Arguments in the recent Prime Time about NAMA

edanto · 01-05-2009 09:36PM #1

I know that NAMA is mentioned in several other threads. However, I'd like to keep this thread just to the arguments made in the recent Prime Time (http://www.rte.ie/player/#v=1046940), hear from people that have more details (particularly relevant documents in the public domain) about the various statistics and figures quoted, so that I can make up my mind about NAMA, or even know what kind of legislation we should be campaigning for to ensure that our best interests are looked after. (as unlikely as that is in this country, judging by recent scandals)

In Prime Time, there were 3 main arguments put forward by the author of the report that convinced the government. I didn't really understand them, but here are some of the words he used!

"1. Contingent liabilities - like the bank guarantee - insuring assets but what have we insured?
2. Do we leave the banks to sort it out by themselves? And then who decides what?
3. Many assets which are half finished, no equity to support."

He was asked 'are you saying that the govt can afford to wait, the banks can't that in time these assets will sort themselves out?'

"In time they wont sort themselves out", he said.

"But why is that an alternative to nationalisation? Why not do both?", the others said.

"If they only need €3bn, why do we need NAMA?"

Why not just buy the banks?

"The government can't 'expropriate the shareholders'" - whatever that means - but I think that is just what the bank owners/managers did to the average pension plan!! And they knew that they could get away with it - their entire strategy was to milk it as much as possible.

Nationalisation - arguments for were convincing, I believe.

Someone said "You can buy the banks for 1.3bn and the government is putting in 7bn for 25%."

This is absolutely taking the p1ss out of people that are just too busy to really investigate this issue, I think.

osurdivol · 02-05-2009 08:34AM

I'm don't put much faith in NAMA. It was obvious from the press releases issued the day after it was announced that FF really wanted to be seen to be coming down hard on the builders, and it worked, it's taken much of the heat off them. Just like the various tribunals took the heat off them for other matters. Until I see figures from NAMA after they've been in operation for a year or two I will remain very skeptical.

bmaxi · 02-05-2009 11:08AM

I'm no economist, but certainly from this layman's point of view, the argument for nationalisation was much more convincing. Bacon seemed to dither and not be convinced by his own arguments.
The irony is, Joe Higgins suggested nationalisation of the banks a few years ago, was branded a "commie" for his opinions and run out of town. Seems there are quite a few "commies" around now.

johnnyskeleton · 02-05-2009 12:23PM

osurdivol wrote: »

I'm don't put much faith in NAMA. It was obvious from the press releases issued the day after it was announced that FF really wanted to be seen to be coming down hard on the builders, and it worked, it's taken much of the heat off them. Just like the various tribunals took the heat off them for other matters. Until I see figures from NAMA after they've been in operation for a year or two I will remain very skeptical.

It's real doublespeak, talking about coming down hard on the developers whereas what they are really doing is giving them a soft pass.

edanto · 02-05-2009 02:05PM

Do any of you understand the reasons the Bacon gave for NAMA? I know that I didn't really report very well what he said... but he did say they were the three best reasons.

francish · 02-05-2009 02:46PM

It is very difficult to see a scenario emerging other than the Irish state holding at least a 70% interest in AIB and Bank of Ireland, and nationalising Irish Nationwide. Why then do we need NAMA?

SkepticOne · 02-05-2009 03:12PM

edanto wrote: »

Do any of you understand the reasons the Bacon gave for NAMA? I know that I didn't really report very well what he said... but he did say they were the three best reasons.

I think the problem is that his reasons were those in favour of NAMA as opposed to the "risk insurance" approach taken by countries like Britain whereas the debate in the studio was about NAMA vs nationalisation.

1. Contingent liabilities - like the bank guarantee - insuring assets but what have we insured?

But you have the same problem buying assets into NAMA. You don't really know what you've got.

2. Do we leave the banks to sort it out by themselves? And then who decides what?

I've no real answer to this but yes, the banks should sort out their own problems. If they want help from the State they should then approach the state and negotiate.

3. Many assets which are half finished, no equity to support."

This seems to suggest that one of the purposes of NAMA is to help developers complete projects. Note Tom Parlon's complaint about the banks. My view is that the banks are quite right not to lend to developers. The reason developers are suffering is not because of the banks policies now but because developers were reckless with borrowing and buying land. The should go bust.

Nama may not be a bailout for developers as such but it looks to me that it is a way of taking the heat off them, the view being that when things pick up again (as they surely must) devlopers will pick up again and they can go back to generating employment and wealth again just like the good old days.

The unquestioned assumption in all this is that we're in a temporary glitch caused by lack of credit. Free up the banks and things will improve. There is also the view that land and property must rebound at some point and we must surely be close to the bottom now. Sure how could things get any worse.

