You’re too kind

This suggestion could be correct especially given some of the flawed assumptions on which the opposition to NAMA was based.

1. The access of the Irish Exchequer to funds is infinite in terms of supplying the financial system with liquidity and capital, thereby, allowing a 100% nationalisation of the financial system. The State’s access to funds is most certainly not infinite given the need to adopt a budget that stabilises the public finances.

2. 100% nationalisation has no effect on deposit levels in individual banks or the financial system. Certainly not the case given the now obvious (via reports) fall in deposits after the 100% nationalisation of Anglo Irish Bank.

3. The assumption, no matter what was said or written, that the assets would be purchased at excessive prices. Certainly not the case, as can be seen from the general resignation/fear of the banks.

4. There was no way the State would take over 50% ownership. This assumption ignored the repeated statements that if the losses caused by the purchase of the assets required additional state capital then it would be taken in ordinary equity no matter what the consequences.

We must all be cautious in basing an assessment of a policy on flawed assumptions. Unfortunately the opposition to NAMA had already boxed themselves into a position before they knew the key details of NAMA.

I see where you are coming from. I suppose the net question is are these decisions more properly explained in terms of psychology and economics rather than in terms of organisational capacity and competence. I would subscribe to the latter view.

For the record, I believe the Government erred in the past in the weight they gave to representations from business and in other ways and that the DoF is not fit for purpose. I also admit that I am subject to my own biases.

“I also think it is fair to say that the Mibnister has ably communicated the NAMA message. He has performed well in the Dail, in Committee and on TV. ……You may think that the presentation of NAMA was disingenuous compared to the budget. The first difference is that you agree with the budget. If there something akin to confirmation bias at play?”

There is merit in what you say. I agree that Lenihan has presented very ably both on bank bailout policies and on the budget. I consider this masterful presentation a good thing when the message he is conveying is truly in the public interest (my opinion on the stringent budget) and disingenuous etc. when the message is actually against the public interest (the bank bailout policies). He has to fool the public into going along with deeply flawed banking policies, and only has to illuminate them about the necessity of good budget policies. This can be a fair appraisal, or it could be viewed as my confirmation bias.

The case of Tony Blair in the UK, a true master of political persuasion, is a telling parallel. He managed very skillfully to convince the British Labour party and British public that the UK should go to war with Iraq because of Iraq’s WMD capability, which we now know did not exist to any meaningful extent. Because of Blair’s good-political-persuasion-linked-to-flawed-Iraq-policies, he will not be president of the EU and his legacy is tarnished forever.

I don’t have the same problem as you have with the examples you have picked. I won’t go through them all but I would point out the following:

1. The Government is issuing IOUs rather than issuing ordinary bonds for cash in the international markets. I know, I know that it is still debt but tthe statement is defensible as being accurate.

2. A core objective of the NAMA process is to get the banks back to a position wehre credit can flow. This does not mean that NAMA will cause that to happen but rather that it is a pre-requisite. It is fair for Brian Lenihan that the banks should feel morally and politically obliged to assist in getting credit flowing seen as they are benefitting hugely from NAMA. Note Obama hauling in the bankers in the US.

3. All the developers know that they will not get an easy ride from NAMA for political and economic reasons. Conspiracy theorists may think otherwise. There is no changing their minds on that so it is pointless to bother trying.

4. The FG plan is more complicated and drawn out than NAMAisation and recapitalisation. Also, the Govt has said it will try to adopt the good elements of FG’s plan. Anglo may yet be a good bank. However, nothing will get credit flowing freely or cheaply in the short term and FG’s repeated calls for that to happen as part of NAMA were disingenuous. It is no wonder that the Govt started playing them at their own game by saying NAMA was crucial to getting credit back (which it is, albeit as a preparatory step).

5. I believe that the opposition made political decision to ease off in their attacks on NAMA and the Govt for precisely the reasons Dempsey said. They may have disagreed with the policies but eventually they came around to Garret FitzGerald’s way of thinking. As it turns out, the international sovereign debt markets are very rattled at the moment so it is well for us and for the opposition that they acted responsibly.

6. It was legitimate to hope that NAMA would allow the banks to raise private capital as other banks did. Unfortunately market conditions have deteriorated making the job of recapitalising more expensive for the Govt. The Govt said all along that they would step in if private capital didn’t.

