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NAMA - figures are not adding up
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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."
oh dear god, so the November 2009 prices are set in stone now
thank you Brian, your a genius :rolleyes:0 -
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."
Damned if they do, damned if they don't.Mad Men's Don Draper : What you call love was invented by guys like me, to sell nylons.
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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."
Two questions - first, is there any source for this other than the Times? I don't mean to be sceptical, but it's a little strange that the only source for this is a UK paper, and I do suffer from a very serious mistrust of British journalism! Second, what difference does this actually make, unless, as several of you obviously do, we dismiss the tax surcharge mechanism out of hand?
cordially,
Scofflaw0 -
I'm not a lawyer but it looks like the provision in the NAMA Act is meaningless. The relevant bit was quoted in this thread by Sand:Second, what difference does this actually make, unless, as several of you obviously do, we dismiss the tax surcharge mechanism out of hand?
Note what it is saying here. The minister may add a provision to impose a tax surcharge in another future piece of legislation that can then be debated in the Dail.(b) the Minister is of the opinion that such underlying loss is
unlikely to be otherwise made good,
then the Minister may cause—
(i) a provision to be included in a Money Bill, or
(ii) a provision to like effect to be included in any other Bill
initiated in Dáil Éireann,
[2009.] National Asset Management Agency [No. 34.]
Act 2009.
providing for the imposition of a special tax by way of a surcharge
on participating institutions in accordance with subsection (4).
But he can do that anyway. He doesn't need legislation to initiate new legislation ten years down the line. And when he does try to initiate legislation it is up for the usual constitutional challenges.
So not dismissing it out of hand but it is hard to see anything much in the current legislation enabling the country to get back any money.0 -
SkepticOne wrote: »I'm not a lawyer but it looks like the provision in the NAMA Act is meaningless. The relevant bit was quoted in this thread by Sand:Note what it is saying here. The minister may add a provision to impose a tax surcharge in another future piece of legislation that can then be debated in the Dail.
But he can do that anyway. He doesn't need legislation to initiate new legislation ten years down the line. And when he does try to initiate legislation it is up for the usual constitutional challenges.
So not dismissing it out of hand but it is hard to see anything much in the current legislation enabling the country to get back any money.
It's pretty standard language for an Act, though - Acts very rarely use "must" or "shall", because it leaves no room at all for discretion. That's not to dismiss your argument out of hand either, but I don't think that it's "hard to see anything much in the current legislation enabling the country to get back any money". On the contrary, it's pretty clear in the current legislation how it can be done - the question is whether whoever the Finance Minister may be in a decade's time will use it.
My own views on that remain as stated earlier - it would be immensely popular for whoever is in government at the time to activate it, and short of being legally prevented from doing so, or the banks being insolvent, it's hard to see a reason for the government of 2020 not using it, since they don't even need to go to the effort of creating enabling legislation de novo. The ability to point to the current legislation and say "look, that provision has been part of the legislation since the get-go" is a strong argument - old law is always easier to implement than new law. Further, the fact that it is part of the current legislation makes it a potential electoral argument at general elections between now and then.
cordially,
Scofflaw0 -
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It is not the use of "may" or "shall" or whatever, it is the fact that there is no provision for a tax surcharge in the current legislation.
There is mention of a future bill but current Act doesn't enable that future legislation since that ability was already there.
Unfortunately, if you want to use the tax surcharge as a benefit of the current NAMA you are going to have to say that it is possible (subject to constitutional tests) with future legislation rather than talk about it as something that provided for in the current NAMA Act.0 -
SkepticOne wrote: »It is not the use of "may" or "shall" or whatever, it is the fact that there is no provision for a tax surcharge in the current legislation.
There is mention of a future bill but the bill doesn't enable that future legislation since that ability was already there.
