Do we need to see an endgame to this now?

MrDarcy

More of the same, "we thought it would be better but eh, it actually is worse"...

http://www.rte.ie/news/2010/0804/aib.html

I've been of the view for quite some time now that this situation that we are in with the banks in fact CANNOT be cleaned up via the current solution (NAMA), but in fact will just keep revealing more and more financial losses, a lot of which I imagine are now grounded in not just commercial property related loans but loans and overdrafts to businesses that have failed and are continuing to fail at the rate of 4 a day. There is nothing that NAMA can do about these losses that are not anywhere near close to being within it's remit. The same can be said for personal loans, car loans, business start-up loans, personal and small commercial mortgage's in arrears, loans given out to small businesses that have closed, that cannot be paid back as the businesses closed and the assets are now not worth a washer.

There is an argument to be made now I think for NAMA not just being "not the solution", but in fact being a vehicle that will prolong the absolute mess that this place is in...

I ask how longer can we continue to lunge from 3 billion lost in this bank to 4 billion lost in that bank??? Surely we need to see some sort of an endgame to all of this, it feels like it has been going on for ever at this stage with no sign whatsoever that things are going to improve. On top of this, we are still on track to spend around 55 billion running the state while taking in around half that amount, pushing taxes up, with mortgage rates on the way up also.

Surely the longer this continues, the worse the place will be that we will ultimately arrive at when we have to admit that we are at ground zero, nobody will lend to us and we have to start forraging for food up in the hills or something???

I know it seems alarmist but that genuinely seems to be where we are heading at this rate I think. I personally know of people who after paying their household bills are living on 35 Euro a week for food, these are single people, on the dole, with no kids, they cannot find work and they live in an apartment with a car that was made back in 1999. A bottle of LIDL once a fortnight is a luxury for one or two of these people I know. You don't have too fall to fall there before you are homeless, with the budget from hell around the corner, all I'm asking is, where are we going to end up, because from where I'm standing and this is just an honest observers opinion from seeing where some of my friends are at, we are not exactly a million miles away from things completely imploding for a lot of people.

daithicarr

Has anyone come up with concrete proposals as to what to do instead of NAMA, now that NAMA is in place?

All i hear is how it isint living up to the goveremnets promises, what are the alternatives?

jimmycrackcorm

Nama and the dole in a single post... confusing

SkepticOne

It was never the case that no alternatives were put forward; they were. The problem is that no serious consideration was ever given to any of them when they were put forward. No studies were ever commissioned looking into a variety of options by the government out of which the current NAMA was the winner.

Peter Bacon was only given two options: one was the current NAMA and the other was essentially a continuation of the guarantee scheme with the government underwriting bank borrowings indefinitely. I.e. the choice was between NAMA or something that obviously would not work.

In any case we have gone past the point where alternatives could be implemented however superior they might have been. The damage has been done. What we can do, however, is try to minimise the damage.

There are two phases to NAMA. One is the transfer of assets to the NAMA entity and the other is the long term management of those assets.

We are a good way through the first phase and so the likes of temporary nationalisation followed by a splitting into two and then re-privatisation of the good part (something that has been successfully carried out elsewhere) can't now be done here. The advantage of this approach would have been to eliminate overpayment on the assets. I think the main reason this would not have been done is that shareholders in the banks would have had to face the consequences of their bad investment decisions.

But with regard to the long term management of the assets there is still scope for debate. It seems to me that by holding on to assets for ten years, essentially taking a position in a volatile market , the government is exposing the country to unnecessary risks. Instead, the government should be seeking to exit from this market in an orderly fashion. If there's great long term potential (as the LTEV suggests) then it should not be a problem persuading international investors to take a position.

But what if there is little real long term value and the LTEV is mainly fiction (as many commentators have suggested). Then the governments policy of holding on to the assets makes sense from a political point of view if not a financial one.

Anyway, basically at this stage the alternative is to let the transfer process continue (unfortunately the country is going be ripped off but there you are) but following this, face up to the economic consequences and don't put them off for someone else to deal with in 6 to 8 years time when they may well be worse. Let the professional risk-takers take the risks and not the state.

daithicarr

so are you suggesting we sell the assets now and take the loss?
Id rather see them hold on to them until they become valuble again and they can turn a profit

SkepticOne

daithicarr wrote: »

so are you suggesting we sell the assets now and take the loss?
Id rather see them hold on to them until they become valuble again and they can turn a profit

I think most people would rather make a profit than a loss but there's an assumption that in the future the market is going to get better for irish developer loans.

If this is a credible assumption then as I have suggested it should be possible to find investors willing to take on these loans.

If, on the other hand, it is not a credible assumption then the State is probably best advised to cut its losses. Sure we will make a loss but that loss may be less than that we incur by unwisely holding on to deteriorating assets. Already, the assumptions of the default rate of many of the loans have had to be revised upwards (making the loans less valuable), what happens if this process continues?

By the way I'm not suggesting that all the loans be dumped right this minute on the market. But rather in an orderly fashion yet shorter timescale than that currently planned.

MrDarcy

daithicarr wrote: »

so are you suggesting we sell the assets now and take the loss?
Id rather see them hold on to them until they become valuble again and they can turn a profit

Well all I can see is 4,000 job losses a month and 4 businesses a day closing. There is no sign of this improving anytime soon as far as I can see. Now those people who lose their jobs, and those businesses that close, particularly in the case of businesses where limited liability can protect to some degree a shareholder where a personal guarantee hasn't been given, they leave a mountain of debt behind!

Now the consequences of these loans not being repaid, being defaulted upon, whether the loan was a personal credit card debt that cannot be repaid because someone has lost their job, or whether it was down to that 40K business start up loan that was pushed onto the promotor a few years ago and the business failed a few months ago, or maybe the 10K overdraft that a small business had and the business has since closed, all those losses, appear to me anyway to be now turning up as losses in the annual accounts of our national banks...

There is nothing that NAMA can do about these losses. There are no assets that can be sold.

It seems to me that after NAMA has taken these loans off the banks, there is another tidal wave of personal and business debt that isn't collateralised, that there are no assets or very little assets, that can be bought in exchange for this debt. It's basically just debt that will never come good, unlike the NAMA debt which there is a hope can be turned into profit at some point in the future.

Don't forget, banks until very recently were as quick to give you a car loan, credit card, business start up loan or a business overdraft, as they were to give developers money for sites and working capital for their enterprises. The key difference being that when NAMA takes on a loan, it gets as asset albeit an undervalued one. Not the case with other forms of bad debt and in a country where 30,000 people are in arrears with mortgages, surely NAMA cannot be the only solution to our problems here???

dan_d

I think NAMA will probably do the job it's set up to do...I think the bigger problem is that nobody knows the full extent of the debts we have and the trouble we're in.

The question is where we draw the line and say enough is enough. the country - and by extension, we the taxpayer - are not a bottomless pit.