NAMA - figures are not adding up

ei.sdraob

Scofflaw wrote: »

Thus far, the government has done everything possible to avoid that outcome. Whether that's sensible of them is another question entirely, but they've been very definite on the point. Even the shares they have acquired have been to some extent forced on them.

If the banks were nationalised, we can pretty definitely say, in line with current economic paradigms, that the government would seek to de-nationalise them as soon as possible.

Again, though, this is another deus ex machina for making NAMA a disaster. By many accounts, NAMA is the worst thing evar in and of itself - so I want to hear why it's a disaster without having to assume the sky will fall in.

cordially,
Scofflaw

its a waste of time and money

we could have either:

1. let them to sort mess and maybe 1-2 would have failed
2. nationalize them

or a mix of above

we will now quite likely endup with a mix of 1 & 2 anyways

and while we at it we created a new quango and wasted billions in administration

so why bother with NAMA which is just a roundabout way of bailing them out and writing off some loans, both of these acts could be done under nationalisation but at least that way the country owns the banks fully and the bondholders/shareholders loose the most

were given an excuse that the nationalised banks wouldn't be able to raise capital, but the markets are not stupid and realize that the main banks in ireland are basketcases and are for all intents and purposes state owned, and have already factored all of that in


as for the "disaster" remark, by artificially proping up prices and rents (its in NAMAs interest they rise not fall) we ensure more companies go to the wall, how can the government on one hand keep blabbing on about regaining competitiveness while on the other hand doing everything to ensure we are not competitive by proping up the still overvalued property and rent

and of course while all of this is happening credit still wont be available, hell even the AIB chief said recently they wont lend


all in all NAMA is a way for the current FF government of dumping the responsibility for this mess on the future generations

SkepticOne

Scofflaw wrote: »

Finally, what exactly is the point of the government arranging such penal servitude for generations of taxpayers? Are they doing it just for jollies?

I don't think anyone would suggest that it is the deliberate intention to screw up future generations. Probably the likes of Lenihan and Cowen do superficially believe that we're probably close to the bottom of the property market. They have probably also convinced themselves that most of Ireland's problems were externally generated as they have stated. None of them saw the crash coming and nor did they at the time see anything wrong with the state of the commercial and residential property markets or the fact that a large part of the economy was tied up with construction.

Most likely then Lenihan and Cowen think they're doing the right thing for the country with NAMA. However at the same time they know that if the calculations are wrong, it won't be known for ten years or more. By that time it will be easy enough to put the blame on those operating NAMA rather than the concept of NAMA itself. This might be the reason for the out of the blue pay rise for the board.

Scofflaw

Hold on - we're back to property valuations again. This isn't about property valuations - those only kick in if the loans default. You're assuming all the loans will default and that property prices won't rise and that the tax clawback won't happen.

cordially,
Scofflaw

ronanlyons

Firstly, thanks OP for the link to this week's piece on NAMA. Great to see good discussion of NAMA.

Scofflaw, re your statistics below, there is one very important adjustment to be made to the stats you've given on house prices. You've given nominal house prices but the relevant metric is *real* house prices, i.e. adjusted for general inflation in the economy. Put simply a 1976 punt and a 2001 punt were very different beings.

The graph below shows how house prices (as measured by the Dept of the Environment, which gets its figures from lending institutions, I believe) have changed in real terms from the seventies. (I've averaged over new and 2nd hand, incidentally.)

You'll notice that in real terms, house prices were lower in 1995 than they were in 1979. The suggests that even the growth experienced in the Irish economy over that 16 year period was offset by enough construction of new homes to keep prices level.

Two further comments re the outlook until 2020:

• Inflation in the eurozone is much more likely to be in the 2-3% range over the coming 10 years, as opposed to the 6-10% range we had until the mid-1990s, so we're talking about 25% inflation in total until 2020.
• Another major factor is the fact that we've already (during the boomtimes) front-loaded construction for the next 5-10 years (particularly outside our major cities). Oversupply pushes prices down.

Hence the worry about depending on 25% in 10 years.

