Morgan Kelly in the IT on NAMA

Morgan discusses NAMA in today’s Irish Times.

77 replies on “Morgan Kelly in the IT on NAMA”

I think I understand where MK gets the 2004 prices from. The sept 16 estimates are suggesting an aggregate property LTEV of 30% below the aggregate nominal loan values drop. Assuming the real LTV is circa 100%, this means LTEV property = 2004 prices.

However, in saying this he assumes that the estimate of 30% applies whether or not the LTV is 77%. This is despite the Minister’s comments to the opposite effect.

The Minister has specifically said that if the real LTV is different or the real security and collateral is less valuable the NAMA process will ascertain this.

Once again, a core part of an anti-NAMA piece seems to be that the Minister is wholly untrustworthy and that the NAMA valuation process will be artificially skewed to achieve approximately the figures set out in the estimates in order to preserve shareholder equity. This lack of bone fides on the Minister’s and the Department’s part appears to be an article of faith for many.

While such sceptisism may help to keep us on the right path, it would be nice to see moe of the reasoning behind it (assuming that it goes beyond attributing base motives to the amorphous “Fianna Fail”).


from past experience, when anybody makes a claim about a numbers without disclosing any data to support that number, it is best to be deeply sceptical. I cannot speak for MK motives, but personally I would be loathe to question anybody’s bona fides. MK would be on stronger ground if he was to question the competance of the Taoiseach, the MOF, the DOF & the CB. All of these highly paid people failed to spot the large hairy mammoth in the room. True the bank leaderships failed to spot the same mammal but most of these have been “retired” albeit none are starving yet.

Good satirical stuff. But it boils down to one argument, we could make bondholders (of whatever rank) take the full hit. I thought this debate had been resloved with even Fine Gael backtracking on torching the seniors. There is at most a few billion available from torching subbies and the remaining equity.

If we torch subbies and the remaining equity then I presume we still have to inject capital if the banks are wholly insolvent, unless of course we bring in the seniors. We would wipe out our warrants too. The cost of this needs to be calculated as it is clearly not cost free.

I like Michael O’Leary’s suggestion that the shareholders would be left with 1% and we would keep our warrants. If the subbies could be forced to take equity too that would help.

I also think that we need to question a one size fits all policy. We are on the hook for INBS and Anglo. It is hard to see how MK’s plan would work for those two peaches if the ECB pulled its deposits.

One wonders at the wisdom of allowing banks to buy out subbies if a debt for equity swap has been a potential solution all along. In any event, the DoF’s failure to even announce, let alone produce, draft legislation for orderly wind-ups or resolutions for banks is as disconcerting as hitting an air-pocket on an internal Aeroflot flight.

@ MK (not expecting him to reply!)

“The reality is that prices can only exist when there is a market, and the market for commercial property and development land has disappeared.”

Eh, so if there’s no market, how could we ever expect NAMA to pay “market prices”?


“A decade after their peaks, Tokyo land prices had fallen by five-sixths, while Irish farmland, adjusted for inflation, had fallen by three-quarters. Had Brian Lenihan bought €77 billion of either, applying the proposed Nama discount of 30 per cent, he would have lost €35 billion-€40 billion on our behalf”

But we’re not buying €77bn of Irish farmland or Tokyo land parcels. We’re not even buying any Irish land or property assets. We’re buying a fairly large mix of LOANS backed by residential property assets, commercial property assets and development property assets, as well as other guarantees and collateral. Some of the security is farmland (as opposed to land banks in urban areas), but only a fraction (15-20%?). Yes, i know this my seem like nit-picking, but if you’re going to front a big one-pager in the Irish Times then you should really get this part right and not try to confuse the issue.

As such, the quote above and his argument thereafter that NAMA would cost 25% of GNP is a complete hypotethical fantasy. The only way it could become a reality would be if overall general property asset prices (ie land + any build work on that land) fell by 75-85%. I know MK has suggested this before, but as previously noted on this site, this would bring average house prices down to something like €50k-80k. The non-Dublin market would be €38k-62k. Does anyone actually see this situation occurring when the build cost for most of these houses is probably a minimum €150k-200k? If we can agree that it won’t, then why is MK suggesting that NAMA could rack up losses of 25% of GNP?? He has enough fair and debateable points without needing to go off the wall with this stuff in order to grab some cheap headlines.

MK also ignores all foreign property which are security for future NAMA loans. Is this becasue he sees foreign property markets as suffering the same fate as Ireland or because he wants to keep it pithy? Either way, I think it is regrettable that MK does not acknowledge this. I also note that MK refers to the value of much security such as guarantees as being illusory. I would have assumed that no such security forms part of the €47bn MV of “underlying assets”.


I think what MOL was suggesting was that the NAMA deal should be so bad that share prices become of minimal value and so when the State recaps, existing shareholders only own 1% of the banks. That would also mean that existing warrants are practically worthless. MOL is in fact advocating nationalisation but making the path to reprivatisation a smoother logistic. Something to be said for that.

Much of the Irish property market could be said to be turgid verging on the illiquid. Transaction volume is down, and in residential people are trying to match their buying the the selling.

Clearly there is a large overhang of completed but not sold/let in the commercial and a similar issue in the residential market. Furthermore there’s a tranche of semi developed stuff on the way.

Some of this is junk , & will revert to agricultural value, however some in DUblin city centre/Docklands has real value

Novel methods of kickstarting the market should be examined, large auctions of property … even unitized property funds. Run a roadshow and get in international investors… i.e. put in place market framework and let Capitalism do the heavy lifting on pricing… not some EC/ECB/DoF bureaucrat.

Also by fiat force transaction prices to be published (perhaps aggregated and thus anonymized)… markets require liquidity & transparency – we have neither right now so no market.

Also the beauty of large unitized property funds would be a continuing secondary market, which would be a lot more liquid than the “chunky” current market as well as affording longer term leases to residential renters (and that might cure some of our ownership fetish)



That is a good point about foreign property. You may be interested to know that, in today’s (London) Daily Telegraph, there is a piece in which it is predicted that the price of farmland in the UK will double in price in the next 5 years.

I think its good that Morgan Kelly has written this piece.

As NAMA is likely to go ahead, it would be a good time to make predictions as to how it will be viewed in 1 years time, 5 years time, 10 years time, 20 years time.

The number crunchers are out but are working with incomplete information ….. I think ye are missing the big picture; the corrupting influence that a ‘bad bank’ will have… alluded to in the article…..

Hard to quantify but Im sure ye will agree that we have seen the effect of fraud in one of our smaller banks.


