Author: Karl Whelan

Key Audience versus Only Game in Town?

Commenters on another thread have been discussing this story from the Irish Times concerning comments from Frank O’Dwyer of the Irish Association of Investment Managers. Mr O’Dwyer’s comments are reported as follows:

“I strongly believe that the Department of Finance and agency understand that while they have to be fair to the taxpayer, the key audience is international financial markets,” said Frank O’Dwyer, who heads the Irish Association of Investment Managers in Dublin.

“An excessive haircut, with any taint of political motivation, any sense of ‘let’s stick it to these guys,’ would erode confidence.”

Interestingly, while the “key audience” is international financial markets, Mr. O’Dwyer also says:

“The only certain game in town in relation to capital is the State,”

I also liked this comment

The agency’s task is to find a “zone of rightness” for the discount

I can see the zone of rightness catching on as a phrase. It’s kind of like “truthiness“.

The Carroll Judgment

I’m not a legal expert so I’ve no great insights into what happens next.  More generally, it’s hard at this stage to know what impact this decision will have on the market for Irish development properties or on the prices that NAMA are likely to pay.  But the Carroll judgment is an interesting document in its own right for the insights it gives into the types of businesses whose loans NAMA is going to acquire.

The NAMA Levy

There’s quite a lot of confusion out there relating to the role a bank levy will play in the Nama process.

Some people have been surprised that the legislation made no reference to a levy. However, it has been public knowledge at least since the appearance in May of Interim NAMA CEO Brendan McDonagh at the Public Finances Committee that a levy would not be in the legislation. He told the committee:

If there was a clawback within the NAMA legislation affecting the balance sheets of the banks, they would not be able to reduce the assets transferred to NAMA because effectively there would be an unpriced option in terms of what the clawback would be in the future. One cannot do this because it would not be possible to take risk weighted assets off the balance sheets of the banks if the levy was imposed in the NAMA legislation.

To translate this into English, let’s give an example. Suppose a bank has a loan with a book value of €100 million. Now NAMA buys it for €60 million. Suppose it turns out to be worth €40 million and the government decides to levy the €20 million loss on the bank that sold it. In this case, the bank may as well have held onto the loan—and the accountants will have to reflect this in the bank’s balance sheet. But the point of the exercise, at least in theory, is to get the loans off the banks, re-capitalise and then draw a line under the whole episode.

Continue reading “The NAMA Levy”

NAMA Legislation FAQ

I received this official NAMA question and answer sheet from a member of the Fourth Estate on the day the draft legislation was released but then I noticed that it didn’t appear on the DoF website so I never linked to it. In any case, it turns out that it is now on the NAMA website. It is a very interesting document containing plenty of discussion about issues not addressed in the draft legislation itself.

Government Spending Under Ahern

In yesterday’s Irish Times, Stephen Collins wrote:

The current appalling plight of the public finances is a direct result of the profligacy of Bertie Ahern’s governments since 1997 when public spending was ratcheted up far ahead of economic growth, year after year.

If public spending grew at rates far ahead of economic growth, then government spending must have increased as a share of GDP. However, when I check one of my favourite sources of information, the Statistical Annex of the European Commission’s European Economy publication, page 174 tells me that government spending as a share of GDP fell from 39.1% in 1996 to 36.9% in 1997 and fell further to 31.5% in 2000. The ratio moved up to 33.4% in 2001 and then stayed at essentially this level until the final two years of the second Ahern government at which point there was a gradual rise in this ratio to 35.7% in 2007, still below the level inherited by Ahern.

So the figures show that on average, rather than increasing public spending at rates far ahead of economic growth year after year after 1997, Bertie Ahern’s governments on average increased spending at a lower rate than economic growth.

Many fiscal policy mistakes were made during the Ahern era but it would be better if public discussion of these mistakes started from facts rather than imagined truths.