Scofflaw wrote: »

An asset bubble is not required. Here are annual Irish house price changes (%) since 1976:

Year|New Houses|Second-hand
1976|23.31|
1977|17|
1978|24.89|
1979|20.17|24.96
1980|25.15|21.68
1981|12.32|3.05
1982|5.71|9.73
1983|-2.06|15.84
1984|3.84|19.18
1985|4.92|24.17
1986|1.39|28.83
1987|6.54|13.86
1988|5.66|11.73
1989|14.75|11.92
1990|4.76|-0.71
1991|5.57|6.77
1992|0.43|2.36
1993|0.55|1.85
1994|7.52|13.01
1995|7.07|13.8
1996|14.5|14.31
1997|21.79|7.68
1998|21.3|0.22
1999|16.43|-3.62
2000|13.83|-2.51
2001|0.64|0.19
2002|14.19|3
2003|13.93|4.15
2004|11.28|2.53
2005|9.48|5.11
2006|9.04|2.54
2007|0.4|1.2
2008|-10.28|-0.2Those aren't some kind of cumulative figures - they're the yearly changes, based on the CSO quarterly house price index.

You can get the necessary house price rise for NAMA from 1980-1985, or from 1985 to halfway through 1989. Those weren't exactly stellar years for the Irish economy.

The bubble rises were double-digit annual rises - in some cases the entire NAMA rise within 5 quarters, not 5 years. To get a 25% house price rise in 5 years has been possible at virtually any point since 1976.

cordially,
Scofflaw

Scofflaw

ei.sdraob wrote: »

its a waste of time and money

we could have either:

1. let them to sort mess and maybe 1-2 would have failed
2. nationalize them

or a mix of above

we will now quite likely endup with a mix of 1 & 2 anyways

and while we at it we created a new quango and wasted billions in administration

so why bother with NAMA which is just a roundabout way of bailing them out and writing off some loans, both of these acts could be done under nationalisation but at least that way the country owns the banks fully and the bondholders/shareholders loose the most

were given an excuse that the nationalised banks wouldn't be able to raise capital, but the markets are not stupid and realize that the main banks in ireland are basketcases and are for all intents and purposes state owned, and have already factored all of that in


as for the "disaster" remark, by artificially proping up prices and rents (its in NAMAs interest they rise not fall) we ensure more companies go to the wall, how can the government on one hand keep blabbing on about regaining competitiveness while on the other hand doing everything to ensure we are not competitive by proping up the still overvalued property and rent

and of course while all of this is happening credit still wont be available, hell even the AIB chief said recently they wont lend


all in all NAMA is a way for the current FF government of dumping the responsibility for this mess on the future generations

No, the reason for NAMA is to allow us to sort the banks out without breaching the debt-GDP ratios that we're allowed while remaining in the euro (indeed, remaining in the EU economic system), which is what would happen if we nationalised the banks.

Glibly talking about allowing banks to fail, on the other hand...look, when a bank fails, it tears down all the businesses that depended on it. If BOI goes down, a business that uses BOI for banking is, quite frankly, going to follow it down - not because they have some kind of special relationship with BOI, but because it will destroy all their supplier payment arrangements, their payroll arrangements, their access to credit facilities, their taxation arrangements, their auditability, their very ability to get paid in anything other than physical cash, and leave a huge question-mark hanging over any outstanding debt/credit arrangements they've had. The resulting mess would take at least half a year to sort out to any extent, and the ramifications could go on for years. You're talking about tearing a huge hole in the economy. A bank isn't a sandwich shop.

cordially,
Scofflaw

Scofflaw

ronanlyons wrote: »

Firstly, thanks OP for the link to this week's piece on NAMA. Great to see good discussion of NAMA.

Scofflaw, re your statistics below, there are one very important adjustment to be made to the stats you given on house prices. You've given nominal house prices but the relevant metric is *real* house prices, i.e. adjusted for general inflation in the economy. Put simply a 1976 punt and a 2001 punt were very different beings.