You are right. NAMA is buying loans.
77 bn of loans
54 bn
60% non-performing
40% performing

From Zoe and Fleming liquidations, it looks as though recovery rates on non-performing loans are running at 25%. So assuming performing loans will repay 100% and non-performing 25%, the NAMA loans are worth 11.65 bn less than is being paid for them.

To get to break even, recovery rates on non-performing loans will have to double to 50% (since recovery rates on performing loans can’t increase above 100%).

Excluding interest and administrative expenses…

@ YM

your figures vs MK’s suggested figures = a €25-30bn difference.

This isn’t a trivial amount i think we’ll all agree. I can disagree with yours but still accept that they are well within the realms of possibility. I can’t say the same about MK’s.

My figures are what I consider to be a rosy scenario –
Excluding cost of funding (likely to be 20 bn over ten years).
Administration (likely to be 300 mn/year? = 3 bn)
Less cash flow (900 mn/year? = 9 bn)

So add in 15 bn for ‘costs’

Now look at the assumptions – are we at the trough in recovery values?
Even if we are, will they rise much?
Will the 40% currently performing always stay performing?

So if we go to a grimmer 20% recovery on non-performing and 60% recovery on currently performing, we get a loss of 26.28 bn plus costs.

The point is that it takes a very shiny happy world for NAMA to break even just looking at the loans… I believe Mr. Kelly doesn’t live in the same shiny happy optimistic world that I do…

After MK’s entirely accurate analysis of the banking situation at the time of the guarantee one would be rash to dismiss anything he says out of hand.

I note that at the time of the Guarantee MK was estimating losses of approx €20bn on approx €100bn+ of loans.
(I can’t check it just this moment but the footage is at ).

By my maths, MK has drastically increased the possible bank losses to €60.7bn and this is in relation to a subset only of the loans he previously referred to.

I arrive at this figure as follows:
The losses which NAMA will enforce on Banks if the assets do not recover is €77bn (book value of loans) less €51.3bn (the amount of NAMA ordinary bonds being paid to the banks) which comes to €25.7bn.

[€35bn + (€77bn-€51.3bn) = €60.7bn]

A €60.7bn loss on a loan portfolio of €77bn (or a €60.7bn loss on a loan portfolio of €68bn if you prefer to exclude rolled up interest) is an astronomical increase in the rate of possible losses predicted by MK. I cannot get my head around this change by MK at all.


I’m not surprised you think it was a good point. It is the same point you made previously!


A loan is valued on a couple of different variables:
1. Lenders ability to repay
2. Value of underlying security

The lenders ability to repay depends on the health of the lenders business. Property related loans can only be expected to perform if the market (the property market) they are operating in recovers.

For the commercial properties, the vacancy rates are at around 20%. I can’t see an improvement in the market for commercial properties any time soon.

For residential properties it might be more difficult to estimate, however if the unemployment rates and an expectation of reduction of take home salary is anything to go by, then the residential market will also worsen.

The developers have produced the properties in the hope that the incurred cost can be recovered by selling at a higher than cost price. Unfortunately for them the demand isn’t there. There might be a need later on but without money the need is not the same as demand.

I really do not see how the value of property related loans can be anything but closely correlated by how the property market changes.

And something that might need to be highlighted: The production cost does not have to be the lowest price accepted by a seller. If it was, then there would be no company failures. It is something a first year student of economy is taught:

A company can go under:
Slowly, if it makes a loss. (Selling at less than cost). Leading to:
Quickly, running out of cash.

It is anyone’s guess when the property prices will bottom out and at what level. I do believe that it might be at less than cost. If not, then NAMA is definitely a bailout of not only banks shareholders but, by introducing a pricefloor, also of property developers.

I should clarify that the €35bn in my above post refers to the additional NAMA losses, on top of the NAMA haircut, which Morgan Kelly predicts in today’s article.


Some nitpicking on your calculations.

You say 60% of loans are performing. They aren’t. They are “cash-flow producing”. This is no criticism of you but rather of the unsatisfactory figures provided by DoF to date.

You assume that that 60% of loans = 60% of €77bn. However it is more likely that it is 60% of €68bn. It might even be a different figure. Again, I blame the DoF Not you.

You say we need to recover €54bn to break even. You have not accounted for the subordinated NAMA bonds which are unlikely to pay out if the amount falls short.

All valid criticisms.

All likely to lead to a bigger loss…

40% performing – ‘cash flow positive’, you’re right, they may be well criticised by this stage. Hence the gloomy scenario with a 60% recovery on the currently performing.

Yes, the 9 bn of rollies is likely a dead loss regardless, but again this pushes the figures down.

You are right, I haven’t account for the stubbies. You may take 2.7 bn off my worst case estimate… on the other hand, we don’t know what interest rate the stubbies will pay… over ten years 8% compound will see them pay for themselves… (mind you, that assumes that a bank can make 8% on the coupon payments without blowing it on women and beer, or wasting it).

I’d like to think they are zero coupon, I have my doubts, though. I think they’ll be priced at preference share level…

@ Eoin,

You take issue with Morgan’s property price predictions? Did YOU predict the crash, anonymous Eoin Bond? MK did…

Plus, what GNP number are you using for the denominator?

@ eoin,
The problem is wo we belive, MK was out early with his call on the bubble and the economic consequences that would follow. Cowen and Lenihan record thus far is one of denial, obfuscation and spin. remeber, the banking system was sound, “no f…..g way are we nationalising Anglo, Anglo is a sytemically important bank. these are all assertions that we now know were somewhere between wishful thinking and lies.
Now we are assured that the LTV on the properties is 75% or so-implying each an every loan has 25% equity in it. Moreover, we are told that the market value of the assets (loans or assets) is 45bn or so. Yet nobody has been given any information to know if this is true or not. We have well informed people who cast doubt on the level of equity and the market value of the assets
We were told there would be risk transfer of the assets, thn it seems there are levies and subbies to be put in to cast doubt on whether that is the case.
We were told there was a special deal from the ECB by Willie O’Dea then it turns out we are borrowing short term at 100bps over, so maybe its not no special at all.
As to MK assertion that prices could fall 70-80% Yes they could. Assets can change hands below the cost of build. Moreover, the cost of new build will fall in a deflationary environment. In addition it is affordability that will determine what people are preapred to pay. That is going down amid a welter burden of levies and taxes.
In short NAMA started out as a good idea, possible the most workable and pragmatic idea but in the hands of the current muppets it has morphed into a massive gamble at the taxpayers expense.

Hard though it is to accept, sterling’s decline and the most recent deficit figures mean that our national economic position is declining even futher. Sadly, we now have no other choice but to give Anglo and Nationwide to the bondholders. If things worsen further a deal will have to be made to give AIB to them too.

