NAMA - figures are not adding up

Scofflaw

Sand wrote: »

You claim it will get lending going again. Everyone, including yourself, claims it wont. Resolve the paradox.

I think you'll find that people are arguing that NAMA (or, more generally, taking care of the toxic debt) is a necessary step before lending can resume. That's not the same as saying that NAMA by itself will get lending going again, any more than having wheels makes a car.

I'm not sure what the point of you arguing with this is, since nobody is putting forward the line you want to attack.

Sand wrote: »

No it hasnt, instead the response has been something like:

Which isnt an argument, either for NAMA or against the flaws I have highlighted. Again, I am hoping someone can make an argument for NAMA which doesnt rely on claims that

1 - It will get lending restarted...it wont.

Nobody is claiming that here bar you.

Sand wrote: »

2 - The taxpayer cant lose because we'll just get the money back from the banks - no one considers that at all credible. The designers of NAMA have gone on the record as saying NAMA couldnt proceed if there was a levy mechanism.

No, they've gone on record as saying that if the levy has to be built into the banks' books from the start, then the banks retain their exposure to the toxic debt on their balance sheets, which makes the whole exercise pointless.

As for "no one considers that at all credible" - you mean you don't, and neither do people who agree with you. That's what Wikipedia would call "weasel words", and quite rightly.

Sand wrote: »

@Scofflaw

Theres a view put forward that NAMA is needed to save the Irish banking system...I think this is confusing the institutions with the function but whatever.

What yardstick would you measure NAMA against regarding its dealings with NAMA seeing as Anglo is not a systematically important bank? If you think it was propped up because its clients were considered too big to fail, do you consider those clients will be pushed to repay their loans on a neutral, calculating basis?

I think that depends on the level of scrutiny that NAMA operates under. If the general presumption that Fianna Fáil is set to lose power at the next election is correct, then presumably NAMA will be operating under a different oligarchic faction.

I think it would be fair to ask, though, what would have happened to those "too big to fail" clients if the debts remained with the banks. As I said before, I think the banks would have propped those clients up so that they could continue formally meeting their repayments (as the Japanese banks did). It's certainly possible that exactly the same will happen under NAMA, but that's another one of those things where the public might just have to pull their finger out and actually go for accountability in between elections.

Overall, please see my earlier point with respect to NAMA, bank failures, and what I'd prefer to pay for. And for goodness' sake stop being so damned aggressive. I'm not your enemy, and neither is anyone else here.

cordially,
Scofflaw

K-9

P. Breathnach wrote: »

The decision to rescue Anglo was made in great haste in a crisis situation -- not the sort of circumstance in which the best decisions are likely to be made.

I'm inclined towards a more charitable interpretation than Scofflaw's: that when the problem was presented to the government, there wasn't enough time to make a full appraisal of the likely consequences of Anglo failing, but that it seemed likely that if it failed, it would bring the other banks down with it (it was systemic at least in the sense that it was big enough to bring down the system).

Yes, Anglo got so massive it was systemic.

Sand wrote: »

You claim it will get lending going again. Everyone, including yourself, claims it wont. Resolve the paradox.


No it hasnt, instead the response has been something like:



Which isnt an argument, either for NAMA or against the flaws I have highlighted. Again, I am hoping someone can make an argument for NAMA which doesnt rely on claims that

1 - It will get lending restarted...it wont.
2 - The taxpayer cant lose because we'll just get the money back from the banks - no one considers that at all credible. The designers of NAMA have gone on the record as saying NAMA couldnt proceed if there was a levy mechanism.

@Scofflaw


Theres a view put forward that NAMA is needed to save the Irish banking system...I think this is confusing the institutions with the function but whatever.

What yardstick would you measure NAMA against regarding its dealings with NAMA seeing as Anglo is not a systematically important bank? If you think it was propped up because its clients were considered too big to fail, do you consider those clients will be pushed to repay their loans on a neutral, calculating basis?

You aren't listening Sand. Its the only reasonable position I can come to.

dynamick

Sand wrote: »

People seem pretty sure NAMA is going work, ... Perhaps they could be shared with the rest of us. While theyre at it, why not define what they view as the goal of NAMA.

As you asked, here's my understanding of NAMA's goal and methods.

I presume that NAMA's goal is to prevent a total meltdown of the irish economy as a result of all its consumer banks going into liquidation or being nationalised.

How it works: It's just a centralised AMC.

• NAMA buys toxic loans from banks using crypto-gilts.
• Banks take a fixed writedown on these loans, removing uncertainty over the extent of possible asset decay.
• Banks continue to make operational profits that are used to pay for further write-downs on bad debts.
• Because the bad loans have been hived off, the banks creditworthiness improves, allowing them to continue being funded on wholesale markets.
• Also, as a result of NAMA, the general public don't fear a run so consumer deposits remain in place.
• Government steps in to buy more shareholdings in the banks whenever more capital is needed for writedowns.
• NAMA is structured to purchase the entire loan portfolio of developers with distressed loans from all banks. In this way a developer with some good loans with one bank and bad loans with another bank will find his entire position is being looked at by a single organisation. This is clearly of benefit from a debt collection point of view - but not from the borrower's side.
• Meanwhile NAMA attempts to recover whatever it can from the good and bad loans it has bought and uses the money to pay the interest on the NAMA bonds.
• Eventually the banks have much smaller balance sheets and are back to the prudent and boring business of banking.
• NAMA is wrapped up in 2020 and it seems it cost say 25 billion
• The banks look back on their past decade and see that they have also written off 25 billion out of their earnings.
• Government sells off any shareholding in the banks and manages to recoup a little.
• The project is a success because: no depositor lost any money, there is still a functioning banking system in operation, the economy was able to recover at a sustainable pace.

woodseb

I think the phrase 'NAMA to get the banks lending again' was a bit of a misnomer anyway. I guess you have to ask yourself how much lending the banks would have been able to do vs what they are doing today if NAMA hadn't happened or the banks failed/were nationalised.

The banks aren't lending huge amounts to the economy at the moment but they are in the position to lend to good prospects and are not in the business of throwing good money after bad (any more ) - I think having the banks returning to responsible lending practices is a reasonable aim of NAMA - irresponsible lending got us into this mess, we don't need a continuation of it

ei.sdraob

/offtopic

I nearly spilled my morning coffee seeing an advert for Anglo savings at the top of this page

anyone who puts money there deserves to be robbed

Scofflaw

woodseb wrote: »

I think the phrase 'NAMA to get the banks lending again' was a bit of a misnomer anyway. I guess you have to ask yourself how much lending the banks would have been able to do vs what they are doing today if NAMA hadn't happened or the banks failed/were nationalised.

The banks aren't lending huge amounts to the economy at the moment but they are in the position to lend to good prospects and are not in the business of throwing good money after bad (any more ) - I think having the banks returning to responsible lending practices is a reasonable aim of NAMA - irresponsible lending got us into this mess, we don't need a continuation of it

It would be interesting to compare statistics for bank lending from previous recessions. My experience is that the banks always contract their lending in a recession.

cordially,
Scofflaw

ei.sdraob

http://www.independent.ie/business/irish/anglo-irish-banks-bad-loan-losses-expected-to-reach-836414bn-2102830.html

it is understood that the nationalised group's overall pre-tax loss will still come in just below €12bn for the 15 months to the end of last December.

Yesterday was the second anniversary of the so-called St Patrick's Day Massacre, when then publicly quoted Anglo stock plunged as much as 22pc to lead a broad sell-off of Irish banking stocks. The stock ended the session off 15pc -- just days after the near-collapse of US investment bank Bear Stearns.

Sand

@Scofflaw

I think you'll find that people are arguing that NAMA (or, more generally, taking care of the toxic debt) is a necessary step before lending can resume. That's not the same as saying that NAMA by itself will get lending going again, any more than having wheels makes a car.

Why do you feel its necessary for lending to occur? Is it impossible for lending to occur without NAMA?

No, they've gone on record as saying that if the levy has to be built into the banks' books from the start, then the banks retain their exposure to the toxic debt on their balance sheets, which makes the whole exercise pointless.

As for "no one considers that at all credible" - you mean you don't, and neither do people who agree with you. That's what Wikipedia would call "weasel words", and quite rightly.

My opinion doesnt matter. Your opinion doesnt matter. The designers of NAMA said a credible levy was incompatible with NAMA. Yet NAMA proceeds. The banks are not recording the prospect of the levy being exercised despite it opening them up for legal action for fixing the books.

How do you reconcile that with the concept theres a credible levy in there?

Perhaps to clarify, no one whose opinion matters considers the levy credible.

