This is the Stage 2 to the Stage 1 of what is “The Big Plan”.

Stage 1. Save the banks and bondholders. It doesn’t matter if you are a small bank or a big bank. It doesn’t matter whether or not a bank is key to the system. It is important “for credibility of Ireland” to save them all. When this is completed and the taxpayer has picked up the tab that shareholders and bondholders should have taken on board, then move to stage 2. In the meantime it must be made clear across all media that this is a good thing and there is no personal or political self-interest in the result. Reasons such as “get credit flowing again” to be used a lot.

Stage 2. Let off the developers. It will be hard for the banks to turn down developer requests for a bailout if banks have been bailed out themselves. It can be demonstrated that these are the experts.

The result. They, like the bankers and the board members of the banks, get to keep their big homes and big cars. They continue to get paid well and can be shown to be good taxpayers. They will help support the FF party when everything has quietened down. If the banks let these guys off then NAMA cannot be blamed for not pursuing them to the ends of the earth for their debts.

Could there be an alternative? Certainly. Bust the builders and let them work for somebody else to finish off the projects with all of their building expertise. There are plenty of solvent and trading companies outside Ireland who can and would do the job. There are also some inside Ireland (SISK for example) that would also do it. Why should anyone be let off their debts. They took massive gambles and to let them off means, like the Golden Circle, that it was a one way bet.

http://www.independent.ie/business/irish/cif-wants-writedown-on-member-debts-ahead-of-action-by-nama-2192880.html

I explained De Soto’s lecture a little bit better here:

http://www.irisheconomy.ie/index.php/2009/10/21/pre-funding-future-bank-crises/

“But banks are holding fire in the hope that NAMA will attribute a zero value to such guarantees and borrowers are hoping to be released in whole or part from their obligations.”

I surrender.

http://www.independent.ie/business/irish/indebt-developers-wont-be-needing-help-paying-the-rent-any-time-soon-1922428.html

Many thanks for the heads up on Hernando de Soto and I read your coments on land with interest. I have no problem with Mr. Smyth giving his ideas, or anyone for that matter, who has knowledge, skill and ideas which are not self-serving. What I take issue with is government ministers asking property developers and not asking economists who may also have good ideas.

Now for a rant;

I personally think NAMA is a fudge and has been since it was born (and born strategically as one game in town). I think it is based on assumptions which cannot be substantiated and that they hope to pass it without ever being called to provide the figures. By the time it is passed we’ll be told that maybe the assumptions are wrong but we just have to get on with it. There are, in my view, better and more logical ways of sorting this mess. The government have procrastinated as well so that they can argue that there is now an urgency to the legislation. This is all gross deception, which is why I should not be surprised that they have never seriously engaged with finding the best and most logical economic solution.

I hate the cronyism of the process as well and was galled to hear that there is still this cuddling up to the developers. Finally, the vitriolic tone which Mr. Smyth took when speaking about the economists once again showed the disgraceful “us and them” approach that has been taken. The governement should havbe been looking to find a decent, fair and workable solution. This is not what they have done, as this thread confirmsd.

I don’t exepect it ever to be perfect, but do expect it to be fair. To the taxpayers it is anything but.

Here endeth the rant.

Years ago in Ireland, there were almost 170 no. cooperatives I believe. Then someone got the bright idea to amalgamate them, and there were only 10 to 15. The someone else found a way to convert them into PLC’s.

In other words, you had something which was very local and owned by communities, is now owned by financial markets, with very little else except for bare minimum wage jobs flowing back to communities.

Thanks for that Henry, I must check it out. Noel Symth has been quite busy trying out some new options vis-a-vis finance and development. I read an article or two in the Sunday Tribune earlier in the year. To give him credit, he has been thinking out some of the procedures and financial models beyond what we were used to doing in property.

While there is no doubt that economists should be included more in the process, the thing from an economists point of view, is property is a steep learning curve in itself. I do recommend listening to Hernando de Soto some time. De Soto has a quite interesting theory about land and property rights as a legal basis for capitalism. I heard him speak the other day at Trinity college in Dublin.

