ended up deciding that a better approach was to use the funds to purchase equity stakes in banks for the taxpayer. There were various criticisms at the time that the terms of these equity purchases were too generous to exisiting shareholders but it seems now as though many of these deals will provide a decent return to the US government.
There are, of course, numerous difficulties in comparing bank rescue schemes across time and place but I think the TARP story is still instructive.
This new book by Stephen Kinsella of UL should be a good read.
This is worth a look (HT Mark Thoma).