I think that depends on the level of scrutiny that NAMA operates under. If the general presumption that Fianna Fáil is set to lose power at the next election is correct, then presumably NAMA will be operating under a different oligarchic faction.

Thats not really very clear to be honest
- Whilst Fianna Fail remains in power, do you think borrowers whose non-systematic bank was propped up because those borrowers were considered too big to fail will be pursued in a fashion which might cause them to fail?

- If Fianna Fail are replaced (and I wouldnt be confident of that) do you think that any fresh government will want pursue those same borrowers in an agressive fashion which might cause them to fail, thus crystallising the loss to be realised by the state?

And for goodness' sake stop being so damned aggressive. I'm not your enemy, and neither is anyone else here.

Youre being very defensive there, relax, I'm just asking a few questions to broaden my understanding. Persuade me NAMA is going to work.

It would be interesting to compare statistics for bank lending from previous recessions. My experience is that the banks always contract their lending in a recession

Hmmm. Always?

@K-9

You aren't listening Sand. Its the only reasonable position I can come to.

Youre not saying anything postive about NAMA. I'm serious - persuade me NAMA is going to work. Notice, I amnt asking for some "Shure everything else is worst", or "something must be done" or even "Shure were all screwed anyhow, double or nothing!" I am looking for a positive argument of how NAMA should inspire confidence in its eventual success. Whatever success might mean.

@dynamick

As you asked, here's my understanding of NAMA's goal and methods.

I presume that NAMA's goal is to prevent a total meltdown of the irish economy as a result of all its consumer banks going into liquidation or being nationalised.

How it works: It's just a centralised AMC.

* NAMA buys toxic loans from banks using crypto-gilts.
* Banks take a fixed writedown on these loans, removing uncertainty over the extent of possible asset decay.
* Banks continue to make operational profits that are used to pay for further write-downs on bad debts.
* Because the bad loans have been hived off, the banks creditworthiness improves, allowing them to continue being funded on wholesale markets.
* Also, as a result of NAMA, the general public don't fear a run so consumer deposits remain in place.
* Government steps in to buy more shareholdings in the banks whenever more capital is needed for writedowns.
* NAMA is structured to purchase the entire loan portfolio of developers with distressed loans from all banks. In this way a developer with some good loans with one bank and bad loans with another bank will find his entire position is being looked at by a single organisation. This is clearly of benefit from a debt collection point of view - but not from the borrower's side.
* Meanwhile NAMA attempts to recover whatever it can from the good and bad loans it has bought and uses the money to pay the interest on the NAMA bonds.
* Eventually the banks have much smaller balance sheets and are back to the prudent and boring business of banking.
* NAMA is wrapped up in 2020 and it seems it cost say 25 billion
* The banks look back on their past decade and see that they have also written off 25 billion out of their earnings.
* Government sells off any shareholding in the banks and manages to recoup a little.
* The project is a success because: no depositor lost any money, there is still a functioning banking system in operation, the economy was able to recover at a sustainable pace.

At last, an actual positive argument for NAMA. Well done.

Re: Its goal - Do you think the Irish banking system would collapse if AIB, BoI and Anglo Irish were let fail? If so, can you explain what this would mean? Would banking as an activity cease in Ireland? If so, for how long?

Re: Crypto-gilts: Can you expand on what you mean by this?

Re: The fixed writedown: Do you have confidence in the level of the writedown? How would that line up with your expectation (optimistic I would say) that NAMA will lose 25 billion?

Re: Further bad debts - do you forsee a NAMA II to provide the same useful, indeed necessary incentive to accurately mark down the further bad debts you forsee?

Re: Further shareholdings - is there an upper limit you forsee? Could the banks end up nationalised by the long way round?

Re: Paying the money on the NAMA bonds - do you think such recoveries will cover the cash flow demands of the bonds held by the banks or will the state have to top it up?

Re: The banks having smaller balance sheets - can you make a stab at defining "eventually"?

Re: The clawback in 10 years; will these smaller, more risk adverse, lower earning banks have the ability to absorp the losses of NAMA through the clawback mechanism or will it push them back into insolvency? Would there then need to be a NAMA III?

Re: The government selling off its holder: If the government were to end up with 80 or even 90% share ownership how much value could be extracted in a large sale?

Re: No depositor losing money: Are you discounting the cost of NAMA to the taxpayer in that calculation?

Re: Sustainable economic recovery: To minimise NAMA losses on a property back portfolio, isnt there an incentive for the government to try prevent a fall in property prices from bubble levels as much as is possible? Would this have any impact on the economic effort to recover competiveness through internal devaluation? Does NAMA impact the wider economy in any negative fashion? What effect does the issue of NAMA related debt have on Irish borrowing costs over the 10 years given record deficits? Is it possible that the banks, holding 54 billion or so of Irish government debt might actually compete with the government to sell Irish state debt? Do you believe Irish people in general will face, or expect to face, higher taxes to fund NAMA? Will this impact their spending habits and confidence?

K-9

Sand, depends on what you mean by work! Will it help get banks lending again? I'd say yes.

Will it make it easier for banks to raise funding on the markets, thus reducing the amount the taxpayer has to put in? I'd say yes. I think AIB raised $1 Billion recently and NAMA was a big reason why.

Will it make a profit? Who knows?

If the doomsayers are correct on this thread and NAMA makes a massive loss, well, that is the last of our worries.

You seem pretty certain letting the banks fail would be grand. Any examples of this happening before.

PS. I don't mean some small banks in the USA, I mean the biggest banks in a country.

Scofflaw

Sand wrote: »

Why do you feel its necessary for lending to occur? Is it impossible for lending to occur without NAMA?

The argument is that a bank with assets of unknown worth is a poorer credit risk than one with assets of known worth, and that therefore the former finds it more difficult to borrow on the interbank markets. A bank that cannot borrow on the interbank markets finds it, in turn, more difficult to lend. That seems reasonable to me.

Sand wrote: »

My opinion doesnt matter. Your opinion doesnt matter. The designers of NAMA said a credible levy was incompatible with NAMA. Yet NAMA proceeds. The banks are not recording the prospect of the levy being exercised despite it opening them up for legal action for fixing the books.

How do you reconcile that with the concept theres a credible levy in there?

Perhaps to clarify, no one whose opinion matters considers the levy credible.

Hmm...whose opinion really matters here? Brian Lenihan and colleagues, it seems to me. Unless you have some strong evidence to show that they believe the tax surcharge isn't credible, I'm not sure what "no one whose opinion matters" can refer to.

As far as I can tell, what you're going to say in response to this is that the fact that the levy is not on the banks' books means that the authors of NAMA don't consider it credible. In which case I'll have to beg off chasing the matter further round the same circle, since I've already pointed out why I don't believe that to be accurate.

Sand wrote: »

Thats not really very clear to be honest
- Whilst Fianna Fail remains in power, do you think borrowers whose non-systematic bank was propped up because those borrowers were considered too big to fail will be pursued in a fashion which might cause them to fail?

No, nor do I wish them to be - I wish them to be pursued in a fashion that allows them to pay their debts.

Sand wrote: »

- If Fianna Fail are replaced (and I wouldnt be confident of that) do you think that any fresh government will want pursue those same borrowers in an agressive fashion which might cause them to fail, thus crystallising the loss to be realised by the state?

As above - and I too am less sanguine than I might be about the next election.

Sand wrote: »

Youre being very defensive there, relax, I'm just asking a few questions to broaden my understanding. Persuade me NAMA is going to work.

Sand, I'm not exactly a shrinking violet, having argued my way through both Lisbon campaigns, and moderated the second. If I say you're being aggressive, trust me, you are.

Sand wrote: »

Hmmm. Always?

Always in my experience - as I said.

By the way, what alternative to NAMA are you arguing for?

cordially,
Scofflaw

Sand

@K-9

Sand, depends on what you mean by work! Will it help get banks lending again? I'd say yes.

Would you? You seem pretty variable on that to be honest.

Id qualify "work" as not doing more harm than good for the Irish economy and state as a whole.

Will it make it easier for banks to raise funding on the markets, thus reducing the amount the taxpayer has to put in? I'd say yes.

Isnt that just the taxpayer paying up, so it can avoid having to pay up? Why not simply take a stakeholding in the banks that mirrors our stake in them so we can benefit from any progress in their position?

If the doomsayers are correct on this thread and NAMA makes a massive loss, well, that is the last of our worries.

You'll have to forgive me if I dont consider that to be either reassuring or a compelling reason for taking a punt with NAMA.

You seem pretty certain letting the banks fail would be grand. Any examples of this happening before.

PS. I don't mean some small banks in the USA, I mean the biggest banks in a country.

