The Economics of the Budget Discussion Thread

Time Magazine

This is the Economics forum. There's a Budget coming out today. This thread is for discussing the economics of the Budget.

All political discussion should go to The Budget Forum.

This thread will be strictly moderated. Keep it to real economics people!

cavedave

There is a list of the price elasticity of goods here. It is American but their figures may be better then no figures at all.

Gasoline, long-run 0.7
Tobacco products, short-run 0.45
Automobiles, long-run 0.2
Radio and television receivers 1.2
Foreign travel, long-run 4.0
Alcohol seems to be between .3 and .4 (from here)

Might be useful when looking at the economic effects of tax changes.

Économiste Monétaire

A national asset management agency is being set up to hold a current book value of €80-90bn in property based assets. I promoted this idea back in January, I can't wait to see the impending Whelan et al salvo here. I hope the supplementary documents outline potential auction mechanisms, bonds for distressed assets. He was pretty light on details here.

Flamed Diving

Économiste Monétaire wrote: »

A national asset management agency is being set up to hold a current book value of €80-90bn in property based assets. I promoted this idea back in January, I can't wait to see the impending Whelan et al salvo here. I hope the supplementary documents outline potential auction mechanisms, bonds for distressed assets. He was pretty light on details here.

That is a lot more than I thought.

Économiste Monétaire

Front pages has the documents:
http://www.budget.gov.ie/

NAMA

Honohan on asset purchase mechanisms:
http://www.irisheconomy.ie/index.php/2009/04/07/getting-the-asset-purchase-scheme-right/

I think I heard the €80-90bn figure correctly, there's was a small reaction of disbelief when Lenihan said it.

Edit: I guess I did (from the NAMA document): Size of NAMA: Potentially €80bn to €90bn in assets (based on current book value, but to be transferred at an appropriate discount).

Time Magazine

Économiste Monétaire wrote: »

A national asset management agency is being set up to hold a current book value of €80-90bn in property based assets.

Aye, Karl won't be happy.

Dole cut in half for under-20s. That's extremely unfair.

Économiste Monétaire wrote: »

Edit: I guess I did (from the NAMA document)

Heh, Bloomin' Atrocious National Asset Management Agency = BANAMA.

Économiste Monétaire

I don't really understand the rationale for that cut (beyond the need to reduce expenditure). You lower the opportunity cost of working to increase labour force participation rates and to alleviate structural unemployment. This is hardly a time to do that: it's not that one won't work, it's that one cannot do so.

The Economist wrote: »

Heh, Bloomin' Atrocious National Asset Management Agency = BANAMA.

Time Magazine

Économiste Monétaire wrote: »

I don't really understand the rationale for that cut (beyond the need to reduce expenditure).

The cynic in me says the rationale is the voting probability.

You lower the opportunity cost of working to increase labour force participation rates and to alleviate structural unemployment. This is hardly a time to do that: it's not that one won't work, it's that one cannot do so.

Agreed entirely.

Flamed Diving

Dear, oh dear. My early reaction to this is not good. I will have a proper read off it when I finish work.

Économiste Monétaire

Just reading through the NAMA, it looks like they've based it on Securum and Retriva. Capitalise the main entity, and it will set up specific asset management companies (AMCs). They use the title of special purpose vehicles (SPVs), which have essentially the same objective. It's slightly odd in that they want them off balance sheet from the main entity, I don't know the motives for that yet. It might just be a name issue, so as to avoid confusion.

The government will on the winding up of NAMA determine if it has made a profit or a loss in its lifetime. Any profits will accrue to the State. If there is a shortfall, the Government intends that a levy will be applied to recoup it.

Dob74

Économiste Monétaire wrote: »

Front pages has the documents:
http://www.budget.gov.ie/

NAMA

Honohan on asset purchase mechanisms:
http://www.irisheconomy.ie/index.php/2009/04/07/getting-the-asset-purchase-scheme-right/

I think I heard the €80-90bn figure correctly, there's was a small reaction of disbelief when Lenihan said it.

