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.

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.

“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.

@JL
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.

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.

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

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.

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.

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.

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.

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.

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.”

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.

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?

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.
http://www.irisheconomy.ie/index.php/2009/10/15/hard-to-deny-now-that-nama-is-a-developer-rescue-plan/

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.”
http://www.irishtimes.com/newspaper/opinion/2009/1013/1224256508947.html

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.
http://www.irisheconomy.ie/index.php/2009/05/08/access-to-funds-for-nationalised-banks/
http://www.irisheconomy.ie/index.php/2009/02/10/toxic-assets-and-recapitalisation/
http://www.irisheconomy.ie/index.php/2009/05/26/nama-purchases-of-good-loans/

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)

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!

http://www.irishtimes.com/newspaper/frontpage/2009/1217/1224260840003.html?via=rel

There is a profound cultural sickness in certain sections of Irish society, it seems.

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.

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?

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.

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 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

http://archives.tcm.ie/businesspost/2009/09/20/story44469.asp
http://archives.tcm.ie/businesspost/2009/05/03/story41490.asp

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.

http://www.truthout.org/1031091

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

Believe it if you want.

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?

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.)

http://www.tribune.ie/news/article/2009/aug/30/why-nama-is-the-least-worst-option-for-getting-ire/

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.

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…

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.

“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”.