IT Article: NAMA Will Not Get Banks Lending

Here‘s an opinion piece I wrote for the today’s Irish Times. I’d add three points. First, I’d note that back in February, prior to Peter Bacon delivering his report recommending a National Asset Management Agency, I wrote the following about the idea of a bad bank or NAMA as it became known:

In addition to being unfair, it is questionable whether the bad bank proposal could achieve its goal of properly re-capitalising private sector banks. There may be limits on the price the Government can pay for impaired property loans under EU state aid rules. Banks may still have to write down their assets. It is easy to imagine a scenario where banks struggled with weak capital bases even after a bad bank scheme has been put in place.

I am in no way happy to report that it looks like this scenario is exactly what appears to be coming to pass. Indeed, I wrote the article—my first ever for a newspaper—because I hoped that some solid arguments expressed in public may prevent it from happening.

Second. I’ll freely admit that the article comes across as somewhat angry in relation to the government’s misrepesentation of the role, if any, of the ECB in NAMA. What I find amazing looking back on the period during the Summer and early Autumn when NAMA was being heavily debated in the media is the fact that Irish business journalists happily accepted the “free money from ECB” line and peddled it regularly in their columns and in the broadcast media. The Irish public would have been better served if it had even a few journalists willing to research this issue a little bit further, perhaps via a few Google searches.

Third, it seems that there is little appetite out there among journalists for admitting the true state of the Irish banks or for preparing the Irish public for what may be necessary to stablise the situation in the coming months. This may be related to the second point above.

65 replies on “IT Article: NAMA Will Not Get Banks Lending”

The mainstream media, MSM, depend upon advertizing much of which is tied to consumerism and credit availability. You know this so you are not surprized, but disappointed. It is even worse in USA but they have a more established blogging set up ranging from crazy right to crazy left! At least folks are more exposed to contrarian views.
Then there are the agents of influence. They are set up precisely to counter sanity and are embedded in the msm. These shills are paid to peddle and keep fools borrowing and spending. Their jobs and some of the msm themselves will shrivel before the Spring comes.
I understand the intelledctual suspicion and distaste for Kondratieff, but being correct trumps false thinking! History trumps theory. People are condemned to relive history until they have had enough.

Had enough anyone?

No unkind comments about the minister’s health please. I hope he has a speedy recovery and is fit and well for Christmas with his family. We should all leave it at that. In fact I will try to avoid referring to him personally.

@Karl Whelan
You showed long ago that there was no deal whatsoever with the ECB.

I have to say that like the media I thought that €54Bn would give us a lot of extra lending. It was only when the heads of the two main banks appeared at the committee that the truth became clear. The fact that even €54Bn isn’t enough indicates the scale of the mismanagement that occurred. The Governor of our Central Bank mused aloud about the need for an enquiry the other day. If this had happened in Britain it would have been the lead story for the last few days in all outlets. It did receive coverage. I fear though a replication of the pattern in the NAMA debate where negative stories were dutifully covered for one day but then completely disappeared.

On business journalists the old nursery rhyme applies: when they’ve been good they’ve been very, very good and when they’ve been bad they’ve been horrid. All journalists though, and the population at large, are the victims of the outrageous spinning you referred to in your article. Being completely duped is supposed to make American journalists absolutely furious. Let’s see how ours react now.

Your third point is about what we will now have to do. Matt Cooper said on Vincent Browne’s show that NAMA is now dead on arrival. Colm McCarthy has written of the unfairness of allowing bondholders to avoid covering the costs of the risks they undertook. As revelation after revelation of the dishonesty of the government’s case for NAMA emerges we can now see that NAMA (as is) is the Tiger Woods of bank bailouts. It’s high time the media reached for its golf clubs.

It is even worse in USA but they have a more established blogging set up ranging from crazy right to crazy left!

No disagreement with you on the Crazy Right, but their supposed “Crazy Left” is somewhat to the right of FF – which is an important point, as I hope that you’ll agree.

The Governor of our Central Bank mused aloud about the need for an enquiry the other day.

Indeed he did, and compared it to the US’s 9/11 Commission.

Labour should be wary of agreeing to this, as the 9/11 Commission was a whitewash where Republican promises to investigate the potentially embarrassing parts (for Dubya and the GOP) in a planned second phase were soon broken…


You write well but, in my opinion, make two important errors:

1. you hold out the restoration of bank lending as the yardstick by which the NAMA policy should be measured. Yet with 2010 starting points of massive private sector leverage and massive real interest rates, large deleveraging would be highly likely even we had a fully-functioning banking system.

2. you compare the prospective situation with an idealised one rather than with what would result were no action taken. That’s a luxury an academic can afford but it’s not the situation as faced by government.

NAMA is one step in saving the banking system from TOTAL COLLAPSE. The other steps are:

a. fix the regulatory system
b. change key personnel at banks
c. get banks to raise fresh capital

Judging by the weak market capitalisation of AIB and BoI (< free capital being gifted them by NAMA loan pricing) it is still not clear that these efforts will succeed.

On a wider point, the implication of much commentary on this website is that the problems now facing us are largely home-made. But why the failure to apply a Taylor-Rule approach to EMU interest rates and why the failure to examine the similar situations now facing fellow-EMU members Greece and Spain? Do you not comprehend these matters or would you rather be like the characters depicted by Patrick Kavanagh in his poem Epic?

I have lived in important places, times
When great events were decided : who owned
That half a rood of rock, a no-man’s land
Surrounded by our pitchfork-armed claims.

I heard the Duffys shouting “Damn your soul”
And old McCabe stripped to the waist, seen
Step the plot defying blue cast-steel –
“Here is the march along these iron stones.”