Edit: I guess I did (from the NAMA document): Size of NAMA: Potentially €80bn to €90bn in assets (based on current book value, but to be transferred at an appropriate discount).

It will be interesting to see what discount we get.
Or is it a back door way to bail out the Banks and Developer?

Économiste Monétaire

Annex H is pretty light on pricing mechanisms, with a big issue of 'why should the banks go along with this?'. Annex I (p. 9):

3.2 Do the banks have to give up loans that they don’t want to?

Legislation, which will be introduced shortly, will address the issue of a mandatory power to acquire assets from the banks. This process will allow the banks to be reinvigorated and restructured and it is anticipated that they will be anxious to take part. NAMA must be established and start its work quickly to have most impact and to help the economy to start to recover as soon as possible. The banks will have to co-operate fully with the State in making this happen.

That's pretty interesting. It's probably worth noting that both Swedish bad banks made a loss in their actions, with the taxpayer making a profit overall after selling equity in the commercial banks, and the reason for this being due to offloading assets too quickly.

People tend to focus on gross national debt, so Lenihan's opinion that this bond-asset swap won't effect the cosmetic appearance of our debt probably won't work out as he hopes. Working out net national debt is complicated and commentators tend to avoid it.

Time Magazine

The graduate work placement scheme has the potential to be one of the best things this government has done in the past few years.

Économiste Monétaire

The Economist wrote: »

The graduate work placement scheme has the potential to be one of the best things this government has done in the past few years.

I can't find the details of that, but anything to support the collapsed graduate market is great. The UK had similar proposals but I believe that idea fizzled out.

A summary of the contributions of the budget are given out in table 5, Macroeconomic and Fiscal Framework:
Tax Measures: (€ millions)

Income Tax: +754
Value Added Tax: -2
Capital Gains Tax: +30
Capital Acquisitions Tax: +31
Stamp Duties: +110
Excise Duties: +84
Total Tax Measures: +1,007
PRSI/Health Levies: +799

Expenditure: (€ millions)

Current: -886
Capital: -576

They're expecting current expenditure to be €46.365bn and an Exchequer borrowing requirement at €20.350bn.

General Government Debt Developments:
|2009|2010|2011|2012|2013
Debt % of GDP|59|73|78|79|77

The projections for GDP developments are optimistic for 2011.

johnnyskeleton

cavedave wrote: »

There is a list of the price elasticity of goods here. It is American but their figures may be better then no figures at all.

Gasoline, long-run 0.7
Tobacco products, short-run 0.45
Automobiles, long-run 0.2
Radio and television receivers 1.2
Foreign travel, long-run 4.0
Alcohol seems to be between .3 and .4 (from here)

Might be useful when looking at the economic effects of tax changes.

For Ireland, cars are much more elastic, while alcohol is much less elastic. But Lenihan obviously recognises the impact of shopping in the North.

I'm concerned about how they will price the assets purchased from the banks. Given the figures they have bandied about it sounds like they will buy the debts at face value or near face value. Does anyone have any info on this?

Flamed Diving

Are the GDP figures real or nominal?

nesf

Économiste Monétaire wrote: »

That's pretty interesting. It's probably worth noting that both Swedish bad banks made a loss in their actions, with the taxpayer making a profit overall after selling equity in the commercial banks, and the reason for this being due to offloading assets too quickly.

Hmm, if they do make it a compulsory scheme they'll be able to get many of the benefits of nationalisation with respect to a "bad bank" without having to nationalise the banks including the ability to take both the best and the worst of the debts rather than those cherry picked by the banks to get rid of.

Économiste Monétaire

Flamed Diving wrote: »

Are the GDP figures real or nominal?

Nominal, I believe.

nesf wrote: »

Hmm, if they do make it a compulsory scheme they'll be able to get many of the benefits of nationalisation with respect to a "bad bank" without having to nationalise the banks.