Letting fail would be a misdescription, managing their failure would be the better option. And I wouldnt say it would be "grand". I would say it would be the least worst option:

- Crystallises the losses in the system up front
- Forces losses on the stakeholders before the taxpayer
- Avoids the issue of moral hazard
- Avoids immense legal and administration costs of NAMA
- Allows us to move on with the real issue of economic growth in the future rather than worrying about whats already been lost.
- Synergy with the goal of rediscovering economic competiveness

An example might be Washington Mutual, the largest savings and loans association in the US, and 6th largest bank in the US (assets of 330 billion ish I believe), until it failed in September 2008 after 16.4 billion was removed in a 10 day bank run ( about a tenth of the deposits it held). The FDIC siezed on September 25th, and then reopened it the very next day as JP Morgan Chase branches, whilst WaMu itself, the corporation, filled for bankruptcy. Shareholders and unsecured debtors got zilch. Deal done in the darkest days of the credit crunch.

One of the hundreds of banks the FDIC performed a similar trick on over the past 2-3 years.

@Scofflaw

The argument is that a bank with assets of unknown worth is a poorer credit risk than one with assets of known worth, and that therefore the former finds it more difficult to borrow on the interbank markets. A bank that cannot borrow on the interbank markets finds it, in turn, more difficult to lend. That seems reasonable to me.

Couldnt the banks address this by simply marking their loans to market? With the government compelling them to do so if neccessary?

Lending is occuring in the current enviroment, under very strict and cautious conditions (some would say appropriate), but the banks are operating under the reality of NAMA as it stands. Have you expected to have seen a significant change in lending behaviour yet? If not, when do you expect to see the lending to increase and by how much?

Hmm...whose opinion really matters here? Brian Lenihan and colleagues, it seems to me. Unless you have some strong evidence to show that they believe the tax surcharge isn't credible, I'm not sure what "no one whose opinion matters" can refer to.


As far as I can tell, what you're going to say in response to this is that the fact that the levy is not on the banks' books means that the authors of NAMA don't consider it credible. In which case I'll have to beg off chasing the matter further round the same circle, since I've already pointed out why I don't believe that to be accurate.

Again, your opinion and my opinion dont matter. The clawback is full of caveats, and no one involved considers it a potential liability. Thats based on the evidence and the reasoning presented by the designers of NAMA themselves - I assume you did read the link I provided to the Oireachtas committee meetings on NAMA?

No, nor do I wish them to be - I wish them to be pursued in a fashion that allows them to pay their debts.

What if they are insolvent and cant pay? How long would you allow the fiction to continue in the hope that something will come along? How long do you believe NAMA will maintain it?

As above - and I too am less sanguine than I might be about the next election.

So, in either case would that imply these "too big to fail" borrowers will not be managed in a neutral, calculating fashion? Either through connections or fear of realising the losses?

What would that imply for the potential for political corruption and indeed the return to the taxpayer?

Sand, I'm not exactly a shrinking violet, having argued my way through both Lisbon campaigns, and moderated the second. If I say you're being aggressive, trust me, you are.

Grand, I bow to your greater experience. Can we move back to dealing with posts as opposed to posters?

Always in my experience - as I said.

Given that, do you think NAMA (or Irish banking policy or whatever....) will allow Irish banks to buck that trend and increase lending from its current level in the midst of a recession?

Scofflaw

Sand wrote: »

Letting fail would be a misdescription, managing their failure would be the better option. And I wouldnt say it would be "grand". I would say it would be the least worst option:

- Crystallises the losses in the system up front

I'm not sure why that's better than partially crystallising them and taking them out of the system now, and crystallising the rest later at a point where they may not be so large.

Sand wrote: »

- Forces losses on the stakeholders before the taxpayer

Which begs the question of whether the taxpayer is going to take the potential losses.

Sand wrote: »

- Avoids the issue of moral hazard

Moral hazard meh.

Sand wrote: »

- Avoids immense legal and administration costs of NAMA

By putting an immense legal and administrative cost onto the businesses in the Irish economy instead.

Sand wrote: »

- Allows us to move on with the real issue of economic growth in the future rather than worrying about whats already been lost.
- Synergy with the goal of rediscovering economic competiveness

I think those need further elucidation.

Sand wrote: »

@Scofflaw

Couldnt the banks address this by simply marking their loans to market? With the government compelling them to do so if neccessary?

I presume so. However, as far as I can see, the more strict one is with respect to the value of the NAMA assets, the more one has to put in as recapitalisation. A full 'mark to market' valuation would probably result in the nationalisation of the banks.

Sand wrote: »

Lending is occuring in the current enviroment, under very strict and cautious conditions (some would say appropriate), but the banks are operating under the reality of NAMA as it stands. Have you expected to have seen a significant change in lending behaviour yet? If not, when do you expect to see the lending to increase and by how much?

I haven't expected to see a change in the lending behaviour of banks - if you mean a positive change, that is. I would expect to see it over the next couple of years.

I appreciate what you're pointing out here, but because as you say the banks already operating under the reality of NAMA the counter-factual is strictly theoretical. What I've seen of the banks' lending so far is a fairly standard contraction - a return to cautious lending rather than a wholesale collapse or retreat from lending.

Sand wrote: »

Again, your opinion and my opinion dont matter. The clawback is full of caveats, and no one involved considers it a potential liability. Thats based on the evidence and the reasoning presented by the designers of NAMA themselves - I assume you did read the link I provided to the Oireachtas committee meetings on NAMA?

I'm not sure this is the same link you provided, but it does contain a fairly clear outline of the dilemma and its solution:

Deputy Willie O’Dea: Section 222 provides for a future surcharge on the participating institutions in the unlikely event of NAMA making a loss. This section has been carefully drafted to strike the necessary balance between, first, affording the taxpayer maximum protection against the possibility, however unlikely, that a loss might eventually arise and, second, the risk that the application of a statutory surcharge could result in the participating institution having to provide for a future liability in its accounts in line with international accounting standards. It strikes the balance by providing for an effective statement of intent that a surcharge may be imposed by way of a Finance Act provision at a specific point in the future in the event of NAMA having made an aggregate loss at that time. The loss will have to be certified by the Comptroller and Auditor General, based on his or her auditing of the accounts of NAMA from its establishment to the date on which the surcharge is to be applied.

The proposed surcharge will have the following characteristics. No surcharge will apply until at least ten years after the passing of the NAMA Bill. The aggregate surcharge to be imposed will not exceed the loss incurred by NAMA. The surcharge will be apportioned among the participating institutions according to the book value of the assets transferred to NAMA. In other words, the aggregate book value of all the assets transferred from the different institutions will be examined and the proportion of the surcharge for which any one institution will be liable will be the percentage of assets it transferred to NAMA. The other characteristic is that the surcharge imposed on any institution will not exceed the amount of corporation tax due in that period.

Senator Liam Twomey: When I brought forward a proposal that the levy should be introduced from the outset, I was ridiculed by the Minister for Finance on the basis that what I was suggesting would spook the markets. What will be the effect of the proposal that in ten years’ time some of the participating banks will be responsible for the undefined losses incurred by Anglo Irish Bank, Irish Nationwide and any other institutions which have unbelievably bad loans?

No one will take any pleasure from NAMA failing. If, as time passes, a significant level of losses build up and if Anglo Irish Bank and Irish Nationwide disappear, the remaining participating institutions, which are dealing in a smaller and less profitable market, will be obliged to shoulder the losses to which I refer. We are not discussing the fairness of what is being done, rather we are concerned with the effect on the financial sector of that to which I refer, which sector, as already stated, may be obliged to take a further hit in ten years’ time.

Deputy Willie O’Dea: I accept what Senator Twomey says. The question that arises is, in the event of NAMA making a loss — I hope it will not do so — whether the taxpayer or the participating institutions should bear that loss. Either one believes it should be the those institutions or one does not. If there is going to be a future liability, I accept that this will overhang the successful participating institutions. However, we have tried to avoid creating a situation whereby these institutions will be obliged to provide for this on their balance sheets by way of a contingent liability because this would have a detrimental effect. We are trying to repair those balance sheets rather than do something which would have further adverse effects on them.

We have tried to ensure the banks will not be obliged to put money aside. There could be a surcharge in ten years’ time. The most effective way to assess the percentage each participating institution will contribute to the surcharge is that laid out in the section.

Senator Liam Twomey: My point is that in three years’ time, when it is hoped matters in the financial sector will have improved, international investors will again become interested in our banking sector. It will then be pointed out to them that a surcharge may have to be paid in the future. NAMA may be showing good potential at that stage but if it is not, then we are only making more trouble for ourselves. What we are discussing revolves around achieving a balance between the taxpayer and the financial sector. There are those of us who believe taxpayers are receiving a raw deal in respect of the €54 billion they are investing, that the problems we are setting out to resolve may not go away and that the banks will be the ultimate beneficiaries.

