When Frank Fahey says “the ECB are funding NAMA” I believe he is stating that the ECB are providing the resources for NAMA to purchase property loans. I believe that this is what everyone at home believes he means also. However, it is false. NAMA is being provided with government-backed bonds to acquire the assets and it has no financial relationship with the ECB.

BW2 and Eoin want us instead to believe that Frank Fahey’s thought processes are as follows:

“1. Think of NAMA as like a bank, with a balance sheet with assets and liabilities.
2. Now use a terminology from banking where people refer to liabilities – the money the bank owes to people – as the “funding” of NAMA.
3. Because NAMA’s liabilities are the bonds that it has to pay out on to the banks, we can then say that the banks are the source of NAMA’s funding.”

They will then waffle extensively to maintain that this is the correct and reasonable way to interpret what Mr. Fahey said, even though he didn’t actually say anything about the banks funding NAMA and this is not how anyone listening will have interpreted what he said.

Then, our friends Eoin and BW2, add the fact that the banks (like every bank in the Eurozone) can, if they wish, use government-issued securities as collateral in repo operations with the ECB, to take some sort of flying leap to now argue that, even though they admit it’s wrong, the idea that the “ECB is funding NAMA” is somehow not so incorrect.

All parts of this are feeble. It seems to be intended to deliberately mislead people.

I think when BW2 argues that the “length of the thread” may deter others from criticising the original statement, we get closer to the truth. If you dissemble and play semantic games for long enough, then folks may think you might possibly have a point, even if they don’t exactly understand what it is. Not wishing to extend something that is an exercise in misleading people, this thread is hereby closed.

hilarious. Just had a conversation with my boss, an incredibly smart guy who has a clear understanding of NAMA, basically about this (he brought it up coincidentally!), and i kinda started talking about the funding model of NAMA. His exact words were, “well the ECB is funding NAMA”, and i said, “no, no, wait, its not”, and he replied “well, it kinda is, through the repo, if you know what i mean”. I shizzle you not. You don’t have to be thick or a FF gombeen to see it this way, even if you admit that technically its incorrect but effectively somewhat correct. And no, before you ask, Frank Fahy is NOT my boss…

However, as Eoin has said, technically it may be correct (subject to one ignoring what a repo operation is).

I would explain it by analogy with a bank funding a building project.

The bank provides funds on security of the land and buildings. The funds are paid to the borrower’s creditors. The borrower and any guarantors remain ultimately liable to the bank.

In the case of NAMA bonds [not NAMA itself], the bank [ECB] is providing funds on the security of the NAMA bonds. The funds are paid to the borrower’s creditors [the Banks]. The borrower [NAMA] and any guarantors [Ireland] remains ultimately liable to the bank [ECB].

Thus one might say that ECB if funding the NAMA bonds [again, not NAMA itself] in the same way that a bank might fund a business project.

As somebody who has probably dealt with banks in relation to property, I expect Frank Fahey understands it in those terms. People always percieve the world within the framework of theri own experiences.

Again, before anybody tries to hoist me on a gibbet, I don’t think Frank Fahey should make such statements on the national airwaves as his statements are almost guaranteed to be misconstrued.

I think you have ensured that “deposit selling momenet” will stick with us like GUBU. Poor BL will never be able to forget now.

Let me have the last word (some chance) - the taxpayer is underwriting the solvency of NAMA, the ECB is underwriting its funding. Fahy was near enuff and anyway the sheer size of this thread will give pause to Gene Kerrigan before having a go at Frank. Yes, I think Gene, while tempted, will give this one a miss.

I plan to come back and have a good read of the discussion above at some later date. Thanks for investing the time and effort, to try and unpack some of the different issues in the entire mechanism, for the benefit of us all. I thought this paragraph in particular had some value from my point of view: The NAMA bonds are fully backed by the Irish government. They are a liability of the Irish state, albeit one entered into at the same time that it acquired some property assets that may or may not yield enough to pay off the bonds. I think it is an important paragraph and underlines some of the real truth in the current situation. Namely, that one has to manage the NAMA portfolio of loans properly, in order to extract any value of them at all. Liability is one word, one could use to describe it. There may be other words also, which can serve to invest a little more meaning in the task facing us. Eoin above, has spoken about context in relation to balance sheets. I don’t know if people in the financial world talk about context in relation to asset portfolios, but there is a point I would like to make. The context in which the NAMA portfolio of loans was created, was very different to the context in which it finds itself today. The NAMA portfolio might have made some degree of sense in 2006. In the same way Operation Barbarossa, might have made to Germany’s generals in 1942. Dr. Sonke Neitzel published a book based on MI-19’s secret recordings of captive German generals at Trent Park in North London. The book is called, Tapping Hitler’s Generals: Transcripts of Secret Conversations, 1942-1945. What was interesting, was the generals who had supported the invasion plans so strongly in 1942, tried to disassociate themselves from the same, later in the war. The NAMA portfolio of 2000-2007, is more or less the same as Operation Barbarossa. It is an orphan child at this stage, and nobody wants to have association with it. That is the new context, in which we must view the balance sheets and NAMA portfolio. BOH.