To many economists here in Ireland at the moment, manage to produce whole reports about the financial situation with regards to property in Ireland, without mentioning land in their studies at all. I did mention this to David Duffy of the ERSI, at a recent seminar about property. In fairness to the Green party, they are liasing with some economics and sustainability bodies about future structures regarding land in this country.

I think economists need to peel things right back to the bare bones, back to where it all starts with land and wealth. That is my sense of things anyhow. At the moment, there is money in the country, but it is standing on the sidelines waiting for bargain basement opportunities regarding land and site purchases around Ireland. The minister for Finance is doing his best to try and avert such a feeding frenzy on land as a future wealth. Perhaps if the ’smart money’ was less inclined to wait for land bargains, it would be more inclined to spend elsewhere on viable projects.

So they are happy to ask property developers how to resolve this crisis but won’t ask economists beyond their bubble thinking acolytes.

I shouldn’t be surprised but I am.

By rough calculation there is at least 50bn of bonds of AIB and B of I redeemable after the expiry of the guarantee period in Sept 2010. (Somebody please supply the correct figure). The current proposal seems to be to pay them off in full. Even a 20% hit would save us 10bn.

In any event, propping up the banks with Nama bonds before giving the bond holders a short back and sides is like delivering a case of whiskey to an alcoholic and then calling round and telling him to give up the drink.

As regards the shareholders they should only have value if the Nama scheme works. Otherwise we should have the right to swamp any value they have by virtue of warrants or some other straightforward mechanism. (In part compensation for whatever Nama costs us)

We should also consider putting a percentage of the larger deposit holders’ funds into some kind of limbo in case things turn really bad.
Why are we all borrowing to pay off all these people, most of whom have far more money than the rest of us economists?
One of the consequences of unrealistically optimistic assumptions about Nama is that they help to avoid considering what trouble we may be in if more probable and much worse losses accrue.
Here’s me bus.

I love all the hanging gardens and lawns on top of the new hospital. How many microbes and super bugs will be hiding out there?

Well, lets pretend for a second it wasn’t a hospital at all. Lets pretend it was a whole pile of super trendy ‘pads’ for testosterone fuelled bachelors, you know the kind who go for morning gallops to build up a sweat and then drink straight out of the carton of orange juice.

Even if those were my eventual users, I would still consider the scheme as illustrated in the newspapers to be extremely risky to build in the Irish climate. I would say it is stretching the technological limits of what is capable with mere building materials, even in this day and age, to make that building fabric work and provide safe environments for occupants.

Take this point for instance. When the days get really warm in summer time and therefore you need air conditioning to work on the interior environment, what happens to plastic vapour control layer they have sealed the hospital with? Think about it. The interior will be cooler than the exterior. Then you have the equivalent of a condom that is put on backways. You will get condensation forming on the plastic, as sure as be damned.

Search for Joseph Lstiburek, on building science magazine, where he talks about the problems with hotels in the United States. I sure hope we don’t build this Mater hospital project. Because we are hoping to draw patients from far and wide across the world to Ireland as a centre of medical excellence. They sure will not thank us to invite them to a centre of excellence, which is the equivalent of a poorly constructed hotel.

The trouble is that we build using lots of layers in today’s construction techniques, with all kinds of complicated air flows happening within the building fabric itself. The Lord himself only knows where the air is going to come and go through. Because the designers have chosen to go down this extremely risky path, there is going to be huge solar gain on those hospital spaces at certain times of the years, requiring the kind of expertise in building shells that we don’t have in the modern world yet.

In other words, this whole design is a bit of a pipe dream, and consultant designers keep on getting away with it, because there is no post-occupancy analysis done of any buildings procured by the public sector, by independent critics who interview and observe what goes on. The famous physicist Richard Feynman once explained the stupidity of the space shuttle design following the Challenger disaster in the US.

He explained his theories with with a aid of a glass of water, on which droplets of condensation were forming on the outside. His essay, an appendix to a larger book - Personal observations on
the reliability of the Shuttle - is available if you simply search online.