We appear to be at cross-purposes with regard to what we are trying to achieve. We have already taken a hit and I am of the view that we should probably reconsider this matter in the context of how the financial sector might be affected in years to come. Since the Minister disagreed with me with regard to imposing the levy from the outset, perhaps we should leave out the entire sector until we see how NAMA’s work is progressing.

The TL;DR version of that is that the surcharge needs to exist, but not to appear on the balance sheets - which is what I have been saying about it. Again, I think from your point of view, the fact that it doesn't appear on the balance sheets is the same as it not being credible. In strict accounting terms, I'd agree that's so - in political terms, I disagree.

Sand wrote: »

What if they are insolvent and cant pay? How long would you allow the fiction to continue in the hope that something will come along? How long do you believe NAMA will maintain it?

So, in either case would that imply these "too big to fail" borrowers will not be managed in a neutral, calculating fashion? Either through connections or fear of realising the losses?

What would that imply for the potential for political corruption and indeed the return to the taxpayer?

There's obviously a large potential for preferential treatment of the NAMA loan holders. However, that potential would be even greater if the loans remained with the banks or any other "private" institution. The inability of major developers to service NAMA loans will be hard to conceal, and pressure will come on the agency to call in non-performing loans. From that perspective the timing is to some extent in favour of the taxpayer - the initial development of NAMA will be obvious by 2012, and the end-game will be pretty visible in 2017.

You have to appreciate, though, that as I said before, I prefer the tax burden of paying the whole of NAMA off to the uncertainty of bank collapses.

Sand wrote: »

Grand, I bow to your greater experience. Can we move back to dealing with posts as opposed to posters?

As long as you stop shouting at me, sure.

Sand wrote: »

Given that, do you think NAMA (or Irish banking policy or whatever....) will allow Irish banks to buck that trend and increase lending from its current level in the midst of a recession?

Over the next couple of years, once NAMA has been bedded down? I think it's certainly possible.

cordially,
Scofflaw

dynamick

Sand wrote: »

Re: Its goal - Do you think the Irish banking system would collapse if AIB, BoI and Anglo Irish were let fail? If so, can you explain what this would mean? Would banking as an activity cease in Ireland? If so, for how long?

I said the goal was to prevent a meltdown of the economy - not to prevent a collapse of the banking system. As the 400bn+ debts of the Irish banks are 100% guaranteed by the state, I would expect that a failure of the Irish banks would be shortly followed by the insolvency of the state.

Sand wrote: »

Re: Crypto-gilts: Can you expand on what you mean by this?

NAMA bonds are really gilts (Irish government bonds) but they've managed to categorise them as privately issued debt using their SPV ruse.

Sand wrote: »

Re: The fixed writedown: Do you have confidence in the level of the writedown? How would that line up with your expectation (optimistic I would say) that NAMA will lose 25 billion?

No - not at all. I am just guessing that a third of the book value of the loans is recoverable as that's half the government estimate.

Sand wrote: »

Re: Further bad debts - do you forsee a NAMA II to provide the same useful, indeed necessary incentive to accurately mark down the further bad debts you forsee?

I certainly hope not. NAMA is not a debt forgiveness for stupid borrowers it is a debt purchase for stupid lenders.

Sand wrote: »

Re: Further shareholdings - is there an upper limit you forsee? Could the banks end up nationalised by the long way round?

The upper limit of shareholding is 100%. Are you asking how much the government could recapitalise the banks before reaching 100%? I think the big 2 market caps are below 2bn each.

Sand wrote: »

Re: Paying the money on the NAMA bonds - do you think such recoveries will cover the cash flow demands of the bonds held by the banks or will the state have to top it up?

I hope so.

Sand wrote: »

Re: The banks having smaller balance sheets - can you make a stab at defining "eventually"?

NAMA is due to complete its transfer within a year (I think).

Sand wrote: »

Re: The clawback in 10 years; will these smaller, more risk adverse, lower earning banks have the ability to absorp the losses of NAMA through the clawback mechanism or will it push them back into insolvency? Would there then need to be a NAMA III?

I think it's clear that banking is an inherently profitable business that has high barriers to entry. So long as the banks don't go nuts lending on a single bubble asset class again they should return to normal healthy profitability.The state is hardly going to invoke a clawback that would make the banks insolvent having spent so much effort and time saving them.

Sand wrote: »

Re: The government selling off its holder: If the government were to end up with 80 or even 90% share ownership how much value could be extracted in a large sale?

I don't understand this question. Are you suggesting that a sale of 80 or 90% of a bank has to be sold at a large discount to the share price? Typically takeover deals are sold at a premium to share price.

Sand wrote: »

Re: No depositor losing money: Are you discounting the cost of NAMA to the taxpayer in that calculation?

Yes. People like to go to the bank and see that their money hasn't disappeared. Whereas they expect to have to pay taxes to the government for various dumb things they don't agree with.

Sand wrote: »

Re: Sustainable economic recovery: To minimise NAMA losses on a property back portfolio, isnt there an incentive for the government to try prevent a fall in property prices from bubble levels as much as is possible? Would this have any impact on the economic effort to recover competiveness through internal devaluation?

I don't think that even NAMA has the market share to influence property values significantly in the long term. Lower property prices make living and employing people cheaper and are of course good for the economy. This comes at a cost to NAMA and thus the taxpayer but I'm sure the benefit exceeds the cost.

Sand wrote: »

Does NAMA impact the wider economy in any negative fashion? What effect does the issue of NAMA related debt have on Irish borrowing costs over the 10 years given record deficits? Is it possible that the banks, holding 54 billion or so of Irish government debt might actually compete with the government to sell Irish state debt? Do you believe Irish people in general will face, or expect to face, higher taxes to fund NAMA? Will this impact their spending habits and confidence?

The cost of NAMA debt has been factored into our borrowing costs already by international markets - so long as you believe that the prices of traded assets reflect all past publicly available information.

Previously issued Irish debt competes with new issues of Irish debt. Irish debt also competes with all other sovereign debt issues around the world. We are a drop in the ocean.

I expect that Irish people are facing higher taxes to fund NAMA and higher taxes still to repair the deficit. Also I expect public spending to fall. I think Irish spending habits have changed already and people will be much more frugal in future. Confidence will be restored when our deficit starts to reduce and unemployment starts to fall.

NAMA is now a done deal and the international markets like it so much that they've lent the state 10 billion so far this year at 4.5% odd. So the world expects Ireland to recover.

I think what you're getting at in your questions is that NAMA carries various risks and certain costs, which I accept.

Scofflaw

People like to go to the bank and see that their money hasn't disappeared. Whereas they expect to have to pay taxes to the government for various dumb things they don't agree with.

and

I think what you're getting at in your questions is that NAMA carries various risks and certain costs, which I accept.

I think this may be the so-called "pro-NAMA" argument in a nutshell. I get the feeling coming the other way that we should be outraged at being asked to shell out, and that all that stops us being outraged is that we don't realise we're shelling out. We do realise it, we don't think NAMA is a cost-free exercise, but we still regard it as better than bank collapses, 'managed' (by the government!) or not.

As I said earlier in the thread, I've looked at the additional taxes I would probably have to pay if NAMA loses €54bn, and I prefer those extra taxes to my bank collapsing.

cordially,
Scofflaw

dynamick

Sand wrote: »

- Crystallises the losses in the system up front
- Forces losses on the stakeholders before the taxpayer
- Avoids the issue of moral hazard
- Avoids immense legal and administration costs of NAMA
- Allows us to move on with the real issue of economic growth in the future rather than worrying about whats already been lost.
- Synergy with the goal of rediscovering economic competiveness

An example might be Washington Mutual, the largest savings and loans association in the US, and 6th largest bank in the US (assets of 330 billion ish I believe), until it failed in September 2008 after 16.4 billion was removed in a 10 day bank run ( about a tenth of the deposits it held). The FDIC siezed on September 25th, and then reopened it the very next day as JP Morgan Chase branches, whilst WaMu itself, the corporation, filled for bankruptcy. Shareholders and unsecured debtors got zilch. Deal done in the darkest days of the credit crunch.

Washington Mutual measured by asset size was only about the same size as AIB or BoI. yet this is in a country 70 times our size. One of the big US banks with 2 trillion in assets could step in and purchase it.

Washington Mutual only had federal guarantees covering the first $100K of consumer deposits whereas we have guaranteed our banks assets 100%.