7. It now appears that the NAMA valuation process may well be as fair as the Minister has promised with banks revising down the amount they will be paid.

I am in awe! Well said!

If there was no element of compulsion then it was cronyism and expect secret commissions and lucrative contracts after public service a a la Tony Blair but less high profile!

“A PricewaterhouseCoopers report has found that Anglo Irish Bank has a number of very large exposures, with 15 of the bank’s customers having loans of over €500m each.”

“It said that the bank was owed almost €12bn by just 20 customers who borrowed for investment purposes and another €6.4bn by its top 20development customers.”

Systemic only for FF.

http://www.rte.ie/news/2009/0220/banks.html

Commenter Owen C makes an alarming discovery:
“Please take note of the “Yen financing” note on page 159. Cost of switching from GBP basis to JPY basis cost them gbp156mio when they finally unwound it in January. Working off the 29% fall in GBP/JPY over the Sept-Jan period, this means a likely 500mio nominal. This is the sort of strategy used by a highly risk taking investment bank or hedge fund, not a commercial bank. Insane.”

You can compare it to the British Labour party’s manifesto commitment to put the EU Constitution to a vote. They declined to hold a referendum on the almost identical Lisbon Treaty. Why? Because they would have lost it.
The Conservatives now accept the treaty. The EU are happy. The only disgruntled people are the British voters. Any of them who utterly oppose Lisbon will vote UKIP - damaging the Conservatives. The remainder are now faced with one party which refused them a referendum and another which would (probably) have given it but now won’t. So it won’t affect their choice. Labour then have doubly (at least) benefitted by not holding a referendum.

Now, the risk profile has shifted. The fiscal correction has lowered the funding risk for the banks (back in Q1 2009, the funding situation for the banks was infected by the sharp increase in the sovereign spread); and NAMA is providing a discovery process which is establishing a plausible range for the losses of the banking system. For these reasons, nationalisation is now less risky than was the case in the first half of 2009 and a ‘normalisation’ process is occurring by which nationalisation will be discussed as a regular, routine, natural outcome of the valuation process that is now underway via NAMA.

“Ireland’s credit rating from Standard & Poor’s has been downgraded for a second time in three months because of the sharply rirsing cost of supporting Irish banks.

The agency reduced its rating for the State to ‘AA’ from ‘AA+’ with a “negative” outlook.

“We believe that the fiscal costs to the government of supporting the Irish banking system will be significantly higher than what we had expected when we last lowered the rating in March 2009,” Standard & Poor’s said in a statement this morning.

It said NAMA’s ability to minimize the cost to the Government of its financial operations “will depend on the prices it pays for the assets and their future performance”.”

In other words the lower the price the better for us. As well as being the truth this is also the exact opposite of what most reporters - briefed by the NAMA lobby - have written.

“Standard & Poor’s said it views as uncertain Nama’s ability to meet its financial objectives “because of the risk that cash flows from its assets could fall below its funding costs if their underlying performance worsens compared with NAMA’s expectations at the time of purchase”.

I haven’t heard the line about this year’s cashflows covering the interest in some time. That’s not untrue as well is it?

http://www.irishtimes.com/newspaper/finance/2009/0606/1224248175567.html

“Already the beneficiaries of significant bank forbearance, many construction and development businesses fear they will be put out of business after Nama is established on a statutory footing in the autumn.

In an illustration of the threat they face, Minister for Finance Brian Lenihan last week said big borrowers for property assets who are in a position of “hopeless insolvency” will wind up in bankruptcy or liquidation when Nama sets about its work.”

You erred there Mr. Beesley. FF can’t pursue mega developers - it’s as plausible as Ant murdering Dec.

“Mr Gilmore’s sustained attacks on Nama designed to undermine the agency is playing into the hands of the many powerful vested interests who are working hard to scupper this solution to our banking crisis,” said Mr Dempsey.”

And FF’s attitude to statements made by others they consider untrue:

“Mr Dempsey added the international coverage of Ireland’s financial problems in media outlets such as the Financial Times had made extensive use of false Opposition claims which had damaged the country.”

So Dempsey considered telling untruths about NAMA almost treasonous. So if you are now admitting the government told untruths about NAMA that would mean..

Of the oppositon parties, Dempsey at the FF Ard Fheis accused them of:
http://www.irishtimes.com/newspaper/ireland/2009/0521/1224247041074.html?via=rel
“… Not delivering principled opposition.