But in short, there is no Richard Feynman type of character who will step in to point out the stupidity of what we are doing at the Mater hospital site. We are going forward to build something like a space shuttle, without the real skills in design to do so. I heard today from someone, that ‘X’ number of Irish architects are unemployed and we should give them something to do. I would argue, it would be cheaper to put them to work in some capacity that they could learn about the stupidity of their own designs, instead of simply patron-ising them to give us more problems to load ontop of those we already have.

I wouldn’t trust the technological know-how of the Irish architect as far as I could throw one. We need to learn how to design safe and energy efficient internal environments for healthy occupants. To find out where the mistakes are made. Before we embark on some crazy plan to build a hospital design, which is beyond our capability.

Having said that, I am sure the consultant designers involved worried about saving their own asses will pull a report from somewhere, carried out by some other consultant who will tell us everything is okay. Rubbish. I only need to know at the images in the papers, to know that nothing will ever be okay if they proceed with this.

They rebuilt Croke Park and have to put a ring of steel around it every time there is a match on residents have to operate behind the barricades.

A have said to Mary Harney a hundred times “give us small centres of excellence”. Sure we want everything to be a centre of excellence, but in her head, only super hospitals can be centres of excellence. Even though 10,000 sick days were clocked up by staff in Tallaght last year. She acts like she never heard of microelectronics, nano technology gene therapy or guys like Craig Venter. Again, they act like they are living on a different reality to the rest of us. I love all the hanging gardens and lawns on top of the new hospital. How many microbes and super bugs will be hiding out there?

The new patriotism is to try and talk some “Bleeding sense” into this lot, but I am afraid we are just practical people who would not be on their level, if you get my drift. Then the day arrives, it is the disaster and they will look at at you and I sheepishly and say, “what will we do now lads?” I know the answer I will give them!

I have to say I know the people involved with the Mater Hospital project, and world powers doesn’t even do it justice.

But we have to distinguish between world powers and world class. They are not the same thing at all. I know a lot of people in our building projects like to thing of themselves behaving like world powers, but I really wish people who were world class were around to talk some sense the odd time.

Because, that is exactly what guys like James Lovelock do when they come to Ireland, they try to talk some bleeding sense into us. I never works, but it is always a breath of fresh air when it happens.

The actor, Gabriel Byrne made some comments about architecture in Ireland not so long ago. He tried to talk some sense, not that anyone on these shores, in general knows how to listen to it. But I did appreciate Gabriel’s efforts on our behalf.

We may be a near bankrupt island of 5 million people sitting in the Atlantic on the edge of Europe, but by God, when it comes to egotistical people we are without equal.

Just look at our salaries, TV presenters earning more than Barak Obama or Angela Merkel our head of the NCA (national consumer association) a little government quango earning more than the head of the US Treasury, and our head of the armed forces earning more than their British counterpart fronting a population of 80 million a country that owns nuclear powered submarines and weapons systems. We are totally deluded, disgracefully deluded and, if we don’t come back down to earth we will quite literally become an endangered species on our own little island before very long.

There are great opportunities for people to come here and literally buy up the island. To have it handed to them on a plate! That is how small, in reality this country is! Everyone in this country from the above mentioned down to 30% of people who absolutely refused to work when there was full employment are at fault.

The country has sold out on that values our real leaders, real men aspired to. Yes, I am saying that this lot are not real men! We are a great people when it comes to writing books but it seems we are even better at robbing the eye out of your head and coming back under cover of darkness for the other one. Even the sparse number of wind turbines built off our coast cannot get their power to the grid because of our quango systems.

Even as I write this, there are plenty of people out there, telling me, that they would have done the same as O’Donoghue given the chance and I have no reason to doubt them or believe otherwise.

This is an Economic blog, which we like to see filled with facts, figures, and charts. However, as a blog we have not targeted enough, the corruption now endemic in Irish public life. We are afraid to stand out from the crowd and say that is corrupt, that is not good enough, that is why you need to be fired and we are just not going to tolerate incompetence, posing as political expediency any longer. Believe me, we all have a vested interest in taking this course of action because our own economic survival depends on it.

