Bernard McNamara

This post was written by Karl Whelan

The troubles of developer Bernard McNamara are receiving a lot of coverage: Stories about it in today’s Irish Times are here, here and here, while McNamara’s interview on RTE yesterday is available here (starts 40 minutes in – hearing him blame professional valuers for him paying too much for the Glass Bottle site was priceless).

It is worth noting that, as with Liam Carroll, the fact that Bernard McNamara borrowed some money from outside the network of NAMA-bound banks (in this case, €62.5 million from clients of Davy’s clients) is the only reason that we are able to see the true state of his finances.

And, of course, these stories raise the following question: Since Carroll and McNamara are hopelessly insolvent, who exactly is going to account for the eighty percent of NAMA’s loans that its business plan tells us will be paying back in full?

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58 Responses to “Bernard McNamara”

  1. Patrick the American Says:

    I listened to the entire interview last night. While he may have attempted to partially blame valuers for the GBS debacle, I thought overall he came off quite well especially considering he didn’t seem to be overly prepped for the interview. For the most part — and in start contrast to most people in his position these days — he seemed to take responsibility for his business decisions and accept that he had to take the consequences of his bad business plays. Perhaps my opinion will change as I read more on the topic (I’m still trying to wrap my head around what was going on in Ireland before the property bust).

    Perhaps the media should focus more on your final point than on the developer witch-hunt and blame game. As gratifying as sticking it to guys like McNamara must be for them and for their listeners, it really doesn’t help solve the problems facing Ireland.

  2. zhou_enlai Says:

    As developers started to risk more and more money and started to engage in more and more complex and long term projects, it was surely natural for them to rely more and more on professional valuers in respect of probable yields for sites. I

    n the past, Developers did not have dealings with commercial property advisers, Davys, Bloxhams, KPMG, Deloitte etc. As the money involved got bigger and bigger they realised that they needed heavy hitters they could rely on. The same goes for any person in charge of a business investing large amouts of money.

    I think it is harsh to say that it is priceless listening to a developer suggesting that he might have taken such expensive advice at face value.

  3. Andrew Says:

    I actually think its priceless listening to someone like McNamara putting on the poor mouth. The reason he’s in this mess is more to do with personal greed and stupidity rather than the fault of professional valuers. Anyway I’m sure he has a small fortune stashed offshore somewhere so I doubt he’ll starve. Ireland really needs to examine itself and start making decisions based on social responsibility and equity rather than encouraging the relentless greed of people like McNamara

  4. zhou_enlai Says:

    @Andrew

    Should we ban “relentless greed” for private individuals, perhaps through Sharia law? I suggest we reconvene at the cross roads. Bring your burka and your dancing shoes.

  5. Garry Says:

    Nama has been passed and the real situation is being released, now that it’s too late to do anything.
    none of this is any news to anyone who follows current affairs, though I’m sure politicians who voted for Nama will be shocked at the numbers

    on being harsh on valuers, they were spineless yes men collecting their cut, Virtually all professionals will tell you what you want to hear, except the medicals. The financial and property ones are amongst the worst with very few individual exceptions

    It’s no comfort being right these days.

  6. Dreaded_Estate Says:

    @zhou_enlai
    Why do you think that Davy’s, KPMG or anyone else should know more about the property game that the biggest players such as McNamara?

    That is/was his primary business while it is only a minor part of the others business.

  7. zhou_enlai Says:

    @D_E

    You go to professionals because they have knowledge and skills which you do not have yourself. Developers generally would have done back of the envelope predictions in the past. In larger projects, it is the function of the developer to bring together the experts needed to perform the task and to manage them. If the structural engineers makes a mess of it you wouldn’t say that the developer should have known that structural columns in the basement should have been an extra inch wide in diameter.

    Developers needed different expertise for different issues. Tax, company structures, finance, tenders, prediciting yields, predicting costs etc etc. To suggest that builders would be familiar with all the intricacies of these matters including forecasting yields on commercial projects is wrong.

    Richard Tol has told us that geoscientists are not able to do statistical analysis as well as accountants. It is hardly surprising that developers cannot do financial forecasting as well as economists, commercial property experts and finance specialists.

    What amazes me is that people don’t think that any responsibility might possibly lie with the professionals who provide this advice at great expense and who presumably carry professional indemnity insurance.

  8. Edgar Morgenroth Says:

    @ Zhou
    Sharia did not stop Dubai.

    Clearly none of these guys (developers and banks) knew when to stop (and what is enough).

  9. yoganmahew Says:

    @Zhou
    “It is hardly surprising that developers cannot do financial forecasting as well as economists, commercial property experts and finance specialists.”
    ROFL.

    Thanks for that. The idiot is king in a land of cretins?

    Of course, there were economists, property experts and finance specialists predicting it would all go wrong, it was a bubble and it was unsustainable. As @Andrew says, only the yes men were listened to. And what do the yes men have in common? They stood to gain in the short-term from the yesness of their forecasts…

  10. zhou_enlai Says:

    @YM

    Glad I made you laugh! Professional advisers who just say “yes” rather than giving proper advice are surely negligent. The reason they have legal liability is because the law recognises that people are relying on them and that if they are not liable for their advice they will just tell people what they want to hear.

    Also, many valuers pulled back from high valuations in 2006/2007. Presumably that was because they felt it was dangerous to just say “yes” because they could get burnt if they did?

    To suggest that a developer wouldn’t genuinely rely on professionals is simply an expression of prejudice against and antipathy towards developers. On the one hand they were fools who gambled and lost their money, on the other hand they were able to second guess professionals who rose to the top of reputable firms? You can’t have it both ways.

  11. Brian Flanagan Says:

    Given that McNamara seems to be blaming his professional advisers for his downfall, where does that leave Nama which appears to have contracted virtually every element of its operations to third parties (in many cases the exact same people as probably advised McNamara)?

  12. Andrew Says:

    @Zhou

    I’m not against people making money no matter what law they operate under. What I am saying is that when the actions of individuals and institutions in their pursuit of profit seriously damage the rest of society then they need do be accountable to that society. I think accountability is essential in order to successfully move forward and not repeat the mistakes of the past. It is also important so that the gemeral public can buy into the decisions necessary to resolve the problems. You can poke fun and thats ok but I think my point is valid.