The US did not liquidate banks representing 80% of consumer deposits. The largest bank failure in US history was a tiny part of their banking system and not comparable with our problems.

Moral hazard has to some extent been avoided with NAMA by ensuring that banks are saved but their owners are not. The shareholders lost 90-95% of value from peak. Stock is still very volatile and anyone who fancies a shot at Irish bank stock is facing the prospect of further dilution and possible nationalisation.

One of the big lessons from the Swedish crisis was to pick an option for recovery fast and get multiparty support to move on. So at this stage there's not much point in speculating on what might have been, when there's plenty to be concerned with in our future policy choices.

james finn

We need NAMA and its a good idea but the worst part of it is the solicitors will milk it dry just like everything else they put their hands on,

nama should be solicitor free

MaceFace

james finn wrote: »

We need NAMA and its a good idea but the worst part of it is the solicitors will milk it dry just like everything else they put their hands on,

the world should be solicitor free

Fixed that for you

Sponge Bob

Visualisation just in.

http://thestory.ie/2010/03/19/anglo-losses/

This is an adult male visualised next to €1m in €100 notes to scale



Meanwhile this is the SAME male visualised next to the amount of money ( lower end estimate) that Anglo will declare lost next week. It may be approx 25% more than the picture below.



HTH

recedite

dynamick wrote: »

NAMA is structured to purchase the entire loan portfolio of developers with distressed loans from all banks. In this way a developer with some good loans with one bank and bad loans with another bank will find his entire position is being looked at by a single organisation. This is clearly of benefit from a debt collection point of view - but not from the borrower's side.

Is there any theoretical mechanism to look at a developer who has a bad loan in one bank and a large cash deposit in another (possibly offshore) bank? I suppose it depends on how labyrinthine the structures of his companies are.

dynamick wrote: »

The upper limit of shareholding is 100%. Are you asking how much the government could recapitalise the banks before reaching 100%? I think the big 2 market caps are below 2bn each.

Would you agree that a version of nama could also have been applied to a nationalised banking system, and that the chosen method of drip feeding capital into the banks gives the best possible outcome for the shareholders, bondholders, and directors, but the worst outcome for the taxpayer?

SkepticOne

james finn wrote: »

We need NAMA and its a good idea but the worst part of it is the solicitors will milk it dry just like everything else they put their hands on,

nama should be solicitor free

Aspects of NAMA are OK in principle but we've gone for a specific version of it that maximises the benefit for these people at the expense of the country.

ei.sdraob

theres a thread about an IMF paper which concludes that prices will have to fall more in Ireland and other "advanced" countries

http://boards.ie/vbulletin/showthread.php?p=64979494

dynamick

recedite wrote: »

Is there any theoretical mechanism to look at a developer who has a bad loan in one bank and a large cash deposit in another (possibly offshore) bank? I suppose it depends on how labyrinthine the structures of his companies are.

I don't think that legislation allows NAMA to seize deposits from a bank where a developer has no loans.

In general, banks have the right to move money between customer accounts as they see fit. So if they lose patience with a customer, they can just consolidate his deposit and loan accounts into one account and work from there.

For this reason, wily customers tend to keep their deposit accounts in separate banks from their loan accounts. Also there is a tendency to stop making repayments on all loans in one bank but maintain them in another so that you can keep getting credit from at least one lender. NAMA should help deal with this behaviour.

recedite wrote: »

Would you agree that a version of nama could also have been applied to a nationalised banking system, and that the chosen method of drip feeding capital into the banks gives the best possible outcome for the shareholders, bondholders, and directors, but the worst outcome for the taxpayer?

nationalised banks have had AMCs in the past and I think they are going to make an AMC within Anglo for bad loans that don't qualify for NAMA.

I don't think there is a zero-sum game between shareholders, bondholders, directors and taxpayers. Nationalised banks could represent a larger risk to taxpayers than the chosen arrangement.

recedite

dynamick wrote: »

I don't think there is a zero-sum game between shareholders, bondholders, directors and taxpayers. Nationalised banks could represent a larger risk to taxpayers than the chosen arrangement.

Shares can be diluted ad infinitum, but still maintain at least some some small value.
Bondholders I believe are protected until the company is wound up.
Most of the directors who chose to pursue misguided policies get to keep their positions.

SkepticOne

Scofflaw wrote: »

I am referring specifically to EU oversight in the transfer of the loans under NAMA and under the putative nationalisation-scenario bad bank. I am aware that the EU will not be overseeing NAMA on an ongoing basis (which is something of a pity, since they're rather better at transparency than our government). I still find your contention that the lack of EU oversight of the loan transfer and valuation process would be an advantage of the nationalisation scenario amusing.

I think you need to get rid of the idea of 'loan transfer' in the nationalisation scenario. It is not transfer as such but the separation of assets into two groups, both owned by the state. In the current scheme we do get the benefit of EU scrutiny but we also get the downside of significant delay. Under the nationalisation idea, such scrutiny on a loan by loan basis would not be as beneficial to the country yet we would still have the delay. I hope this is clear now.

K-9 wrote: »

They'd still have to decide what loans to transfer to the bad bank and what to keep, not simple either. The "accountancy job" isn't that simple because they are transferring them to a brand new bank, completely separate from say, AIB. The state would be the new owners or bankers. The relationship with AIB would have to be cut completely as a foreign bank wouldn't touch them with a barge pole otherwise.

As far as I can see it's very similar to NAMA, barring the LTEV criteria.

This is a good point but the decision to transfer all developer loans over 5 million was made fairly early on. It is these same loans that you would split under the nationalisation scheme. What you don't get under nationalisation is private companies in the form of the banks pocketing whatever is in excess of what is needed and this is why we don't need scrutiny on each and every loan to the same extent. You could very quickly separate the impared assets into a shell entity so that they are out of the way temporarily while you then re-privatise the purged bank. In parallel with this you could be setting up the long term debt management organisation but in the mean time you have re-privatised the banks.

You are correct in that the problems associated with the remaining part of NAMA, the managing of assets over the longer term remain. If you have an 'optimistic' view of the market then the way proposed by the politicians is the way to go here. Personally I think the goal of exiting from the market (something the polititicians know nothing about) at the earliest practical point would be better.

Sand

@Scofflaw

I'm not sure why that's better than partially crystallising them and taking them out of the system now, and crystallising the rest later at a point where they may not be so large

The money is lost. Spending more on it (NAMA admin and legal costs) wont make the amount lost smaller.

Which begs the question of whether the taxpayer is going to take the potential losses.

Only the losses relating to the depositors given the economic consequences and then only to a level considered viable in light of the state capacity.

I.E. I fully allow despositors will take some losses.

Moral hazard meh.

You know why Lehman Brothers failure caused absolute and total panick back in 2008? It was because people went "Meh" to moral hazard. Moral hazard is important - players play within the rules as they understand them.

Moral hazard is important - people behave differently depending on if they consider the money to be theirs, or someone elses.

By putting an immense legal and administrative cost onto the businesses in the Irish economy instead.

Not really, a couple of banks who are getting wiped out anyhow.

I think those need further elucidation.

I have referred to them previously, but to expand on the first, Id refer you back to your first query in your post: The money is lost. Kicking the ball down the road wont reduce that lost money, but it will mean we spend the next 10 years worrying about something thats already lost instead of concentrating on recovery.

As for the second, NAMA is picking up property backed loans. The ultimate recoverable value of those loans will depend on the sale value of the property underlying them. As such, theres an incentive for the government to prop up property prices through artificial means to try and minimise NAMA losses. If this is examined through a wider, overall economic mindset, then one has to ask how propping up property prices/rents will help Irish economic recovery, let alone the social costs of people who are accepting unemployment/wage cuts but fixed property and rental costs. Lets remember, nobody can reasonably predict the losses on the NAMA portfolio, and that doubt, that contingent liability, is going to sit on the states and tha taxpayers balance sheet, hindering confidence and investment for a decade.

Accepting the hit up front and looking forward moves past those problems.

I presume so. However, as far as I can see, the more strict one is with respect to the value of the NAMA assets, the more one has to put in as recapitalisation. A full 'mark to market' valuation would probably result in the nationalisation of the banks.

Why is recapatilisation worse for the taxpayer? Why does it needed to be avoided so desperately from the taxpayers point of view? Through NAMA we (taxpayers) get a portfolio of toxic loans on which even breakeven would be greeted by sighs of relief. Through recapitalisation we get a slice of any upswing in the banks valuation. Surely, recapitalisation is better for the taxpayer? We are taking the worst of the toxic loans, we are already guaranteeing all their deposits and senior bonds...why not get any potential benefit due to such a large stake in the banks while we are at it?

