Wednesday, 26 August 2009

The NAMA controversy

Slí Eile: The controversey generated over NAMA cannot go without some comment on this site. Some 45 economists (some of them accountants ...) endorsed an article published in the Irish Times today. It has generated some heat and controversy over on

Not surprisingly, Alan Ahearne, advisor to the Minister for Finance, has countered the position take by the economists.

In yesterday's Irish times, Fintan O'Toole wrote a masterly piece on NAMA getting to the core issues.
Much has been written and said about NAMA on the basis of what is known to date about Government intentions. The devil is going to be in the detail. However, it is abundantly clear, by now, that this is a massive undertaking with huge and uncertain implications for spending, taxation and borrowing.

Suppose your best friend was wiped out in a Casino session and you agreed to hand over the equivalent of six months of your annual income (90 bn divided by 180bn) as a downpayment with nothing to say how long it would be paid back and how much would be returned. Basically, you have bought your best friend's negative risk and adjusted your own savings and expenditure to make up for any shortfall in his debts. No greater love for your friends than to lay down your own future and that of future generations to redeem them from insolvency. The desperate attempts by the Political-Financial-Property Complex to see this one through Courts and Oireachtas is nothing short of amazing. And some wonder why the implementation of the 1974 Kenny Report never got through the Oireachtas.

Some things are sacred and one of them is wealth, property, land. That's why under a predominantly conservative Government which we have had straight through for decades we have not seen real and sustained progress on capital taxation, land price control and effective measures to control the financial speculation. One of the first gifts of the new Government in 1997 was to cut Capital Gains Tax in half. Any wonder we have such economic problems now.

The challenge for all NAMA critics - myself included - is to figure out a credible, workable and fair strategy to move forward in this current economic debacle. I would welcome debate through this forum on what such a strategy would entail - including those who have endorsed the letter in today's paper and some of whom have contributed to this blog site.


t g macamhloaibh said...

Finance graduate (always considered myself too well adjusted to become involved in economics :-} - or just not intelligent enough).

Keeping in mind the govt's philosophical background, I would like someone to comment upon my 'take' on govt's hopes for NAMA in the medium to long term.

NAMA is merely a means to monetise the debt (much of it impaired) of the banks. They give their rubbish to the govt. The govt writes IOUs backed by future tax receipts. The govt gives the IOUs (at some interest costs or for future fee costs?) to the banks. The banks run off to Frankfurt and hand over the IOUs receiving cash.

The upshot is that a few Irish money centre banks receive huge capital influxes whilst disposing of their bad debts. Presto, the bank's balance sheets have become suddenly healthy and they have another war chest of money to lend.

This program will take until next year to fully implement. Meanwhile home values continue to fall or stagnate in a very thinly traded market.

At some point during next year, the bank's, with war chests at the ready, begin to lend to more people and slowly reinvoigorate the housing market; albiet at lower home values than experienced at the height of the boom.

Also, a €30-60 billion infusion of money into the economy begins to ramp up inflation as the economy and the housing market comes back to life. This hypothetically reduces the value burden of debt the government takes onto the national balance sheet over time.

I'd also presume that some of the €100s of billions invested overseas by Irish based investors and maybe some non-Irish based investors would re-enter the Irish economy further fueling inflation as they choose to purchase relatively 'cheaper' property to add rental income to their portfolios.

Since much of the inventory of the property market is being absorbed by new purchasers and investors at a relatively quick rate, NAMA's portfolio of properties should be increasing in value and their disposal becomes easier.

I've deliberately left out any emotive language, implications on moral hazards and affects this policy will have on sub-stratums of the popultion.

Still, I have some questions about the economic ramifications, based solely on my take of this scheme. Are there enough internal purchasers of the existing property inventory? If not, how much money, currently residing in offshore investment accounts, will be required to ramp up the property market? Is there any means to measure how much of an inflationary impact all this newly minted money will have on the economy in the medium term? Have any regulations been established about lending criteria - ie will we shortly be seeing the return of the 100% mortgage and so on?

Any short and easy insights will be deeply appreciated.

Anonymous said...

The government are now caught between a rock and a hard place, largely of their own making.

They have been caught out making promises (on behalf of Irish taxpayers) to international financial markets to take on €90bn of some bad, some toxic and some fraudulent loans from Irish banks without causing them too much pain.

This government have been dancing to the tune of the “key audience” which is the “international financial markets” for years, not just for the last year. The FF/PD governments have worked hand in glove with these financiers in the Financialisation of the Irish economy. The creation of a large Financial Services Industry in Ireland is a good example of the hand in glove relationship between FF/PD governments for over up to 20 years. Now international financiers believe that this government owes them one. In the middle of the current financial turmoil these financiers know very well that “The only certain game in town in relation to capital is the State” as Frank O’Dwyer, Irish Association of Investment Managers stated recently.

Last September the government caved in to the demands of these financial markets and local banks to give them the Bank Guarantee Scheme – a good example of Naomi Klein’s “Shock Doctrine” in action. The Labour Party is to be praised for their opposition to this panic measure. They were only party to oppose the measure in the Dail. Joan Burton vigorously pursued the fishy goings-on in Anglo-Irish Bank at the time and since.

Since then the government have devised NAMA, a bailout of these bankers, financiers and developers, without even having the legal sanction of the Dail. Is this an abuse of their constitutional power? It certainly displays contempt for the role of the Dail.
But then people like Karl Whelan, Brian Lucey, Morgan O’Kelly and many others started to ask questions about this NAMA deal. The government and their advisers don’t like questions on NAMA.

The ordinary citizen, and some political parties, may have been fooled/bounced into granting an enormous Bank Guarantee Scheme to bankers and their financiers last September. This time around, thanks to the persistent questioning of people on this site and elsewhere, we the citizens are not going to be fooled again even if the NAMA legislation is bulldozed through the Dail.

On this issue the choice for the present government is simple. Are you going to govern in the interests of the few bankers, financiers and developers or in the interests of all the citizens of this state? As it stands, the FF led government appear to have caved in to the international financiers. The bankers and developers are important beneficiaries of this but are secondary to the main story.

Aidan C

Joseph said...

a good example of Naomi Klein’s “Shock Doctrine” in action.............

Yes, as I recall that was all about moving large chunks of money out of the public purse and into the private sector. Perhaps the Chicago Boys will make a case study out of it one day? I despair. What is going on in Ireland? Can the opposition seriously not get their act together? Joseph

Slí Eile said...

@Anonymous - All points very well made. Frank O'Dwyer,Head of the Irish Association of Investment Managers,is quoted in the Irish Times of 12 August as saying:
“I strongly believe that the Department of Finance and agency understand that while they have to be fair to the taxpayer, the key audience is international financial markets.....An excessive haircut, with any taint of political motivation, any sense of ‘let’s stick it to these guys,’ would erode confidence.”