It’s all smoke and mirrors.

http://www.irishtimes.com/newspaper/finance/2009/0919/1224254861624.html

They want their money back.

Richard Bruton could grow a pair.

We can but hope.

“The ECB is behind this.

But Fianna Fail have made the situation exponentially worse.”

Perhaps in accepting the easy credit and fuelling a property and general economic bubble they did but this is true of UK and US Governments too.

I am not a FF suppoerter but given that we are where we are how could the government not set up some way to distribute large amounts of new public debt into the banks?

I mean it just seems to me like they are doing what they are told to do.
What choice have they got?

If Richard Bruton was in BL’s position what could he do, other than obey Europe like BL is doing?

And to paraphrase Mr Juncker.

“The game is over. We need a serious business plan for NAMA”

But hey, what does that matter as long as the bondholders are made whole.

Happy days.

“I’m not saying we put a ‘floor’ under the market, only that we look to support the general confidence in the property market and the banking sector, and enact measures to make it easier for those on the ladder to stay on it and for the banks to recapitalise themselves.”

Oh, and for the bondholders to be made whole.

I think you’re right.

The ECB is behind this.

But Fianna Fail have made the situation exponentially worse.

you have a fair point.

However, the title of the MK’s slide that has the “internationally unprecedented falls of 80% or more are therefore a real possibility” line in it is called “Extent of house price falls”.

As such, i stand by my assertion on his predictions. It also again underscores why we need far more detail on how he gets to these figures.

That’s too long for business. Forget residential for a second. Consider commercial. I set up my own e-tail business 2 years ago. One of the reasons I went online is a shop was way out of my reach. Still is for an individual. I have 16 years experience in retail park retailing. The rents went too high. For all its footfall there are shops in Dundrum losing money because the rents are ridiculous. Why did O’Briens Sandwich Bar fail - high rents. These need to come down a lot faster than over a decade to boost activity again.

From what I hear this is actually happening behind the scenes quietly - let’s not rock the boat. Well I say let’s rock the boat because it’s sinking.

I believe, though I stand to be corrected, that Morgan Kelly is talking about property prices encompassing all the elements of property - land, commercial, C&D and residential. The Fitch report, as I recall, is only considering residential.

Mr. Justice Kelly stated the other day that most of the commercial properties he sees before him are down 70-80% from peak. We already know that land prices have fallen as much as that and probably further (in aggregate). Some residential prices will fall that much, but not all. But if you are trying to calculate damage to bank balance sheets, surely the aggregate figure is enough?

“Is there not a danger in the effort to make sure no one suffers loss that we delay the recovery”

1. i don’t think property prices are ultimately gonna fall by 80%. I just think its dangerous to predict this unless you’re willing to back it up with some assumptions and figures. It’s very difficult to debate MK when most of his backers claim only that it either “happened in Japan and with Irish agricultural prices” or that “he called it right before”. He also called for “at least” a 20-25% drop in GDP here, but that doesn’t appear to be how it will turn out, so why should i believe his house price assertions if they are lacking accompanying data?

As Henry noted, we got a more detailed Fitch report yesterday than anything ive seen from Kelly, and its going for a 45-50% total drop. Per Mk’s own slides back in January, he predicted a 60% drop to get back to equilibrium. His 80% case then was an overshoot “possibility” but now appears to be his central baseline scenario, even though we have a massively revised up GDP outlook than he was using at the time. Is he still expecting another additional 10%+ drop in GDP or unemployment at 20%? Is he still expecting a 50% loss rate on NAMA despite admitting that comparable US cases hit 20%?

2. However, if we did end up with this being a serious possibility, i dont think we should just let it happen. At some point its arguable that sticking so rigidly to free market economics is in danger of collapsing or damaging an entire nation beyond repair.

I never said no one suffers a loss or negative equity. I just think that some levels of loss or negative equity would further destabilise the economy and the State, perhaps permanently so. 80% property falls wipe out almost the entire personal equity in the property market. We’d be wiping out an entire generation or two’s main source of personal wealth.

I’m not saying we put a ‘floor’ under the market, only that we look to support the general confidence in the property market and the banking sector, and enact measures to make it easier for those on the ladder to stay on it and for the banks to recapitalise themselves. NAMA would appear to let us work out much of the oversupply and overpricing over a 10 yr period, and give us the time to right the now glaring issues pervading much of the set up of our economy. Maybe im suggesting that NAMA ends up costing everyone in the country €2,500 each over a decade rather than costing 500k people €100k each in lost wealth and personal bankruptcy over the next 3 or 4 years (at 80% property falls personal bankruptcy is a no brainer - you need house prices to rise 150-200%+ to get you out of negative equity). Most of these people would also be our most productive and most mobile (25-40yrs). Subjecting them to choices comprising of either a life of negative equity, emmigration, or personnal bankruptcy seem like overly harsh choices for the generation who are supposed to be set to lead us for the next few decades.