Instead, they have delivered cheap dramatics – not caring about the consequences of what they’re saying.

Fine Gael and the Labour Party will some day regret the way they danced around a wounded economy. They will some day regret the way they happily spread a dangerous message to the world about a country they claim to love and to serve.

They have not served Ireland well in the last few weeks.

They have not served Ireland, and they should be ashamed of their opportunism.”

Surely we should hold FF to the standards they set for others?

According to journalist Aoife Carr:

“Mr Lenihan said the Government’s objective was to get the banks lending again so that the economy is ready to “take full advantage of the recovery that the world’s leading central bankers now say is in prospect.”
http://www.irishtimes.com/newspaper/breaking/2009/0518/breaking54.html

Michael Casey condemned the FG proposal because it would delay the flow of new credit NAMA would produce:
“The objective of both proposals is to get credit flowing again from the good bank or banks.

If Fine Gael were to try to implement its proposals – including the questionable removal of the state guarantee to the banks – the provision of credit would probably be delayed for another year.”
http://www.irishtimes.com/newspaper/opinion/2009/0526/1224247402350.html

Interesting comment on the NAMA timescale here and great photo of Peter Bacon with the somewhat paler Brendan McDonagh.
“Nama’s acting managing director Brendan McDonagh told the Oireachtas Finance Committee in Leinster House that the body would hire up to 40 staff and could take 15 years to complete its work.”
http://www.irishtimes.com/newspaper/breaking/2009/0526/breaking24.html

Brian Lenihan also stated that:
“the Government was using its “stake in Anglo Irish Bank, AIB and Bank of Ireland to enforce changes in their management cultures.”
How is that going?

http://www.irishtimes.com/newspaper/finance/2009/0408/1224244216694.html
“Under the new agency, a strong credit flow will be created by transferring assets from banks to the Nama to ensure the banks have a clean bill of health and strong balance sheets, and that uncertainty over bad debts is reduced.”

Mary Coughlan said that NAMA would:
“… restore confidence and get investment and credit flowing again.”
http://www.irishtimes.com/newspaper/ireland/2009/0410/1224244363033.html

Alan Ahearne said:
“One of the main issues identified in the article is the need to restore bank lending. This is a central objective of the Nama initiative.”

He also said:
“Under the Nama initiative the taxpayer is protected from unforeseen losses through the Government’s commitment to levy the banks for any losses incurred.”
The levy has now disappeared.

“It is also important to note that, contrary to some popular perceptions, Nama is not a bailout for developers.”
http://www.irishtimes.com/newspaper/opinion/2009/0425/1224245377281.html
Not many agree with him now.

Some other comments:

Pat McArdle:

“The quotation marks are used because the Government will not pay anything to the banks. Instead, it will issue them with IOUs the banks can use to get funds from the European Central Bank.”
http://www.irishtimes.com/newspaper/opinion/2009/0904/1224253820646.html

Mary Hanafin:
“First of all, we’re not borrowing to pay NAMA, em to pay the banks. What we’re doing basically is giving a bond or an IOU and we’ll be getting €77 billion worth of assets in return.”
http://www.irisheconomy.ie/index.php/2009/11/09/the-o-in-iou-stands-for-owe/

In a section of his most recent budget speech Brian Lenihan said:

“GETTING CREDIT FLOWING

In light of the massive State commitment to the banking sector, I am determined that there will be a return to the taxpayers of this country in the form of credit which supports healthy Irish businesses and jobs.”
http://www.irishtimes.com/newspaper/ireland/2009/1210/1224260421888.html

http://thestory.ie/category/spreadsheets/

I note that you did not say the bank stabilisation measures were a disaster but rather that they were wasteful. I was a bit lazy witht he paraphrasing. I have read many of critical the posts you refer to. You are right that we should leave those arguments aside. I think that it is as yet unknown how wasteful these decisions have been. I also think it is fair to say that the Minister has ably communicated the NAMA message. He has performed well in the Dail, in Committee and on TV. I put this down to the Ministers intellectual acument, his dedication to his job and his professional persuasive skills. I don’t know if it reflects the ability of the officials who are cooking up these schemes in the background.