The graph below shows how house prices (as measured by the Dept of the Environment, which gets its figures from lending institutions, I believe) have changed in real terms from the seventies. (I've averaged over new and 2nd hand, incidentally.)

You'll notice that in real terms, house prices were lower in 1995 than they were in 1979. The suggests that even the growth experienced in the Irish economy over that 16 year period was offset by enough construction of new homes to keep prices level.

Two further comments re the outlook until 2020:

• Inflation in the eurozone is much more likely to be in the 2-3% range over the coming 10 years, as opposed to the 6-10% range we had until the mid-1990s, so we're talking about 25% inflation in total until 2020.
• Another major factor is the fact that we've already (during the boomtimes) front-loaded construction for the next 5-10 years (particularly outside our major cities). Oversupply pushes prices down.

Hence the worry about depending on 25% in 10 years.

I accept those points - but perhaps you could tease out what that actually means to NAMA - and, again, why this means that NAMA will be a huge liability, and what the better options are.

I can see that if prices don't rise in real terms by the necessary amount, then the assets that are collateral for the loans acquired by NAMA won't be worth as much at the end of NAMA - which, assuming a certain level of default, means that there will be losses on disposal of the property. What, though, is the likely scale of the losses? What's the maximum size of the losses under particular scenarios?

Also, welcome to the forum, obviously!

cordially,
Scofflaw

SkepticOne

Scofflaw wrote: »

Hold on - we're back to property valuations again. This isn't about property valuations - those only kick in if the loans default. You're assuming all the loans will default and that property prices won't rise and that the tax clawback won't happen.

If I was to buy someone's loan the two things I would want to know is a) the likelihood of default and b) the value of the underlying asset against which the loan is made. So property prices are at least part of the equation. However beyond this I would also think that a depressed property market increases the chance of default so the two are not independent.

Scofflaw

SkepticOne wrote: »

If I was to buy someone's loan the two things I would want to know is a) the likelihood of default and b) the value of the underlying asset against which the loan is made. So property prices are at least part of the equation. However beyond this I would also think that a depressed property market increases the chance of default so the two are not independent.

I agree with that, certainly, and I think it's reasonable to assume that the ability of a developer to service their loans will depend in part on the health of the property market.

However, that's a percentages issue, as far as I can see. I assume that there will be a certain level of default, and that where the defaulting loans are secured only on property, that property may well not cover the outstanding amount of the loan. But what proportion of the loans will default, and when, what proportion of those will not be covered by the sale of the collateral assets, how big will the loss be, and why will the loss not be covered by the levy on the banks?

cordially,
Scofflaw

Count Dooku

ronanlyons wrote: »

Two further comments re the outlook until 2020:

• Inflation in the eurozone is much more likely to be in the 2-3% range over the coming 10 years, as opposed to the 6-10% range we had until the mid-1990s, so we're talking about 25% inflation in total until 2020.
• Another major factor is the fact that we've already (during the boomtimes) front-loaded construction for the next 5-10 years (particularly outside our major cities). Oversupply pushes prices down.

Hence the worry about depending on 25% in 10 years.

I would add emigration as well, which will drive down demand

BTW, it would be nice to see supply and demand on the same graph with prices

SkepticOne

Scofflaw wrote: »

However, that's a percentages issue, as far as I can see. I assume that there will be a certain level of default, and that where the defaulting loans are secured only on property, that property may well not cover the outstanding amount of the loan. But what proportion of the loans will default, and when, what proportion of those will not be covered by the sale of the collateral assets, how big will the loss be, and why will the loss not be covered by the levy on the banks?

It is never going to be possible to put an accurate figure on how much the loan portfolio is worhth but what we can say is that the overall situation with the loans gets worse as the property market itself deteriorates and as the finances of the developers themselves deteriorate.

BrownianMotion

Scofflaw wrote: »

I agree with that, certainly, and I think it's reasonable to assume that the ability of a developer to service their loans will depend in part on the health of the property market.

