National Asset Management Agency

Re: National Asset Management Agency

Postby garethace » Sun Aug 16, 2009 9:16 pm

jimg wrote:Doing the latter has cost the government huge sums of money; money that has been diverted to shareholders, unsubordinated bond holders, bond holders, bank employees and managers who certainly do not deserve it. This money that would have been particularly useful at the moment if spent directly to provide fiscal stimulus. The 4 billion gone to pay off some of Anglo's losses could have built some world class infrastructure in the country. Paying off (by now old) debts does f*ck all to provide stimulus.


Quite a useful point made there I believe. Very good paragraph by jimg, which packs a lot of punch and a strong message. Any future debate about government intervention in the Irish banking environment, cannot avoid the above points. They aught to be key points of discussion. Thankyou for raising them here so clearly.

Jimg, I am always conscious of the fact with all of these rescue attempts to get back a 'pulse' in the Irish economy again, the government is the one providing the CPR to the crash victim. I am also keenly aware that as the government does more to help out, the weaker it is getting everytime, in it's overall ability to play on the field. To count as someone, or something which may have an influence.

To build on your point above, that there is still plenty of money in the world. We need to learn how to conserve it as much as possible. I believe there is indeed money out there waiting in the long grass. But it is waiting in the long grass in order to pounce on Ireland, as soon as it can buy for itself the best possible deal. What worries me mostly, if you are to look at Ireland's history, it has a reputation for getting itself into trouble and then cutting deals which are very generous to fresh rounds of capital injection into what is effectively now a dead corpse.

This brings me to a point about the Green party coalition member.

What about the Greens?

The Greens have been far too silent in all of this.

I found another paragraph in the Irish Independent today by Brian Keenan which raises another important point. The Green Party do need to step up to the mark with this whole NAMA affair I believe. I don't think that Gormley has a sense of timing or the situation that is at hand. He is too cynical of a character by far in the current situation. What the country needs at the moment is heroic figures who can bound into life.

Perhaps the Green Party leadership could do us all a favour by having a convention, and managing to explain it all in the resulting blaze of publicity? It is, admittedly, a tall order. Even if one grasps the idea of Nama, the execution of such an ambitious plan is fraught with doubt and danger.


http://www.independent.ie/opinion/columnists/brendan-keenan/nama-is-not-the-lossmaking-venture-many-suggest-it-is-1861297.html

It is right down their alley. It is about the future of the 'environment' in Ireland as much as anything else. The thing that has always bothered me quite frankly about the Green party, is that they were clever enough to tackle a huge, multi-dimensional issue such as the environment to raise issues about. An issue that was much too scary for anyone else to embrace. But having raised the issue, I always wondered if the Green party had more than a couple of good brains with which to tackle the large issue of the environment. It is a much larger issue than any one political party, no doubt, but the Greens should be at the front of this and leading the discussion.

It seems as if ACC will be brought into the fold, or at least dealt with one-on-one, if this article carries any weight.

Michael Somers, chairman of the National Treasury Management Agency, which will oversee Nama, will meet with Padraic O'Connor who chairs ACC, the Dutch-owned bank that could be close to scuppering the property behemoth.


http://www.independent.ie/business/irish/nama-mandarin-will-come-face-to-face-with-nemesis-1861361.html

Brian O' Hanlon
garethace
 
Posts: 1579
Joined: Wed May 14, 2003 9:01 pm
Location: Dublin, Ireland

Re: National Asset Management Agency

Postby garethace » Sun Aug 16, 2009 9:49 pm

I want to pounce on this paragraph written by Jimg also:

So where is this expertise going to come from? You seem to the believe that the government has the magical ability of identifying and procuring such expertise where the private sector can not. Given precedent would suggest the exact opposite, this represents wishful if not delusional thinking.

. . . break . . .

So a government run planning system failed, but if we have a government run planning system, a government run property development company and a government run property management company, all the incompetence will balance each other out delivering a more efficient and sustainable pattern of development.


I wanted to make it quite clear yesterday evening, but I don't know if I did. During the building boom, the aim of the game and what drove everything inside the larger property development companies in Ireland was the notion of keeping the government out as a player. Except in the rare instances where the government was allowed to walk in, as with the DDDA at the Ringsend site. Or in the case of DLR coco at Cherrywood. Where the government effectively supplied the only 'real money' in those deals. The money that was coming from the private sector was only heavily leveraged finance, and made the government's stake look weaker in comparison. But it turns out now that the private sector contribution to the deal was indeed bullshit. It will be the first loan money to be ushered into a safe keeping at NAMA.

So there we come to a point, that government money was being wasted hand over fist, and worse, being tied up in dodgy dealings wherever the Irish government had tried to intervene to become a player in the past. What we always needed I believe, was a healthier balance. But in that sense also, the local authorities have a lot of up-skilling to do. Probably the best possibly outcome will happen with the local authorities gaining a 'new workforce' on loan from the private sector.

I know this happens a good bit in the United States, where they build a heck of a lot more than we have ever done. Basically, a strong engineering or architectural consultancy offers not its services, but its actual human resources to a local authority, like the New York Port authority for the duration of a project. From the port authority's point of view, it receives two or three excellent engineers for a duration of a project. From the engineer's point of view, they get to hold their job with the private consultancy, and get experience working on projects in a way they couldn't in the private sector.

We need to look seriously at this model now in Ireland. We are never going to see a situation where local authorities are fully staffed with the expertise they require, to become 'useful' players in large projects. But at the same time, something has to be done about their human resources situation, which is bad. Having some professionals on loan from the private sector, would be a real plus for the public sector worker also, because they would be getting a different slant, to what they are used to. This is basically my interest in NAMA. In seeing a radical new approach to how we staff our projects going forward.

I have been around all kinds of projects for long enough, all shapes and sizes, to know the human factor is a huge component and has to be designed carefully for each kind of undertaking. What I am talking about of course, is building a new and effective knowledge companies in Ireland. With a view to exporting this as a product in the medium to long term future.

Brian O' Hanlon
garethace
 
Posts: 1579
Joined: Wed May 14, 2003 9:01 pm
Location: Dublin, Ireland

Re: National Asset Management Agency

Postby garethace » Sun Aug 16, 2009 9:57 pm

Post by jimg:

You obviously believe that property development is the engine or potential engine for the economy. Such a belief, in my opinion, represents exactly why we are in this horrible mess. I know that this forum is going to overrepresent people involved in construction in some way or another but you need to step back; what's good for the construction industry is not necessarily good for Ireland as a whole.

Property is a cost for most of the productive economy and for most of the individuals in the country not a generator of wealth despite the hype of the last few years.