Everything, that has happened. in the last year has been politics as usual. The politics of expediency, of fudge and of self delusion, if they, and we know who I am referring to, continue they will bring the house of cards that they are building down on their own heads. Our spiraling debt levels which have to be serviced off smaller and smaller levela of GDP spells major trouble ahead. We need to find our moral compass nama is a magnet
which is already distorting magnetic north and Stiglitz is correct in his assertion that the international money interests praising our crazy nama ( because it suits their own players), will, within 2 to 3 years (and that’s optimistic) be refusing us any more credit.

The difference between them and us is that this is supposed to be a country and not a hedge fund and most of us have no place to run and hide from the economic ruin that these unimaginative and morally decrepit policies will deliver. We are stuck with Ireland and Ireland is stuck with us, for the moment.

Indeed! Told you there was a private sector solution waiting to happen. Offload the dodgy loans to them for as much as required. Loan them the money if you have to. Then recapitalise the banks. Make multiple ones so that there is competition.

Jeepers, it’s a sad state of affairs when PPIP looks a better idea than NAMA! Sadly, It would probably fail too as in the US, the expectation is that PPIP will overpay (i.e. pay LTEV). The takeup so far has been pathetic.

If we are to use the energy analogy, then we have to realise that energy is converted into one form or another, rather than disappearing into thin air. If the flows of credit weren’t of real substance to begin with, then we have a much more serious problem on our hands. It means that we didn’t fail to store or capture the wealth that had been available over a period of a decade or so, but that we were fooled into thinking there was a resource available for capture at all, and that we side tracked vast resources into trying to catch something that wasn’t there to capture.

@ Brian Woods,

Brian, you managed to puncture my argument above very easily. So lets look at it a different way. Lets ignore for the sake of argument that the property binge was fuelled by credit. Lets pertend for the sake of argument, we can tie some of this madness back to something real, somewhere in the globe.

If the Chinese exposed the savings of millions of labourers and workers to the international financial system, to fuel the huge expansion of credit in the past ten years - I am wondering, would the Chinese feel a lot better if Ireland and other countries had converted that credit efficiently into something of value? Are the Chinese equally as pissed off as we are, that the opportunity to make some use of this available pool of wealth was purely utilised by the first world?

I am not sure how to answer the question.

Having worked for one of the largest consumers of ‘credit’ in the entire country, Zoe developments. Having seen the story of such a company exposed through the media this summer, it does leave me with some questions. Given the binge was fuelled by credit and so on, was there a better way to use the credit?

I am only spit balling here, but I wonder how one such company managed to spend so much, and divert so little of its cash into its employees training and development. Would it not have made sense to offer some kind of scholarship to a percentage of company employees, to do an advanced degree or something?

I mean, would a social gain such as that have managed to capture wealth for the nation of Ireland to benefit from today? Maybe it is a daft notion, I don’t know.

If the aim of the stampede was to create wealth out of nothing, then it makes the problem serious indeed. It ensures that Ireland devoted the bulk of its useful efforts and resources over the past number of decades to building a fantasy project, which was trying to capture something non-existent, a Jack-the-Lantern. If that is the case, it is very serious indeed.

I tried to argue there was something substantial blowing in the winds of international finance, to try and infer some degree of value onto our efforts over the last decade. In the sense, with the steam age, it began by capturing a very small slice of the potential energy and work rate of that resource. That in the future, our engineers can continue to work and find a better design. In other words, I was trying to be positive about things, by being a little negative. I was attempting to over an explanation to give ourselves some hope for the future. That our mistake might have proven something.

Look at what we are doing at the moment, we are about to embark upon another huge capital investment program to move our national grid towards renewable energy supply. James Lovelock would argue that wind generation technology as it currently exists is a complete waste of effort. It doesn’t offer nearly enough of a reliable energy supply. We would be better off building a cable underneath the Irish sea and buying our energy from France. Ireland should be very careful before it embarks on huge expensive projects to enhance energy independence. Our success in terms of spending capital in the recent decade has not been good at all.