I dont think it is fair to point the finger at Lenihan/the government on this one.
I think it is fairer to blame the ECB.
It is they who have decided that they dont want any bank to fail regardless of the fact that that is exactly what is supposed to happen in Capitalism. It is also the view Of Joe Siglitz and many other economists.

It’s European Policy that they dont want any bank to fail, even though many are completely insolvent.

Given that it is european policy, then I dont see why the Irish taxpayer should have to pay for it alone.
I mean I know they are extending the credit to us but its credit to bail out banks that they are making us bail out and they expect us to pay the money back with interest.

In this light their comments telling Ireland UK Greece and Spain that they would have to reduce their social payments seems disgraceful.

I know the idea of going back cap in hand to europe seems ‘a bit rich’ (pardon the punn) but if we are being prevented from taking a cheaper form of action by European policy then we have a legitimate case.

If morgan Kelly is right in his estimate that the “Irish banks are to big to save” then Europe is in effect handing the Irish a noose to hang themselves.

You are absolutely right.

Maintaining an artificial floor in residential or commercial estate values can only delay recovery.

But hey, it’s a price worth paying as long as the bond holders are made whole.

Happy days.

So we keep house prices artificially inflated to “help” those who bought in the last 5-10 years and construction remains moribund. Would a better way not be to let the market forces decide the value of houses and find a different route to helping those in trouble.

It’s not just residential - it’s commercial as well. Rents are way too high. On another post I pointed out that retail rents jumped some 400% in about 15 years (based on my experience in warehouse retailing). Propping up this doesn’t make sense at all but won’t do Nama much good.

A by product of capitalism is people do suffer financial loss in the downturn. If we’re not going to let that happen then we’re in some new form of economic model.

http://www.ft.com/cms/s/0/3e7e0e46-bd47-11de-9f6a-00144feab49a.html?nclick_check=1

“Greece, which is already under scrutiny in financial markets on account of its shaky public finances, has come under fire from its eurozone partners for revealing that its budget deficit this year is likely to be far higher than previously forecast.

“The game is over. We need serious statistics,” said Jean-Claude Juncker, chairman of the 16-nation eurozone’s finance ministers group, which met in Luxembourg on Monday evening.”

http://www.examiner.ie/ireland/fears-of-surge-in-home-loan-defaults-103741.html

“A spokesperson for Finance Minister Brian Lenihan said it was deeply misleading to base general valuations on what happened at the High Court.

“They are before the court because they are bad assets, you cannot use that as a reliable yardstick. Long term economic value will only be added to the value of certain NAMA loans and will be no more than 15% on those. Each property will be assessed individually.” “

So they have changed their assumption from 10% to 15%.

Nice.

A fifty 50% change in the assumption in little more than a week.

For what it’s worth I think your post at 10.57 is spot on. I don’t agree that people shouldn’t give their views (re 80% reduction which I think is absurd) but do think such views should be substantiated. I think an 80% fall would be a disaster and is highly unliekly. I think Fitsch have come close with their estimated 50% fall = 5.5x average earnings = UK (where not so much over supply as here).

@ Pat Donnelly

Thank you for introducing me to the word “shill”. There is a lot of shilling going on just now and it is pretty obvious to anyone with their eyes and ears open. I’m wondering whether an on-line petition should be started.

Yes Minister the politicians were elected to “make decisions” but not decisions that would bankrupt the country they were supposed to be running!

This government, and all current politicians have no moral authority to govern this country! You governed it and you bust it! We need a new Constitution and a new form of government! Enda Kenny is onto something BIG!

1. Brian Lenihan has attacked critics of Nama by saying that they are attacking the public service.
2. He just made a speech saying that public servants should take more responsibility (and get more credit. But I doubt that is how he is thinking).
3. When Nama fails he won’t be taking the blame.

My suggestion, and I am making it purely in a personal capacity, is that you should pass on any information you have to Fintan O’Toole, Gene Kerrigan, or Fox/Clifford from the Tribune, whom you can trust to use it responsibly.

Remember, when this fails Lenihan will blame the public servants. And it will wreck the country for a decade.