Yup. No details on this, though. Just an outline of the legislation.

eamonnm79

Hi there, just a simple question today.
Where is the money for the 90 billion NAMA fund coming from?
Are the government borrowing it?
Are they going to get people to buy bonds?
Just not sure

eamonnm79

I heard Brian Lenihan say on drive time (RTE radio) that any further capitalisation of Irish banks would involve the government buying ordinary shares.
Surely this rules out the possibility of nationalisation as far as the government is concerned?
Should I tell everyone I know to buy AIB and BOI shares?

Économiste Monétaire

The money for the NAMA will be borrowed. The method of payment for the assets could be cash, accumulated from the government debt issuance, or a direct exchange of bonds for the loans. Improving the capital positions of banks through a purchase of ordinary shares necessitates a new issuance on the banks' behalf, that dilutes the value of current shares.

eamonnm79

Économiste Monétaire wrote: »

The money for the NAMA will be borrowed. The method of payment for the assets could be cash, accumulated from the government debt issuance, or a direct exchange of bonds for the loans. Improving the capital positions of banks through a purchase of ordinary shares necessitates a new issuance on the banks' behalf, that dilutes the value of current shares.

Ok so we are going to borrow 90 billion to buy troubled assets from banks above current market prices (by default we will be buying them for above market value, if it was less the banks and developers would sell now)

You included some debt to gdp ratio projections earlier. Did they include this 90billion?

Is the EU not going to ave a fit? We only made tax revenues and spending cuts totaling 3.5 billion, Billions less than the 9.5% deficit we promised And we are also taking on a capital expendature of 90 billion.

The government are going to be left owning vast amounts of land and half built housing estates?


Well lets look on the bright side, in one fowl swoop we have solved the huge social welfare housing shortage.
Can you picture people being evicted from their homes because they loose their job and cant afford their mortgage and then go squating in a government owned empty housing estate?

As soon as the the assets are passed from developers to the government it will create a lot of public jobs in security.
Unintended consequences, you got to love em.

Économiste Monétaire

Read the documents on the budget page linked earlier. The €90bn is a notional amount, it's not a figure indicating how much they expect to borrow.

nesf

eamonnm79 wrote: »

Ok so we are going to borrow 90 billion to buy troubled assets from banks above current market prices (by default we will be buying them for above market value, if it was less the banks and developers would sell now)

No, there's approx 80-90 billion in these assets at "book prices". The agency will buy (some?) of these at a discounted price.

There is no details on the exact mechanism for this yet and really it's too early to really judge this.

blast05

One that i missed:

Restriction in Interest Relief Rented Residential Property

The level at which interest re-payments can be claimed against tax for residential rental properties is being reduced from the existing 100% to 75%. This measure will apply to both new and existing mortgages. Commercial properties are not affected.


This is going to hurt a lot of people who have a second home cos they bought it as a pension investment.
Cards on the table ! for me it means i have to pay high rate of tax on €3600 liability - around €1500 ..... although i think i can reduce this further.
Government say it will raise €95 million a year. I would have thought it would be many times that.

xOxSinéadxOx

a lot of people are giving out about the NAMA thing but what else could they do? seems to have been their only option

nesf

xOxSinéadxOx wrote: »

a lot of people are giving out about the NAMA thing but what else could they do? seems to have been their only option

Well, there is one side to the NAMA thing that people are neglecting to mention. By taking the purchasing the debt rather than insuring the debt option the Government exposes the taxpayer to both the up and downside of the debts versus to just the downside.

Time Magazine

xOxSinéadxOx wrote: »

a lot of people are giving out about the NAMA thing but what else could they do? seems to have been their only option

Nationalisation.

silverharp

nesf wrote: »

Well, there is one side to the NAMA thing that people are neglecting to mention. By taking the purchasing the debt rather than insuring the debt option the Government exposes the taxpayer to both the up and downside of the debts versus to just the downside.