I understand why this sort of thinking has purchase. All special interests - not just the CFI and their close allies the banks - develop this self delusion of their own primary importance for the national wellbeing right down to the farmers, the pharmacists, the taxi drivers, etc. etc.


Excellent contribution. Your observations are very useful to the forum I think.

Points are noted and taken on board fully I hope.

Brian O' Hanlon
garethace
 
Posts: 1579
Joined: Wed May 14, 2003 9:01 pm
Location: Dublin, Ireland

Re: National Asset Management Agency

Postby garethace » Sun Aug 16, 2009 10:10 pm

Posted by Jimg:

I see very little evidence that the property market in Ireland has corrected itself. To use market speak, the transaction volume is miniscule and the bid/ask spread is huge suggesting nobody is really sure what a particular property should be worth at the moment. A correction should leave the market in a state where there is low expectation of future volatility.


I do agree, that correction is the only thing that will assert some stability back into the system.

The trouble is, in Ireland, people were hooked on volatility as being 'their friend' for too long. Liam Carroll is a perfect case in point. Because in the case of most people who were land owners, volatility meant moving in the right direction. Volatility was a massive, jirky, train ride of over-correction going upwards. Belief after belief, theory after theory about the value of land reinforced itself and sucked everyone and everything in with it, to fuel the surge upwards. I would say it was a bit like a bit monster munching twister phenomenon. A world wrecking kind of device of abominable ingenuity and creation.

No one wants to admit to that now. I know people who had wealth and were very conservative, wanted to suddenly jump in and gamble rather than miss out on the big wins. You have to remember, those people saw the value of there rock solid assets and money diminish the further the boom continued. They were people who had entered the boom extremely comfortable and wealthy, and had spent or invested very little in their life times. By the end of the boom, they were being made into 'poor people' almost by the sheer acceleration of the market upwards fuelled by credit. That was their motivation for getting invovled. They simply couldn't measure risk any more, it had all but been eliminated out of the equation. That is the only logic that can justify the actions of otherwise sensible people.

On the other hand, you had people who never thought about themselves as being of any net financial worth, began to live off of this notion of themselves being suddenly wealthy. Again, these people will now deny that any such notion ever entered their heads. But until they deal with it honestly, they will be in denial for the remainder of their lives. During the boom years this notion of wealthiness, completely altered their world view, and as a consequence their actions and behaviours. Not to mention the values and ideals that they tried to impose on their kids and loved ones. The funny thing about the Celtic tiger boom, was that people who owned nothing much ever, were elated by the drive upwards. They felt as if they were being 'carried' by it.

While the people who owned a lot saw this Tiger coming in their direction and it only meant one thing for them, they were being side lined. Or so they imagined. Everyone was either worried to elated to an extreme amount, in opposite ways. So volatility has been a strong feature of Irish peoples' lives now for too long. We are all sick of it. Whether you had very little and got a little drunk. Or whether you had plenty and worried you were about to lose it all. What Irish people need is to get back to a balance and restore some order again. Many of the human costs of the boom I believe were too high. Bertie Ahern should have understood this. He didn't take the best care of his people and didn't buy them the best deal either.

We engaged in something quite silly, which was quite pheripheral to where we should be going today. We are far behind schedule effectively, and need to plot the course immediately.

Brian O' Hanlon
garethace
 
Posts: 1579
Joined: Wed May 14, 2003 9:01 pm
Location: Dublin, Ireland

Re: National Asset Management Agency

Postby garethace » Mon Aug 17, 2009 9:04 am

What I have written above is effectively, like the message that the Green party brought into the discussion towards the end of the Celtic Tiger. The Green party were the ones who introduced an idea, where do we want to go? How do we want to get there? In a way that is in cooperation with the planet and its inhabitants rather than in conflict. That is why it is a real pity the Greens are coalition partners at the moment.

Otherwise, they would be able to lead the debate in all of this. Bertie Ahern more or less knew the game was up, when he forged a deal with the Greens. By forging such a deal with them, he effectively neutralised them and a very potent message that was at the core of their political party. Smart fellow that Ahern. We have heard nothing from the Greens and the people have been witness to this silence. How cheaply, anyone can be bought off. While the whole house tumbled to the ground, the Greens were distracted with bicycles, light bulbs and electric cars. What kind of future political platform does that provide them to build from? It more or less comments, that even in the roughest of seas, we will not be present on deck.

Whatever the Greens might have promised up until now, is starting to look more and more like an empty promise.

Brian O' Hanlon
garethace
 
Posts: 1579
Joined: Wed May 14, 2003 9:01 pm
Location: Dublin, Ireland

Re: National Asset Management Agency

Postby missarchi » Mon Aug 17, 2009 11:53 am

what do you get when you mix red and blue?
We will have to wait and see...
missarchi
Old Master
 
Posts: 1796
Joined: Sat Dec 08, 2007 7:53 pm

Re: National Asset Management Agency

Postby garethace » Mon Aug 17, 2009 9:58 pm

About time.

We have to establish a clear sequence of events of what actually happened. That needs to then enter the public domain in some fashion. Something along the lines of the sequential explanation offered by George Lee's TV documentary, How we Blew the Boom, I would imagine.

Ms Burton said any such inquiry would "clearly have to look at decisions made by the boards and senior executives of the banks, but should also examine the adequacy of the performance of the Financial Regulator. The role of successive ministers for finance and senior civil servants in the Department of Finance should also be looked at."


http://www.irishtimes.com/newspaper/breaking/2009/0817/breaking41.htm

Dara Doyle at the Independent, provided a simple break down of NAMA's future portfolio in his piece.

Loans with a face value of about €30bn are related to sites under construction and €30bn of loans are related to land yet to be developed.

The remaining €30bn are loans on existing properties such as office blocks and shopping malls.


http://www.independent.ie/business/irish/bad-bank-may-be-overly-powerful-homebuilders-say-1862011.html

Brian O' Hanlon
garethace
 
Posts: 1579
Joined: Wed May 14, 2003 9:01 pm
Location: Dublin, Ireland

Re: National Asset Management Agency

Postby missarchi » Mon Aug 17, 2009 11:14 pm

Just shy of a trillion euro x 10?
missarchi
Old Master
 
Posts: 1796
Joined: Sat Dec 08, 2007 7:53 pm

Re: National Asset Management Agency

Postby garethace » Tue Aug 18, 2009 10:17 am

Today in the Irish Independent newspaper, Fionnan Sheahan Political Editor reports another quote from Joan Burton.

"Taxpayers face a potentially enormous bill for having to rescue the banks and developers and they are entitled to know who made, and what were the consequences of, key decisions made in regard to banking," she said.


http://www.independent.ie/national-news/banks-could-need-further-bailout-as-shares-tumble-1862310.html

It cannot be overestimated the importance of getting this enquiry through the court process as swiftly and as efficiently as possible. Even if only a small percentage of the truth emerged, it will at least allow us to know a basic sequence of events. More importantly, it will give the market place as much information as it needs, in order to make the decisions it needs to make and give us all some form of stability. Even if it is not the one we all had initially hoped for.