P.S. I am not Fintan O’Toole or the others above.

i think we’re fighting an enourmous fire, and we need to simply get through the short term to have a decent chance at the long term. Or at least thats certainly where we were when the g’tee was brought in and when NAMA was selected as the ’solution’. Now we’re tied into the path we’re on, and i think trying to re-route the path completely risks undoing all the previous work. Markets are still fickle and irrational, and we still rely on them for our funding needs. If we can come up with a decent way to protect ourselves longer term without straying from the basic plan, then absolutely. I’ve asked for increased risk sharing up to 15% or more. I wouldnt at all be against locking in some sort of options on large shareholdings in the banks (keep us off the register, but still in the game). Im for putting in the levy on a statutory basis provided it doesnt mess up their shorter term balance sheets via an explicit contingent liability issue. I fully expect the govt to go after any bit of security or collateral that they can get from defaulting developers. But i dont see how we fundamentally change NAMA, and i dont think its feasible to enforce losses on most of the debt in the banks.

As for your house, well given that you bought it 22 yrs ago for 66k, of course a fall to 150k isnt that much of a hit for you, but, without saying you’re old (!), an entire generation after you probably had all round LTV’s north of 50% when the bubble burst. An 80% fall in house prices means this LTV becomes 250%. Even a 30% LTV at peak becomes 150%. Lots of people are tied to property through personal ownership, employment, pensions, second homes, whatever. It could be argued that while the government shouldn’t “set” property prices, it is still in the national interest to provide support for them in the short-to-medium term.

I think general residential property price drops of 50% are manageable (if we’re at 35-40% drops now), and eventual recovery to 60-65% of peak in a decade are reasonable assumptions to have (ie property prices more or less where they are right now). They’d also give NAMA a chance of getting out with a bloody nose rather than a broken neck.

7……..You spoil me.

“1. it provides stability (financially and politically) - note recent price movements”

That’s a bond market argument. The stock prices of the banks reflect the unjustified passing of risk to the public purse.

Perhaps we need political instability to get a better asset management model.

2. it works with the markets - note recent price movements

That’s a bond market argument.

3. it actually cleanses the bank balance sheets by taking the bad assets off them.

That’s a bond market argument. It passes the bad assets to the public purse. That’s why the bond market likes it.

4. it uses the only semi-sustainable balance sheet available in Ireland, the Irish sovereign, to its fullest extent to buy for time and maintain existing adjustments to the funding situation. It can always tax and levy any losses at a future date.

That’s a bond market argument. The bond market wants to raid the public purse by swapping their impaired debt for Irish Sovereign debt. The levy will never happen.

5. it maintains private capital skin in the game and encourages the influx of additonal private capital.

That’s a bond market argument. Private capital will flow in any event if the price is right.

6. via risk sharing and additonal taxes/levies, any losses in the saner realm of reality are long term manageable, where as any significant set back to the short term funding situation is quite possibly not.

That’s a bond market argument. Risk sharing under NAMA is a joke. NAMA will not default.

7. EU and ECB acceptance and help.

http://www.irisheconomy.ie/index.php/2009/08/31/ecb-opinion-on-nama/

The ECB just want their money back. How will they treat Ireland then?

http://www.sbpost.ie/themarket/eu-commission-will-not-prop-up-anglos-finances-45032.html

Oh, and for all of the above. The NAMA business plan is a dog’s breakfast of assumption and estimation.

An 80% drop on €750k brings you to €150k. Not cataclysmic. The question is where is the real value. Using rental yields of 5% I’m guessing somewhere between €350k to €375k. Let’s say 50% drop. I’m with Eamonn, let’s let the market decide.

I happen to agree with you that Nama will make a loss, no idea how much but that we had to do something. Wish we’d do it quicker. I also reckon the banks will need to raise some serious capital and the shareholders (I used to be one - got out recently) are still facing massive dilution. The banks shares have seen some major slippage in the past week.

Finally I also studied the efficient market hypothesis in college and maybe it works over the long term but in the short term the markets are anything but rational. I do my own share dealing and there’s money to be made from doing the opposite to what the markets think. Do you think in pleasing bondholders in the short term (making Nama work) we might make a mess of it in the long term?

It seems that there might be a few things regarding my position and assumptions that needs to be clarified:

I believe there are good and bad traders in all markets. I believe the bond market to be included in the all markets. I believe there are some bondtraders who are bad (by bad I mean not as good as at least the average bondtrader).

I believe that bad bondtraders are asking for a government bailout.

I believe there are good and bad corporate governance. I believe financial institutions can have good or bad corporate governance.