NAMA bonds can be used by the banks that have received them as collateral for loans from the ECB but that’s it, that’s the full extent of the ECB’s involvement in relation to NAMA.

Am I correct in assuming that the NAMAbonds for a given tranche are paid to the banks at the same time that the banks hand the property in that tranche to NAMA? If so, can we be sure that no NAMA bonds were among the Irish government debt slurped up by the ECB on the secondary market? Though indeed it’s probably not that important: because there was no indication at the time the NAMA legislation was passed that the Eurosystem was about to start purchasing Eurogroup sov. debt, because it intends to stop again shortly, because the repos we have always with us.

its as simple as this. Who’s providing the funding - the banks. Who’s taking the risk - the State. I’ll meet you halfway and say that the banks are providing the resources, but the State is ultimately creating them. I have never disagreed with that, but that still doesn’t mean we should confuse the two terms, or else we all run the risk of doing a Frank Fahy (or having a deposit selling moment…). If you want to break down the simple balance sheet of NAMA, the funding of it is quite clearly being provided by the banks. But balance sheets are often completely lacking in any context, like, for instance, that of an underlying government guarantee, or the rather one way nature of the credit exposures facing the different parties to the balance sheet. This is why we have notes to a balance sheet.

I have never tried to say that Frank Fahy was making sense, merely noting the part that the ECB is playing in all of this, which i think is less straight forward and inert than you give credit to (if the ECB provided 1000% of GDP in liquidity to Ireland, would you say it was straight forward?), and also defending the very correct, from a technical viewpoint, that BWII had that NAMA is being funded by the banks themselves. The risk is on us the taxpayer, but we have ultimately not had to put up anything against that risk yet. Im talking accounting, balance sheet, technical view of funding. From a more straight forward understanding, NAMA would not exist operationally without (a) state guarantee and (b) the ECB repo window, and ultimately it is the taxpayer that is taking on all the negative risk (and all the theorethical upside too). But this doesn’t deny that the banks themselves have 40bn in funds locked up in NAMA for the next decade, which isnt exactly yielding them very much (though they can access liquidity via use of collateral). Quite why you cannot admit that this is the legal accounting structure of NAMA, whilst also taking into account that we all admit that the risk underlying NAMA is bourne by the state and the taxpayer, is beyond me. Instead of saying “though technically right, thats far too simplistic…” im being told that “its nonsense” and “you think Faux Fahy has a deep and correct insight”. I can understand why people would not want the phrase “banks are funding NAMA” to become a talking point, but if you’re going to call it “nonsense” then you better be able to explain why.

When we had the whole “deposit selling” fiasco, you admitted that you never liked the very incorrect technical terminology of “selling” a deposit book. It confuses me know why you take such umbrage with my very correct terminology now, even when it is backed up completely with the necessary context. If someone in one of your exams said “NAMA funding is being provided by the banks” and then gave ALL the necessary context, would you give them a bad mark on it because you dislike the use of the word funding???

@ Pa Bandit

pls see above. You are talking about risk. Im talking about funding a balance sheet. They are different issues, ones which can quite easily be mistakenly (or differently used, at the very least) used in a discussion about NAMA (or similarly with deposit selling), as i discussed with Hogan above. You can technically fund someone and have zero risk if the security in place is strong enough (ie a State guarantee). I have never suggested that the banks were doing us a favour by funding us. We’re quite clearly doing them a favour in all of this.

This messy end to the debate arose from a technical query by BWII which he was told he was completely misunderstanding, but which he actually got 100% right. Indeed, his original statement which seemed to cause so much angst on here:

“So technically, in the accounting sense, it is the banks themselves that are funding NAMA.”

He’s right.

I don’t really have a view one way or the other on Banker Matthews - he has spent a lot of time in the past year addressing the public and not unlike some other economists he has predicted NAMA will make a considerable loss. He has a career in property-related banking which seems relevant to the present crisis. Again you can find the very bad tempered exchanges between Frank Fahey (there’s an “e” in the surname) and Peter Matthews at the May Joint Committee on Finance and the Public Service in the link below.

And again from 12 midday today, Wednesday, Peter Matthews will again be the sole guest of the Committee on the subject of “NAMA and the banking crisis”. There’s unlikely to be much of interest - why on earth the Committee didn’t summon Brendan McDonagh to explain his agency’s Plan is beyond me.

http://debates.oireachtas.ie/DDebate.aspx?F=FIJ20100505.xml&Node=H2&Page=3

We would have believed all this rubbish. We would have believed, for example, Frank Fahey himself on RTE, last summer, telling us that the money going into NAMA wasn’t taxpayers’ money so we didn’t need to worry about it.

.

Step back and ask if all of the NAMA purchased properties go splat, who pays – ECB or Ireland? So the State takes the risk and not the ECB.

FF’s constant reference to ECB funding gives the impression to most lay people that the ECB involvement equates to taking the risk. Intentional or not I don’t know but misleading it is.