Unfortunately, if you want to use the tax surcharge as a benefit of the current NAMA you are going to have to say that it is possible (subject to constitutional tests) with future legislation rather than talk about it as something that provided for in the current NAMA Act.(b) the Minister is of the opinion that such underlying loss is unlikely to be otherwise made good, then the Minister may cause—
(i) a provision to be included in a Money Bill, or
(ii) a provision to like effect to be included in any other Bill initiated in Da´ il Eireann,
providing for the imposition of a special tax by way of a surcharge on participating institutions in accordance with subsection (4).
Ah, I can see what you're saying, I think - that what's in the Bill isn't the provision for a tax surcharge, but the provision for the provision of a tax surcharge?
The same argument applies as earlier - anything that provides directly for a future surcharge becomes a liability on the banks' accounts right now, making the whole NAMA exercise pointless. The provision for a provision, on the other hand, is a commitment with enough wriggle room to prevent that, while providing the strongest possible political commitment.
cordially,
Scofflaw0 -
The important thing is that we stop saying that the NAMA legislation provides for a tax surcharge on the banks. It doesn't provide for anything of the sort. Future provision is possible anyway regardless of what is said in the current legislation.0
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SkepticOne wrote: »The important thing is that we stop saying that the NAMA legislation provides for a tax surcharge on the banks. It doesn't provide for anything of the sort. Future provision is possible anyway regardless of what is said in the current legislation.
To say the Act doesn't provide for such a surcharge is clearly nonsense, since the Act specifically does provide for one. What it does not do is provide one.
If someone said of such a surcharge, in 10 years' time, that "the original NAMA legislation does not provide for any tax surcharge", they would clearly be entirely wrong.
cordially,
Scofflaw0 -
I think what most people would understand by "provides for x" in this context is that power is granted under the legislation to do x.To say the Act doesn't provide for such a surcharge is clearly nonsense, since the Act specifically does provide for one. What it does not do is provide one.
If someone said of such a surcharge, in 10 years' time, that "the original NAMA legislation does not provide for any tax surcharge", they would clearly be entirely wrong.
It doesn't really matter what language we use. The key thing is that the current legislation does not enable the minister to impose a tax surcharge or grant any power in this regard that he did not already have.0 -
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The problem is that new legislation will need to be brought in ten years time to try and get money from the banks that may have been lost due to bad management by NAMA of the assets over those years. We don't know how that might be challenged constitutionally when the time comes.Sand if there is no clawback, we are fecked and NAMA is the least of our worries.0 -
SkepticOne wrote: »I think what most people would understand by "provides for x" in this context is that power is granted under the legislation to do x.
It doesn't really matter what language we use. The key thing is that the current legislation does not enable the minister to impose a tax surcharge or grant any power in this regard that he did not already have.The problem is that new legislation will need to be brought in ten years time to try and get money from the banks that may have been lost due to bad management by NAMA of the assets over those years. We don't know how that might be challenged constitutionally when the time comes.
If the surcharge can successfully be constitutionally challenged, then the current Act is unconstitutional. Saying that "we don't know what constitutional challenges might be made" is a pretty empty statement without suggesting what constitutional challenges might possibly be made. Personally, I can see none - the best available might be the idea that retrospective tax is unconstitutional (as per a Supreme Court ruling in 2005), but that wouldn't actually apply here, since a surcharge on their profits wouldn't need to be retrospective.
We appear, by the way, to be at a stage where you have two contradictory arguments against the use of the surcharge - that it is already a power of the Minister, and that it might be unconstitutional, maybe.
I can't help but feel that you have some pressing need to rule out use of the surcharge mechanism - and certainly it seems to me that while without the surcharge we still have a way to recoup such losses, we would have no commitment to doing so.
cordially,
Scofflaw0 -
I accept, obviously, the risk inherent in NAMA that the Irish political class will be soft on their friendsIreland had more prudent choices. It 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.