At the present investors and buyers etc are frozen solid scared. No one knows what kind of skeleton is going to come crashing out of the Irish closet next. There is a real sense of foreboding one can sense out there now in the shopping malls, streets and public places of the nation. Normal trade is simply not happening.

On July 3, 2009, Joan Burton wrote about her views in this piece here:

These elites reckon—correctly, in most cases—that their political connections will allow them to push onto the government any substantial problems that arise.


http://www.joanburton.ie/?postid=1137

Economist Colm McCarthy today believes:

"There is a puzzlement in the public about what happened in the banks and I'm not talking about publicity-seeking gobshites giving civil servants a hard time," he said last night.


http://www.independent.ie/opinion/analysis/institutions-must-be-made-to-explain-collapse-1862197.html

One also wonders, if we had got to the bottom of some things last Autumn, would the country be fixed up some way better today? Brendan Keenan published this in the Independent on last Thursday.

We have instead an endless parade of poorly related mini crises. Pharmacy costs, medical cards, property taxes, Bord Snip. People know they are all connected to the big crisis, but it is not easy see the connections; partly because these have been poorly explained.


http://www.independent.ie/business/irish/trying-to-get-a-firm-grip-on-the-mediocrity-of-our-fortunes-1858501.html

Keenan goes on to make a point that the next budget is being prepared in the usual way. But in the current situation:

In the current situation, something different, longer term, more detailed and more transparent would be better.


Brian O' Hanlon
garethace
 
Posts: 1579
Joined: Wed May 14, 2003 9:01 pm
Location: Dublin, Ireland

Re: National Asset Management Agency

Postby KerryBog2 » Tue Aug 18, 2009 11:36 am

[quote="garethace"]
It all goes back to what I wrote here http://www.archiseek.com/content/showpost.php?p=98717&postcount=44 :)
What needs to be done 1 - Communication
The first item on the agenda is communication. Neither the Govt, Opposition nor NAMA (now gagged) has said anything of merit on the “What/Where/When/How” of the NAMA solution. Part of that communication is to gain public support. Without communication there cannot be public support and NAMA will be mired.

I'd hate to see Joan B as Finance minister; what comment of worth/positive proposal has she made on the present shambles?

K.
KerryBog2
Member
 
Posts: 431
Joined: Thu Sep 15, 2005 2:56 pm
Location: trilocated and often lost

Re: National Asset Management Agency

Postby garethace » Tue Aug 18, 2009 5:03 pm

Here is something valuable in terms of a statement coming from Green Party spokesperson Dan Boyle today.

“It would need to be deeper than the Dirt inquiry. It would have to look at how money was loaned, to whom it was given, why it was given and who called the shots. The question of the bonus system in the banks would also need to be looked at.”


http://www.irishtimes.com/newspaper/breaking/2009/0818/breaking52.htm

I want to explain now, in my opinion, a very good reason why the international markets will not lend more money to Irish banking institutions. You will acknowledge from my analysis below, that many of Ireland's severe problems cannot be solved at all by using a solution such as NAMA.

I have elsewhere experimented with one economic theory or another about distortions in the Irish market. I know these developed during the Celtic Tiger in the construction industry in particular. I now wish to highlight an additional distortion which operated at a much finer grain in the Irish economy. I have learned to my amazement today, that money given to an Irish company executive to put towards improving his successful business venture was not converted into value at all. The finance was used for other purposes, such as supporting an overblown personal ego. That same ego cost in the region of hundreds of millions of Euro.

I was working as a low level project manager in the construction industry during the boom years and what I saw always reflected my basic status. Looking back in my memory of those times, I can identify something conveyed to me by mentors working in middle management positions. They were men and women approaching their retirement age and content to work towards that end while remaining lower down in the field. They were ordinary people who had kids to raise and support. But they were not short of a pair of eyes or ears when it came to assessing the situation. I listened with sympathy to expressions of indignation from middle management, who were struggling to cope in the closing stages of the Celtic Tiger. They could see how valuable company capital was being thrown away.

That skill is often reserved for state owned companies, but in this case it was private companies. Private companies with very prominent 'figure head' leaders. My mentors would never speak to me in very explicit terms. It was always indirect, with various implications and so on. But it was clear they had lost belief in what they were trying to achieve. That morale deficit at middle management level in companies is very serious in my experience. Middle management has the potential to de-moralise a lot more than itself.

Low morale at that level can remove from useful service an entire layer of contribution to Irish business. This layer is very crucial in my opinion. Younger and inexperienced employees rely upon it to learn the ropes. Middle mangement has a basic bureaucratic function of course. But it can also serve as the finishing school for younger employees. In Irish companies, the mid-league people found themselves looking at a far younger and more enthuasiastic generation, but knowing it was hopeless. The game was up. Irish companies were living on smaller and smaller scraps from 'The Big Table'. The golden circle, or whatever you like to call it.

Each year the capital within Irish companies grew and grew, but its allocation became more and more un-productive. The guys living on scraps were the ones who added a lot of the value. But still they exposed themselves to a lot of risk. It is a bit like agriculture today, where farmers wonder how they are supposed to live off the same basic income they earned twenty years ago. A lot of Irish business ventures are very resilient and have been starved of capital throughout their existence. Living on little is not their major difficulty. The disaster happens when they receive a large capital injection suddenly and are unable to put the finance to productive use.

Many Irish companies started in the depths of the 1980s recession period. A strong leading figure often rose to prominence. As resilient as some Irish companies are, they are not able to withstand the destructive onslaught of a chief executive who is 'flush' with bank credit and eager to squander it all. Some viable business ventures which had been struggling for a long time, were finally ripped apart and allowed to die a very slow and painful death. That would put the onus on our banking institutions who kept on piling money on company executives long after the stage where value was being obtained.

To borrow the phrase from Joan Burton on RTE radio this morning, I think that 'mapping the trajectory' is important. It is like forensic science, where you examine the scene of the crime afterwards to establish the course of events. We might hope to discover a motive, a means and an opportunity. I would like to reiterate a point made by Irish economist Colm McCarthy: An inquiry into events surrounding the banking crash in Ireland, will not add or subtract one penny in the overall scheme of things. But it will make a great difference to people who feel hurt by the sequence of events they found themselves witness to.


Brian O' Hanlon
garethace
 
Posts: 1579
Joined: Wed May 14, 2003 9:01 pm
Location: Dublin, Ireland

Re: National Asset Management Agency

Postby garethace » Wed Aug 19, 2009 8:48 am

Sarah Carey wrote a good opinion piece for today's Irish Times.