  13. Ahura Mazda Says:

    I believe former AIB chairman Lochlann Quinn, one of Davy’s investors, has €5m on the line. I guess it’s only ok to show forbearance when it’s not your money.

    I’m not familiar with how the various debts rank in this project, but I have a vague memory that Davy’s investors were due 17% per annum. This type of rate should only be available for real risk, so it’s likely that this was subordinated debt. Any enforcement of personal guarantees by subordinated debtholders would work against the interests of senior debtholders (probably the taxpayer). Who is representing the interests of taxpayers?

    (Although this is off topic, the possibility of foreign bank participation in NAMA is still alive. The Sunday Business Post had a piece on it: http://www.sbpost.ie/news/ireland/banks-given-criteria-for-nama-schedule-46689.html . I’d expect UB and BOSI could qualify if the want to push it. They would certainly win the argument for systemic importance given INBS’s size and Anglo being a [sic] specialist lender with no branch network etc. Unless their participation in UK schemes precludes them from NAMA, there might be a couple more snouts in the trough.)

  14. yoganmahew Says:

    @zhou
    “To suggest that a developer wouldn’t genuinely rely on professionals is simply an expression of prejudice against and antipathy towards developers. On the one hand they were fools who gambled and lost their money, on the other hand they were able to second guess professionals who rose to the top of reputable firms? You can’t have it both ways.”
    Ah, but you can. You can only listen to the ones who are telling you that you’re a genius and you’re going to be even richer while at the same time calling those who say it is a bubble irresponsible. Then when the bubble bursts (I wish people would stop referring to it as a boom…), you can look to blame the professionals who backed you up.

    This is not antipathy towards developers per se, it is antipathy towards the ‘masters of the universe’ mentality that rewards itself for being risk taking (when it is just riding the bubble up) and seeks to blame others when the bubble bursts.

    It is no different to those fund managers who invested with Bernie Madoff thinking he was corrupt (insider trading), because there was no way he could consistently get those returns legally. Their shock is that he was corrupt in a different and more damaging (to them) way than they thought.

    The similar process with bubble experts is the reinforcement of bubble correctness that goes on. Everyone who predicts future growth is right, all the way through the bubble. They are hailed as gurus and experts. Risk taking awn-trup-inners and all that. Of course, when they get it wrong, as many, many did and have done all the way through the bust, the consequences are huge.

    Many of these people are trend following idiots using ‘fundamentals’ that they don’t understand - a static finance model, no allowance for debt, one-way trends, no exogenous parameters, nearly no endogenous parameters. We have the IAVI *again* saying this is the bottom, affordability has *never* been greater. Again failing to look at what is coming down the road. Again with their rulers drawing straight lines on charts….

  15. Garry Says:

    @Brian Flanagan
    exactly

    @Karl w. All excellent points. The dam blocking information flow burst with Zoe and now because of external creditors,

    On the food prices topic earlier, re cap, the eu forced our dept of agriculture to publish single farm payments. They reluctantly put it on their website, well worth reading just to see greencores payment. Same culture, same with bank guarantee, etc

  16. Eoin Says:

    @ Ahura

    the Davys debt was described “mezzanine” back when it was issued, so yes, subordinated tot he seniors. But this case involves a legal contractural technicality rather than debt seniority viz-a-viz liquidation etc.

  17. Brian J Goggin Says:

    @Zhou

    Gesundheit.

    “You go to professionals because they have knowledge and skills which you do not have yourself. [...] Developers needed different expertise for different issues. [...] To suggest that builders would be familiar with all the intricacies of these matters including forecasting yields on commercial projects is wrong.”

    I can accept that developers might not know as much about engineering as would engineers. But putting a value on property, taking steps to increase its value and then assessing that higher value: these are surely amongst the core competences of the developer.

    I suggest that the role of valuers, and of many other consultants, is really that of a witch-doctor or a priest: it is to provide a blessing, showing that the applicant is amongst the elect and that the project in question can be admitted for consideration. The blessing provides both applicant and banker with a Sign. But it is the Sign itself that matters, not the work (if any) that has gone into deciding whether approbation is deserved.

    bjg

  18. Robert Browne Says:

    Was in Lisney’s yesterday and picked up a copy of their 2009 Annual Rievew. On page 13 of the report with regard to NAMA they state..

    “Given that there will be eventually some 2000 ‘exposures’ covered by NAMA, there is a monumental amount of asset management ahead. This will clearly need to be outsourced”. I wonder to whom?

    Outsourced, to the very people and organisations that fueled the speculative orgy. Could it be that organisations such as Lisney, Sherry FitzGerald etc will make even more from managing and disposing of the above mentioned “monumental amount of assets” (as they so gleefully describe) than they ever did by selling boom time overpriced properties? They will make more money now than they did in the boom!

    Meanwhile, want to find out what property is not selling for on your road? Sorry, that is still top secret information which cannot be given out as it would contravene the freedom of information act! Or does it simply contravene the facilitating of auctioneers to take you and yours to the cleaners?

    As we know revenue have a database of all the amounts paid for stamp duty purposes.

    With regard to McNamara for “monumental amounts of assets” translate to read “monumental amount of mistakes made”. For “monumental mistakes made” read monumental profits. For “monumental profit”s read tax payer losses.

  19. zhou_enlai Says:

    @YM/Andrew

    The developer is accountable because he can lose his money. That is the difference between the developer, the fund manager who invests in Madoff and the financial advisers to developers.

    I can of course understand the natural schadenfreude people feel towards developers who enjoyed huge amounts of wealth which we all now seem to be paying for. However, I can’t understand the free pass given to the professionals who were on the gravy train and who may have liability. If their insurance pays out then that money goes to NAMA/the State. We know the developers are bust so why aren’t we looking at the educated “professionals” for a bit of pay back?