I believe that financial institutions with bad corporate governance are asking for a government bailout.

I believe bailouts come at a cost. I believe that the cost should first be born by the ones asking for the bailout and then, if needed for systemically important reasons, the rest of the society should maintain the systemically important institutions. Maintaining systemically important institutions means putting them into hands that can be trusted in managing systemically important institutions. That would in my opinion exclude reckless risk-takers. Temporary nationalisation would at least give a chance that someone better were to replace them.

I believe, as stated in my previous post, that markets are not always rational.

I believe, as stated in my previous post, that the reason for the reduction in cost of government debt comes partly from the availability of ECB funds, partly from an expectation that the government is addressing the deficit with a tougher budget.

I believe NAMA is more expensive than temporary nationalisation because with temporary nationalisation it is possible to sell the banks with cleansed balance sheets.

I don’t believe the Irish state can afford financing a pricefloor. The market (ARC entering the market will certainly exert downwards pressure) will force down the prices and the money spent on trying to keep the pricefloor will have been wasted and delayed economic recovery.

I do see your arguments, on merit of the arguments presented I am still convinced that temporary nationalisation is a better alternative.

no problems with the Kenny report or similar types of measures. Not against low levels of land and property prices in principal either. The problem is that we have a huge, like biblical huge, amount of our national collective equity invested in property. We need time and liquidity to work it out and re-adjust our situation and exposure to it. We need time to change our planning, bankruptcy and regulatory laws to catch up with the economic realities of the messed up aftermath of a credit fuelled property and public sector bubble. We need time to re-skill our workforce away from construction and related industries and toward high tech and other productive sectors. We need to re-train our solicitors to deal with intellectual property rather than the bricks and mortar kind. We can manage an adjustment of this magnitiude over a decade, but not over 2-3 years. If property prices fall by 80% we’ll have around half the population somehow exposed to negative equity, and likely affecting the younger rather than the older segments of society. Countries that emigrate dont succeed. They fail. Ireland’s upward path closely matched its demographic and migration trends in the 90’s. Emmigration is a short term solution to social welfare payments and little else.

You argue that property price falls of 80% are the ‘truth’ (fair enough) but the notion thats its a ‘good’ thing are simply wrong. Any good from the competitive angle would be undone from the levels of personal and national bankruptcy and the flight of foreign capital and the most mobile of our society from the state. An entire generation of collateral wealth would have been destroyed and its difficult to see how we could borrow to fund investment without it.

1. Brian Lenihan has attacked critics of Nama by saying that they are attacking the public service.
2. He just made a speech saying that public servants should take more responsibility (and get more credit. But I doubt that is how he is thinking).
3. When Nama fails he won’t be taking the blame.

My suggestion, and I am making it purely in a personal capacity, is that you should pass on any information you have to Fintan O’Toole, whom you can trust to use it responsibly.

Remember, when this fails Lenihan will blame the public servants. And it will wreck the country for a decade.

P.S. I am not Fintan O’Toole.

The financial markets are looking for us to do something for our banks. But when the costs of Nama become clear, and the indirect costs to our prosperity from overpriced housing could be as great as the direct Nama
losses, they will turn against us very quickly, and the applause that greeted Nama will seem a very long time ago. When they see we have probably added €40 Billion to our national debt they will react with horror. It will be a terrible indictment of our government.

The best thing for our country and for it’s banking sector is prosperity. That is how we will earn the approval of the financial markets. Taking all the losses from the bondholders of Anglo, Nationwide & AIB will get us kind words but nothing else.

the McWilliams premium is difficult to tell, as he simply started the story, and others made their own mind up afterwards. However, i never read any serious analysis that EMU-break up was a possibility until his pieces starting hitting the headlines. I read a GS one which emphatically ruled it out (it was a 10yr Euro anniversary book). I’d say it was a 1% probability before DMcW, and i’d say it reach a 7-8% pricing in the early Spring when the nationalisation story was at its peak. Right now its probably back to 3-4%. But the genie is out of the bottle and its going to be difficult to put back in. Lisbon has maybe helped a little, but ill note that DMcW did his best to both stay on the Yes side whilst simultaneously doing as much as possible to help out the No’s. At least most of the major contributors on this site went out of their way to look for a Yes vote and tried to keep the NAMA debate wholly seperate for the national interest, as it were.

