James Nix from the Green Party has written the guest post below.
Like every other Green Party member planning to go to the RDS on Saturday, I have to make up my mind on NAMA. Beginning with a simple question, I sought to find out how many loans will NAMA.
Back in July the Department of Finance said there were 10,000 loans relating to property development. In late August the figure changed, increasing to 18,000. A significant leap you might say.
Then came 16 September when Minister Lenihan spoke for over 20 minutes in the Dáil on the subject as well as publishing additional information. There are, according to the mid September data, “approximately 21,500” developer-related loans. But the 16 September figure excludes all loans under €5 million. How, at the same time as the category of loans is contracting, can the total number of loans rise?
More recently, the figure of 23,000 loans has been reported. Clearly, the number of loans to be bought by NAMA is following a steep upward curve. There appears to be no ceiling and the legislation doesn’t set any. With such a flexible definition of what constitutes a NAMA loan, a drop in values over the coming months can very conveniently be compensated for by growth in the number of loans. So we don’t know how many loans we are buying through NAMA, only that it is growing, and quite rapidly.
What do NAMA loans comprise? The loans, we were told in July and August, divide in thirds, with 33 per cent in finished buildings, the same number again in partly-finished buildings and the final one-third in development land. Those figures were quietly dropped on 16 September. Now, 28 per cent of the loans are in a category called “development” while 36 per cent are in “land”, with the balance of 36 per cent in “associated loans”.
What do “associated loans” comprise? Any loans that can’t be fitted into the “development” category, which presumably includes construction finance, are troubling to say the least. So what were the loans for? “Associated loans” is a bit like naming a category “unidentified”, which might be amusing if it did not carry a loan burden to taxpayers of €19.4 billion. On 16 September there was to be greater clarity but in the case of the loans, the situation became worse, not better.
So, to summarise so far: we don’t know how many loans are to be bought and we have really no idea what close to €20 billion of the loans are for, but that they don’t fall into categories titled “land” or “development”.
Will the plan work? The aim is to release finance to businesses so, for example, the overdraft period of creditworthy companies can be extended, given that customers are currently taking longer to discharge debts. Are clauses due to be attached to the NAMA bonds to place parameters on how the banks can use the money? No. Nothing has been put forward is the simple answer. The banks are free to pay down inter-bank debt and leave Irish businesses high a dry, which is presumably what they will do because that’s what makes most financial sense, and since and nothing has been drafted to ensure they do otherwise.
Will the plan ensure that NAMA loans are properly treated? The best way to look at this is to take an example. Let’s say the loan on an empty office building on a street corner is bought by NAMA, so indirectly that loan is then owned by you, me and every other taxpayer. However, the bank still handles that loan and, under the legislation, is paid an agency fee for dealing with something it doesn’t own. A few months later, the same bank (having sold the loan on the corner building) decides to grant a new loan for the refurbishment of a competing office building a few doors up from our corner office block.
The bank knows its new venture will be far more attractive and that repayments on the corner building, held under a NAMA loan, are probably going to cease because it will be empty for years. “It is necessary to ensure clear functional and organisational separation between the beneficiary bank and its impaired assets, notably as to their management, staff and clientele” according to EU rules on buying loans from banks. Eight months into designing NAMA, these rules don’t yet seem to apply in Ireland.
To avoid conflicts of interest, the Green Party secured a ban on lobbying NAMA. The Department of Finance accepted the amendment but sanctioned a near-useless penalty of 6 months in jail or a €1,000 fine.
The real problem with all the above is that, with a little work, they could be resolved. The set of loans could be fixed, and a definite number released. Research and diligence could break down “associated loans”. We all know there are helicopters, horses, Iberian hide-aways and yachts stuck in the NAMA category but we do not know the proportion that they make up: in advance of finding out, is it responsible to vote for a proposal where €20 billion of the purchase material is unidentified?
The stated purpose of NAMA is to ensure facilities are extended to creditworthy businesses: without bond clauses that do this – even in draft form – what’s the point in voting on elaborate legislation?
We’ve seen where failure to avoid conflicts of interest has got us in the past. Given the sums at stake, the penalty for lobbying NAMA would need to be €2 million fine and/or 12 years in jail, not €1,000 or 6 months. Anything less won’t act as a deterrent, and so won’t work. Is it right to give the thumbs up to repeating the mistakes of history?
The only affirmative vote I could give on NAMA is a yes to coming back on the last weekend of October. It simply doesn’t make sense to further debate a scheme where the basic parameters are becoming murkier rather than clearer and where there is no enforceable mechanism to achieve the primary objective.
email@example.com James Nix stood as a candidate for the Green Party in the last general and local elections. He holds a masters in real estate and is also a barrister.