  20. Andrew Says:

    @Zhou

    I’d agree with you 100% about the ‘professionals’ who were on the gravy train though how educated most of them are is questionable I dont think it takes much to qualify as an auctioneer and professional valuer (I stand corrected if this is not true). Regarding the developers It remains to be seen how accountable they will be given that NAMA will be looking after their affairs. I suppose NAMA can pick and choose who is to be held accountable and who is to let off the hook, sounds like a recipe for corruption to me. Very impressed with the word ’schadenfreude’ by the way, i’d say ther’ll be a few people googling that one at the minute!

  21. Ahura Mazda Says:

    @ Eoin,

    It’s not much of a stretch to suggest that NAMA is the reason why the senior debtholders are passive. Without NAMA, senior debtholders would actively seek to ensure all possible recoverables are accessible. This includes junior parties going after McNamara’s personal assets. Being the first to act, Davy’s clients will probably gain at the expense of the taxpayer. Although it’s not clear to me what Davy’s will go after, there must be something there – otherwise the court case would throw good money after bad.

  22. Gregory Connor Says:

    This new “datapoint” gives us a bit more information in trying to understand government policy-making. It supports a theory I proposed earlier. Both the recent government budget and the NAMA plan are very competently constructed, but with differing objectives. The objective of the recent government budget is to help the Irish economy recover. One of the main objectives of the NAMA plan is to protect the large property developers who have been an extremely important source of Fianna Fail financial support over the last two decades. At considerable taxpayer cost, the banks are incentivized by NAMA to treat these developers as gently as possible until the developers’ debts can be rolled into NAMA, which will treat them even more gently. McNamara had the misfortune to have claimants outside the remit of NAMA, thereby revealing the true scale of the losses on these large property developer loan portfolios.

  23. Eoin Says:

    Dare i suggest that Paul = E65bn? His feverish writing style is somewhat, eh, memorable…

  24. Eoin Says:

    Oooh, he got deleted. Carry on…

  25. yoganmahew Says:

    @zhou
    Do you regard my post as a free pass? Idiot yes-men riding a roller-coaster of greed and stupidity? Jeepers, I’d better bone up on putting the boot in.

    I would hold them accountable to the professional standards they profess to espouse. I would publish an independent forecast rating after every public pronouncement they make. “Dr CannyMcSavvy is employed by Bank on Insolvency which is regulated by IFSRA. He has a forecast rating of ‘very poor indeed’, which means he couldn’t forecast the summer weather in Arabia”

    Something like that. For everyone claiming to be a professional forecaster, analyst, whatever.

  26. zhou_enlai Says:

    @YM

    Funnily enough, I heard something about that just yesterday. It is believed that some kind of reputational registers will become the norm for professionals in the future.

  27. John Mul. Says:

    @ YM

    Equity analysts are often ranked by independent agencies. Bloomberg, Barra and Starmine rate analysts according to the accuracy of their earnings (and other) forecasts. Most buy side institutions (and certain types of quant funds) only value the research opinions of those forecasters whose ability has been proven.

  28. Paul Iticsdotayee Says:

    @MODERATOR

    IN A MATURE, HEALTHY, DEMOCRACY, THE GOVERNMENT IS RESPONSIBLE FOR THE STATE OF OF THE COUNTRY.
    THIS COUNTRY HAS HAD A MAN MADE DISASTER.
    THEREFORE, THE GOVERNMENT IS RESPONSIBLE FOR THIS DISASTER.

    THIS IS NOT A POLITICAL POINT. IT IS A STATEMENT OF FACT.

    We need to start recognising this.

    @Eoin
    Shhhhhh.

  29. yoganmahew Says:

    @John Mul
    Indeed. And they are right to be cautious. They know the results of bias in analysis. (It can lose a lot of your client’s money… might even affect your bonus).

    The problem is that I can’t see any situation where, for example, some of the bank ‘leading economists’ would have their ratings given out either before, during or after they get to pump whatever piece of marketing drivel masquerading as research on our national airwaves, even if such ratings did exist.

  30. Paul Iticsdotayee Says:

    @MODERATOR
    I am more and more of the opinion that our political classes united as one to conceal the truth about our banks. It wouldn’t be the first time they have all hushed up a scandal either. After expenses Kingpig John O’Donoghue was forced from office our political class united as one - to condemn the media, and Eamon Gilmore for opening his mouth.

    “Willie O’Dea’s reaction to John O’Donoghue’s forced resignation was exactly what we have come to expect from this hypocritical Fianna Fail backwoodsman.

    “I detest people who talk out of both sides of their mouths.”

    Fianna Fail Senator Ned O’Sullivan was no better. He predictably attacked the media for their ‘lurid’ reporting on O’Donoghue and called on politicians, who are now living in fear of the media, to fight back (Today with Pat Kenny, Thursday).

    Fine Gael TD Leo Varadkar also attacked the media and petulantly reminded the nation that he could have made more money by remaining in medicine (Prime Time).
    Varadkar’s comments are a reminder that the expenses scam involves all political parties.

    Brian Lenihan angrily attacked Eamon Gilmore for his unacceptable actions in bringing down the Ceann Combhairle.

    I don’t think it was a good day for Irish politics.

    What all these politicians have in common is arrogance and denial. The expenses scam that they put in place results in millions being robbed from taxpayer’s every year either through legal corruption or legal fraud.
    The Taxes Consolidation Act 1997 permits TDs to legally defraud the State. An accountant quoted in the Irish Independent gives the following example of how this scam might operate.

    A politician can take a train from, say, the Ceann Comhairle’s constituency of South Kerry that costs €72 and make an unvouched claim for three one-way road journeys to Dublin and collect €531, leaving a tax-free profit of €441.

    I wonder does Minister Lenihan think that it was a good day for Irish politics when this banana republic legislation was introduced by his party?”
    http://www.publicinquiry.eu/2009/10/09/odonoghue-the-political-class-still-dont-get-it/

    They’re doing it again, aren’t they?

  31. irishpancake Says:

    If McNamara is unhappy with the advise he received from those he employed to advise him as to valuations, and he has suffered catastrophic losses as a result of their wrong advises, why does he not sue these people for negligence and try to recover his losses?

    Perhaps he already has, I don’t know, but surely this is his remedy?

    The Courts have been shown to act fairly and independently in cases such as these, so he should stand a good chance.