I dont think upside will be a problem, this debt is worth less then 30/40% of face value, as developers were only putting down deposits 10-15%, the balance of the loss will fall back on the taxpayer. Then you have the add the financing cost of holding on the properties for the next decade which is going to rise as bond yields rise. Its just a big exercise in shuffling defaulted debt around.

Économiste Monétaire

The Economist wrote: »

Aye, Karl won't be happy.

Karl deploys his algebra skills to deride the plan :cool:

Prof. Whelan wrote:

I have examined the government’s banking proposals and will have more to say later about their substance. However, before discussing the details, I’d like to focus on some figures that will help shed light on a question that I’ve already heard many times today—how much will our National Asset Management Agency (NAMA) pay for the bad assets of our major banks?

Banks are legally required to maintain equity capital (assets minus liabilities) of at least 8% of their risk-weighted assets (RWA). The RWA figure is arrived at by putting a weight between zero (which applies to most government bonds) and one (which applies, for instance, to commercial property loans) on a bank’s assets and then summing the risk-weighted loans.

As of December 2008, AIB had total assets of €182 billion and RWA of €116 billion. As of September 2008, BOI had total assets of €204 billion and RWA of €134 billion. These banks had Tier 1 equity capital of €9.9 billion and €10.1 respectively. (For those of you who don’t know what the Tier 1\Tier 2 thing means, don’t worry).

Putting these figures together, our two main banks had RWA of about €250 billion as of late last year and had Tier 1 capital of €20 billion, implying an average Tier 1 ratio of 8%. The Irish government has decided to invest €7 billion in these banks, which would bring their combined Tier 1 ratio to 10.8%.

However, these calculations value the banks’ huge property loan portfolios (about €80 billion in total property loans, about €40 billion of this in the form of development loans) at book value. Today’s FAQ on the government’s plan tells us that the NAMA will be purchasing impaired loans “at an appropriately written down value” and would replace these loans on the bank balance sheets with government bonds.

This has two offsetting effects on the capital ratios of the banks. Good news for the banks is that government bonds have a zero risk weight compared with a weight of one for risky property loans. This would shrink RWA from €250 billion to €170 billion and raise capital ratios to a heady 15.8%. Bad news is that when NAMA buys the bad assets for less than book value, this reduces equity capital.

So, with RWA of €170 billion and a €7 billion re-capitalisation in place, how much of a discount relative to book value could the government pay for these property loans, while still keeping the banks well-capitalised? If the goal is to keep the Tier 1 ratio at 8%, then the answer to this question is the X that solves (27 – X ) / 170 = .08. The answer (drum roll ….) is €13.4 billion.

The meaning of all this is as follows. The minimum price the government can pay for the bad property loans with a book value of €80 billion, while keeping the banks well-capitalised and keeping its equity stake at €7 billion, is about €67 billion. This would imply purchasing the assets for a discount relative to book value of €13 billion. Given that Goodbody stockbrokers (a wholly-owned subsidiary of AIB) estimate the combined loan losses of these banks in the coming years at €19 billion, paying this price would almost certainly be widely thought of as over-payment.

Even if the government went ahead and overpaid by purchasing the assets for a mere €13 billion discount, this would not necessarily produce a healthy banking system. This is for two reasons. Firstly, the banks may have to get to a Tier 1 ratio of greater than 8% if they are to survive without the aid of a government liability guarantee. As such, the banks may still look to further shrink their balance sheets, with restricted credit being a by-product. Secondly, the government’s €7 billion investment is in the form of preference shares with a high interest rate. This will limit the attractiveness of the banks for the private equity investors who we might hope would provide this additional equity capital investment.

Finally, what happens if the NAMA pays less than €67 billion? And what happens if it transpires that the taxpayer significantly overpaid for the assets? It’s all pretty unclear, but more on this later.