That was the year of the Munich bother. Which
Was most important ? I inclined
To lose my faith in Ballyrush and Gortin
Till Homer’s ghost came whispering to my mind.
He said : I made the Iliad from such
A local row. Gods make their own importance.

In relation to your article on AIB and BOI indicating that they won’t necessarily use the NAMA bonds for repo with the ECB. They don’t need to be repo-ed with the ECB to achieve the desired effect.

Replacing problem development and related loans with Government/NAMA bonds significantly improves the quality of the asset side of the bank balance sheets. Once recapped post NAMA, the knowledge that the banks have a large pool of high quality liquid assets (which can be repo-ed with the ECB if necessary) will make providers of funding more willing to provide it to the Irish banks and at a better cost than the very elevated levels currently. This should make the banks more willing to lend and at better interest rates than would be the case if funding costs remain where they are currently.

Also, for Ireland not to be seen as the most reliant on the ECB for funding at a time when markets are concerned about the ECB gradually withdrawing support measures is not a bad thing.

Yes, but with all the socialism now in vogue, it will not take too many psyops to extend that direction a little! It seems inevitable that there will be a reaction against leaving the poor to starve in tent cities in ice storms?

My point was actually that Ireland lacks the rigour of criticism furnished over there. This is again shill work to some degree, with circuses galore to distract, but their serious debates are also very good, in particular the economic side with many who foresaw what is now happening and the next few likely steps too. There also seems to be a genuine movement there opposed to further government distortion, disguising corporate cronyism. They have revealed some shocking examples of corruption.

We need more blogs like this one, a cooperative effort, with high quality content, aimed at the real issues the msm deliberately misconstrue, for Ireland. There is no real accountability given the social partnership aspects of Ireland Inc.

Cormac Lucey

NAMA will only create a greater calamity than, dare I whisper it, a bank syastem collapse. We have actually witnessed that very thing Cormac. It is now a system in name only. The methods chosen to bury the system have taken far too many months and too many tens of billions of Euro!

Karl can defend himself, but I did not take it to mean that he was saying Nama is a fail because it will not get lending going again. I think Karl has already said that it would not do that!

He should study harder and fill these pages with other stuff but maybe he feels that he does not need to? Maybe you could?

Good poetry though, it can be a consolation when the centre cannot hold! Got any more? We will need it!

@ Pat

There one was a lad called Lucey
who thought he knew the truth, see!
He read the IT and was feeling
That it hadnt dawned on Karl Whelan
“it is the banks and the lending
that you dont seem to be comprehending”
He thought he was thick
that he being an academic!

Back to bed!

@ KW
Clearly the NAMA biz plan has now been torn up because the assumptions underlying it have proved to lack credibility. The haircut will be bigger & NAMA Biz plan 2.0 may put AIB/BOI brink of insolvency due to the transfer price of the property portfolio. If the state then injects equity capital and/ or mandates a sale of non core assets to resore capital levels to credible levels will that “get lending going again” presumably at 2007 prices?

Is it your contention that even if the banking system was recapitalised to international standards, lending would not resume due to the poweful deflationary forces at work in the economy? In effect there will be no net demand for credit until the private sector delevers

Implicit in much of all this is the assumption that there has been a well thought out plan. The debate on these pages takes this as given then tries to analyse the merits, or otherwise, of the plan. Occassionally we even question the motives of the authors of the plan. But we never pause to consider the base assumption. As Vincent Brown said to Lenihan, on several occasions during a very memorable interview: ‘you don’t know what you are doing, do you?’
You wouldn’t send plumbers in to fix a Chernobyl style disaster, so why do we assume that the incumbents are qualified to fix this mess?

What was wilfully ignored at the time and all through the debate were the following:
– the 54 bn is not new money, it is a replacement for 77 bn of existing ‘money’ on the bank balance sheets. My simple maths puts that as a loss of 23 bn to start with.
– the big two banks (through their media mouthpieces and the semi-independent brokerage firms) put it about that they would be taking a sub-20% haircut. It now appears that the haircut will be closed to 40%. For all the talk of the EU and the ECB on the liquidity side, it is on the regulation side of valuing the loans that they were likely to have most influence. The hole in the waterline is now 35 bn wide…
– the historical experience is that bad banks lose money. Even the best of them lose quite a lot!
– the historical experience is also that lending doesn’t resume until the banks raise significant capital and write their remaining loans down to a recoverable level.

In short, there has been a wilful misrepresentation of a home-grown insolvency crisis as a result of greed, stupidity, bad management, absent regulation as a short-term liquidity crisis mostly caused by external factors (Lederman’s…).

The consistent spin has damaged the response to the crisis and resulted in a very delayed attempt to tackle the fiscal crisis; a delay that threatened the solvency of the state.

One can only hope that some business writers will now accept their losses on their bank shares and property portfolios and move on…


Excellent article, though I expect your presience generates little pleasure.

The noises emerging from Europe suggest that the ECB and the Commission are distancing themselves from the continuing banking crises in Spain, Greece and Ireland. Ireland went on a solo run with the blanket bank guarantee and it required some careful and delicate choreography from the DoF, ECB and the Commission to rope Ireland back into the ECB’s financial system support mechanisms – and the ECB and the Commission had to turn a deaf ear to the nonsense being spouted by Government politicians and much of the media. Using these support mechanisms, the bigger (core) Eurozone members have taken some steps to stabilise their banking systems. They may not be out of the woods yet, but they’re getting there.

In contrast, Ireland has pushed the problem into the longer grass of next year. But there’s no winter growth to conceal it as time passes. It is now looming large and Ireland is increasingly on its own as the Eurozone is moving to unwind the various support mechanisms – and to address the anti-competitive implications of the “band-aids” applied under pressure.