  32. A Bartender Says:

    Re : NAMA and “performing loans” :
    This came up during a dicussion about Bernard McNamara’s difficulties.
    Can anyone tell me if all performing loans are being taken on by NAMA
    or just the ones linked to developers with non-performing loans?

  33. Paul Iticsdotayee Says:

    @Karl Whelan
    This story flagged by poster Prop Forward on politics.ie should be enough to kill off NAMA - if the entire Dail didn’t support it.

    http://www.independent.ie/business/personal-finance/property-mortgages/land-values-down-90pc-from-peak-2014252.html

    “Land values down 90pc from peak
    By Dara Doyle
    Thursday January 14 2010

    Building land values outside Dublin have fallen by as much as 90pc from their peak levels, according to CB Richard Ellis Group.

    Development land in Dublin has dropped on average by “at least” 50pc, CB Richard Ellis said in a report today.

    “It would be premature to say that the property market is likely to experience a rebound in 2010 but there are certainly signs that sentiment is slowly improving,” said Guy Hollis, the managing director of the company’s Irish unit.”

    Remember, this isn’t Morgan Kelly, this is a firm of valuers and property consultants:
    http://www.cbre.ie/ie_en/services

    Even their bottom spotting is tentative:

    “The reality is that it is going to be 2011 before we see any discernable turnaround in performance.”

    Given the support of the entire Dail, the only thing that can kill off NAMA is reality. Is this enough reality to finish off this zombie?

    N.B. The Government are responsible for our country’s economic disaster.

  34. yoganmahew Says:

    @A Bartender
    “Re : NAMA and “performing loans” :
    This came up during a dicussion about Bernard McNamara’s difficulties.
    Can anyone tell me if all performing loans are being taken on by NAMA
    or just the ones linked to developers with non-performing loans?”
    All C&D and commercial (?) loans about 5 mn euro in value are being taken on by NAMA, performing or not. Or so was the original plan.

    About 60% of the loans are non-performing, with 40% having some payment made on them. The way I read this, 60% are paying nothing, 40% are paying something, but most of them are not paying the full amount. At a guess, 20% of loans, and maybe 8% by value are fully performing. Total guess though. Or so was the original plan.

    Anyway, who knows whether the original plan is being followed. Every leak we hear about NAMA is in contradiction to a previous leak. Statutary Instruments changing the LTEV for land and the eligible assets are released on Christmas Eve in the hope that nobody is looking.

    We don’t yet know the structure of the NAMA bonds. We don’t yet know how much in loans will be bought. We don’t know how much will be paid for them. We don’t know which banks will be in NAMA.

    Confused? It’s likely that the people running the show are too…

  35. Brian O' Hanlon Says:

    @ Karl Whelan,

    “It is worth noting that, as with Liam Carroll, the fact that Bernard McNamara borrowed some money from outside the network of NAMA-bound banks (in this case, €62.5 million from clients of Davy’s clients) is the only reason that we are able to see the true state of his finances.”

    Excellent observation Karl. I genuinely had not spotted that fact until you brought it up now. Thanks.

    “And, of course, these stories raise the following question: Since Carroll and McNamara are hopelessly insolvent, who exactly is going to account for the eighty percent of NAMA’s loans that its business plan tells us will be paying back in full?”

    I will insert or raise one point if I may.

    Before Christmas last, a story appeared in the Irish newspapers about a leading AIB bank official/manager in the Galway area who had waded in very deep into the property game.

    I was very happy when I heard this story come out in the newspapers. Because it was high time that the media caught up with the reality of things. The media was quite lazy during the entire Celtic Tiger period and stubbornly refused to look any further than the high profile developers in Ireland. Everything seemed to revolve around those key individuals and what they were doing.

    To give one example. Bohemians football club in North inner city Dublin (Phibsboro to be exact) did a deal with Liam Carroll in selling him an option to buy the land occupied currently by their football stadium. The deal amounted to a couple of million euros per year, to maintain the option. Not to buy the land mind you, only to renew the option to buy. It is funny though, even when Carroll was attached to a project in any way at all, it changed everything.

    Suddenly the local authority for that area, had totally revised the Local Area Plan for that area. Making the land un-suitable for anybody to develop on. Which meant of course, that Liam Carroll himseld didn’t get hurt very badly, but the football club who were left as the owners, did. The football club was merely the body which got in the way of the cross fire.

    But as much as local authorities, Dublin Docklands Development Authority, the media and everyone else (and their grand mothers) were getting absorbed by the ’stories’ of the lives of their major construction figure heads - there was an entire under-belly of deals going on, in a second tier of the property development game, which gained no media attention whatsoever.

    That is why I was extremely happy when the story of the Galway-based, AIB banking official who was heavy in the property game emerged. It is a classic bell curve distribution. The bulk of the activity happened in that middle tier of the property development game.

    Look at any industry you like. Take computers just as an example. Apple computers enjoys a share of the market similar to that of BMW, or other luxury car manufacturers. At one point, Steve Jobs made this point. Why does everyone make fun of Apple computers? Why can’t Apple have 3.0% of the market and still represent a standard for quality and comfort, in the same way as some car manufacturers do.

    Indeed, if that 3.0% of the market offers good margins and good stability over a long period of trading, it might be a pretty good area to focus on. Compared to the ‘mass’ area of the market where you find the Dell companies and so forth, which might experience a lot of turmoil and competition.

    The McNamara’s, the Liam Carroll’s and those folk, they were the BMW’s and the Apple’s of the Irish property development market. You could have placed those guys into the property market of mid-town Manhattan, Shanghai or Abu Dhabi for all I care. They would still have made their mark.

    The truth is, in Ireland we have inhibitions, and we have a significant hang-up, when it comes to the production of excellence, quality and efficiency in a lot of what we do. We need to rise above it. It is embarassing for ourselves, and moreso, the kinds of innovators which Ireland needs to attract so badly, will be turned off, if we don’t try to improve our attitude.

    We will continue to have a workforce on-hold. The thousands of people, the workforce that Dell benefitted from in Limerick is there to be used. It was an outstanding workforce. I wish the Irish government would see it that way, and not speak of them as though they were victims, un-able and un-will-ing to fight for themselves. If we speak of them that way, that is what they will become.