It was interesting listening to James Lovelock’s interview on RTE television aired this morning. James Lovelock spoke of how his parents had been very poor and Lovelock went through the process of getting an apprenticeship over a number of years in all things to do with chemicals and photography. The one point that was reinforced to Lovelock during this apprenticeship process, was the need to get his measurements correct. Otherwise, the livelihood of some other photographer, and indeed the future of his own company might be threatened.

On the other hand, Lovelock argued that in Universities for the sake of the examination process, accuracy of measurements are not crucial. Knowing the basic principles is deemed to be important. Lovelock goes on to make an argument, the fostering of that culture for humanity is going to be deadly as we go forward.

There is something in the story of architectural design which might be interesting. Many international architectural firms do understand the flaws and shortcomings of their own designs. But it is interesting, how they will continue to sell and promote a product long after they become aware of the limitations in its effectiveness.

It is funny sometimes to listen to critics of the LEED program in the US, which claims to ensure environmental friendliness of building projects. How the ideas developed in the LEED program, many of which do not make sense, have found their way into projects built in such places as the Middle East etc.

The parallels with the global financial system are unavoidable unfortunately. As a project is stamped with some sort of ’seal of quality’ in one part of the world, it is sold by international consultants throughout the globe in developing nations, because they feel if the US approved this, it must be right. Without getting too emotionally wrapped up in some grand conspiracy theory of the universe, I might point out that a reading of Joseph Stiglitz’s writing might shed some light on how global architectural design works.

When I look at a design in Ireland for instance, costing €750 million, such as the Mater Hospital new project, I am again reminded of the above. I know the designers of the said project, know instinctively themselves there is seriously problems with it, and many of the details in the visualisations I have seen. But they still persist to play the game as it was for the last couple of decades. That game which has landed us in such difficulties. There is no root and branch review of anything.

It is sad really, that Ireland and one political is prepared to pay that amount of money. We do not have the excuse that land is cheap or unavailable to the government anymore. We could do all kinds of things with regards to site procurement now. But instead we choose to squander money like it was going out of fashion.

My own instinct would be to move Irish Life and Permant operations to the Anglo Irish headquarters site in the Docklands and free up some existing land in Abbey Street for building of hospital infrastructure.

Which would still be close to the Mater centre of gravity. But Abbey Street might be more accessible for people using or working at the hospital with various means of transport. The Mater site could still be used, but we could put a cheaper building on the site, and do everything for much less money.

The point is, even with the Mater project we are still behaving as if our hands were tied, and it was still the middle of the Celtic Tiger. We are not reviewing our options properly.

http://www.independent.ie/business/irish/exbos-boss-duffy-raises-83643bn-for-nama-rival-1917167.html

Interesting metaphor, but I fear the reality is even cruder.

The vast bulk of this property binge was fuelled by credit. Borrowing to invest is not really a wealth preservation device, it is a greedy South Sea Bubble stampede to extract wealth out of nothing.

If only those property assets had been built out of accumulated savings/, then we would genuinely have a store of wealth. Instead we have a store off assets which are starting to smell backed by a store of borrowings which we can’t even devalue (ala sterling).

If Brian, as you say 99.5% of this wealth stored in the contraption or behemoth has all but evaporated and was, to all intents and purposes “Like the pearls of morning dew, neer to seen again” then, as they say, I think it is time for me to consider my position!

What I HAVE found is that e v e r y - s i n g l e site I’ve visited has explained how bad an idea it is. (I’m not including the FF or GP sites, obviously, since I’m not sure I could stop myself from throwing the laptop through the window)

Maybe there’s a Developers Association or Banksters United site which could tell me what a good idea it is somewhere. Anyone? Anyone?

There is one thought I might leave you people to turn over in your brains.

It appeared to me as Ireland as a nation gained some wealth, wealth we had never really been used to as a nation ever, rather much the opposite, we behaved rather like people who weren’t used to possessing wealth.

I have listened to a lot of debate and supposed motivations for the greed and popularity of the one party system in Ireland.

All I can conclude now, is Ireland as a nation, or rather it’s population managed to collude so well in some grand property investment pyramid scheme for one simple reason.

They were looking for a way to ’stash’ this wealth, in a way that made it like a fortress.

I have attended quite a number of seminars on Ireland making use of it’s wind resources in the future to generate energy in its purest most distilled form, electrical power.