But 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 is strong enough to ensure that it will proceed.
http://economix.blogs.nytimes.com/2010/03/18/will-the-u-s-become-the-next-ireland/0 -
Count Dooku wrote: »
And Leading international economists disagree over NAMA. Reading around the subject is always welcome.
cordially,
Scofflaw0 -
There's no contradiction between a) having the power to initiate legislation which, if passed, may lead to the power to impose a surcharge and b) not having the power to impose a surcharge. I'm not sure you are listening to what is being said.We appear, by the way, to be at a stage where you have two contradictory arguments against the use of the surcharge - that it is already a power of the Minister, and that it might be unconstitutional, maybe.0 -
Interesting that the first economist, Roubini, the one that agrees in principle with NAMA although he has not looked into it in detail, has this to say:And Leading international economists disagree over NAMA. Reading around the subject is always welcome.
This would also be my main problem with NAMA. It is assuming there's going to be a recovery and this is a huge risk. I would much rather losses are cut as early as possible. We're forced to go along with the views of Brian "we've turned the corner" Lenihan.“You can make an argument for overpaying if the current market value of the assets are lower than what they are going to be in the longer run. But it is taking a huge risk if the asset prices do not recover [...].0 -
SkepticOne wrote: »There's no contradiction between a) having the power to initiate legislation which, if passed, may lead to the power to impose a surcharge and b) not having the power to impose a surcharge. I'm not sure you are listening to what is being said.
I am, and it's beginning to sound like post-hoc justification at this stage - the surcharge mechanism has to not be valid, because that way NAMA is more probably a disaster.This would also be my main problem with NAMA. It is assuming there's going to be a recovery and this is a huge risk. I would much rather losses are cut as early as possible. We're forced to go along with the views of Brian "we've turned the corner" Lenihan.
And I, as I said, would much rather take NAMA's possible losses later than the definite losses now. Nor am I sure why NAMA leads to greater losses?
cordially,
Scofflaw0 -
Two questions - first, is there any source for this other than the Times? I don't mean to be sceptical, but it's a little strange that the only source for this is a UK paper, and I do suffer from a very serious mistrust of British journalism! Second, what difference does this actually make, unless, as several of you obviously do, we dismiss the tax surcharge mechanism out of hand?
cordially,
Scofflaw
Haven't found any other papers reporting this so far.0 -
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Good find.Minister for Finance (Deputy Brian Lenihan):
Section 73 of the NAMA Act sets out that NAMA may set a date by reference to which the market value of a bank asset or property is to be determined. NAMA have set this date as 30 November 2009. It follows that any property decreases or increases after 30 November 2009 will not be reflected in the NAMA market valuations. Valuation will be in accordance with recognised red book valuation standards, European valuation standards, or International valuation standards, as appropriate to the locations where the property is situated. The valuation process for the eligible bank assets will be certified by independent experts and validated by the Financial Regulator to ensure that the NAMA valuation methodology is robust and credible.0 -
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Thanks for that - that leaves the second question, which is whether it makes any real difference. Also, I thought NAMA valuations were going to be "bubble valuations", according to some of its opponents?
cordially,
Scofflaw0 -
It's going to cost money to get past this banking crisis. The government can't give money directly to the banks without breaching state aid rules but the commission seems willing to sign off on various ruses to effect that transfer of cash while staying within the letter of the law. Hence LTEV, SPV, backdated valuation and anything else they can come up with.
First loans to transfer by Wednesday of next week.0 -
It's going to cost money to get past this banking crisis. The government can't give money directly to the banks without breaching state aid rules but the commission seems willing to sign off on various ruses to effect that transfer of cash while staying within the letter of the law. Hence LTEV, SPV, backdated valuation and anything else they can come up with.
First loans to transfer by Wednesday of next week.
but they can take over the banks, was done in UK and other EU countries on much larger scales0 -
but they can take over the banks, was done in UK and other EU countries on much larger scales
I don't think that is actually possible without breaching the euro deficit rules good and hard. Nor would I be entirely happy to see nationalised banks in the hands of Fianna Fáil at this point.