However, that's a percentages issue, as far as I can see. I assume that there will be a certain level of default, and that where the defaulting loans are secured only on property, that property may well not cover the outstanding amount of the loan. But what proportion of the loans will default, and when, what proportion of those will not be covered by the sale of the collateral assets, how big will the loss be, and why will the loss not be covered by the levy on the banks?

cordially,
Scofflaw

Scofflaw, you have asked numerous questions here that cannot be answered. Indeed I would question whether those in the Treasury Building could answer your questions.

In order to find out our exposure to loss we must know a number of things,

• price paid by NAMA for the loans
• value of the underlying securities in ten years time
• number of defaulters on loans (including future defaulters)

For obvious reasons this information will not be provided to you by anyone posting on this forum, as I am sure you are aware.

Scofflaw

BrownianMotion wrote: »

Scofflaw, you have asked numerous questions here that cannot be answered. Indeed I would question whether those in the Treasury Building could answer your questions.

In order to find out our exposure to loss we must know a number of things,

• price paid by NAMA for the loans
• value of the underlying securities in ten years time
• number of defaulters on loans (including future defaulters)

For obvious reasons this information will not be provided to you by anyone posting on this forum, as I am sure you are aware.

There's a level of exposure in NAMA, and there's a degree of risk. It seems to me that it's impossible to make a judgement about NAMA - either good or bad - without having an opinion on the size of the exposure, and the degree of the risk - and whether the risk has been adequately hedged against or not.

If someone says that NAMA can't work out well, then they obviously feel capable of making a prediction of exactly that kind. Otherwise, what are they basing their view on?

If someone wants to say that NAMA carries a risk, then clearly I don't (and can't) disagree! What is bothering me, though, is the view - very loudly and regularly espoused - that NAMA isn't just a risk, but is already a catastrophe.

We cannot change the past, so we cannot avoid there being some consequence of the recklessness of the bank sector, and the regulatory failures of the last decade. NAMA may or may not be the best response, but it is a response to a problem we already have, not something being done for fun.

Demonstrating to me that NAMA is badly structured, that it's a poor response to the problem, isn't going to change anything other than my opinion. I'm not Brian Lenihan, so if people feel they can't be bothered working to change my mind, they will lose absolutely nothing by that choice. Nor, if it comes right down to it, will NAMA change my voting patterns one way or the other - but if people who think NAMA is a "millstone round the neck of future generations" and "one of the greatest crimes of the current government" can't even articulate arguments for that position, then you've little chance of winning the public debate.

cordially,
Scofflaw

ronanlyons

Count Dooku wrote: »

I would add emigration as well, which will drive down demand

BTW, it would be nice to see supply and demand on the same graph with prices

I don't have one to hand unfortunately, the closest is the graph below, which shows per quarter and cumulative over-construction of Irish housing from 2002 on.


@Scofflaw:
The apparent stability of Irish house prices over the long-run is relevant for a number of reasons:

• firstly, in the interests of public accountability, i.e. because the Minister for Finance has sold NAMA to the public on the basis of 10%-in-10-years. What was not said was that was based on a fall of no more than 47% - a slightly bigger fall (e.g. 51%) leads to a much bigger recovery needed (i.e. 25%) for these sums to hold (as per OP's graph from my blog)

• secondly, long-term economic value was blithely assumed to be 15% above current market rates (as of mid-2009) - but nowhere has a justification been presented for this, other than for Dublin commercial property (about 5% of NAMA's loan book) and even then the yield analysis was dubious at best (for more see: http://www.ronanlyons.com/2010/03/09/elephant-in-the-room-namas-yield-problem-hasnt-gone-away/)

Re your question on losses, I'm really not sure what is a likely default rate - I don't think anyone is. What is clear, though, is that overestimating long-term economic value is a bad deal for the Irish taxpayer and - in mollycoddling Irish banks from the consequences of their actions - for the Irish financial system.

Count Dooku

Scofflaw wrote: »

We cannot change the past, so we cannot avoid there being some consequence of the recklessness of the bank sector, and the regulatory failures of the last decade. NAMA may or may not be the best response, but it is a response to a problem we already have, not something being done for fun.