Link. I wasn't aware that the €80-90bn figure was solely that of AIB and BoI, I assumed it was a guesstimate on the notional maximum amount for all of the banks in the guarantee scheme (the document doesn't state that it's just BoI and AIB). If Karl's figures are correct, this is where the 'levy' comes in and possible warrants to recover losses (no real details on this, yet). This is much, much bigger than the Swedish bad banks. To keep, or increase, BoI and AIB's Tier 1 ratio in line with other UK and Eurozone banks, through the purchase of a rights issue, would effectively nationalise them. At least on the scale of required capital that they're talking about.

Économiste Monétaire

Just another way of looking at this, the ECB published a 'guiding principles' last month on how to deal with distressed assets in banks (Asset Removal Schemes (ARS)). Link. Let's see how our plan, in it's early form, weighs up to these:

(i) regarding the eligibility of institutions, participation should be voluntary and, if the number of institutions has to be constrained, institutions with large concentrations of impaired assets could be given priority, especially if asset removal schemes are adopted;

We fail this one. Apparently, participation will be mandatory through some form of legislation. That may not be a bad thing, though, as Nesf pointed out previously.

(ii) the definition of assets eligible for support should be kept relatively broad due to the diversity of balance sheet compositions of euro area banks, the somewhat different state of the credit cycle across Member States, and the likelihood that the amount of impaired assets will continue to grow for some time after the announcement of any scheme. It is also important that the eligibility criteria for the selection of assets do not provide banks with the wrong incentives;

We've designated the eligable assets to be, "All loans in respect of the purchase of land for development and associated work in progress arrangements. In addition, certain property investment loans, especially where associated with the largest borrowers. Exact assets to be considered further." So that's currently a 'maybe'.

(iii) the valuation of eligible assets is a key determinant of the prospective success of any scheme. In order to monitor the preservation of a level playing field, transparency of valuation is of the essence. It would be appropriate to follow a range of approaches and it would be preferable that common criteria be adopted across Member States. Independent third-party expert opinions should first be sought, to the extent possible and when deemed appropriate. Where practical, models which use micro-level inputs may be used to estimate the economic value of, and probabilities attached to, the expected losses. Asset-specific haircuts on book values of assets could also be used when the assessment of market value is particularly challenging, or when the situation requires swift action;

We'll have to wait and see how they discount the value of the loans here. That level of independent valuation seems dubious in our case.

(iv) an adequate degree of risk sharing is a necessary element of any scheme in order to limit the cost to the government, provide the right incentives to the participating institutions and maintain a level playing field across these institutions;

We're already taking a very large amount of the risk by guaranteeing the banks' debt, beyond their deposits. We also appear to be the sole body capitalising the NAMA, page 9 of the ECB documents recommends a degree of public-private partnership here.

(v) the duration of the asset support schemes should be sufficiently long, possibly matching the maturity structure of the eligible assets;

This is pretty important. A government may try to offload the assets before the next election to erase the memory of what happened. The head of Securum stated that they, in hindsight, should have held on to the assets for a longer period to get a better price for the taxpayer.

(vi) regarding the governance of institutions that receive support, those firms should continue to be run according to business principles, in order to prevent distortions of the effective allocation of credit to the private sector or the level playing field vis-à-vis institutions not participating in the scheme. Schemes that envisage well defined exit strategies should be favoured;

Let's wait and see if political influence plays no part in the allocation of credit. (That's a sarcastic statement, FYI.)

(vii) it would be reasonable to condition the public support schemes to some measurable yardsticks, such as commitments to continue providing credit and appropriately meet demand according to commercial criteria. However, any chosen set of conditions should not be applied in a mechanical manner. Banks participating in asset support schemes should be monitored in this regard.

I didn't see a lot of conditionality attached to this (i.e. defined credit supply minimum), beyond a possible levy. Trying to Micro level control the amount of credit issued by banks is complicated. A headline, aggregated figure doesn't mean a lot, really. The expanded point (vii) goes into the difficulties of mechanical conditionality, and I believe we've already implemented executive pay restrictions.

