I just heard Michael Kennedy TD explain how the ECB is loaning us funds on foot of IOUs on the radio, all approved by the ECB, EU Commission, IMF, OECD, Alan Dukes and Garrett Fitzgerald. Perhaps we need an article about what NAMA isn’t before we can et people to understand what it is. It’ll be like the Lisbon myth-busting all over again! Sen. Eugene Regan was worse again with his childlike wonder at the EU approval process and state aid restrictions with no view what form an EU Commission adjustment to NAMA would take or whether this would affect the legislation.

This acceptable level of ignorance and half-knowledge is a endogenous to a modern technological society imho. (Gold star for Zhou for use of “endogenous”.) That is one of the reasons why it is a practical necessity for us to be in the EU for access to its resources.

There is no joined up thinking in the government. Last year’s October budget and this year’s April budget were spectacular missed opportunities. They should have done all three last October and the hole would have been much smaller now.

I’m not against public sector pay being cut as well as having tax increases.

BL has already said he’s going to cut welfare payments so that’s a given.

Sounds like a quicker way to get to a solution to me if we did something in all three areas. Share the pain man, share the pain…… and abolish all tax reliefs too! Every single one of them.

“All this BS about the better off being already taxed to the hilt and that Lenihan can only cut benefits and public sector pay instead of raising taxes is just that - BS. Ireland must be one of the lowest tax regimes in Europe?”

It is Joseph. Unfortunately its also probably the most progressive. Chec out Karls recent post on this matter. 50% of all workers pay ultra-low or no tax. If we are to raise taxes, it will have to include these people taking a large percentage of the adustment to tax rates. If you are going to suggest this, than at least be honest that you are asking lower middle class earners to take a very large relative increase in their tax burden in order to keep public sector pay and welfare benefits at their hugely elevated levels.

Mr Angry: This is the same guy that was having a pop at the union leaders (Begg et al) who were walking at the front of the march last Friday. He was ‘led away’ then too. A colourful character. He would make a far more entertaining interviewer than Pat Kenny. A few elocution lessons and teach him to be a little more articulate/succinct and who knows - the boy could have a future.

Watching this programme, I observed Ms/Miss/Mrs Hanafin talking about welfare cuts - she seemed to only want to talk about child benefit (which sounds like bad news for the other benefit payments…. when a minister deliberately avoids talking about them). I’m not overly familiar (in the nicest possible way) with this lady but she clearly isn’t the sharpest tool in the box. Is this a fairly typical standard for FF ministers these days?

Point 1) I’m amazed that someone (Pat Kenny) who is paid in excess of €600k a year can’t summon up more incisive questions than he did (does he always give people such an easy ride on this so-called ‘hard hitting’ current affairs show? It’s the first time I’ve watched it and I thought he was pathetic. Like a mediocre chat show host - which he is - trying to play Jeremy Paxman/hard ball journalist….. and failing badly.). I had to laugh when I saw the words ‘talent’ and ‘Pat Kenny’ in the same sentence somewhere that same evening.

Point 2) We are 3 weeks away from what is probably the most important budget in the history of our State and we have a government minister on the TV telling us that “no decisions have been made yet” (and that was repeated by Brian Cowen yesterday).

Now correct me if I’m wrong but if it were true that no decisions have been made yet then the best case scenario is that they are imcompetent (they should be fine-tuning things 3 weeks away from the budget, not still deciding what they are going to do).

If it is not true and they have decided what they are doing then she misled us?

It beggars belief that any government can be 3 weeks away from a budget like this and tell us “they don’t know what they’re doing yet”.

All this BS about the better off being already taxed to the hilt and that Lenihan can only cut benefits and public sector pay instead of raising taxes is just that - BS. Ireland must be one of the lowest tax regimes in Europe?

I wouldn’t be surprised to see unemployment benefit cut in this budget then the minimum wage to be brought down next year (then unemployment benefit to be cut again next year - accompanied by enforced wage cuts in the public and private sectors). They will probably dress it up a bit by maybe giving less in child benefit to higher rate taxpayers and tell us they are ‘hitting’ them too. I believe the current phrase is ’sharing the pain’.