The Minister may have received international plaudits for his resolution in cutting the current budget deficit, but that does not mean that external lenders will be prepared willy-nilly to finance a major bank recap. As I have mentioned previously it will become increasingly untenable for the Government to remain sitting on up to €15 billion of equity (that, in most cases, generates inadequate returns) in the semi-states while seeking to persuade external lender to, at least, part-finance a major bank recap.

The media, in its usual inimitable fashion, is attempting to whip up public indignation by focusing on the perceived inequity of semi-state workers evading the pay-cutting provisions of this budget (and the previous one). The Government, wisely, has backed away from this futile confrontation, but it will find it increasingly difficult to square its continued majority ownership of these businesses (yielding little directly) with a demand to finance a major bank recap.

Do you see this as a possible future pressure point?

@ Paul Hunt

“The noises emerging from Europe suggest that the ECB and the Commission are distancing themselves from the continuing banking crises in Spain, Greece and Ireland”


Austria, hic, and Switzerland, and Sweden, and…. ….. Germany, hic.

Not to be flippant, but Austria just nationalized Hypo something or another. It’s other banks exposure to east european currency movements is enormous, and has been estimated at 70% of GDP.

Germany has according to its “wise men” a 400 billion € hole in its banks, and that might well be conservative, since there’re other leaked estimates of losses in the order of ours. Deutsche Bank is the most leveraged bank bar none – big seller of derivatives (well not sure about the Chinese there).

Lets see, Sweden and the Baltics.

Switzerland and East Europe. Currency probs there again.

And if all those knowns weren’t enough, what about when they really do start popping. Just who they’ll bounce off is anyone’s guess.

All this talk about being bailed out from Europe is nonsense. If we want to live in a capitalist society then we’ve got to go with the rules. Bondholders need to get hit pre-nationalisation. The losses need to get wiped. Now that’s deleveraging!

@ Karl,

a couple of well made points above in your blog post. I am encouraged by your reference to the ‘timeline’ in how this whole debacle unfolded. It is very useful sometimes to put a timeline on events to understand the various factors that played out against one another.

I do hope that Ireland takes it upon itself to construct a story, which spans perhaps an even greater time length and perhaps from several points of view. That would be interesting to say the least. Thanks again for offering some indication of how you saw things develop as 2009 un-folded. It is very interesting to read that.

I hope to sit down and read the IT article this evening.

You asked me “Is it your contention that even if the banking system was recapitalised to international standards, lending would not resume due to the powerful deflationary forces at work in the economy? In effect there will be no net demand for credit until the private sector delevers”.

That is precisely my contention.

It is already happening in the USA where their bank rescue is so well-advanced that some rescued banks are already repaying their emergency funding back to the Feds but aggregate credit is reducing i.e. delveraging is taking place. Yet, leaving aside the state of our banking system, we face a much more challenging situation than the US in that our (ECB) interest rate is much higher in real terms and thus the economic incentive to borrrow is much lower.

Nobody has yet asserted that credit card companies are restricting the amounts people can borrow on their credit cards. But, looking at the aggregate data published by the Central Bank, it is clear that people are reducing their credit card borrowing anyway. That should hardly be a surprise given Ireland’s position in 2009:
a. the highest private sector credit burden as a % of GNP in the developed world and
b. real central bank interest rates of +4% or +7% – depending on your choice of inflation rate – right in the middle of a depression.

If we are worried about the effects of fully nationalising the banks, why not simply give the equity away to Irish citizens.

surely that is a better solution than leaving the existing shareholders in place. Existing shareholders are

a) Often not Irish citizens

b) Better Off

c) Must take responsibility for and bear their share of the cost of the poor decisions of the banks

Why is this group been bailed out? To avoid nationailisation! In that case just give the shares away to more deserving citizens and thereby avoid public ownership above undesirable levels.


So therefore any policy choice which is designed to “get credit flowing” is doomed to failure. The policy goal should be to produce a system that has i) private sector banks with ii) sufficient capital to attract funding and at least maintain the balance sheet iii) at least cost to the taxpayer. Nationalisation fails on i) NAMA Biz Plan fails on iii) & probably ii).

Your comments on the media and journalists are unbalanced. The media has not been perfect, for sure. Some journalists don’t understand the complexities and we have all struggled with deciding what the best route forward should be for the banks. We battle against the ” spin ” you refer to every day — sometimes we get past it and sometimes maybe not. But to suggest that the media has not questioned Nama or pointed out that more will need to be done by way of recapitalisation etc is ludicrous.

Off the top of my head — and in the last few weeks alone — the Sunday Business Post has had a few pieces by David McWilliams pointing out that the banks are heading for something akin to nationalisation, at least two pieces last weekend post Budget which dealt in detail with the recap issue plus analysis by Colm McCarthy, which featured on this learned forum. Plus a detailed feature on the same topic which I wrote the week before, pointing out the huge financial issues involved for the country. I could give you dozens of references from earlier papers.

And this is not just blowing the trumpet of the paper I work for .. similar pieces have appeared across the media, notably in the Irish Times, Irish Independent, Sunday Times and Sunday Tribune, not to mention RTE.
No problem if you want to criticise or give out about some of the stuff that is written.
But maybe if you actually read what was written( or undertook a few google searches yourself) you might get a more balanced view.

I note that Brian Lenihan mentioned “nationalisation” recently (when asked about the money that would have to be put into the banks not being referenced in the budget). I wonder is he using the “N” word with the intention of getting the market mentally prepared for what is to come.

