Author: Karl Whelan

NAMA to Provide Finance

NAMA Chairman Frank Daly gave a speech this morning and the following excerpt is going to get a lot of attention.

NAMA is currently exploring ways in which it could further facilitate the provision of liquidity into the market by providing staple finance for commercial deals and also by exploring options on the residential front. Following the PCAR2 exercise we would, for example, be interested in talking with the two Pillar banks to see how we could work together to move things along in this area. At a time like this, it is imperative that NAMA is creative in terms of identifying solutions to get the market moving.

I’m obviously completely missing something here. Why does this need “exploration”? Why does it have to involve the Pillar banks which are supposed to be shrinking their property loan portfolios, not adding to them?

Here’s a two step guide to selling a NAMA property without needing banks to provide finance: 

1. Have a competitive auction.

2. The winner gets offered the option of either paying in full in cash or getting term finance from NAMA, i.e. they pay back the amount they bid (less cash put down) over time including interest.

What have I missed? And why didn’t NAMA operate like this from the start?

UCD MA in Economics

I figure that some of you reading this blog may be interested in undertaking further study in economics. So this seems like a good place to provide some information about UCD’s MA programme in economics. Information about the course is available here, including an electronic version of our glossy brochure.

I suspect some of the economists from other universities may also wish to use the site to promote their programmes, so let me briefly indicate what I see as the strengths of our programme. According to RePEc, UCD is Ireland’s leading university for research in economics, so the modules are taught by highly qualified research-oriented staff. The programme has a strong research element to it, with students doing a research thesis, for which we offer significant supports in the form of personal supervision by a staff member and classes on research methods. Finally, the programme offers a range of module options in the second term, allowing students to take advanced core modules (effectively tracking those taken in the first year of international graduate programmes) or to take a range of more applied and policy-focused modules or a mix of both. This means that students can decide at the end of their first term which track they want to go down.

Anyone who has questions about the programme should feel free to contact me at karl.whelan@ucd.ie.

Update: Hugh Sheehy points out in the (surprisingly entertaining) comments that our MA site isn’t clear about fees. I’ll try to get that fixed but I can tell you from this that they are €5,400 for EU students and €10,800 for non-EU students. Hefty, I know, but less than other comparable programmes.

Portuguese Bailout Request, ECB Rate Hike

Clearly these are important. No we’re not ignoring them. I guess none of our blog alumni have anything profound to say about these two predictable events over and above what we’ve already said. Still, here’s a thread for our commenting contingent to explain to us what it all means.

Business and Finance Article on EU-IMF Negotiations

Here‘s an article I wrote for Business and Finance on the ongoing negotiations with the EU and the IMF. I wrote the article before last Thursday and have to admit to being a bit less positive now that I was when I wrote it but the general point about the need for a careful approach to ongoing negotiations over the coming year or so still stands.

Garret Fitzgerald: Silly Markets and “Celebrity Economists”

In today’s Irish Times, Garret Fitzgerald dons the green jersey and bravely confronts Public Enemy Number One: Celebrity economists who “talk down the economy” and “scare the horses”.

The conservatism of the assumptions that underpin this study certainly ought to command the respect of the markets. It remains to be seen, however, to what extent it actually does so.

Factors that could work against this include last year’s undermining of confidence in our banking system; the lack of any specialised knowledge of the Irish economy both on the part of those who rate our debt and those who buy sovereign bonds; and the damage done to our financial reputation by some of our more vocal domestic commentators.

Part of our problem has been, and regrettably still is, the fact that “the markets”, (ie the international firms which evaluate credit risks as well as those which buy bonds issued by sovereign states), lack the capacity to assess adequately the financial situation of smaller states like Ireland. It is only in relation to larger sovereign borrowers that these firms employ specialists with detailed knowledge of the economy of a particular state.

For smaller states like Ireland they depend on second-hand information. This includes often ill-informed media reports, which in our case have involved reports of some of the “celebrity economists” who have been seeking publicity by claiming that our problems are so great that we will eventually have to default.

Some have indeed proposed that we should take that course now despite the impact this could have on our only current source of future borrowing – the EU-IMF bailout.

The damage to our standing abroad by such irresponsible statements has been incalculable. It is difficult enough for our own people to distinguish between serious economic commentators in Ireland and irresponsible voices – it is impossible for foreign observers of our finances to do so.

Frankly, I have no idea why Dr. Fitzgerald thinks that “the markets” lack capacity to assess the Irish financial situation. This has not been my experience over the years when dealing with ratings agencies or financial market investors: I have come across many international market investors who have a detailed knowledge of the Irish economy and financial situation.

And indeed, it’s not too hard to figure out why this is. Ireland’s gross government debt is over 100% of GDP, so the stock of outstanding debt is now over €150 billion. At current exchange rates, this means that the stock of outstanding debt is now larger than the market capitalisation of Microsoft or IBM. Does Dr. Fitzgerald think that financial markets consider these companies too small to bother collecting information on?

Over the last few years, Irish economic policy has been based on systematically overly-optimistic premises and Dr. Fitzgerald has supported these premises throughout. That Ireland’s debt situation is now extremely serious is simply undeniable. Attacking those who believe Ireland will default as trouble-making publicity seekers is pretty risible.