National Asset Management Agency

Section 58 is a sloppy, confused and conditional basis on which to mortgage the future prospects of the country. If this is the best we can get from the Department of Finance after nine months of hard work, God help us.

http://www.irishtimes.com/newspaper/opinion/2009/0801/1224251852071.html

30 years… who is going to keep tabs on it for 30 years… have they published there quarterly balance sheets and so on? This is a great time to buy some BOI@college green

–

Pile of Scrap Metal

From Suzanne Lynch’s piece in Friday’s Irish Times.

http://www.irishtimes.com/newspaper/ireland/2009/0731/1224251764490.html

The NTMA, in consultation with the agency, will draw up guidelines on misconduct and procedures for investigation and suspension of any staff member. The legislation also permits the agency to employ, on a contract basis, advisers or ‘service providers’ which it considers to be necessary.

I am not going to try to shoot the messenger, as Suzanne was merely drawing my attention to a piece of the NAMA legislation, which I unsurprisingly haven’t had the time or means, to sit down and read through. I wonder how many more interested parties are in the very same boat. When I read the above paragraph, already I began to get the smell of failure, inefficiency and incompetency off of NAMA. That is why I tried to articulate my ideas properly in this blog entry this weekend:

As a kind of ‘last plea’ for sanity regarding how to structure the NAMA organisation. I suggest that if the NAMA organisation is structured as described in the above quote from Suzanne Lynch’s article, then the NAMA vehicle will not even leave the starting line. It will simply sit there like a bloated piece of scrap metal and we will be lucky to even get a few musical tunes, of coughing and spluttering out of it.

I have experience in construction and land development projects over a decade and more. I have been in positions where these ‘contracts’ became part of the arrangement. Once you begin to create contracts between all of the different disciplines and experts involved, everyone goes on ‘guarded neutral’ to borrow the phrase from ACC bank. Everyone positions themselves in a ‘negative’ kind of world, where all they have access to are negative actions, such as the pressing of the release bombs button. It is the usual scene in the construction industry, and it is the reason that buildings cost so much and take so long to be realized at all.

Joint Venture Partners

The NTMA has already received expressed interest from international players, to set up joint ventures. Why the hell wouldn’t it? It is larger than GE Real Estate Capital, and anyhow we wouldn’t know where to find our own expertise within this tiny island of Ireland. However, in reference to my blog post about the ‘Ford Cobra’ I do very much see an important role for foreign partners to play as joint venture partners, if they have interest and experience in running facilities of a certain kind elsewhere. In order words, they can become the ‘client’ component in the ‘race track vehicle’ I suggested in my blog entry. Or in other words, it is like in Formula One racing, we are the underdog team, the Eddie Jordan if you will, and we need to hire the services of a world class driver who will take the vehicle around the laps.

Even though the Eddie Jordan vehicle might end up on the back of a lorry after each race as a steaming pile of junk metal, the driver does lend the team a credibility and international appeal. The right choice of driver can be a very important move indeed. However, I believe it is crucial for Ireland that it provides the engine, the chassis, the aero-dynamics (yes, we will require consultants on that point in particular) and the pit crew. It is crucial that we try to assemble as much as we can from providers who are Irish. That we learn how to do this for ourselves, from within our own resources and talent. That is the kind of message that Eddie Jordan was sending to the world about Ireland. We can build race cars and they can compete.

There might be existing government departments like that of Agriculture, which is used to handling and distributing money on a scale that is similar to NAMA. They should provide the chassis, and by all means acquire consultants in whatever area of ‘chassis design’ they need focussed help on.

Where are the hard hats?

I feel very compelled to say something about this sentence:

Board members will be required to have “expertise and experience at a senior level” in one or more of these specific areas: finance and economics; law, valuation and risk management.

What is contained in this sentence is very interesting. It does not mention anything about anyone with any experience or notion of how construction works. Because we are still trying to solve our problems by thinking inside of an old and redundant paradigm. Presumably, the crucial construction point of view will be provided by the same clowns as we saw in the Celtic Tiger, the Irish property developers who are an extinct species today. What are we going to do? Resurrect them? B**** to that idea I say.

What is described in the above sentence from Suzanne Lynch’s article is the senior board of any existing Irish bank. The same arranagement that totally screwed up the country in the first place. We need a new vehicle, we need a new approach. I wrote about this problem in last Friday’s blog entry:

What existed between Irish banks and companies such as Zoe developments, was an umbilical chord from the bank to the company. That chord was never severed once the company was able to walk for itself. It continued to exist, long past the point when the relationship had become incestuous. It is necessary to sever umbilical cord, in order for a new stage of the relationship between the parent and the child to take place. A relationship that enhances both the spirit of parent and child, in short, a relationship that flows in both directions.

Douglas McGregor and Amartya Sen

What we need in Ireland is an entirely new paradigm within the banking sector. We are not simply trying to save what is left of a crumbling old Irish banking system. We are trying to invent a new sustainable paradigm around which Irish banking can grow into something useful for society as a whole. The exact same way as we invested our money into the third level education of our children in Ireland from the 1980s onwards. The banks have to go to ‘further education’ if they are to make Ireland proud again. That is why I referred to Douglas McGregor in this blog entry:

We need our bankers to drop the pretence of being removed from the business in which they are dealing. We need the flow of ‘nourishment’ contained in relationship between parent and child to flow both ways. We need bankers (NAMA is effectively going to operate as a bank, regarding bad property debts) to learn to collect information about construction projects and we need those running our construction projects, to compile that information to feed back to the banking institution, NAMA in this case.

We have an opportunity in NAMA to do more than simply resolving a terrible situation. We have an opportunity to create a new robust way of doing business for Ireland in terms of executing projects and providing finance which isn’t managed from an arm’s length distance. The arm’s length method can produce very dysfunctional offspring as we have witnessed. Projects and finance have to form a meaningful relationship with each other.

In the blog entry I wrote about Amartya Sen’s ideas, I described a crucial need in Ireland for economic, social and political needs of the people to come back into balance.

Already we are witnessing the emergence of wonderful ideas from the Left wing parties of how NAMA will provide social benefit to the people of Ireland. In the same way as the banks are receiving benefit from the situation, so should the people them selves who are footing the bill. We need to view NAMA as an opportunity to re-build and develop Ireland as a nation in more ways than simply economic regeneration.

Brian O’ Hanlon

Not a bad analysis at all from the Sunday Indo, written by Alan Ruddock.

Lenihan, though, does not just hold the economy in his hands. His handling of the banks will have a profound and lasting effect on the public’s faith in government and, ultimately, in democracy itself.

http://www.independent.ie/national-news/lenihan-must-save-banking-not-bankers-1849338.html

I am beginning to get my head around the Fine Gael argument gradually. A little bit of information comes through in today’s Irish Times by John McManus, Simon Carswell and Harry McGee.

“Nama will create a false market by buying assets well above their market value in a very uncertain market and probably at a cost to the taxpayer,” he said.

http://www.irishtimes.com/newspaper/finance/2009/0803/1224251928895.html

Brian O’ Hanlon

The only way this will be solved is a…

googlelandzonevaluemap formula which is related to social welfare and minimum wage after tax needs 5 years ect. So you can look at prices live change the social welfare automatically the price of land changes.

There is price zoning/actual zoning/capacity/population zone all in one and its live for the whole of Ireland.

over to you google…

All of you thought that Bank Holiday Monday newspapers were supposed to be dull and boring didn’t you?

Think again.

Joe Brennan contributes a very interesting break down of the numbers here at the Indo:

http://www.independent.ie/national-news/tough-questions-for-aib-over-loans-to-developers-1849640.html

AIB’s outgoing chief executive Eugene Sheehy said earlier this year that “four to five” of the bank’s developer clients each owe more than €500m, while 30-40 customers accounted for more than half its development loan book. The concentration of AIB’s book is way less than that of nationalised Anglo Irish Bank, where the top 15 clients had each borrowed in excess of €500m.

It would appear from that quote that AIB exercised at least some cop on, in constructing their loan book. Therefore their problems will be much easier to sort out for NAMA. But Anglo’s problems are a whole other ball game. Probably why it fell like a stone in the markets and created a huge vacuum that everyone else got sucked into. It still does not remove much heat from AIB or BOI, but at least it relieves some. To be fair about it though, while Anglo’s loan book was extremely vulnerable, there is no point in claiming that the other banks were a shining example of how to go about business.

I really couldn’t agree more with Maeve Dineen’s article, also in today’s Indo:

The verbal characteristics of a High Court judge are usually not the most exciting. Their vocabulary tends to be somewhat understated, abstract, and fairly colourless and, if he’s really good, totally obscure.

http://www.independent.ie/business/irish/only-one-thing-to-do-if-liam-carroll-loses-tomorrow-panic-1849600.html

I don’t understand much about the courts system myself, but I think Maeve’s piece really put the whole Zoe scandal into perspective for the average reader.

Brian O’ Hanlon

Brendan Keenan of the Indo offered yet another useful slant to this whole business in last Friday’s paper:

It would not, however, be an apocalypse. And there is the point that, the more the creation of NAMA had helped economic growth in the meantime, the lower the real and actual burden of any final loss would be. Economies are not arithmetic. Economic growth over the next 10 years will have much more effect on how the bank rescue turns out than any amount of legal details or fretting over the value of Dublin docklands. In turn, that growth will depend more on global conditions than the actions of NAMA or the lending capacity of Irish banks.

http://www.independent.ie/opinion/columnists/brendan-keenan/we-still-need-answer-to-the-multibillion-euro-question-1847673.html

Elaine Byrne gives her take on the whole process as it has unfolding to date, with Brian Lenihan coming across as being ‘scary’ sometimes to the general public out there. Her piece deals a little with this issue of ‘commercial sensitivity’ and tries to contrast that with another issue, the democratic right of the taxpayer.

The public are not enthused with confidence as far as the relationship between Fianna Fáil and property developers is concerned. A perception of improper influence exists in the public mind for good reason.

http://www.irishtimes.com/newspaper/opinion/2009/0804/1224251960430.html

The Standards in Public Office Commission donations records show that developers Seán Dunne, Ray Grehan, Seán Mulryan, Paddy Kelly, Gerry Gannon, Johnny Ronan, Séamus Ross and many others donated to Fianna Fáil during the property-fuelled boom years when Fianna Fáil was in government.

Indeed, the developer Bernard McNamara stood for Fianna Fáil at the 1981 general election but failed to win a seat for the party in Clare.

They don’t term Fianna Fail the ‘builders party’ for nothing it appears. I particularly agreed with this little block of text that Elaine wrote:

The danger right now is that moral questions are regarded as impractical because we are fighting for our economic independence; that the speed with which this war is being fought leaves little time for the luxury of ethical niceties such as responsibility.

It goes back to the failure in the process that Amartya Sen witnessed at so many United Nations and World Forum discussions about ‘the future for the third world’. Where social and political needs were brushed away to one side, in order to tackle what is perceived as the ‘meat’ of the situation, the economic challenges.

Brian O’ Hanlon

IAVI members moving in for a piece of the kill.

Ms Myler added that valuers had not inflated the property bubble: “During that time, valuers reported the facts as they saw them. They interpreted the market, they did not create it.”

http://www.irishtimes.com/newspaper/finance/2009/0805/1224252010094.html

I guess we created the mess and will have to sort it out too. I was glad to read in the same article that foreign opinions will also be sought in terms of assessing of values. That will be a great help I am sure.

A good little piece from Charlie Weston today:

http://www.independent.ie/opinion/columnists/charlie-weston/recession-is-taking-its-toll-on-younger-generation-1850028.html

That is really what the matter boils down to I guess.

Brian O’ Hanlon

One in four of AIB’s loans are now either impaired or at risk compared to around one in ten at the end of last year as the country’s spectacular property crash lays bare the lender’s exposure to struggling developers.

http://www.irishtimes.com/newspaper/breaking/2009/0805/breaking13.htm

Breaking developments from the Irish Times today from AIB’s first six months 2009 results publishing.

Dealers said investors were betting on the “bad bank” giving AIB the opportunity to put its past behind it.

As Brian Lucey, a professor in Finance at Trinity College, in his interview on Morning Ireland yesterday pointed out, the Irish government might find themselves in a ‘sticky situation’ where they are seen to be presiding over a massive transfer to economic wealth from the public coffers – the equivalent of one years income from taxation – to the private investors and bond holders of the Irish banking sytem.

http://www.rte.ie/news/2009/0804/carrolll_av.html

Brian’s Morning Ireland interview is audible at that link. Opinions expressed on Irish radio this morning suggest, that in the United States the private part of the economy has paid back in full the investment made by the US government. It is nice to believe that finance is out there, available to us from the private investors to re-float the vessel. But in the context of NAMA and in the context of Ireland, we could be witnessing a very bad fall out from this. If it is perceived that the Irish government are transferring public wealth into the pockets of private investors. I mean, what impact will that have on perceptions around the world? Who knows?

Elaine Byrne has uncovered some of the aspects of this problem in his Irish Times contributions recently. In this article she spoke about Irish man Denis O’Brien, who was more clever than Liam Carroll perhaps and went forth in search of new markets abroad for his investments after the sale of Digifone.

http://www.irishtimes.com/newspaper/opinion/2009/0728/1224251492393.html

At least Denis O’Brien’s wealth is still intact, and that should count for at least something, in the context of the Moriarty tribunal. The same cannot be said of Liam Carroll’s fortune, most of which was lost as the single largest player on the Irish stock market. More recently, Elaine Byrne in the Irish Times highlighted the concerns in relation to the procedures at NAMA.

http://www.irishtimes.com/newspaper/opinion/2009/0804/1224251960430.html

Welcome to the world of commercial sensitivity. In this world, the right to know is the privilege of the Department of Finance and not [a] democratic right of the taxpayer.

Brian O’ Hanlon

If, as seems probable, NAMA ends up in possession of a huge patchwork of development property, some of it admittedly in the back of beyond, but much of it in prime urban locations, will there be anyone exercising design and planning oversight of this enormous unexpected opportunity?

If NAMA is to be an agengy, managing assets in the national interest, surely that must involve a comprehensive evaluation of this unique (once in a lifetime) resource in terms of what it could contribute to genuine urban regeneration and not just the bankrupt developer’s version of urban regeneration.

Any such evaluation would surely decide to abandon some existing planning permissions and seek to develop properties in new ways incorporating much higher levels of civic contribution.

Or will it all be just about the money?

If, as seems probable, NAMA ends up in possession of a huge patchwork of development property, some of it admittedly in the back of beyond, but much of it in prime urban locations, will there be anyone exercising design and planning oversight of this enormous unexpected opportunity?

Gunter,

This is where all input and assistance from people such as yourself I hope will be most appreciated and sought after, either as external advisers or as part of some ‘vehicle’ by which we can integrate a lot of different land and building professions together. Working of course under the overall framework of the risk managers, valuers, financial planners, accountants and so on. They will take the completed product off the hands of the professional teams and get the best possible price, or model to float it into the private section of the economy. I like to think of it like one huge Boeing airplane factory. At least, something of that gargantuan scale.

My own interest would basically be in recruitment of such teams for whatever length of time required, and the building of teams with which to tackle this vast experiment of the National Asset Management Agency. Many thousands of parts, moving or otherwise will have to merge together into an overall end product. We are going to have to step up to the mark really in terms of project management and organisational skills. I think this is Ireland’s version of a space program and nothing short of it. No one has tried to launch something this huge before. (This is not like a video game kid) I do hope that NAMA sees the ‘space program’ analogy in the same way as I do.

It will be somewhere between ‘Armageddon’, ‘The Right Stuff’ and ‘Space Cowboys’ as I see it. Youth and age, working in a healthy and productive relationship together.

http://www.imdb.com/title/tt0120591/

http://www.imdb.com/title/tt0086197/

http://www.imdb.com/title/tt0186566/

Brian O’ Hanlon

I’m curious as to how NAMA operates once the asset transfer takes place. Based on the little I know, I’m becoming disheartened. I really need to take a look at the legislation. But in the meantime, here’s how I think it works:

+

Lets say I’m a developer. A few years ago I borrowed €10m from AIB to buy a site, and I intended to build an office block. Construction costs, fees, etc. were €5m, and I was going to make €20m over seventeen years in rental. All fine so far, and I’ve made a €5m profit. But now, things have gone pear shaped. I’m left with a €10m site, and no way of borrowing the €5m I need to complete the scheme. Without a revenue stream, I can’t even begin to pay back the original loan.

I manage to cling on for a year. I restructure my debts, and the €10m loan gets taken over by NAMA. They give AIB €5m in bonds in exchange for the loan. AIB take that €5m, and give me a call. Guess what? They’re willing to loan me the €5m I need to complete the scheme. And maybe it works out. Maybe things are on the up generally, I can rent out the office block, and I make a decent return. In fact, I’m making more than I thought I would because construction costs have fallen in the meantime and I only need to borrow €3m. AIB jacked up the interest rates it’s charging to the ordinary punter to make up the €5m hit it took from NAMA. Everyone’s smiling.

+

So… my question is this – What happens after the bit everyone is talking about – after the price is fixed? Is NAMA is basically just a big holding tank just to get debt out of the banks?

If that’s the case, there will be no role for anybody within NAMA except land assessors. There are no assets, and they will not be managed. A price will be set, and then NAMA will sit on the land until the developer is forced to move on it, because he’s still liable for the original loan.

If things don’t turn around quickly enough we’re twice as screwed. Because this time, there will be no NAMA to transfer assets into. It’ll already be full. The banks will just do the same lending they did before because the hit they took first time around from NAMA wasn’t big enough, and in the end, their only function is to make a tidy return for their shareholders.

There’s an estimated €90bn of impaired loans floating around. If the average value of an asset transferred to NAMA is €10m, there will be around 9000 separate pieces of land in various states of development to be managed. Who is going to manage this? 50 staff members? There will be no opportunity for a new paradigm, no development will take place within the compass of NAMA, and there is no future.

@subtraction wrote:

I’m curious as to how NAMA operates . . .

Lets say I’m a developer. A few years ago I borrowed €10m from AIB to buy a site, and I intended to build an office block. Construction costs, fees, etc. were €5m, and I was going to make €20m over seventeen years in rental. . . .

I manage to cling on for a year. I restructure my debts, and the €10m loan gets taken over by NAMA. They give AIB €5m in bonds in exchange for the loan. AIB take that €5m, and give me a call. Guess what? They’re willing to loan me the €5m I need to complete the scheme.

I don’t think that’ll be how it’ll work subtraction.

”NAMA take over the loan, they give AIB €5m in bonds in exchange for the property”!

You’re out of the picture.

AIB will be giving you a call alright, but it won’t be to give you €5m 😉

Lets say I’m a developer. A few years ago I borrowed €10m from AIB to buy a site, and I intended to build an office block. Construction costs, fees, etc. were €5m, and I was going to make €20m over seventeen years in rental. All fine so far, and I’ve made a €5m profit. But now, things have gone pear shaped. I’m left with a €10m site, and no way of borrowing the €5m I need to complete the scheme. Without a revenue stream, I can’t even begin to pay back the original loan.

Thankyou for that explanation. I am familiar with the ‘shipping dock’ problem myself from my understanding of computer networks. Basically, where the dock side becomes full to capacity of containers in one harbour, but the entire contents of a shipping order have not been off loaded yet to the said dock. It results in a log jamb of the entire network system. Basically nothing can move off or on the dock, because there is no room to shift things about.

Your description of a typical Irish toxic debt, is quite similar to that from a system dynamics analysis point of view.

(Sorry for trying to sound so sophisticated, I am not really you know)

I manage to cling on for a year. I restructure my debts,

Lets look at consumer debt, something we are all familiar with nowadays. It can consist of many different problems: car loans, home mortgage repayments, credit cards, overdraft facilities, students loans etc, etc. Of course, the ads on the TV tell you, you can ‘re-organise’ all of that into one easy payment per week, that is easy to manage. Effectively what the loan organisation is doing, is handling your administration for you, taking it off your hands. I call it ‘managing your mess for less’. (That was always Sun Microsystem’s quip about IBM)

In reality, NAMA is trying to re-organise all of those private borrowing, which were very inefficient and expensive in terms of interest etc and exposure. NAMA is trying to do on a gigantic scale what lenders do for consumer debt on a smaller scale. I imagine, that NAMA will focus on and tackle the kind of ‘shipping dock log jamb’ problem that you described so well above. NAMA is probably necessary to do that, to shake up the system again and clear the docks so to speak.

In fact, I’m making more than I thought I would because construction costs have fallen in the meantime and I only need to borrow €3m.

Some Irish developers were extremely lucky this way during the Celtic Tiger. Their inefficiency at securing planning permissions for sites, effectively meant that they held off long enough to make the windfall profits when the housing demand really spun out of control. So sometimes being a messer can be very profitable!

So… my question is this – What happens after the bit everyone is talking about – after the price is fixed? Is NAMA is basically just a big holding tank just to get debt out of the banks?

If that’s the case, there will be no role for anybody within NAMA except land assessors. There are no assets, and they will not be managed. A price will be set, and then NAMA will sit on the land until the developer is forced to move on it, because he’s still liable for the original loan.

I recommend a reading of Bull, Balchin and Kieve’s book on urban land economics. Available in good book stores. It is an old classic, but it does mention the problems that Great Britain had in terms of ‘fixing’ the price of land in the mid to later stages of the twentieth century. Successive Labour governments in Britain tried to do it, and most of them failed. There were a lot of interesting things that went wrong. I think in the end, the local authorities who had the authority to buy land at that fixed price, continually decided not to exercise their powers. Afraid that it might give negative signals to the private portion of the economy, not to get involved in that part of Britain as a developer etc.

An architect the other day mentioned to me a possible problem with NAMA. It might well prevent any private development in Ireland for a long time. Because NAMA is such a huge player in it all, there would be no knowing when NAMA would release a ‘flood’ of property onto the market, which would affect prices and plans of private developers etc. I could see the man’s point to be honest. Who knows what could be waiting behind the hulking great dam walls that would be NAMA. That is why transparency and fore warning should be at the heart of NAMA and how it goes about things.

If things don’t turn around quickly enough we’re twice as screwed. Because this time, there will be no NAMA to transfer assets into. It’ll already be full. The banks will just do the same lending they did before because the hit they took first time around from NAMA wasn’t big enough, and in the end, their only function is to make a tidy return for their shareholders.

That scares the living crap out of me too.

My conclusion I left the interviewer with on radio was basically, that no matter how you played the game in Ireland in property, no matter how well you played it, you were still bound to lose. It seems to me like playing against the house. Only in movies like Ocean’s Thirteen does the punter get away with the money bags.

I think with Liam Carroll, when he had waded in for a cool billion, he was simply coerced by the banks to wade in even further. He was already compromised by that stage and losing a bit more wasn’t going to improve or disimprove his reputation. So in total he ends up owing €2.3 billion. The radio interviewer pressed me on the point yesterday on radio and to be honest I wasn’t prepared for that large a question. I don’t know, if I ever will be.

If the above is the case of the Liam Carroll debacle, then the whole idea of NAMA stinks to high heavens. Worse than that, it provides no future lesson for which the Irish banks should live by. NAMA is by no means a done deal. The Irish people still have time to raise their point of view. I would fully support them in whatever direction they choose. But choose something now and stick to it.

You will see an August 5th entry at my blog entitled ‘Renault Five’. Basically, there is no transparency whatsoever, in the €2.3 billion worth of dealings between Carroll and Irish banking institutions. If the Irish taxpayer looks set to take possession of that debt sum, then I believe the least it has earned the right to, is a full and proper account of exactly what happened. Otherwise, all of this time wasting by the Supreme Court about this rescue plan, or that rescue plan is simply a smoke screen in order to distract time and attention away from asking the real questions, the Irish tax payers has a right to ask now. What exactly did go on?

Brian O’ Hanlon

Impaired Assets Can be Catalyst for Economic and Urban Development Revival
http://www.irisheconomy.ie/wp-content/uploads/NAMA%20and%20Better%20Planning.pdf

Very good article putting across a very humanist slant on a business class that traditionally has focused on returns to developers/investors.

NAMA will by the end of the year be the World’s biggest Property company by some way albeit as bond holder as opposed to asset manager per se. The clear mandate of NAMA will be financial and it will be to manage non-performing loans and making calls on whether specific assets are sold and debt paid down.

I do however agree with the authors that as this is taxpayer funded it should look at how society at large could benefit from altering land use in specific holdings to move away from the usual mix of industrial, shopping centre, housing estate to much more bespoke projects like the digital hub that was done.

When you look at a city like Boston you see how campus incubation units play a key role in start up companies some of which have grown to become significant regional employers. There is a lot of development land in this portfolio which will not be developed as standard housing for a very long time given the contraction in housing output. Building an infrastructure to support campus start ups affiliated to the universities and ITs and a higher quality of public open space in new developments would be a very good start.

Sitting on a loan book of that scale and not activiely manging the portfolio was you would imagine never the intention; the question is how wide will their mandate be and how much financial muscle will the body be given to create value to neutralise some of the poor loans taken on.

@PVC King wrote:

Very good article . . .

NAMA will by the end of the year be the World’s biggest Property company by some way albeit as bond holder as opposed to asset manager per se. . . .

Sitting on a loan book of that scale and not activiely manging the portfolio was you would imagine never the intention; the question is how wide will their mandate be and how much financial muscle will the body be given to create value to neutralise some of the poor loans taken on.

Maybe one of the key points to look out for will be whether NAMA will have the authority to account for the management of it’s assets as a whole, or whether it will be bound to maximise the return on a site by site basis. If it’s the former, then there will be every chance that strategic planning will enter the equation, for all the reasons the lads have said, but if it’s the latter, there’ll be no reason to believe that net result will be any better than it would have been if the bubble hadn’t burst, only everything will take twenty years instead of five.

I think this is one of the key passages from the article:

I mean we don’t want the whole thing to become bogged down under layers of planning, but not to use the opportunity to plan, as opposed to weakly control what developers had planned (which has been the case until now), would be a crime.

If it’s the former, then there will be every chance that strategic planning will enter the equation, for all the reasons the lads have said, but if it’s the latter, there’ll be no reason to believe that net result will be any better than it would have been if the bubble hadn’t burst, only everything will take twenty years instead of five.

Thanks for contributing this point. I was allowing my mind to wander around these same sort of issues today. I hope to blog something up shortly.