I disagree with these assumptions. I think the economy needs to shrink in a controlled way preserving as many jobs as possible and protecting the vulnerable so that competitiveness is restored. It may the the case that banks are not lending, not just because they are undercapitalised but that the businesses looking for loans are no longer viable. That retailer on the programme who reduced his staff from thirty five down to seven. That does not sound like short term cash-flow problems. It looks like a lot of his business has disappeared.

With regard to land and property, there's no reason to believe that values will ever bounce back in real terms to their bubble prices even with a recovery in the economy generally but it is a fairly widespread belief that this will happen.

Most people believe that property is worth more than it actually is and only come face to face with reality when they try to sell, which not many are doing right now. This is why I think NAMA has a degree of support it does not really warrent.

I feel that NAMA is really kicking the problem into touch rather than dealing with reality. The problem we are not facing is that the banks require far more money to be adaquately capitalised than we are currently accepting. Nama is really about pretending that we're getting something in return. It is about making it more politically acceptable while at the same time giving the developers some breathing space.

SkepticOne · 02-05-2009 03:18PM

edanto wrote: »

"The government can't 'expropriate the shareholders'" - whatever that means.

I think what he meant here was that the governent can't simply buy the banks at the current share price but that the share price will rise in the process. The government can't force a sale of AIB at 80 cents.

AARRRGH · 02-05-2009 05:10PM

On Primetime they said if we buy the assets for too much, the Government will make a loss, but if we buy them for too little, the banks will make a loss and will need another bailout.

Therefore, it seems as if it doesn't matter how much the Government buys them for, as it will cost them the same amount in the end.

For example, let's say the assets are 100 billion, but are only worth 50 billion.

1. If the Government buys them for 50 billion, the banks will be left with a hole of 50 billion on their balance sheets and will need a bailout. This could be anything up to 50 billion.

End result:

Government has to pay out 100 billion.
Government owns 50 billion worth of assets.

2. If the Government buys them for 80 billion, the banks will be left with a hole of 20 billion on their balance sheets and might need a bailout. This could be anything up to 20 billion. In the meantime, the Government has bought the assets for 30 billion too much.

End result:

Government has to pay out 100 billion.
Government owns 50 billion worth of assets.

3. If the Government buys them for 30 billion, the banks will be left with a hole of 70 billion on their balance sheets and will need a bailout. This could be anything up to 70 billion.

End result:

Government has to pay out 100 billion.
Government owns 50 billion worth of assets.

...

Is the above correct? No matter what NAMA pays for the assets, the banks win, and the Government gets screwed.

johnnyskeleton · 03-05-2009 08:30AM

AARRRGH wrote: »

Is the above correct? No matter what NAMA pays for the assets, the banks win, and the Government gets screwed.

That's it, but while most rational people would look at that and decide that NAMA is a waste of taxpayer's money and should not be proceeded with, the government looks at it and says, let's buy the bank assets for less then, and worry about recapitalisation later.

There is also one slight caveat to what you have said, which is that in the unlikely event of everything suddenly turning around, cashflow being restored and the bubble reinflating, it would be better that NAMA bought the assets for market value now (c. 40c in the euro wouldn't surprise me) and recapped the banks, so that when the upturn comes the government will make a profit on it. Sadly however there is no reality to this as the lossess suffered now are not just a temporary thing, but the built up result of 10-15 years of lending mania.

edanto · 03-05-2009 03:20PM

So - does anyone know what the actual price would be to buy the banks on the open market?

And would the purchaser then own all of these assets that might be transferred to NAMA?

edanto · 04-05-2009 04:37PM

Anyone know the market capitalisation values?!

Dob74 · 04-05-2009 10:17PM

edanto wrote: »

Anyone know the market capitalisation values?!

Aib and BOI are both worth less than a billion at the moment.
So for 2 billion we would own both of them.
NAMA sounds like the biggest scam of all time.
We should just nationalise the banks and get it over and done with.

Normally I would not favour government intervention but the banks are bankrupt.
The developers are trying to fight back and keep there best properties.
The brown envelopes will be flying everywhere.
And in the end the taxpayer will get screwed

edanto · 05-05-2009 10:16AM

So, the government plans to put in €7bn of our cash. And then via NAMA, trade debt bonds to the value of €30-50bn to un-suffocate the banks.

And the whole time during that process, anyone on the open market can just buy up the remaining 75% of the banks that's on the open market and DO WHAT THEY LIKE WITH THEM??!! i.e, they could drive them into the ground and bankrupt them, leaving the country exposed with the guarantee.

That's mad.

The govt should buy the banks on the open market for whatever it costs, be transparent about what has to be done to clean them up, ruthlessly pursue people that did crazy financial things and then later refloat the banks in the same way that something like Aer Lingus was privatised years ago.

Are there any arguments FOR NAMA that we've missed in this thread? I really can't see the point of it.

Arguments in the recent Prime Time about NAMA

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