Here's their broad outline of the Bad Bank/NAMA/ARS:

The approach to managing distressed assets involves either splitting the respective assets of each individual institution into two separate entities, or pooling the distressed assets from several financial institutions into an independent asset management company (AMC, aggregator bank, or “bad bank”). Such measures have been applied in several past episodes of financial instability. Transferring the non-performing assets into a separate institution should allow banks to concentrate on running the healthy parts of their businesses and to access external funding on more favourable terms, while the distressed assets are managed by independent specialists.

The main specific features in the design of such initiatives are related to the capitalisation/ownership structures of the AMC, as well as to the time profile of the costs that accrue to the various parties when the assets are moved from the banks into the AMC.

Regarding the capitalisation/ownership issue, the banks which transfer assets into the AMC have also typically been required to contribute to its capital base, with the remainder of the capital coming from public sources. The “optimal” degree of public-private partnership should strike a fair balance between risk sharing by banks and not placing an excessive burden on their remaining (“good”) operations.

When purchasing the assets from banks, in addition to using its equity capital, the AMC can also fund asset purchases by issuing government guaranteed bonds which are redeemed as assets or gradually sold. Alternatively, it can issue its own debt and use the combined debt and capital to acquire assets from banks. The funding can also be in the form of non-recurrent loans, extended either by the participating banks under a state guarantee or by the central bank.

Regarding the timing of costs, the need to capitalise the AMC upfront means that large payments materialise for the shareholders at an early stage of the operation. On the other hand, once the AMC has become operational, the capital providers receive interest and dividend payments from the future returns on the assets – which may be kept until redemption or resold – as managed by the AMC or by dedicated asset managers on its behalf. For the participating banks, asset transfers off the balance sheet imply that upfront impairment losses must be recorded, as the transfer prices are lower than current bank valuations. Should banks perceive the impairment losses as substantial, this could reduce their incentive to participate in the schemes or report truthful valuations, at least in cases where a significant part of the bank ownership remains with private shareholders.

From an operational perspective, it is paramount that along with sufficient legal rights to purchase and manage the assets and, when needed, to retrieve the underlying collateral, an AMC has access to expertise in asset valuation. In addition, the AMC should be adequately capitalised so that the scope for purchase of distressed assets is sufficiently wide to relieve banks of their most problematic assets. Finally, the objectives of the AMC should be carefully formulated at the outset, as trade-offs may be difficult once it has become operational. For example, it might not be possible simultaneously to try and minimise losses to the main shareholders (the taxpayer), to sell the assets quickly, and limit the impact on financial markets and asset prices.

If anyone has any (reasoned) opinions of the ECB's guidelines, feel free to hypothesize..

Flamed Diving

The markets aren't responding well, apparantly.

johnnyskeleton

Économiste Monétaire wrote: »

Link. I wasn't aware that the €80-90bn figure was solely that of AIB and BoI, I assumed it was a guesstimate on the notional maximum amount for all of the banks in the guarantee scheme (the document doesn't state that it's just BoI and AIB). If Karl's figures are correct, this is where the 'levy' comes in and possible warrants to recover losses (no real details on this, yet). This is much, much bigger than the Swedish bad banks. To keep, or increase, BoI and AIB's Tier 1 ratio in line with other UK and Eurozone banks, through the purchase of a rights issue, would effectively nationalise them. At least on the scale of required capital that they're talking about.

My reading of the €80-90bn figure is that it is the maximum exposure from buying the non performing Development loans and that part of the Commercial loans that contain large property investments (e.g. shopping centres, completed housing development projects) from AIB & BOI. They might bring in Nationwide, but its unlikely.

It doesn't include Anglo because they are already nationalised so there is no benefit to transferring their assets. The government might if push comes to shove let Nationwide, EBS and PTSB stand on their own (in which case, I can only see PTSB surviving).