    Similarly with the Irish Glass Bottle site, the Dublin Docklands Development Authority did not do its job. It didn’t do it with the North Wall Quay site either. It is the responsibility of those organisations to foster something, to enable rather than to deny. We are making the same mistakes with the Ringsend land (15 acres of Liam Carroll’s site included) as we made with Dell in Raheen, Limerick. It’s sad really. But it is the same mistake again and again.

    We seem to penal-ise excellence, be suspicious of innovators - and having directed all of our attentions at putting down the leaders in our industries - we seem to ignore the under-belly. The AIB regional bank manager, who runs a private property empire on-the-side, in addition to his duties as a banker.

    We should stop using Bernard McNamara, and using Liam Carroll, as an excuse, because we don’t want to dig much deeper into the broader reality and problems in our country.

  36. Paul Iticsdotayee Says:

    @Brian O’Hanlon
    “Before Christmas last, a story appeared in the Irish newspapers about a leading AIB bank official/manager in the Galway area who had waded in very deep into the property game.”

    Nick Leeson, THE Nick Leeson, who is based in Galway, referred to this sort of thing in MARCH 2009! Unlike Brian Cowen, he does not wave away what happened in Irish banks as a historical matter, to be looked at in the fullness of time.

    “It is pure and utter greed,” …. “The world of finance is founded on one thing: arrogance. The banks have been making money for so long – even in the six years I have been here, there have been massive changes across the country. People have become very rich and very quickly. Everyone wanted in on it and it was propelled by the banks….

    “…The thing that is really, really strange here – and I think this is why it is so bad here – is that the senior management of the banks are caught up in it. In England, if you look for a loan from five grand to 50 million, the process is exactly the same. That doesn’t seem to have been true in Ireland. For me, for instance, what has happened in Anglo Irish Bank is a version of insider trading – bankers using their own influence to bring certain people together.”

    “…in Ireland, the way that the top tier managements in banks have been able to get involved is just incredible. I mean, I hear tell of numerous episodes of bank managers buying into land deals for 50 million. A f***ing bank branch manager! How does that happen? Another guy made so much commission in one month that he didn’t really have to work for a year. And all he was selling was debt.”

    “…The history in Ireland has been one of reluctance to move on people.”

    “But if, for instance, if the routes that the Anglo Irish Bank board took in lending money to the ‘golden circle’ to basically prop up their share price – which in turn drew other investors in – turn out to be unlawful, then absolutely. They should be punished.”

    If I was offered the choice of Nick Leeson or Brian Cowen as Taoiseach, I’d take Nick Leeson. I think most people would.

    http://www.irishtimes.com/newspaper/weekend/2009/0307/1224242421721.html

  37. Calan Says:

    K.W-
    -who exactly is going to account for the eighty percent of NAMA’s loans that its business plan tells us will be paying back in full?-
    All these type of questions will be answered in full by the inquiry now been set up by F.F.
    Meanwhile at the U.S. inquiry yesterday the Wall St. banksters were referred to as ’shady car salesmen.’.
    http://online.wsj.com/article/SB10001424052748704362004575000752756113586.html?mod=WSJ_hpp_sections_news

  38. Paul Iticsdotayee Says:

    @Brian O’Hanlon
    The first two and a half pages of the thread “What are Brian Cowen’s Achievements” in the FF forum on politics.ie are worth reading.
    They reflect the public view of the man. After that FF’s media unit - the only part of government that acts quickly - derails the discussion.

  39. MickeyHickey Says:

    The lenders would have demanded “professionsl” valuations as a CYA move. The lenders would also have their inhouse or retained “professionals” provide an opinion. Guys like McNamara were on the roller coaster which had gathered momentum to the point where it was too late to get off. Nobody engages in business for twenty years with a view to going bankrupt. The lenders had a responsibility to do due diligence and mitigate risk. The gov’t had its paws in the developer/ builder till and added to the insanity. There is plenty of blame to go around including all of us who voted in last four or five elections.

  40. Pat Donnelly Says:

    I sympathize with McNamara and Carroll. They are exposed while others are protected. They will srvive and may even prosper. They have survival skills and to admit that the FF style has positives, they do look after their people. That has survival value. I often question their choices of whom they befriend!

    {{{{I should apologize to all the pol trolls if there are any, as I like talking as if I know some economics. A little, not a lot, as the experts have long since realized!}}}

    Normally, a greater supply of development brings down prices. What happened in Ireland was the opposite. How come? That is why we have the huge overhang.

    Land policy is key and the saintly Brian O’Hanlon has made some interesting points about how land is released and poisoned in a development sense. It is not available to all multi-millionaires equally. Some are more acceptable to those who allot planning permission. We already knew this from a tribunal or two. This is a very costly overhead and is directly attributable to third world style corruption. Follow the money!

    That land development process then requires financing. Then the bank culpability comes into play. All that developers do is to play by the real rules. Who has the power makes the rules. The actual statutes on corruption and policies for sensible development are never enforced. They played by the real, unwritten, rules but those who made these rules allowed the gangs to proliferate and to poison the well all were supping from. Bad organizational skills. If this were the Mafia, the cement would have long set on those who actually lost control of the land and development situation.

    The planning process in Ireland has clearly failed to consider that the supply was too restricted forcing politicians into the position of making the rules, ie taking back handers. Morally repugnant, but it has been known to be the rule since the Planning Acts came to be, in 1963. An artificial and supposedly benign monopoly regime. But it seems that only the craftiest of the political parties and those neighbourhoods who can organize themselves well, actually benefit. The latter is acceptable as it promotes community spirit as Nimbyism.

    Given that a monopoly has been shown to be impossible to control in Ireland, how are we going to avoid it from happening again? The Appeals board clearly has also some responsibility but the local councils should realize that they are to blame.

    True, the international situation was beyond most of them, but that is one of the consequences of the fiscal failure of the DoF and FF/PD/Green policy on entry to EMU. So perhaps the supply of land has to be the key issue here? The pay rises long overdue, to politicians should attract better candidates, eventually.