Main argument for NAMA was that nobody, even IMF, will lend us money
But

However, Reykjavik received a show of support from IMF chief Dominique Strauss-Kahn on Sunday, who said that the fund is "committed to help Iceland" and that the dispute between the country and the Netherlands and the was a "private" matter, suggesting it will not have an affect on the IMF delivering further tranches of aid to the country.

Source
It means that if we let our banks go bust (except one or two), probably period of turbulence would be already finished and country could start to grow again

Count Dooku

ronanlyons wrote: »

I don't have one to hand unfortunately, the closest is the graph below, which shows per quarter and cumulative over-construction of Irish housing from 2002 on.

Sorry Ronan, but I don’t think that demand is stable and must be based purely on Irish demographic data.
First – there is significant immigration. You can get some ideas how many immigrants decided to stay in Ireland forever from here
Second – I think that we have non-linear system with demand,
For building new homes, Ireland had to import a lot of construction workers from Eastern Europe, who also needed additional accommodation, but as soon as they made redundant, they starting to leave country and reduce demand. Because most of them came during 2004-2005, I would add additional 100,000 units for demand and then reduce to demand to normal in 2006


It should significantly distort your oversupply data(reduce for 2004-2006 and then if you will combine with house prices graph, picture will look more interesting

Source for PPS numbers by nationality

or better source

CSO - Population and Migration Estimates April 2009

BrownianMotion

Scofflaw wrote: »

There's a level of exposure in NAMA, and there's a degree of risk. It seems to me that it's impossible to make a judgement about NAMA - either good or bad - without having an opinion on the size of the exposure, and the degree of the risk - and whether the risk has been adequately hedged against or not.

If someone says that NAMA can't work out well, then they obviously feel capable of making a prediction of exactly that kind. Otherwise, what are they basing their view on?

If someone wants to say that NAMA carries a risk, then clearly I don't (and can't) disagree! What is bothering me, though, is the view - very loudly and regularly espoused - that NAMA isn't just a risk, but is already a catastrophe.

We cannot change the past, so we cannot avoid there being some consequence of the recklessness of the bank sector, and the regulatory failures of the last decade. NAMA may or may not be the best response, but it is a response to a problem we already have, not something being done for fun.

Demonstrating to me that NAMA is badly structured, that it's a poor response to the problem, isn't going to change anything other than my opinion. I'm not Brian Lenihan, so if people feel they can't be bothered working to change my mind, they will lose absolutely nothing by that choice. Nor, if it comes right down to it, will NAMA change my voting patterns one way or the other - but if people who think NAMA is a "millstone round the neck of future generations" and "one of the greatest crimes of the current government" can't even articulate arguments for that position, then you've little chance of winning the public debate.

cordially,
Scofflaw

I agree with you, in theory of course NAMA has the potential to work. I haven't seen too many people attempting to argue against that.

However in this thread in particular there have been points made which do articulate arguments for the "Anti-NAMA" position. We do not have the figures necessary to give a definitive verdict but we can debate the likelihood of such figures arising. Frankly I think you are far too optimistic to be persuaded by anything other than hard facts.

I also presume that you meant "they've little chance" rather than "you've little chance" in the last line of your post, as I would hate to be incorrectly associated with the group of people you described.

Flamed Diving

ei.sdraob wrote: »

1. adjust those figures for inflation which was very high then and remember that that 6% will have to be 3 times above ECBs target of 2%, and right now is negative altogether :eek:, see @SkepticOne's graph here > how many 6 year periods are there of growth at 3x above inflation (tip the obvious bubble)

Hi. Do you know how the ECB calculate the inflation that it targets? They use the Harmonised Index Of Consumer Prices.