I appreciate there's a lot of talk about how we should be throwing the debt onto the shareholders rather than the taxpayers, but given the extensive shareholding in our banks by our pension funds, those will often be the same people.
cordially,
Scofflaw0 -
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@ScofflawI appreciate the moral hazard argument, but unfortunately the reason the moral hazard exists is because some enterprises are too systematically vital to fail.
Functions yes, corporate entities no. We will always need banks. We dont need AIB or BoI.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.
I think you underestimate the costs NAMA is going to place on you and your bussiness. Businesses are complaining about being incapable of operating at boom rents with recession incomes - NAMA is propping up that commerical property market because everyone wants to kick the ball down the road ten years. In the meantime, businesses close and unemployment queues get longer.
Everyone has some interest in the problem, for the sake of argument its better to try view it objectively. I am quite aware NAMA is of great benefit to some in society - that doesnt justify the expense it puts on society as a whole.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.
Youd be able to start up a new bussiness far quicker than you'll be able to resolve that uncertain debt, should Irish politicians stop focusing on banks, start working on the economy and decriminalise bankruptcy in Irish law.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.
Ultimately, loans taken out to purchase/develop property are exposed to the property market. If the borrower cant turn a profit out of that field down in Sligo, then he cant pay us back. Fields wont generate the required revenue to service the loan - the concept would always have been to borrow up front, build and then settle up when all those 2 beds were sold on the market for massive markups.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.
And if you sink your money into a venture to shore up the roof of some random strangers house? You dont expect any return? Are the banks as altruistic in their dealings?
I am not in favour of nationalisation - though if were going to have give all this money to the banks, I want my return as a taxpayer. If I can say one thing in favour of the guarantee, its that its temporary. It runs out. If the government was to prepare appropriate legislation they could reorganise the banks balance sheet without nationalisation when the guarantee expired...or more effectively by repealing the guarantee early before doubts arose.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.
I wouldnt argue that its untrue because Cowen claimed it. Potentially it is true. The reality is though, theres been no discernable impact by government policy on the historical trend in a recession of banks deleveraging in a recession. That the government is reduced to claiming it would have been far worse if any other option had even been considered at all is not compelling to me.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.
Historically the banks lent about 60-80% of GNP, backed by deposits. They have been lending up to 200% GNP, backed by bonds during the boom. The average for a developed economy is about 100% GNP - the UK fuelled a property boom of their own on that sort of lending into the economy.
The banks are deleveraging as fast as they can...their lending is likely to return to at least international norms, and will probably overshoot, perhaps even reaching traditional Irish norms, backed by deposits as safe, boring banks that are not attractive to investors.
As a result, their balance sheets are going to get smaller, even without considering the looming tide of residential mortgage defaults. But to return to my question, do you believe any responsible Irish government would activate the clawback if the sudden liability on their balance sheets pushed them back into insolvency after the decade and many billions and political cost of saving them?
Its a rhetorical question - no responsible Irish government would do it. Its one thing letting a bank fail due to mismanagement and sharing the pain amongst the stakeholders. Its another thing causing a bank to fail by capricious application of a clawback and forcing stakeholders to accept pain they might not have any justification to suffer.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.
I provided the link to the presentation of NAMA by Lenihan and Co to the Oireachtas committee and quoted the exchange between Joan Burton (who disbelieved the clawback was realistically enforceable, rightly so) and Lenihans sidekick who insisted they couldnt put in a realisticially enforceable levy without invalidating the purpose of NAMA.
Essentially Scoff, the taxpayer is getting mugged on NAMA. Thats the whole idea - socialising the losses. It doesnt make any sense whatsoever otherwise. If the taxpayer doesnt get mugged, then theres no point doing it.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.
You are correct, its arent. I will edit to clarify.
I find it hard to credit "revenge on the bankers" wouldnt be massively popular right now. If the Gardai were to drag Seanie screaming through the streets of Dublin and behead him outside the offices of Anglo-Irish ( an old Italian punishment for failed bankers), the great and good of Ireland would turn out enjoy the show, praising Cowen and Lenihan for finally doing the right thing.