If there is nationalisation Brian Lenihan will of course say that it is consistent with his approach all along. He previously said nationalisation was a last resort but that it could happen if the loans were in worse condition than the banks had indicated.

NAMA is designed so that it can work with or without nationalisation. NAMA and nationalisation are two sides of the one coin as the IMF told us some time ago. Indeed, there would have to be a NAMA process even if one nationalised from the get-go. It seems that the shareholders will be getting less premium for their assets than we had feared.

@Karl Whelan

As a matter of interest, would the Minister be right in saying there is no alternative to nationalisation in the context fo the guarantee?? Could it possibly be better to guillotine through legislation to deal with bank wind ups, and then pay up on the guarantee or default.

@Jon Ihle
Well done on the good reporting.

@Cliff T
The points you make are fair and reference a series of good commentary pieces. What many of us, including karl (I think) object to, is the lazy questioning by journalists of politicians who have made serial ludicrous claims about how NAMA is to be paid for and what it will achieve. RTE is the biggest, but not the only, culprit here. Politicians are allowed to make statements that are just factually incorrect and they get away with it without challenge.

“It is even worse in USA but they have a more established blogging set up ranging from crazy right to crazy left!

No disagreement with you on the Crazy Right, but their supposed “Crazy Left” is somewhat to the right of FF – which is an important point, as I hope that you’ll agree”

I think that is very unfair to the small minority that comprise the US Centre-Left.
Take a look at this website.
Regular contributions are made from Chomsky, Stiglitz, Ralph Nader to name a few.

Their concept of non advertised, less dependent media is a foundation onto which editorial integrity is actually possible.
@ Cormac Lucey
Karl is well able to stand up for himself but you are clearly twisting what he has said.He is not trying to argue that their should be more liquidity in the economy.
He is arguing that the govenment said that the purpose for Nama was to increase liquidity in the economy. He is also sayingthat the government were let away with this lie because in general journalists went along with it.

@ cormac lucy
BTW you missed the point in Kavanagh’s Poem.
To Kavanagh, heated arguments over small land boundries in Monaghan Were as important as Chamberlains appeasment of Hitler (The Munich Bother)

@ Cormac

As a number of people pointed out, the article does not say that I “hold out the restoration of bank lending as the yardstick by which the NAMA policy should be measured.” The article points out that NAMA will not achieve this despite repeated claims from the government that it will. I think the public deserves to be told this.

@ Cliff

Sorry to be “unbalanced” — I know for journalists that this is the greatest crime of all. However, when it come to blogging, it’s practically compulsory!

But, yes I agree that over the past few weeks there has been a bit more coverage of the type you suggest. Still, I really don’t feel that the public is being fully prepared for what is to come. And more generally, I don’t feel that our journalists generally served us well in relation to informing the public about what was and what was not true about NAMA.


your criticism of RTE has some merit. This is a conflicted organisation dependent on the license fee & subject to regulation. Any criticism of the government is met with a broadside from Merrion Sq.
In addition, the principal Prime Time is a programme whose anchor is a sibling of an FF candidate. Moreover, the programme seems to place a priority on generating heat rather than light. Far better to have a row than inform.

The fundamental problem was that several politicians were allowed, outrageously, to claim that the ECB, notthe taxpayer, would fund NAMA. And NAMA itself would get credit flowing. They were never called on either of these claims.
Was this laziness or stupidity? Either or both? Or, as per JL, conspiracy? We will never know.
Insiders have known for ages which way this is going. So do the proper journalists, like Cliff T.

@ Kal Whelan

An entirely accurate picture, demonstrating that the one supposed benefit of NAMA, easing of credit constraints, will not occur.

Here, I outline an additional potential pitfall, given the concerns widely expressed over funding issues.

Unsurprisingly, there is a clear preference on the part of bond investors for lower risk assets. If markets do not share rosy views on the likely returns to NAMA from its acquisition of banks assets, this could have drastic effects on government funding and/or yields.

I that event, not only would bank nationalisation be an imperative, but it would be vital to do so without compensation to shareholders or bondholders.

Sez Karl W. on 17 December:
“But, yes I agree that over the past few weeks there has been a bit more coverage of the type you suggest. Still, I really don’t feel that the public is being fully prepared for what is to come.”

Sez Jon on 12 April:
from par 4:
“It would appear the main risk inherent in setting up NAMA is that the government could be forced to nationalise the banks anyway if the scale of writedowns on the toxic assets is so large that it destroys their capital reserves.”

There is more, much more, like that.

Here’s more, from Shane Coleman and Emmet Oliver, also on 12 April:
‘A 25% ‘haircut’ on the loans would result in bank capital being depleted by around €22bn, while the figure for 30% would be a €27bn.

The government intends to give the banks government bonds to replace the value of the loans and then recapitalise them to strengthen their capital positions because of the write-downs.

This could involve the government effectively nationalising some of the banks, because it would be taking ordinary shares in the various lenders.

The level of write-down is seen as crucial. If the write-down is too conservative, the exchequer would end up paying too much for the loans, damaging its ability to recoup the taxpayers’ investment. However, the higher the write-down, the more the state will have to spend on re-capitalising the banks.

If the write-downs were to end up in the region of 30% then the government will have little option but to nationalise most of the banking sector, although Bacon last week said he preferred to use the term “majority control” rather than nationalisation”.’

People who read the Sunday Tribune are prepared. Maybe you should try it, Karl.

@JL wrote

“So therefore any policy choice which is designed to “get credit flowing” is doomed to failure. The policy goal should be to produce a system that has i) private sector banks with ii) sufficient capital to attract funding and at least maintain the balance sheet iii) at least cost to the taxpayer. Nationalisation fails on i) NAMA Biz Plan fails on iii) & probably ii).”