[ See the designcomment blog for something I wrote about ‘far away hills’ ]

Shareholders should take part of Nama pricing risk

I was reading Pat Honohan’s piece in today’s Times, in which Pat throws his best suggestion into the mix.

http://www.irishtimes.com/newspaper/opinion/2009/0806/1224252079786.html

I can well imagine that the hard-pressed drafters of the legislation may be reluctant to embark on incorporating this additional complexity. But we are not speaking here of an insignificant detail. The sums of money involved are so large that it is well worth getting the contract design right.

Even for Pat it seems quite difficult to insert changes, alterations or possible enhancements to the draft legislation. If Pat is reluctant to press something too far, then that counts out most of us too. What Pat described in his opinion piece in the Times newspaper, is very like what influenced the ‘Design Build’ contract in construction. In the traditional contract, the builder assumes most of the risk. All the designer has to do really, is to rent a little office and buy drawing pencils. The design consultant’s outlay of capital isn’t that huge. On the other side of the contract, the capital outlay of the contractor is huge compared to that of the designer. The risk the contractor assumes is very large indeed. What the traditional building contract attempts to do is to join those two parties together. Two parties that are very assymetrical in their motivations and their rewards.

Where did the Design Build type of contract originate from? The Design Build contract was designed originally to allow small communities in remote parts of the United States to provide themselves with basic school facilities and so forth for their kids to go to. The design build form of contract works really well when the brief is that simple. You are either getting a school this year or you are not. I guess in the United States, it is not like Ireland where it is taken for granted that the state will do something to provide a school. (Normally in Ireland a site becomes available from a convent or something, even if the money to build on the site is unavailable)

In the United States local communities found that by making a direct contract with a builder they could build a project within a tight budget. (Money they could manage to raise themselves through a bank loan, without exposing the community to too much risk) The builder assumed some of the responsibilities of a designer. I suppose it is a different way of distributing risk. I think the parallels between the Design Build contract as it originated in the United States and what we are doing with NAMA are quite striking. If you think about it, Ireland is such a small community. In ways it is like that small remote American community that had to make things happen for itself.

For more information see:

Design-Build: Planning Through Development
by Jeffrey L. Beard, Edward C. Wundram, and Michael C. Loulakis (Hardcover – April 13, 2001)

High-risk gamble on NAMA has to be about more than good luck

The Brendan Keenan opinion piece in the Independent newspaper is very well written and considered. It is probably the first time in my life I have read something from Mr. Keenan. Well done.

http://www.independent.ie/opinion/columnists/brendan-keenan/highrisk-gamble-on-nama-has-to-be-about-more-than-good-luck-1852433.html

We have seen already that the terms of the first injections of capital mean the taxpayer will not benefit from the recent rise in bank shares. It must be admitted that private capital holds most of the cards in this game. It knows the banks will not be allowed to fail, and it knows that nationalisation is a last resort.

Perhaps the Government let it know too much.

I have to agree with Brendan’s point, that Minister Lenihan will have to exercise more of his role as a fund manager for the Irish people. I also understand that Minister Lenihan is like a tennis player at Wimbledon at the moment, having to play the singles tournament and the doubles at the same time.

But in terms of the banking crisis side of the tournament, private capital is dictating too much of the game to us as it stands. Private capital is holding too few of the important cards today to be allowed that latitude. Even though Minister Lenihan is sitting at the poker table and using government bonds to play doesn’t mean a thing. He rightly deserves to be at that table and we need him to deal the best hand on behalf of the Irish people.

Brian O’ Hanlon

Having established itself as a strategic spatial planning entity, the first essential step for NAMA would be to establish a macro-spatial policy for its asset bank. The state needs to take a deeper look at our future spatial direction and this will require an updated version of the National Spatial Strategy and the National Development Plan.

I would humbly submit a theory that much of the land assets available to NAMA now on the western side of the country are under a lot more stress than the eastern side. In plain terms, if the country keeps going the way it is, they will be worth shag all. It is a fact that Minister Lenihan is fighting a war on both fronts, to deal with public finance problems and deal with the banking crisis at the same time. It would appear to me, that in the western corridor, the problems for state spending seem to be particularly severe. I know that from talking to medical professionals who do get shifted around the western half of the country in a daft kind of fashion. Having to move home every couple of months. Effectively, some of them might be better off owning caravans. Perhaps the state finances problem needs to be divided into what the DIT school calls a western and a eastern corridor for development.

This is where the school of spatial planning at DIT has a real contribution to make. They have been thinking about this problem for a long, long time. I would submit the theory, that in the case of NAMA in dealing with its land assets on the western side of the country, it also takes on board very much the raft of problems the west is having to deal with in terms of basic social services. In that sense, the original thesis of the DIT school of spatial planning aught to be put into motion through NAMA. That Ireland in fact, should be developed as two separate corridors which are strong counterpoints to one another. This is where the brains at DIT and all of the other architects, engineers, surveyors and planners invovled at the Urban Forum need to come into play now. It is no real use ganging up on Mary Harney. I think this is a much larger and a much deeper problem than one Health minister has the ability to cope with.

Brian O’ Hanlon

Another look at the macro organisation in the country by Patsy McGarry in today’s Times.

In it O’Toole plays the 14th Earl of Gurney, who happens to believe he is God. Queried as to why, he offers the perfectly plausible explanation that whenever he prays he finds he is talking to himself.

http://www.irishtimes.com/newspaper/opinion/2009/0807/1224252150115.html

Brian O’ Hanlon

–

The Roosevelt Solution

I am confident in my own mind at least, that all of the problems that I am aware of and have taken pains to describe through the medium of blog entries, have been adequately addressed in the scheme proposed by Cearbhall O’Dalaigh on his ‘Celtic Meltdown’ web site.

http://celticmeltdown.webs.com/nama.htm

The bankers have run their companies into the ground and they will do the same to the Irish economy if they are allowed.

Giving them €60 billion is the height of folly.

That may well be the last large tranche of credit available to the Irish state and to simply hand it over to the very people who created this catastrophy in the first place is sheer lunacy.

That which O’Dalaigh describes does conform very accurately to my own perception of the problem. My own perception of the problem, while being quite good and based upon first hand experience in the trenches, is much better than my perception of a solution. O’Dalaigh at least seems to have hit upon an idea, which I do find appealing. O’Dalaigh’s idea does address the concern raised by Trinity Economics professor Pat Honohan in yesterdays Irish Times newspaper. I do like aspects of the solution prepared by Peter Bacon. But I am biased in that regard, being an Irish builder.

President Kennedy in the United States of the 1960s had the funds available to him to launch several Saturn V rockets. But the Irish state today only has enough fuel for one courageous attempt. Lets all hope it makes the right choice. The Minister for Finance and the Taoiseach have the facility of a ‘cancel launch’ button at their side. If the Zoe developments construction group goes down next Tuesday, then all NAMA bets are off and we are back to the drawing board.

I hope between now and next Tuesday, the Irish government uses the time productively to do the right investigation. Talk to the culprits responsible to uncover the sequence of events that led us to the current mess. The sequence is all important in deciding how we are to proceed. I do not believe Peter Bacon had the right information available to him in preparing the plan.

Brian O’ Hanlon

@gunter wrote:

Maybe one of the key points to look out for will be whether NAMA will have the authority to account for the management of it’s assets as a whole, or whether it will be bound to maximise the return on a site by site basis. If it’s the former, then there will be every chance that strategic planning will enter the equation, for all the reasons the lads have said, but if it’s the latter, there’ll be no reason to believe that net result will be any better than it would have been if the bubble hadn’t burst, only everything will take twenty years instead of five.

Bertie Ahern used a quite famous phrase, the boom is getting boom-er. That phrase suggested a well behaved upwards trajectory to the construction activity in Ireland. But that isn’t what happened at all. The industry developed what I can only describe as a ‘twist’ to its flight path when it reached a certain velocity.

I blogged something on this last night at Designcomment, entitled ‘Far Away Hills’. Where I suggest that some designer and builder teams are better at working on a site by site basis. Some others have the expertise at strategic planning. I don’t think it is down to doing one or ther other. I do think it is important that people who know how to do one or the other, stick to what they are good at. That is the only way to avoid this self destructive ‘twist’ in the construction industry’s behaviour I observed during the Celtic Tiger.

While reading the analysis piece by Conor McMorrow, Political Correspondent for the Sunday Tribune newspaper, I was again reminded of this factor in the behaviour of the Construction Industry.

‘There are known knowns. There are things we know that we know. There are known unknowns. That is to say, there are things that we now know we don’t know. But there are also unknown unknowns. There are things we do not know we don’t know. And then there is the future of Nama.”

http://www.tribune.ie/business/article/2009/aug/02/nama-the-known-unknowns-and-the-unknown-unknowns/

It is this self-destructive ‘twist’ in the behaviour of the construction industry, which I believe was an unknown unknown. It is a factor that threatens to return to haunt us again with NAMA. I hope that people have taken note of it and it has now entered the knowledge sphere as a ‘known known’ before we embark on building our next paper airplane. I hope we will have learned to improve our design.

I believe myself, based on my own observations that many builders who could do the ‘large stuff’ very well. That is, they were builders with patience and were observant of the ‘bigger picture’. But they got sucked in by something I call the ‘Bertie Factor’. They saw amateurs making off with fast wind fall profits doing real mickey mouse kind of construction. That is I believe how we ended up with this ‘rash’ of small stuff all built in the wrong place.

For instance a man who owned and operated a gravel and stone quarry all his life. He understood the big picture and how large government contracts work. What was he doing suddenly taking a lunge into the unknown world of housing estate construction?

On the other hand, those who knew the game of building housing estates became over ambitious and leaped into the world of high capital, high investment projects such as shopping centres. What was that in aid of?

There was a lot of money flowing around the system in Ireland, but most of it was stupid money. Stupid in the sense, it was given to sensible people to take care of, but those people put it into projects they really did not understand.

It would not really matter, but it happened at the same time, on such a large scale that it now a huge problem. This is the ‘problem’ which a body such as NAMA will have to untangle.

We are all well aware of the subtleties of making paper airplanes which are able to do the job they are supposed to do. It is annoying to have worked hard to create something out of paper, only to realize your design exhibits this kind of flaw. I think that is exactly what the Irish construction industry displayed in the end. An unstable behaviour, an irrational over adjustment of some kind. Something that made it flip back over itself and fall out of the sky.

Brian O’ Hanlon

Mr. Strategic planning himself, Frank McDonald wrote this recently.

http://www.irishtimes.com/newspaper/ireland/2009/0730/1224251671431.html

The objective is to “position the Dublin city region, the engine of Ireland’s economy, as a significant hub in the European knowledge economy through a network of thriving sectoral and spatial clusters providing a magnet for creative talent and investment”.

No deeds

I had forgotten about the fact NAMA isn’t getting any deeds. Constantin Gurdgiev’s point in relation to deeds was highlighted in Conor McMorrow’s Sunday Tribune piece.

We are being sold a product we cannot see, in a quantity unknown to us, for a price we cannot access, with no deeds on this product passed to us

Constantin Gurdgiev’s Irish Independent article:

http://www.independent.ie/opinion/analysis/reasons-to-fear-trust-me-sales-pitch-on-836490bn-bet-1847596.html

Here is Morgan Kelly’s opinion on the matter from the Irish Times.

http://www.irishtimes.com/newspaper/opinion/2009/0703/1224249965637.html

Brian O’ Hanlon

@garethace wrote:

No deeds

I had forgotten about the fact NAMA isn’t getting any deeds.

Brian O’ Hanlon

Who gets the deeds?

Explain this, . . . . but as if you’re talking to someone who doesn’t understand any of this.

. . . . in two paragraphs, maximum.

I haven’t got a bull’s clue myself. I hope someone out there knows more than the two of us.

Brian O’ Hanlon

@gunter wrote:

Who gets the deeds?

Explain this, . . . . but as if you’re talking to someone who doesn’t understand any of this.

. . . . in two paragraphs, maximum.

From the Bill:

NAMA not required to register certain instruments, etc.
84.—(1) Where a bank asset has been acquired by NAMA or a NAMA group entity—
(a) notwithstanding anything in the Bills of Sale (Ireland) Acts 1879 and 1883, the
Industrial and Commercial Property (Protection) Act 1927, the Agricultural
Credit Act 1978, the Companies Act 1963, the Registration of Deeds and Title
Acts 1964 and 2006, the Patents Act 1992, the Trade Marks Act 1996, the Taxes
Consolidation Act 1997 or any other Act, that provides for the registration of
assets, security or details of them, NAMA is not required to become registered
as owner of any security that is part of the bank asset,
(b) notwithstanding sections 62 and 64 of the Registration of Title Act 1964,
NAMA has, in relation to any such charge, the powers of a mortgagee under a
mortgage by deed, even though NAMA or the NAMA group entity concerned is
not registered as owner of any such charge,
(c) NAMA has the powers and rights conferred on the registered owner of a charge
by the Registration of Title Act 1964.

My reading of this is that NAMA are taking over the loans as banks normally would ie they are taking over and managing the risk. In that case the deeds remain held by whoever holds them under the terms of the original loan. If the loan is defaulted then NAMA will act as if it is the original lender to secure the loan based upon its terms. Presumably then the deeds pass to NAMA? maybe it’s just a way of reducing the paperwork

or I could be talking bollocks

I want to see the form they fill in for so called assets…

value in 1980
value in 1990
value in 2000
bought for x
list of previous owners to 1970
area of land x
tax paid on previous 30 years
interest of y pa
expenses of p
sold for j profit of s
on sold for b profit of i

ect

@wearnicehats wrote:

From the Bill:

NAMA not required to register certain instruments, etc.
84.—(1) Where a bank asset has been acquired by NAMA or a NAMA group entity—
(a) notwithstanding anything in the Bills of Sale (Ireland) Acts 1879 and 1883, the
Industrial and Commercial Property (Protection) Act 1927, the Agricultural
Credit Act 1978, the Companies Act 1963, the Registration of Deeds and Title
Acts 1964 and 2006, the Patents Act 1992, the Trade Marks Act 1996, the Taxes
Consolidation Act 1997 or any other Act, that provides for the registration of
assets, security or details of them, NAMA is not required to become registered
as owner of any security that is part of the bank asset,
(b) notwithstanding sections 62 and 64 of the Registration of Title Act 1964,
NAMA has, in relation to any such charge, the powers of a mortgagee under a
mortgage by deed, even though NAMA or the NAMA group entity concerned is
not registered as owner of any such charge,
(c) NAMA has the powers and rights conferred on the registered owner of a charge
by the Registration of Title Act 1964.

My reading of this is that NAMA are taking over the loans as banks normally would ie they are taking over and managing the risk. In that case the deeds remain held by whoever holds them under the terms of the original loan. If the loan is defaulted then NAMA will act as if it is the original lender to secure the loan based upon its terms. Presumably then the deeds pass to NAMA? maybe it’s just a way of reducing the paperwork

or I could be talking bollocks

You would think it is to give Nama a waiver on having to register a charge on the deeds of each loan that they are taking over which is secured on property be it real estate, chattels or intellectual. I am sure the Incorporated Law Society are not best pleased to not grant the exemption would have created a lot of work for solicitors.

My understanding of Nama (I could be very wrong) is that the banks in return for taking a haircut in line with the perceived risk will walk away from the loans and have no further exposure. To create a superior interest you would ordinarily need to register same on deeds.

@missarchi wrote:

I want to see the form they fill in for so called assets…

value in 1980
value in 1990
value in 2000
bought for x
list of previous owners to 1970
area of land x
tax paid on previous 30 years
interest of y pa
expenses of p
sold for j profit of s
on sold for b profit of i

ect

speaking of talking bollocks

This whole discussion about the deeds reminds me of something. I fully recognize the fact that Archiseek readers do not wish to listen to me pontificate down from the high altar of: This is how we would do it at Zoe developments. I promise I will not do that to you guys any longer.

But here is the thing, it is what I call the ‘systems engineering’ idea that directors at Zoe tried to implement. It wasn’t Liam Carroll who was the brains behind it. Rather Liam did everything in his powers to smash up whatever system or organisation we as employees tried to create to deal with complexity and introduce logic. But often, because of the kind of company that Zoe was, we would be looking at problems very similar to the one described on deeds for NAMA property loans.

For sure there is a huge raft of administration work and difficulties that can be created for NAMA around this one part of the production line. Getting it incorrect could prove to be very, very costly and jamb up the production line entirely. At Zoe developments we did the following. We used the ordinance survey maps to do our planning applications. Those ordinance survey maps are inaccurate remember. But they are used by the land registry for legal purposes.

So we would get a digital survey of the site done after receiving planning. Then, we would do the construction drawings on the digital survey and everything would be set out using GPS on site. But somewhere along the line, someone would have to do a ‘best fit’ between the ordinance survey map (onto which the planning application drawings had been drafted) and the ‘correct in real life’ digital survey drawing. Zoe’s planning drawings were never actually continued into real life construction stage. What would happen is that an architect would print a hard copy set of the planning drawings and re-draw the entire development into CAD on the ‘best fit’ digital survey. While ‘looking’ at the printed hard copy set of planning drawings on his or her desk. In other words, the entire project was drawn twice on the computer by separate individuals.

(That is an added cost the average consultant architect could not bear when doing a project, but it was worth Zoe’s while to do it because it avoided a problem further down the line, when they as a client wanted to register the built properties)

The advantage was when it came to legal drawings further down the track, the planning drawings would serve as the basis for the legal drawings for land registry purposes later on. In the mean time a building had been constructed on the site, to the accuracy of the digital survey based on what we had received planning permission for. I know this sounds complex and obscure, but it demonstrates what Zoe were thinking about in terms of their ‘systems engineering’ point of view. They were motivated to do things like this and think in this fashion because they were client, builder and designer.

Now I want to make fully clear to all readers, that Liam Carroll had nothing to do with the above. He was bending himself over backways to build as many projects as he could, as fast as he could and didn’t give a constitutional f*** how we did it. But because we were playing the role of designer, client and building contractor, we were motivated to find efficiencies in the pipeline. We had no choice but to handle a huge burden of ongoing administration anyhow. But we tried to handle it in a way that didn’t create more work for ourselves than was absolutely necessary.

That didn’t mean that we cut any corners. But it did mean that we tried to work intelligently, seeing the whole process instead of only the small segments such as in a consultant and client arrangement. That is why I wrote about the ‘engine of Zoe development’ etc in the Designcomment blog entry about the Ford Cobra. I suggest, we can re-build a logic and an efficiency into the NAMA engine if we use our noodle fully. There are a number of the Zoe architects and engineers out of work currently who would be useful people to talk to. I was only there for two years myself, but their way of handling the administration work load was clever in many ways.

Brian O’ Hanlon

Mr. Strategic planning himself, Frank McDonald wrote this recently.

http://www.irishtimes.com/newspaper/…251671431.html

Quote:
The objective is to “position the Dublin city region, the engine of Ireland’s economy, as a significant hub in the European knowledge economy through a network of thriving sectoral and spatial clusters providing a magnet for creative talent and investment”.

Is the above actually part of the problem with an low density urban sprawl turning our capital into a less toxic version of Houston Texas with a bloated public service and government putting diesel into the petrol engine of this state and financial services actually producing nothing of any real value as the great manufacturing nations of Europe grind slowly out of recession and we get choked by vested interest groups like vintners,farmers,unions,legal profession and pharmacists etc.At a guess I’d say the huge pharmaceutical cluster of industries and support services in Cork are contributing a lot more than Franks aspirational waffle.

The engine has seized up Frank.

@garethace wrote:

This whole discussion about the deeds reminds me of something. I fully recognize the fact that Archiseek readers do not wish to listen to me pontificate down from the high altar of: This is how we would do it at Zoe developments. I promise I will not do that to you guys any longer.

But here is the thing, it is what I call the ‘systems engineering’ idea that directors at Zoe tried to implement. It wasn’t Liam Carroll who was the brains behind it. Rather Liam did everything in his powers to smash up whatever system or organisation we as employees tried to create to deal with complexity and introduce logic. But often, because of the kind of company that Zoe was, we would be looking at problems very similar to the one described on deeds for NAMA property loans.

For sure there is a huge raft of administration work and difficulties that can be created for NAMA around this one part of the production line. Getting it incorrect could prove to be very, very costly and jamb up the production line entirely. At Zoe developments we did the following. We used the ordinance survey maps to do our planning applications. Those ordinance survey maps are inaccurate remember. But they are used by the land registry for legal purposes.

So we would get a digital survey of the site done after receiving planning. Then, we would do the construction drawings on the digital survey and everything would be set out using GPS on site. But somewhere along the line, someone would have to do a ‘best fit’ between the ordinance survey map (onto which the planning application drawings had been drafted) and the ‘correct in real life’ digital survey drawing. Zoe’s planning drawings were never actually continued into real life construction stage. What would happen is that an architect would print a hard copy set of the planning drawings and re-draw the entire development into CAD on the ‘best fit’ digital survey. While ‘looking’ at the printed hard copy set of planning drawings on his or her desk. In other words, the entire project was drawn twice on the computer by separate individuals.

(That is an added cost the average consultant architect could not bear when doing a project, but it was worth Zoe’s while to do it because it avoided a problem further down the line, when they as a client wanted to register the built properties)

The advantage was when it came to legal drawings further down the track, the planning drawings would serve as the basis for the legal drawings for land registry purposes later on. In the mean time a building had been constructed on the site, to the accuracy of the digital survey based on what we had received planning permission for. I know this sounds complex and obscure, but it demonstrates what Zoe were thinking about in terms of their ‘systems engineering’ point of view. They were motivated to do things like this and think in this fashion because they were client, builder and designer.

Now I want to make fully clear to all readers, that Liam Carroll had nothing to do with the above. He was bending himself over backways to build as many projects as he could, as fast as he could and didn’t give a constitutional f*** how we did it. But because we were playing the role of designer, client and building contractor, we were motivated to find efficiencies in the pipeline. We had no choice but to handle a huge burden of ongoing administration anyhow. But we tried to handle it in a way that didn’t create more work for ourselves than was absolutely necessary.

That didn’t mean that we cut any corners. But it did mean that we tried to work intelligently, seeing the whole process instead of only the small segments such as in a consultant and client arrangement. That is why I wrote about the ‘engine of Zoe development’ etc in the Designcomment blog entry about the Ford Cobra. I suggest, we can re-build a logic and an efficiency into the NAMA engine if we use our noodle fully. There are a number of the Zoe architects and engineers out of work currently who would be useful people to talk to. I was only there for two years myself, but their way of handling the administration work load was clever in many ways.

Brian O’ Hanlon

We get the digital survey done before design – its “frozen” and use same for all subsequent stages planning,tender,construction,legals,lade registry etc.

How mad is that ?

Those of you looking to read my concerns about NAMA might choose to look at the ‘Striking Out’ blog entry I made at Design Comment last night. That Ireland is putting an awful lot of its eggs, indeed all of its eggs into one basket. That is worrying to me.

I was going to paste the text in here, but decided not to, given that the anecdote about Zoe and land registry maps was pertinent to the discussion in some way. I didn’t want to lob another 400 lines into the thread!

Brian O’ Hanlon

@Cliff Barnes wrote:

We get the digital survey done before design – its “frozen” and use same for all subsequent stages planning,tender,construction,legals,lade registry etc.

How mad is that ?

Yeah, I was used to that system myself Cliff.

I couldn’t understand myself what Zoe were doing messing around with ordinance survey maps for the planning applications.

It seemed entirely illogical to me.

But if you accept the fact that the architect is trying to optimise their race over one mile, and the property developer is running a much longer race, I do believe that Zoe managed to claw back the apparent in-efficiency of doing the drawings twice on different surveys . . . . . later on, when they had to do three or four hundred individual legal maps to produce for the land registry.

We are going to be dealing with similar problems in relation to NAMA lands. That is really, why I posted the above example from my days at Zoe developments. To illustrate that sometimes what one thinks is efficient, in the long, long, long run . . . as in the case of NAMA for instance, may not be the case.

You are still entitled to your opinion Cliff, and either way, I probably would not argue.

But do bear in mind, the legal side of the process is not based on digital surveys.

(Don’t ask me why that is, I haven’t a clue)

Now that I think of it . . .

I think it was to do with the fact that Liam Carroll’s sites were made up of a maze of small plots all joined up together in a weird and Byzantine maze of legal agreements and clauses.

You see, sometimes Liam would buy the ‘airspace’ overhead existing shops and so on, and after construction was completed, give back the ground floor of the development to the original shop owners, with other add ons such as car spaces, a couple of apartments and so on. The deal was never, never straightforward.

That is why it made sense to stick to the ordinance survey for planning and legal stages of the pipeline. Even if it meant a lot of extra work, the waters did not get as muddy. You could say we were trying to avoid unnecessary overheads of time and money in court with solicitors being paid by everyone.

Even at that, we still did spend enough of time in the courts, with everything running smoothly.

I don’t know if that will apply to NAMA or not, but in certain cases it might. Especially where NAMA is attempting to make good on toxic assets by acquiring the right neighbouring properties and so forth to make the scheme viable.

I know that NAMA are promised some extra powers in that regard, which Liam Carroll would not have had access to.

But nevertheless, in common with Liam Carroll, NAMA still needs to get the best possible value back from investment in construction on behalf of the client, who is the taxpayer.

Not only in terms of overall project viability, but also in terms of project administration overhead.

That is the point I am trying to emphasize.

Brian O’ Hanlon

@garethace wrote:

There are a number of the Zoe architects and engineers out of work currently who would be useful people to talk to. I was only there for two years myself, but their way of handling the administration work load was clever in many ways.

In 1933 FDR declared a ‘Bank Holiday’ and closed all the banks for an audit by federal regulators and a number were closed down and the assets transferred to banks that were deemed strong enough to withstand the headwinds of the time.

Economists whilst acknowledging that this was the only course of action made one negative observation of this process; namely the ‘Knoweldge deficit’ which was created by breaking the direct linkage between the portfolio and the people managing the portfolio who better than anyone knew its strengths and weaknesses.

In the 1930’s case it was knowledge of the borrowers and who could be trusted and who couldn’t; whilst not saying there is more than a general principle there may be an angle in recruiting some of the more senior project and development managers from some of the larger firms so that their site specific knowledge can be retained. Coming fresh to any portfolio it takes time to develop a feel for the location specific challenges and opportunities.