In 10 years, people are barely going to remember Seanie.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.
But youd allow that the risk of corruption is far less when stakeholders are forced to accept their losses.
Taking the long term view - is it easier or harder to do business in a corrupt bussiness enviroment? Which is the better for the countries long term economic recovery?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.
When youre ordering inventory, do you base your orders on what you hope you'll sell, or what you'll estimate you will sell based on evidence and trends? Optimism over evidence is what got us into this mess in the first place.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.
Glad to hear it, but its unfortunate they will be stifled by high taxes, depressed consumer sentiment and a cozy cartel of uncompetitive, inefficient, politically connected, price gouging banks plus an array of other insiders who are all "too big to fail" in the eyes of their backers. Ireland would do better in the longer term economically if economic change was accepted, not feared. NAMA shows the insider in Ireland still fear economic change. And who can blame them - they like the way things are and NAMA keeps everything afloat, if taking on water.
@DynamickAs 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.
Lenihan chose the guarantee, it can be repealed like any other government policy and its temporary either way - you can safely discount its effects if policy was to force stakeholders to take their losses for the wider economic good.
Has the government actually done a cost-benefit analysis before discounting it? Or is it something we assume, such as the Financial Regulator knowing what he was talking about when he told us the banks were fine back in 2007?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.
What do you think are the chances of the market discounting it though? Especially given the headlines its been earning? I can see Davy and Goodbody stockbrokers happily discounting it, but I cant see more ruthless types doing so.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.
Thats the thing though - NAMA isnt incentivising an honest markdown of bank assets, just an inflated one, somewhere above market value.I guess the centralbank or FR should be ensuring this
Why not let them value the NAMA bound loans too and enforce the valuations, avoiding a Japanese style situation for 1% of the price of NAMA?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.
We're going to reach that bridge fairly fast so we might want to come up with a plan. As it is, NAMA seems merely to be the most expensive way to nationalise AIB and BoI. Because nationalisation is practically inevitable on the current path, in substance at least. I am sure some accounting trick can be discovered where the government is the only stakeholder of note in the banks but actually owns nothing.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.
Trying to make a return on a property portfolio purchased at above market value in the midst of a recession, in a market already vastly oversupplied with empty property? Its not .... impossible...but lets be realistic. The state is going to have to pony up.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.
When you talk about profitability are you including allowance for paying down bondholder debt as it falls due and cant simply be rolled forward? For defaults by the unemployed?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.
Thats not really addressing the impact such a banking coterie will have on the Irish economy. I'll allow that you agree it will have a crippling effect on the economy though. Theres no other reasonable answer.
Why would you consider UK banking to be worse than here? Obviously the City of London is host to investment banking, but in comparing AIB, BoI to their UK cousins, how are they better?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.
And when NAMA bonds have been issued? Will Irish debt get harder to issue? Surely it must due to basic supply and demand, with demand itself cooling as people take a dimmer view of our ability to pay back everything. Given our fiscal situation is such that we must rely on debt isnt that going to hinder us as a state?Taxpayers are also voters and they chose the policies that led to crisis.
The two arent interchangeable however, though some might argue there ought to be a closer correlation.Only by destroying property en masse or equally extreme measures.
So why did so many developers build loss making hotels? Given they are making a loss, why are they keeping them open, hindering actual hotels? Might it have anything to do with government tax breaks?
Would halving capital gains tax have an effect on sales of property?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.
Yeah, I figured the Financial Regulator was regulating the banks too. Didnt work out that way.
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.
6th largest bank in the US either way you slice it. Its a big bank that was wrapped up and relaunched in less than 24 hours. The stakeholders lost, but thats their risk.
We can do something similar if the will is there to draw up the legislation. I dont believe people imaginative enough to circumvent every moral, legal and consitutional barrier to create NAMA cant repeat the trick with legislation that will actually benefit Ireland.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.