I largely agree with you but the policy goals you outline are in conflict because our banking system is structurally insolvent while the government believes that it lacks the capacity to manage the banks in state ownership. This has resulted in government planning to recapitalise the banks by overpaying for distressed property loans via NAMA. But is this route really so dreadful?

Look at Richard Koo’s (Chief Economist Nomura Securities) “The Holy Grail of Macroeconomics – Lessons from Japan’s Great Recession”. Exhibit 7.1 suggests the policy remedy for systemic bank crisis where there is weak demand for funds as being (a) slow non-performing loan disposal and (b) capital injection. NAMA is a direct move on both fronts.

Consider three ways of recapitalising banks:

1. One way of recapitalising banks is to buy assets off them for more than they are worth. NAMA does that. It has been excoriated on these pages for that.

2. Another way of recapitalising banks is to skew the yield curve so that banks can lend long (and at highish interest rates) while funding themselves short (and at lowish interest rates). Ben Bernanke has done that. He is Time Magazine Man of the Year.

3. A third way of recapitalising banks is to lend them money at 1% – 1.5% and allow them invest the proceeds in government bonds yielding 5%. The ECB does that and Mr Trichet is regarded as terrifically wise.

But each of the three methods involve nothing more than the public authorities magicing money to the banking system thereby strengthening bank balance sheets. Yet the political reaction appears to be quite different depending on the method chosen. If FF develop NAMA it’s bad. If Ben and Jean-Claude rescue the American and Eurozone banking systems it’s good.

I fear that some people (who really should know better):
a. do not actually understand the modalities and political difficulties of thepublic recapitalisation of private banks. It’s never popular. Look at the difficulties Ben Bernanke is today enjoying as he attempts to win Senate sub-committee approval for his renomination as Fed Chairman.
b. choose to ignore the EMU factor in this crisis even though the same economic disaster is unfolding in Greece and Spain, albeit at a different pace.

We need something like NAMA to fix the banks but, even with a perfectly functioning banking system, we should expect a reduction in aggregate lending over the coming years. But NAMA doesn’t fit into our parochial perspective of ignoring what is happening elsewhere. We’d rather blame FF, the banks and latchikoo auctioneers etc. etc.

“Gods make their own importance”.

@Cliff Taylor

Come on Cliff
The reality is that there are small businesses up and down the country hanging on by a thread this christmas in the vein hope that they are going to be let back to the credit trough next year.
This vein hope was prepatuated by the government to appease enough people in small business circles, who are generally opinion leaders in communities to ensure NAMA got into legistlation.

More and more journalists have started to cop on since the testimonies of the heads of the banks but it was too late then.

The conventional wisdom, largely unchallanged at the time, was that Nama would lead to increased liquidity. Neither oppisition politicians or any strong editorial line in any media source were claiming that this was just plain false with any rigor.
Joe bloggs was under no illusions but small and medium sized business people have been duped.

You are missing some possibilities there…
4. Let the banks swap their assets for government treasuries at par with the banks bearing the cost of this. This is what the SLS in the UK is doing. The Cypriot government is also doing something similar.
5. Let the banks set up their own bad banks off-balance and work out the losses themselves.

If zombie banks are the best we can end up with, so be it. I don’t see why the taxpayer should have to fund the zombies…

NAMA was not the only game in town…

@ Jon

So, if I understand correctly, you think the Tribune should get credit because in April you had some articles saying that if the haircut was large the banks might have to be nationalised. Was there a newspaper that didn’t remark on this extremely obvious point? Indeed, one of the reasons it was aired so often was to get it used as an argument for having a low haircut.

You think Shane Coleman should get credit for his writing on NAMA. This would be the same Shane that wrote this classic piece of TOGIT propaganda (complete with all the talking points — no viable alternative, fixing the balance sheets of the banks and getting lending going, even the old Iceland canard.)

Look, this wasn’t intended as a personal dig at the Tribune but you seem to think that your coverage was better than average. It wasn’t.

@ Karl W
First you said that there was little appetite among journalists for admitting the true state of Irish banks, and I produced a piece of evidence refuting your assertion. Then you retreated a little and said there had been a bit more of that type of coverage recently, so I produced two pieces of evidence from April to refute that. Now you are saying everybody was reporting on these issues all along because it was so obvious. So what’s your problem?

I don’t vouch for all of Shane’s reporting, but think he should get credit for writing an article just days after Nama 1) introducing the 30% haircut number and 2) stating baldly that a 30% haircut would lead to nationalisation. And I think you should stop preening and acknowledge that there have been other people besides yourself and your 45 buddies who recognised and aired many of the problems with the banks and with Nama.

Do you understand me correctly now?

Yes Jon. I hear you loud and clear. Criticism of the media coverage of NAMA and the banking situation is invalid preening. They’ve been doing a fantastic job all along. And you in particular are able to produce game-winning “refutations” of anyone else’s points at the drop of a hat.

Believe it if you want.

Interesting article on setting up a state run bank, talks about North Dakota and Commonwealth Bank of Australia, could the same work here if the will was there??

Sorry if off point but seemed like the most relevant article to include this with

I suppose karl’s point is that he believes we have all been ” duped”

I don’t want to get into a who wrote what and when thing, which isnt very constructive . Here are links to two pieces from May and September

One, in May, speculates that the state will end up as a majorioty shareholder in the banks ( apologies for the typos which have strangely appeared in this web copy) and one from September makes the point that Nama will not of itself get credit flowing.

If people feel that these points were not made forcefully or regularly enough, or not put up in lights to a sufficient extent, then fair enough, they are entitled to their view.