@ Greg

1. it provides stability (financially and politically) - note recent price movements
2. it works with the markets - note recent price movements
3. it actually cleanses the bank balance sheets by taking the bad assets off them.
4. it uses the only semi-sustainable balance sheet available in Ireland, the Irish sovereign, to its fullest extent to buy for time and maintain existing adjustments to the funding situation. It can always tax and levy any losses at a future date.
5. it maintains private capital skin in the game and encourages the influx of additonal private capital.
6. via risk sharing and additonal taxes/levies, any losses in the saner realm of reality are long term manageable, where as any significant set back to the short term funding situation is quite possibly not.
7. EU and ECB acceptance and help.

@ Aidan

“Personally I hope MK is right.”

80% falls in property good and hoped for? Why not 100%? Why not make it free? Are you including mortgagees and house owners as being in the group of vested interests? If we were a renter soceity like in Germany there might be something to your claims, but we’re a hugely home-owning society (wasn’t it 65% a few yrs ago?), and as such have most of our personal wealth in property. 80% falls in our primary asset does not strike me as a good thing, regardless of it’s likelihood or not. It sounds more like an anarchist’s wishlist than a considered economic opinion.

@ jl

1. same guy. work vs home.
2. if he’s right he’s right. My moaning about him won’t change that. I’ve just asked for the underlying assumptions and a hope that he’s being responsible when he issues his opinions. If me and a couple of others questioning his forecasts are the extent of the critisismon here, than im not really sure why you’re worried. Sure we’re obviously just outlying kooks! If he calls it right the guy will be worthy of all the plaudits that go with it. But if he’s wrong by a distance, then i think it’d be fair to say that his wrong headed calls imperilled the financial stability of the nation at least somewhat. As i said above, a simple “hey, it was just an opinion” are not a get out in times of crisis.

just want to get this right, cos it is genuinely confusing given the amount of twists your version of events takes.

In January, we had a combination of Ireland-out-of-Euro chatter, the Anglo nationalisation, and potentially an emergency budget. One, two or all three of these events led to a spike in Irish govt debt yields/CDS. We either believe that opinion pieces can at least somewhat influence market participants and events in terms of creating a theme or story, that nationalisation was at that point viewed as a very bad thing by the markets, or that an emergency budget was somehow viewed as a bad thing by the markets (were we going to tax government debt??). There was also generally a ‘risk off’ attitude in the markets at the time.

I don’t actually have too much issue with this theory, as it was probably a combination effect. The problem that i have is that im continually told that markets are always rational and level headed, but yet you also want me to believe that barely six months later the markets reacted in exactly the opposite way to two of the above contentions!

Now as things stand, far from the markets being worried about nationalisations and budgets, im told that the markets will react even more positively than the recent price movements if we nationalise the banks, and that the main part of the recent improvement is in fact down to the likely budgetary adjustment, and it is not at all down to NAMA. That’s just another coincidence obviously!

Far from bond traders actually using newspaper opinion pieces to influence to at least some degree their investment attitudes, they actually just read the articles and ignore whats in them!

Far from non-guaranteed bond issues indicating that NAMA has already somewhat-worked, im told that bond buyers are either happy with an implicit g’tee now, or going with a ‘buying-first-assuming-later’ theory that a new g’tee will be brought in to cover these bonds, even though the bonds have been sold as explicitly non-g’tee and you have to explicitly ask for them to be included in the g’tee!

Do you not see where i might have a problem with believing your multi-directional storyline? Do you not see where, having demanded ’substantiation’ from me on my assertions, you actually provide no evidence for your own, other than it being an opinion of yours that actually goes against how the markets have moved? Do you know bond traders who bought Irish govt debt in hope that they’d nationalise the banks? Cos i know bond traders who did the opposite (bought irish govt debt in the hope they’d bail them out) and made a fortune.

Do you not see the glaring double standards in demanding evidence from me, while not providing any of your own? Do you not think that holding me to one standard of proof, but letting MK or DMcW away with a lower standard, is somewhat back to front? I’m not the expert here, im not the one with something to gain. Just because they got forecasts right in the past, you’re going to accept their current views without any backing? Lots of people got big parts of the financial crisis wrong but have completely missed out on the bank and credit revivial in the last 6 months. All im actually asking for is a detailed idea of what MK’s property forecasts are based on, or what the likely cost of EMU-exit would be for Ireland per DMcW. Yet im the one who is being labelled as not understanding how markets work or of not being honest in my opinion? Huh??

To be honest lads, im fed up doing the heavy lifting in backing my opinions up here. Market events have backed up my claims. Maybe its coincidence, or maybe there’s other factors also at play in tandem, but to be honest i feel its up to you to disprove, rather than disapprove, of how i see things playing out so far.