Thanks for the link to your upcoming Cantillon conference btw, a really interesting line up of discussions and speakers. I’ll be busy at other stuff in September, but best of luck with it. An interesting couple of video presentations you might like to digest in the meantime, is about energy saving performance contracts, which they currently are employing in the United States. The video tutorials hit upon a number of different issues, all of which arise in debate and conversation about Ireland’s future, how Ireland can economise and become more efficient with its resources etc. Something Karl Whelan said lately on another thread, about NAMA: Its ability or lack thereof to generate returns on assets, above the liabilities which the state is exposed to. I was reminded about that in the video presentation about energy saving performance contracts. One of the key things underlying this new method of procurement, seems to be the need to support research and development facilities with reliable and economical energy provisions, over a long period of time. BOH.

http://www1.eere.energy.gov/femp/financing/superespcs_fda.html

I expect you are right. What is with the change to “hoganmahew” by the way?

We know two things now that we didn’t understand before it Ireland. Nationalisation does not guarantee absolute and full cooperation by a banking institution. Also, that plans for nationalisation were being drafted and debate in the permanent government, long prior to Sept ‘08. The opportunity is now there, and will become even more feasible, for some economist to put some flesh on the bones on my two statements hence. BOH.

The T2 release strikes me as a “this is how far we’ve gotten, you wouldn’t believe the messing from Anglo”.

There is an important academic paper which deserves to be written on this subject in years to come. Difficulties experienced with nationalised banking institutions. Hopefully such a paper, if completed at some future time will shed important light on the subject, for all of our benefit. What was revealed last week, was how far advanced plans to nationalise INBS were, by late 2008. Long before the issue was on the radar of many economists here at this blog. Is this the area, in which Ireland needs more transparency in the future? Or does the scare the horses argument still hold any water? BOH.

Good reply, thanks for that. You ask: If NAMA never saw the light of day, would property prices be more or less than they are today?

What we do know is that Franco-German driven monetary policy (coupled with poor fiscal supervision from the EC), did lead to a period of unrealistic demand for property in the Irish market. We were told that influxes of new arrivals into Ireland, would put so much pressure upon our residential and commercial stock, that we needed to ramp up production of both to meet with demand. Failure to meet demand, would have resulted in worse inflation that we already had. We also know, that without EU intervention today into our banking policy, we would never have such a thing as NAMA (or NAMA bonds). By this logic of mine, both NAMA and the Irish property bubble were in large measure to do with Ireland’s membership of a wider European economy. We the Irish voted in favour of that, and perhaps we made a mistake. We should not try to represent NAMA as a purely Irish solution to an Irish problem. NAMA is symptomatic of a wider struggle by a small peripheral state in Europe to integrate itself into a larger political, social and economic framework - or to use the common phrase, we are trying to become ‘Europeans’. I am sure you will agree, the social progress made by this small state has been very impressive over the past decade. Ireland has become a destination on the map. Something it never was. I will not argue with you though, if your assertion is, economic planning in relation to Ireland, is still quite atrocious. BOH.

I would be concerned about the extent to which the government continues to put the interests of investors over those of taxpayers. There has to be a point at where the government would stop pumping money into Anglo if things keep deteriorating, for example. I don’t see many links being made as yet between the total bailout costs and how they will define aspects of life in Ireland for the next 15-20 years. The original decisions in Sept 08 were made on the assumption that things would be grand by now and they aren’t.

If NAMA never saw the light of day, would property prices be more or less than they are today?

I would have said prices would be lower without NAMA. Developers were led to believe that NAMA would hold their assets until the present madness of the crash in prices had been passed over and the LEV could be realised - this has meant that developers have avoided putting property on the market in a serious way. Developers know there is extra money available from NAMA (the €5bn pot) on easy terms to finish out projects.
NAMA has indicated that it may demolish which would tend to place a floor under values by removing supply.
All the optics surrounding NAMA have suggested it would stabilise property prices.

So I would have said the “reflexive behaviour” of the property market, as a result of NAMA, has been to maintain prices at artificially high prices. The reason that prices have continued to fall however - lack of credit, higher interest rates, lower wages, unemployment, higher taxes, emigration, overhang of supply, the ending of property mania - have nothing to do with NAMA.

So if NAMA wants to change the Valuation Date from 30th November, 2009 to 30th June, 2010 then banks can’t (in my opinion) say that is unfair because NAMA has depressed prices.

It depends on what other things investors connect NAMA to in their minds. If investors perceive NAMA to be interferring too much on the critical path(s) of other elements in the blueprint for Irish economic recovery, then NAMA could result in lost confidence. The obvious linkage being, requirements for re-capitalisation posted as sovereign debt, which results from too agressive a haircut on loans transferred to NAMA. That is a very precarious line to walk. But also, other odd kinds of connections can be made. For instance, David McWilliams made a very interesting point about the loss of 900 jobs in Quinn insurance business in the border counties. McWilliams noted how much of the problem stems from the fact, we wish to keep Anglo Irish bank open for business. Think about those three connections: Quinn insurance, Anglo Irish bank and NAMA. If those kinds of connections get too strong in the minds of investors, we are in a real spot of bother. BOH.