I do think we have heard enough about Zoe developments; it was a phase that was a significant catalyst in the mid 1990’s. What is required is to get a strategic vision in place from the top down and maximise densities in areas proximate to the rail network; post interconnector there will be enhanced capacity on c50 linear miles of rail. In Cork there is the Mallow – Midleton Line; Limerick has the Ennis line and Galway Oranamore.

There is currently a glut of development land on and off market but there is also a strong industrial and services base; the key objective must be to use this downturn to plan sustainbly for the upturn which will come. The stuff that will inevitably end up in NAMA that scares me are the loans secured on land on the edge of small towns where no-one would ever buy except in the most over-heated of markets.

Taking the Irish Glass Bottle Site, yes the consortium paid over the odds for it but would the majority of Dubliner’s in a better market not pay over the odds to live at this location?

The priority must surely be to identify what schemes in appropriate locations are closest to completion and invest money in getting the product to market. If half built apartments are bought at a discount and then completed, funished and rented out surely the income yield from rent would more than exceed the finance cost which must be paid by the government whatever happens once the debt enters NAMA.

The idea of a €90bn property company with an almost soveriegn credit rating is exactly quite exciting in a lot of ways!

Economists whilst acknowledging that this was the only course of action made one negative observation of this process; namely the ‘Knoweldge deficit’ which was created by breaking the direct linkage between the portfolio and the people managing the portfolio who better than anyone knew its strengths and weaknesses.

This was the thing with Liam Carroll. He knew his portfolio backways. Even with the example of Dalymount park, a site that will potentially end up in NAMA. In that instance, Liam used no more than the change in his pocket to ‘test the waters’ and see how the local authority would react to his name alone being attached to the site in the form of some land deal. All he bought though was an option to buy. Like I said in the post above, developments where Liam was concerned were never straightforward.

I would strongly argue that in the case of Dalymount park, the local councillors made it un-economical for anyone to develop the site, with the Local Area Plan they introduced into law. That of course, was based on a false assumption that Carroll was the outright buyer. We will meet a lot of situations with NAMA, where we will have to go back to the drawing board again to come up with better schemes. In order to recognise the fact that now, we ourselves are effectively, the outright buyer. It is a kind of socialism in anything but the name.

I know NAMA will have powers to acquire land beside their sites etc. But in the past in Ireland we witnessed a time in which developers could be seen to have added some value to the process, by being the ones who made all of the deals, to acquire a site necessary to build on. It also meant of course, that the Irish government did not have to be seen, to be dealing with that sordid kind of stuff. We avoided any stigma of socialist type government intervention. We wanted to portray an image to the world of a country that was ‘free’ from socialism. That is probably why NAMA is not going to handle any of the deeds either. That would be a clear statement that private property was being socialised.

In the case of a lot of Dublin sites, I don’t think NAMA is getting the site nice, fresh and clean. If my experience working for Liam Carroll is anything to go by at all, what NAMA is getting is something that is a very complex set of relationships between interested parties. Take Cherrywood Science and Technology Park as a perfect example. With the local authority even ‘claiming’ a third of the land. How do we even begin to define what third is their third? That is the kind of legacy that Irish developers have left NAMA to deal with. That is why I don’t understand how 50 lads in the National Treasury Building are going to deal with it. They won’t be able to.

Brian O’ Hanlon

You see, this is the same point I was making to Kerry Bog late yesterday evening in the ‘Liam Carroll’ thread, about Economist professors and commentators (Constantin Gurdgiev, Pat Honohon, Morgan Kelly etc intelligent as they may be) who write articles and blogs about NAMA.

I expect, due to their lack of indepth knowledge of urban planning and development itself, they are all collectively as economic commentators going to make mistaken observations and suggestions. They are dealing with a subject that is not 100% native to their understanding of the world . . .

. . . . There has to be some trade off where the urban design view finishes and the economics view begins, or visa versa. If I was to get involved with NAMA, I hope it would be in some human resources or team building capacity to help to achieve a healthy balance. That will be crucial to how NAMA will work, or not.

While the economists may have a very good grasp on economic theory, much better than myself, they are a little bit out of their depth when it comes to land, development and urbanism. That is why I believe NAMA should be a mixture of people who know the urban development side of it and people such as Gurdgiev who know about economics.

Constantin Gurdgiev probably believes that the ‘deeds’ in question are straightforward. In my explanation writing above, I have gone to lengths to describe that the deeds are notoriously complex and Byzantine. To even attempt to transfer them over to some state organisation from where they now reside in development companies would be an exercise in sheer lunacy.

Transferring deed arrangements that Irish developers made (often verbally) with various interested parties is about a million times more difficult than what Roosevelt did in the 1930s with the banks assets. The bank assets though hard to fathom for the new owners of those assets are nothing like as hard to understand as deals made by Irish property developers.

This is the point that Irish economists such as Gurdgiev do not yet understand, and probably never will. I have a feeling though, that Peter Bacon who has been exposed to property development for decades has a fairly good idea of what I am talking about.

Brian O’ Hanlon

Gurdgiev in Irish Independent:

http://www.independent.ie/opinion/analysis/reasons-to-fear-trust-me-sales-pitch-on-836490bn-bet-1847596.html

@garethace wrote:

This was the thing with Liam Carroll. He knew his portfolio backways.

The large developers all do know their assets backwards.

To be highly sucessful you don’t need a large number of assets; take Paddy Kelly buying the Saratosa scheme in Florida for €47m in 2004

http://archives.tcm.ie/businesspost/2004/02/22/story580533292.asp

He could spot a bargain and if he had spent more time developing that scheme quickly and getting it to market a couple of years earlier he could have made mega bucks from that one project alone.

Other really good investments include Gareth Kelleher taking over the Chicago Spire which will reap the benefits of the rebound in US sentiment or Derek Quinlan buying into Paddington Basin in London which is securing a really impressive tenant line up against a lot of competition or Dermott Desmond buying and selling London City Airport not that DD would ever end up anywhere near NAMA.

Even the aptly names Chinese Real Estate Oportunities Fund spawned by Treasury Holdings to become one of the largest European funds active in China.

A lot of Irish people are very talented when it comes to Real Estate.

The problem came for some when they left their core business and played the stock market or were unlucky with their timing like Paddy Kelly with the Florida development where the local market collapsed around the time he needed serious unit sales; which would have been very easy to attain in say 16 of the past 20 years and probably 15 of the next 20 years.

@garethace wrote:

In the case of a lot of Dublin sites, I don’t think NAMA is getting the site nice fresh and clean. What NAMA is getting is something that is a very complex set of relationships between interested parties. Take Cherrywood Science and Technology Park as a perfect example. With the local authority even ‘claiming’ a third of the land. How do we even begin to define what third is their third? That is the kind of legacy that Irish developers have left NAMA with.

It is well known that Cherrywood was set up in the mid 1990’s as a joint venture beween Dunloe House, British Land and the local authority. The local authority have always been difficult on that site even with the previous owners where it is well known that the council objected to the Dell letting on technical grounds. Not being funny but how anyone can object to a deal with Dell; particularly as they were the hotest thing in computing at the time 10 years ago; I will never know.

But to move away from the past we need to look at the future and how the €90bn is going to be made back. It is certainly not going to be made unless an active asset management strategy is put into place.

1. Hiring staff from the key groups to fill the knoweldge deficit

2. Strategic planning based on key exisitng employment locations and existing transport corridors

3. Completing part complete developments at almost all locations and inject / guarantee construction finance to commence developments at locations identified in the strategic plan e.g. North Docklands, James’ St area proximate to Heuston

4. Maximising income from completed developments to offset NAMA interest costs; As rental values have held up remarkably well so the presumption must be that there is if product goes to market the potential to secure income and build credit histories for the tenancies in new properties under management to reduce the perceived risk profile.

5. Spinning off portfolio’s of performing assets to the investment markets either as REIT’s or individual assets; preferably the former in a phased fashion where a series of percentage based Initial Public Offerings would be made followed by a planned disposal of stakes over a period of time. There would be a strong appetite for above government debt returns from private investors chasing yield.

The principles driving NAMA should be more Temasek than Northern Rock; they should move with the economic cycle and ramp up production and disposals when the cycle permits and cut head count when demand falls. I doubt anyone predicts any further falls in demand; regardless of country of residence it will be a vry long time before any of us see a 24 months resembling July 2007 – July 2009

He could spot a bargain and if he had spent more time developing that scheme quickly and getting it to market a couple of years earlier he could have made mega bucks from that one project alone.

Well this is the thing isn’t it.

During the Celtic Tiger times, they didn’t only out stretch themselves in terms of credit obtained from the Irish banks. They also out stretched themselves too much, in terms of the attention they could give to every project they were stuck in.

Even the aptly names Chinese Real Estate Oportunities Fund spawned by Treasury Holdings to become one of the largest European funds active in China.

Agreed.

But China is on its way towards the same burn out as the Celtic Tiger. When China tanks it some time in the future, that is when the chill winds will really start blowing. Or maybe it will be an opportunity for countries who cannot compete with Chinese exports on the world market at the moment. I don’t know.

The problem came for some when they left their core business and played the stock market or were unlucky with their timing like Paddy Kelly with the Florida development where the local market collapsed around the time he needed serious unit sales; which would have been very easy to attain in say 16 of the past 20 years and probably 15 of the next 20 years.

Point taken.

Not being funny but how anyone can object to a deal with Dell; particularly as they were the hotest thing in computing at the time 10 years ago; I will never know.

Thanks for contributing that, I am glad that some else did. I am going to be always open to criticism of having a pro Liam Carroll bias in my attitude.

2. Strategic planning based on key exisitng employment locations and existing transport corridors

I will not claim any expertise there . . . simply not my area.

4. Maximising income from completed developments to offset NAMA interest costs; As rental values have held up remarkably well so the presumption must be that there is if product goes to market the potential to secure income and build credit histories for the tenancies in new properties under management to reduce the perceived risk profile.

Delighted you mention that one. I am all for innovation there.

5. Spinning off portfolio’s of performing assets to the investment markets either as REIT’s or individual assets; preferably the former in a phased fashion where a series of percentage based Initial Public Offerings would be made followed by a planned disposal of stakes over a period of time. There would be a strong appetite for above government debt returns from private investors chasing yield.

I am vaguely familiar with REIT’s. The Irish market definitely needs something like this going forward.

In some ways the NAMA process will be like floating Russia’s national oil industry assets into a new private economy. We all know how that turned out. In other ways the NAMA project, will be the opposite. It will be about placing assets into some national hold all.

In either direction we will need the best process to achieve the best returns.

The principles driving NAMA should be more Temasek than Northern Rock; they should move with the economic cycle and ramp up production and disposals when the cycle permits and cut head count when demand falls. I doubt anyone predicts any further falls in demand; regardless of country of residence it will be a vry long time before any of us see a 24 months resembling July 2007 – July 2009

A point well made and I hope so.

I heard some lady on Newstalk radio this morning telling Irish people they would all have to move to Africa to find work.

I turned the radio off.

Brian O’ Hanlon

@garethace wrote:

In some ways the NAMA process will be like floating Russia’s national oil industry assets into a new private economy. We all know how that turned out. In other ways the NAMA project, will be the opposite. It will be about placing assets into some national hold all.

Other than Liam Lawlor I doubt any of us would ever be able to adopt the Russian model culturally and in terms of governmental infrastructure we are simply too different.

Thankfully unlike Russia there is also the existance of a large, (over an economic cycle) solvent and educated middle class which comprises the majority of the population.

The key will be identifying what demand the demographic position can produce over a series of cycles and maximising value from what already exists to facilitate that process.

It is not rocket science to

1.Identify demand,

2.Complete half built units for the two years and rentalise where sales are not acheivable

3.Best placed units from the extensive landbank over the next three thereafter.

4. Have developments adjoining key infrastructure projects such as interconnector, Northern Line, Adamstown ready for delivery to coincide with the project.

The only way to realise the full value of NAMA will be to trade out of the postion over a 15 – 20 year timeframe. The sooner International markets see a detailed action plan the sooner the spread between NTMA bonds and Bund will shrink to the 50bps target and thereafter below; clearly that is something all want to see – throwing assets into a hold all to rot will not solve anything; conversely NAMA should

1. Hire senior investment and construction managers to repair the knowledge deficit as a lot of developers will be doing other things in the future

2. Immediately investing in completion of projects that have a viability taken on a land value of zero and renting those units out into the medium term until values recover or rental values rise year on year to produce an investment yield that creates value exceeding the total of all input prices and the return produced over the period by the risk free investment i.e. government bonds.

3. Extending finance to developers in Joint Ventures to develop schemes where demand clearly exists and where the land value’s NAMA paid the bank can be exceeded allowing a fair margin for both parties to receive a return to cover profit for the JV partner and a profit to be set against losses for NAMA on less viable projects.

@PVC King wrote:

I do think we have heard enough about Zoe developments;

yep

I appreciate the case you presented above. I know that someone has to put forward the case for NAMA. To articulate and show how it could work.

2. Immediately investing in completion of projects that have a viability taken on a land value of zero and renting those units out into the medium term until values recover or rental values rise year on year to produce an investment yield that creates value exceeding the total of all input prices and the return produced over the period by the risk free investment i.e. government bonds.

I can see that NAMA would be crucial to getting us around the present land valuation problems. Basically, at the moment there isn’t any sensible way to value land. No one could tell you what it is worth. Lets remember, that with Irish developers it was access to that one key commodity, land, which appeared to give them such tremendous bargaining or ‘strategic’ influence in business. That was the common perception of developers during the Celtic Tiger. That perception is what drove most of it. But it ensured that Irish developers relied too heavily on the factor of land being worth so much. They didn’t manage to extend their talents in other dimensions. I suppose that is a legacy of the corrupt political land game in Ireland. We only developed skills there, no where else.

I call it the ‘Bertie Factor’. It sort of bent economics out of shape. Now that key advantage has been taken away from developers, they are rendered powerless, or so it seems. It shouldn’t be that way. Developers should be able to add value in other dimensions other than having ‘the inside track’ in terms of access to the land commodity. Those dimensions were not exploited at all by Irish developers. They never learned how. One could argue that the current depression in the Irish property cycle, is a result of a false counter-perception. That developers who have lost the value of their land are now powerless. Yes, losing value to one’s land is a massive hit, but it should not render them entirely impotent either. Irish developers seem to be shell shocked at the moment. They seem unable to fight their way out of this, because the one dimension they understood, that of land value is not working for them anymore.

I always made the argument, that one has to add value to land by the way in which you do something on it. That is where I do get into such conflict with the architectural profession whose ideas of what you do on the land, and how you do it are different from mine. But then again, I have gone through different schools. I wrote something about my time developing industrial zoned land at Designcomment blog, entitled ‘Far Away Hills’, which I am quite proud of. I know it is written in somewhat colloquial terms, but I think it conveys the key points and my ideas about different ways to develop land. Personally, I didn’t see much point in someone who understood stone quarries becoming a house builder. But I might be wrong on that score too.

3. Extending finance to developers in Joint Ventures to develop schemes where demand clearly exists and where the land value’s NAMA paid the bank can be exceeded allowing a fair margin for both parties to receive a return to cover profit for the JV partner and a profit to be set against losses for NAMA on less viable projects.

I take your point about NAMA profits being set against less viable projects. For sure, Gerry McCaughey could see that potential even on the scale of a single scheme. Whereby the British government would allow you £60k stirling per S&A dwelling unit. Basically, the profit from the project was off setting the loss on the S&A units. Some builders were good enough at what they did, that they could still make it work.

Brian O’ Hanlon

–

Reality Bites

For my money the really important piece written in yesterday’s newspapers was by Dearbhail McDonald, Legal Editor of the Irish Independent newspaper.

A high-level working group yesterday called for a referendum on a new intermediate court that would act as a final court of appeal for all civil cases, unless they involve cases of major public or constitutional importance.

http://www.independent.ie/national-news/our-supreme-court-is-one-of-busiest-in-world-survey-finds-1854890.html

But attention was drawn by a radio interview this morning to Stephen Collins ‘Inside Politics’ in yesterdays Irish Times.

Sadly, the history of independent Ireland has proved that his confidence was misplaced. The dominating feature of Irish politics has been a short-sighted scramble to placate vested interests with public spending programmes that have regularly undermined national policy on almost every front, from health to industrial development.

http://www.irishtimes.com/newspaper/opinion/2009/0808/1224252236325.html

Certainly, there is a debate starting to emerge on the notion of ‘getting back to reality’. That is what ACC bank have been tremendously helpful in doing in Ireland.

But the only point I would like to make, is that we cannot get back to reality in Ireland, because there was never a great deal of reality to begin with. In my Designcomment blog entry about ‘Adding Value’ I refer to the price the Irish nation paid for its corrupt history in relation to land. It has had the impact, that now that the land dimension to ‘adding value’ has been extinguished, we are flat footed. We were a one trick pony.

Then in the Designcomment blog entry about ‘Paper Airplanes’ and ‘Far Away Hills’ I argue that the market was distorted by the Irish Taoiseach of ten years, Bertie Ahern. Ahern created an environment in which expertise and skill wasn’t valued so much as small time, opportunism – with a hint of Ponzi scheme-ing into the bargain. That is what made Ahern so popular for so long. The ‘little man’ could see he was harvesting the benefits of Ahern being in power.

In fact, in the end as I argued in ‘Far Away Hills’, even the big boys tried to be the little man in the end. With disasterous consequences, because the big boys really ‘organised’ production on a vast scale. When the little boys were making hay it wasn’t too toxic because they were only chipping away at a reduced scale. But when the big boys became the little men, it really became toxic for real.

Ireland is such a small island with such a small population density per acre, there is never going to be ‘reality’ in the sense that everyone craves for. We are going to have 2 no. major banking players and no more. We are going to always have ‘un-reality’ in the property market. But in reference to the Sunday Tribune article by Conor McMorrow:

‘There are known knowns. There are things we know that we know. There are known unknowns. That is to say, there are things that we now know we don’t know. But there are also unknown unknowns. There are things we do not know we don’t know. And then there is the future of Nama.”

http://www.tribune.ie/business/article/2009/aug/02/nama-the-known-unknowns-and-the-unknown-unknowns/

This aspect of Ireland and the market, the strange way in which it behaves should be a known known today. Ireland is the land of magic and make believe. We should understand what exactly did happen. Shane Ross was very descriptive in his explanation of it here:

Yet the men on the magic mushrooms are still pretending that a bankrupt bank should be lending millions to an insolvent builder for a headquarters they will never occupy.

http://www.independent.ie/business/irish/high-as-kites-on-nama-trip-1849287.html

We should not attempt to speculate. Now that this fantasy in relation to Anglo Irish bank has entered the domain of the ‘known knowns’ (something that was unsure when the government offered its guarantee to the banks last Autumn) we can use this knowledge to make a properly informed decision that Anglo Irish bank indeed has no future in this country. It’s only future potential way to source funding is through the Irish taxpayer.

That is why we do need a supreme court that is able to do it’s job. Rather than having to handle a case load of 200+ cases a year. We do need a referendum on the issue of an intermediary court in the land. In order to go forward and to progress.

The Liam Carroll case up coming is important to the social, political and economic well being of Ireland for the future. The fact it is being shoe horned in with 200+ other cases to me is the real problem. Companies such as Zoe developments know the legal system is broken. They know they can throw as many shapes, and blow as much smoke in everybodies face as they wish.

Because the fact is, the Irish people is about to accept €2.3 billion worth of Liam Carroll’s debts. But we will never get a faithful and correct transcript of what did happen between the banks and Carroll, in order for us to make a better decision in regards to NAMA going forward. We are working with an incomplete picture of the past, at best. Companies such as Zoe will do everything in their power to ensure it stays that way.

Brian O’ Hanlon

@garethace wrote:

You see, this is the same point I was making to Kerry Bog late yesterday evening in the ‘Liam Carroll’ thread, about Economist professors and commentators (Constantin Gurdgiev, Pat Honohon, Morgan Kelly etc intelligent as they may be) who write articles and blogs about NAMA.

Garethace,,
I’m putting this here as it is more appropriate. It is nonsense for O’Dalaigh to now , after the creation of NAMA, talk about what could/should have been done ; it wasn’t, we are stuck with what we have and we must make it work. What we need to do is to ensure it gets full support and both positive and negative criticism.

What O’Dalaigh has to say is on his site is interesting, with McWilliam-esque quotes, albeit to promote his book. From what I could read, (here in the vastness of my Kerry estate, my dongle is limited to dial-up speeds) I agree with O’D on many aspects, such as fiduciary duty (which I earlier wrote about as financial probity) and on the need to fire all senior lending bankers, which I also mentioned earlier in a comparison to the firing/retiring that happened when Insurance Corp. of Ireland failed.

Gurdgiev is an academic, free to say what he wants without toeing any party line, unlike economists from the IAVI or the financial institutions( a class of financial prostitutes). The merit of Gurdgiev’s freedom is counterbalanced by a lack of inside knowledge on what is taking place at a senior level in those institutions which forces (allows?) him to speculate on gossip, such as the rumoured acquisition of ACC by BoI/AIB. There are lots of bored underworked bankers out there with nothing to do but gossip, so speculation is rampant. Most is plain BS.

The notion that Ireland has just one bullet in its NAMA gun is both correct and very scary – the old shooting maxim of “Never hunt a bear with one bullet in your gun” comes to mind and Ireland is deep in the bush with lots of bears. For me, Scary Item No. 1 is that nobody yet knows anything of worth about NAMA. To date, never has so much been written by so many who knew so little. NAMA has to work, or Ireland Inc. is screwed for many generations. NAMA has to work, because it is the only hope we have, as we already are financially committed. The big question is how long it will take? The longer there is inactivity the closer the time to intervention by the IMF. It must be got right (not just launched) soon, and already it is months behind schedule. It cannot work in isolation; many other inputs are necessary to create an economic microclimate surrounding it.

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.

What needs to be done 2 – Rolling Heads
Heads need to roll. I’m not suggesting a bloodbath or a witch-hunt, but the level of incompetence shown by politicians, bankers and regulatory bodies is enormous. Even today, right now, imagine any CEO & top management of a business deep in the organic fertilizer going off on several weeks holidays ? If the Opposition and minority party were any good they would be in Kildare St NOW and shouting ‘Where is everyone?’ Bertie can say goodbye to the Park (which is why Mammy O’Rourke is sniping away and yapping at every opportunity), Cowan should go; he, (like Noonan was) is a nonentity, no vision, out of his depth and there only because of popularity within his party. Bankers – where rules/probity/fiduciary duty have been broken they should be fired. A board approves lending guidelines, a credit committee signs off on them and an audit committee monitors them. What in God’s name was happening at Anglo? BoI? AIB? Nationwide? ILP? Regulator – I do not buy the story that Neary knew nothing. Banks of necessity have recordings of key telephone conversations. There are minutes of meetings. Where are they? Have they been demanded? Are they under lock and key? Have they been wiped/shredded? How complicit were/are the Regulators & government in a cover-up? (“Ssssh, it’s in the National Interest.”)

What needs to be done 3 – Triage
NAMA needs to assess the developer and construction sector like a battlefield medic, sorting the victims into leave to die, leave aside for non-urgent treatment and those needing immediate attention to survive their wounds. Somewhere you wrote suggesting bulldozing some developments was overkill. I disagree; here in Kerry many villages have large numbers of new houses either part-built or finished and unoccupied. There is no local village industry other than declining tourism, so no employment. Often badly sited, too frequently badly built, no one wants to buy those properties or can get the money to do so; an option of a co.co. buying them exists, but who can rent them, with no local employment or transport to a bigger town? (Q. ‘What time is the next bus to Killarney?’ A. ‘Next June. Sir.’) Leave them and they will become a blight, spray painted ghettos, playgrounds for unemployed teenagers. Leave those that are roofed, bulldoze the rest.

What needs to be done 4 – Foreign Banks
The most foolish mistakes are made by new market arrivals. British banks and insurers are the worst – (‘We’ll show Paddy how it is done by professionals’) – and they bugger about and create havoc with the market. Back in the late 80’s when Barclays entered it did exactly that, before retiring bloodied and bruised to wholesale banking in the IFSC. Foreign banks led the way on crazy lending, joined by bonus-hungry unethical lenders in Irish institutions. We have too many banks. The govt. should state that the govt. guarantee to foreign banks will expire now, existing deposits at today’s date being covered..

What needs to be done 4 – Debt management.
NAMA must actively manage its portfolio and while it needs input from experts many of those are strongly tainted and probably to sharp for public servants. Outside help should be hired on contract with non-compete clauses. Banks must not be allowed roll-up interest without permission from the Regulator and must actively pursue delinquent developers (which is what ACC is doing.)

Loans with breaches of covenants should be called and guarantees enforced. The difficulty – and it should not be underestimated from a timescale perspective – is the corporate structure of the developer groups. Most have entities with ‘unlimited’ status but invariably the ultimate holding company is limited. A softer approach on personal guarantees should be taken with those who cooperate, make full disclosure, etc.

What needs to be done 5 – Public Service
Public servants have taken to describing themselves as ‘managers’ and now delegate everything to consultants who often provide the politically required result, not necessarily the correct one, nor the one the consultants believe to be the most effective. Public servants should do what they are paid to do – work. No more consultancy reports without a definite and publicised reason as to why public servants cannot produce them. We cannot afford the existing number of local authorities. Merge them, three would be enough Connaught/Ulster; Leinster; Munster. Cut the staff as part of the process. The average number of ‘Sick days’ per employee in every Govt Department should be displayed on all that Dept’s correspondence.

What needs to be done 6 – Redundancy payments
Redundancy payment should be capped at 6 weeks per year to a maximum of one and a half year’s salary, for everone, public servants, bankers, etc. How Neary was treated after the total mess he made of supervision makes me want to puke.

What needs to be done – construction professionals
We have enough office space and residential units to keep us going for a few years. We need to export jobs or import services – i.e. lose some professionals to work overseas and those who remain will have to develop an export business to survive. Tough, but that’s life, lots of us had to do it in the 80’s.

Rs
K

@PVC King wrote:

The principles driving NAMA should be more Temasek than Northern Rock;

I agree fully, I’ve long admired the Singaporean model. However, with personal experience of Temasek and public servants in both Ireland and Singapore our guys would just not measure up to what Temasek does. Not a hope.
Rs
K.