There is quite a bit of research going on into ways to store that electrical power in various kinds of large scale storage devices. One ideas seems more whacky than the next to be honest. They are the kinds of things you see on some childish TV program on the Discovery channel.

I have no doubt in my mind now, that Ireland as a nation found itself in the middle of a hurricane of financial credit. The property bubble was motivated by some deep, ancient impulse that we as a small population of a few million people might manage to store some of that international credit flow in bricks and concrete here in Ireland, if we built enough of it fast enough.

In other words, this rush of financial wealth has come upon us unexpectedly and we rushed to create primitive ’storage devices’ for the same wealth in the hopes we might extend the life span of this credit flow into the future, before it vanished and our experience of wealth along with it.

One could compare it in sophistication to the earliest steam engine design, which was about half a percent efficient. But surely, as a nation we would be better off keeping half a percent of this wealth than nothing whatsoever.

We marshalled the greater part of the fit, energetic and ambitious working population towards the project of storing elusive global financial wealth rivers and pouring it into concrete. When I was a young man growing up, I talked with my friends about heros like Eric Cantona.

By 2006, I heard young students in Dublin chatting amongst themselves about their heros, who were mostly Irish property developers.

We basically became distracted from any forward momentum in the development of politics and society. Instead we put that project on hold, and we voted in the kind of leadership we deserved. Leadership being too fine a word to describe the man, I would call him a show off who likes himself far too much.

You see, we have no real justification in blaming property developers today. They ran with the best plan the nation could design for itself at the time, to use buildings as battery storage for financial wealth, to be used on a rainy day. We captured what solar power there was available during the Celtic Tiger and try to put it in jam jars.

The people who I worked with at Zoe developments were very efficient and skilled engineers at trying to develop what was a technology of ‘wealth storage’ that is still primitive. They were the pioneer characters in Ireland’s 21st century industrial revolution. No more and no less.

But we got exactly the politicians and the investment of our wealth that we deserved as a nation. There can be no doubt about that. Having invested so much into that mad project for the last ten years, the minister for Finance, Brian Lenehan is left with no choice but to try and attach some piece of contraption onto a behemoth that has already been built.

Simply so we can extract the half a percent of wealth that is ultimately available from the ‘machine’ that we built in such extravagance and waste as a whole nation.

I heard a story when I was a young kid about the war years in Ireland when supplies of basic commodities were scarce. This old man died next store to us, and when they went about cleaning up the old house, they opened one wardrobe to find it packed with supplies of tea.

Apparently the Irish nation had gone through such supply shortages during the war years of basic things such as tea to drink, that many people stock piled those items for many years after the war. The war had left such a deep impression upon them, they always suspected that the shortages might return.

In the same way, during the Celtic Tiger in Ireland which followed the dark recessions of earlier years, Ireland simply trying to pile as many tea leafs into its wardrobe as would physically fit.

Thanks for link to VB show. One thing Peter Mathews said was that the banks will use the NAMA “money” to reduce their loan/deposit ratio and not to fund credit. I’m looking for genuine clarification (no agenda) from the many economists on this site. According to Wiki a Repo is a collateralised loan arrangement. How can repoing the NAMA Bonds to the ECB be used to reduce the loan to deposit ratio? (I presume we include ECB loans in that ratio)

True! Canada is also good, but Australia is where the Canucks want to go. The wait for most migration to Oz is now two to three years, unless you are on the priority demand lists. While record numbers entered last year, the brakes are being slowly applied, but age structure here demands more young workers. NZ is a backdoor.

Nama means a loss of capital at a time when true capital not debt, is scarce. That is why it is such a poor solution. Developers are good for the economy. They improve buildings and cities. Maybe this is not the case in Ireland but that is the fault of regulators, not workers and clever wealthy organizers. Using labels like developer has become, can obscure the true meanings of words.

Money will not be made by lending until the depression is over. Nama will extend the depression and will retard lending and wealth creation at a huge cost to boot!

Even many developers may be able to see that and be concerned.

Brian Lenihan has a career in Europe, not Ireland.