I amnt a fan of nationalisation, but if my taxeuros are being used as venture capital, I want the return due to the stake being taken. Dont you?

I haven't expected to see a change in the lending behaviour of banks - if you mean a positive change, that is. I would expect to see it over the next couple of years.

I appreciate what you're pointing out here, but because as you say the banks already operating under the reality of NAMA the counter-factual is strictly theoretical. What I've seen of the banks' lending so far is a fairly standard contraction - a return to cautious lending rather than a wholesale collapse or retreat from lending.

Appreciating my point, would you accept there has been no immediately identifiable impact of NAMA or Irish bank policy on credit in the Irish economy in general other than Cowens assertion that it would be even worse without NAMA/Irish policy?

The TL;DR version of that is that the surcharge needs to exist, but not to appear on the balance sheets - which is what I have been saying about it. Again, I think from your point of view, the fact that it doesn't appear on the balance sheets is the same as it not being credible. In strict accounting terms, I'd agree that's so - in political terms, I disagree.

Let me clarify, I understand the purpose of the inclusion of the clawback mechnaism in political terms. It provides a figleaf without any real teeth.

Let me ask you...in political terms. Do you think any responsible future government would activate the clause if it meant the banks would be pushed back into insolvency by the sudden application of the levy on their balance sheets? Bear in mind that everyone expects the Irish banks to get smaller, and more risk adverse (less profitable) whilst they continue deleveraging over the next decade. So if the loss on the toxic loans would finish them off now, will it be more easily met on even smaller balance sheets?

If I may presume to assume your response, no responsible government would deliberately push their banks from a healthy position into insolvency with the economic and political costs entailed. Thats why I, and the people whose opinion matters, dont consider the clawback a credible levy.

You and others might point to the political populism of "revenge on the bankers" but why are Fianna Fail being populist now if revenge on the bankers is viewed as the politically astute move?

There's obviously a large potential for preferential treatment of the NAMA loan holders. However, that potential would be even greater if the loans remained with the banks or any other "private" institution. The inability of major developers to service NAMA loans will be hard to conceal, and pressure will come on the agency to call in non-performing loans. From that perspective the timing is to some extent in favour of the taxpayer - the initial development of NAMA will be obvious by 2012, and the end-game will be pretty visible in 2017.

Not really, you are assuming moral hazard is "meh" again. The government could enforce realistic accounting for bad debts through legislation with punitive sentences for defrauding investors. Far cheaper than NAMA. I have pointed out before that self regulation is better than reactive regulation, and the way you inspire self regulation is terror. Ensure that boards and auditors are legally responsible for the credibility of their balance sheets and you will see self regulation, based on pure self interest.

But dealing with reckless borrowers based on political connections...I just dont share your confidence in the neutrality of a process which was begun due to borrowers being too big to fail.

You have to appreciate, though, that as I said before, I prefer the tax burden of paying the whole of NAMA off to the uncertainty of bank collapses.

May I suggest NAMA be replaced by a private venture capital fund through which you and other citizens could put your money in, whilst I and other citizens preserved our taxes for things like health, education and police services?

As long as you stop shouting at me, sure.

lol, deal, as long as you stop beating your wife.

Over the next couple of years, once NAMA has been bedded down? I think it's certainly possible.

I certainly allow its possible too. Probable though? Given the historic trend you have noted? And the policy of internal devalution embarked upon by the government?

@dynamick

I said the goal was to prevent a meltdown of the economy - not to prevent a collapse of the banking system. As the 400bn+ debts of the Irish banks are 100% guaranteed by the state, I would expect that a failure of the Irish banks would be shortly followed by the insolvency of the state.

Okay, would you consider the fate of Irish banks as corporations to be equivalent to the Irish economy? Would the debts of Irish banking corporations fall upon the rest of the economy if Irish banks were to dishonour them?

You can qualify by reference to the completely moronic Lenihan guarantee of Sept 2008 if you want.

NAMA bonds are really gilts (Irish government bonds) but they've managed to categorise them as privately issued debt using their SPV ruse.

So essentially they remain taxpayer debt, but hidden by Enron/Lehman accounting tricks? As an Irish taxpayer (If I may so presume) do you discount these crypto-gilts as a liability?

I guess I would consider it misleading to describe NAMA being funded through cryto gilts. The debt is real surely.

No - not at all. I am just guessing that a third of the book value of the loans is recoverable as that's half the government estimate.

But isnt the government estimating the markdown? Surely the markdown is suspect if you are expecting further losses on it?

I certainly hope not. NAMA is not a debt forgiveness for stupid borrowers it is a debt purchase for stupid lenders.

In the absense of NAMA II do you believe the banks will have sufficient incentive to realistically mark down their bad debts?

The upper limit of shareholding is 100%. Are you asking how much the government could recapitalise the banks before reaching 100%? I think the big 2 market caps are below 2bn each.

If the banks reached 100% ( or 99.9999999999%) share ownership, and the banks required further recapitalisation over the 2 billion, what mechnanism might be employed to provide it?

I hope so.

Hope that NAMA will be able to cover the interest on the bonds, or hope the state will pony up for the difference?

I don't understand this question. Are you suggesting that a sale of 80 or 90% of a bank has to be sold at a large discount to the share price? Typically takeover deals are sold at a premium to share price.

I am assuming supply and demand - if we end up with boring, small, risk adverse, barely profitable banks and a 80-90% shareholder looking to sell up will the supply exceed demand? By extension what will that do for share price and recovery of the states stakeholding?

NAMA is due to complete its transfer within a year (I think).

So one year from now youd expect the banks to be at their "trough" and ready to grow and expand lending back to the new normal.

I think it's clear that banking is an inherently profitable business that has high barriers to entry. So long as the banks don't go nuts lending on a single bubble asset class again they should return to normal healthy profitability.The state is hardly going to invoke a clawback that would make the banks insolvent having spent so much effort and time saving them.

If you forsee banking to be an inherently profitable business with high barriers to interest what does that portend for competiveness in the Irish banking market? What effect will that have on Irish people and the Irish economy in general? Is there the prospect for price gouging between the suviving Irish banks that works against the taxpayers bailing out those Irish banks?

The cost of NAMA debt has been factored into our borrowing costs already by international markets - so long as you believe that the prices of traded assets reflect all past publicly available information.

Previously issued Irish debt competes with new issues of Irish debt. Irish debt also competes with all other sovereign debt issues around the world. We are a drop in the ocean.

Would you then argue that adding additional Irish debt has no impact on the price of future Irish debt? Have the "NAMA" bonds been issued to the banks?

Yes. People like to go to the bank and see that their money hasn't disappeared. Whereas they expect to have to pay taxes to the government for various dumb things they don't agree with.

So basically, we can fool the taxpayer and persuade them theyre not losing money even though they are?

Is that good governance from the taxpayers point of view? Would you agree with the praise of NAMA that is it is "masterfully vague"?

I don't think that even NAMA has the market share to influence property values significantly in the long term. Lower property prices make living and employing people cheaper and are of course good for the economy. This comes at a cost to NAMA and thus the taxpayer but I'm sure the benefit exceeds the cost.

Do you think the government/state has the ability to influence property values significantly in the long term? Given you recognise the trade off between the interests of NAMA and the interests of people in general would you think the interests of NAMA or the interests of people take priority in the governments eyes? Is it easy to confuse the two from the governments point of view?

I think what you're getting at in your questions is that NAMA carries various risks and certain costs, which I accept.

Every action carriers risks and costs - I amnt asking you if you believe that. Its a statement of fact, nothing more.

I am asking you if you believe NAMA carries the least risk and cost to the Irish taxpayer, state and economy overall of all possible alternatives? Will it not do more harm than good, given you accept Irish banks are a subset of the wider Irish economy?

@Scofflaw

As I said earlier in the thread, I've looked at the additional taxes I would probably have to pay if NAMA loses €54bn, and I prefer those extra taxes to my bank collapsing.

Theres about 2 million working in Ireland, slightly less actually. About 50% of those actually pay tax. So 1 million say on the hook. Assuming they remain in emploment. Say we take Dynamiks conservitive 25 billion loss, thats 25,000 per actual taxpayer. Do you have more than 25,000 in your bank account Scoff?

Actually, if we accept the 65 billion total cost, as one of the one million taxpayers funding the whole thing, do you have deposits big enough that youre willing to risk 65,000 to protect it?

@Dynamick

Washington Mutual measured by asset size was only about the same size as AIB or BoI. yet this is in a country 70 times our size. One of the big US banks with 2 trillion in assets could step in and purchase it.