The hard bit though is that the Greens will have to be ready to walk out if they don’t get what they want and what we need. People will try to scare them out of an election. They will say the last thing the country needs is an election. Rubbish. An election will take three weeks and Nama is taking almost a year to establish.


http://www.irishtimes.com/newspaper/opinion/2009/0819/1224252863308.html

Brian O' Hanlon
garethace
 
Posts: 1579
Joined: Wed May 14, 2003 9:01 pm
Location: Dublin, Ireland

Re: National Asset Management Agency

Postby garethace » Wed Aug 19, 2009 8:12 pm

Lets try and join up some dots this evening. A couple of interesting pieces of the jigsaw came together today. Though not major news items in their own right, it is interesting to document them nonetheless. Firstly, we have Labour leader Eamon Gilmore putting his weight to the idea of a banks inquiry.

http://www.rte.ie/news/2009/0819/banks.html

Morning Ireland radio featured a slot with the 'Respond Housing Association' who are finding it difficult to obtain basic mortgage agreements with our banks.

Then to cap it all off. Louis Fahy refers to some of the views of Greencore chief executive Patrick Coveney in the Independent newspaper.

“You would be insanely optimistic and absolutely naive to think there’s now a market for building out the sort of developments that were envisaged 18 or 24 months ago, . . . There may be in time.”


http://www.independent.ie/business/irish/property-crash-may-not-be-over-greencore-says-1863979.html

The local councillors in Mallow were impressed by plans for a hotel, residential and golf course development on the 390+ acre site a year ago. The locals in Mallow have now changed their minds and believe that jobs, light industry and innovation are more important to the site, than what Greencore's original plans suggest. I have to side with the locals in Mallow on this one. I honesty don't believe that the original plans for Mallow Greencore site would make it through a planning process today.

It was a different story two years back, when people weren't as worried about the holes in their pockets. I believe that the logistical significance of Mallow needs to be integrated into the vision somehow, along with a view to creating employment. Ireland has enough closed down resorts and hotel complexs by now.

I remember in Zoe we were so damned excited about the Mallow project. The old plan, had everything Liam Carroll liked in a project. The old plan would be far more likely to earn a 'quick turnover' for Greencore in the Celtic Tiger era. But it might be as well for Mallow the old plan never took off. Or the Greencore site might look like a big pile of concrete and steel today. Like Liam Carroll's Parkway shopping centre site at Limerick not so far away. The problems associated with a small builder trying to act too big for its boots.

Everyone from our banks, our companies and our leaders are using the old paradigm to navigate the course. Which is to hope the Irish economy will bounce back. Hope for it to turn a corner fast. The trouble with that view as I see it, the problems we are facing today are still going to be there when Ireland experiences an upturn. The problems will not be given their due attention then of course. Everyone will be too busy making money. That is how Fianna Fail managed to ignore the warning signals for the last ten years and drove straight ahead.

To my mind, a crucial piece of the jigsaw puzzle comes from an unlikely source. Mike Milken, the former Junk Bond King in the US wrote an article last April.

http://www.mikemilken.com/articles.taf?page=37

Mike believes that companies loaded themselves up with far too much debt at exactly the wrong time. The Irish property ventures are a text book case in point. The worrying thing from my point of view, is the fact our banks, our companies and our leaders are still using the old formula to navigate. That old formula that was responsible for the 'gearing up' of Irish property companies with massive debt-based capital structures during the Celtic Tiger. When are we going to learn? When it is too late? This is why a full bank inquiry needs to happen urgently and in tandem with the process of creating NAMA.

Brian O' Hanlon
garethace
 
Posts: 1579
Joined: Wed May 14, 2003 9:01 pm
Location: Dublin, Ireland

Re: National Asset Management Agency

Postby garethace » Wed Aug 19, 2009 9:54 pm

In terms of how we got to where we are today . . . Greencore back in 2006.

http://www.rte.ie/news/2006/1122/greencore.html

This is even better than a Liz O' Kane quote:

The project is called Mallow West and it is modelled on Citywest in Dublin.


http://www.rte.ie/news/2007/0116/mallow.html

It really makes one want to puke when one reads Irish news from 2006/07 doesn't it?

Brian O' Hanlon
garethace
 
Posts: 1579
Joined: Wed May 14, 2003 9:01 pm
Location: Dublin, Ireland

Re: National Asset Management Agency

Postby garethace » Thu Aug 20, 2009 8:47 am

I noticed the 'Second Chance Republic' opinion article by Michael O'Sullivan in today's Times newspaper has already provoked numerous and length comments. It seems to have struck a nerve centre.

http://www.irishtimes.com/newspaper/opinion/2009/0820/1224252951619.html

Martina Devlin gives a good round up of things in the Indo today.

Solution isn't perfect but it's no time for bickering


http://www.independent.ie/opinion/columnists/martina-devlin/solution-isnt-perfect-but-its-no-time-for-bickering-1864597.html

Brian O' Hanlon
garethace
 
Posts: 1579
Joined: Wed May 14, 2003 9:01 pm
Location: Dublin, Ireland

Re: National Asset Management Agency

Postby PVC King » Thu Aug 20, 2009 8:25 pm

I feel you take an overly pessimstic view; I'm not going to be argumentative but would say the following.
jimg wrote: That's not the argument I have with your enthusiasm for NAMA.

It is practically a consensus that governments should intervene to protect retails banks from panics (i.e. "liquidity" problems) or to protect the smooth operation of their national payment systems and infrastructure. There is no such consensus that governments should pick up the tab for insolvent banks and in fact I believe that that economists are generally against it. .


Ireland over a full cycle makes more from finance than it will lose bearing in mind that losses to date are paper loses and not realised losses; confidence in Ireland has taken a beating recently but as long as depositors are protected confidence will; history suggests recover. Look at yen appreciation in 2008 / early 2009; post bubble liability grew but once balance sheets were repaired if an asset bubble was something people never forgot the yen would have completely collapsed; in time they fixed their problem and a view formed that they had learned their lesson. You have been very good at saying what wouldn't work but what do you think would have been best? Lehman Bros or an Argentine style default as least of all evils?


jimg wrote:Preference stock is probably the worst way the government can inject capital; you're the first to lose all your money if things go bad and you get none of the upside if a miraculous recovery occurs. Attaching a generous yield to it is pointless too. Aren't the banks supposed to be paying us 500 million a year for the guarantee?.


Convertable preference stock is what one would suggest; only today the Swiss Government sold UBS stock purchased at the height of the mayhem at a Sfr1bn profit; the love is shared and the disposal was three times oversubscribed.