The joke is that I know some people who claim more in private pension contributions tax relief than others get in unemployment benefit (and they’re usually the first people in the queue wanting the unemployed scalped).

When I put what Hanafin had to say through the BS filter, I also thought she was saying that younger/single people (the most mobile people) would be hit hardest in this budget. This will no doubt be done under the guise of ‘protectiong the most vulnerable families’.

I suspect the reality is that the government want younger single people to leave the country. They are less easy to put the fear of God into and make pliable and if they can get lots of out of work youngsters to leave (and masses of students to go after their studies instead of signing on) it will make the unemployment figures look better.

The amount of spin that is going on by the government at the moment is the greatest I have ever seen in Ireland and that alone has to start ringing some alarm bells. Does anyone have access to the figures around how much they have spent on PR this year v previous years? Though I guess these days that PR is so deeply embedded in government that perhaps the use of outside PR consultants isn’t that great.

The irony for Pat Kenny surely is that privatising RTE must have crossed the government’s mind as it would raise a few bob. He would find himself out of a job pretty quickly, replaced by a younger, cheaper ‘talent’. Mr Angry - your country needs you.

I had thought NAMA can only pay for assets with bonds and the capitalisation of the master SPV is limited to €100million.

It would certainly ease the pressure on the sovereign debt if, for instance, the NTMA paid cash for €5bn worth of NAMA assets as this money could be wiped out without adding to our sovereign debt and would allow the Govt to be more aggressive with NAMA.

It would seem a deficiency in the NAMA legislation that a body cannot buy in to the risky end of the NAMA assets with a view to making a profit on the upside. One can say that one is against socialising profits but the cost of this profit opportunity to the taxpayer is high in terms of risk and in terms of its implication for our sovereign credit rating.

Things have moved on in the last month. The opportunity to bring in private investment to recapitalise banks has waned significantly and the international recovery is looking more fragile.

I would also like to say that I do not see why we are limiting the “subordinated” NAMA bonds to 5% in the legislation. This seems to be a mechanism of handcuffing NAMA and subsequent Govts into this deal with the banks. The suggestion must be that the banks would not sign up if it were any greater. I think that is a false argument. The suggestion that the markets require it is also false as the markets do not trust the banks one way or the other and in any event the Minister could state 5% as being the intention subject to the assets portfolio not carrying undue risk. Tying one’s hands in legislation in this way is a peculiar act imho.

The question from the audience (like many others in similar fora over recent months) in effect asks why can’t we obviate the need for 4 bn in budget cuts by paying the banks 4 bn less than the planned 54 bn? I’d view the Minister’s response - given especially her position in charge of the department where cuts are likely to generate the most heat - as a (clumsy) attempt to hold the line and explain that this approach does not offer a way out rather than a firing offence.

A transparent official description of the implications of servicing NAMA obligations for the time profile of above-the-line government expenditure would help explain why a cheaper (or no) NAMA wouldn’t imply that there’s no need for steps to correct the existing budget deficit. But such a description of course might scare the horses in other ways …

@Michael Hennigan
The Dublin Port story is a graphic illustration of the dangers of legal errors.
The SPV as sketched is a cartoon bomb with lit fuse at the heart of the NAMA project. The port lost two thirds of the site value due to their bungle.
51% of the €42 Bn of assets would be €21 Bn. No, that couldn’t happen, could it? Why that would be like a giant hidden subsidy for the banks.
Zero chance of that occurring.