Of course, it is not really in China’s interest to stop the scheme, even if it wanted to, because its own economy would likewise blow up. Satyajit Das, a credit derivatives expert in Australia, likens this to stepping on one of those land mines that are activated by the weight of a victim’s body. As soon as the weight is lifted, the mine explodes, and the person’s leg is blown off.

China is thus frozen in place, damned if it does and damned if it doesn’t. It’s a classic Catch-22. China’s cache of U.S. bonds isn’t worth anything unless the bonds are sold. But selling them on any kind of scale will gut their value.

how does this relate to nama? should the value be 0 until they are sold?

The big question is how long it will take? The longer there is inactivity the closer the time to intervention by the IMF.

Nice way of putting it. The dogs are at the door quite literally. I think it is a real pity the intermediary court of appeal isn’t up and running. It would offer a very useful service to the Irish recovery strategy. It would enable us to sort out the companies who really created terrible example for business as a whole in Ireland. That element will not be a part of this recovery in Ireland, more is the pity.

So it means that many companies will go into the next upturn, not being fully equipped in terms of corporate morals. It is a younger bunch we will be sending out the next time too, who would have benefitted enormously from the added back bone in their boot camp training. I hope that the universities and business colleges at least can take up some of the slack here.

I sometimes wonder what were we doing during the Celtic Tiger, when we had all of the money in the system to tackle a number of key things such as that. Things that would help us out enormously today. It seems like Ireland Inc. is scrambling to dry land, on a number of fronts, while still battling against a raging torrent of bad chance. (A perfect storm in the case of many Irish builders)

A quite elderly friend of mine raised a point not so long ago. That Ireland should have been taxing itself more when it had the money. In order to be able to tax ourselves less, to give ourselves some breathing space now that we are drifting at sea again.

It must be got right (not just launched) soon, and already it is months behind schedule. It cannot work in isolation; many other inputs are necessary to create an economic microclimate surrounding it.

I think myself – and I would love to spend my time poking holes in NAMA, and analsing its obvious weaknesses – this is the kind of program management view we need to take today. We need to stay somewhat on program.

Even today, right now, imagine any CEO & top management of a business deep in the organic fertilizer going off on several weeks holidays ?

You are right, I can’t imagine it.

What in God’s name was happening at Anglo? BoI? AIB? Nationwide? ILP? Regulator – I do not buy the story that Neary knew nothing.

I can tell you when I knew there was something strange afoot. I hadn’t been watching too much news, or reading too many papers at that stage. Last September 2008, I were sitting on the top floor at Debenhams in Henry Street eating some lunch, while gazing out at the crowds streaming up from the Ha’penny bridge. There were a lot of people on the street that day all going about their business. It is a funny thing, I managed to pick out one of the financial directors from Zoe in the crowd from a mile away. I knew he had the inside view of what was going on. He begged for all the cheques that he received from Liam Carroll.

But on that day, he was easy to pick out of the crowd, because the sheer stress had become part of his stride, part of his own body. He seemed to have aged twenty years all of a sudden. It was frightening to be honest. There I was sitting up in the top floor of a building, and I could pick out easily the one guy down there who could see it all collapsing. He was probably thinking about his own reputation and his future career. He was far too young to be caught in this mess. I don’t know. I said it to him later on that day, to relax, he looked very tense. He was doing the best he could to cope, but I knew he had reached the end of his patience with everyone he was dealing with.

NAMA must actively manage its portfolio and while it needs input from experts many of those are strongly tainted and probably too sharp for public servants.

I wouldn’t want them to be my public servants at all. But then again, there is no point in our public service wasting another 2 years trying to figure out the ropes, while the time is against us. A difficult balance will have to be struck between existing knowledge of how the building system work(ed) and introducing a fresh layer of over-see-er’s who are competent enough and confident. Hopefully we will see fresh new talents emerge from all of this, who will be able to lead the way into the future. Bearing in mind though, whoever deals with the ‘toxic material’ is going to be exposed to an unknown degree of sleeze and rubbish, not meant for human consumption.

Peter Bacon should have made a ‘Y’ for that factor in his NAMA report, to go with the ‘X’ factor in relation to the haircut needed for NAMA to take possession of loans.

Chances are, out of the rescue-ers at NAMA we will probably see the next Charles J. Haughey arise, who knows every trick in the book. That is part of my motivation for wanting some of the older, existing players to be supervised and paid to go in and sort out the toxic waste. I would like to get involved in some capacity there. We simply cannot afford to expose some of our brightest and best (a club which I never claim membership of) to some of what will be uncovered. It is too risky. The toxicity levels are simply too high. We have to do more than Russia did with Chernobyl: they gave guys a shovel and an ID badge.

Public servants have taken to describing themselves as ‘managers’ and now delegate everything to consultants who often provide the politically required result, not necessarily the correct one, nor the one the consultants believe to be the most effective. Public servants should do what they are paid to do – work. No more consultancy reports without a definite and publicised reason as to why public servants cannot produce them.

I agree.

The OPW being a prime example. The OPW needs to work. I used to meet my friend who works in St. Stephen’s Green OPW at Stillorgan for lunch on a regular basis. Driving to Stillorgan for lunch time. Now if that isn’t ‘fifty years ago’ I don’t know what is.

Or else what is the OPW doing there? I know it pays out wads of fees to consultant architects and engineers who proceed to squander the money in the state’s coffers. I wouldn’t mind, but the OPW have some of the best trained staff in the entire country. Doing nothing except creating Bebo sites. We have backed our public service into a complete corner as regards to their being able to contribute to society and to the economy. It is all bullshit.

We cannot afford the existing number of local authorities. Merge them, three would be enough Connaught/Ulster; Leinster; Munster. Cut the staff as part of the process. The average number of ‘Sick days’ per employee in every Govt Department should be displayed on all that Dept’s correspondence.

It is the building professions in my experience are the most to blame. They have wrapped up this cosy little deal between themselves and the Irish state very nicely. Yes it makes the professions viable, but it doesn’t make any economic sense for the Irish state. It doesn’t make economic sense for the professions anymore either. Because the State will not have any money left to pay them after NAMA gets started up.

So all bets are off. Until the private sector of the economy which has shrunk down to a third of what it was (Irish Stock Exchange fell from 66 billion in value down to 20 something billion, losing 44 billion in the process) is able to recover, the public service cannot expect to return to it’s business as usual. I hope it will never again return to it’s business as usual either.

How Neary was treated after the total mess he made of supervision makes me want to puke.

I’m sorry I didn’t follow that story at the time, but I will take your word for it.

We have enough office space and residential units to keep us going for a few years. We need to export jobs or import services – i.e. lose some professionals to work overseas and those who remain will have to develop an export business to survive. Tough, but that’s life, lots of us had to do it in the 80’s.

I think the existing model for construction professionals was un-sustainable long before the crash had finally occured. I still believe we need some projects to go ahead. They only get more expensive as we delay building them. That is a fact. Think about all of the underground line that the Irish pony boys built over in London of the sixties. Yeah, it was before a lot of mechanisation and technology. It happened slow and on/off. But it did happen.

We can wait another 20 years in Ireland to do certain projects, that are going to be needed by then anyway. It is going to cost us an arm and a leg to bring back everyone and grow the industry necessary to support certain project undertakings. We have that industry in Ireland now, that is one of the few benefits of the Celtic Tiger. I agree with you, develop an export model and send our industry on foreign contracts, where speed, ability and quality is required. We can compete anywhere in the world. But in the meantime, lets do a couple of the most needed projects in Ireland and finish them out.

By the time 20 years passes and we are on stronger economic footing, we will need to be paying down what is left of the NAMA project. Clearing that debt for good. So it would be a pity in 20 years time, if we had to pump massive amounts in one short period into necessary projects for the good of the country. When I believe, we could be planning and going ahead with them now, at a much cheaper albeit much slower rate. You are right, the export orientation is the way to go. But a balance will need to be struck with national needs too.

The problem in the Celtic Tiger was the ‘big things’ didn’t happen. Because for 10 years that clown Bertie Ahern made the environment such that it was more profitable for all the big men to behave like little men. I worked with some of the best project managers we have in this country (not at Zoe, Zoe didn’t have any of those kinds of men) and they were reduced to flogging off two storey houses to make a few bob. It was way beneath what there capabilities are.

There was nothing happening for them on a larger scale that they could manage and use the skills they were born with. Then the little men, (such as Zoe developments) got all sorts of notions above their station and went off building shopping centres etc without a bull’s clue.

Now that does make me want to puke.

There is nothing wrong with being a small man, like Zoe developments were very good at doing, if you stick to that. That is why I made my blog entry about the Ford Cobra. But to try and go after the big stuff, and believe you can do it, because of some s**** about your being the ‘Ryan Air’ of the construction industry, is completely off the rocker.

You are absolutely right in your analysis. Liam Carroll drove a second hand Japanese car. So what? He ran the best [little] company ever created in this country into the ground, and didn’t give a damn for the men and women who had served him in what capacity they could for 20+ years.

Enough said. It feels good to be awake now, finally.

Brian O’ Hanlon

Something in today’s Independent newspaper about the department of Finance.

The creation of NAMA is another, even more spectacular example, which saw Peter Bacon tasked with the job of saving the country.

http://www.independent.ie/business/irish/department-of-finance-has-to-stop-outsourcing-its-thinking-1855531.html

Dearbhail McDonald, Legal Editor in today’s Independent newspaper:

“The NAMA bill introduces sweeping changes to legal practice in the areas of litigation, corporate recovery, banking/security and property law,” said Mark Woodcock, head of corporate restructuring and insolvency at law firm McDowell Purcell. “It appears to attempt to greatly facilitate the daunting task facing the agency.

http://www.independent.ie/business/irish/nama-to-be-protected-from-raft-of-lawsuits-1855532.html

Brian O’ Hanlon

Step back and see the wood for the trees. Would anyone agree that all this talk of Nama is irrelevant in any medium term outlook. Our era of cheap credit, where ‘Growth’ was predicated on increasing oil production is over, Oil production has peaked and now we are on the down side. In a contracting economy, asset prices will further devalue. Are we not best to abandon the illusion of growth? We need to resist the impulse to continue this charade untill the foretold impending recovery, which in actuality is likely to be a mere ‘dead cat bounce’. The 4 horsemen of the Apocalypse; Peak oil, climate change, groundwater polution and limits to growth will define the next half century. The collapse of our speculative land market and its associated equity’s is only the harbinger of the challenges ahead. We need to adress new problems with new solutions, not the mindset that created this problem. To say that we will never see a period as bleak as 2007-2009 is laughable. Before the decade is out we will wish that things were merely this bad. Our economic and political experts know only 2 approaches, 2 forward gears, Keynes and Smith, they fast need to learn Descent economics (de-growth).

Faq’s Some department of finance propaganda.

http://nama.ie/Publications/2009/NAMAFAQs.pdf

Nama and planning.

http://www.irisheconomy.ie/wp-content/uploads/NAMA%20and%20Better%20Planning.pdf

Keating,

Yes, we do need to stand back. I agree with you. The whole NAMA project, as large and all as we imagine it to be, is contained within a much, much larger picture which you properly point out.

I hope your kinds of brains are on board with NAMA. I really do indeed. It is not really my department. I am most comfortable down at the other ends, where the plumbers, brick layers and electricians do their stuff. I have their interests in the back of my mind most often. Like I have said elsewhere, to maintain and manage a tidy and efficient production line. But from time to time, I do raise my head above all of that.

Reinventing Collapse

Feasta had invited Dmitry Orlov, author of Reinventing Collapse to speak at their conference this year.

http://cluborlov.blogspot.com/2009/06/definancialisation-deglobalisation.html

I read some of the transcript of his lecture to Feasta. I had to say, I found his points very useful indeed in my only [small] life where I converse on a regular basis with other simple folk such as plumbers and electricians. I found Orlov’s arguments excellent in conveying to other partners in the construction industry, what our collective future may indeed look like.

Particularly in relation to the points about peak oil and peak credit. I think that Orlov wraps them together quite interestingly in his writing.

Thanks for raising this point and making the contribution. I don’t know if Archiseek already has a National Spatial Strategy thread, but in any case, I began one for general comment or contributions here:

https://archiseek.com/content/showthread.php?t=7765

My real 4 horsemen of the Apocalypse are:

– Better education for architects about Energy Conservation and Energy generation. Architects need to get informed when it comes to energy. To achieve the most efficient expenditure of scarce available capital, a deal will need to be struck between services engineers and architects. In many cases, a more efficient boiler, though it might not last as long as a less efficient boiler, will be a lot cheaper than energy conservation measures that are purely about walls and architectural stuff. I am all for passive design, but lets be realistic in terms of investment.

– Better education for architects about the Smarter Economy, much like a generator in its own right. I look forward to the day when Sean O’Laoire writes his blog about the workshop he attended with Frank Duffy of DEGW consultants in the UK.

– Much better education for architects in relation to urban land economics, and therefore of smarter and more intelligent planning coming from them.

– Better education for architects in efficient use of the scarse capital we do have available, such as the skill displayed by Turner and Townsend program management consultants to Dublin Airport Authority.

Education for Architects

In short, education (of architects in particular) is a big part of the solution I describe. There will be work for a lot of architects. We need to change the way we go about our business though. Architects in the future will be able to communicate better which a much wider spectrum of other educated individuals and groups. That will enable architects to move deeper in business itself, and probably into government or politics also. I think that was the basic program that Sean O’Laoire tried to bring to light twenty years ago or more. It would be nice to see some of that come to bear fruit.

Brian O’ Hanlon

@wearnicehats wrote:

From the Bill:

NAMA not required to register certain instruments, etc.
84.—(1) Where a bank asset has been acquired by NAMA or a NAMA group entity—
(a) notwithstanding anything in the Bills of Sale (Ireland) Acts 1879 and 1883, the
Industrial and Commercial Property (Protection) Act 1927, the Agricultural
Credit Act 1978, the Companies Act 1963, the Registration of Deeds and Title
Acts 1964 and 2006, the Patents Act 1992, the Trade Marks Act 1996, the Taxes
Consolidation Act 1997 or any other Act, that provides for the registration of
assets, security or details of them, NAMA is not required to become registered
as owner of any security that is part of the bank asset,
(b) notwithstanding sections 62 and 64 of the Registration of Title Act 1964,
NAMA has, in relation to any such charge, the powers of a mortgagee under a
mortgage by deed, even though NAMA or the NAMA group entity concerned is
not registered as owner of any such charge,
(c) NAMA has the powers and rights conferred on the registered owner of a charge
by the Registration of Title Act 1964.

My reading of this is that NAMA are taking over the loans as banks normally would ie they are taking over and managing the risk. In that case the deeds remain held by whoever holds them under the terms of the original loan. If the loan is defaulted then NAMA will act as if it is the original lender to secure the loan based upon its terms. Presumably then the deeds pass to NAMA? maybe it’s just a way of reducing the paperwork

or I could be talking bollocks

I’m not a lawyer so I’m open to correction.
Deeds show who owns an asset, charges show the extent of the financial interest somebody has in an asset..NAMA it appears will be able to take ownership of both without having to register its interests as owner and/or mortgagee.

It actually makes sense to me – NAMA just steps into the shoes of the lending bank on the same terms and conditions and with the same rights that currently exist on a mortgage. It also can take title, if done amicably, or go to the courts to foreclose on a mortgage. It is not clear if NAMA effectively becomes a silent partner, pulling the strings that make the bank act as directed or if NAMA will take over the actual management of the account themselves – I’d hope it is deliberately open to allow them the option to do what suits.

No harm in non-registry as an owner or mortgage holder, but some benefits would acccrue – no additional paperwork (requisitions on title, certs, etc.,) no tax or stamp duty liabilities on acquisition or transfer. On the sale of the asset nobody would know whether or not it was a NAMA /developer or a bank sale, which could make a difference to price negotiations. Clauses (b) and (c) copper-fasten NAMA’s rights contained in the above.

In the unlikely event of second bank lending on an above-described asset, there is no difference either, as the first charge held by the original bank is one and the same as the unregistered rights of NAMA and the new lender’s charge would, as anticipated, become a second charge.

Rs
K.

Deeds show who owns an asset, charges show the extent of the financial interest somebody has in an asset..NAMA it appears will be able to take ownership of both without having to register its interests as owner and/or mortgagee.

There is a crucial aspect we need to remember in relation to the Celtic Tiger development boom. That many borrowers were using their lands as a collateral with which to obtain loans for development, or to buy more land. Of course, those developments and land deals ‘forward’ from the collateral land went bad also. When things became difficult or impossible to ‘value’ the whole lot became poisoned at once. The good and the bad. We have no idea of what is what any longer. There was a vicious circular kind of habit surrounding land that gained popularity in Ireland. I think it happened with the Dutch Tulip mania too, where people were buying shares in the Tulip bulb. That is basically why Irish banks cannot raise any finance today. It is no coincidence at all that a Dutch owned bank can see things a lot more clearly than we can see ourselves.

Where land is concerned, especially land on rail lines, roads, on the out skirts of towns etc. Mostly its only purpose was to use as collateral in obtaining finance. As the ‘value’ of that collateral increased you were on a winning streak. Every so often one could extend one’s credit line that little bit further if your land was re-valued upwards. Of course, when the land was de-valued downwards the credit contraction that happened domestically on this island was savage in it’s nature. It must be akin to the storm that hit Long Term Capital Management bank in the 1990s when the sea changed against it.

While a lot of that ‘strategically located’ land appears to be nice from a sustainable development point of view. Say, when an architect or planner looks at where we aught to build. The big problem is, exactly that land is the most toxic in terms of trying to untangle it and release it back into the private portion of the economy. Either as ‘land’ or with some form of development on it. It has been messed up beyond recognition. It wasn’t that builders ever wished to ‘build’ on these strategic land banks as I call them. They were the apple of most builder’s eyes. They were so beautiful the builders would go to their graves without so much as touching a sod on the land. The land bank was their life line to securing credit. If you didn’t have the credit, you were out of business.

The land banks was much more useful by not been occupied or developed, as you could place multiple ‘charges’ on it with various Irish and foreign lending companies. The fact is that, all of that toxicity has now to be un-wound over a period of time. Time is something that Ireland doesn’t have enough of right now. This is what I think is one of the key strength’s of the NAMA idea. NAMA will give us the time we need to figure out how we can unwind these positions in some kind of an orderly manner over a longer period of time. It is like one poster commented about the China purchase of US government bonds. If it releases the bonds on to the open market, the market will collapse. NAMA has to figure out a way to do it that will not precipitate a huge and sudden collapse. It is like that kid’s game where you pull out all of the pins, and eventually all of the balls come tumbling down.

Worse than the above of course, is that in certain circumstances the land was in the hands of joint venture partnerships, where one partner obtained additional charges on the land unknown to the other party. So if a charge can be defined as the ‘extent of the financial interest someone has in an asset’, then you can imagine how difficult it is to understand the extent of the financial interest in an asset, which is part of a joint venture partnership! As builders backs were against the wall towards the end of the Celtic Tiger there was enormous pressure upon them to grasp at any kind of straw at all, to extend their life span. I would submit that most of the real toxicity was created in the closing chapters of the Celtic Tiger. As builders struggled to artificially ‘support’ their interest in a land bank with more credit extension and thereby stay in business.

What we don’t know is how much of the above, has been uploaded onto financial markets in some kind of instrument there also. Then throw into the mix, the fact that the original land might be a confused set of legal agreements between partners who gave in the original deeds to make up the ‘landbank’. The mind simply boggles, it is like molecular biology. This is why ‘land taxation’ is so valuable – it is worth all our whiles paying a €600 fee per year – because it avoids much of the above. With little young turks over extending themselves in all kinds of weird directions, in order to own land or become a stakeholder in land in some way. Because we had no form of taxation on land in Ireland, all of this house of cards was possible to build. No one’s hands were burned by owning land. Land it was assumed, was safe. That was inbuilt into the Irish psyche. We never thought that something so close to our hearts would jump up and bite us.

It actually makes sense to me – NAMA just steps into the shoes of the lending bank on the same terms and conditions and with the same rights that currently exist on a mortgage. It also can take title, if done amicably, or go to the courts to foreclose on a mortgage. It is not clear if NAMA effectively becomes a silent partner, pulling the strings that make the bank act as directed or if NAMA will take over the actual management of the account themselves – I’d hope it is deliberately open to allow them the option to do what suits.

Speaking with a lot of people in the trade, I do get the impression that certain builders were more opaque in their dealings with their creditors than others. I do get the impression that those projects, where the main contractor plainly said to those involved and affected, the spout has ‘run dry’ are probably those projects which are not ‘toxic’ in any real sense, except that they are in limbo as a result of the credit flow problems.

We can debate at great length as to whether the credit problems are the result of only international turmoil – as the government understood the case to be last Autumn when the offered their guarantee to depositors – or whether many credit problems stem from domestic mal-practice in Irish companies who simply owe too much, they will never repay. That is a debate within itself. But what isn’t in much debate judging by the people I have spoken to, is that some projects could simply be started in the morning and progress without too much difficulty.

The point you make about NAMA requiring to have a number of options open to them, is a very good point indeed.

Brian O’ Hanlon

@garethace wrote:

………….It is no coincidence at all that a Dutch owned bank can see things a lot more clearly than we can see ourselves.

The conspiracy theory people would say that the Irish banks are doing what they are being told by the Dept of Finance and the foreign banks are outside that fold.

@garethace wrote:

……..Every so often one could extend one’s credit line that little bit further if your land was re-valued upwards.

That happened. It should have stopped when developers could not meet repayments and the banks then started to re-appraised upwards the land value to enable the developers remain within their loan covenant ratios. Inevitably the new credit was used to finance debt, not work. That was the start of the cancer.

@garethace wrote:

………..It wasn’t that builders ever wished to ‘build’ on these strategic land banks as I call them. They were the apple of most builder’s eyes. The big problem is, exactly that land is the most toxic in terms of trying to untangle it

No. Those land banks were the equivalent of ‘raw material in stock’, the basis for production next month/year/whenever. Fine, as long as they were not a depreciating asset. I dislike the word “toxic” in this meaning. Those land banks have a value, albeit at a lower level. Toxic is a word seized on by tabloid journalists because it sounds nasty. Correctly it refers to the securitized mortgage bundles on people who are jobless and have no hope ever of making repayments. Thankfully, Irish banks have little exposure to them.

@garethace wrote:

………… in certain circumstances the land was in the hands of joint venture partnerships, where one partner obtained additional charges on the land unknown to the other party.

I don’t see how this could have happened and if it did, one would have a very difficult task proving legality. Joint ventures invariably require joint signatures; charges must be registered and therefore are public. If Bank A has a charge on a site and Bank B lends on a secured basis, it registers its charge which becomes a second charge, unless Bank A agrees to it becoming a joint first charge on a parri passu basis, an event that usually is unlikely.

@garethace wrote:

…………. certain builders were more opaque in their dealings with their creditors than others.

Yes, that is why I said in an earlier post Ireland Inc needs to be stricter on the laws governing unlimited company status. Apart from the banks, it would have been helpful if many suppliers – including architects, engineers and QS’s – had a modicum of cop and basic credit control procedures. From what I’ve seen few of them did.

@garethace wrote:

……….We can debate at great length as to whether the credit problems are the result of only international turmoil – as the government understood the case to be last Autumn when the offered their guarantee to depositors – or whether many credit problems stem from domestic mal-practice ………

We had a property bubble. It cracked and in the scale of things it could have been repaired, with some pain. This was the expected so-called “soft landing.” However, the crack coincided with turmoil in money markets caused by the CDOs scandal in the US. That dried up liquidity. Then the world learned about the shenanigans at Anglo, Nationwide, ILP, etc., and very lax (or absence of?) Regulatory control. This was not long after the stink internationally over what happened in the IFSC on Parmalat and the German Landesbanks, so Ireland was not a place anyone could recommend lending into, thus Irish banks could not get cash and the taxpayer had to put its head on the block.
Rs
K.

No. Those land banks were the equivalent of ‘raw material in stock’, the basis for production next month/year/whenever.

I mean, if the above was true, then look at middle tier property developers in Ireland. The middle tier development area is where the real skills are to be found surprisingly enough. The reason being, that many of those guys had quite successful and lengthy careers as professionals and consultants before they got into the property game late.

Bucket of Nails

The guys who started with the bucket of nails and a tin of paint made it to the first division yes. But they hadn’t an opportunity to learn and improve their minds, while fighting their way up through the leagues.

To the best of my knowledge the middle tier developers didn’t make the same monstrous mistakes either with regard to land. In fact, they operated on a different model whereby they disposed of land with planning permission attached for quite extensive developments. That is how they made their cut. Rather than wading in the whole way and ending up with unsold houses.

You could say they were like Japanese car makers, they needed less raw material and operated on smaller lots. Or even more accurate, they were like Nike who designed the runner shoe and got it made somewhere else.

Irish Towns

Of course, rarely were the schemes they gained permission for ever realized. There are thousands of them. You can check in the planning departments if you like. The Irish construction industry was getting efficient by 2006 certainly. But it wasn’t good enough to munch its way through a fraction of what was granted permission.

That was part of the point that Paul Keogh made remember in his essay about sustainable land development. That zoning in many Irish towns is much larger than what the tiny population could support.

It might be of interest to know that the architectural profession operates on a similar model. The successful architectural practices are successful and profitable because they never build anything. They get paid to come up with designs. They would rather they took something to planning stage and never heard or saw it again.

That is how the middle tier property developers made their turnover. They never laid a single brick often.

Making Masterplans

A lot of first division developers had ‘access’ to thousands of acres of land. But had not even got a developed stage masterplan for one tenth of it. Architects cost money. On the other hand, the middle tier developers had maybe 100 acres on the edge of a town somewhere, and a fully developed masterplan up to full planning permission grant approval stage.

But their plan wasn’t to hold onto the land for long. Only long enough, to sell to someone else with PP.

You see the difference? Different skills entirely. I would like to maintain the ‘classical economics’ position that land is a ‘raw material in stock’? I really wish it were so simple.

