Lenihan on Stiglitz

At Trinity College last night, Joe Stiglitz repeated his criticism of NAMA. The Irish Times reports:

He said Nama is likely to “burden this generation for 25-50 years or more. I am very uncomfortable with a government with such a minority support making such a decision.”

He said the view there is no alternative is “just wrong”.

“There is an alternative. Play by the rules of capitalism – if you can’t pay back your debt, shareholders and bondholders lose. If the Government puts in money, it needs to get control commensurate with the money put in. It also should get a return proportionate to the risk involved – in this case, it’s a big risk.”

The Minister for Finance has responded to Stiglitz’s criticisms. According to Bloomberg:

Lenihan pointed to the U.S. as an example of a rescue package that was attacked before succeeding.

“I simply do not accept his analysis,” Lenihan said. “As far as Professor Stiglitz is concerned, he made the same criticism of the U.S. bank package, which is now proved to be a tremendous success.”

Of course, the US TARP bank package, which Minister Lenihan is referring to as a tremendous success, started life like NAMA as a plan to overpay for troubled assets but was changed to become a plan in which the US government made equity investments in the leading financial institutions.

Stiglitz has argued that the terms of the TARP equity investments were insufficiently generous to the US taxpayer—see here for a report from TARP’s Congressional Oversight Panel which endorses this viewpoint. It would be misleading, however, to characterise the Stiglitz’s criticisms of TARP as being directly related to his views on NAMA. On this issue, see here for an interview with Joe from Feburary in which, among other things, he discusses proposals then being floated for the US government to purchase bad assets—he characterises Paulson’s orginal TARP plan as “cash for trash”.