Interestingly in America the link between bonuses needing government sign off and loans being repaid led to a very quick repayment indeed. If governments give credit too cheaply to banks there is no penalty for engaging in reckless lending. I had Anglo Irish shares and I lost the lot; I believe AIB and BOI to so much stronger as not to draw infered comparison but the taxpayer owes shareholders nothing; if the government ends up with 100% of both institutions that would be a real tragedy but equity investment is not for those not prepared to make losses.


jimg wrote:So where is this expertise going to come from? You seem to the believe that the government has the magical ability of identifying and procuring such expertise where the private sector can not. Given precedent would suggest the exact opposite, this represents wishful if not delusional thinking. .


Today's tender pack for loan and property collateral valuation displays where certain parts of expertese can be sub-contracted out; there were a lot of niche private equity firms created in the past decade with very skilled fund managers. There are people in Dublin, London, Paris etc who could easily do this type of work; Nama when it is up and running will be viewed as a sovereign wealth fund and as such the job descriptions are well known and a they would be very coveted positions with top flight professionals applying; these people are mobile they often work from where the funds are domiciled.

jimg wrote:The sooner the property markets in Ireland is allowed to adjust to reflect the adjustment in the global credit markets the better for all concerned. Attempting to prevent such a correction, while ego-massaging for politicians and hugely beneficial to the banks and the others who have overexposed themselves in development land speculation is not just folly but extremely damaging and expensive as all historical precedent shows.


Global credit markets are now starting to thaw; I agree 2% retail yields on Grafton Street were just wrong but is the typical house price in August 2009 actually that far out of kilter in comparison to earnings power relative to other comparable locations such as Luxembourg or Boston?

The next few months are going to be a very interesting time but I for one feel that with global markets having emerged from crisis mode the worst is over. The question is how much value needs to be destroyed in the short term to satisfy the crowd. Compare Ireland to Iceland and then you realise just how much worse the entire episode could have been.

With NAMA the government has a solution to take to International markets where a clear plan exists to preserve value into the medium term. With office rents at half the level of London's West End and significantly cheaper than Paris or Frankfurt the prognosis has to be that property will be subservient to professional services job creation for quite a while.

Completing the half built Anglo Irish Bank project on North Wall Quay would be an excellent start. Great commercial building, Interconnector on the way for access to Dublin Airport if the cheaper DART spur is built, well trained workforce; a lot more reasons to be positive than negative
PVC King
 

Re: National Asset Management Agency

Postby garethace » Thu Aug 20, 2009 8:55 pm

PVC King,

Your comments on expertise acquisition reminded me of something else, which I might share with you now.

I know that Ireland expects to buy London-based expertise it may require to buy oil futures on the markets if the situation arises. The question was debated over whether Ireland's government needed to develop those skills itself. If not having the skills and knowledge to trade in oil stocks would come against Ireland's economic prospects. But in the end, it was felt not to be a serious problem. However, while we can source oil from several destinations around the world, we do currently operate on a lean supply chain model and have no national reserves to speak of. We are also minus a large dock into which larger tankers could birth. The British refinerys are saying, that we are making life too difficult for them to do business. Because they are constantly having to float across small little tankers to supply Ireland's needs. The major centre of demand being the Dublin area, and we have no facilities planned to cater for oil imports. This needs to be looked at and debated. I sent suggestions on this to Liam Carroll earlier on in the year, shortly after Eamon Ryan published a report. Carroll's interests in the Irish Ferries lands could have critical bearing in all of this 'bigger picture'.

Brian O' Hanlon
garethace
 
Posts: 1579
Joined: Wed May 14, 2003 9:01 pm
Location: Dublin, Ireland

Re: National Asset Management Agency

Postby garethace » Fri Aug 21, 2009 11:50 am

Looks as if we might get a proper debate after all.

This is the first time the Fine Gael leader confirmed that his party will vote against NAMA, which he called a 'sweetheart deal for the banks'.


http://www.rte.ie/news/2009/0821/banks.html

I thought that Karl Whelan's contribution on the 13th of August Prime Time panel discussion was useful. In particular the part where he rolled his eyes and shook his head, when solicitor Graham Kenny ascertained that Irish banks had 'no choice' or no option, but to extend considerable forebearance to Zoe developments.

http://www.rte.ie/news/2009/0813/primetime.html

Whelan has his own ideas on why Irish banks would 'throw good money after bad' as he put it. It is plainly obvious to me that the economics expert in this instance had the edge over the legal expert in terms of understanding the whole situation. Not that the legal point of view isn't important. The legal point of view is central to making everything work. But I do believe that Karl Whelan has got his head around the problem better than most. His Irish Times article is worth a read.

http://www.irishtimes.com/newspaper/opinion/2009/0813/1224252497177.html?via=mr

I blogged something about 'Winning the Lottery' recently. In which I attempt to describe a situation where Irish banks do not want property developers to pay what they owe. The main trouble we do have in Ireland is that all economic activity is controlled by debt issued to private individuals by Irish banks.

The banks effectively want to control the nozzle of money supply being pumped into the Irish economy. Building up the 'myth' of individuals such as Liam Carroll, Sean Dunne and others is a round about way of doing that. It doesn't matter that Ireland doesn't need all of this property. Property development is a back door way to supply vast quantities of debt (and therefore money) into the Irish system.

It is only good news for the banks, the more money they can pump into the system, because it ensures they make a penny or two on every single transaction. When they are not over charging for each transaction, they are attempting to boost the rate of transactions instead. People rarely focus on that. Instead they look at the other end, where banks issue mortgages to home buyers etc. Which of course, is full of manipulation by Irish banks also, even today.

The Irish banking problem was examined by Emmet Oliver in his recent Sunday Tribune article. More of a balance between the Irish government and the banking system is required now I believe.

http://www.tribune.ie/business/article/2009/aug/16/too-much-money-too-few-developers-bank-meltdown/

The Irish government will have to acquire the basic competence in economic policy to fend for itself. We cannot trust our banks any longer unfortunately. That is why nationalisation combined with a NAMA type vehicle is crucial to recovery in Ireland.

The particular danger in the case of Liam Carroll, was not that Carroll had money thrown at him up front. But Carroll received vast sums of securitization money on the back end of his construction business too.

http://www.tribune.ie/business/article/2009/jun/28/where-did-it-all-go-wrong-for-carroll/

There was both 'push' and 'pull' being effected on the Irish economy by the banking sector. Carroll was being double loaded with huge amounts of liability, risk and debt. Carroll himself became the ultimate vehicle for much of Irish banking's risk. That is the point that Karl Whelan is effectively making. The Irish banks knew that their loans would be purchased by the Irish state.