@Jagdip

FF’s probing of P Mathews’ credentials may have been particularly apposite. What has he done in 12 years that makes him an authority on this crisis? Could be one particular hole worth digging.

NAMA bonds are not worth the Irish government paper they are written on accept for the fact that the ECB will accept them and turn them into cash. The useless fiat bonds of the Irish government are backed by “real” ECB money otherwise I don”t that even Anglo would be silly enough to accept them.

How many people on this site would give up their little nest egg in return for NAMA bonds if only Irish government “guaranteed” them?

This is the way I like to explain this (I’ve had to a few times already today)

Basically the ECB is the Pawnshop for the banks. They get an asset (NAMAbond) from NAMA. They need a little cash, so go to Mr Trichet’s Pawnshop and pawn the bond there, with a promise to buy it back off him at some stage in the future.

While it might appear on the surface to the less financially astute that Mr. Trichet is funding something, all he is really doing is providing a market for an asset that the bank holds. The asset comes from NAMA, so therefore so does the funding.

Unfortunately for the banks, Mr Trichet’s pawnshop is the only one in town, and he can get a little moody sometimes. He can be good to go to in a pinch, but should not be relied on in the longer term..

There are a lot of people in Ireland who have recently learnt exactly what a guarantee is. Frank Fahy must be one of the slow learners. It baffles me that the Fianna Fail leadership allow him to go out and muddy the issue.

The right policy is to tell it as it is as the Minister For Finance has done all along. There is no point in sugar coating it or pretending risks don’t exist. That only leaves you open to people saying you really made a hemse of it when circumstances turn against you.

The ECB has assisted Ireland in providing a mechanism for Ireland to fund NAMA’s purchases. It is not that complicated. Suggesting that NAMA bonds are being funded by the ECB is crap-talk even if it is in some technical sense correct. Ultimate liability for the debt lies with one set of tax-payers only, the Irish tax-payers. Lenihan has been straight up all along.

I dunno, perhaps the trolling word was harsh.

Still, when someone posts at 3.55pm

http://www.irisheconomy.ie/index.php/2010/07/20/no-frank-nama-is-not-being-funded-by-the-ecb/#comment-60759

“you’re right, it’s depressing that they’re still making these quite clear and obvious mistaken/deliberately simplistic/misleading (pick as you see fit) comments.”

but, by later in the evening, they’ve decided to adopt some strange argument about how these mistaken/simplistic/misleading comments are actually, in some sense, a deeply correct insight into what’s going on, well it doesn’t look too good to me.

Chief economist with the Friends First building society Jim Power told the MacGill Summer School that the department had sought to have him dismissed.

“I dared criticise the Department of Finance 18 months ago and they made a formal complaint to my employer and tried to get me sacked. So you dare not criticise the Department of Finance.”

http://www.irishtimes.com/newspaper/ireland/2010/0720/1224275075177.html

Opus Dof strikes again! Thankfully Power dodged the albino assassin. What does it say though when the government is adopting McCarthyite tactics against the honest while simultaneously spreading misleading nonsense through its spokespeople?

tad harsh to rock out a troll comment there.

NAMA has bailed out the banks. No question. However what we are left with is the Irish banks owning a load of Irish government obligations. As such, its entirely accurate to say they have lent, albeit involuntarily, to the Irish state, in that they are owed money by the irish state. If thats not lending, what is? However, this is good news in their eyes, as they were previously lending to a bunch of potentially insolvent developers. So they have been forced to continue lending money, but now have a far better credit, and one which can be more easily used as collateral.

Saying the Irish banks have NOT lent to the Irish state is categorically false from a pure technical viewpoint. Equally so, not including the rest of the context about an improved credit/collateral is categorically unfair on the other side of the argument. However, i’ve never said that the banks weren’t being bailed out, but you have said the Irish banks are not lending to NAMA (”its nonsense”). But yet im the crazy troll…

I strongly recommend not feeding the trolls on this one.

We’ve started here from a basic pont — NAMA are not getting any money from the ECB despite FF from FF’s repeated claims that this is the case — one which everyone including Eoin agrees with.

And we’ve ended up with a load of nonsense about “banks lending to NAMA”. Extending this thread will just give onlookers the impression that perhaps Deputy Fahy was correct.

To be honest, I find it depressing. If I wrote a post called “No Mister Lenihan, the Grass is Not Yellow, It’s Green”, I’d have a bunch of characters on here musing about how perhaps if you mixed yellow with blue ….

i’d describe it more as a massive subsidy than funding, as NAMA is not entitled to the difference back. Like i say, you’ve got a joe public/’how people will see things’ view of funding (we gave them money) and ive got a technical view of it (who owes who what). I believe your view of “funding” to be more like equity or capital or a permanent subsidy.

Funding is in financial theory sitting on the liability side of any entities balance sheet (ie the entity to be funded), while you almost see it on the asset side (capital/equity), if anywhere at all (gift/non refundable subsidy).

Okay, we’re getting somewhere. How about the market value in November 2009 compared with today; does that constitute funding too? (Given that both asset prices and loan performance have declined in the interim (and, yes, it’s really about the performance of the loans)).