The HICP also differs from the US CPI by excluding owner-occupied housing from its scope.

http://en.wikipedia.org/wiki/Harmonised_Index_of_Consumer_Prices

Basically all consumer goods and services purchased by means of monetary transactions come within the scope of the HICP. The technical name for these expenditures is “household final monetary consumption expenditure”. This includes everyday items such as food, newspapers and petrol, durable goods such as clothing, PCs and washing machines, and services such as hairdressing, insurance and rented housing. The only significant area of consumption currently not covered is expenditure on housing by homeowners.

http://www.ecb.int/stats/prices/hicp/html/index.en.html


You're welcome.

ei.sdraob

Flamed Diving wrote: »

Hi. Do you know how the ECB calculate the inflation that it targets? They use the Harmonised Index Of Consumer Prices.



http://en.wikipedia.org/wiki/Harmonised_Index_of_Consumer_Prices



http://www.ecb.int/stats/prices/hicp/html/index.en.html


You're welcome.

im well aware of housing not being included, so ?

Flamed Diving

ei.sdraob wrote: »

im well aware of housing not being included, so ?

So why do you keep making references to the issue that house prices, rising at 6.5%, would be above :eek: the EU target rate, considering that you are well aware that this rate targets the HICP, which discounts the vast majority of housing purchases made in a year?

I'm not getting the connection.

ronanlyons

Count Dooku wrote: »

Sorry Ronan, but I don’t think that demand is stable and must be based purely on Irish demographic data.
First – there is significant immigration. ...
Second – I think that we have non-linear system with demand ...

For something as durable as housing, one can only really ever know in hindsight how many properties were actually needed. One thing we can do now is look at the population in 2002 (3.9m) and ask how many new houses would we need for the population we have today (4.4m).

That increase of half a million people translates into about 250,000 homes (leaving some room spare for holiday homes, obsolescence and temporary migrants here to build other houses). Eight years is 32 quarters, which means building about 8,000 homes a quarter. 10,000 was marked on the graph (a) because it's not that far from 8,000, and (b) because even if the true figure were 12,000 (based on some other set of numbers), it wouldn't be that far off.

Incidentally, it's worth pointing out that building 10,000 units a quarter would have meant almost twice our long-run rate of construction. As it panned out, we built an awful lot more than that.

Housing takes between two and three years from purchase and planning through permission and construction to sale and someone finally moving in, so the housing needs of an economy should never really be bumping around from year to year. It should be either stable (with perhaps occasional shifts up/down) or trending. In most developed countries, stable is more than enough.

ei.sdraob

Flamed Diving wrote: »

So why do you keep making references to the issue that house prices, rising at 6.5%, would be above :eek: the EU target rate, considering that you are well aware that this rate targets the HICP, which discounts the vast majority of housing purchases made in a year?

I'm not getting the connection.

by rising above inflation we would know its another bubble developing especially considering there's so much supply for next decade

do we really need another bubble?

Flamed Diving

ei.sdraob wrote: »

by rising above inflation we would know its another bubble developing especially considering there's so much supply for next decade

do we really need another bubble?

Ok, this is the first NAMA thread that I have seen where it hasn't strayed off-topic, so I will stop it there. But I will close by saying that inflation is far more arbitrary than you seem to think.

ei.sdraob

Flamed Diving wrote: »

Ok, this is the first NAMA thread that I have seen where it hasn't strayed off-topic, so I will stop it there. But I will close by saying that inflation is far more arbitrary than you seem to think.

look I think its rather silly not having one of the largest expenses people have not included in inflation figures, but what can you do

Scofflaw mentioned the 80s earlier on but then we had own currency and highish inflation, i cant think of any period in time in this country with so much over-supply, no matter how much some people (earlier in this thread) like to think that supply doesn't matter that's something that just cant be ignored

anyways your right lets stay ontopic

Count Dooku

ronanlyons wrote: »

For something as durable as housing, one can only really ever know in hindsight how many properties were actually needed. One thing we can do now is look at the population in 2002 (3.9m) and ask how many new houses would we need for the population we have today (4.4m).

That increase of half a million people translates into about 250,000 homes (leaving some room spare for holiday homes, obsolescence and temporary migrants here to build other houses). Eight years is 32 quarters, which means building about 8,000 homes a quarter. 10,000 was marked on the graph (a) because it's not that far from 8,000, and (b) because even if the true figure were 12,000 (based on some other set of numbers), it wouldn't be that far off.