If the property market recovers well the bondholders will be fine. If it doesn’t then Nama is a terrible idea. Either way it should not go ahead with Anglo & Nationwide.

“I note that at the time of the Guarantee MK was estimating losses of approx €20bn on approx €100bn+ of loans.”
I believe I understand the change – the 20% figure for C&D (Construction and Development) is the average loss on this loan category of the last 20 years of property crashes, I seem to recall.

Unfortunately, 36.5 bn of the loans are ‘other’ – these are likely to be near worthless personal loans purely for speculative purposes.

In addition, it has become clear that this is no average bust… aside from the concurrent financial crisis (which adds to the losses), the international environment is extremely poor, and the outlook for Ireland is not great for the next few years (at least until the budget deficit is sorted out). Irish losses are therefore likely to higher than the average.

PS I reckoned by the international averages (20% loss for C&D, 12% for commercial, 8% for consumer debt and 5% for residential) that overall losses would be 50 bn. I think the increasing number of ‘other’ loans is very worrying.

“sterling’s decline and the most recent deficit figures mean that our national economic position is declining even futher. ”
I don’t accept this. We import far more from the sterling area than we export to it. Falling prices of basic goods are good for competitiveness, or at least for standard of living… provided they are passed on!

Our biggest export partner is the eurozone countries as a group.

Again we need to split exports between the multinationals (I recently found Belgium is one of our biggest export partners but it’s all pharmaceuticals) and the traditional call it home grown sector. For the latter the UK is our biggest export partner particularly food and drink. Going back to the old Irish pound 1= 1.18 Sterling. That’s never happened before.

Also the UK is one of the main sources of tourists for Ireland. It’s getting expensive. As for us short breaks in the UK are now looking very good value. Shopping across the border this Christmas is looking very attractive indeed.

Finally I suspect a big component in food deflation here is Sterling which is a positive.

I would actually see the weakness in Sterling as a serious hindrance to our recovery.

Well, we will now import even more from the UK and export even less.
I think they are going to take their time about giving us falling prices.
Our recent deflation is not a usual occurence. You remember our last currency crisis. We tried to weather that one. And we found that in the short term the cheaper cost of our imports didn’t compensate for more expensive exports.

I don’t advocate leaving the Euro. But it is imperative that we bring down costs like business rents, do not add to our national debt and do not face growing interest costs. Nama has now become unaffordable for Anglo & Nationwide. Anything else goes wrong then for AIB too.

Through its variable rate funding Nama could make steep rises in interest rates a tripple whammy for the economy, as if ECB rates go up and BOE rates don’t there will be a simultaneous sterling decline. If BOE rates go up too it will just be a double whammy!

The principal cause – correct me if wrong – of the property bubble was cheap credit and un-regulated lending criteria. This toxic duo were a Ponzi scheme – they created more debt than it was possible (outside of illegal printing) to repay from current and the assumed future income stream. In effect, you were betting that an arithmetic increase would outpace an exponential one. It cannot. Its the math.

Property prices (ie. built property) will have to decline until the costs associated with built property come into line with the ability of incomes to service the borrowings and maintenance and service charges on these properties.

You now have to guess when this alignment of costs v incomes will occur. Historical analysis – not the best way – indicates a decade. The bubble took 6 years to blow – takes about 9 to deflate. However we have NAMA.

NAMA is a bouyancy aid for asset prices. Without NAMA we will have severe asset price deflation. This is disallowed. Hence we must support asset prices until the slow, barely visible inflation starts to increase asset prices. IF!

The assumptions about this ‘lift’ are more of the nature of chant and rant, rather than real and plausible. It matters not that MK’s guess, or anyone else’s guess, is correct – or incorrect. What matters are the facts of wage and income levels – or more precisely, what disposable income remains to pay for your housing, or whatever. You cannot finesse the math on this one.

B Peter

@ Graham

so because he called it right before, we’re not allowed question his current forecasts? Should we all pack up and just go home so? Did YOU call it right? If not, then you agreeing with him would be a worthless endorsement no? Other than stating the obvious (he got it right).

As for the GNP – im using his own words:

“At a quarter of national income, Nama would dwarf the cost of previous bank bailouts”

The 35-40bn figure supplied alongside would indicate a GNP figure of 140-160bn, which sounds about right?

@ jl (and anyone else)

the cost of a house is based off two factors – the value of the land, and the value of the house itself. The value of the house should therefore be very strongly related to the cost of building a replacement house (assuming eventual equilibrium of some sort in the market – if build cost > property value, then no more houses get built anywhere in the country). As things stand at the end of August (per the CSO), housing build costs had fallen by roughly 2% from the peak. I know, seems surprising to me too, so maybe there’s a lag or something, but thats how it is at the moment.

Therefore, if land prices fall by 75%, but build costs only fall by say 25%, the value of the overall property will have fallen by somewhere in between (depending on the weighting of each). I’m not sure what the land:build cost ratio was at the peak, but lets say it was 66:33. Therefore, if land prices fell by 75%, and build costs fell by 25%, the overall property would be worth 16.5+24.75 = 41.25% of peak value. To get to a situation where property prices fall by 75%, on this ratio, assuming land prices fell by 75%, we’d need build cost to fall by 75% as well. To get build costs down by 75% from peak, they’d have to return to levels last seen in 1983.

My basic point is that which land values having been the chief driver lower of house prices over the last two years, going forward it will eventually become build costs which are the key determinants as they make up more and more of the overall price. These will, in my view, be far stickier and fall by far less than land prices. If nothing else, the materials to build a house will be completely mobile internationally and will be decided by foreign demand and pricing of such.

@ eoin

Lets assume that the costs of the mythical 300k house were split as follows, equal thirds for the site, build and builders gross margin (out of which he pays all fess and takes his profit). Well now site cost is probably 25k from 100k, build cost will fall to 80k on your assumption and builders margin might be 50k. That gives a total new build mythical equilibrium of 150k or 50% off peak. Still way above the 80k that MK might model. But with 5 years plus in inventory to eat through why would we not overshoot to the downside. Moreover, nothing is set in stone, why would not build costs and margins not go down much more. Accordingly, it seems like a plausible scenario that the average house price could fall to 100k at the trough. Indeed, you already have 1 beds for sale in Tallaght for 70k.

@ jl

i agree with a lot of what your saying, but consider this – MK’s two comparison examples were the Japanese property bust and the Irish farmland bust.

Japanese costruction costs never fell by more than 4-5% from peak.

Irish farmland obviously never had this price determinant input.

As such, if MK is going to use big scary comparisons with eye-catching headline declines (75-86%), then shouldn’t we be noting both what was similar in those crashes as well as what was different? If build costs were to follow the Japanese example, its very very very difficult to get much below 50% of peak if we go by your 33:33:33 ratio above.