Owning IP

Intellectual property for instance is the best kind of property to own. You can sell it as many times as you like but you never give it away. (Within a 25 year period at least, but large media companies want to own Mickey Mouse and Donald Duck for ever)

You see a lot of fabless silicon chip companies today. Intel are one of the few left in the business who own and run their own fabs, while still designing the chips. But that model is getting tired also.

Classical Economics View

Sure land was a raw material in the neat theoretic sense of it. But the trick was to try and build on it in such a way that one did not sell the land, but earned as much rent as one possibly could with as little tenant administration or servicing as one possibly could.

Get the local authority to build and take charge, free of charge, as much of the basic civil infrastructure as one could. The developers didn’t want to build any roads. That is the only reason why local authorities were even tolerated and allowed to become joint venture partners. The local authorities thought it was to do with their ‘having a say’. Some hope.

Let the rabbits live on it

In a lot of cases, it was easier if you could hold out and not build on or touch the land at all. You will see the local authority kept their end of the bargain by laying the road and infrastructure. That is about it.

Building on the land and selling solved a minor cashflow problem today. But it didn’t solve anything tomorrow. Whereas holding onto the land and allowing lenders to take a charge against it, left you with a lot more options in the medium term. Even if you ended up losing the entire landbank eventually.

In the meantime, by not developing it, it was helping to keep you solvent. It bought you precious time, which struggling Irish builders badly needed towards the end of the Celtic Tiger.

Every 10 years or so the staff in the local authority would roll over and a new fad would emerge. Something like the ‘low carbon city’, so that planning directors could go to conferences and make a speech about some great new idea.

Still the land bank sat there and rabbits thrived in the weeds and long grass. Pheasant shooting was available in the more wooded areas and un-claimed horse populations roamed the plains. Architects went on making sketches to visualise even more ambitious plans in full pixel perfect photo representations.

Land Taxation

Land tax would put a stop to builders doing that. We could use profit from developing central and strategic land banks in order to offset the losses in the NAMA portfolio in locations where use reverts to agricultural. I would disagree. I believe we should take the hit up front where it reverts to agricultural values.

But then use the profits which NAMA can generate in order to ‘buy out’ any joint venture partners, legal deed interests or other charges against ‘abused’ land banks that are in the prime and sustainable development locations.

You would have to work with developers on a daily basis for a number of years to know how capable they are of ruining a perfectly good asset with all kinds of messing.

But in some cases unfortunately, like a true Ponzi scheme of things, the scandalous complexity of ownership and legal rights associated with our land banks may have began with the third last previous ‘owner’ of the lands.

But heck, you know we can agree to disagree on this little item. It can only make it more interesting. I think we are working towards a common understanding on most other fronts.

We had a property bubble. It cracked and in the scale of things it could have been repaired, with some pain. This was the expected so-called “soft landing.” However, the crack coincided with turmoil in money markets caused by the CDOs scandal in the US. That dried up liquidity. Then the world learned about the shenanigans at Anglo, Nationwide, ILP, etc., and very lax (or absence of?) Regulatory control. This was not long after the stink internationally over what happened in the IFSC on Parmalat and the German Landesbanks, so Ireland was not a place anyone could recommend lending into, thus Irish banks could not get cash and the taxpayer had to put its head on the block.

I like the way you layed out the sequence of things very correctly there. It is indeed interesting when you see it like that.

Thanks,

Brian O’ Hanlon

@garethace wrote:

I mean, if the above was true, then look at middle tier property developers in Ireland. I mean, the middle tier development area is where the real skill was to be found surprisingly enough. The reason being, that many of those had quite successful and lengthy careers as professionals and consultants before they got into the property game late.
To the best of my knowledge the middle tier developers didn’t make the same monstrous mistakes either with regard to land. In fact, they operated on a different model whereby they disposed of land with planning permission attached for quite extensive developments. That is how they made their cut. Rather than wading in the whole way and ending up with unsold houses.

Perhaps I should have been a bit clearer. Land banks ARE the equivalent of ‘raw material in stock’ for developers and every investor examined the landbank held for e.g. by McInerney in the UK as it was an indicator of pipeline availability and the impact it could have on future earnings. That type of holding is quite different to what Paul Keogh described as “larger than a tiny local population could support.” A personal anecdote on this –speaking with a developer’s project manager on a local development, I said what they had planned was totally unrealistic for the area, as an ordinary businessman I could not see how it could be profitable and if developed would at best detract from and more likely devalue their other assets in the area. His response? “It is my job to get it built on time and on the budget I’ve been given; it is not my job to make that decision or make it work when built.”

@garethace wrote:

The guys who started with the bucket of nails and a tin of paint made it to the first division yes. But they hadn’t an opportunity to learn and improve their minds, while fighting their way up through the leagues.

Not quite. This happens everywhere. It’s an old model that will always work at a basic level. The middle tier guys rarely get caught out on innovation. The old way is to say “he’s a great farmer/builder/whatever with 40 years of experience” but in reality he is someone who has 40 years of repeating the same thing, over and over. Those guys rarely fail because they never take a risk. “Be not the first on whom the new are tried nor yet the last to leave the old aside.”

@garethace wrote:

…………Or even more accurate, they were like Nike who designed the runner shoe and got it made somewhere else.

Agreed. They did outsource, which is why we have no idea yet of the depth of the crap the construction sector is in. Lots of subbies are waiting for payment on sitework, blockwork, plumbing, etc.and hoping (in vain) that it will happen. It won’t. Developers continue to say “We are trading profitably” which possibly is true, but misleading, as they are describing earnings before interest, tax, amortization and depreciation. That does not mean a black bottom line or payment to suppliers.

@garethace wrote:

Then all of that became ‘securitised’ on the international money market, against future rental incomes off of this product.

I wonder. Really, was there that much rental securitization happening in Ireland? My guess is very little, if any. None of the factoring companies would touch rental factoring, afaik. None of the payment protection insurers were doing it, afaik. Unless of course there were some dodgy SPVs out there? Any examples?
@garethace wrote:

Still the land bank sat there and rabbits thrived in the weeds and long grass. Pheasant shooting was available in the more wooded areas and un-claimed horse populations roamed the plains. (I am describing Cherrywood in case you haven’t noticed)

C’mon, that’s a bit OTT. The Foxrock/Carrickmines tinkers had/have a bit of grazing nearby; there has not been a bit of (game) shooting in the area for years, although I concede Loughlinstown once was a renowned foxhunting area back when the hunt met in Stillorgan (where the shopping centre now stands.)

@garethace wrote:

You mentioned elsewhere that we should use profit from developing central and strategic land banks in order to offset the losses in the NAMA portfolio in locations where use reverts to agricultural.

Not I (I think :))

@garethace wrote:

But then use the profits which NAMA can generate in order to ‘buy out’ any joint venture partners, legal deed interests or other charges against fecked up land banks that are in the prime and sustainable development locations.

No hope of NAMA generating profits – ever – unless it takes on assets at a deep discount, which seems unlikely on the available information.

Rs
K.

http://www.irishtimes.com/newspaper/letters/2009/0811/1224252364412.html

Lots of subbies are waiting for payment on sitework, blockwork, plumbing, etc.and hoping (in vain) that it will happen. It won’t. Developers continue to say “We are trading profitably” which possibly is true, but misleading, as they are describing earnings before interest, tax, amortization and depreciation. That does not mean a black bottom line or payment to suppliers.

That avalanche is waiting to happen I can assure you. I had no more motivation myself, in raising the issues I have raised here at Archiseek, other than to dodge this problem in some way. I don’t think we will dodge it. A lot will depend on the Liam Carroll case today, and how much ‘reality’ is brought to bear in court. The subbies really make up the bulk of the industry. They may work on razor thin margins a lot of the time. But the bulk of the numbers of construction jobs are in that sector. I hate to see it collapse in such spectacular fashion.

The speed of the turn around was savage in the extreme. I guess, that is where the hopes of all of the subbies were wiped out too. Even if they got out with some of what they were owed it would be something. But as it stands they have to pay for legal council and stand at the back of a very long line in order to get anything. I know Ireland isn’t renowned for group claims. But is there some way that all subbies could group together in some way to make a case on an individual developer? Something that would enable them to skip a couple of places in the queue?

The construction industry federation should be doing more to help. Instead of making bald statements about the fragility of the market if Zoe goes under.

I wonder. Really, was there that much rental securitization happening in Ireland? My guess is very little, if any. None of the factoring companies would touch rental factoring, afaik. None of the payment protection insurers were doing it, afaik. Unless of course there were some dodgy SPVs out there? Any examples?

We were a year or two away from doing it. The schemes being drawn up towards the end, were designed to take advantage of it. Like I said, it reminded me of the V2 rocket episode in WWII. Of course a production line had to be built. That was going like hammer and thongs. I wouldn’t say it was a product the Irish institutions offered. The reason securitisation would have worked is because, there were some larger tenants who were looking for a large developer to do business with.

But finance really dried up to even do stuff like pouring foundations. There were no developers left by then, in the sort of shape financially wise to answer the calls from the market. Those large tenants are still out there. Expect some deals to be done in the next couple of years as valuations undergo a re-jig. I might not be surprised if things get bad enough, that tenants will buy sites outright. They could always re-mortgage the site later on, if they need to release some finance and eventually dispose of the asset completely in a more favourable market. But I know those large tenants are out there and need their premises to operate. Their facilities are already a few years out of date as it is.

If possible, those large international tenants do not want the asset on their books. I presume that is their interest in renting. It could have suited developers if a securisation mechanism had been in place to enable them to retain ownership of the land bank against which the charges were being placed. (You can pin down the larger tenants in lease agreements to insure yourself against defaulting on rental payment . . . it is harder to arrange that for a lot of small tenants) Developers wanted to use land banks to gain access to future rental income streams. It was on the cusp of being organised. I know that much, because it affected awfully the way in which masterplans were being conceived and developed.

Now that I think of it, with closures some vacant premises may appear on the market which suit the needs of potential tenants. But the locations might not be right. With the new science of logistics and supply chain management, operations are done on very slight margins. This was my own argument for developing some of Cherrywood for logistics in the short to medium term. Make it attractive, open up the space to make it public. Do the civil and infrastructural work now, (the local authority JV partner could look at it as a way of stimulating the local economy by spending) as the NPV will beat us the longer we wait around.

If you take Keatings point above, that international flow of capital will never again return to the levels of where it was. Then the right move for Ireland today is to develop the means and know-how to use what scarse capital will be available and make it work as hard as possible. That is why I think securitisation was being so carefully considered towards the end of the Celtic Tiger. There simply wasn’t another way to look at the problems facing capital and land resource intensive activities.

The logistics building stock on a site such as Cherrywood could be designed to be collapse-able (in a safe environmentally friendly way . . . as little embodied energy as possible should be used in initial assembly and construction) in a number of years, as development gathers steam and needs this land to build on. Or not as the case may be. We can still accomodate plenty of horses. It is akin to what you said in Kerry where un-finished houses need to be bulldozed and the land returned to amenity space or nature or both. Our architects and landscape architects working together are great at coming up with clever solutions here. It would keep them off the dole queues also.

Apologizes, It was PVC King (who has a fine healthy optimistic attitude) above who suggested offsetting losses in the NAMA portfolio against profits elsewhere. But I guess you are correct, without enough discount, NAMA is set up to fail. It will never generate a profit, but merely allow us all to ‘lose’ in a controlled manner.

Oh, you will find the shot gun shells at Cherrywood if you know where to look.

Brian O’ Hanlon

Guys….I’m sorry. I have tried really hard and concentrated. I’ve tried different times of the day, I’ve tried breaking it up into small pieces – I’ve done everything – but garethace I cannot get past two paragraphs of your posts without losing the will to live!

You seem like a very intelligent chap and you are passionate about the topics, but please…..take more time and write shorter pieces – its harder but will get your point across better and to more people. At the moment it seems like a stream of consciousness and is just too daunting.

Kerry bog – you’re in danger of heading the same way!

Sorry Cork blow-in. I agree completely, it is sheer ridiculous our continuing an extended conversation like this. I am about all out of steam. I was completely out of steam a month ago, but kept going on momentum.

Thanks for taking your time to express your view. What you describe on the receiving end of things – trying to read the material – is almost the exact same for myself on the production end too. Because one has to spend an age, trying to go over every last detail to make sure the argument pulls together in some kind of cohesive, if indeed very long winded kind of way.

The real bottom line is though, there is no money in the newspaper business any more for serious investigative journalism. (Where you have an editor to engage in the ‘hacking down’ process you describe) The business community out there are aware of that, which leads to their taking more risks with our future.

The newspapers and the media do good work in general, but don’t know how to join up the dots. (Look at how long it took for Anglo Irish bank to be exposed here in Ireland) I suggest that the media hires the people who have worked in the real world, or visa versa.

The honest truth is I don’t know what the best answer is.

Brian O’ Hanlon

The Sunday Tribune reporter Neil Callanan had indeed found one of the biggest ‘dots’ in the whole story. But joining up that ‘dot’ with something else is the real difficulty that newspapers are facing.

After receiving the securitised income he went on a share-buying spree, investing in everything from sugar to ferries. Millions were invested in Greencore, Irish Continental Group, McInerney and Aer Lingus, stocks that had little in common other than the fact that they had land banks, and land was what Carroll understood.

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

If you read the above long stretches of text, you will find that Carroll wasn’t intending to understand land, or build on land, or anything like that. Carroll was only a lowly construction manager like myself. He wasn’t in a class that he could successfully develop a fraction of the land he owned. It was something different, something more to do with financial innovation and scarce flows of international capital going into the future. In that respect, I imagine he was no different to other Irish developers. I wish land had been a simple factor of production, but in reality it ended up being used for a different purpose. That is the heart of the problem that NAMA has to figure out.

If we had some form of land taxation in Ireland, it might stabilize land values and we wouldn’t be stuck with the hassle we are in with NAMA. The land banks were being used to capture value increases in the asset, and then used to extend financial leverage, (€2.3 billions worth) . . . not to build on. That is why land was so attractive to Liam Carroll, not because he was a builder or anything like that. That was a pure smoke screen in the end.

I wonder how many houses in Kerry were built, for local populations to consume? None? This is my point in a nutshell. There was nothing to ‘burn the fingers’ of wealthy Dublin blow-ins who travelled down to Kerry every summer for three weeks and owned a second house. If that isn’t a recipe for vast over production of a commodity such as housing, I don’t know what is. Worse, we had 300,000 people involved in producing a product that was in the end un-saleable! At least that number of people still invovled in agriculture can get some sort of price for what they produce. A price can be put on the thing at the very least.

Sorry to people who own summer houses in Kerry btw, I would love to own one myself to be honest. But it is deeply unsustainable for all the reasons I have tried to outline above.

Brian O’ Hanlon

Going into global news today, from the Financial Times newspaper:

This scheme is poorly designed. If the NAMA makes a surplus from the purchases, the government will keep the money. But if it makes a loss, the government has said it will charge banks to make up the difference. The bad bank, therefore, does not cap banks’ losses – only their profits. This will hardly do much to quell the fears in private investors’ hearts.

http://www.ft.com/cms/s/0/9d23fa0a-85e3-11de-98de-00144feabdc0.html

I couldn’t agree more with this assessment:

But, as the wreckage of the boom is washed away, older, safer sources of growth will be uncovered.

Brian O’ Hanlon

@PVC King wrote:

The idea of a €90bn property company with an almost soveriegn credit rating is exactly quite exciting in a lot of ways!

Only if you’d share in the glee of seeing a country burdening at least 2 generations with a huge tax burden to meet bond repayments.

The picture fills me with dread; a combined bank, property portfolio manager, property development and marketing company and property management company all funded from future tax revenue. Run by mostly the same or similar people who got the country into the position it is in. What gives anyone any confidence that a all powerful public organisation can magic tens of billions out of thin air? NAMA will make the HSE look like an impressively run organisation.

Apart from the initial guarantee, the Irish government is doing the exact opposite of what the Swedes did. That’s a story they should have studied well but obviously haven’t.

Okay,

I’ll bite one last time. This is ridiculous but, I saw this on the Irish Times website.

http://www.irishtimes.com/newspaper/breaking/2009/0813/breaking29.htm

With our current financial system in Ireland, in order to create more money and hope for prosperity, there needs to be large amounts of debt created at the point in the system where money is created. Whether that debt becomes toxic or not at a later stage is besides the point. The point is, it is still debt.

Let me demonstrate the system by telling a true story.

The ‘better’ idea

I am a builder and I owe €1,100 euro to an Irish bank. I win the lottery somehow, and receive €800 euro. I go to my bank manager and say to him, guess what, I’ve won the lottery. I want to pay down some of that loan I owe you. You would think the bank manager would be delighted. Think again.

The bank manager comes up with the a better idea. I know what, instead of paying down your debt we can invest the €800 euro. We will make more than €1,100 in no time at all with very little risk involved. The builder says, would that work do you think? The bank manager replies sure, no problem, we’ll set things up right now. Everyone is a winner right? We have created more money in the system. The builder and bank manager together manage to make a windfall profit on their investment of say €600, which added to the original €800 comes to €1,400. So we are up €300 altogether by accepting some minor risk. We use the €300 Euro to pay off some trade creditors who are screaming at us, and promise the rest to follow up shortly.

Heck, we are feeling so flip’in confident, we might buy back our own debt and pay interest of cents on the euro. We could in turn, re-package our own debt and sell parts of it to someone else. There are a whole panorama of possibilities once you have created the initial debt amount.

Robustness

Everyone is doing fine and a little bit of profit is made. Creditors gradually get paid and the economy is moving, people are working doing something. The banks are helping to stimulate jobs and raise money for investment. As the economy grows the builder’s debt grows with it. It is fine though, because the economy is larger. There a very robust growth projection figures doing the rounds, based on current performance indicators.

As the builder gets the habit of handling more throughput of money through his or her business, they find out more things to do with the money. They find new suppliers of new components. They find new experts who can advise them on how to assembly components. They get things half assembled from some other supplier who starts up business. All kinds of things go on, to ensure that the process improves. Customers out there are willing and able to pay a higher price for a higher standard of product. Sometimes the builder begins to resemble a little bank in their own right. Financial wizards and trades people begin to mingle together quite comfortably. Sharing funny stories and pints of German beer down the road at the pub.

We don’t want your stinking money.

I think you get the picture, the last thing in the world the bank wants is for the builder to pay back what he owes, because then the economy as a whole shrinks by that amount. If every builder pays back at the same time, the whole deck of cards collapses and no one has money for anything at all. Devil if you do and devil if you don’t. But if the debt stays in the system, the chances are it will act as a magnet for foreign investment from all over the world. Smart foreign investors will say, Wow, look at these crazy Irish guys who are able to convert this debt into net income. We all want a piece of that. The Irish bank then becomes an intermediary between Ireland and giddy foreign investment capital, eager to get in on the action.

The builder comes under huge pressure now to invent new concepts and new ideas. There is no way in the world the bank wants the builder to reign in what he owes. The banks wouldn’t know what to do with all of that cash anyway, if he did give it back to them. Best to extend the credit to the builder, because traditionally he or she has come up with the innovations.

Paraded through the streets

This all works in principle at the lower end of the scale I think. When you are trying to get things off the ground initially. The trouble though is hind sight. As success arrives on our door step, we feel less inclined to change. We are doing well right? Yes, the figures clearly show it. If we change the plan now, we risk it all. Let’s keep going the way we are and see.

Debt based finance when you reach a certain critical threshold can bite you in the ass. When it finally does, everything under the sun is blamed, other than the main cause of the problem itself, the creation of debt. At some stage the small builder no longer is a small builder. That builder becomes a big builder. When that builder finally goes under, we parade him in the streets and point our fingers. There is the cause of it all, or so we convince ourselves.

Sitting on the gold mine

At some stage in the game one has to find a different way in which to create money, based on assets rather than debt. Money isn’t the best description of it either. Equity would be a better term. At least, when you build a model which creates ‘equity’ based on an asset, that equity stays in the system for good. You can create rules and regulations by which parties can trade their equity for various products and services. A market develops around the creation of equity, rather than only around the creation of money. People who own a lot of assets such as the Middle Eastern countries who own oil reserves, have to set up some system to organise those assets. They have no use for debt based finance at all. They are no in the business of ‘boot-strapping’ themselves up. They don’t have to. They are already sitting on the gold mine, quite literally.

The question becomes, what does one do when you find yourself sitting on the goldmine? A modern thriving economy requires a certain kind of engine once it reaches a certain point. A point where the old debt based incentive to the economy, which boot strapped all things to begin with, is no longer adequate for the task of supporting the said economy.

Riding through the recession

What happens with the debt based system, is that you go through one small turmoil, one bit of rough water and the builder gets choked. There is no riding out the storm, there is no point talking about rescue plans. You are gone before you even get a chance to formulate anything like a rescue plan. Anyhow, with all of the rushing and racing for the last ten years, you never learned how to make plans properly anyhow. The plan was, there is no plan. It was always flexible. As the economy was growing so fast, plans went out of date quicker than Frank McDonald books do. The context for investment was changing and expanding so fast, that making a plan was silly. It is hard to believe now, that some of the chapters of McDonald’s book have become ‘historical archives’ after such a short time of publishing. It goes to show you.

Brian O’ Hanlon

None of that stuff applies Brian. We’re part of the euro area and have access to almost unlimited credit from the ECB. More than 50 billion euro of credit has poured into the country’s financial sector from the ECB since the crisis started. What you’re talking about is not the problem here at all.

Thanks Jimg. Fair point.

However, what are small businesses in Ireland going to use to trade with? Back to beans I guess.

B.

I noticed this point raised by the Sunday Tribune reporter Neil Callanan last weekend. When we get into the math and science of making NAMA’s engine startup and keep ticking over, these are the kinds of nasties that await us. It’s like peeling an onion in a way, always another layer to it.

The real problem, and this will become apparent in the coming months, is that those loans were usually funded on a 70% loan-to-value basis meaning that the developer put up 30% of the money to buy a property.

In fact, it regularly just put up an investment property as a deposit so Nama might very well be buying any loans on that investment property too, meaning we lose on the double.

http://www.tribune.ie/business/article/2009/aug/09/second-chance-tuesday/

It is shocking, we had a story somewhere in the newspapers this week that banks continued to offer 100% mortgages after the crash in property had occured. So the bubble was really being inflated in many more ways than one.

A story about hampered lending capacity of Irish banks by Thomas Molloy today.

The banks are likely to use money from the National Asset Management Agency (NAMA) to pay back the ECB and won’t be in a position to lend to businesses from between nine and 14 years, they added. “The NAMA proposal alone is insufficient to address the business model challenges facing the bank,” the analysts wrote.

http://www.independent.ie/business/irish/aib-and-boi-lending-may-be-hindered-for-10-years-1859803.html

This is worrying, since we need small businesses with sufficient cash to soak people up from the live register. Basically, an Irish employer today could have their ‘pick of the bunch’ from any of the lines outside labour exchanges. A far cry from the Celtic Tiger human resources squeeze.

I think the real avalanche of unemployment is just around the corner, when the vast network of subcontractors and so forth, where the bulk of construction employment is made up, falls into the sea like an iceberg in the North pole. Watch the climate change then. Basically, we need another way for small businesses to operate other than credit.

Beans, is my best suggestion. But there may be much better ideas out there.

Brian O’ Hanlon

@garethace wrote:

Thanks Jimg. Fair point.

However, what are small businesses in Ireland going to use to trade with? Back to beans I guess.

B.

There is no shortage of money in the world. It’s just that it costs more to rent it because many of the borrowers have questionable solvency. Cheap and easy credit is like cheap oil – it seems to provide a “free” boost to business and industry; but basing your business model on it’s availability is a folly given historical precedent. Everyone, from the Irish government, to Liam Carroll to the Irish banks are struggling to adopt to this new reality and the small and medium sized business will have to adopt to it too. Financial efficiency is as important as energy efficiency in the world we find ourselves in. And financial efficiency means being getting the most out of your capital – i.e. borrowing as little as you can. Similarly there are some who wish that the age of the petrol guzzling SUV was still with us but it isn’t. It was a historical blip – like the Greenspan age – that has passed.

Jimg,

Thanks for adding that nice paragraph of explanation. That makes quite a lot of sense to me.

Thanks.

Brian O’ Hanlon

Govt may mull over taxing expensive family homes…

I don’t care what homes they are. The land is the land is the land. If the land the house sits on, is next to a transport corridor it is valuable. No matter what is built on it. Tax the land rather than whoever is occupying the land. It could be a tax like the building energy rating, which only hits you at the point of turn over of the asset to another party. If you can’t pay it, it is subtracted out of your selling price.

Maybe we should re-invent stamp duty and model it according to land values, rather than it being a flat tax across all properties, which was never fair. Lets be honest. Yes, the flat rate of stamp duty tax might have prevented some more investors getting into the market for the third or fourth property at the height of the Celtic Tiger. That was one positive aspect to it.

What I don’t like though, is the notion of the tax on property instead of land. I can see a lot of sense in taxing of land, because it makes us all better off. If it can help to stabilise the market for land resources in Ireland a bit better. Thereby making the right land available for development at the right price. Instead of us building ghost towns 100 miles away from jobs. It a tax could be used to stabilize land values we would all be better off.

But this notion of local authorities using property as a reason to source revenues, in my view is much more problematic. I did like Cearbhall O’Dalaigh’s idea to cut all of the mortgages in the country in half. That way, it would remove the burden of paying overheads and taxes, which is simply driving people into the ground with worry at the moment. I can’t see how establishing a tax on property is going to help that problem. We need to get smart at what we are doing, and fast.

Brian O’ Hanlon

@jimg wrote:

Only if you’d share in the glee of seeing a country burdening at least 2 generations with a huge tax burden to meet bond repayments..

The position in reality is that the Government had two choices either let the main banks collapse or intervene in some form, the position with the Irish banks was in no way unique; this was a choice made in the US, UK amongst others. You are totally right there is going to be a lot of pain whatever method of stabilisation is selected be it bond insurance, debt transfer, capital injection or collapse in the corporate and private pension structures caused by the loss of the personal and corporate deposit base by letting the banks fail. Not a pleasant picture whatever way you analyse it.

@jimg wrote:

The picture fills me with dread; a combined bank, property portfolio manager, property development and marketing company and property management company all funded from future tax revenue. Run by mostly the same or similar people who got the country into the position it is in. What gives anyone any confidence that a all powerful public organisation can magic tens of billions out of thin air? NAMA will make the HSE look like an impressively run organisation..