On that basis, does NAMA giving less information in relation to T2 increase the risk of investors losing confidence in Ireland?

Even the build-er(s) themselves, who are bound for NAMA, feel passionately enough about the fact that NAMA is affecting marketplace perceptions, that they are willing to challenge the same through the courts. Mary Carolan wrote in the IT, The proposed transfer breaches their property rights under the Constitution and European Convention on Human Rights, it is claimed.

http://www.irishtimes.com/newspaper/breaking/2010/0714/breaking56.html

This speaking about the bottom, and bottom-ier, strikes me as a bit suspicious. In general the comments here might appear to be a big one sided. Especially from a group of academic observers, who aught to be better able to understand reflexive behaviours in markets. To what extent do we know, the behaviour of market prices would not be boom-ie, or boom-ier, if NAMA had not struck an agreement with the lending institutions to set valuations at Nov 2009? I mean, the market since Nov 2009 in Ireland, has well registered the fact that NAMA is making progress, and that wheels have been set into motion. The knowledge held by the Irish property market today, that NAMA has managed to work its way through two tranches of the loans, may account for the slippage in property valuations we have witnessed since Nov 2009. I mean, as academic observers of the process, we should be able to understand basic concepts such as marketplace reflexivity, shouldn’t we? BOH.

well it doesn’t matter massively, so long as its not truly big in size. ie if the haircut was 25%, then obviously you wouldn’t be getting nearly as much liquidity as you had previously hoped - NAMA’s 40bn in bond issuance would only be providing 30bn in liquidity for Irish banks.

On private repo markets, Greek government debt was/is (difficult to really know anymore, very few accepting it) taking a 30-40% haircut.

“Should also say that interest on a repo is calulated on the Nominal Amount less the haircut so if I sell a €10m bond on repo with a 2% haircut, I pay interest on €9.8m”

I think I get it now. The haircut doesn’t really matter. I might get a car loan for 20k offering my house worth 500k as collateral security, but I only pay interest on the car loan.

Be grateful if you are talking to the government if you could ask if they are now as we speak seeking approval for an imminent (ie within the next 4 weeks) injection of a further €xbn into Anglo.

Remember the only approval they have from the March 2010 EU Decision is for €10.44bn to be injected and they have runs that down by €10.3bn so far and both the t2 Anglo NAMA of €8bn gross plus reviews of the non-NAMA Anglo portfolio are likely to necessitate immediate injections.

I ask because there seems to be a lot of debate about Anglo’s bailout but pretty soon that debate will be an academic examination of history because it will have already happened.

Indeed you do have to pick a date by reference to which you value. NAMA picked 30th November 2009, which given the first tranche was originally to have been transferred by Christmas was perfectly reasonable.

Since then NAMA has decided to have 15 tranches and there have been delays (EU, banks’ paperwork, life) and as we speak €60bn of NAMA’s loans are still with the banks. The Bottom last year has become Bottomier and our commercial capital values are off 8% from last Nov to end June (JLL) and our residential is off 8% to end March (PTSB) and would be expected to be off by more than that once Q2 is published. As to the future, who knows but I know not of a single economist, ratings agency, financial institution that is forecasting anything but further drops in residential for the next 6-42 months and the latest JLL commercial index indicates the fall in capital values is picking up pace (4.7% in Q2 vs 2% in Q1).

So as we speak valuing that €60bn of outstanding NAMA-bound loans at 30th November, 2009 rates (and even factoring in the LEV jiggery pokery) means NAMA will overpay for these loans by €1-2bn. NAMA has an obligation to protect the taxpayer (even if that is politically inconvenient) so NAMA should change the Valuation Date for the remaining €60bn of loans.

Again for balance the UK has fared better than NAMA’s primary market since last November but even there the decision by Zurich to write down its commercial development loans by 10% in Q2 is worrying and of course the UK only accounts for 20-33% of NAMA loans.

Yes a saving of €1-2bn on the NAMA swings might be offset by futher recap needs on the Anglo/INBS/EBS roundabout but a) we should be clear about State-aid and b) BoI and AIB are supposedly hale and hearty so why are we giving them more State-aid via inflated valuations?

http://www.ntma.ie/Publications/2010/Results20July2010IrishGovernmentBondAuction.pdf

The barman is flashing the lights on and off.

The repo rate has nothing to do with the haircut. The haircut is simply a way to impose a margin on the collateral seller. A larger haircut simply means you get less cash for the bonds.

Still don’t fully understand. Is the repo interest calculated by reference to the amount borrowed or by reference to the amount of collateral posted? If the latter then clearly the haircut matters a lot but if the former it doesn’t seem very important.

re that EBS one seems to be some sort of structured “puttable” note. Probably little too funky for the ECB to be happy as designating as “govt” in terms of liquidity, tiny issue size of 5mm as well might have impacted on it.

Interesting to see that, for example, EBS bonds XS0506123255, also guaranteed by the Irish state attract a haircut of 11.5%…

The haircut matters because you get back less cash from repo (you are effectively paying a higher interest rate). If there had been a problem with the repo status of the NAMA bonds, it would have made them less useful to the banks.

Well, that looks like no problem, then. The valuation haircut is only 1.5%