The elephant in the room in the potential price fall debate is the vast oversupply.

Commercial vacancy rates of 25% in the capital is one sign of this.
Even over the next decade I think we will struggle to fill that empty space. Void periods will put serious downward pressure on commercial rents and hence values.

It also has serious implications for NAMA’s undeveloped sites across the country. If we can’t fill what we already have built what is building more going to achieve.

I think falls of 75% in the commercial sector are realistic and development sites will fall further again.

Granted the residential sector isn’t a bad but it is still in a terrible state.
The CSO had a figure of 260k empties at the last census up from 110k in 2002.
Since 2006 we have built considerably more and demand hasn’t come close to closing absorbing it.
We are probably closer to 300k now of empties excluding holiday homes.

That is enough to house an additional 0.75million people. We will probably need even more as net outward emigration continues.
Where are these people going to come from?

I don’t think it will matter what a property cost to built to its price over the next decade. Price will be determined by supply and demand.
We have lots and lots of supply and only a little demand.

Ah don’t go bringing GNP into it! Are there any accurate figures for what components of GNP are the result of multinational exports and what are indigenous (i.e. trade destination broken down by GNP contribution rather than GDP)?

I agree that the transfer pricing is clouding the picture.

My point about sterling is that by reducing prices of basic consumer goods, the scope for increased competitiveness without loss of lifestyle is increased. At least while sterling stays low…

The tourism sector is in serious trouble. Even when sterling was high, it was expensive to come to Ireland. Now it is ruinous. But again it comes back to high rentals for much of the problem. Putting a euro on the price of a pint for license and premises rental costs is not really conducive to appearing to be a value product… likewise PPS for hotel rooms…

But your point is well made.


I agree with you, it is imperative that competitiveness improves, but it is also important that exports are targeted to those areas where we have the possibility of stable prices. I don’t see many ministers heading off to export stuff to europe. I don’t see enterprise ireland offerring language and legal services to facilitate exporters to our euro and EU neighbours. China and the US are much more exotic, while the UK is much more convenient (none of dem nasty foreign languages to deal with).

Equally on the supply side, it astonishes me that so much of what we import is via the UK. It was the case when sterling was expensive too… One would think that the imperial ports act was still in place…


Your reasoning is based on the assumption that sales price cannot fall below cost price. If that assumption was true there would never be any companies failing.

Companies have fallen due to overestimating the demand in the market. Look at the car industry.

Sales price can be lower than cost price.

@B P Woods
“NAMA is a bouyancy aid for asset prices.”

I don’t see how this can be the case, except perhaps for zoned land. Some of the aims NAMA has espoused:
– maximise loan returns by providing capital to complete developments
– aggressively sell completed/near completed properties to remove the unsold overhang
– return unusable zoned land to agricultural use
– zoned land to be made available for social housing

Some of the realities:
Census 2006 found 1,744,521 dwellings for a population of 4,123,318 with 1,469,521 households at a density of 2.8 persons. 275,000 dwellings were unoccupied and available for use (excluding estimated holiday homes).
Assuming population grows to 5,000,000 by 2020 (quite optimistic, I’d say) and household density falls to 2.6 and a 5% vacancy rate (European average, I think), for the 14 years from 2006 to 2020 265,782 dwellings need to be built or nearly 19,000 per year.

Since the census in April 2006, 212,111 dwellings have been completed (per CSO to end August 2009). We, despite the decline in construction, are still building dwellings at the rate of about 26,000 a year, or 7,000 too many for what look like pretty wild population estimates for 2020. We have already built 80% of the dwellings required for 2020, and we still have ten of the fourteen years to go…

So, should NAMA try and do what it says on the tin, residential prices will go into full scale meltdown. Busting the developers would be far, far, better for them as no new supply would come on the market and by 2017 we would be approaching equilibrium…

But what about agricultural land? As far as I am aware there were three supportive elements in the boom:
– site premium
– EU entitlements
– commodity prices
The last isn’t really a premium as currently rental yields are at about 2%, so crop yields are not much above that. CAP has been reformed to die with the current generation of farmers. It will not pass on with the land. The site premium is gone. NAMA, in trying to sell off agricultural land, will also accelerate the decline in agricultural prices.

Dreaded_Estate has already dealt with commercial and retail, but even those who write the puff pieces are shocked at the amount of supply and at the decline in rental prices. The reason some rental yields are high? Because the tenant hasn’t figured a way to squirm out of his leases or the landlord has figured a way to reduce the cost of the rent without disparaging the headline yield (reverse key money, cash-back, 9for12, etc.). The competitive advantage to those who either move to premises with lower rents and turnover sharing agreements or who get sweetheart deals will eventually force the others to move, renegotiate or give up.

While NAMA may be intended to support asset prices, it will have the opposite effect. I’ve yet to talk about it soaking up capital, by McWilliams is on and I want to get my fix of flashing lights and loud noises before bed…

@Eoin Your house valuation analysis is faulty – you confuse value and cost and switch between them without considering that they are completely different things. Land doesn’t have a cost in the sense that you are using (as it isn’t manufactured/built). In this discussion it only has a value and so, indeed, the value of the land under the house provides some sort of floor for the value of the land plus the house. The cost to build the house has absolutely NO INFLUENCE on it’s valuation which is purely determined by what someone is willing to pay for it – like all other produced goods. And it matters nothing whether this cost goes up or down. Someone could hire a hundred men to dig and fill holes on the land for a year; that would cost a great deal but would add nothing to the value of the land.

@ All,

Reading my way down through the above. It might help to inject some realism into the above. Developers were building residential units for between €1,400 – €2,000 per square meter during the Celtic Tiger. That is for really cool and nice finishes, specs and so forth. That is also accouting for over-the-moon inflation in building costs.

If you multiply that out, for say a 100 sq. meter apartment unit, it still only gives you a construction cost of between 140-200 hundred thousand euro. Bearing in mind, the 100 sq. meter apartment units were luxury penthouse models selling as late as 2007 for over €1.0 million euro. Indeed, I know quite a number of developments in good locations that sold outright up until very recently.

So the idea that the ‘oversupply’ in Dublin is very severe, is a pure mythology. In fact, the over supply in Dublin is not bad at all, and most everything out there is rented anyway. Heck, even Hugh O’Reagan it said in the newspaper today managed to rent out his basement as a flat to someone for €1,000 per month. I.e. He was trying to prove to the courts that he was generating some income from something!

