Tag: Nationalisation

Expropriation?

On last night’s Prime Time, when asked about nationalisation, Peter Bacon warned that the government would have to buy the privately-held shares and said “they can’t expropriate shareholders’ value.” On the face of it, there isn’t too much to discuss here. I have advocated that the government should purchase the shares at their closing listed stock market value. Indeed, I don’t know any advocate of nationalisation who has suggested “expropriating” valuable shares from those that hold them.

The reason I’m writing about this, however, is that a couple of other people have also mentioned to me lately that they think this legal concern about expropriation is, in fact, the “real reason” why the government is reluctant to nationalise. “Real reasons” according to this line of thinking, are reasons so important that you don’t talk about them to the public.

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More Swedish Bank Blogging

Swedish bank blogging is undoubtedly the new craze on the interweb.  I enjoyed this story of the poney-tailed Swedish finance minister scolding Geithner for his plan and the linked-to story dubbing the Swedes “the acknowledged masters of bank rescues” (As an honour, it reminded me a little of when Ireland were the acknowledged masters of Eurovision.)  Charlie Fell also has a nice piece in today’s Irish Times comparing the NAMA plan with what happened in Sweden.

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Sarah Carey on NAMA and Nationalisation

Sarah Carey’s article in today’s Irish Times is worth reading because it is perhaps the most articulate version yet of the key argument that tends to convince people that nationalisation is a bad idea and that NAMA and limited state ownership is the way to go.  The government has made a series of arguments against nationalisation but it’s hard for them to bluntly say “we don’t want to own the banks because we’re scared we’ll make a mess of them.”  But an opinion columnist can and this is the essence of Carey’s argument.

I think Sarah is too pessimistic about the long-term performance of semi-state bodies in Ireland and that, in any case, there’s little point in applying these analogies to businesses for which state ownership is an explicitly temporary measure. 

Beyond that, at the risk of making Sarah’s head hurt a bit more, let me put the case for why she should trust her instincts and support the college boys.

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NAMA Website

There may not be any legislation yet but NAMA has a website.  It provides an example of how NAMA will buy loans from the banks using a “purely illustrative” example of a 25% discount.  It has been widely reported that AIB would be selling €30 billion in loans to NAMA.  A writedown of €7.5 billion would wipe out essentially all core Tier 1 (shareholder) capital, so this is an interesting illustrative example.

Update: Patrick correctly points out that the illustration is of a €25 million writedown of a €65 million loan for a property originally worth €100 million.  So indeed it’s a 38.5% discount. I know it’s just an example but it’s interesting all the same.

Ahearne on Nationalisation

The government has been trying out a series of arguments against nationalisation.  However, while one can make cogent arguments against nationalisation (and we have had a wide-ranging discussion about these arguments on this blog) the latest arguments from government seem particularly weak.  My old friend Alan Ahearne, now special adviser to the Minister for Finance, roled out the latest arguments today:

“Nationalization has lots of downsides for a banking system like Ireland which relies on international funds,” Mr Ahearne, a former Federal Reserve economist, said at an event in Tullamore, Co Offaly today.  “Nationalization is often viewed from wholesale markets as a sign that the banking systems have completely failed.   That’s a message the Government would not want to give out,” he said.

Let’s recall, however, that the only reason the Irish banks are currently able to borrow international funds is because the government has issued a blanket guarantee on their liabilities.  In effect, the banks’ debts are also government debts.  So, there is no reason to think that nationalised banks would have any less access to international funds than the current propped-up outfits.

As for not wanting to send out messages about the poor state of our banking system, I think that’s a ship that’s already sailed.  We should not let wishful thinking substitute for a rational assessment of the scale of our problems.