Tag: Nationalisation

For those who might be interested in the NAMA debates, the full text of all Dail debates can be found here.

Lots of interesting stuff was discussed in last night’s debate but my favourite moment was the Minister for Finance’s perfect invocation of the Baconian equivalence fallacy, complete with brass plate metaphor:

Nationalisation of the whole of the Irish banking system, which is what is being proposed in the motion, will not be the short-term panacea that some envisage. Wholesale nationalisation would do absolutely nothing to resolve to the banks’ bad debt problems and get credit flowing again to support economic recovery and jobs. Nationalisation may change the brass plate, but it does not provide the individual institution with any additional funding or any resolution of the bad debt problems which cripple our financial institutions.

While much of the recent media discussion about our banking problems has been framed as NAMA versus nationalisation, this has not been a fair reflection of the debate between economists. My four-point plan and the gang of 20 article explicitly allowed for the idea that a NAMA-like vehicle be used in conjunction with nationalisation.

That said, I’m a little worried now that the public may perceive the case for a NAMA as a slam dunk. My own preference for this approach came from thinking about the alternatives and deciding that the balance of the arguments were in favour of using an Asset Management Company (AMC) in conjunction with nationalisation. Since the NAMA proposals have been introduced, I’ve been getting a bit less enthusiastic about the idea, so I thought I’d write up what I see as the competing arguments for and against an AMC.

With AIB and BOI share prices having quadrupled over the past few months thanks to increased hopes of a NAMA-based bailout from the taxpayer, it is interesting to note the similiarities with how the situation has developed in the US, as outlined in this piece by the Baseline Scenario guys.   On why the administration has not shut down insolvent banks, Johnson and Kwak write:

One reason is that taking over banks has somehow been redefined as “nationalization,” with the images it conjures up of forced confiscation of property. Yet there are no guns involved here. Ordinarily, when an investor puts a large amount of new capital into a bank, it gets some measure of control in return. Yet Treasury has bent over backward to minimize its voting shares, beginning with the initial round of recapitalizations and continuing through the latest Citigroup bailout in February.

Perhaps after fighting off charges of “socialism” from the McCain campaign, the Obama administration is wary of any steps that could be described as nationalization. And so instead of insisting on its well-understood duty to shut down failing banks for the public good, it has tied its hands by taking this option off the table.

On last night’s RTE News at 9, David Murphy (fresh from an interview with the Minister for Finance) reported his understanding of the government’s thinking on the banks as follows:

It’s had a good long hard look at the two main banks, AIB and Bank of Ireland, and it’s clear AIB has an awful lot of problems and the government may well end up owning 70% of AIB. It did look at nationalising it, I think, and the situation is that if it does go down that road, other lenders in other countries, some of them won’t even lend to banks which are owned by governments. And for that reason, it’s ruled out nationalising AIB.

I am highly sceptical of this line of reasoning.  It is possible that there are financial institutions out there who will (a) Lend directly to the Irish government and (b) Lend to a 70% state-owned bank with a government liability guarantee, and yet who will somehow refuse to consider (c) Lending indirectly to the Irish government via a loan to a 100% state-owned bank.