However there is a sense among some of the contributors that the media without exception were either complicit in a great deception or too stupid to point it out. Or that we acted to supress dissenting voices.

@Cliff Taylor
I can’t think of another country in the western world where one year after it became clear that all four of the major domestic banks had collapsed there would have been no massive media campaign for a full scale inquiry. Contrast this with the massive media campaign for TWO public sector pay cuts within one year. As I feared Honohan’s call for an inquiry has already vanished off the front pages.

The media in general have reported, many journalists have investigated, some journalists have even campaigned individually. But the media as a whole or even individual publications haven’t campaigned. It says it all when the call for an inquiry has to come from academics, including one who as the Central Bank Governor is taking something of a risk by doing so.

As with Bishops in the abuse scandals, those who do nothing are also culpable in the triumph of evil.

Was allowing a massive, ginormously costly establishment cover-up what you got into journalism for?
Did you watch “All the President’s Men” and cheer for Nixon?

I only saw the last exchange between you and Jon after I posted the previous time.

Look — the media ain’t perfect and for every article we refer to which looks wonderfully far-sighted Im sure you can point to an equal number with flaws or misunderstanding. I think you have to bear in mind a few things, however

— the media is diverse. even within some papers there are some people who write well on banking and some who havent a clue. The media is full of opinion now, which feels obliged to take a strong position either pro or anti everything.
— “expert” opinion from economists on this one hasnt exactly been unanimous either.
— Nama will make extra funds available to the banks and this was possibly the primary reason the government went about it that way. Obviously it will not get” credit flowing” as per what the boys said at the Oireachtas committee. That said, I am not sure what measures will achieve this in the short term. I know healthy and recapitalised banks will start lending, but that is a few years away, at best. What do we do in the meantime?

— the situation has evolved. Only a few months ago there was talk that Bank of Ireland might get a rights issue away to private investors. Now that looks much less likely. The share prices of the banks have reflected this. They are heading down towards 1 euro again.

As Cormac Lucey highlights, we should not be surprised that there is a fall in credit lending.

Even after the ECB loaned €442 billion to over 1,100 Eurozone banks for 1 year last June, credit conditions didn’t ease.

Two weeks ago, Angela Merkel had a meeting with German bankers on the issue of lending and this week Obama met the reps of 12 big banks on lending, even though they account for only 25% of lending.

The culture of easy lending is over for the current generation of bank managers.

The Government did of course use the prospect of easier lending as a NAMA selling point.

As regards the media, in Ireland, the impact of debate in the print media generally appears to have little impact .

The politicians take the broadcast media seriously but the Taoiseach and ministers choose their outlets – – they are allowed to by RTÉ and the commercial sector is happy to be honoured with a ministerial interview — and more often than not, when they are interviewed, the interviewer is not in command of an economics subject or is reluctant to annoy the interviewee.

Sometimes, as with politicians, it reflects an individual’s own experience.

Why is the lack of pensions coverage in the private sector such a minor issue or the lives of the unemployed are pigeon-holed into periods like Christmas?

Cliff Taylor’s SBP has provided good coverage and he is an economist but if he had provided a lot more, it wouldn’t have mattered.

On a broader scale, why after the wreckage of a terrible crash that has ruined the lives of tens of thousands, isn’t there pressure/a sense of urgency for reform and change in Ireland?

In Asia, where I live, reading a headline in local paper: Irish priests raped children – prompted me to think for an instant, if this doesn’t wake up the Irish, what will?

The question still is what will?

65 billion plus etc

the media broke the following stories during the year
— the sean quinn arrangement with anglo, the fact that anglo lent him the money to buy the shares and the non recourse loans given to the 13
— the arrangement between anglo and irish life and permanent and some of what went on behind the scenes ( though not yet all)
–the problems facing a number of prominent developers and their banking arrangements
— the stuff about michael fingleton’s pension ( previously not disclosed in INBS annual report)
— and on and on

I am personally fed up writing about the need to investigage some of this stuff, the length of time existing investigations are taking — and we have carried a couple of prominent pieces by Colm McCarthy arguing for an inquiry.


I’d agree with you on most of that and my points were not intended as personal digs at individual journalists — things can go wrong even when everyone believes they’re doing the best job they can (financial regulation is another good example).

Funnily enough, though, on the economists not being unanimous, this issue united economists of very different outlooks more than any other I can remember. There wasn’t a university economist in the country — other than those in the pay of the Minister for Finance — who was willing to appear defending the government’s approach to the banking crisis.

On the other hand, one could always cite those 80-odd economists who made secret phone calls of support to the Minister!

yeah — that’s fair enough and we do dish it out so we have to be prepared to take it !

i would be interested in your or other contributors views on the ” getting credit flowing” issue. maybe that’s for another forum? Demand for credit has obviously collapsed but, nothwithstanding that, anecdotal evidence ( as you fellows like to call it) suggests there is a real problem for many SMEs ( as referred to earlier by Eamon)

@Cliff Taylor
My comments were as follows:
“The media in general have reported, many journalists have investigated, some journalists have even campaigned individually. But the media as a whole or even individual publications haven’t campaigned.”
As I said, many journalists have investigated – without their good work this website would have much less to discuss. Also, I support relaxation of the libel laws. It is simply indisputable though that the media have not campaigned.

The worst failure has been the treatment of NAMA as a discrete entity. NAMA is just the continuation of the property bubble. Morgan Kelly’s and your own David McWilliam’s conclusions that FF/PDs, the Developers, the Bankers, the Bank investors and Senior Civil Servants are using NAMA to dump the costs of the bubble collapse on the taxpayer and to cover up their gross misbehaviour have been completely vindicated. But you would never know this from media coverage. This is all happening in plain sight. If our banks were unilaterally reckless why are their boards and management almost intact? Why is Patrick Honohan telling us that the regulators did little wrong? Why is only one bank being investigated and that at snail’s pace, with the overwhelming number of its top executives still the same today? And everyone agrees the business plan shows it to be a bail-out for developers.