Figures I heard were about 330 billion, which is almost the entire Irish banking system. And any bank in the world might be persuaded to step in and purchase it at the appropriate price. Anyone of the big US banks with 2 trillion assets could step in and purchase one of the Irish banks.

Washington Mutual only had federal guarantees covering the first $100K of consumer deposits whereas we have guaranteed our banks assets 100%.

FDIC covers at least 250K, per bank, actually, but our guarantee only goes to 20K Euro. Lenihans 100% guarantee of course changed that but I think Im on the record as saying that was a pretty moronic, stupid, panicked decision by a green minister vastly out of his depth.

Moral hazard has to some extent been avoided with NAMA by ensuring that banks are saved but their owners are not. The shareholders lost 90-95% of value from peak. Stock is still very volatile and anyone who fancies a shot at Irish bank stock is facing the prospect of further dilution and possible nationalisation.

Are banks run for the interests of their shareholders though? Would you disagree with Warren Buffet when he said that banks had been captured by their employees? If banks have been taken over by their employees with record bonus payments for dubious achievements, is "punishing" shareholders - who were often financially unsophisticated pensioners looking for a nestegg - sufficient to eliminate moral hazard?

One of the big lessons from the Swedish crisis was to pick an option for recovery fast and get multiparty support to move on.

Id agree, but Im talking about economic recovery, whereas NAMA focuses on banking recovery surely?

I suppose seperately to the above, theres been an objective look at the Irish economic future, taking the banks as a subset as opposed to the totality of our problems, by some non Irish economists. Given the disagreement with NAMA has been dismissed as ranting about Fianna Fail it might be worth looking at their views, surely they cant be bitter Fine Gaelers? Can they?

But yet they say:

Ireland had more prudent choices. They could have avoided taking on private bank debts by forcing the creditors of these banks to share the burden – and this is now what some sensible voices within the main opposition party have called for. However, a strong lobby of real estate developers, the investors who bought the bank bonds, and politicians with links to the failed developments (and their bankers), have managed to ensure that taxpayers rather than creditors will pay. The government plan is – with good reason – highly unpopular, but the coalition of interests in its favor it strong enough to ensure that it will proceed.

Scofflaw

Sand wrote: »

The money is lost. Spending more on it (NAMA admin and legal costs) wont make the amount lost smaller.

No, but as I'm sure you would appreciate if you were a small businessman (or do if you are) timing is quite critical. Deferring a portion of debt can spell the difference between ruin and solvency, even though on the balance sheet one is equally insolvent either way.

Sand wrote: »

Only the losses relating to the depositors given the economic consequences and then only to a level considered viable in light of the state capacity.

I.E. I fully allow despositors will take some losses.

You know why Lehman Brothers failure caused absolute and total panick back in 2008? It was because people went "Meh" to moral hazard. Moral hazard is important - players play within the rules as they understand them.

Moral hazard is important - people behave differently depending on if they consider the money to be theirs, or someone elses.

I appreciate the moral hazard argument, but unfortunately the reason the moral hazard exists is because some enterprises are too systematically vital to fail. In theory, knowing that should mean that government regulates them in the knowledge that they will be bailing them out if they fail - that's the other side of the moral hazard coin.

Sand wrote: »

Not really, a couple of banks who are getting wiped out anyhow.

The failure of my bank would impose an enormous legal and administrative cost on my business. I can't over-emphasise that point, and the extent to which it makes me utterly indifferent to arguments about what "should" happen.

Sand wrote: »

I have referred to them previously, but to expand on the first, Id refer you back to your first query in your post: The money is lost. Kicking the ball down the road wont reduce that lost money, but it will mean we spend the next 10 years worrying about something thats already lost instead of concentrating on recovery.

See the first point. I may not enjoy having a debt of uncertain size hanging over me for a decade, but I prefer it to being put out of business immediately.

Sand wrote: »

As for the second, NAMA is picking up property backed loans. The ultimate recoverable value of those loans will depend on the sale value of the property underlying them. As such, theres an incentive for the government to prop up property prices through artificial means to try and minimise NAMA losses. If this is examined through a wider, overall economic mindset, then one has to ask how propping up property prices/rents will help Irish economic recovery, let alone the social costs of people who are accepting unemployment/wage cuts but fixed property and rental costs. Lets remember, nobody can reasonably predict the losses on the NAMA portfolio, and that doubt, that contingent liability, is going to sit on the states and tha taxpayers balance sheet, hindering confidence and investment for a decade.

Up to a point I accept that, but I think you're over-emphasising the property value again. The performance of the loans depends on the solvency of the people paying them, an argument which you have already used to point out the potential danger of the state giving those developers an easy ride.

Sand wrote: »

Accepting the hit up front and looking forward moves past those problems.

By substituting other ones.

Sand wrote: »

Why is recapatilisation worse for the taxpayer? Why does it needed to be avoided so desperately from the taxpayers point of view? Through NAMA we (taxpayers) get a portfolio of toxic loans on which even breakeven would be greeted by sighs of relief. Through recapitalisation we get a slice of any upswing in the banks valuation. Surely, recapitalisation is better for the taxpayer? We are taking the worst of the toxic loans, we are already guaranteeing all their deposits and senior bonds...why not get any potential benefit due to such a large stake in the banks while we are at it?

I amnt a fan of nationalisation, but if my taxeuros are being used as venture capital, I want the return due to the stake being taken. Dont you?

If I sink my money into a venture to shore up the roof of my house, I don't expect any return bar not having the roof collapse. I'm not sure it's realistic to argue that we can nationalise, recapitalise, divide, and sell the banks in short order and profitably.

Sand wrote: »

Appreciating my point, would you accept there has been no immediately identifiable impact of NAMA or Irish bank policy on credit in the Irish economy in general other than Cowens assertion that it would be even worse without NAMA/Irish policy?

That would be fair to say. However, just because Cowen asserts it doesn't make it automatically untrue - although obviously it casts a pall of doubt over it. And I'd have to add that as I said, my experience of bank lending thus far is that it is not significantly worse than in previous recessions where the banks had not been in danger of collapse.

Sand wrote: »

Let me clarify, I understand the purpose of the inclusion of the clawback mechnaism in political terms. It provides a figleaf without any real teeth.

Let me ask you...in political terms. Do you think any responsible future government would activate the clause if it meant the banks would be pushed back into insolvency by the sudden application of the levy on their balance sheets? Bear in mind that everyone expects the Irish banks to get smaller, and more risk adverse (less profitable) whilst they continue deleveraging over the next decade. So if the loss on the toxic loans would finish them off now, will it be more easily met on even smaller balance sheets?

Again, who is "everyone" here? I could simply reverse the use of everyone and say that "everyone" expects the banks to return to profitability in the next 3-4 years, and to be growing again by the end of the decade.

Sand wrote: »

If I may presume to assume your response, no responsible government would deliberately push their banks from a healthy position into insolvency with the economic and political costs entailed. Thats why I, and the people whose opinion matters, dont consider the clawback a credible levy.

I'm still not sure who these "people whose opinion matters" are exactly. As I said earlier, if they're the authors of NAMA, I think you're making an extremely large assumption for which you haven't provided credible evidence.

Sand wrote: »

You and others might point to the political populism of "revenge on the bankers" but why are Fianna Fail being populist now if revenge on the bankers is viewed as the politically astute move?

Do you mean "why aren't?" as in "why aren't Fianna Fáil soaking it to the bankers now?". If you do, the answer would have to be that such a move would not be popular right now.

Sand wrote: »

Not really, you are assuming moral hazard is "meh" again. The government could enforce realistic accounting for bad debts through legislation with punitive sentences for defrauding investors. Far cheaper than NAMA. I have pointed out before that self regulation is better than reactive regulation, and the way you inspire self regulation is terror. Ensure that boards and auditors are legally responsible for the credibility of their balance sheets and you will see self regulation, based on pure self interest.

But dealing with reckless borrowers based on political connections...I just dont share your confidence in the neutrality of a process which was begun due to borrowers being too big to fail.

I accept, obviously, the risk inherent in NAMA that the Irish political class will be soft on their friends - but I'd say the same risk is inherent in any measure taken by the government bar allowing the banks to fail, and I've explained why I'm simply not interested in such a scenario.

Sand wrote: »

May I suggest NAMA be replaced by a private venture capital fund through which you and other citizens could put your money in, whilst I and other citizens preserved our taxes for things like health, education and police services?

I'm afraid not, any more than those of us who never bought property can avoid the consequences of the idiocy of our fellow citizens.

Sand wrote: »

lol, deal, as long as you stop beating your wife.

Ah, but you won't know whether I have or not.

Sand wrote: »

I certainly allow its possible too. Probable though? Given the historic trend you have noted? And the policy of internal devalution embarked upon by the government?