“Beyond its immediate impact, the financial crisis and the severe economic downturn may also affect public finances with a delay. This further pressure derives from three major risks. First, considerable risks associated with the bank rescue operations still affect both the asset and the liability sides of the government balance sheet. On the one hand, loans may not be (fully) repaid or acquired bank assets may have to be sold at a loss in the future and, on the other hand, state guarantees provided to the financial sector are contingent liabilities that may ultimately be called. Second, the true fiscal costs of the financial rescue packages are still subject to considerable uncertainty. In particular, on 15 July Eurostat published a decision which implies that certain public interventions to support financial institutions and markets during the financial crisis will not – at least in the first instance – be statistically recorded in general government accounts. However, irrespective of their inclusion in the general government accounts and the timing thereof, the risks for public finances related to these operations need to be closely monitored in a transparent manner. For this reason, Eurostat also announced its intention to publish, as from October 2009, supplementary tables related to the activities undertaken to support financial institutions (e.g. government guarantees, special purpose vehicles and temporary liquidity schemes). Third, the current sharp contraction in economic activity may be followed by a prolonged period of subdued economic growth, which would result in a lower structural level of tax receipts. To avoid a further rise in deficits, governments therefore need to adjust their expenditures appropriately to the new macroeconomic conditions and, in particular, reverse the sharp rises in government expenditure ratios as soon as possible.”

http://www.ecb.europa.eu/pub/pdf/mobu/mb200909en.pdf

[quote="Fitch"]
The breadth and depth of the country’s banking sector problems have substantially increased sovereign risk. NAMA is set to inject EUR54bn of fiscal resources - a third of GDP - into the banks in exchange for property and development loans after applying a 30% haircut to the book value of the loans. The banks will in turn recognise about EUR23bn of losses and are likely to require additional state capital.

Government debt ratios are rising very rapidly due to large fiscal deficits, the fall in GDP and additional liabilities associated with banking sector support measures.

Gross government debt including NAMA liabilities will rise to over 110% of GDP by the end of 2010 (77% excluding NAMA). As recently as the end of 2007, gross government debt was just 25% of GDP. The rise in debt is likely to push the ratio of debt interest payments to revenue above 15%, one of the highest among Fitch-rated sovereigns in the ‘AA’ range, reducing fiscal flexibility.
[/quote]

The story of the site is even more bizarre.

Irish Glass Bottle, later named Ardagh and later South Wharf, never owned the site.

It was owned by Dublin Port and was leased to the bottle company.

The company was apparently alerted to a tax loophole when Minister for Enterprise, Trade and Employment, Míchéal Martin, rushed through an amendment of the Landlord and Tenant (Ground Rents) Act, in 2005, to protect properties owned by IDA Ireland, Shannon Development and Udarás na Gaeltachta, which were leased to client companies. Other State owned properties, subject to leases, were not protected by the amendment.

In the same year, SW had lost a case in the High Court against the Port, on the latter’s objection to a change of use from manufacturing/warehousing.

South Wharf had claimed it was entitled to purchase the fee simple for 5% of the commercial value.

The Port got 33.6% from the 2006 sale proceeds as a compromise and the DDDA used most of the proceeds to buy a stake in the purchasing company vehicle.

@ Graham Stull

It is astounding how years can pass by and the media and politicians can engage in shadow boxing on issues and blatant falsehoods become accepted as fact.

I was back in Dublin last week and I went to the press conference on the OECD survey, planning to ask 2 questions.

It began 30 minutes late and press officer said only 2 questions could be asked.

In fairness to Brian Lenihan, he did extend the number of questions.

I wasn’t able to ask my second question which was on benchmarking, for the minister.

I don’t recall ever seeing or hearing a minister being forensically interviewed on the issue.

The comparing the cost of NAMA to the deficit red herring started to appear on internet forums some weeks ago. I was impressed when I heard Thomas Byrne TD make the same comparison to Peter Mathews.
The NAMA spin machine is quick to dissemble plausible sounding nonsense across the organisation.
But when the same already refuted guff (Frank Fahey and Willy O’Dea had peddled this line and been blown out of the water on here some weeks ago) is spouted again by Mary Hanafin I am less impressed.
Truth is obviously not something that is funneled upwards.

NAMA will not lose €20 Bn over its life. It will lose €11.65 Bn immediately best case and then add another €8.35 Bn over its life per Peter Mathews.
With this sort of profligacy it is the Elton John of bank bailouts.