It’s time that this society stopped treating it’s secular establishment with the same trusting innocence as it did the church and with much the same consequences. NAMA is not about rescuing this country – it’s about rescuing this country’s establishment at massive cost. And remember, all of this massive cost is completely unnecessary:

“All that needs to be done is for ownership of Irish banks to be transferred to their bondholders. This process of converting debt into equity occurs sufficiently often in banking to have a name: resolution. Resolution offers a way for Irish banks to be adequately recapitalised at no cost to the taxpayer, and able to manage their business without political interference.”

Finally, I recognise that as the editor of a paper aimed at business you have a difficult job. The people who should really have led the campaign on this are The Irish Times and RTE.

The Irish Times is hamstrung by its editor and lead political correspondent and by Garret Fitzgerald, who have all rallied to the establishment.

RTE, after living under FF governments for 90% of the last 22 years, have been completely neutered. I don’t blame them but the fact of their neutering can’t be denied.

@Cliff Taylor
Some more points:
– 46 Academic Economists uniting to condemn a government policy is unprecedented.
– The head of a state regulator calling for an enquiry is unprecedented.
– The bank guarantee was unprecedented, as well as being inexplicable and almost catastrophic. Even Brian Lenihan now admits it would have brought down the country without European support.
– all the major banks in a country becoming insolvent is unprecedented.
– the depth of the recession, the speed unemployment rose, the size of the budget deficit…the list of the unprecedented goes on and on.

The media treat all this like a badly prepared for flood at worst, more usually like an enforcement problem on the scale of road safety. Sometimes they just treat it all as an act of God, beyond human control.

The public held its nose and voted for Lisbon. The reward from our establishment has been to saddle us with €65Bn in costs through NAMA and no truth let alone justice. I think the establishment will get away with it. The media should be raising hell. Why does the dog not bark?

If you were brought up as a Catholic you would know the difference between a mortaller and a venial sin. CouRse-3 as you describe are both venial sins if sins they be at all.
These are classic ways of easing monetary policy and re-booting a banking system and an economy.
Course 1 is a real mortller. To willingly over pay for an asset that is falling in price is as you point out a back door recap of the banking system where the state WEARSthe downside and gets very little upside. To then propose to sit there and do very little to collect the debts from a group of people who are your supporters is to further compound the evil.

You quoted Kavanagh earlier. Iparaphrase that great sage Myles na Gopaleen. You were an advisor in an FF dominated cabinet. You have clearly become an exemplar of naGopaleen’s molecular theory. Your genes and FF genes have clearly merged to the point where you risk becoming a staunch advocate of FF. If you are not careful you will have a Cumann named in your honour.

@ Joe
We do love dancing on the heads of pins.

Mortal sins and venial sins – frankly my dear, who gives a damn? When the preacher is assisting child rape and not-for-purpose crucifix use, it’s time to think for oneself rather than subordinate oneself to reflexive and broken thinking.

Similarly, the reflexive reaction to blame FF for everything. To paraphrase Ali McGraw in “Love Story”, having FF to blame means never having to say you’re sorry. It means we never have to take responsibility for our own behaviour as we can always blame FF, dodgy banks, incompetant regulators, latchikooo auctioneers etc.

I would be surprised if there were many people who contribute to this website who have spent longer actually campaigning politically against FF as I have. But it doesn’t have to cloud one’s thinking. FF is not automatically to blame for everything.

Consider KW’s article on which this thread is based. The FF viewpoints he criticised are a caricature of the official standpoint. Look instead at S2 of the NAMA act and repeated Lenihan statements for the officially stated objectives of NAMA. They are essentially about facilitating lending.

What FF and BL left unsaid was that without NAMA the Irish banking system would be extinguished as the system is structurally insolvent. Even today the market value of AIB + BOI is less than their share of the (probably understated) €7b gift implied by NAMA asset pricing.So NAMA isn’t about increasing lending – it’s about preserving any lending at all.

You refer to NAMA overpaying for property loans as a “mortaller” whereas the US authorities generating a steep yield curve or the ECB providing cheap liquidity are “venial” sins. But leave aside the morality and consider the economics.

In substantive terms the three methods yield similar results: public sector recapitalisation of private sector banks. The difference between the three methods is that the Irish government can do one (overpay for assets to be acquired by NAMA) but cannot do the other two (generate a steep yield curve, operate emergency liquidity operations with newly created money) as we have expatriated central banking.

The problem is that too many battery hens in Irish academe regard the EU and its various bodies as the acme of achievement whereas small-town FF cute-hoorism is precisely what they abhor. It is the work of Sisyphus directing such people to the central points that (a) our disaster is largely a monetary one (b) monetary policy has originated for over a decade in Frankfurt (c) similar monetary disasters are now being experienced in Spain and Greece.

As John Kenneth Galbraith put it “Faced with the choice between changing one’s mind and proving that there is no need to do so, almost everyone gets busy on the proof.”

@Cormac Lucey
You have outlined three ways of recapitalizing the banks but there are many many ways.

What about iv) pay market value for the bank’s loans and cover any capital shortfall with equity, probably results in nationalization.
Immediate debt for equity swap with the subordinated bond holders to return the banks to partial private ownership.

It would cost the state less the current approach but still fulfils all your requirements.

