I think I like Fritz

“No sweat.

The squid showed them a powerpoint about how to borrow taxpayer money at no cost.

Lever up a few T-Bonds and its green grass and high tides baby.”

““This is an ECB coup.
They want their €30Bn to €50Bn back.
They can’t get it in cash so they want it in Irish Sovereign Debt.”

Wouldnt accepting Irish sovereign debt in return for the cash be tantamount to QE?”

@ Bond,

In the name of whatever God you believe in have I not destroyed your QE argument?

Don’t be a complete ……

“In fiscal 2009, the University terminated interest rate exchange agreements with a notional value of $1,138.0 million, for which it realized a loss of $497.6 million.”

Any guess as to who the counter party was?

I’ll just throw it out there that it may have been another squid attack.

And I was just trying to explain that on the Denis O’Brien thread.

“Yet most notable in the entire report is an interesting story for all those who claim that representing the $200 or so trillion in interest rate swaps on the books of the Big 5 banks is completely irrelevant as the net exposure is just a couple trill here and there. Yeah, that’s what Harvard thought too until it had to eat a 45% loss on $1.1 billion in IR swaps. And nearly go tits up in the process.”

Yeah,

We’re definitely phooocked.

I keep telling people. Well actually my cat, that $1.4 Quadrillion of derivatives might be a bit of a problem.

Irish politicians don’t know they’re born.

Thanks for the link.

You’ve probably seen this. However.

http://www.youtube.com/watch?v=JjglR2KYz5o&feature=fvw

Now, in the second round of Masteroftheuniversemind, your specialised chosen subject is the rise and fall of the Irish state:
What Irish bank has masses of interest rate swaps?
Who’s now on the hook for those losses?

You passed out on both questions - the first is: all of them (well Anglo, BoAIB), the second: we are!

Of course there’s another way of looking at it.

We’re phooocked.

Thanks for the reply.

“The 62 bn is the minimum that will make NAMA work and turn the promised profit.”

Which, in my book means that the NAMA business plan is a complete fiction.

They did pluck the €62 from thin air.

However, I believe I have given a logical argument to prove that they plucked it from thin air.

“The figures in and of themselves are not significant, except where they are clearly wrong (for example if the interest costs of the NAMA bonds had been grossly underestimated).”

Can I get back to you on that, zhou replied to a query but I didn’t have time to deconstruct it. I think the interest calculations are equally bogus.

Your & Azhura’s point about the apparent smoothing of principle repayments has also got me thinking. I know, I’ll have to stop that. It’s not good for Ireland Inc.

“The more and bigger the semi-random numbers are, the dodgier the business plan.”

Would it be fair to apply that observation to the €62?

“Ms Harney provided a classic example of this with her efficiencies of 25 mn a year on merging the current three children’s hospitals into a new 750 mn hospital… er, a 30 year payback… made up of, eh, catering, HR, and transport… short burgers, hair straighteners and taxis, quick.”

Exactly. The levy was pitched at a level it was because they said “we need x”, okay, start from there and work backwards. But they forgot, rather bizarrely, about tax relief. It’s a little bit childish really.

That is why I have been banging on about the lack of method in the business plan. No attempt is made to explain how the target will be achieved. It is like the cartoon of the two ants in front of the blackboard with a complicated flow chart between input and output. The last box before the output is a magical black box…

Do you remember when the Pension Levy was introduced?

The question arose “Was this levy tax deductible”.

The entire Cabinet contradicted each other for a week.

I think they just don’t get it.

“Please don’t be offended but I think the penny is about to drop.”

That should have read,

“Please don’t be offended but I think the penny is about to drop, I think it just dropped for me.”

I think you’re forgetting this is a business plan. The figures in and of themselves are not significant, except where they are clearly wrong (for example if the interest costs of the NAMA bonds had been grossly underestimated).

The 62 bn is the minimum that will make NAMA work and turn the promised profit. That is why it has been chosen. The 20% default rate is also the minimum that is, at face value, acceptable since it is the average default rate on C&D loans during a property bust.

Business plans contain two sorts of numbers - those that can’t be challenged because they are true and those that can’t be challenged because there is no evidence to either back them up or dismiss them - semi-random numbers. The semi-random numbers are important only in the fact that they make all the rest of the numbers add up. They can be attacked as to their incredibility, but not proven to be wrong. The more and bigger the semi-random numbers are, the dodgier the business plan.

One thing I am surprised we do not see is “savings from synergies and efficiencies”. This is a favourite of the LBO/M&A crowd. An unassessable number that makes a business plan work. Ms Harney provided a classic example of this with her efficiencies of 25 mn a year on merging the current three children’s hospitals into a new 750 mn hospital… er, a 30 year payback… made up of, eh, catering, HR, and transport… short burgers, hair straighteners and taxis, quick. But will anyone actually be made redundant by the combination? What about redundancy costs? What about relocation costs? etc. etc. “It is not anticipated at this time…”

“Can’t fault your logic, except perhaps that the 10 bn is not included in the cash flow as an outlay either.”

That, yoganmahew, is exactly my point.

Please don’t be offended but I think the penny is about to drop.

It’s not the outlay we know it will be spent. We agree this.

So it is only sensible to add it to the €54. OK, in the early years of the project.

Then we get to the end of the project.

Now either the developers are going to pay back a principal amount of €62 (give or take, I’m not saying the Minister has to be penny perfect in a forecast) or they are going to pay back €72Bn.