All credit to Goldman Sachs, comparing Irish banks to them on any level from compensation to return is laughable. Irish bankers marked themselves to the very top of the market, Trapattoni wages for Staunton performances. They told all and sundry that they needed to offer these deals to dissaude headhunters stealing their golden boys...theres no evidence whatsoever that anyone headhunted the Irish bank boards for talent, which is unsurprising given there isnt much to find and whats there is overpriced.
The only thing comparable between GS and Irish banks, is that the senior executives have taken control of the firm culturally and rewarded themselves at shareholder expense. The only excuse GS employees have is that they have done a better job at preserving shareholder value whilst returning the taxpayers money they were told to accept.0 -
And Leading international economists disagree over NAMA. Reading around the subject is always welcome.
cordially,
Scofflaw
Roubbini might risk being misinterpreted: He doesnt refer to NAMA specifically other than to say he hasnt studied it. He is talking theoretically and he qualifies his comments in such a fashion that it would invalidate support for NAMA as it is conceived. Hes talking about crystallising losses up front, forcing them on the stakeholders, from a US perspective where thats business as usual. He is probably unfamiliar and thus not allowing for the Irish practise of "too connected to fail".“It is essential that the bad assets are taken off the balance sheets of the
financial institutions and that the Government separates the good assets from the bad assets to clean up the financial system. The key thing is that this is done without massive losses for the Governmentand that it isn’t just a bail-out for the bankers and property developers. The other key thing is that the Government buys these assets at a low enough discount so that it minimises the fiscal cost. If it does that and if it also imposes haircuts on shareholders and unsecured creditors, it is doing something that is fair and efficient.”
Roubini added “But if it does it in such a way that implies it is buying these assets at overpriced prices that does not reflect the underlying value, then it is giving a big subsidy to the bank shareholders and the unsecured creditors.”
Roubini commented that he has not studied NAMA
In theory he is in favour of an honest, arms length deal at or near a realistic market value which crystallises the losses on the stakeholders with minimal impact on the taxpayer and forces everyone to stop crying over spilt milk and move on. That isnt what "masterfully vague" NAMA is about. Its in fact closer to my own view.0 -
WEll Well Well...talk about raining on a party !!The Irish Times - Thursday, March 25, 2010
Cantillon
Inside The World Of Business
Warning for the powers that be
AS IF there wasn’t enough painful comment on Government policies floating around, there came a few days ago some tough-talking from none other than a former chief economist for the International Monetary Fund.
Simon Johnson, writing with an eminent pal on a New York Times blog, sternly warns that Ireland should “definitely not” be held up as a model for other economic trouble spots in Europe or further afield. The problem with our way of doing things (ie the National Asset Management Agency), he argues, is that it reflects “an unwillingness to make creditors pay for their past mistakes”.
Instead, it is the good taxpayers of the State who have been left shouldering problems that were not of their creation. Just in case the powers that be might still be feeling a touch self-satisfied at having succeeded in their economic repair job where others have failed, Johnson says this is “hardly a good lesson for Greece, the euro zone or anywhere else”.
He doesn’t stop there. These days an academic at MIT’s Sloan School of Management, Johnson makes some uncomfortable accusations about the motivations behind the Nama bailout scheme.
“Ireland had more prudent choices,” he says, suggesting the taxpayer could have been spared taking on private bank debts by forcing bank creditors to share the burden. Instead, and here comes the most bruising bit, he says, “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”.
Ouch. Sparing nobody’s feelings, he claims the banks and associated parties are simply too well-connected in the corridors of power to end up as the losers.
Am I too cynical or does this fellow sound as if he has an excellent grasp of Irishnomics as understood by everybody EXCEPT the two Brian`s ?Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.
Charles Mackay (1812-1889)
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It is worrying that we're already being held up as an example of how not to do things and NAMA hasn't even got started yet.0
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SkepticOne wrote: »It is worrying that we're already being held up as an example of how not to do things and NAMA hasn't even got started yet.
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