@cliff taylor
– the situation has evolved. Only a few months ago there was talk that Bank of Ireland might get a rights issue away to private investors. Now that looks much less likely. The share prices of the banks have reflected this. They are heading down towards 1 euro again.

But this was never likely to happen Cliff. The banks and the government may have hoped it would but it was never a realistic or even plausible scenario.

I think your statement highlights the main problem with the media coverage. Very little critical faculty was applied to the statements from government and others and they were allowed to get away with making statements that were completely false.


It was likely that banks would be able to raise private capital earlier in the year before the EU Commission took a hardline on making banks sell assets. As far as I can recall there was an article in the FT predicting that both AIB and BoI would be able to raise capital at that stage. Saying now that is was never plausible is a bit silly.

In my view the NAMA business plan opts to recapitalise the banks in a way that least protects the taxpayer. We overpay by at least 7billion and as you state probably a lot more for a pool of assets that falls further in price.
We get less than we should in return in terms of a share in the upside, as the banks would largely remain in private ownership. Finally, the big winners are the large developers who get a benign workout regime where they would appear not to be pressured for at least 2 years. Whether that was the desire outcome of NAMA who can say?

However, it appears other people have spotted this little wheeze. As a result overpayment looks to have been reined in, capital requirements are no so large that the state ends up as majority ownership. The severity of the work out remains unclear.

I have been observing the exchanges on the role of media in presenting and scrutinising the NAMA narrative with some interest. I too in the past have been critical of parts of the media for failing to put in the necessary effort to get to the bottom of a story. Press releases or public statements are often regurgitated within the necessary reporting – who, when, where, why, what, etc. It has become a cliche that news is something that someone, somewhere exercising authority, power or influence does not wish the public to know, but it remains true.

Two things struck me. One is that the role of the media is constrained by the business model in which it operates with more and more content available free on the web. Rupert Murdoch has hinted at taking a stand to protect the revenue from conventional media outlets. I think there is scope for an interesting post on this from someone with the relevant knowledge.

The second is that the media are as much, if not more, constrained as academics or other commenters by the tyranny of the elected dictatorship that characterises a government capable of maintaining a parliamentary majority in the British and Irish politcial systems and, even more, by the libel laws.

@Paul Hunt
You are right about the media being constrained. I agree with relaxing the libel laws. The internet is revolutionary. Nothing sells papers though like a massive media campaign. Now that they’ve campaigned against the public sector workers and the poor perhaps they might turn their attention to our establishment. Or will they continue to behave like British newspapers in the 1930s, covering up the abdication crisis?

Our media need to come into the 21st century – but they’ll have to progress to the 1960s first.

@Cormac Lucey
The FF/PD government could have for instance:
– maintained a balanced tax base
– tackled the sacred cow of building land speculation
– allowed the regulators to force the banks to have higher provisions and to lend less
– not given massive tax breaks to the construction industry/superwealthy
– controlled costs instead of allowing inflation to get out of control

and I am sure many, many others.

PDs/FF knew interest rates in the Eurozone were too low. Instead of compensating for this they exploited it to the full and made everything much, much worse.

Like Zhou you are always making good arguments for bad PD/FF positions.

@ Dreaded_Estate wrote

“What about iv) pay market value for the bank’s loans and cover any capital shortfall with equity, probably results in nationalization.
Immediate debt for equity swap with the subordinated bond holders to return the banks to partial private ownership. It would cost the state less the current approach but still fulfils all your requirements.”

I agree with you. That would have been the best way. It remains to be seen whether the EU competetition authorities approve the way we plan doing it.

But I don’t regard what is actually happening as so fundamentally different as to merit the fuss which is made on this website. IMHO the end-points of the two routes will be the same: majority state ownership of our two main banks.

I agree with most of what you say.

But I think that the developers are fooling themselves if they think that NAMA will represent a soft landing. FF cannot be seen to be a political soft touch for developers. And, if I am wrong on that, within two years an FG/Labour government will be masters of NAMA.

@ Cormac

Agreed, we arrive at the same end point by a circuitous route-De facto and de jure control of the AIB & BOI. At this point we should be very afraid given the efficiency with which state controlled enterprises operate. I forsee a spate of building new bank HQs in every county as profits improve. Also there will be manadated lending to new green industries.

@ cliff taylor
“would be interested in your or other contributors views on the ” getting credit flowing” issue. maybe that’s for another forum? Demand for credit has obviously collapsed but, nothwithstanding that, anecdotal evidence ( as you fellows like to call it) suggests there is a real problem for many SMEs ( as referred to earlier by Eamon)”

My own opinion would be slightly controversial.
It would be very similar to Peter Schiff
I Know I spoke earlier of SME hanging on by a thread but i am afraid that many of them are not making enough money to survive. Many of them werent even doing this in the boom but easy credit kept them ticking over.

A collapse in lending is the only solution.

As Peter Schiff Said in the middle of the year.
“The pain we are expriencing now is not the crises, it’s the solution”
The levels of debt that People and small companies in America the UK and Ireland have built up is completely unsustainable but our economic model only works if there are ever increasing levels of debt (its a ponzi sheme).

Some economists like Marc faber believe that the stimulus actions of America the UK and the ECB could lead to yet another crash.

In short. Some of the SME’s who are hanging on by a thread should have gone long ago. Now that the banking industry is only willing to invest in potentially profitable businesses they soon will.

Giving these guys the credit without reasonable business plans was the norm, and they want to allowed to return to the good old days.
There isnt a politician in the country that was willing to tell them it was not going to happen, so they lied about it to help get nama through.

Will this cause a lot of collateral damage?
Of course, but the other option of giving them more credit that they cant pay back is worse.

Comments are closed.