Carroll was throwing the money from the back end of his process into the only place he could find, the Irish stock exchange, as quickly as he could make it. A subsequent Irish stock market collapse resulted in its losing €44 billion Euro in a year! The trouble was, certain individuals in the loop knew exactly what was going on. The Irish stock exchange was like a huge and overburdened apple tree ripe for the picking. If a few Irish lone rangers hadn't done it, someone else would have.

A recent Irish Independent article by Barclays investment manager related how Irish investors chose to put money in companies a few miles down the road from them. Which gave them a false feeling of security. They felt they were investing in something they understood. That was going to save them, but it didn't.


Brian O' Hanlon
garethace
 
Posts: 1579
Joined: Wed May 14, 2003 9:01 pm
Location: Dublin, Ireland

Re: National Asset Management Agency

Postby garethace » Fri Aug 21, 2009 2:48 pm

A comprehensive breakdown of the Fine Gael position is given by the Irish Times newspaper.

For these reasons, Mr Kenny said, his party could not support Nama and would vote against it. The Fine Gael leader said he would instead propose a "good bank" with a credit facility of up to €20 billion, to help get Ireland out of recession

This "national recovery bank" would have no toxic assets on its balance sheet and would therefore be able to lend to small businesses at reasonable rates.

"This is not a new idea. Variations of our proposal are already working in other European countries, including France and Denmark, funded by the ECB. So the question must be asked: Why isn’t the Government establishing a "good bank" right now?


http://www.irishtimes.com/newspaper/breaking/2009/0821/breaking38.htm

Indeed, why isn't the government establishing a 'good bank' right now?

But I have only picked out one piece of the whole article. It is all good and well worth the read. Refreshing in fact, to hear some sense spoken for a change. Or at least, another option being floated around. The whole lead up to NAMA's draft legislation was set against a back drop of 'we have no other option'. I believe that people are tired of hearing that same drum beat from the same political establishment quite frankly. It may well be time for a re-visit to what our 'founding fathers' tried to achieve.

Mr. Enda Kenny also did make explicit reference to the recent High Court and Supreme Court decisions. Which is the first public political statement to my knowledge, that at least acknowledges the importance of the Liam Carroll case, in terms of how we go forward.

Brian O' Hanlon
garethace
 
Posts: 1579
Joined: Wed May 14, 2003 9:01 pm
Location: Dublin, Ireland

Re: National Asset Management Agency

Postby KerryBog2 » Fri Aug 21, 2009 5:12 pm

Good to see some comment by FG, even if they are half-assed and qualified by Enda K’s own pitiable admission “I haven't worked out a final figure on this.”

In my view the notion that most of the bad debt is tied up on “a massive spending spree" by developers outside the State” is total BS. So too is the idea of a “good bank.” There is credit available currently, it is flowing albeit slowly but not to those the banks are afraid of. We hear only about and from the rejects, which means from the 40% minimum of applicants that are active in those sectors closely allied to the construction sector.

The reason they are rejects is due to meaningless net worth figures on corporate balance sheets. This follows from artificially inflated values of the key assets (debtors and property) on the books. A company’s biggest monetary asset usually is the debtor book, the worth of which is now very questionable. Stress test the debtor book and most applications fail and are subsequently binned. Foreign suppliers also have withheld credit, or insist on strict terms (thus further straining buyer’s cashflow) because they are afraid of what is happening here. Who could blame them, the parliament on holidays for another month, no-one has any concrete information and the country is borrowing millions a week to keep afloat?

The domino effect is well known, many smaller companies are going to tumble when their auditors will not sign off on y/e accounts due to dodgy asset values. Wait until NAMA gets active and 31 December is passed. I bet we will see a big increase in late filing of Annual Accounts by many companies and also in the number of those changing their yearend to try to massage the figures. Both these events are red flags to suppliers, so it is just postponing the inevitable.


Rs,
K.
KerryBog2
Member
 
Posts: 431
Joined: Thu Sep 15, 2005 2:56 pm
Location: trilocated and often lost

Re: National Asset Management Agency

Postby PVC King » Sun Aug 23, 2009 8:07 am

There will as you say inevitably be a lot of failures once the third round of the fallout kicks in; I am of the opinion that this will be mostly amongst sub-contractors, professional advisors and building supply companies; that has happened in most other comparable markets which entered the end game more quickly.

Of course that will be really painful for the senior management and shareholders of these firms but I have a hunch looking at the unemployment discrepancy between males and females that most of the lower level employees of these firms were deemed surplus to requirements during the second half of 2008 and the first half of 2009; so the impact on unemployment is likely to be more muted than the past year.

With unemployment at c50% in the wider industry unless a complete collapse occurs in the public sector invetment then the sector appears close to the bottom of the cycle; albeit that it could bounce along there for a while if nothing is done to stimulate it and the costs of carrying 200,000 unemployed people appear very damaging to the wider economy and in particular the employement costs of kee[ing taxpayers in unrelated sectors competitive.

The idea of a 'good bank' caught my attention as well; it would be highly unlikely to get around the competition aspects of the European Commissioner. The most recent argument I have seen is that Northern Rock which trades only the stronger assets of the collapsed group; is by virtue of not having any impaired loan book as a result of government intervention; in a position of having received unfair state aid.

We are also minus a large dock into which larger tankers could birth. The British refinerys are saying, that we are making life too difficult for them to do business. Because they are constantly having to float across small little tankers to supply Ireland's needs. The major centre of demand being the Dublin area, and we have no facilities planned to cater for oil imports.


I could be wrong on this but my interpretation is that the oil refinery known formerly as Whiddy Island can take quite large vessels. My interpretation is that something based on the Contango concept of capitalising on the difference between different spot prices in oil futures markets could work; i.e. when earlier in the year when February WTI was trading at c$42 a barrel but June was trading at say $52 a barrel. Traders at the time chartered ships to buy oil that was ready for immediate delivery and stored it until the price rose. The question is if you were going to store oil where would you store it; my guess would be somewhere with a reasonable amount of geo-political stability but not somewhere in the developed World.

I'd also look at what oil products are consumed in Ireland; very little of it is unrefined be it pertrol, diesil or specialist petro-chemicals used in the pharma or manufacturing industries.

However if an entrepreneur or commodity brokerage could find a former industrial site in a natural harbour such as the former Ispat site in Cork to build a quantum of oil tanks for use in playing the markets it would be a good fillup for the construction industry.
PVC King
 

Re: National Asset Management Agency

Postby jimg » Sun Aug 23, 2009 9:52 am

PVC King wrote:You have been very good at saying what wouldn't work but what do you think would have been best? Lehman Bros or an Argentine style default as least of all evils?