You are totally correct if the same attitude that ran the Anglo-Saxon model onto the rocks; which you assert is combined with local possibly negative nuances and if that remains unaltered; then you are probably very right to be scared. There has to be real reform and an acceptance that a model that both respects and can adapt to global economic movements is created.

The model however if it is sufficiently long term in its view and mandate then in can create significant value from where we are now. I agree that if the changes in personnel and mindset are not made then it is doomed to failure before it has commenced. Conversely it is a great opportunity to use market conditions as the only solvent player in the market to exercise their position of power to create long term value.

@jimg wrote:

Apart from the initial guarantee, the Irish government is doing the exact opposite of what the Swedes did. That’s a story they should have studied well but obviously haven’t.

I studied the Swedish model as part of the disaster myopia model at college; I agree that what the Swedes did worked in a very impressive timeframe but do not agree that the underlying causes were beyond localised property bubbles sufficiently comparable. The Irish real estate sector is infinitely larger as a share of GDP, a lot of the assets are geographically more diversified. Demographically Ireland has a much more positive position in terms of real estate demand domestically due to the much more favourable household formation patterns than the Swedes had at that time.

KB shares your concerns on the people that if past trends in government recruitment are selected would be involved; I am too remote to comment on that with any real credibility but I have no doubt that if the following happened it would be a great opportunity.

1. Non-performing debt bought at realistic prices

2. Government Investment made in banks via preference stock at say 250bps above bund to bridge the gap between market value and ‘notional mid-term value’ (they take the hit on frothy market lending decisions)

3. Assets transfered to a team with development / investment management expertise

4. Planned development of the most viable parts of the development portfolio to where appropriate rip up existing planning consents and rework in the context of supply having more purchasing power and being more discriminating

5. Select JV partners to carry out or complete the projects on a PRE-DEFINED profit share basis. In some areas it would be better to do this and assume a nil land value than wait for the private sector to even bear the finance costs on a nominal; access to a government guarantee scheme for construction costs would ensure that any recovery is not limited to just Dublin, Cork, Galway and Limerick.

6. Supply that cannot be sold at ‘mid term fair value’ to be put into specialist invetment funds covering retail, business space and residential

7. When mid term fair values are reached fund units sold to Irish private and International institutional and sovereign wealth investors.

All academic in the absence of business culture changes but if executed in a safe and secure way then this could kick start the construction sector, prevent a free for all in development land markets and allow banks to capitalise on rising values in the UK and other International markets taking performing loans away from what should primarily be a domestic project which would dramatically reduce the scale of the Nama project.

Conversely it is a great opportunity to use market conditions as the only solvent player in the market to exercise their position of power to create long term value.

Excellent point. All during the building boom, the government’s argument was that they were cut out of it. The developers I would argue had artificially inflated land values, in order that the government was kept out of the picture as a potential investor. Now we are looking at a situation in the future, where the opposite is the case. The government will have too much say in everything. No private development company is going to compete in the Irish market place at all, for fear of going head-to-head with the 80 pound gorilla in the corner of the room. The likes of Zoe were the equivalent of that gorilla in the past, and that wasn’t a healthy situation for even the gorilla as experience has shown.

In the Dublin Docklands basically the government was reduced to grovelling for a bit of an input. I don’t know whether the presence of a master plan for the Docklands made things better or worse in the end. Particularly where you have gorillas involved. I can’t argue with architects who claim that social values weren’t at the table as far as development in the docklands went. I have attended some of the lectures given about plans on-going by the DDDA to enhance the area. It seems they had a lot to contribute. However, it was in delivering key infrastructure such as roads, landscaping etc where the DDDA can still do a lot better.

We can look at Ballymun as a situation where the government did own the land. But even there, they did encounter resistance and had to deal with that by working cooperatively with parties. Obviously neighbourhoods around Ballymun wanted to erect a high wall between themselves and any future development at Ballymun. But there was progress made on that front. The point has also been raised, that many of the projects at Ballymun were carried out at a community scale. However, in the case of Ballymun, there are enough of people experienced in community regeneration projects elsewhere around the globe who do not see the new Ballymun as a complete success.

In short, further un-biased views and opinions should be sought in all of those cases. A discussion in this regard really does need to happen in advance and as part of what NAMA will do. There are opportunities for an awful lot of stakeholders, which should not be under estimated. But there are a lot of ways in which to ruin this too, if we follow too dogedly some models of the past.

Brian O’ Hanlon

@PVC King wrote:

The position in reality is that the Government had two choices either let the main banks collapse or intervene in some form

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.

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.

And only in the most superficial way can we be said to be following the US model or even the UK model. In both big and small non-viable banks have been allowed to fold. The Swedes were quick to do the same.

The model however if it is sufficiently long term in its view and mandate then in can create significant value from where we are now.

I can assure you that a belief in mean reversion when it comes to markets is a sure way to poverty. The Japanese are still waiting – over 15 years – for their property bounce which will fix everything.

Needless to say I don’t find any comfort in your wish list of events either.

1. Non-performing debt bought at realistic prices

This cannot happen; if the banks are forced to accept market values for their loans, then they will become insolvent defeating the purpose or requiring a capital injection to keep them afloat.

2. Government Investment made in banks via preference stock at say 250bps above bund to bridge the gap between market value and ‘notional mid-term value’ (they take the hit on frothy market lending decisions)

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?

3. Assets transfered to a team with development / investment management expertise

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.

4. Planned development of the most viable parts of the development portfolio to where appropriate rip up existing planning consents and rework in the context of supply having more purchasing power and being more discriminating

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.

5. Select JV partners to carry out or complete the projects on a PRE-DEFINED profit share basis. In some areas it would be better to do this and assume a nil land value than wait for the private sector to even bear the finance costs on a nominal; access to a government guarantee scheme for construction costs would ensure that any recovery is not limited to just Dublin, Cork, Galway and Limerick.

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.

6. Supply that cannot be sold at ‘mid term fair value’ to be put into specialist invetment funds covering retail, business space and residential

7. When mid term fair values are reached fund units sold to Irish private and International institutional and sovereign wealth investors.

There is no such thing as “mid term fair value”. There are hundreds of theories of value and even more valuation models. I’ve yet to come across a credible one which bases the valuation on what someone thinks is a “fair” amount, no matter what that persons credentials are. I’m well used to looking at graphs of financial prices and know full well the lure of seeing patterns in what is essentially noise. Technical analysis is quite seductive but ultimately generally considered to be complete b*llox; justifying a future valuation on a historical peak value is a classic technical approach but has been proven, in most markets – property or otherwise, to be useless.

Ok, I’m snipping selectively here but this seems to be a pillar of the governments actions:

prevent a free for all in development land markets

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.

@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.

Is that not what it’s just done? or how much further do you think it needs to drop?

Is it not possible to establish some system of valuation based on graphing property value, (by category), globally, or even regionally, starting with places that seem stable?

You know, so much per sq. meter in a schedule of cities from Zurich to Luton and just pick roughly the band we should be in, taking into account all the factors, employment, transport, culture, climate etc.

OK, maybe I set the bar too high with Luton, but you get the idea. An apartment (for example) in Dublin is not going to be worth as much as a comparable apartment in Paris, but it should be worth more than a comparable apartment in Poznan, and work it that way!
Find the valuation band that would seem to demonstrably fit our circumstances and people might start to say; yeah that’s about right, I can see where that flat is worth €180,000, or whatever.

I take jimg’s point that no forecast model will give you all the answers, but what’s the point of having this supposed knowledge economy, if don’t use the knowledge we do have. OK, it might be a bit of a shock initially, after being told so recently by the Metro that a Dublin 3 bed was now more expensive than a Manhattan apartment, but at least knowing we were in a band with Helsinki, Lisbon and Zagreb would bring an air of reality.

@gunter wrote:

Is that not what it’s just done? or how much further do you think it needs to drop?

Is it not possible to establish some system of valuation based on graphing property value, (by category), globally, or even regionally, starting with places that seem stable?

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.

And yes indeed there are many such models but few or none have much use when dealing with the hard financial realities of property unfortunately. It doesn’t matter what numbers your models produce. The property market can only considered to be “normal” in any sense once the gap between what buyers are willing to pay and what sellers are asking narrows. When that happens, transaction volumes will increase and the implied uncertainty will be gone. At that stage, people like auctioneers, solicitors, furniture/household retailers, plumbers/painters/decorators, even maybe architects and builders, banks, etc. can begin to make a living from a market that hasn’t seized up. This is what the goal should be – allow the normal sort of economic activity associated with the market to return; the final price of a two bed in Christchurch in the end doesn’t matter.

As an aside once I spent months building valuation models (though not for property) and I can tell you, whatever answer you ever want such models to produce can be derived in a perfectly reasonable way; you just need to keep adding factors/variables until the outputs start giving you what you want. E.g. Dublin is still undervalued compared to Copenhagen?? Hold on – if we factor in the number of international companies headquartered in Dublin – then we can see blah blah blah…

@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

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

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

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

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

what do you get when you mix red and blue?
We will have to wait and see…

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

Just shy of a trillion euro x 10?

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

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

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

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

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

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

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,

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

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

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

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.

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 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.

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

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

@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.

I could be wrong on this but my interpretation is that the oil refinery known formerly as Whiddy Island can take quite large vessels.

There were numerous locations looked at around Ireland’s long coastline, some with excellent berthing facilities. Also they have land banks attached to them, which would solve the problem of having to sterilize land around the storage facility from a development point of view.

The constraining factor with many favourable sites though, is the road infrastructure from those sites to the main centre of consumption in the country – Dublin. A pipeline from Whitegate refinery in Waterford is another option, with the possible sterilisation of land somewhere west of the capital city. But the prospect of shipping large quantities of oil from Whiddy Island to Dublin by road or possibly rail doesn’t look economical or environmentally feasible.

When you weigh up a lot of factors, a location for oil storage somewhere at Dublin port is still the best option. A full debate needs to happen about this though. That is one of the reasons why it is useful to have the Greens in government or represented in the Dail. Because they are good at this longer time frame kinds of issues. Especially, given the fact that in Ireland most voters worry about the potholes in front of their own house entrance when they go to polling stations.

The man who fixes those potholes is normally the man who gets a seat in Kildare street. The man who ensures the pothole stays fixed, stays in even longer. Jackie Healy Rae perfected this strategy. He pay even hold patents on his invention, I don’t know. But it works time and time again.

It is time now that Ireland grew up a small bit. Otherwise we could find ourselves paying a toll charge simply to bring oil into the critical Dublin market. The whole oil business is being run on a shoe string in this country at the moment. An overall strategy is required. It is too vulnerable to attack by outside investment. You only have to look at the state of the telecommunications industry in Ireland to understand what I mean.

That is my major concern about Liam Carroll’s Irish Ferries shares. They represent a considerable ‘bargaining chip’ in solving the situation longer term, in a ‘best value’ way for Ireland. The government must move to tie them up, before they fall into the wrong hands again. It is ten times more important than a national airline at the moment. A national airline is a symbol of a country’s pride in itself for sure. But Michael O’Leary would be willing to provide capital for the national airline, if the government is short of money to resolve the Dublin port situation.

We proved on the M50 the limitations of the public-private partnership process, as far as strategic development of the capital is concerned. We still have Dublin Airport Authority making the lion’s share with retail rents and airport charges. That would remain in the Irish taxpayer’s full control. I cannot see why Ireland should have to pay toll charges to import it’s own oil. That is what sickens me.

Along with the fact that Dublin Docklands authority put some much of their money into the Ringsend bottle factory site.

I know that ‘oil and fossil fuels’ aren’t the Green’s cup of tea, but I believe Eamon Ryan can see the bigger picture – globally, not only on a national scale. As price per barrel rises, Ireland will go further afield, even to South America if necessary to source its supply. That will of course add to shipping costs. (which are minimal at the moment, as it comes from the west coast of Britain) Shipping costs would be offset if possible, by the use of larger tankers.

Brian O’ Hanlon

@jimg wrote:

I thought I had been pretty clear in what policies I support; which are mainly modeled on the Swedish response. ……………..

jimg,
I agree with much of your comments but disagree with the above. I can see why some would make a comparison with Sweden – they too had a one-party in control of government for about 80% of the past 70 years, had a financial crisis, are heavily reliant on exports, etc. However, in my opinion this is a narrow view and overlooks a key point.

The real reason why Sweden got out of its economic mess was the devaluation of the krona that happened when in 1992 the krona broke from being pegged to the ecu. Within 10 years or so their effective exchange rate depreciated by more than 30%. This gave the competitiveness of Swedish exporters a huge boost, and broadly speaking allowed them to double their exports figure with a commensurate positive knock-on effect on the national economy.

Ireland is in the Eurozone and cannot devalue. Furthermore, we cannot leave because the Euro & Eurozone are the key factors for the existence of current foreign investment here and in the decision process for future investment.
Rs
K.

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.

Believe me, Brian O’ Hanlon doesn’t have Brian O’ Hanlon’s stamina left either.

B.

The real reason why Sweden got out of its economic mess was the devaluation of the krona that happened when in 1992 the krona broke from being pegged to the ecu. Within 10 years or so their effective exchange rate depreciated by more than 30%. This gave the competitiveness of Swedish exporters a huge boost, and broadly speaking allowed them to double their exports figure with a commensurate positive knock-on effect on the national economy.

Excellent point. I am glad that you mentioned it. I think that ‘fine tuning’ of monetary policy was one of the key elements missing in the Ireland economy for the past 5-6 years.

I wondered why Saabs suddenly became available to so many people. Architects in particular. I would like to drive one some day, even if only for a spin.

Is there any product that Ireland sells to a market, you can say that about today?

Ireland is in the Eurozone and cannot devalue. Furthermore, we cannot leave because the Euro & Eurozone are the key factors for the existence of current foreign investment here and in the decision process for future investment.

That is the larger question to my mind. The question that should have been asked a few years ago and debated fully. We will still have to ask that crucial question today. Even though our reluctance to grapple with it in 2002, has now left us all in a weaker position to deal with the question.

I don’t have the answer, I don’t even understand the politics, economics or social consequences well enough. But if nothing else happened, except that the present or next government deals with this issue, I would be a much happier and relieved Irish man.

Brian O’ Hanlon

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.

I want to say something on that particular point. I spoke to a very ‘loud’ person last December while drinking Amstel and eating hot dogs at a school fund raising fete. He is an extraordinarily knowledge bloke. There as a Dept. of Environment guys present too, and a director on the Dublin Docklands Authority. You could say, a quite informed bunch all round. Everyone seemed at the time to attach the Irish problems, to the chaos happening globally. It was asserted by the ‘loud’ fellow in particular, because he knew fellow professionals in Iceland, that what saved Ireland was being in the Eurozone.

All in all, you could understand that in December 2008, no one in Ireland fully understood what was afoot. The Anglo scandal hadn’t even broken fully at the time, and the Northwall Quay project had only been stopped a week or two before hand. But the picture since then, that has developed in my mind, is that Ireland’s problems have very little to do with the global chaos of mid to late 2008.

Increasingly, I am aware that Ireland’s problems are of her own making. I am glad that someone else points that out. I am no expert, but I wish to insert one caveat. That Ireland’s plan to enter the Eurozone should have been better administered in cooperation with the European central bank. This puts my friends comments, about Iceland, while drinking Amstel and eating hot dogs in a much, much different light I believe. It is not so much, that Ireland was ‘saved’ by being in the Eurozone. Rather than Ireland placed herself into difficult waters and hopefully not on the rocks altogether, because of a failure to recognise what being in the Eurozone meant for our tiny island.

Not having central banking control over all the Irish banking institutions meant that the Irish banks exercised enormous and unprecedented control over the Irish money supply. Mainly, by means of a back door – by creating and building up the mythology – that Irish property developers were solvent and worth potentially so much. That is the sorry admission that Ireland is finding it difficult to come to.

It has to start with the top – with Brian Cowen, Brian Lenihan and those in government. We need to go back to the ECB and draft a proper strategy for the future. This is more important at the moment, even than Lisbon is, from Ireland’s point of view. Maybe a successful Lisbon vote will improve our abililty to do this. I don’t have a clue.

Brian O’ Hanlon

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.

Exactly.

We only require €230 million, depending on the price of steel to build national oil reserve facilities.

€130 will buy a controlling interest in the land bank required at Dublin port. (Before a Dutch oil and gas company nabs that from under our nose)

Another hundred million would build the berthing facilites required to accomodate a large size of tanker in Dublin port, in case we ever had to go as far afield as South America to source our product.

We can fix the broken railway bridge up in Malahide as part of the same tender package!

I seriously expect minister Eamon Ryan to display some steel now and allocate a few hundred million in the right area, before we set about spending €90 billion in the wrong area.

This is the least the Green party should demand on behalf of Irish citizens in exchange for support of NAMA bill. The Greens hold the right cards now. All they have to do is ask.

I am biased of course, because I am hoping to extend Zoe a life line. (It has used up it’s other nine)

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.

Correct, that is why I see the security of Ireland’s oil supply as being an issue that the government could deal with in parallel, rather than separate, from dealing with Ireland’s money/credit supply problems.

One or the other will eventually cripple this small island economy of ours, if now dealt with sufficiently by government. The Irish stock market never had this concern on its agenda. More is the pity. As George Soros once said, markets themselves need protection in other to survive and do what it is markets do.

Brian O’ Hanlon

The US built up large strategic reserves almost by accident; the Oklahoma oil fields dried up and they were left with a large number of storage facilities used in the production process which they were in a position to use for storage. In sustainability terms the US is not a good model and the concept energy security means a lot more to them as the distances that they need to move their freight are a multiple of those required here. Their dependence on oil is likely to fall dramatically in light of the recent restructuring of the Detroit motor offer spearheaded by the new Volt car which makes the Pious look very sinful.

Annual consumption of Oil in Ireland is some 9m tonnes or 71m barrels of oil roughly equivelent to a weeks supply in Russia or Saudi; or put another way about 35 tankers.

The existing storage facility at Whiddy Island has a capacity of 8.5m barrels or about six weeks supply. There are some interesting points in Colm Rapple’s article below. http://colmrapple.com/?p=34

Maybe rapeseed could be the way to go as it guarantees local production, employment for farmers and hits the green box. What I can’t see happening is the Green Party shelling out the $5.4bn it would cost to fill a years supply into storage tanks.

However if land were provided together with development consent were forthcoming possibly one of the global investment banks might set up a fund to build tanks for use in exploiting seasonal movements in oil / pertroleum markets such as driving season and November heating oil spikes. Just make sure where ever it is proposed for there are no Maura Harrington’s living close by!

Maybe rapeseed could be the way to go as it guarantees local production, employment for farmers and hits the green box. What I can’t see happening is the Green Party shelling out the $5.4bn it would cost to fill a years supply into storage tanks.

There is something to do with refinement technology required for biofuels, which will push it out beyond 2025, as I understand from the Feb ’09 published report on security of oil supply. While biofuel is of course part of the solution, it will not come into play before 2025 at least.

It is a bit like the rubbish incineration project at Poolbeg. They are still trying to define what are ‘acceptable emissions’ and how much rubbish can actually be burned. While this is on-going, construction of the project will only drag on longer.

90 days worth of oil storage is what the published report suggested. That was part of the reports objective, to work out the optimal amount of oil storage required. That is where the €230 figure for tankage comes from, which has been verified by preliminary tenders. Of course, you are correct, you still have to fill something into those tanks and carefully manage them. I could forsee that would be done by an international operator and considerable insurance money etc would be involved. It is unclear though whether the National Oil Reserves Agency, NORA, would buy or simply lease the tankage required.

90 days worth of oil was deemed sufficient in the report to allow completely un-interupted working of the Irish economy, until such time as alternative arrangements were found, or the global oil supply shock event was over. But having the supplies on the island and getting it as fast and as cheaply as possible to the main Dublin market seems to be the key driver. The trouble with refinement of the crude oil product at Whitegate (which would mean upgrading of that plant also) would still mean, the heavier product would have to be exported out of Whitegate back to another market somewhere else. We would be left with it on our hands. The idea of having the national oil reserve, is to buy already refined, though more volatile product elsewhere and transport that to Ireland for long term storage.

There is an option to bring it in at Dublin port, though the jetty there still isn’t the right size for larger tankers, and pipe the fuel underground along the canal on the north side of Dublin city, to a sterilized land site somewhere on the west of Dublin city. But you are still talking about some facilities in Dublin port, if not locating all of the tankage required there. All I wish to emphasise though, is you read in the Irish newspapers that Zoe developments cannot find a ‘buyer’ for its Irish continental group shares. I find that really, really odd to be quite honest. It is more than enough to dig them out of the hole with ACC bank and get them back in business as an ordinary building/development company again. The only thing they were good at doing in the first place.

Brian O’ Hanlon

Jon Ihle in the Sunday Tribune offers a look into the banking situation in Ireland.

http://www.tribune.ie/article/2009/aug/23/is-anglo-now-the-enemy-within/?q=ihle

For corporate deposits, Anglo pays typically between 3.5% and just under 4%, according to figures provided by Dolmen Stockbrokers. Bank of Ireland and AIB, according to published figures, don’t even come close a sign that liquidity pressures have eased somewhat for the two big banks.

Further evidence in my view, that NAMA, a vehicle designed to solve a contraction in global credit flows and liquidity problems, is no longer suitable in the current context. Irish banks seem to be managing fine, but notice that the market has become distorted by the presence of Anglo Irish bank, which is willing to pay over 4% (not quoted publically, but more than lightly is the case) for large deposit sums.

Even at that, I think Anglo is still short a couple of percent, in its loan to debt ratio to conform with ECB regulation.

Brian O’ Hanlon

Tired old infrastructure.

http://www.independent.ie/national-news/my-legs-turned-to-jelly-as-i-saw-the-bridge-collapse-1867312.html

The existing Irish oil tankage isn’t far behind that particular lump of steel, I can tell you. Which is really why Brian Cowen needs to seriously think about this country’s strategy going forward. The taxpayers’ shoulders are not as big as they used to be. We have to be smart now, with how we use what money we have.

Brian O’ Hanlon

I am going to be very brief here; it may come across as being curt. I’m not even going to quote but hopefully I haven’t misrepresented what I’ve read.

Re. payments, clearing and deposits. These have nothing to do with confidence in the system. I have a professional knowledge of these aspects of banking and these are basic clerical functions which either operate or do not. Anglo, for example, is not even a full member of IPSO – the payments umbrella – and so do NO direct debits, operate NO ATMs, etc.

Re. devaluation; this is a tool to stimulate exports. This provides a boost for service and manufacturing exporters. It DOES not turn insolvent banks into viable entities. In the Swedish case, most of the retail banking dead wood had already been chopped or was already positioned on the chopping board before the economy had turned around. They had also stomached a sickening asset devaluation which many here seem to believe is something to be avoided. Even this is muddling things again – confusing the general economic condition with the specific and simple question of how to deal with insolvent banks.

Re. “knowledgeable” professionals diagnosing Ireland’s economic problems. My interest in Anglo was spiked by the opposite. I came across some of their treasury people and was completely unimpressed; they were poster boys (all male) for the worst kind of arrogant celtic tiger “professionals”. I have a little knowledge of finance, so I could filter out the arrogant bluster but having done so, I could detect nothing in terms of erudition, thoughtfulness or intelligence. This is personal, to be fair, but I found them to be obnoxious and a bit stupid to be honest. The fact that the were younger than me didn’t help. I also find the general level of knowledge of finance in Ireland to be pathetic even among highly successful business people and professionals; understandable since until recently there was so little money around, it made little sense to study how it actually works.

Re. “macro-economic” numbers justifying spending 4-10 billion to pay off unsubordinated and regular bond holders. I’m side stepping the validity of the numbers, which would be an easy target. My issue is that this is a complete non-sequitor. It wouldn’t matter if a functioning construction industry added 100 billion a year to the economy – that HAS NOTHING to do with the aspect of policy under discussion which is how do you defend spending a couple of years of the entire income tax take on paying off the debts of failed enterprises? Anglo will be as f*cked as they are now except that they’ll have a few less bonds in their list of liabilities.

Re. predicting percentage drops, future demand numbers, etc., etc.; I now have a relatively minor role in a small company which has a team of about 20 rocket scientists – all with highly technical/mathematical PhDs and distinguished previous careers – supported by top IT people with access to the massive computing power and unlimited amounts of market data. We are able to come up with USEFUL (i.e. statistically significant) financial predictions in some very limited situations for perhaps 2 SECONDS into the future. Even then, often it doesn’t work out. As a result, I am skeptical to the point of being scoffing when I hear armchair economists and internet message contributors predicting future figures and numbers years ahead. If any of these figures were worth a damn, the producer of them would be as rich as George Soros. At the very least, read some of Naseem Talib on future “trends” and the value of these sorts of “reasonable” numbers.

jimg,
Anglo is a nonsequitur. It should have no place in post NAMA Ireland, and hopefully will be wound down and the profitable bits sold off. Wait for the waves of redundancies in the Fin. Services sector. My guess is that Anglo will be one of the first, it is only a question of whether it will happen before or after the NAMA legislation next month..

Your points:
@jimg wrote:

Re. payments, clearing and deposits.

Agreed

@jimg wrote:

Re. devaluation; this is a tool to stimulate exports.

Hopefully all of us know that. The point made was that we cannot devalue, being part of the Eurozone. Devaluation was central to Sweden’s recovery; we do not have that option, so comparison to the “Swedish Model” is futile.

@jimg wrote:

Re. “knowledgeable” professionals diagnosing Ireland’s economic problems. ……..(Anglo’s)… treasury people and was completely unimpressed; they were poster boys (all male) for the worst kind of arrogant celtic tiger “professionals”. …….. I could filter out the arrogant bluster but having done so, I could detect nothing in terms of erudition, thoughtfulness or intelligence. This is personal, to be fair, but I found them to be obnoxious and a bit stupid to be honest. The fact that the were younger than me didn’t help.

I disagree. I too have done some trade finance and forex with Anglo (in Dublin) and found them very knowledgeable, efficient and competitive. Age &sex do not matter to me once I get a decent rate/service (in currency matters!) Furthermore, I suspect that their Treasury ops are the only profitable part of that bank.

@jimg wrote:

I also find the general level of knowledge of finance in Ireland to be pathetic even among highly successful business people and professionals.