Incidentally, it's worth pointing out that building 10,000 units a quarter would have meant almost twice our long-run rate of construction. As it panned out, we built an awful lot more than that.

Housing takes between two and three years from purchase and planning through permission and construction to sale and someone finally moving in, so the housing needs of an economy should never really be bumping around from year to year. It should be either stable (with perhaps occasional shifts up/down) or trending. In most developed countries, stable is more than enough.

Not if you have following picture

Population change
1987 5.9
1988 -15.8
1989 -21.2
1990 -3.7
1991 19.9
1992 28.8
1993 19.6
1994 11.8
1995 15.4
1996 24.8
1997 38.2
1998 38.8
1999 38.5
2000 47.9
2001 57.7
2002 70.0
2003 62.6
2004 65.3
2005 88.6
2006 106.0
2007 106.1
2008 83.1
2009 37.3

My point is that those changes were primarily based on immigration and immigrants couldn’t stay here without housing. This is why investment properties were so popular
I think that demand on your graph should go up to 12,000 during 2006-2007 and then go down to 4,000 at 2009

ronanlyons

Count Dooku wrote: »

Not if you have following picture

My point is that those changes were primarily based on immigration and immigrants couldn’t stay here without housing. This is why investment properties were so popular
I think that demand on your graph should go up to 12,000 during 2006-2007 and then go down to 4,000 at 2009

Although if we'd only built 40,000 units, not 80,000, would we have attracted as many migrants?
Anyway, I think we're pretty much in agreement, just quibbling about the margins. The approximate total number of properties needed is pretty clear, the exact timing less so.

One thing's for sure - we built too much!

hinault

ei.sdraob wrote: »

its a waste of time and money

we could have either:

1. let them to sort mess and maybe 1-2 would have failed
2. nationalize them

or a mix of above

we will now quite likely endup with a mix of 1 & 2 anyways

and while we at it we created a new quango and wasted billions in administration

so why bother with NAMA which is just a roundabout way of bailing them out and writing off some loans, both of these acts could be done under nationalisation but at least that way the country owns the banks fully and the bondholders/shareholders loose the most

were given an excuse that the nationalised banks wouldn't be able to raise capital, but the markets are not stupid and realize that the main banks in ireland are basketcases and are for all intents and purposes state owned, and have already factored all of that in


as for the "disaster" remark, by artificially proping up prices and rents (its in NAMAs interest they rise not fall) we ensure more companies go to the wall, how can the government on one hand keep blabbing on about regaining competitiveness while on the other hand doing everything to ensure we are not competitive by proping up the still overvalued property and rent

and of course while all of this is happening credit still wont be available, hell even the AIB chief said recently they wont lend


all in all NAMA is a way for the current FF government of dumping the responsibility for this mess on the future generations

I think you have summarised the problem here.

The more one looks at NAMA, it becomes apparent that NAMA's conduct will have widespread effect.

On the one hand NAMA will be tasked with trying to recoup payment of bad loans from developers/builders.
But on the other hand by being in the property market, NAMA's actions will
influence the market price of property/land too.

The intent of NAMA is to remove the loans from the banks books and free up lending again.
However the effect of NAMA in removing those loans, will play directly in to how the property market works.
NAMA is authorised to participate in the property market.

Finally, it is clear that the "haircut" for the loan valuations taken from the banks books will be higher than the notional 30% discount.
Which means that the taxpayer will be required to bridge the difference.

Huge risks are involved in this mechanism.

How big is the aggregate difference between the loan valuations and the realiseable value of the loans?
That is the central question.

Count Dooku

ronanlyons wrote: »

Although if we'd only built 40,000 units, not 80,000, would we have attracted as many migrants?
Anyway, I think we're pretty much in agreement, just quibbling about the margins. The approximate total number of properties needed is pretty clear, the exact timing less so.

One thing's for sure - we built too much!