I thought I had been pretty clear in what policies I support; which are mainly modeled on the Swedish response. I'm not sure how much I want to write about the subject here as I don't believe that there is a big audience on this messageboard for somewhat technical discussion involving finance, business and economics and so it feels like the effort is wasted and I don't have Brian O'Hanlon's stamina. So, I don't seem myself posting at length on this subject in future, 'though I doubt I'll be able to resist the odd response.

The mistake I believe you make in your analysis and thinking is to fail to identify the clear distinction between the global financial crisis and the crisis in Irish retail banking. While it is a common mistake even among those who should know better in Ireland (including policy makers) it leads to faulty analysis. However, I am starting to detect that the reality of the situation is slowly seeping into general consciousness.

The crisis in Irish retail banking has nothing at all to do with any of: sub-prime lending, derivatives, liquidity or the global credit markets. No Irish retail bank has had any exposure to the sort of credit derivatives that wrecked the balance sheets of Lehman's, AIG, UBS and the rest.

The Irish retail banking crisis has nothing to do with these factors. Retail banks fail with surprising regularity independently of global trends. The failure of some Irish banks is akin to other business failures in Ireland - hotel groups, construction companies, manufacturers, etc.

Take Anglo for example; I've had a morbid interest in them for a while. Over a year and a half ago, I looked at their consolidated balance sheet for 2007 (just as the property market was beginning to falter) and could not understand it. The were able to claim only 3 billion excess of assets on a balance sheet of 100 billion - which contained over 60 billion worth of property loans. It became immediately obvious that once the bubbly rise in Irish property values faltered, they were doomed. Many people must have come to the same conclusion and the stock price started tanking at the start of 2008. Of course, the usual scapegoats were named - particularly evil short-selling "speculators" (often guessing that they were based in London - suggesting they were English - even worse). The reality was simple - Anglo had no future baring a miracle.

How did Anglo respond? They resorted to short term borrowing - paying higher and higher interest rates. They borrowed from anywhere they could - the markets, institutions and they even started offering ludicrous retail deposit rates - over 7% when the ECB rate was about a third of that. No bank can make profit paying these rates plus costs for their credit. Anglo had effectively become a pyramid scheme desperately trying to find ways to pull in cash to keep the show on the road.

While I claimed above that the global credit crunch has nothing to do with the Irish banking crisis, I overstated it in one area. It had an indirect role as a general tightening in global credit markets removed many of the potential subscribers to the pyramid scheme. However, like all pyramid schemes, Anglo would have gone bust anyway. When the government guarantee appeared, it bought them a couple of months but that was it.

The government is about to pay between 4 and 10 billion in order to ensure that all the people who joined this particular pyramid scheme get their promised payout. The bill for this largess is to be met by future tax-payers. This is not only unjust, it is very bad policy. I'm not a Keynesian by any means but spending this 4 to 10 billion on infrastructure would do far more to maintain activity in the economy than using it to pay off shareholders and bond holders who had been paid handsomely previously for shouldering risk.

How would I have responded? Like most economists, I would clearly separate the two types of retail bank failures. One is cause by liquidity issues (or panics as they called them in the old days) and others are caused by hopeless insolvency. I have no problem with governments getting involved to help a bank over a panic but there is simply NO VALUE to the taxpayer in keeping insolvent banks alive.

Having said this, I believe the national payments and clearing systems must be protected almost at any cost; any threat to the workings of ATM machines, cheque clearing, direct debits and the like could destroy the wider economy. Secondly - and this is a little more painful - I would offer blanket protection to deposit holders for much the same reason. Beyond these imperatives, I see no reason to pour 10s of billions of tax-payers money into maintaining these failed businesses.

Retail banks fail all the time and there is a relatively simple process for allowing this to happen without causing systemic financial panic (as you'll know given your knowledge of the Swedish response) and there are retail banks failing at the moment all over the world - particularly in the US - yet you don't even hear about it in the news.

As per the Swedish response, I am also in favour of simply liquidating the loans at current market values even if the market is "depressed" (I simply don't buy the technical analysis hocus-pocus view of markets). The sooner this crap is flushed out of the system and that regular economic activity can return the better. The Japanese alternative (a variation of which you and many others seem to favour) has been proven to be the absolute worst response to a national asset bubble deflation/retail bank crisis.
jimg
Member
 
Posts: 480
Joined: Mon Nov 22, 2004 9:07 pm
Location: Zürich

Re: National Asset Management Agency

Postby garethace » Sun Aug 23, 2009 10:33 am

There will as you say inevitably be a lot of failures once the third round of the fallout kicks in; I am of the opinion that this will be mostly amongst sub-contractors, professional advisors and building supply companies; that has happened in most other comparable markets which entered the end game more quickly.


That is what the last ditch attempt in the Carroll case is really about. Saving as much of the sub-contractors, professional advisers and building supply companies as we possibly can. If Zoe can be allowed to limp on for another three to five years, minus the 'wheeling and dealing risk' that LC exposed the company to, it will hold quite a few firms' heads above water through this construction downturn. Other than that, expect them to wind up by the new year.

On the other hand, Emmet Oliver's Sunday Tribune piece on the back page of the business section makes the obvious point. That Zoe are building some of their case around a notion that it's collapse 'would be bad for the Irish economy'. This is fast looking like an out-dated concept serving only the interests of development companies, Irish banks and some politicians. The Irish construction industry will be of minimal interest to our economic planners going forward.

We are slowly working our way towards the only valuable component in the Zoe court case - the saving of peoples' livelihoods and viable businesses. The preservation of skills and professionalism in the country which may be valuable as part of a recovery in Ireland. But to saddle the Zoe defense with larger 'economic' importance is stretching things too far. As Emmet Oliver rightly points out, we are looking at 10,000 dwelling completions in Ireland next year at best. Perhaps a return to 40,000 in the medium term, but never anything like 2006.

As Brendan Keenan would say, it is time to get a grip on the 'mediocrity of our fortunes'.

http://www.independent.ie/business/irish/trying-to-get-a-firm-grip-on-the-mediocrity-of-our-fortunes-1858501.html

Brian O' Hanlon
garethace
 
Posts: 1579
Joined: Wed May 14, 2003 9:01 pm
Location: Dublin, Ireland

Re: National Asset Management Agency

Postby garethace » Sun Aug 23, 2009 10:52 am

Economist Alan Ahearne's Sunday Business post article is here for anyone interested.

Economists worry about bubbles in asset prices because significant damage is invariably done to the economy when bubbles burst. In this country, we face a huge challenge in dealing with the legacy of the property boom. Far too much money was lent out over recent years to buy overvalued property.


http://www.sbpost.ie/post/pages/p/story.aspx-qqqt=NEWS+FEATURES-qqqm=nav-qqqid=43743-qqqx=1.asp

Brian O' Hanlon
garethace
 
Posts: 1579
Joined: Wed May 14, 2003 9:01 pm
Location: Dublin, Ireland

Re: National Asset Management Agency

Postby PVC King » Sun Aug 23, 2009 10:59 am

jimg wrote:The crisis in Irish retail banking has nothing at all to do with any of: sub-prime lending, derivatives, liquidity or the global credit markets. No Irish retail bank has had any exposure to the sort of credit derivatives that wrecked the balance sheets of Lehman's, AIG, UBS and the rest.