They really are going to buy at somewhere close to face value of the loans, my guess is 85-90%, but 100% wouldn't surprise me. The loans are probably worth about 40c in the euro at best.

Another factor to be taken into consideration are the running costs - interest, administrative costs, legal costs etc, which could cost several more billion over the next few years.

I've heard that €80bn debt could cost up to €4bn per annum in interest.

nesf

johnnyskeleton wrote: »

They really are going to buy at somewhere close to face value of the loans, my guess is 85-90%, but 100% wouldn't surprise me. The loans are probably worth about 40c in the euro at best.

Any source on this? It is the crucial missing detail atm.

Flamed Diving

nesf wrote: »

Any source on this? It is the crucial missing detail atm.

Note the use of 'probably' and 'guess'.

nesf

Flamed Diving wrote: »

Note the use of 'probably' and 'guess'.

I'm more interested in the "They really are going to buy at somewhere close to face value of the loans" bit.

johnnyskeleton

nesf wrote: »

Any source on this? It is the crucial missing detail atm.

That's the big problem. Other than a handful of people, no one knows the true position in respect of the Irish banks. Even last year Anglo were trotting out absolute nonsense and getting away with it. Even now, when its nationalised, we only know part of the story.

40c in the euro is based on the liklihood of site values dropping up to 80% and developments dropping 40-50%.

Take for example the Irish Glass site, bought for over €400k, now valued c. €100k. Jurys Doyle site, bought for €350, now worth what? Maybe €120m if they can make a decent run of the hotel.

nesf

johnnyskeleton wrote: »

That's the big problem. Other than a handful of people, no one knows the true position in respect of the Irish banks. Even last year Anglo were trotting out absolute nonsense and getting away with it. Even now, when its nationalised, we only know part of the story.

40c in the euro is based on the liklihood of site values dropping up to 80% and developments dropping 40-50%.

Take for example the Irish Glass site, bought for over €400k, now valued c. €100k. Jurys Doyle site, bought for €350, now worth what? Maybe €120m if they can make a decent run of the hotel.

Yup I fully agree, setting a ceiling at 90 billion before saying what the rough idea for level of the discounting involved was lunacy.

Basically a rock and a hard place, too steep a discount and the banks will be left with very lean capital levels, too shallow a one and the tax payer is screwed over and there's a serious element of moral hazard with regard to future distressed debt.

johnnyskeleton

nesf wrote: »

I'm more interested in the "They really are going to buy at somewhere close to face value of the loans" bit.

Look at it this way, at worst I have given as much evidence for my estimates as have the government. If you want to accept the government figures at face value, then fair enough. You can't hide behind the dichotomy of refusing to accept estimates without seeing the figures while at the same time being denied access to the figures forever.

nesf

johnnyskeleton wrote: »

If you want to accept the government figures at face value, then fair enough. You can't hide behind the dichotomy of refusing to accept estimates without seeing the figures while at the same time being denied access to the figures forever.

Nah, estimates I accept but you and I know that it's rare that Governments intervene at a smart rate. They'll have to declare some of the mechanism for the sake of quelling the markets.

I was wondering if you'd heard something official or a leak or such.

eamonnm79

If the government dont know how much we are going to have to borrow to pay for the 80-90 billion book value of troubled assets then I presume that these figures are not factored in to the debt to gdp ratios they anounced on line yesterday and were posted earlier on page one of this thread?

Jim Power recons they are only going to pay 30 billion for them, that brings prof whelans analysis into the equation ie that the banks will then be below the legal 8% limit.

Surely nationalisation is the answer here? I know its a dirty word but com on get over it!

The following should be done on foot of nationalisation.
1. Salary Cap in banks of 8 times the industrial wage.
2. Unfortunitely there is going to have to be mergers and major lay offs.
3. Start lending but only for proper businesses and business plans. The last thing we need is to lend out more to bad businesses.