So if the above paints such a rosy picture then why are all the builders gone bust you may ask. It is a question of ‘land’. Now the discussion of ‘land’ above wasn’t very well defined. Because, what you are discussing above implies that you build one dwelling per plot of land. When in reality, in Dublin we were achieving densities like 150 to the acre. An acre being a bit more than 4,000 sq. meters we will say.

Say if you wanted to build a standalone dwelling for arguments sake for a moment. Then the build cost was absolutely dwarfed by the land cost. The land cost was up to three times the build cost, when you only built dwelling on your site. That was in many parts of Dublin. Parts of Dublin, that are not even considered fashionable – north and south – land was going for that kind of price. As MK rightly points out, there is no market at all now, so we are bang-jax-ed altogether.

Back to multi-dwelling development for a moment. Say you get 3 no. dwellings per plot of land, using multi-storey construction. You would be very lucky to get that in parts of the suburbs, where land was still very expensive to acquire. Notice, I haven’t even mentioned the time of the developer or architects fees etc at all. But a 3 no. storey development only brought you back to 1:1 relationship between land:building cost.

That is why developers wanted sites, where six, seven and more storeys was possible in terms of planning permission. That is where you get to 100 or more units per acre very quickly. That is when you start working back down to land:building cost ratios where they aught to be. Which is often, the land is a third the price of the building cost.

But all of that ignores the discussion of ‘margin’, and the fact that every kind of eejit wanted to build apartments during the building boom, and almost every kind of eejit did. So lets go back to our 100 sq. meter penthouse selling for over €1.0 million euro in 2007. Say the penthouse is on the fourth floor for arguments sake. That means, we can be sure that ‘land’ costs (fourth floor land costs that is) and building costs are at around parity – because the planners will want some form of ‘planning gain’ too remember – that is, a pond, a garden, an open space or something. In fact, you might need to build 5-6 storeys to get parity of cost between land and construction costs.

– and bearing in mind, that parity of land and construction costs is all tom foolery anyhow – because once land costs meet construction costs and exceed them, it is daft anyhow, especially for a country like Ireland, not to mind Toyko.

So our clever developer has paid 140 thousand for build costs, 140 for ‘land’ and stands to make €1.0 million euro on the said 100 sq. meter penthouse unit. Of course, on the floor below, our same developer might have sold 3 no. smaller units for every 2 no. penthouse units. But the price for the smaller units was still quite high, and often over 1/2 million euro.

As a rough general figure, margins were around 40%. That is including architects fees and all the rest. That is for a developer who knew basically what they were doing. Some might have made higher margins, others less. In other words, the developer had to really go out of his or her way to screw up, before the project cost more than it made. This is why every bank in the land competed with the other banks to hand out money for development.

The banks didn’t really care if the developer was competent or incompetent, there was still plenty of wiggle room. The point I want to make though, is that if you work back down to one dwelling per plot – regardless of how small the plot or how small the dwelling unit, the construction costs were no where near the same as ‘land costs’. That is the implication in many of the posts that I read above. People should clarify properly what they actually mean by ‘land’ before they talk about ‘land’. Failure to provide that clarification can lead to an almost meaningless discussion.

How much of the land built with residential use construction in the Dublin area has got multi-storey design? A very, very small percentage still I would imagine. Yeah, I know we threw up multi-dwelling, multi-storey developments right, left and centre. But still in 2009 today, if you walk, cycle or drive around Dublin – indeed if you take a train, bus or even fly a helicopter, the overwhelming impression of Dublin as a city, is a city of one dwelling per plot. I.e. Not multi-storey.

Barcelona, to take one example is the exact opposite, as are many of the great European cities. Dublin is unique in that sense. People often ask would an apartment of standalone house be a better investment during the building boom. Well the answer is pretty clear now – I would venture that no builder in Dublin during the boom, could make any money building standalone dwellings as we did up to the 1980s.

@ Brian O’Hanlon

Reading your comment is it any wonder we had “developer led planning” in Dublin. Walk around Dublin presently, many of the apartments have not had their facades cleaned since the day they were built. Or even their bins washed out! Management companies trying to squeeze as much profit as possible. I believe that you will see an acceleration of the price gap between apartments and houses. High rise and low rise! You don’t need a management company to clean your house if it is low rise, do you? Barcelona is still a low rise city and the mistakes are invariable high rise! People don’t go to Barcelona to see high rise they go to see the genius of Antonio Gaudi in fact, as far as tourism is concerned, his low rise is keeping half the city in employment. Barcelona is a bit dingy lately but it is still low rise, as is Paris, as is Bilbao with the exception of one or two appalling high rises.

“The banks didn’t really care if the developer was competent or incompetent, there was still plenty of wiggle room”. NAMA please take note!

Nor, it seems did they care regarding whether they themselves were competent or incompetent. The blind leading the blind. The planning authorities did not care either and that it why we have ended up butchering much of of the city’s architectural landscape. Henrietta street’s dilapidation is still a running sore on DCC. I am fighting a planning permission at the moment where a developer wanted to slap a building higher than Liberty Hall up against victorian houses. To be quite honest I don’t give a damn what he paid for his site, NAMA can have that too.

Those of us like yourself that have built or been involved with projects know instinctively that NAMA will be a disaster for the tax payer. It will be a world without end!

From Morgan Kelly’s article:

“Most baffling of all the Nama numbers is the proposed discount of 30 per cent, implying that the “long-term economic value” of property is at 2004 prices”.

Even going back to 2004 it was still the days of wine & pheasants in the Irish property market.

“The EU simply forbade Lenihan to pay any more”.
Several people have implied the opposite as an argument for Nama.
Or implied the same thing regarding the ECB.

“ECB is making no secret of its dismay at being turned into a credit union for feckless Micks, and is anxious to end such emergency lending facilities within the next year. Once the ECB slams the window on its fingers, the Government will be forced to borrow at market rates of 5 per cent or more”.

Now, if this is the case and Lenihan is not telling us then it’s more than misleading behaviour or normal political spinning on his part. It is actually dangerous deception and reckless gambling.

“…the cost of previous bank bailouts, which varied from about 3 per cent of GDP in Sweden to 14 per cent in Finland and Japan”.
“Property speculation was a mania that swept every level of Irish society..”

Our gut instincts told us that the property boom was running wildly out of control. I think we are much closer to 14% than 3%. And Kelly thinks it will be more.

If Lenihan was being honest about the scale of the gamble he was taking it would be easier to accept. But he denies it and he has refused to give out the information that would assist his case, or demolish it. I have never read of another advanced country that cut public sector wages twice in a short period, as we may well do. Germany under the Weimar republic perhaps? Surely, in our current state, saving Anglo & Nationwide is going two banks too far?

Morgan Kelly has written a brilliant article that is vivid and will stay with the reader. Do I detect some wavering in support for Nama from those who though opposition to it was irrational? Do they still think it cannot fail?