That is a very big generalization: with the exception of a few journalists and many businesspeople you have a reasonably valid point. It does not help when the national broadcaster employs dingbats. E.g. on RTE’s Radio 1 this morning their business reporter was interviewing the CEO of Kingspan on its results. Q. “When are you going to return to profit?” A. (after an intake of breath) “We are in profit” Q. “well (slight pause)..more, then?” Enough said.

@jimg wrote:

Re. “macro-economic” numbers justifying spending 4-10 billion to pay off unsubordinated and regular bond holders. …….. how do you defend spending a couple of years of the entire income tax take on paying off the debts of failed enterprises? Anglo will be as f*cked as they are now except that they’ll have a few less bonds in their list of liabilities.

It can be justified to save Ireland’s economy if there is a coherent, feasible plan. What most posters are bemoaning is that such a plan is not evident.

@jimg wrote:

Re. predicting percentage drops, future demand numbers, etc., etc.; As a result, I am skeptical to the point of being scoffing when I hear armchair economists and internet message contributors predicting future figures and numbers years ahead.

The impact of market influences on stock, bond and currency prices is much more immediate than on macroeconomic factors. Other areas do not move as fast. For example, insolvency trends (particularly in construction), the numbers of houses built, the property price differential between property in Dublin and other capitals all clearly indicated we would have a crash. That is why I have consistently suggested that more heads – political and banking – should roll.
Rs
K.

Thanks to all of the above posters for their contributions again. I understand it does take a lot of effort and energy on your behalf to make those contributions. I will spend a lot of time and concentration taking in what is said above. Although, beyond thanking you for the contributions, I am not sure I have a lot more to add to the debate. I am fairly satisfied I have exhausted most of the ideas I had in my brain, and opinions I have managed to scribble down above.

I stuck a lot of them on the Designcomment blog also. They might be easier to access there and look a bit more presentable.

Thanks again to all.

Brian O’ Hanlon

I came across some of their treasury people and was completely unimpressed; they were poster boys (all male) for the worst kind of arrogant celtic tiger “professionals”. I have a little knowledge of finance, so I could filter out the arrogant bluster but having done so, I could detect nothing in terms of erudition, thoughtfulness or intelligence.

I believe where a lot of the damage done, was not in the banks such as Anglo Irish. But a lot of financial departments of good Irish companies began to live in the same clouds that you describe above. There are lots and lots of those Irish companies now, which have a difficult un-learning process to go through. That is where the challenges do stand, whatever about Anglo Irish at this stage.

Although, I do take on board Kerry Bog’s opinion which points to the fact the Anglo’s treasury department knew their way around.

I also find the general level of knowledge of finance in Ireland to be pathetic even among highly successful business people and professionals; understandable since until recently there was so little money around, it made little sense to study how it actually works.

I do believe that Jimg’s point here, has a lot of relevance in the context that I am most familiar with, the construction industry.

What Jimg described, is how I think about the ‘award winning’ architects in the architectural profession. They had no money about all through the 70s and 80s in order to learn any better. That is a fact. That is why we are building from a low base in the context of the Irish architectural professionals today. That is what I tried to expand upon in the Sunday Tribune article.

http://www.tribune.ie/article/2009/aug/23/developing-on-the-back-of-a-cigarette-box/

Even though Zoe were doing things cheaply and efficiently, they were leading thinkers in some ways. Michael D. Higgins, had a great line in his Irish Times Saturday 22nd August article, where he claims the ‘questions don’t even rise to the challenge.

The connection between philosophy, ethics, economics and social theory that was possible in Smith’s time, even by way of speculation, is allowed little space now. There is no discourse that has it as its centre. One is forced to conclude that not just language, but scholarship itself, that has failed the public. At a time when new models are needed, even suggested by events such as the ecological challenge and enduring global poverty, even the questions do no rise to the challenge.

http://www.irishtimes.com/newspaper/opinion/2009/0822/1224253076519.html

My only objective in my Sunday Tribune article was to raise a good question about architecture. In order that our questions going forward might rise to the challenge. What I have read in the past from Frank McDonald written about Zoe didn’t quite rise to that challenge that I feel is so important. Because McDonald was mostly taking his cue from Shelly McNamara and Yvonne Farrell – two excellent professionals by international standards, but two who grew up in Ireland without a worn five pound note in profits for most of the time. Their contribution to the debate, in turn, has been defined by the poor economic situation. Not that I condemn they for that, it was their circumstance. I merely wish to point out the fact.

Having gone from a situation of poverty in building terms, they were suddenly trust into a situation where there was a way too much money being pushed through the OPW’s channel to build ‘public architecture’. The spate of local authority head quarters all over the country, being a prime example of that. But also, projects such as the Grafton Architects office block at Merrion Row, though a beautiful building inside it, in many ways. Does not represent the skills in terms of value management, that Ireland Inc. needs to develop in order to competer globally.

I know we cannot export construction of office blocks. But often architecture has a way of displaying the bias and values of the society that produce it. Often architecture rises above what is around it. Maybe that is what Grafton Architects were trying to do, but trying to hard. At the expense of other ideas such as value management. For a building (Merrion Row) which achieved such a small, miserable office floor plate area, an absolute fortune was spent on it. That is why I believe we need both the Zoe tradition and the Grafton Architect tradition to work (hopefully) together.

This article in today’s independent in particular sets out what I mean.

It’s clear now that foreign direct investment won’t solve our employment problems, and most entrepreneurs feel a more streamlined machine is needed to create future world-beating Irish brands. . . . .

. . . The recession will give local businesses access to cheap, empty factories, warehouses and equipment as well as a trained work force.

With a little support there will be some great companies born over the next number of years. We must aim higher, we must aim for world class.

http://www.independent.ie/business/forget-foreign-investment–lets-grow-our-own-multinationals-1867544.html

Brian O’ Hanlon

BTW, this was one of the once-in-50 years events that the security of oil supplies in Ireland report was modelled around.

Disruption is expected in the Dublin docks area this morning as the Dublin Council of Trade Unions has called on members to join a demonstration in support of striking Siptu members.

http://www.irishtimes.com/newspaper/breaking/2009/0824/breaking6.htm

Something had better happen soon, or that 1.5 days of oil reserve is going to run dry. Dublin port doesn’t have a leg to stand on in this strike and the workers know. It is time to do what Thatcher did with coal. It would at least remove the oil supply component from the equation in future industrial actions.

Brian O’ Hanlon

Barry O’ Halloran wrote an excellent article in today’s Irish Times newspaper.

The Government may well be more concerned with getting the legislation past a bolshie Opposition and a lukewarm Green Party, but once it does that, we are once again in uncharted legal territory. And at that point, nobody, not even the lawyers, can tell us what will happen next.

http://www.irishtimes.com/newspaper/finance/2009/0824/1224253136147.html

There is also something else from Éibhir Mulqueen in the Times:

But she said that every single economist in the country would have said that former minister for finance Charlie McCreevy’s economic philosophy of “when I have it, I spend it” ran counter to every economic instinct.

http://www.irishtimes.com/newspaper/ireland/2009/0824/1224253138195.html

Brian O’ Hanlon

Now that is what I call an academic ‘wallop’ from Gurdgiev.

http://trueeconomics.blogspot.com/2009/08/economics-24082009-alan-please-read-me.html

Brian O’ Hanlon

More breaking news at Dublin port.

One employee on today’s march said she was being offered just €4,000 redundancy pay after 11 years working with the company.

http://www.independent.ie/breaking-news/national-news/hundreds-join-striking-port-workers-on-dublin-march-1867993.html

I know exactly where she is coming from there.

Brian O’ Hanlon

@garethace wrote:

Barry O’ Halloran wrote an excellent article in today’s Irish Times newspaper.

http://www.irishtimes.com/newspaper/finance/2009/0824/1224253136147.html

Brian O’ Hanlon

No. He’s wrong in several historical and factual aspects. Export credit would have covered the non-payment by Iraq had AIBP a valid policy (It didn’t because the falsely declared foreign beef to be Irish). Furthermore, AIBP was not saved, it went under and was bought back by Goodman for pence in the £.
Sloppy journalism, making misinformation fit what he wants to say.
Rs
K.

Thanks Kerry Bog for that input. I knew there had to be another side to that story.

Funny how history, even though I vaguely recall the early 90s when it happened, can be re-modelled to say what one likes.

Now I realize why I wish to stop short of working in pure journalism. Working out there in industry is more exciting anyhow.

B.

There is one question I would like to ask all of you, before I lay this to rest and pursue other ventures. It is to do with what Mike Milken described in his article.

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

I worked for a development company. I don’t know if how similar or dissimilar it was to others. But the whole thing in summer to autumn 2008, was to sign as many lease agreements as we could in order to re-structure the company from a capital point of view.

Previous to that, we simply would have left the commercial space sitting there on the market and not really worried about it. Eventually, the right kind of tenant, which was usually a large state tenant or retail operator would come along and take it from us. Because the locations were that good, we didn’t work too hard.

That philosophy had to alter very much though by December 2008 – ultimatims were flying around, that our model wasn’t nearly going to work. That is when space that was left in one big chunk before started being dividied up and let to whoever was out there. It was a very big U-turn to make for one company.

That reminds me very much of Jon Ihle’s article in yesterdays Sunday Tribune.

http://www.tribune.ie/article/2009/aug/23/is-anglo-now-the-enemy-within/

In the end, from my point of view, an Irish development company was like an Irish bank. We were chasing liquidity as much as possible to try and cover our deposit to loan ratio. To try and compensate for the ‘gearing up’ we did in 2006, when the good times looked set to continue for ever. Or maybe we were completely drunk at the wheel.

Because my accountant friend in a rival development company told me, over beers, at some stage in 2007 that a recession was definitely on its way. When he told me, I didn’t even want to listen to his point of view. But he was much better able to read figures than I ever was. He was still only my age, but he had worked in project management capacities inside a whole string of the big guys, IBM, Microsoft, Vodafone and others. I know he was heavily involved in the Sandyford project of Cork developer John Fleming, though not working directly for him.

Brian O’ Hanlon

@garethace wrote:

There is one question I would like to ask all of you, before I lay this to rest and pursue other ventures. It is to do with what Mike Milken described in his article.

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

Nothing much to argue with there. “Cash is King” is a well-worn cliché. The Celtic Tiger boom was credit-driven, with “Sales” ruling the credit control area. Too much micromanagement and specialisation, not enough “big picture.” At a micro level companies seemed to forget about getting paid. Guns were put to heads – “if we don’t supply, competitor X will get the business.” It applied right across industry, including the Banks, where a fast turnaround time (e.g. Anglo, often with crap risk assessment) and corner-cutting hastened the fall of many.

While we’re on bonds, one of the factors that many have ignored is the role of the rating agencies. (I’ve mentioned it in the past, but nobody picked it up.) These are the same guys who gave us the great ratings on DotCom companies and led to its subsequent bubble.

Back in June of 2008 when I posted here about the huge rise in construction sector failures, I also was watching the figures on Bond defaults, but did not post as it was not germane to the discussion. At that time there were 28 defaulting entities (including four confidentially rated), affecting debt worth $18.4 billion. That already exceeded the 22 defaults in all of 2007 affecting debt worth $8.1 billion and just a couple shy of the 30 defaults in 2006 affecting debt worth $7.1 billion. Of the 28 defaulters to end-May in 2008, 27 were from the U.S., and one from Canada. By contrast, there were only 17 defaulters in the U.S. in full-year 2007 and 22 in 2006. The pace of U.S. defaults through the first five months of the year was the fastest since 2003.

Enjoyable as it has been, this discussion is gone far from architecture, we should draw a line!
Rs
K.

Cash is King, thanks for that.

I’ll remember it the next time, if there will be one.

The Celtic Tiger boom was credit-driven, with “Sales” ruling the credit control area.

I suppose, because the Celtic Tiger boom was credit driven, and the global financial crisis was credit related, it made a lot of sense to assume what Ireland needed was to ‘un-block’ the credit channels again. This is the assumption made by all NAMA architects of the problem as they perceived it.

Sure credit fuelled the Celtic Tiger. But what that credit did, was it inflated prices of assets resulting in banks which are now insolvent. Which is a different matter entirely from banks that have liquidity problems, related to something like an on-going global credit crisis today. This mis-representation by the architects of NAMA to the Irish people, is what bothers me.

If the banks are to learn anything from the crash, we need to define the problem better. We also need to know who was calling the shots in the end, where larger developers were concerned. I am close enough to the situation myself, to know precisely, up to and including the present day, it is the banks who tell Irish developers what to build and where to build it. That bothers me quite frankly and I don’t know if banks even realize they are doing it.

They should stop now, and allow everyone to be what they are meant to be. For better or for worse. Otherwise, as Michael D. Higgins put it, scholarship as well as language has failed us. The questions don’t even rise to the challenge. What are we training our architects and professionals etc for? If there professional opinion isn’t even valuable enough to be used?

That brings us right back into the architectural debate, if nothing else will.

Guns were put to heads – “if we don’t supply, competitor X will get the business.”

Exactly right, that was certainly the case.

It is like the great old slogan of the dot.com of being the ‘first to market’, the early mover gets it all and so forth. Except in Ireland, that mythology was made into: People who bought any land, any where in the Irish landscape ‘cheap’ before 2000, were now minted. Because they had been the early movers, so to speak. What that implied was that large land owners were completely 100% secure. Recent events have proven that is far from being the case.

With property, every weekend it would appear in the newspaper that X or Y competitor had bought a site, tied up a deal or was after a tenant lease. We were only running a race in order to pass out our competitors. That was the kind of psychology we were caught up in, for sure. It was an information driven bubble as a lot of bubbles are.

These are the same guys who gave us the great ratings on DotCom companies and led to its subsequent bubble.

Robert Shiller’s book, which I didn’t enjoy greatly the first time I read it, about the Subprime Solution was good on that aspect. One asset bubble was replaced for another in terms of what was ‘sought after’. Again, the information driven aspect comes to the fore.

It could be strongly argued that Alan Greenspan was the architect of much of it. But it could also be argued that peoples’ addiction to information broadcasting on the price of assets, shares, property etc, also had much to do with it.

Brian O’ Hanlon

The cat is out of the bag now.

Green Party Chairman, Senator Dan Boyle, has warned that his party’s support for the NAMA legislation cannot be taken for granted.

http://www.rte.ie/news/2009/0824/banks.html

Brian O’ Hanlon

@garethace wrote:

The cat is out of the bag now.

http://www.rte.ie/news/2009/0824/banks.html

Brian O’ Hanlon

Poor Dan.

Rejected at the polls so he has to get some attention somehow.

The Greens will grandstand,hum and haw,squeak and moan but will toe the Government line.

Its either that or face the electorate and get wiped out.

@Cliff Barnes wrote:

Poor Dan.

Rejected at the polls so he has to get some attention somehow.

The Greens will grandstand,hum and haw,squeak and moan but will toe the Government line.

Its either that or face the electorate and get wiped out.

They are not great political options are they?

B.

Suzanne Lynch reports about the BCA Research special report on Ireland. It is interesting to get a view from abroad on the Irish situation. It may present a different picture to how we see ourselves.

It points out that Ireland has one of the highest private sector debt/GDP ratios ever experienced in the industrialised world; the banks have higher property exposure; and participation in the European single currency precludes the use of a “currency relief valve”.

http://www.irishtimes.com/newspaper/finance/2009/0825/1224253193741.html

PJ O’Meara offers an opinion in relation to an investigation of the Irish banks.

If the inquiry passes these legal tests this cross-party body will still have to handle explosive political material. The collapse of the banking sector will be a key political battleground in the next general election.

http://www.irishtimes.com/newspaper/opinion/2009/0825/1224253194584.html

O’Meara also points out an obvious limitation to a PAC inquiry.

Parliamentary inquiries are subject to particular time pressures as they expire automatically on the dissolution of the Oireachtas. It is generally accepted that it would not be possible for a PAC sub-committee to reconvene in the aftermath of a general election because the inquiry would have to maintain the same membership throughout and this might not be possible after a general election.

It would save the taxpayer millions, but would test the stamina and ability of a political sub-committee. I think believe it is an important part of the ajenda from a national point of view, for generations to come.

McCarthy’s proposal for a parliamentary inquiry into the banking crisis is feasible and has merit. Parliamentary inquiries can work quickly and for a fraction of the cost of other forms of public inquiry. This banking inquiry will take no small amount of political skill, courage and energy.

Brian O’ Hanlon

From Engineers Ireland,

Imported oil accounts for over 55% of Ireland’s total primary energy requirements and petroleum products supply the energy needs of – Over 99% of the transport sector – Over 80% of the agricultural sector – Almost 40% of the commercial sector – 33% of the residential sector.

http://www.engineersireland.com/services/web-tv/3/title,2185,en.html

We cannot afford to take our eye off of other issues, in dealing with the NAMA solution – that is the difficult part about NAMA. How to manage and organise it, while doing so many other things, including the investigation into the banking system, and dealing with High court and Supreme court cases for besieged property developers, at the same time.

PJ Meara is right, there is a lot of explosive political material to be handled over the coming months.

Brian O’ Hanlon

Funny, but not funny, if you know what I mean.

Once we have a clearer view of these derivative instruments extent, we will have to write them down to ‘zero’ real value, for I suspect there can be no recovery on secondary lending that was extended on collateral with real current value that has fallen 70-80% in the crisis.

http://trueeconomics.blogspot.com/2009/08/economics-25082009-mad-maths-at-nama.html

Brian O’ Hanlon

Good man, Eamon Ryan. He is only telling the truth.

Commenting on today’s article in The Irish Times by 46 economists who called for the Nama project to be reconsidered, Mr Ryan said:

“They should have been there been there five years ago or four years ago “when the real economic mistakes were being made in terms of a property bubble and a macro economic policy that actually should have been different.”

“I wish they’d actually come out at that time and said that we need to be doing things differently,” he added.

http://www.irishtimes.com/newspaper/breaking/2009/0826/breaking48.htm

I have to say, I do side very much with the 46 economists, but I did read again, Alan Alhearne’s letter/email in today’s Irish Times.

http://www.irishtimes.com/newspaper/ireland/2009/0826/1224253267244.html

I was impressed by Alan Ahearne’s courageous stance agains the 46 economists. What I would hate to see happen, is a basic anti-NAMA one sided debate. I understand that many of the pro-NAMA politicians have expressed this view too. But there was one paragraph from Ahearne’s letter which I read this morning:

I would invite you to read the legislation for yourself on this matter (and indeed on all other matters). It should be obvious that it would not be helpful to specify an end date for Nama in the legislation, since this might force Nama to engage in a firesale of assets in its final year.

Who is going to pay me to sit down and read the legislation? Who is going to pay Constantin Gurdgiev, Karl Whelan or Brian Lucey to read the legislation for that matter? It is nothing but cut backs in both Trinity and UCD all this summer, with possibly more in the pipeline. The Fianna Fail government went off on holidays, and didn’t even dish out a basic ‘retainer’ fee to interested parties to spend their time with the legislation, in order to understand it.

I mean, I have blogged, I have done national radio interviews and been published in the national newspapers in terms of my opinions about Zoe developments. I have even sent my CV into the NTMA and obtained a friendly response by email. I don’t know what else to do at this stage, except to find work and keep my gob closed. Which is what I should have done all along, if I was smart. I am not too smart though. I am Irish and that is the trouble.

As you know, the Dáil will return on September 16th to commence debate on the published actual Bill in the context of a wider debate on the future of our financial sector. The publication of the legislation in draft form will facilitate an informed debate at that time.

I have to question Alan Ahearne on this count also. An informed debate will not take place, or anything like it. It will only be a load of mis-informed hot air as usual. The debate in the Dail will be un-informed for all of the reasons I have explained above and some others. What the Labour leader, Eamon Gilmore pointed out is correct. The Authorney General is the main ‘author’ of the NAMA legislation, even though Peter Bacon was its main ‘Architect’, and Alan Ahearne its ‘Packie Bonner’.

“The Attorney General is the principal author of the Nama Bill and would be compromised,” said Mr Gilmore.

http://www.irishtimes.com/newspaper/ireland/2009/0826/1224253267263.html

Brian O’ Hanlon

@garethace wrote:

I have to say, I do side very much with the 46 economists,

In a line please summarise the 46 economists.

@PVC King wrote:

In a line please summarise the 46 economists.

In a line, I would refer to Karl Whelan’s contribution on the 13th of August PrimeTime panel discussion, where he shook his head in disbelieve, when solicitor Graham Kenny tried to assert the Irish banks had no choice but to ‘throw good money after bad’, in the case of Zoe developments outstanding loans, where trade creditors were paid off.

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

Brian O’ Hanlon

@garethace wrote:

Who is going to pay me to sit down and read the legislation? Who is going to pay Constantin Gurdgiev, Karl Whelan or Brian Lucey to read the legislation for that matter? It is nothing but cut backs in both Trinity and UCD all this summer, with possibly more in the pipeline.

Why should you be paid? Why should the various profs be paid? It is called being informed, a basic part of their job, and yours as a citizen. Those guys are well paid already, have a short work schedule and months of holidays. They are supposed to be teachers, for c…sake, knowing what is happening is an expected part of their classwork preparation.

The real question is to ask why it is necessary to read beyond local media to get a true picture and why no journalist has yet written an informed opinion piece on NAMA. Nobody has yet pinned Cowen/Lenihan down with simple basic questions.
Why? most of the media hacks are not informed or their point of departure is from an agenda based in ignorance and as a result do not know the right questions to ask. As a result we must suffer the sighs of Vincent Browne, the smart-assed comments (not questions) of the stroppy bitches in RTE & Newstalk, and buffoons like Hook and Duffy.

As for Ali Baba and the 40 economists, I would be ashamed to put my name to such BS, all based on surmise and conjecture. Why not draw up a list of pertinent questions or even suggestions for DoF and Govt?

Anyway, a camel is a horse designed by a committee. God knows what would be designed by 40 economists, academics at that!
Rant over.
Rs
K.

Ryan Air boss, Michael O’Leary gives some views today, featured on Irish Independent web site.

“The European Central Bank came to Ireland’s rescue last year when the combination of appalling mismanagement by Bertie Ahern’s government over the past decade left Ireland hopelessly unprepared for the effect of the property/banking crisis and the recession which would, if it were not for Europe’s help, have caused a collapse of the Irish economy.”

http://www.independent.ie/business/irish/ryanair-to-spend-euro500000-on-campaign-supporting-lisbon-1870412.html

Brian O’ Hanlon

@KerryBog2 wrote:

Why should you be paid? Why should the various profs be paid? It is called being informed, a basic part of their job, and yours as a citizen. Those guys are well paid already, have a short work schedule and months of holidays. They are supposed to be teachers, for c…sake, knowing what is happening is an expected part of their classwork preparation.

Yeah, I know.

I purposefully, made the post above, sound as if I was clueless. However, I took the line of argument for a simple reason. It is a little like the Edward De Bono technique, when you say something absolutely ridiculous, in order to re-organise the logic path in your brain, in a different direction. It is very easy to burst the bubble of my argument. (That is what we tend to focus on in western society . . . trying to point out the deficiency of logic or rationality in someone else’s argument . . . we are good at that, but we tend to ignore other thought processes)

Alan Ahearne chose to attack the 46 Economists based on their exact quotation of ‘words’ from the lengthy draft legislation document. If you read Ahearne’s letter you will see that.

http://www.irishtimes.com/newspaper/ireland/2009/0826/1224253267244.html

The purpose of my line of argument, is to highlight that Alan Ahearne knows the document so well, that he was able to search through it, line by line, looking for individual words. Now, before anyone tries to point out the very obvious again. I know he didn’t leaf his way through 180 pages or whatever length the document is. He obviously did a ‘search’ in Adobe Acrobat Reader. A much easier thing to do.

But the point I wish to highlight, is that Alan Ahearne as an employee of the State, rightly makes it his job to look at the exact wording. It is wonderful that Ahearne is there doing that. We should all be very glad he is there. It is important work and someone has to make sure it is right. The point I wish to make, is while someone is watching the words very carefully, someone else should be watching the big picture to see how it is developing. The person who is in charge of the bigger picture should be interfacing with the 46 economists. Not the person who is in charge of the word-by-word aspect of the job.

Because this has all become a big distraction for Alan Ahearne. He shouldn’t be next or near this debate in my view as an experienced project manager. I blame the project manager, who is supposed to be overhead Alan Ahearne in the NAMA process for not doing their job properly. All the 46 economists want is someone they can have a banter with, who is willing and able to engage in a discussion on their broader level. (Not least, because they will need to teach and discuss NAMA on this broader level as part of their educational work all through next term and beyond) The project manager who is in charge of Alan Ahearne, should have identified the need to given the 46 economists a suitable ‘interface’ to argue with. That should have happened months ago. If that person was made available to them, they would be a lot happier all round. Alan Ahearne is not that person, but he is being allowed to ‘front’ the discussion from the government’s point of view.

I think, the 46 economists would have got much better satisfaction from minister Eamon Ryan’s comment today. That the economists should have opened their mouths 4-5 years ago, when it was really needed. That is what the 46 economists really deserve, is someone who can hit the ball back, which they are attempting to serve. Alan Ahearne isn’t able to do that, and as a consequence things are getting nastier and nastier, while the 46 economists are getting more and more ‘profile’ that perhaps they do not credit. While Ahearne is getting dragged deeper and deeper into something, which has nothing to do with his task. A task that he is well capable of doing, if left to it. If the government had anyone in project management worth their salt, they would know this. They would do the old ‘umbrella handle’ trick with Alan Ahearne and remove him as the ‘front man’ for NAMA on the government’s behalf.

What the 46 economists are doing is challenging the document, based on its overall strategy. So Alan Ahearne’s comments in today’s newspaper do not even confront the 46 economists on that same battlefield. Ahearne has tried to turn it into a war of words, because that is the component of the NAMA plan he is intensely focussed on, and knows most about. That is the work that fascinates Alan Ahearne as an economist. Within professions you will always get frictions going on, between the various factions, who believe their fascination is what really matters. There is nothing at all wrong with that. We do need economists who look at detailed wording. Where someone goes into the nitty gritty stuff and tries to weed out ‘bad language’. It is an interesting field of research in itself, but Ahearne should be having his discussion with some other bunch than the 46 economists. Of course it would be stupid if I was paid and all of the other economists were paid to read through the NAMA legislation. Because then we would all begin to read it word by word and perhaps not stand back at all from it, to see it in the greater context of the country and it’s citizens . . . as you so rightly pointed out above.