    Professionals is an abused term. The whole circus is part of the FIRE economy. It is far too big to fail! It has taken to roost within the political establishment and the feathered nest that is NAMA is the result! NAMA will ensure that with public funds the circus and middle class bread dispenser will start up again once real rates of interest in land development reach -ve territory. Probably in 2030….? In the meantime, it is on life support as FF/G/PD look after old friends.

    But without unrestrained wholesale borrowing beyond the natural capacity of depositors, the banks would not be in this mess!

  41. Pa Bandit Says:

    @Zhou

    It is naive to think Developers “relied” on estate agents to make investment decisions.

    I had occasion in 2006 to join a group of high profile developers in a social gathering (Bernard MacNamara was not one). The discussion turned to Sean Dunne’s acquisition of the Ballsbridge site. Instantly a spray of palm pilots, fancy phones and the like were produced (the Celtic Tiger version of the back of a fag packet) and they all started tapping away on their calculators with their assumptions on acreage, floor plans, selling price etc.

    The object? To estimate what was the number of floors needed from the planning permission in order to break even. Amazingly, they were all within a handful of floors of each other. The discussion then went into how they envisaged the detail with the number of basements possible and how the social housing could be provided particularly exercising them.

    My point is these guys did not go to an estate agent or an accountant and ask for detailed projections. If needed that would come later when the accountant would prepare the business plan/proposal on the basis that his client/employer had already given him the answer.

    Developers needed estate agents for 2 things: to be intermediaries in transactions and to give valuations as fig leaves for banks’ credit committees. It was the reality that if “Benny Mac” suggested something like the Glass Bottle site to an estate agent, the fag packet decision had been made and the estate agent’s role was that of a facilitator – of the transaction and of the debt.

    If anyone has a claim for compensation it would be the banks who accepted pieces of paper caveated so heavily as to be almost worthless.

    Benny Mac and the rest of them won’t have too many valuations in their filing cabinets but they will have a lot of empty cigarette boxes with scribbles on them.

  42. christy Says:

    Do we have enough info about the carrrol or Big mac empires to estimate what the debt would be worth in the absence of NAMA?

    It would be useful to see, an albeit potentially unrepresentitive example of what NAMA is buying and then estimate what such debt would be worth on the open market

  43. yoganmahew Says:

    @christy
    The liquidation value of the Zoe Group (Carroll’s group of companies) was set at 25% of carrying value during the court case last year. This was backed up by cross-references to valuations on other buildings (e.g. the Sentinel building). Any time you hear of the really big sites, the value has dropped, so who knows what the current value on the Glass Bottle Site is.

    Not the same as the loan value, though, which should take into account LTV and payment capacity of the borrower… ah, so that would be the same as the underlying asset value then…

  44. Paul Iticsdotayee Says:

    @Mickey Hickey
    As in every other mature, healthy democracy, the government is responsible for the state of the country and therefore the economic disaster it suffered.

    Builders, developers and banks should be treated no more favourably than any other businesses. We need the banks payment systems and we need to protect deposits and maintain lending - that is about it.

    Developers, builders and bankers are acting like farmers, professionals, publicans, clerics and some businessmen because that is how the government have always treated them. This needs to stop. It will be a shock to the system but they should be treated like everyone else. It took a court to end the taxi driver monopoly. Perhaps we need a competition court?

  45. bill hobbs Says:

    One of the core issues aside from the bigger headline deals rests within a fundamental distortion that occurred in the nature of the relationship between banker and borrower.

    Banks diluted their lending role in favour of a wealth management role which saw their relationship managers selling credit as an “investment product” to be used to leverage - a wealth creation “borrow to invest” scheme.

    Aware of this nonethless the FR declined to consider regulating property investment schemes - consider the number of schemes marketed on the basis of a (soft credit) investment product.

    Customers were contacted by relationship managers who actively marketed property investments from small local schemes to the larger private client offerings.

  46. Brian O' Hanlon Says:

    The FF media unit - sounds kinda like a special branch that Ms. Thatcher would send in to deal with the hostage situation doesn’t it? Swinging on ropes and crashing through windows etc. Very dynamic indeed. Cyber War.

    Pat Donnelly’s points above about supply of land seem to make a lot of sense to me. It makes the whole Celtic Tiger recent history, fit in with the broader history of the island and its short independence. The era which some of the tribunals glanced over of course - things haven’t changed much in overall end result. Although the sophistication of the methods used has improved a bit, the end result has not. One could almost substitute Benny Mac, or Shoebox King, or whoever else, for guys like Gilmartin not so long ago.

    It was really upsetting to the Dublin Docklands Authority that Carroll and others were in control of such large swathes of land. It took the DDDA by surprise that developers proved so efficient in how they moved. It was wrong that directors of DDDA took such a personal objection to the large amounts of land that Carroll controlled in the docklands area. Indeed, it stuck in the throats of a whole generation of local authorities and local government officials, who found themselves with a lot less influence over ‘the supply of land’ than previous generations of the same.

    The negotiations between DDDA and Carroll’s company at the North Wall Quay development site, was completely off-the-wall. The DDDA were using the biggest fig leaf of all, if you ask me. They claimed they were negotiating on behalf of the community, to obtain social gain, as it is known. To build new canals, obtain new public parks and so forth. They used this as a form of barter, to try and develop some influence over the shape of the scheme. It is funny to think now, that a lot of the same ‘community’ the DDDA were negotiating a ‘better deal’ for, will turn out to be the smucks having to pay for the mess. That is what is laugh-able. Yes, it was a bunch of ‘professionals’ at DDDA who were negotiating on all our behalf’s. Aren’t we blessed?

    It didn’t take long after the planning tribunals though for the local government officials to re-assert themselves. Bernard McNamara made some interesting points in his interview. He made the point about social housing built to a very high standard, financed by the building of very exclusive residential development on the lands controlled by the local authorities. One has only to look at projects completed, for instance, at Cork Street for social housing to understand the quality of building these local authorities had in mind to achieve.