Can they turn their minds to what must be done to ensure that losses of many 0,000,000,000s of euro do not result for your children to pay off? If the depression deepens, revenues fall etc this is a possible scenario, some argue it is already baked in, then these losses will eventuate. Why gamble? Why not let the banks take care of the situation?

The US banking multiplier is now down to 0.90. Not 8 or 10! That is one reason why the stimulus in Australia worked so well, it went to the consumer. In times of a debt spiral, banks are not worth anything! Why borrow and create another bubble just because the local banks can do so no longer? The debt all has to be repaid!


“Unfortunately, 36.5 bn of the loans are ‘other’ – these are likely to be near worthless personal loans purely for speculative purposes.

In addition, it has become clear that this is no average bust… aside from the concurrent financial crisis (which adds to the losses), the international environment is extremely poor, and the outlook for Ireland is not great for the next few years (at least until the budget deficit is sorted out). Irish losses are therefore likely to higher than the average.”

TBH, unless MK comes out and says that, that explanation doesn’t wash with me because:
1. I believe MK was already predicting 50%-80% drops Irish property values. The unique nature of the global crash was apparent.
2. MK has always assumed the bankers were up to no good. There is no suggestion by MK or anyone else that the fact €36.5 bn relates to other loans is unusual in this kind of situation.
3. The €36.5bn is still secured on property so they are still property related loans.
4. It also ignores that MK’s original estimated loss €20bn related to a lot more than a commercial property loan book of €77bn.

Is MK ignoring other losses or does he think the remainder of the banks’ business will be profitable?

I really wish MK would come out and reconcile this huge shift in the amounts of losses he predicts.

Onthe subbie NAMA bonds. Just because they are called subordinated does not mean they will be priced like subordinated bank bonds which try to attract in higher risk capital. They are the opposite. The State is the entity investing the risk capital via NAMA bonds so the interest rate will be to the benefit of the state. Anything other than a zero rate makes absolutely no sense.


“I really wish MK would come out and reconcile this huge shift in the amounts of losses he predicts.”

I think you’ll find that Morgan Kelly doesn’t debate or even discuss his predictions with anyone. Rather, he indulges in hit-and-run tactics. He writes an article in the Irish Times making wildly exaggerated predictions, then retreats to his bunker and isn’t heard of for weeks. Then, just when you start to worry that he might be dead, up pops another Irish Times article making further wild predictions. Unlike other academics, he hasn’t got the courage to come on this site and defend his predictions. I challenged him a few weeks ago to come on this site and tell us (a) whether he’s sticking by the forecast he made earlier this year that GDP in Ireland would fall by 20% in 2009 (ESRI yesterday revised their forecast down to 7.2%, Davy are now predicting 6.3%) and (b) whether he’s sticking by the forecast he made earlier this year that the average house price in Ireland would fall to €62,000 (the level it would need to fall to to match his prediction of an 80% fall from peak). Still waiting.

I’m fully aware of the dubious value of ‘anecdotal evidence’ but I have noticed a surprising number of ‘Sold’ signs on houses in my area-Dublin 3- in recent weeks.

Anybody have similar-or wildly dissimilar experiences- in their area at the moment?

@ John d’Optimist

Would you consider writing a letter to The Irish Times challenging MK’s ‘doom pornography’ as you so memorably called it?

You certainly seem- to my untrained eyes at least- to have the wherewithal to do so.

obviously nationalised banks are safer and a better idea, hence Standard Life are pulling out €500m from Anglo today.

btw: on the namabonds they don’t have to be monetized, so why is it constantly commented on as the full amount?

@ John

given that he keeps referring to 83% falls in Japan and a 75% fall in Irish farmland, i can only assume he is still broadly sticking with the 80% Irish property fall prediction. As both of us have noted, when you look at this in nominal price terms, and factor in build costs, the notion of a €60k average house price is of course far more difficult to justify once you close a textbook. Will some houses sell for 60k? I dunno, its in the outer realm of possibility i suppose. Will house prices in general fall to 60k (ie 1.7 x the average industrial wage)? Fantasy, pure fantasy.

Before the “but products can sell below cost!” gang above start getting on my back – yes some products do indeed sell below cost, generally as a result of either some sort of inherently poor cost planning that was always over real saleable values (unlikely given that a couple of million of housing transactions have occurred over existing cost price factors over the last decade), or as a result of large excess supply. There is obviously still a situation of large excess supply at the moment in this country, but i’d love for some of the econometrics specialists out there to show me what level of excess supply would be required to lead to AVERAGE house prices falling to levels roughly 40% of the cost price (and so replacement price) of the build, never mind including the land (so 30% or thereabouts of combined build costs and massively discounted land value).


You are of course entitled to question his current forecasts, but the fact that he called it right has to count for something.

As an aside, I did call it right, though I am nowhere near MKs stature and hence no one except those who knew me personally can vouch for this.

At least I use my real name though.

You still didn’t answer the question – did YOU call it right.

My point about the GNP was that the 25% figure will depend on the denominator. You say in the neighbourhood of 140 bn to 160bn, but that is rose-tinted. If we go on the DoF own 2004 prices blind guess, it’s 126bn. And of course, the faster the economy shrinks, the bigger that percentage gets. So MK was prossible even being conservative with his estimate.


I don’t think build costs are relevant to how far prices wil fall. The level of debt of the vendor, the number of purchasers, the number of competing properties and the number of purchasers will be far more relevant.

Completed buildings cost money in loan repayments, maintenance and insurance. If uncompleted they cost money in site security, maintenance, insurance and/or demolition. This is leaving aside the issue of development levies. If not maintained they degrade.

In arriving at the average price of dwellings how does one factor in units costing the developer money which cannot be sold. They must surely be attributed a negative value. Maybe if 50,000 units are priced at -€20,000 then we can get to price drops of 75% for residential houses. BTW, I remember when the average house price was <£60K and I am not that old.


Most people called it right for a while but then those with money who wanted a house gave up and bought one. Many of them are better off today than if they hadn’t bought.

John (the Baptist? Denver?),

MK hasn’t got the courage to come on this site?

What do you think this site is, the Thunderdome? Maybe he just has better things to do. Anyway, he has the courage to consistently publish in the country’s leading broadsheet. Still waiting for your IT contribution.

@ Graham

as you might have guessed, i work for a bank. A bank that may at some stage in the future interact with NAMA. As such, my employer probably wouldn’t want me going round making any statements which might come back to embarass it or place it in a difficult situation in the future in this regard (whether pro or anti NAMA, pro or anti economy). Thats why i, and most of the other people employed by banks or similar on here, go via an anonymous title on this site. I would assume that many in the public sector do the same.