The Irish retail banking crisis has nothing to do with these factors. Retail banks fail with surprising regularity independently of global trends. The failure of some Irish banks is akin to other business failures in Ireland - hotel groups, construction companies, manufacturers, etc..


It was a very different type of bust but there is no doubt that sentiment towards real estate was affected by a perception that reduced credit would lead to a rise in the cost of credit and make many loan deals that stacked up at say 4% interest costs entirely unviable as spreads widened from 50-100bps to 400-600 bps for development finance. Development finance is still the major piece in the jigsaw that is missing and to date I have other than a few developers raising finance in terms of share placings not seen any idea how that gap is going to be bridged within the current structures.



jimg wrote:Take Anglo for example; I've had a morbid interest in them for a while. Over a year and a half ago, I looked at their consolidated balance sheet for 2007 (just as the property market was beginning to falter) and could not understand it. The were able to claim only 3 billion excess of assets on a balance sheet of 100 billion - which contained over 60 billion worth of property loans. It became immediately obvious that once the bubbly rise in Irish property values faltered, they were doomed. Many people must have come to the same conclusion and the stock price started tanking at the start of 2008. Of course, the usual scapegoats were named - particularly evil short-selling "speculators" (often guessing that they were based in London - suggesting they were English - even worse). The reality was simple - Anglo had no future baring a miracle.

How did Anglo respond? They resorted to short term borrowing - paying higher and higher interest rates. They borrowed from anywhere they could - the markets, institutions and they even started offering ludicrous retail deposit rates - over 7% when the ECB rate was about a third of that. No bank can make profit paying these rates plus costs for their credit. Anglo had effectively become a pyramid scheme desperately trying to find ways to pull in cash to keep the show on the road..


That is a good analysis; if a forecast from peak to trough in property values was 40% clearly €3bn of capital protection would leave a shortfall of €21bn; it is however fair to say that whilst values did ultimately sink 40% on commercial assets in the UK and US the speed of the collapse from say October 2007 to March 2009 was unprecendented.

Thankfully values are rising again albeit at a slower pace and it will probably be 2015 before values are back to 2006 levels again on most assets with some very localised asset bubbles not recovering to those levels from 20 - 30 years.

jimg wrote:The government is about to pay between 4 and 10 billion in order to ensure that all the people who joined this particular pyramid scheme get their promised payout. The bill for this largess is to be met by future tax-payers. This is not only unjust, it is very bad policy. I'm not a Keynesian by any means but spending this 4 to 10 billion on infrastructure would do far more to maintain activity in the economy than using it to pay off shareholders and bond holders who had been paid handsomely previously for shouldering risk..


This is where we differ; I look at the macro-economic picture and analyse that sustainable housing development is c50,000 units per year; currently roughly 22,500 units are being built. The costs of not building these houses can be expressed as

Build 22,500 houses = value c€6.75bn (ave house 300k)
Build 50,000 houses = value c€15.00bn (ave house 300k)

Lost vat assuming 50% is construction costs = c€557m p.a.
Lost Stamp Duty assuming an average of 5% of sale price = €412.5m
Lost PAYE/PRSI assuming 35% of salary for 50,000 workers each earning €1000 a week = €1.75bn
Costs of Social Welfare for 50,000 workers at a cost of €300 p/w = €1.5bn

Total cost of letting construction run below medium term is €4.22bn p.a.


jimg wrote:How would I have responded? Like most economists, I would clearly separate the two types of retail bank failures. One is cause by liquidity issues (or panics as they called them in the old days) and others are caused by hopeless insolvency. I have no problem with governments getting involved to help a bank over a panic but there is simply NO VALUE to the taxpayer in keeping insolvent banks alive..


Take a breakdown of the assets in a very negative and unspecific way.

€30bn overseas investments - peak to now minus 30% €9bn
€30bn built Commercial Ireland - peak to trough minus 40% €12bn
€30bn undeveloped - peak to trough minus 60% €18bn

The majority of overseas investments are performing and over the life of the loan values will in most cases present an exit opportunity that involves no loss

The majority of commercial built in Ireland will recover as yields harden - in some very small sub-markets there will be realised losses

The undeveloped landbank is probably most impaired and will remain impaired until the market recovers; however the costs of doing nothing exceed €4bn p.a. in lost tax receipts and social welfare costs. A pay back of c54 months for this category makes a very compelling case for sorting the issue out.


jimg wrote:Having said this, I believe the national payments and clearing systems must be protected almost at any cost; any threat to the workings of ATM machines, cheque clearing, direct debits and the like could destroy the wider economy. Secondly - and this is a little more painful - I would offer blanket protection to deposit holders for much the same reason. Beyond these imperatives, I see no reason to pour 10s of billions of tax-payers money into maintaining these failed businesses.

Retail banks fail all the time and there is a relatively simple process for allowing this to happen without causing systemic financial panic (as you'll know given your knowledge of the Swedish response) and there are retail banks failing at the moment all over the world - particularly in the US - yet you don't even hear about it in the news..


Without confidence in the wider banking entities there are no ATMs or clearing facilities; I agree that everyone is very sore with banks at the moment as weaknesses in their business models has caused a lot of pain to taxpayers in all Anglo-Saxon economies.

They are however a key part of the way business is done and without them we are unable to function; as painful as it is to hand money out under these circumstances there is I fear no alternative.


jimg wrote:As per the Swedish response, I am also in favour of simply liquidating the loans at current market values even if the market is "depressed" (I simply don't buy the technical analysis hocus-pocus view of markets). The sooner this crap is flushed out of the system and that regular economic activity can return the better. The Japanese alternative (a variation of which you and many others seem to favour) has been proven to be the absolute worst response to a national asset bubble deflation/retail bank crisis.


As you raised with Anglo above a cushion of €3bn was never going to cover a shortfall estimated to be c€24bn at trough; the question is do you allow an avoidable fiscal shortfall of €4bn year on year to persist when there is a way to allow a goverment body to take a medium term view. I think the vlauation process will be key to tax payer value on NAMA; there have to be realisitic discounts and if there is a shortfall the government should receive more equity for the risks taken. However the banks should not be forced to put performing assets into the scheme if the covenant strength and interest cover are deemed adequate by independent experts.
PVC King
 

PreviousNext

Return to Ireland