The Minister cannot say that his best estimate of principal repayments is €62 if in fact he believes it is €72.

The €62 must have been based on some (yes estimate) of the value of completed projects over the course.

What I’m saying is, the estimate of the €62 must have been independent of the fact that the €10 was being advanced.

The €62 must be a crude estimate of market value. Otherwise it is a number simply plucked from the air to make the forecast look good.

Can’t fault your logic, except perhaps that the 10 bn is not included in the cash flow as an outlay either.

What it does mean is that the already steep curve to get two thirds of the non-performing back to performing is even steeper than imagined.

So we have 40% currently performing and 40% that we want to get performing. 30.8 bn in original loan value each. The liquidation value of the non-performing is currently 7.7 bn. Assume the 10 bn is divided between the performing and the non-performing. That 7.7 bn has to rise to 35.8 bn for NAMA to break even…

I’ve been thinking. I know, I know I’m not supposed to.

Help me out here. I want to take a step back to the “finishing out” funding.

Karl rightly pointed out that the €5Bn was not included because of the note which stated that the interest margin would be negligible in the grand scheme of things.

As you say most construction & development loans are by their nature bullet, can you reconsider the €10Bn (and I’m going to call it that because the Minister has already started the campaign to breach the €5Bn) finishing out funding.

If the ultimate principle repayments are €62Bn per the cash flow projection surely that includes the effect of the €10Bn. No?

How could it not do?

Which means that the €10Bn (finishing out funding) should be added to the €54Bn (acquisition funding).

Or does the Minister expect to “recover” the €10Bn in addition to the €62Bn?

If so why is it not explicitly stated?

I think your figures are entirely reasonably too. Whatever amateurish method I use to estimate the losses I come up with figures in that range - loan performane, underlying asset performance, historical parallels, especially historical parallels.

I assume that the loan repayment schedule is predicated on refinancing before capital comes due. As I understand the structure of C&D and Commercial of the loans, they are I/O or roll-up for 4-5 years then they either pay off or refinance before a capital element comes due. In the case of commercial, it appears particularly pyramidal in that all that can have happened in the 4-5 years is capital appreciation…

You’re not covered by the guarantee.

A cameo role? Is that all im good for?

How can you not like somebody who’s favourite movie is Dr Strangelove?

“Or How I Learned To Stop Worrying And Love The Bomb”

http://www.youtube.com/watch?v=G4_qEbuNBls&NR=1

Maybe the Government can offer a special Film Tax Credit for a rushed version of Dr Propaganda.

“Or How I Learned To Stop Worrying And Love NAMA”

Mind you if it’s anything like the original I have to tell you it doesn’t end well.

I’m sure there would be a cameo role for a bond expert who doesn’t work for one of the banks covered by the guarantee.

@ 2:40

http://www.youtube.com/watch?v=A9ihKq34Ozc

“Mr President we must not allow a NAMA gap”

“He is deluded, but we will give him soft pencils and crayons and he will get better. If we can stop Nama. If not he’ll be on the streets with the rest of the loonies as the hospitals will all be closed due to lack of funds and strikes.”

Having read your blog, we’re both agreed on the dangers of loonies running around in the open…

As far as I can tell, a large amount of loans will need to undefault to get a 20% default rate. Although the numbers in my first post are limited to the data contained in the bank reports, my approach is reasonable. The DoF cashflow table is odd. The principal repayment in particular. Any loan pool model I’ve used, applies the principal repayments of the loan schedule. For bullet loans, you apply the loan’s maturity date. You do not make up an unfounded repayment date. The only times you tend to see a series of flat numbers is for recoveries from defaults.

It is not that I did not find it amusing, but the first para was wrong and your second para is still, sadly, correct.

Eoin Bond is a supporter of some bondholders rights. He is deluded, but we will give him soft pencils and crayons and he will get better. If we can stop Nama. If not he’ll be on the streets with the rest of the loonies as the hospitals will all be closed due to lack of funds and strikes.

HMG prefer the Secret Intelligence Service and the Security Service. SIS and SS. Bond was a Commander of the Senior Service ie RN, and was M.I. 6. There were Military Intelligence departments numbers 1 to 19, at least, in WWII, or the Big One, as we still call it here.

But they take their orders from those who own the UK, not just the managers pro tem. As Harold Wilson nearly found out!

No right to review legislation in the courts: A45 of Bunreacht na hEireann.

The main issue is who could sue? Locus standi. Who has been injured? It might be possible to sue Ireland ala Ryan 1965. But by the time it is done so are we! What would the remedy be? Damages of 40,000,000,000? Against whom? Even if judges wanted to impugn the legislation say that it was passed by those who have secret liabilities via joint venture agreements with banks or developers or are extensive borrowers of money for land, hence biased parties, the point would be moot as the damage is so huge and already done?

At best we would have bankrupt pollies and a huge debt to ECB.

We need faster action than that!

However, the President can

dissolve

refer

as set out in my earlier posts!

“Oh well, watch out for a tax exile criticising cowardly anonymous commentators next.”

Scary.

Does your crystal ball work on the property market as well?

Naughty. Naughty.

You seem to have upset Mr Bond.

Have to say I tend to agree with you on this.

“The reality is that NAMA is one gigantic financial swindle being railroaded through by a government against its people.”

As you probably saw on Prime Time Joe Stiglitz called it “criminal” and “ a fraud on the taxpayer”