No doubt about it
I just wanted to say if you would correct your graph with updated demand, it could like this and be perfect example to supply-demand law with delay about 6-9 months

Sand

@Scofflaw

Hold up a second. Tax clawback is intended for the end of NAMA - if NAMA makes a loss, there's a provision to take the money back out of the banks' profits at that point - which is 7-10 years away.

Now, I accept that there's a political risk that that mechanism may not be used, but calling it a lie is kind of meaningless, because the mechanism is part of NAMA, and the government can be held to it. Does your prognosis that we'll be paying for NAMA for generations rely on claiming parts of the mechanism are a lie?

Does anyone have a valuation of NAMA as a huge debt burden that doesn't involve dismissing the idea that the government levies any final losses on the banks?

Scofflaw: read back what youve just posted.

If NAMA makes a loss, then the government is going to claw it back from the banks? If thats accurate, what is the purpose of NAMA? It cant be to remove the losses from the bank balance sheets, because if the loans lose money then it will be clawed back anyhow. And if the loans make profit, the banks get no share in it. Its all lose for the banks and no win? Really?

A tax clawback directly contradicts the entire purpose of NAMA - removing the losses from the banks balance sheets and ensuring the PAYE slaves take the hit. If the banks take the hit, then NAMA is totally pointless. If the clawback is credible then simply leaving the loans on the banks books will be the optimal solution as it removes the legal and administration costs of NAMA, and the banks are going to know their business better than the NTMA.

There will not be any clawback. Its just more myth and disinformation spread by Fianna Fail. Its an outright lie.

Finally, what exactly is the point of the government arranging such penal servitude for generations of taxpayers? Are they doing it just for jollies?

Politicians are purely short term thinkers. Do you think Cowen, Lenihan or anyone in Fianna Fail have any long term view, any loyalty to the future of our country? All they are worried about is holding their seats and trying to pull something out of the bag in the next election. Thats it. Thats as far as it goes.

NAMA avoids the banks having to crystallise their losses, it helps avoid the embarrassing shambles of the developers business deals being dragged out in open court, and it packages up the losses in a highly secretive quango and kicks them down the road a few years after the next election for someone else to bother about. If Fianna Fail are kicked out, the NAMA debacle will be a poison pill for the next governent, and if theyre still in power theyll have another 5 years to distract the plebs with shiny baubles.

And finally, we cant discount the possibility that Lenihan is simply making it up as he goes along, panicked into a deranged guarantee and stumbling from crisis to crisis ever since with no direction or strategy other than getting through the day.

K-9

ei.sdraob wrote: »

yes banks will be profitable again next year and the credit will flow free and we can resume selling houses to one another as they will rise by 25% in next decade

That isn't really what he said. AIB made an operating profit recently, before Bad Debts. They have more Bad Debts to declare over the next couple of years, but that really should be it. As somebody pointed out earlier, most Property loans are for a Short Term.

The point still remains that once the Bad Debts are cleared and NAMA takes some of the risky ones, they should return profits.

Just reading the latest Tribune article on NAMA and it seems the Banks maybe asked to take the hit on some of the more "speculatory" loans:
Nama gives developers only 45 days to draft survival plans

Scofflaw

BrownianMotion wrote: »

I agree with you, in theory of course NAMA has the potential to work. I haven't seen too many people attempting to argue against that.

However in this thread in particular there have been points made which do articulate arguments for the "Anti-NAMA" position. We do not have the figures necessary to give a definitive verdict but we can debate the likelihood of such figures arising. Frankly I think you are far too optimistic to be persuaded by anything other than hard facts.

I also presume that you meant "they've little chance" rather than "you've little chance" in the last line of your post, as I would hate to be incorrectly associated with the group of people you described.

I suppose that if I'm playing Devil's Advocate I have to take the rough with the smooth!

Really, though, it's more the case that if I'm not persuaded here I'm certainly not going to be part of the side of the public argument that claims NAMA is some sort of massive criminal act against the Irish people. If people want to make that claim - and make it an election issue - then it really is up to them to make the case.

cordially,
Scofflaw