The government are going to become major land owners and are going to have to pay larger security costs than the previous owners.
Looting of these lands will be rife as soon as people realise who the owners are.

nesf

Right, from David Murphy's reporting here: http://www.rte.ie/news/9news/

• Banks are being too nice to their long term customers with respect to developer loans according to the Bacon Report and that this "crony capitalism" is what is preventing the banks properly dealing with these loans.
• Ballpark figure of 50% mentioned for purchasing these assets versus book value.

No idea on how representative the second point will be but it sounds approximately where the value should be on these loans, and personally I hope they release the Bacon Report for general consumption.

johnnyskeleton

nesf wrote: »

but it sounds approximately where the value should be on these loans, and personally I hope they release the Bacon Report for general consumption.

On the basis that they're probably worth around 40c in the euro (certainly I wouldn't put them much higher), and allowing for the fact that the government want to pay above market rates (say another 10c) this does sound reasonable.

If only.

nesf

Ok, so say 40 billion at 50%. How much equity will be needed to be injected to compensate for this?

Back of the envelope stuff using Whelan's estimate of 60 billion in these loans between AIB and BoI, means that starting with 27 billion in equity, these banks would lose 30 billion because of the write down and then need approx 17.6 billion in equity to get their Tier 1 capital ratio back to 8%.


Someone please tell me that I've made a mistake due to sleepiness.

nesf

Oh and State may part-nationalise banks if bad loans too large.

Which partially answers my question above.

Économiste Monétaire

Summary of Bacon's NAMA report. You'll notice that they've censored his estimate of losses on the €80-90 billion losses; it's "market sensitive."

Whelan scoffs at the media fawning over the report, questioning their interpretation of objectivity.

johnnyskeleton

Up to 15% according to Davys:

http://www.irishtimes.com/newspaper/opinion/2009/0409/1224244282391.html

Irish Times wrote:

Davy stockbrokers has suggested a discount – or “haircut” for the banks – of up to 15 per cent on their loans.

This would involve the State paying €76.5 billion for €90 billion in bank loans, or roughly 1.4 times the national debt of the State.

Interesting reading the Bacon report; but it says that the development loans in the 6 covered institutions total €80-90bn. However, AIB Group's C&D loanbook is about €47bn, and I understand Anglo's was somewhere around €35.

Économiste Monétaire

Karl questions the plan's perceived efficacy of best outcome for the taxpayer in today's IT: 'Head to Head' with a Davy analyst. He rails against the media's simplified version of the discussion, i.e. some kind of binary outcome. One can only hope, on the potential entertainment value at the very least, that Morgan Kelly is booding somewhere, waiting for the best time to scold the developers and Lenihan the 'buffoon'.

johnnyskeleton

Économiste Monétaire wrote: »

Karl questions the plan's perceived efficacy of best outcome for the taxpayer in today's IT: 'Head to Head' with a Davy analyst. He rails against the media's simplified version of the discussion, i.e. some kind of binary outcome. One can only hope, on the potential entertainment value at the very least, that Morgan Kelly is booding somewhere, waiting for the best time to scold the developers and Lenihan the 'buffoon'.

This is the part that the supporters of the NAMA fail to consider:

This levy may sound like a good deal but ask yourself this: would you borrow €100 at a 6 per cent interest rate to give to someone who then promised to pay you back €5 a year for 20 years starting in 10 years’ time? I doubt it. For the same reasons, this potential future levy would not be a good deal, particularly when you factor in the Government’s current high cost of borrowing.

With such a high cost of borrowing, there is simply no reality to the NAMA recouping its cost, and any plan for it to do so is just pie in the sky.

Beau

The Economist wrote: »

The graduate work placement scheme has the potential to be one of the best things this government has done in the past few years.

Is this a scheme they have just implemented? Where can I read about this? Thanks.

Time Magazine

Beau wrote: »

Is this a scheme they have just implemented? Where can I read about this? Thanks.

Just announced, not implemented yet as far as I know. I don't know any details as yet.