    My basic question is, why should a social housing development in Dublin’s city centre require the de-forestation of a hard wood forest in a tropical region? Why do people who live in social housing require so much tropical hardwoods? Is that something which is necessary for the said socially supported person to lift themself up in the world? Is is tropical hard woods that they really require, or something else?

    I suspect, that by 2007 the entire social housing program in Dublin city had become hi-jacked by consultant architects who saw this new building type as a way to build award winning structures, which beared no relationship to budgets in the real world. The fact that any person living in social housing enjoys a tropical hardwood window frame, in no way improves their overall situation I would argue. Social housing should be about people, not about portland stone.

    It is a pity also, that DDDA and other local authorities were using legislation such as the social housing provision in the planning acts as a way to muscle in, on business being conducted by major developers.

  47. Brian O' Hanlon Says:

    “It is funny to think now, that a lot of the same ‘community’ the DDDA were negotiating a ‘better deal’ for, will turn out to be the smucks having to pay for the mess.”

    It is also quite funny, if you think about it, that minister John Gormley has the cutzpah, to suggest he will further ‘negotiate’ on the behalf of the community to obtain some form of social gain, in the course of business with the NAMA process!

    We are going to attempt to negotiate some kind of social gain, out of a mess, that might have been produced, as a result of negotiations for social gain in the first place!

    It is like local authorities, the Green party and just about every other concerned and well-meaning individual out there, has no other skill than wishing to negotiate for better ’social gain’.

    But do these people fully understand the damage they may have caused, or are going to cause? I am all for social gain btw. One of the most impressive tours I ever made, was to a place called Helsinki. Heck, the difference up in Finland though, is you can leave a bicycle un-locked in a city centre street and go off for a half hour.

    Before we embark in Ireland on social contracts of any description, we should first adjust for the culture on the island. I think that the bicycle scheme introduced in inner city Dublin is a great idea though. Well done all, to those involved.

  48. Robert Browne Says:

    @ Brian O’Hanlon

    The local authorities did not even attempt to do the jobs they were supposed to do even though they had a raft of “professionals” at their disposal. The simple solution was to grab 20% of developments to plug the very obvious hole in their own operations. So they got legislation passed to that effect. Otherwise people would ask the question what are we paying these guys for?

    Ironically, their lazy attitude and land/apartment grabbing exercise has led them to a situation where they have grabbed “too much” of developer land and apartments. They have ended up with massive negative equity mortgages on hundreds if not thousands of empty apartments in deck land where their “clients” refuse to move out to.

    Remember the laughable situation when the city architect employed by DCC met with Sean Dunne’s Danish architectural practice, Henning Larsen and just to prove, that DCC could waffle with the best of them when it came to high rise, iconic buildings, land mark buildings, etc., announced that, “The 37 storey tower would be the most elegant solution”…. to plonk in the middle of Ballsbridge. It would have been a most elegant contribution indeed towards the enhanced bankruptcy of Ireland?

    The DDDA which is just another useless bloated quango should be allowed to go bankrupt and scrapped immediately. McNamara will end up in the same type of position as Larry Goodman did when he lost his beef empire, like Goodman his future will be golden.

  49. Joseph Says:

    @Brian O’Hanlon (name right this time) - “The FF media unit - sounds kinda like a special branch that Ms. Thatcher would send in to deal with the hostage situation doesn’t it? Swinging on ropes and crashing through windows etc. Very dynamic indeed. Cyber War. ”

    They are real enough and though I don’t like the job they are doing, you have to admit, they are doing a better job (in terms of controlling the news/media agenda) than the other lot over the past few months. Think tentacles - reaching far.

    I suspect someone who regularly posts on this blog (though not on this thread so far) - who often tells us how wrong we all are and backs it up with the most incredible array of stats and info - belongs to it.

    Perhaps I should take a more optimistic view and hope that I’m wrong.

  50. Paul Iticsdotayee Says:

    @Pa Bandit
    Your comment is one of the most memorable things I have seen on this site, so in tribute I will reproduce it:

    “I had occasion in 2006 to join a group of high profile developers in a social gathering (Bernard MacNamara was not one). The discussion turned to Sean Dunne’s acquisition of the Ballsbridge site. Instantly a spray of palm pilots, fancy phones and the like were produced (the Celtic Tiger version of the back of a fag packet) and they all started tapping away on their calculators with their assumptions on acreage, floor plans, selling price etc.

    The object? To estimate what was the number of floors needed from the planning permission in order to break even. Amazingly, they were all within a handful of floors of each other. The discussion then went into how they envisaged the detail with the number of basements possible and how the social housing could be provided particularly exercising them.”

    @Brian O’Hanlon
    “We are where we are.” “The only game in town.” “Get credit flowing”.
    There are many others. If you listen to enough FF/Establishment spokespeople you will hear the same lines over and over again. I read one poster on the internet and noted his uncanny similarity to someone on the radio. Fair enough. But then a few weeks later I noted his uncanny similarity to someone else on the radio. Terry Prone must be working overtime.

  51. Brian O' Hanlon Says:

    I was doing some thinking this afternoon about local authorities. I managed to scribble down some things as a blog entry.

    http://designcomment.blogspot.com/2010/01/local-authority.html

    Part 2 is posted right after that piece, to look at things from the bottom up, as opposed to the top down.

  52. Brian O' Hanlon Says:

    Some of the things I wanted to touch upon in the blog entry:

    The new Fine Gael vision for upgrading of Ireland’s mission critical services is a very top-down philosophy. But its implementation could work through the local level government quite well I think. Because at the end of the day, it is the local community which is the stakeholder in the Fine Gael, new infrastructure roll-out process.

    I believe the Irish property developer was forced to acquire a large private holding of land during the boom years - possibly, because of the fear of our Lord, imbued by local authorities and our planning system, in Irish builders down through the years.

    The whole idea of developers in Dublin Docklands owning so much land, was to reduce the power as exercised by the stupid, parochial and ineffective Irish planning system.

    Looking at it from that point of view of the local authority, their authority was really curbed in a big way, in the Dublin docklands area, because they owned so little land themselves. Yeah, the definitely freaked them out. DDDA became one of the most skilled operators of a little property trick known as the ransom strip. The DDDA acquired little tiny strips of land here and there, and everywhere. Just enough so that they kept a foot in the door. Enough so that they could make a darn nuisance of themselves.