You may think that the presentation of NAMA was disingenuous compared to the budget.
- The first difference is that you agree with the budget. If there something akin to confirmation bias at play? If you agreed with the approach being taken by the officials then would you think to question the psychological underpinnings of their decisions? Essentially, your starting point is that the officials have acted so incompetently and so illogically that it is valid to look for a pyschological cause. You can see how those who disagree with your starting point might be put off.

- The second difference is that the Minister has more control over budget formulation than he did over the NAMA debate. We were not in a position to look over the officials shoulders while they planned the budget. I have no doubt that as the budget is digested, when the Finance Act is passed and when the cuts are implemented that the message will get more confused and people will accuse the Minister and other Government Ministers and backbenchers of being disingenuous.

- Thirdly, NAMA is a massive legislative challenge. One has to deal with parliamentary draftsmen, advisory panels and so forth. One is dealing with complex issues of property rights, regulatory, competition, state aid and contractual rights between private parties rather than simply between the state and its employees/taxpayers. Ror this reason there is a much greater team of people from outside the DoF involved. It also takes more creativity and lateral thinking. Personally I have been very critical of the DoF’s inability to come up with draft legiclation on bank wind up schemes and bankruptcy reform. I think they are way out of their depth. It is a matter of competence and capacity. It is not a matter of psychology imho.

Lastly, I suggest that we should not be so naive as to how politicians present things. The idea is to keep political momentum and stability and to implement your solutions in the emergency. I recommend reading Cicero as an education as to the theatre and disingenuous nature of political debate. A Minister or a politician would come a cropper if he sought to communicate to the public in the same way that a lecturer might communicate with his students. The successful politician’s art is rhetoric. Whatever one thinks about the incompleteness or innacuracy of the Govt rhetoric over the last while it is fair to say that most TD’s have been on message and defensible (apart from a few beauts during the NAMA debate, Frank Fahey’s theories and Willie’s questionable analysis). It is important for commentators to pull the Govt up on any inaccuracies or false impressions and that is why I admire and appreciate the effort Karl Whelan and others have put in. However, to expect politicians to communicate in the same way as a journalist, analyst or academic expert would communicate is to misunderstand the nature of politics.

The first is that it is possible that young Mr Lenihan learned something between the time of the bank guarantee (or perhaps that of NAMA) and that of the budget: DoF(T1) may not have been the same as DoF(T2).

The second is that, at the time, the bank guarantee may have seemed like the choice of a rational economic actor: after all, words cost nothing, whereas other options might have involved real expenditure.

bjg

Recent evidence would strongly suggest that any one point in time it is indeed a strong probability that 90 to 98 percent of the economists in the top 50 university departments in the world could be wrong. And this is recognised by a heck of lot more than 2 percent of the general population at the moment. Where’s your humility man? (-; This is open territory.

Am I to take it that 90% or 98% of the people you describe would consider the Irish Budget ‘excellent’ economically????

Sorry I meant to reply to you in the last submission above, but missed it. I think that your remark brings up an interesting empirical question (probably difficult to resolve). What is the cumulative (say 20 year) contribution of the “typical” large developer to FF, both directly and indirectly through service contributions to FF associates etc. Whatever it amounts to, it was a great investment! I do not have a handle on that amount and so will not pretend that I can estimate it.

1. I did not state that the government bank bailout policies will be ex-post disasters. That is not predictable. I stated that they are ex-ante poorly formulated, disingenuously presented, and extremely risky. See articles and blogposts by Whelan, Lucey, Ronan Lyons (other blog) and others — I will not repeat the many telling critiques of Irish bank bailout policies here.

2. I believe that the budget compares very favourably to the typical budget outcome of other parliamentary democracies in similar dire circumstances. Also, it was very ably presented from a political perspective: the leaking of its stringency helped to soften the blows, the government worked in good faith with the public employee unions but did not capitulate to them, the government coalition was held together without selling-out unduly to the Greens or FF rebels.

@ David O’Donnel
I said that Fintan O’Toole was “eloquent, thoughtful and nuanced” – that is a long way from calling his argument “poor” as you wrongly paraphrase me. I have enormous respect for him but bringing that model into this separate discussion just clogs up the airwaves.

@ Vincent Byrne
I was thinking of “mainstream economics” as the shared toolbox and perspective of 90% of the economists at the top 50 university economics department in the world. Or better (keep in mind that I am a financial economists) the shared toolbox and perspective of 98% of the economists in the top 50 university finance departments.

I actually do not know what TINA stands for, sorry, my ignorance.