There I have to say that I honestly just don't know - and neither, when all is said and done, does anyone else. I tend to optimism, otherwise I couldn't run a small business.

Part of what makes me sanguine is that in the past nine months I've been approached by, or done work for, about half a dozen innovation-based startups, most of which are amongst a network of people I've known for over a decade. During the entire property bubble, there was no such activity - people were busy escalating their salaries, or trading in property, or getting fat on consultancy to big businesses who were supposedly "innovating". Now they're being shaken out of their comfort zones, and have less to lose, so they're willing to try something new. And that, as Gandalf would say, is a comforting thought.

cordially,
Scofflaw

dynamick

Sand wrote: »

Okay, would you consider the fate of Irish banks as corporations to be equivalent to the Irish economy? Would the debts of Irish banking corporations fall upon the rest of the economy if Irish banks were to dishonour them?

As a result of the guarantee, the debts of banks would fall directly on the rest of the economy in the event of a default.

Even without a guarantee, a total banking failure would impose high costs on the wider economy.

The approach to choosing a resolution to the banking crisis was roughly to take each option, estimate its risks and quantify them according to probability. You multiply the probabilities by the cost in the event of the risk event occurring to find a risk-weighted price for that choice. Then you pick the cheapest.

Sand wrote: »

So essentially they remain taxpayer debt, but hidden by Enron/Lehman accounting tricks? As an Irish taxpayer (If I may so presume) do you discount these crypto-gilts as a liability?

It's all debt - it just doesn't appear on the official national debt figure. Same as PPPs. Allows us to meet EU fiscal guidelines faster and may improve our borrowing costs depending on whether the markets see through it.

Sand wrote: »

But isnt the government estimating the markdown? Surely the markdown is suspect if you are expecting further losses on it?

I was just trying to be pessimistic and assume a significantly lower than official figure for market value. As there are performing loans and many valuable collateralised assets, its definitely worth something.

Sand wrote: »

In the absense of NAMA II do you believe the banks will have sufficient incentive to realistically mark down their bad debts?

I guess the centralbank or FR should be ensuring this

Sand wrote: »

If the banks reached 100% ( or 99.9999999999%) share ownership, and the banks required further recapitalisation over the 2 billion, what mechnanism might be employed to provide it?

I guess stuffing money into state owned companies isn't allowed by the EU. I guess we'll jump off that bridge if we reach it.

Sand wrote: »

Hope that NAMA will be able to cover the interest on the bonds, or hope the state will pony up for the difference?

Hope that NAMA will be able to cover the interest of course! The income is to come from: loan interest and capital repayment on performing loans, rent from repossessed collateral, sale of collateral.

Sand wrote: »

I am assuming supply and demand - if we end up with boring, small, risk adverse, barely profitable banks and a 80-90% shareholder looking to sell up will the supply exceed demand? By extension what will that do for share price and recovery of the states stakeholding?

I would expect total profitability of Irish banks to be in the 2-3 billion region making them worth 20-30 billion -if all bad debts are removed. Who knows what the market fo banks will be like in 10 years time.

Sand wrote: »

So one year from now youd expect the banks to be at their "trough" and ready to grow and expand lending back to the new normal.

No, one year from now I expect that the banks will have much smaller balance sheets with a lot of their toxic assets removed and thus a more credible list of assets. Banks have to lend all the time. Every deposit is a new bank liability that must be matched with a loan. And for every mortgage payment, there is a small hole in the asset sheet that must be filled in with a loan. Of course they could buy securities instead of lending but these pay low interest returns.

Sand wrote: »

If you forsee banking to be an inherently profitable business with high barriers to interest what does that portend for competiveness in the Irish banking market? What effect will that have on Irish people and the Irish economy in general? Is there the prospect for price gouging between the suviving Irish banks that works against the taxpayers bailing out those Irish banks?

In every country where I have experienced banking, it always seems to be uncompetitive and inefficiently run. Banking in the UK is considerably worse than here for example.

Sand wrote: »

Would you then argue that adding additional Irish debt has no impact on the price of future Irish debt? Have the "NAMA" bonds been issued to the banks?

Irish debt is still pretty cheap. The market is well aware that NAMA bonds are due for issue and our interest rate hasn't gone up. No NAMA bonds have been issued as no loans have been purchased.

Sand wrote: »

So basically, we can fool the taxpayer and persuade them theyre not losing money even though they are?

Yup. Like devaluing a currency. Only a few people notice.

Sand wrote: »

Is that good governance from the taxpayers point of view? Would you agree with the praise of NAMA that is it is "masterfully vague"?

Taxpayers are also voters and they chose the policies that led to crisis. The government has to balance what is possible and what they believe is right for the public against what the public ask for and is willing to accept. I think the praise from the IMF related to the way that NAMA squeezed past eu state aid rules.

Sand wrote: »

Do you think the government/state has the ability to influence property values significantly in the long term?

Only by destroying property en masse or equally extreme measures.

Sand wrote: »

Given you recognise the trade off between the interests of NAMA and the interests of people in general would you think the interests of NAMA or the interests of people take priority in the governments eyes? Is it easy to confuse the two from the governments point of view?

I think NAMA will make a loss and I don't think the government can do anything about it. A generation in negative equity and coming property taxes are not going to make a new property bubble any time soon.

Sand wrote: »

I am asking you if you believe NAMA carries the least risk and cost to the Irish taxpayer, state and economy overall of all possible alternatives? Will it not do more harm than good, given you accept Irish banks are a subset of the wider Irish economy?

I didn't do a forensic analysis of the various options and I don't have the economic expertise to evaluate the risks but I trust that those who did, did so diligently, in good faith and with the best advice.

Sand wrote: »

Figures I heard were about 330 billion, which is almost the entire Irish banking system.

330bn USD at the time was about 200m EUR - the size of AIB or BoI at 200bn a piece. If you look at the size of the total bank assets per capita in the us compared to ireland we are 3 times higher than them. Bad news.

Sand wrote: »

And any bank in the world might be persuaded to step in and purchase it at the appropriate price. Anyone of the big US banks with 2 trillion assets could step in and purchase one of the Irish banks.

JPM would have done it under pressure from the US authorities. WaMu had an actual run on the bank. And the US has a working method for winding down banks devised after 1929 and used many times since.

Sand wrote: »

FDIC covers at least 250K, per bank, actually, but our guarantee only goes to 20K Euro. Lenihans 100% guarantee of course changed that but I think Im on the record as saying that was a pretty moronic, stupid, panicked decision by a green minister vastly out of his depth.

FDIC only guaranteed 100K at the time, the 250K limit was introduced shortly after the WaMu failure.

Sand wrote: »

Are banks run for the interests of their shareholders though? Would you disagree with Warren Buffet when he said that banks had been captured by their employees? If banks have been taken over by their employees with record bonus payments for dubious achievements, is "punishing" shareholders - who were often financially unsophisticated pensioners looking for a nestegg - sufficient to eliminate moral hazard?

Irish banks pay very little compared to Goldman style bonuses. The CEO of BoI was paid less than 2m in 2009, while Goldman paid an average bonus of $500K to 32,000 staff this year. Buffet has a large holding in GS and is probably pissed off at seeing them spending his money on staff.

SkepticOne

dynamick wrote: »

I didn't do a forensic analysis of the various options and I don't have the economic expertise to evaluate the risks but I trust that those who did, did so diligently, in good faith and with the best advice.

Unfortunately no such analysis has taken place by the government or those employed by the government. They commissioned Peter Bacon to consider two and only two options 1) what has now essentially become NAMA and 2) a state asset guarantee scheme (basically a continuation of what is already in place). These are the only two options in the published summary report and Peter Bacon himself has pointed out in subsequent interviews that that these were the only options he was asked to consider by the government.

In other words, no options other than continuing with the guarantee scheme (which most people would agree was not desirable) were considered. The government have stuck doggedly to this ever since. All later suggestions have simply been ignored.

buddy4711

Funny how when discussing NAMA, nobody ever mentions the SPV'S. You can buy into nama if you have the dosh to spare. I wonder who will benefit from this. Will it be the taxpayer? Will it f5ck.

Sir Oxman

Why has Lenihan done this?

http://www.timesonline.co.uk/tol/news/world/ireland/article7069825.ece

"Brian Lenihan has backdated the value of all property loans being acquired by the National Asset Management Agency (Nama) to November 2009, a move that economists claim will cost the taxpayer up to €5 billion.

The finance minister has been accused of signing off on a “holiday for the banks” and engaging in “legislative price fixing”, after his department confirmed that Nama will value all loans based on what they were worth on November 30 last year, even though house and land prices have fallen since then."