    Anyhow, the obvious question to ask is: Why does Ireland need so many local authorities. Yeah, everyone likes things ‘local’ in Ireland, but to what degree do we really need ‘local’ representation.

    For instance, if a scheme on the outskirts of Longford or Limerick town/city is split in half by a town/council boundary - why should such a scheme require 2 no. planning applications?

    Indeed, why does the planning application system have to work out of the local authority at all? Is the local authority the best home for the planning system as we know it in Ireland?

    Take the Dublin Docklands Development Authority. Would it be much better off if it’s brief was greatly restricted? To a couple of main strategic objectives, such as broadband provision, water conservation, streetscape and so forth.

    Ditto, for most local authorities around the country.

    As it stands now for instance, at Cherrywood ‘Science and Technology Park’ we have ended up in a trully weird kind of situation. Where the local authority has been granted a couple of commercial office buildings and a swath of commercial development land, as a legal settlement when the ‘joint venture’ with Dunloe Ewart broke up.

    While on the other hand, the banking institutions involved with the developer are intent on covering the science and technology park with a carpet of semi-detached dwellings in order to claw back some dough.

    How daft is that?

    So in other words, the last spoke on the Liam Carroll wheel has been wrenched out of his control. One does wonder now, how much of an opportunity any of these so-called large players ever got to make good on their vision(s) or ambition(s).

    They are starting to look more like straw men.

  53. Brian O' Hanlon Says:

    “The whole idea of developers in Dublin Docklands owning so much land, was to reduce the power as exercised by the stupid, parochial and ineffective Irish planning system.”

    In that sense, if the planning system in Ireland was more sophisticated and well balanced, in some way - perhaps a lot of the power removed from the local councillor level - then, by definition, there would be less pressure on Irish builders to become serial borrowers, with several financial institutions at the same time.

    In other words, Irish builders could relax into doing what they do best. The country’s banking system would be in much better shape. Ireland as a whole country would have less exposure to risk of its property market crashing.

    Re-think local government, and then we can begin to re-think everything else also. A first confident step in the right direction, would be to disband the Dublin Docklands Development Authority immediately.

    It was only a botch-job set up by Charles Haughey, Dermot Desmond and Seanie Fitzpatrick anyhow.

  54. Brian O' Hanlon Says:

    Some interesting stories in newspapers this morning - how does one piece it all together and make some sense of it?

    http://designcomment.blogspot.com/2010/01/duopoly-two-headed-monster.html

    Enjoy, BOH.

  55. Paul Iticsdotayee Says:

    @Brian O’Hanlon
    I very much enjoyed your blog entry. I don’t usually comment on your posts here as they tend to be concerning issues in the first class intellectual carriages and I tend to travel in the economy class myself. However, I do read many of them and everything you say sounds sensible. The government should really appoint you to a policy committee on the planning and development issues you discuss. At the very least they would make much better thought out and more co-ordinated mistakes!

    As for the picture of the two headed monster - too cuddly. The most frightening two headed monster in Irish life today is the government and the opposition.

  56. Brian O' Hanlon Says:

    We seem to have lots of work on-going in the Irish state to do with innovation and encouragement of entreprise of all kinds. I have attended more than a few events dealing with this, in the last couple of years. I know it is on-going and is being prioritised by the government.

    However, none of that excellent work and research into modern, smart economics seems to have filtered down to a more local level where it needs to get. On the one hand, I wonder if more of that skill in dealing with entreprise and innovation filtered down to local authority level, would improve prospects for the country.

    On the other hand, I wonder if the local authority is the right place at all, to implement these programs. After all, what does the local authority know about the smart economy? We pay them to keep the roads clean and make sure water comes out of our taps - not much more.

    My worry is, that local authorities, without even knowing it, might be creating un-necessary obstacles in the way of progress - at their stage in the pipeline.

    The populist opinion-makers such as Shane Ross, Frank McDonald, David McWilliams and everyone else who wants to sell a book - tell us that property developers are ‘in kahoots’ with Dail Eireann.

    My experience leads me to believe that property developers spend a lot more of their time dealing ‘due process’ and various ‘mugs’ at local government representation level.

    If the planning tribunal proved anything, it proved that to do business at ground level, the synergy occured between local government and high net worth individuals. Not between the house of the Oireachtas and the builder(s) as populist novel writers would have us believe.

    As the property developer is a key part of the ‘economic building process’, in Ireland - in accomodation of major employers and innovators in science and technology - I wonder has Ireland shot itself in the foot completely?

    By entrusting too much of that critical employment incubation process to decision-makers, at the local government, developer and local bank manager level?

    This is structural and this could prove majorly problematic - no matter how many Entreprise Irelands, SFI’s and IDA’s we try to create and fund.

    I have been around 35 no. years now in Ireland - and the places where I grew up haven’t changed very much, for better or worse, or anything in between. Even with the Celtic Tiger, behind us, large parts of Ireland are stagnant in terms of economic activity.

  57. Paddytheman Says:

    @Edgar
    Your totally correct.
    You mentioned the Banks and developers had been the cause and not knowing when to stop.You should also have included the Government also.
    The Foot and mouth disease and the twin towers disaster that slowed the economy down in 2001 gave this Government the chance to bring about Prudent economic reviews of our trading imports/ exports plus the service industry.That was the right guage in which to measure the price of housing and the amount of people that could actually afford the houses (to live in but not buy to let.)The Government did none of these things.We now know the consequences.

  58. Brian O' Hanlon Says:

    The fundamental fact we must commit our attention to, is the fact that a local authority organisation may be up for sale.

    http://designcomment.blogspot.com/2010/01/where-streets-have-no-name.html

    It is more difficult to ‘buy’ out an entire Oireachtas majority. I presume this is the logic of the founding fathers/mothers in setting up a parlimentary democracy in Ireland on day one. They gave us some mechanism, which can be used to preserve some semblance of order to our lives.

    The main houses of the Oireachtas are robust enough. It is the back door I am more worried about, and that would seem to be the various quangos and local authorities.

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