Tag: NAMA

IT Article on NAMA

With the Lisbon debate now over bar the voting and counting, I’m hoping that despite widespread exhaustion with the topic of NAMA, we can now have a debate about this issue that doesn’t involve misleading spin about IOUs, free money from the ECB, support from international organisations and the like. It’s with that in mind that I have written this article for today’s Irish Times.

Reading it now, the tone seems a bit more strident than my usual approach but I think it’s important that misleading spin be seen for what it is so that we can return the focus to the basic questions of correctly diagnosing the problems with our banking sector and designing fair and efficient ways to deal with them.

For that reason, I don’t plan to engage in a comment-fest here on the various distractions that have been been central elements of the government’s PR campaign on NAMA. If you don’t agree with me about free money, IOUs, ECB, international organisations, or frogs and locusts, fine, but I’ve said my piece on these and don’t see much benefit from repeating myself any more.

Bloomberg Article on NAMA

Thanks to commenter Blake for flagging this article from Bloomberg about the NAMA plan.

The reference in the article to the original US Trouble Asset Relief Plan (TARP) is a useful one in light of our current public debate and one that I’ve thought about blogging about a few times lately. It is indeed the case that US Treasury Secretary Hank Paulson wanted to use large amounts of US taxpayers money to purchase distressed assets from US banks, an idea that sounds a lot like NAMA. However, the US Treasury ended up deciding that a better approach was to use the funds to purchase equity stakes in banks for the taxpayer. There were various criticisms at the time that the terms of these equity purchases were too generous to exisiting shareholders but it seems now as though many of these deals will provide a decent return to the US government.

There are, of course, numerous difficulties in comparing bank rescue schemes across time and place but I think the TARP story is still instructive.

Ronan Lyons on NAMA and Property Prices

Following up on his earlier work, Ronan has an interesting article in today’s Irish Times. Link here.

Many Questions Remain About NAMA

I know we’re all suffering from NAMA fatigue and I’m not sure I have it in me to write too many more posts on it. Still, I do want to flag that, independent of arguments about the merits of the plan or not, it is extraordinary how little we have been told about how the plan is going to work or about the basis for the estimates released last week. I don’t have time to get into it all but here’s a list of unanswered questions.

Continue reading “Many Questions Remain About NAMA”

Publicly-Owned Banks and the ECB

Commenter MM highlighted this article from Saturday’s Irish Times by John Kelly and Eunan King as an interesting argument in favour of the government’s current approach towards the banks and against nationalising banks. The Kelly-King duo wrote that an

advantage of the proposed Nama model is that keeping most of the banks as stock market entities enables the ECB to fund part of the Irish Government’s deficit, in a manner that provides the veneer that the central bank is not buying government bonds directly.

This is a practice prohibited under the rules governing the establishment of the ECB, because it amounts to the central bank simply printing money to finance Government spending.

I do not believe that this argument is correct. The clause in the European Treaty prohibiting monetary financing is Article 101 of the Consolidated Treaty of European Union (link here). This has two paragraphs and they read as follows:

1. Overdraft facilities or any other type of credit facility with the ECB or with the central banks of the Member States (hereinafter referred to as ‘national central banks’) in favour of Community institutions or bodies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the ECB or national central banks of debt instruments.

2. Paragraph 1 shall not apply to publicly owned credit institutions which, in the context of the supply of reserves by central banks, shall be given the same treatment by national central banks and the ECB as private credit institutions.

So while Paragraph 1 rules out the ECB giving loan facilities to, or purchasing bonds from, national governments, Paragraph 2 explicitly states that this does not apply to publicly owned credit institutions. As such, lending to nationalised banks does not break the prohibition on monetary financing.

Furthermore, even under the NAMA plan no central bank is “buying govenment bonds directly”. Rather, what is being proposed—whether we have a stand-alone NAMA or a NAMA used in conjunction with nationalisation of some banks—is using these bonds as collateral for loans from the ECB.