With tens of billions on the line it would be well worth writing another letter.

in their recent downgrade of the Irish soveriegn rating, Fitch talked about Irish government liabilities in totality, and the rapidly deteriorating fiscal situation. If we take a starting point of 1/1/09, NAMA adds a maximum of 54bn over 10 years to this, the budget deficit will do the same by the middle of 2011.

A. Joe is an average citizen earning 50K p.a. Joe borrows €200K to buy a house. Okay he may be in negative equity.

B. Joe instead of buying the house goes on a €200K spending spree.

The minister’s point is totally valid despite her getting the numbers wrong.

Even if Peter the Independent is right, NAMA will “lose” €20Bn over 10 years. We are currently “losing” €25bn a year in budget deficits (okay I’ll let the smart asses deduct capital expenditure from that).

actually, having re-read that, it seems like a sh1tload of issues would arise if that was supposed to be the process.

that is what seems to be emerging as the picture, though i till think the whole process is bizarrely vaue and unclarified on a number of levels.

I was at a presentation by the NTMA a few montsh back and they mentioned that the process may involve an “asset swap”, so would that mean that the T-bills get re-issued/rolledover on maturity or you get X-bn in NAMA loan assets back in return?

Perhaps we should clarfy what the state is doing!

As I understand it (open to correction) the State will issue 95% ordinary 6 month Treasury Bills to the banks together with 5% in high interest bearing contingent NAMA bonds as consideration for the assets.

The Govt is relying on the Banks to hold the bonds and to accept new bonds after each 6 month period rather than selling them for cash.

[It is not clear what mechanism is being used to this end. It is also not clear whether the banks will have the mother of all guns to the State's head at this stage. It is also not clear how foreign banks will be expected to behave.]

If the banks, or any person who has acquired the bonds from the banks, present the treasury bills to the State, after the 6 month term expires then the State is obliged to give that person cash if that person is not willing to accept new bills by way of repayment.

Have I got that right?

1. Paying any LTEV is a high-risk gamble.
2. This is especially true because the risk-sharing is bogus.
3. The assets should be valued at current market price no matter how “low”.
4. Stating once again that there are MANY better alternatives.
5. Proposing a conference of academic economists - because they are independent - to decide by majority vote the best alternative & to report within weeks.

With tens of billions on the line it would be well worth doing.

and im not talking about how the market perceives the debt, just how it may react to its presence and how there is a relevant technical nuance between the usual issuance and the NAMA-related issuance. But its still debt, and its still gotta be repaid at some stage down the line.

Besides, I believe Zhou is talking about them in terms of what the market perceives as the state’s debt level, not about the actual selling impact.

they dont count for SaG pact, but they are also (we are to assume) ‘off market’ in that, outside of the ECB repo ops, they shouldn’t have any affect on the liquidity of general govt debt outstanding (except for possibly the Irish banks’ demand for new issues).

I’m not trying to change the nature of them being the same as normal debt, but only noting the technical difference between this asset swap transaction versus simply selling 54bn in T-bills into the market and buying the bad loans with cash. I suppose it could be argued that there is a nuance between how people interpret “borrowing” as a ‘cash’ transaction and this not being so.

At least Mary Hanafin wasn’t asked to explain the “subordinated” NAMA bonds and how the extortionate coupon thereon is a reward for the banks taking a risk on NAMA but isn’t a form of profit sharing. We’d really have to reach for the Disprin then.

i suppose the only small difference would be that these ‘IOUs’ are not being monetized (at least directly), and so its more of an asset swap situation rather than a sale of debt. However it still ends up being new debt at the end of the day, albeit in exchange for assets of a disputed or uncertain value.

TBH - I think that most cabinet Ministers are up to their neck with trying to find cuts in their own departments. I expect that they are leaving the heavy intellectual lifting vis-a-vis NAMA to Lenihan, Gormley and the opposition.

If I swap an IOU for 100 euro for 80 euro worth of sprouts, how much debt do I owe? The government would have us believe I don’t owe anything, because they are wizard cooks and will turn the 80 euro of sprouts into 110 euro of sprout falafel… and you know what the long-term demand for sprout falafel is…