To make some repeated underhand suggestions that those going under pen names can’t contribute to the debate is both as stupid as it is counterproductive. It’s childish and completely lacking in any understanding of pragmatism to assume that everyone is in the same situation as you in terms of being able to back up their comments with their real names. As far as im aware, our real names are not required on here, so im not sure why its such an issue for you. But hey, if attaching the moniker ‘Bond’ to my name makes you giggle like a schoolgirl, then knock yourself out.

In answer to your question, no i did not foresee the housing market evolving as it has. However, Brian Lucey is quite honest about how he currently owns a large set of Anglo shares, so by your logic he doesn’t know what he’s talking about when it comes to the banks. I think your being unfair on Brian in that regard.


Allright – I apologise for calling you Eoin Bond. But what tends to happen to Morgan and others who stick their neck out is they get personally attacked.

The reason it matters that you question Morgan’s estimates as an anonymous poster is that he has a status which relates to his track record, and you don’t. If he makes an estimate and gets it wrong, that sticks with him forever.

It’s neither “childish” nor “lacking in understanding” nor “stupid” nor “counterproductive” to point this out, because it puts you in a different category to him.

Indeed, the idea that MK’s transparency counts for something vis-a-vis your anonymity is not unrelated to the issue of Nama itself. It is the very lack of transparency that is at issue here. The Ministry’s deliberate muddying of the waters is the reason why Morgan and the rest of us can’t know for sure what Nama is going to cost the taxpayer.

And thank you for (finally) answering my question.


As an economist who like MK predicted the degree to which the property bubble would burst, can you explain the apparent divergence between MK’s predicted losses for the banks as of the day after the guarantee and his latest predictions as contained in the above linked IT article? No problem if you don’t have the time. In the meantime, yoganmahew is the only person who has sought to provide an explanation for this.

I should have said the degree to which the property market would collapse. Bubbles don’t tend to partially burst!!

@ GS

“The reason it matters that you question Morgan’s estimates as an anonymous poster is that he has a status which relates to his track record, and you don’t. If he makes an estimate and gets it wrong, that sticks with him forever.”

You do realise that this works the other way as well, right, that if he calls it right its sticks to him and his career prospects forever? This isn’t some altruistic endeavour being undertaken by him. I’ve just as much right to question his forecasts as he has to offer them. And as popular as this site has become, it doesn’t yet have the readership of the Irish Times. By being anonymous, I have absolutely NOTHING to gain, other than intellectual curiousity, by posting here.


has someone been using either an edit or delete tool on the comments here? I’d swear that i briefly read a couple of comments there that have since been deleted….hmmmm…..

@ John

I agree with you about Kelly who is really interested in his own noteriety so does not debate, and, overpaid as he is as a Public Servant has not got a worry in the World unlike those of us in the real economy. BTW contrary to mythology here the Economist magazine was the first with the potential bad news on our property sector not Kelly and they persisted in stating it unlike a lot of commentators before it came to pass.

I can’t help but wonder if NAMA pricing is based on the fallacy that properties can’t be worth less than the cost to build?

& are the extremes:
NAMA will break even vs NAMA will make a loss as per MK estimations?

The definites we have are:
NAMA to spend 54bn on purchasing loans.
Loans are valued on the premise that the property market will not fall further & will rise by 10% in 10 years

The valuation is difficult to estimate without going through the loans individually.
The assumption that the property market has bottomed out is for me hard to believe. Can those who believe it has bottomed out come up with some arguments for this?

& is having high rents beneficial for the productive economy as a whole or for the property owner? The pro-economy stance would likely be to not to starve growing businesses from capital by overcharging them rent. Stop NAMA, let the economy grow.

@Jesper – I don’t think banking on an increase in prices of >= 10% is th same as assuming they have bottomed out. The minister has said that indications are that prices are close to bottoming out rather than that they have bottomed out. There is an implicit admission that there will be some more falls.

@Concubhar O’Caolai

“Would you consider writing a letter to The Irish Times challenging MK’s ‘doom pornography’ as you so memorably called it? You certainly seem- to my untrained eyes at least- to have the wherewithal to do so.”

That is very flattering, Concubhar. Thank you. I’m not really a letter-writer. Statistics is my forte. I was pretty pathetic at English at school (failed O’Level English twice up north before passing it). Although I have some statistics expertise (I hope) and try to be meticulously accurate about statistics, most of the posts here, even from my opponents, are much better written in terms of English than I can manage.

However, there is a businessman I’ve been put in touch with through this site. He runs a prominent Recruitment Agency. He intends to do just what you say. He’s hoping to have an article in the Irish Times and other media outlets soon, challenging the doom-mongering in general (not just Morgan Kelly). I’ve never met him and I don’t know him personally. I’ve only communicated with him by email. I think he’s an English businessman living in Ireland a long time (although I’m not certain of that). I’ve been helping him out with the statistics. I look forward to reading his article in the Irish Times and elsewhere in the near future.


is the minister betting on something or is he banking on a sure thing?

As far as I can tell:
-Demographics are at best uncertain.

-Two person incomes per household are calculated for affordability, increased number of one person income households are used when calculating number of households.

-Average take home salary is expected to stay the same or increase even though tax take is expected to increase. Not quite sure how that will be possible. Especially since the new governor of the central bank had some thoughts about the salary levels in Ireland. Lower salaries was recommended

-US & UK currencies are falling in value -> Exports to those markets will face difficulties

-Native English speakers is not a big competitive advantage if the target market is not native English speaking

I really don’t see how the economy and population will grow to even support the current property prices. The uncertainty is too big for calling NAMA banking on a sure thing, NAMA is a gamble and it will damage the economy.

@ Robert Browne,

I heard a very prominent architect of housing schemes in Dublin city speaking not so long ago, based on his experience of living in one of his own high density residential projects in Dublin city centre. I was surprised. I imagined he would be a guy who wouldn’t dream of apartment living himself, but it is surprising those designers who have tried out apartment living. It is also surprising those who have designed apartments but who have never lived in one themselves. There is food for thought. They still manage to write in journals about apartment living without having experienced it. I’ll come clean myself – I have never lived in an apartment in my life, so you can discount just about everything I write – but I have spoken to those with greater knowledge than myself.

Getting back to the prominent architect I heard speak about his own experienced. He noted that he was one of the few owner-occupiers in the entire complex. He would go to management company meetings and he would be almost the only one present at the meeting. There wasn’t a very high participation by those who were renting an apartment, in the shareholder meetings of the management company. The absentee owners of the apartments may be in a different country, and never showed up at meetings. Fixing a light bulb, dealing with refuse, security, rules anything was a huge problem. On the one hand you have high density complex and on the other hand, a group of people who rented and had nothing whatsoever to do with the management of that same place.

@ yoganmahew

One of the few ‘sustainable’ ways in which to add value, or to extract equity, collateral, value or whatever from these developments – is a scheme, or concept worked out by Chris Cook. It is actually a scheme that is being looked at seriously by the same designers I mention above. That is, designers in Dublin who design/build these developments and live in them also.

There is a link here:

Where you can download a quicktime movie file of Chris Cook describing his scheme.

Chris’s slides here:

YouTube has a couple of shorter clips from Chris Cook, which I haven’t looked at. You can find them easily by searching:

chris cook LLP feasta

@ Robert Browne,

On the high rise versus low rise – I listened to Conor Skehan talk a while back on the issue. He had done a bit of study into the issue himself. Having spoken to many, many people who actually are involved in the running and the management of whole cities – and how you pay for the maintenance and upgrade of those cities in terms of amenity, infrastructure, regulation, incentives, and on and on. Skehan heard from the most intelligent ‘city managers’ for want of a better phrase, that six stories maximum was the sweet spot. It combined the best of all advantages:

– Economy in terms of utility and service infrastructure.

– Efficient land usage.

– Healthy social mix and diversity.

– Feasibility of good compact development around transport. *

– Good strong urban streetscape and grain. Vibrant street activity.

– Payback for the developer per project and acceptable risk on projects.

– Great opportunities for designers to explore design issues etc.

There is probably more, if I could list them off the top of my head. But the basic point to bear in mind here, is that by going over six stories you are not really achieving any economies. Other costs and problems start to kick into the equation – both from the developers point of view and that of the city’s management.

* Revenues viable for the said transportation scheme – i.e. not like a bus winding its way around acres of housing estate – I mean, even if it was free, who wants to even bother. Public transport in that instance becomes a form of travel for the kiddies or the grannies and the would-be thugs.

@ All,

I do have a real problem with the Green policy attempt to include ‘social gain’ into NAMA. Apart from the obvious point that Colm McCarthy raised of mission creep of the NTMA. If we define something too broadly and simply say ‘social gain’, sure we leave the brief very open. But instead we could achieve more and faster, by setting out specific projects and then looking at if there are ‘synergies’ or covalent bonds, to borrow a term from chemistry between them.

I passed out a quite strange looking scheme this evening, recently completed in Dublin 6 area. It doesn’t look quite like a set of townhouses. It doesn’t look like a nursing home either strangely. It looks like something in between. I think it may be a old folks housing development, beside an existing village centre in Dublin 6. I could be wrong, but lets pretend it is an old folks community development for sake for argument.

Any economist here will instantly see how interesting a concept that is. Many old people, and lets face it, we will all get there sooner or later, might be rattling around in large houses. They might be homes in high-value areas of Dublin. But even older people in D6 might experience a kind of poverty in terms of their living conditions, and connectivity to the local community from living in the big old house. Especially if their spouse is deceased also.

Any economist here will instantly see also their predicament. They may be unwilling to sell into this depressed market. On the other hand, there may be many families out there, who have the right combination of family size, income, job proximity etc to make much better use of the big old house in D6. It would seem to me that NAMA does represent a good opportunity to study models that might sort out this situation and share value all around.

It would be really good at the moment to take some available contracting capacity, and some idle ‘designer’ capacity to build a network of these older person’s community developments around the city. I haven’t thought about this in much detail, but I said I would throw the idea out there. I honestly believe the notion where families moved out to Kildare or Carlow and commuted to Dublin daily – if we really want a productive and smart economy, we need to seriously investigate some models right now for the use of our housing resources.

The ‘family’ house should not be something we should build anymore of in Dublin city for a long time to come. We have too many of those kinds of dwellings. What we need is to serve the un-served segments of the community with a new and innovative product, wrapped with the right management models etc. There is a whole mini-economy there which would be sustainable and very valuable to Dublin as a region. We need to put on our thinking hats.

Energy efficiency upgrading over terraces of houses etc, and lots of apartments blocks should not be incompatible with many of the social gain mechanisms I allured to above. Very much the contrary. But I do feel the Greens should start doing broad brush strokes like I have set out above, that could feed into NAMA as business plans, that could all be connected in some shape or fashion. That is the only way we will derive some useful return – financially, socially and otherwise – from NAMA.

@ Greg

80% are basic interest rate swaps. These are very simple to value. Even the caps and floors are fairly vanilla type instruments in the grander scheme of things. There’s nothing there that should be of worry to any of us.

@ Greg

Irish banks should be the ones worried about counterparty risk??? I generally hear otherwise on these pages!

But to answer your question, a breakdown of the breadth of counterparty risks would be nice, but i doubt its in any way concentrated on a few particular counterparties. IRS are basically open ended on risk (unlike options), so the risk could swing both ways, but they could also look to get collateral agreements put in place if this was an issue. Either way, the derivatives are not some sort of smoking gun that many people hoped/feared they would be.

@ Greg

gotta say, the 264mio annual fee is irritating. Its small beer in the whole scheme of it, but its irritating. What the hell are ‘liquidation expenses’? We really can’t get these lower given the scale of the program? They make up around 70bps or so of the whole scheme on an NPV basis (back of the envelope – right?).

Morgan Kelly has testified in the court of public opinion and in court. That’s brave enough for me. I can’t remember many (any?) authors of Pro-Nama pieces defending themselves on Perhaps you two could submit something to the papers and defend it here – then you would be in a position to criticise Morgan Kelly. I know something that might tempt him to appear – ask Brian Lenihan to post here. That would smoke Kelly out!

Since MK made his original estimates in Sept08 Ireland has changed from a stumbling Celtic Tiger to a Weimar republic, and the Sterling fall is another nail in our coffin. Given this he would be wrong not to revise his estimate for property loans significantly upwards.

@Eoin – you still don’t get it – “yes some products do indeed sell below cost”? You state this as if it’s exceptional. What would be exceptional is if value of something matched its cost of production. Buyers and sellers interact to establish a price for the exchange of things. The price they agree is independent of what it cost to produce the things; sometimes it’s higher (say an iPhone), sometimes it’s lower (a Crysler SUV). It is this mismatch which produced fabulous wealth for developers for a while and now is producing horrific losses. The cost of production simply does not set any sort of floor on the value of a thing.

What we’ve had over the last few years is a large number of people (developers and builders) working to produce things for which there is little market. Arguing that they worked diligently or that it cost a lot to employ them to do this work and thus the price of the thing they produced should not fall below 40% (or whatever figure you want) of what it cost to produce it is simply nonsense, sorry.

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