But the point I wish to make is a general one – the sheer poverty of our tools for thinking out problems and communicating them to one another in today’s society. That is really what has us beaten every time. Not only in Ireland, it is a problem wherever you go now in the first world. It is something that knows no boundaries, every single job and occupation is suffering from a lack of ability to think and communicate effectively between ourselves.

That is what is so useful about the Archiseek medium we are in at the moment by the way. Because it tends to address the problem I am talking about, and encourage people to improve in the way they communicate. Even when they are sitting down at the dinner table with one another and ask each other to ‘pass the plate of spuds’. I admired Alan Ahearne on the one hand for making his stand against 46 other experts. But on the other hand, I was absolutely disappointed with the way in which he made his stand. Ahearne is supposed to be the expert, the bright fellow, and I thought his response lacked some willingness to engage with the 46 guys on their own terms. I am reminded again, of Michael D. Higgins article in the Irish Times last Saturday – not only language, but also scholarship has failed us. Not even the questions rise to the challenge.

http://www.irishtimes.com/newspaper/opinion/2009/0822/1224253076519.html

Brian O’ Hanlon

Good article in the Guardian about Battersea power station site.

Critics argue that for developers the real prize is the land around the power station, and that there is little concern for its heritage status.

http://www.guardian.co.uk/business/2009/aug/28/battersea-power-station-real-estate-debt

Brian O’ Hanlon

That is quite frankly untrue.

You have to understand the location to understand that a leisure use inside the power station would be a massive success. To the East you have a combination of holdings which are ripe for residential development and will in the medium term produce 10,000 plus homes which will be predominently occupied by affluent young prefssionals. To the North you have the affluent districts of Victoria, Belgravia and Chelsea and to the South and West lie Battersea and Clapham which both have a disproportionate population of young professionals who eat out and socialise disproportionately. The Power station will become another Covent Garden albeit on a much larger scale; there is not one of the major restaurant groups that would not cut off their right arm to get in there and pay a central London rent to have access to such a high quality demographic.

The question is do public bodies grant aid the project as a stand alone project or do they await development funding streams to materialise for the wider development of the site.

Does any Green party member still think that joining FF in government was a good plan? Stephen Collins, Irish Times political editor writes today:

The Greens also have to contend with their past but from a very different perspective. Since the party’s foundation in 1981, members have campaigned against planning abuses and they can claim to have forecast exactly what would happen as a result of the property bubble. If the party was now in opposition it would be having a field day at Fianna Fáil’s expense, and would, in all likelihood, be soaring high in the opinion polls.

http://www.irishtimes.com/newspaper/opinion/2009/0829/1224253466985.html

More to the point, what seems to be the best option now, in terms of damage control for the Green party? I believe, if its ideas are strong enough, which they are, the Greens will ride through their current downturn in popularity. Both Green government ministers have achieved a lot more in cabinet than they otherwise would have done outside of cabinet. The Greens aren’t going to disappear anytime soon as there is too much grassroots members who do still support the ideals. Even if the Greens will cease to be a major political influence for a while.

Lenihan’s real dilemma is that he has been left to clean up the mess left by Bertie Ahern and his pals. That was symbolised every summer for a decade by the Fianna Fáil tent at the Galway Races, and its ugly underbelly was exposed to public view at regular intervals during the hearings of the planning tribunal.

It seems to me that Ahern knew he was going down and managed to take down a party with a very viable, long term plan with him.

Brian O’ Hanlon

You have to understand the location to understand that a leisure use inside the power station would be a massive success.

Sure listen, I spoke to Dave Wetzel, the vice chair for Transport for London all through Ken Livingston’s era as Mayor of London. Dave and myself had a good chat about the fact, that roofs all over London were being removed, in order to avoid payment of rates. That buying property and sitting on the investment was a one way bet. Inevitably, government investment is injected which raises the value of the site, and that premium is captured by the land owner, who doesn’t pay any tax on that.

Take for example someone in Dublin who owns a house beside a LUAS line and sells at the height of the market. What percentage of the value of their property was added as a result of the LUAS project, funded by the taxpayer? It was good that Treasury were willing to co-fund the train station and line extension to the Battersea site. But the Guardian article raises all the right issues.

Why was the roof removed and the interior allowed to decay? Why aren’t buildings all over London, without roofs on them being used to provide places where ordinary London dwellers can go and work, and have jobs? I think the Guardian article exposes a lot of difficulties with the current system, where we do not have land taxation. It would burn the fingers off of guys such as Treasury Holdings, who hope to row in there, in the hope of extracting value from the site in one massive building project.

Brian O’ Hanlon

The roof may have been removed because unlike the Irish treatment of business rates which takes account of the cyclical nature of property; any vacant building at that time in the UK may have been liable to pay business rates on vacancy after 3 months; business rates generally equating to about 40% of the annual rent; the UK system doesn’t allow for cyclical movements and full business rates kick in after 3 months.

We had this discussion on the forum 4 or 5 years back in respect of a similar tax regime in North American cites leading to developers or more often than not land speculators vs developers pulling down large former industrial complexes and leaving vacant lots. Brixton PLC pulled down twice as much as they built in 2008 as a result of this frankly ludicrous tax provision which encourages urban blight.

Treasury in my opinion bought into this site in 2006 when the market was fully functional with a view to using their expertese in delivering large scale renewal projects. Their timing was unlucky and until development finance materialises it will be very difficult for them to deliver on their vision for the site. I have no doubt that the challenge of being the first developer to actually acheive completion on this site was a massive motiviating factor in their decision to invest. Simple choice for government accelerate this project with grant aid or wait for the market to return which will be a lot sooner than most other parts of the UK given its location.

For the avoidance of doubt the roof wouldn’t have been removed to avoid rates today; listed buildings now receive automatic full business rates relief if unoccupied. One must consider the roof was removed due to grounds of health and safety if the specific covering was not in a safe condition at a particular time or a tax provision that no longer exists.

If for regeneration if no other reason this site should be brought into play at the earliest possible time as it is in too strategic a location to not be delivering for the City.

PVC King,

You have indeed presented a very logical and expertly explained argument above. I don’t have a problem with where you are coming from. To be honest, if someone offered me a job to work on a large roll out, yuppie village project, I would pack away my scrupples and get down to work.

However, I want to point out for the record, that I have questions about the re-development model we seem to use. It suits a main contractor for sure to have a large project to work on. Sure. But I have to say it. Yvonne Farrell is right to a certain degree, in this context. What you do see in Ireland is construction rather than architecture. I would normally prefer to look at it from the construction point of view, rather than the architectural point of view. But Yvonne’s comment does carry weight in relation to site such as Battersea, or sites such as Mallow in Country Cork.

But apart from that, I think the point is not that Battersea had its roof taken off. The point is that many very ordinary un-listed buildings at certain locations in London, which housed viable businesses and enterprise have been vandalised by developers who purchased the building, for its land value. Not for the factory sitting on the land, with its 300 odd workforce.

The overall point is that we have become too clever in Great Britain and Ireland. We know how to fiddle the game only too well, in order to capture those profits accruing to land. Which are taxation free and funded often by a taxpayer. Brian Lucey should be concentrating on this aspect, and the need for a proper land taxation in Ireland. Rather than focussing on this ‘once off’ transfer of wealth from the public to the private purse.

It is not a once off thing, it is an on-going thing. That is why minister Eamon Ryan’s comment is relevant, that the economists should have spoken out, four or five years earlier. We need land taxation in order to halt these developers who speculatively buy land. We need to keep people in employment and we need to provide them with a workplace.

Rates are a taxation on the ‘property’. But of course, as soon as you vandalise the ‘property’ and fire all of the employees, you fly underneath the radar and don’t have to pay property tax. Land taxation on the other hand, would ensure that vandals cannot do what they do.

Brian O’ Hanlon

Dr. Garret Fitzgerald’s Saturday article in the Irish Times.

Moreover, the present populist anti-Nama mood, currently intensified by the manifesto of the 46 economists, could all too easily lead to the Opposition overplaying its hand – and there are signs of this happening.

http://www.irishtimes.com/newspaper/opinion/2009/0829/1224253462340.html

Brian O’ Hanlon

As usual Garret is right.

There is a real danger of talking ourselves into a recession that we convince ourselves is so deep that there is no way out of. The article below really p****d me off, this type of piece is far from objective and has no place in a paper of record such as the FT; it is a very cheap shot.

http://www.ft.com/cms/s/b83102fe-9590-11de-90e0-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Fb83102fe-9590-11de-90e0-00144feabdc0.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fuk

The reality is closer to a situation where the productive sector always competed with the best globally but that if it is taxed out of existance it will cease to exist having removed their valuable plant for Eastern Europe.

The real drag on the Irish economy is the cost of having much lower property taxes such as stamp duty, Capital Gains Tax etc flowing than our peers at present and 200,000 unemployed construction workers or almost 10% of the population. Given how heavily taxed people are elsewhere in the economy the last thing that is required is another stealth tax e.g. water or council tax which would be particularly unfair given the wedge people have forked out on stamp duty when times were better.

Put simply the over-reliance placed on property over the past decade will take a long time to work through; however at 22,500 homes per year it is clear that from a postion of over-production at 90,000 homes in 2006 the correction has been an over-reaction. What is required is a clear plan to get production of homes back to c50,000 units a year and regardless of what NAMA does with the subordinate bondholders; getting roughly half the 200,000 unployed property industry workers back to work and the other half retrained to new industires must take precedence.

It must however not be at a cost of damaging the reputation of the financial services industry which is where it is hoped a lot of the graduate jobs will be from 2011 onwards. I don’t envy the Government’s position on this but the result must ensure that the Irish Bank’s Senior Debt is protected, the construction industry funded to recover and that confidence in Dublin as a financial services centre of excellence is retained.

All very good points PVC King.

I only wish I had the wherewithal to continue an engagement with the issues, the development of policy and offer whatever services I could in the NAMA process. Still, I take confidence from the web streamed debate on the RTE website today, that there are a number of others able to do that on my behalf. I have sat on a chair for four hours today, simply glued to the exchange in the web streamed joint Oireachtas committee debate on NAMA. That is the level of concentration with which I can focus on these issues. Because they pertain so much to an industry I worked in for a long while. However, that industry is in the process of falling apart, and I fell out of it a while back.

Many points of interest to me, did arise during the four hour long joint Oireachtas committee debate. But in terms of Ireland returning to a production of 50k housing units per year. It was noted that zoning exists in Ireland for around a million new homes on Ireland land at the moment. That is around 50k homes on the market over the next twenty years. Any one looking at the loan book of NAMA, will have to account for the existence of all of that zoned land. It will ultimately impact on the value of some of the NAMA portfolio.

On the other hand, it was suggested that Ireland could now use NAMA as a means to regulate certain aspects of the property market. It could be ensured that an orderly release of land and property could take place. In that way, the old vested interests in the Irish property market could be neutralised. They wouldn’t be able to ‘corner the market’ as they had done in previous years. That is one possible form of ‘social gain’ from NAMA, which could be bought at some expense to the commercial viability of NAMA on behalf of the taxpayer.

So it will be interesting to see how this plays out. From my own experience, I know that the ratio of land to construction values of dwellings near the LUAS line in Dublin South reached almost, but not quite ten is to one. (At the tail end of the Celtic Tiger boom) What sickens me personally, is that individuals in the architecture profession seemed to relish in that environment. It meant that no cost in terms of construction was un-justified, or no detail too expensive, because the cost of construction was small by comparison with land values.

I am reliably informed now, that the ratio of land to construction value, should be more like one is to three. That simple yard stick alone will illustrate how silly, not only home buyers and speculators had become. But also poor example it afforded to design professionals trying to establish principles by which to approach residential as a building type.

We can take a lot of encouragement from what minister Brian Lenehan said today. He suggested, that the NAMA process will enable the construction industry to work with a better model than it did in the past. That the methods of financing in the Irish construction and development industry were in fact primitive in the past. So the model by which the 50k housing units per annum are produced, will be radically different to what it was in the past. There is certainly opportunity presented there.

The old argument by the architectural profession was always that, if houses were ‘worth more’ that the architect could get involved and input more into the process of designing homes. Indeed many design professionals though finding it difficult to buy their own home, were very satisfied to be designing housing units that sold on the market for 500k. Even if the demand for 500k priced homes was held up by a nation of speculators. The architectural profession rejoiced in the fact they would have better design opportunities.

That was one of the criticisms I heard regularly while working for Liam Carroll. While we were in a buoyant market around 2006, Carroll was still selling product into a market which didn’t display the level of improvement which designers hoped they would see. The level of improvement which would create a significant enough margin for architects to get involved in the design process for residential schemes. Carroll as a developer and possible ‘client’ to an architectural consultancy, wasn’t making the greatly inflated margin available to them as design consultants, in order to produce new, radical and innovative residential design. The kind you see on the cover of all the best architectural magazines, I presume.

In other words, so that Irish architectural practices could get themselves on the cover of the best architectural magazines. I hope that NAMA will provide a vehicle for doing this in the future. Without the very toxic element, which required the massive margin to be there, in order to facilitate good design. During the Celtic Tiger there was an inappropriate relationship forming between ‘good design’ and inflated prices of residential property. One which was healthy for no party, most of all the designer. That is why I worked through the Celtic Tiger with guys such as Liam Carroll.

I always felt it was immoral of architectural profession. On the one hand, ordinary people were being squeezed to the hilt to buy a house of any description. But architects rejoiced because something deeply unsustainable and even toxic, afforded them design opportunities and employment. The prospect NAMA does allow for is the involvement of design professionals right through the process of development, in almost every aspect. But they can do so, without requiring the price of the product to shoot through the roof. That in turn will enable society to view architects as being on their side. Instead of architects being viewed at the moment, as a luxury that ordinary people cannot afford and should avoid.

The most important point I took from my viewing of the web streamed joint Oireachtas committee debate on NAMA today – was that NAMA is a cooperation with the Irish banking institutions. In order to allow the Irish banks to realise their losses as soon as possible. Rather than doing, what banks would do in the interests of their shareholders. Which is to conceal the rather large problem borrowers they may have on their books, over a period of decades.

NAMA is a way to avoid Irish banks taking the ‘entrenchment’ position where they cease to lend and operate in the Irish economy for a decade or more. In other words, to try and work their own way out of their losses over an extended period of time. I think, in this regard, the NAMA proposal might utilise the small size of Ireland to its advantage. In Japan by contrast, the losses of the banks were realised over a very long period of time. Which resulted in the Japanese changing their government in the elections this year for the first time.

I really wish I had time to say a lot more on this myself. I would enjoy debating and dealing with the issues. But committments elsewhere have really chewed up what is left of my time.

Brian O’ Hanlon

@PVC King wrote:

As usual Garret is right.

Not going to get into an argument on Garret the Good usually being right, but on this occasion he is correct.

@PVC King wrote:

There is a real danger of talking ourselves into a recession that we convince ourselves is so deep that there is no way out of. The article below really p****d me off, this type of piece is far from objective and has no place in a paper of record such as the FT; it is a very cheap shot. http://www.ft.com/cms/s/b83102fe-9590-11de-90e0-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Fb83102fe-9590-11de-90e0-00144feabdc0.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fuk

…a real danger of talking ourselves into a recession? Er, em, did I miss something? I agree with that article. It hits the nail on the head on almost everything, and is a far cry from the BS that the Economist used to write about Oirland. Granted the comments about Quinlan and Carroll were a bit gratuitous, but they grabbed attention.

@PVC King wrote:

What is required is a clear plan to get production of homes back to c50,000 units a year and regardless of what NAMA does with the subordinate bondholders; getting roughly half the 200,000 unployed property industry workers back to work and the other half retrained to new industires must take precedence.

Not a hope in hell. We will not need 50k homes a year for at least a decade. Nor do we need 100k employed in the industry.

Over the six years up to 2004 employment in the construction sector had increased by 80,000 or 63.5%. By 2007, more than 206,000 were employed in the sector, accounting for 11% of total employment in the economy or 16% of total private-sector non-agricultural employment. Furthermore, in 2004, omitting the financial institutions in the Top 1000 list, building companies accounted for 147 (or 16%) of the remaining 920 companies.

Sadly too many people in the construction sector have not yet realized that it is totally screwed. I was talking to a builder at the weekend and he is confident that he will get paid by a company that, in my opinion, will be a core constituent of NAMA. The money he is owed is now more than 12 months past due. Sad, but true. I didn’t spoil his few pints.
Care to comment on the merits of “pay when paid” contracts anyone?

Rs
K.

I’m with Kerry Bog on this. I haven’t a clue where PVC gets this 50K a year figure. The population is falling this year for the first time in 15 or 20 years. The inevitable higher taxes required to service the tripling of the national debt this year alone will drive even more people out. The country has a huge stock of empty houses.

And please – “talking ourselves into a recession”? This expression sent my internal bullshit meter off the scale when it was first bandied about 2 or more years ago by the likes of Bertie. It’s even more ludicrous now.

We really did make monumentally disastrous economic mistakes over the last 5 years. What is galling is that the scale of these mistakes (spiralling government spending, failure to regulate retail banks and continuing to apply stimulus to an overheated property market) are such that they swamp all the economic good that Ireland has achieved.

There is simply no avoiding the horrendous scale of what is going on. In particular It will take THREE ENTIRE YEARS of income tax take just to repay the nominal amount of borrowing this year and that is without the cost of borrowing to capitalise NAMA. I have done some rough financial models to see how long it will take before the entire income tax take will be required just to pay the interest on the national debt and it is less than 7 years. If you think an optimistic pep-talk will fix this problem, you’re living in la-la land.

I agree with KerryBog above. The attitude he described, of the man having his few pints over the weekend, is exactly the same attitude I have encountered myself. Indeed, it is so that it is impossible to hold any balanced conversation regarding the future. Guys who grew up in the Irish construction industry are in deeper trouble than we all realize. I don’t know what it is going to take for many to understand, it is all over basically. It is still a deeply unpopular thing to suggest out there. Typically, in conversations I have to talk on only one side of the argument. Namely, the one which suggests it will be all okay and this is all a bad dream of some sort.

Although, minister Brian Lenehan did his best today in the joint Oireachtas hearing to illustrate that the economic commentators 30% of €90 billion of loans valuations was off the mark. Lenehan also pointed out repeatedly, that the market saw both BOI and AIB as having a viable future.

(I am only grabbing snipets here, off the top of my head. One should watch the four hours of debate and question-ing, if one wishes to get a better grasp of the debate)

Lenehan also pointed out that Ireland’s taxpayer was somewhat insulated against the prospect of over paying for NAMA loans already. By the fact that we already own Anglo Irish bank, which will transfer roughly €30 billion to NAMA. So there is no risk there of over paying for the loans, since we already own the bank. Also, that 25% of BOI and AIB was available to the government in the form of warrants on the bank equity. (acquired by the Irish government at under 60 cents) Additional shares in both banks, if deemed necessary would be bought in the form of vanilla bank shares. If those were purchased by the government, there would of course be a risk of the shares losing their value and the government making a loss.

That markets would quickly ascertain the extent of BOI and AIB distressed loans after the 16th Sept, based on the amounts of government bonds issued to both of those institutions.

The main objection that Brian Lenehan had with the ‘good bank’ proposal by Fine Gael was a logistical one. That it would take in the region of one full year to establish such a bank. Even though, the model already exists and has been approved by the ECB elsewhere in Europe. But the importance of a recovery in the real economy was stressed by a lot of questions to the minister for Finance. That unless the real economy recovered, then an improvement in the property portfolio value was impossible. To that extent, it was suggested that a ‘good bank’ would be required at some stage, no matter what, in order to get funds flowing to small business.

As I said, I would love to have time and energy to describe more of the preceedings today. But it looks as if I am fresh out of resources once again, duties call etc.

Brian O’ Hanlon

Reasonably decent job of reporting done by Joe Brennan and Thomas Molloy here.

http://www.independent.ie/business/irish/dont-pay-over-the-odds-for-toxic-loans–ecb-warns-1874355.html

I have problems with how summarised a lot of the newspaper articles are. However, newspapers are in the business of selling shortened versions of events to the public, for the price of the paper I guess.

The independent article is one of the more useful ‘short summaries’ I have come across.

The same story is carried by the Irish Times today on it’s front page.

http://www.irishtimes.com/newspaper/frontpage/2009/0901/1224253590059.html

Brian O’ Hanlon

In another piece in todays Irish Independent, I came across this line.

“The capital ratios of the two banks are more than adequate,” Mr Lenihan said.

http://www.independent.ie/business/irish/no-nationalisation-of-banks-despite-writedown-on-loans-1874290.html

Minister Brian Lenehan yesterday did acknowledge the fact, that moving the loans into NAMA might adversely effect the capital ratio of the banks in the short term. Which would require the government to buy the vanilla stock market equity in those two banks, if needed. But at least, we would be getting a cleaner banking system to work with.

Personally speaking, I believe that is all well and good. What I am more interested in, is that we get down to the level of the property and land itself. That we endeavour to try and clean up some of the mess, that exists down at that basic level also. That is important in my view, for the future of the construction and development industry in Ireland. How effective or otherwise, NAMA will be in that regard is one of my chief concerns.

Along with the obvious one voiced by the opposition in yesterday’s debate. What guarantee or incentive does a NAMA solution provide, that credit will begin to flow in the Irish system again. In other words, what is to stop Irish banks simply allowing their government bonds to lie idle inside of their institutions in order to bolster their capital ratio position. But there again, minister Lenehan pointed out, that even if the government bonds remained un-cashed in the Irish banks – it would still improve things. The wider markets would take heed of the fact that the Irish banks had those bonds available, and therefore, would have better confidence to invest in Irish banks.

It was also mentioned in the debate yesterday, that Irish government bonds issued by NAMA, could and will be traded on markets in the manner every other bond is.

Brian O’ Hanlon

An article worth reading in today’s Irish Times. Eoin McDermott, a chartered surveyor wrote:

Another important factor in this process will be the categorisation of property assets including undeveloped unzoned land, undeveloped zoned land (greenfield, brownfield, prime urban), undeveloped property with planning refusal, undeveloped property with planning permission, partially completed buildings, completed unoccupied buildings, completed partially occupied buildings, etc.

It is imperative that an overall strategy and action plan is put in place for the macro management of these distressed loan assets.

http://www.irishtimes.com/newspaper/opinion/2009/0901/1224253586371.html

Brian O’ Hanlon

George Lee certainly does have a point. This development in the NAMA debate emerged today.

George Lee said small businesses are none the wiser about their future after yesterday.

http://www.independent.ie/breaking-news/national-news/lee-accuses-lenihan-of-withholding-nama-details-1874764.html

Small business is still not satisfied it seems that things are moving quickly enough from their point of view, in order to start a recovery from the current recession. As Kieran O’Donnell, Fine Gael TD said in yesterdays joint Oireachtas question time on NAMA, we are looking now at property to try and find answers going forward into the future. It was a point raised by deputy O’Donnell yesterday, but like a lot of questions it fell to one side and never got picked up again.

O’Donnell is correct. We are looking perhaps in the wrong area for solutions to the current problems facing the Irish nation. The Fine Gael proposal of a ‘good bank’ or whatever mechanism, does present an excellent solution of getting funds flowing to in-debted Irish business again, in order to prevent further erosion and possible long term damage to the Irish economy.

It boils down at this stage to an argument over which solution out there, will be the fastest to prevent damage occuring. Minister for Finance, Brian Lenehan does not believe that the Fine Gael solution would work fast enough to be effective. That cleaning up the Irish banking institutions loan book, and allowing those private banking institutions to start doing their work again, is the best and fastest solution.

Brian O’ Hanlon

and pigs might fly… http://www.guardian.co.uk/business/2009/aug/28/battersea-power-station-real-estate-debt

@KerryBog2 wrote:

…a real danger of talking ourselves into a recession? Er, em, did I miss something? I agree with that article. It hits the nail on the head on almost everything, and is a far cry from the BS that the Economist used to write about Oirland. Granted the comments about Quinlan and Carroll were a bit gratuitous, but they grabbed attention.

KB, I sat at my desk late one evening in November of last year watching Citigroup come close to collapse; you got a real sense that the financial set up as I knew it had come to an end; a $500bn titan reduced to a negative value at that time probably exceeding $100bn. Those types of evenings were spent up to March 2009 and there was a real feeling that the Anglo-Saxon model that I grew up with had reached its end and that we would all surely be on the street by the end of 2009. Everytime I turned on the TV there was Robert Peston convincing me again and again that we were all screwed.

However things in the US and UK have since that time turned around; much of it to do with confidence. I agree that Ireland has got deeper problems than any other Eurozone country coming out of the last cycle. I couldn’t dispute that even if I wanted to. However the country also has a lot of positives.

1. Eurozone membership
2. Educated workforce
3. Low Corporation taxes
4. Ability to service the MNC sector
5. Sector specific excellence in high value areas such as IT, Pharma, Organic chemicals; fund custody and management

If a clear plan existed there is certainly a way out of the current impasse; it is not going to be easy and there will be pain but you are not all screwed. My issue is not saying that it was a problem to say that in 2007 talking the economy down was a problem there was and Mervyn King as Governor of BoE is the only leader I saw that was completely honest that we were in for a very tough time into 2010; My problem is the continued negativity long after the worst is over and whilst the rest of the World is gearing up for the next growth cycle; no-one in Ireland seems to be excited about that opportunities that this new growth phase in key markets presents.

@KerryBog2 wrote:

Not a hope in hell. We will not need 50k homes a year for at least a decade. Nor do we need 100k employed in the industry.

Over the six years up to 2004 employment in the construction sector had increased by 80,000 or 63.5%. By 2007, more than 206,000 were employed in the sector, accounting for 11% of total employment in the economy or 16% of total private-sector non-agricultural employment. Furthermore, in 2004, omitting the financial institutions in the Top 1000 list, building companies accounted for 147 (or 16%) of the remaining 920 companies.

By the time you add in architects, engineers, surveyors, mortgage brokers, conveyancing solicitors, concrete producers, PVC Window makers!! and interior desigers the figure was according to the CIF a lot higher at close to 400,000.

I also fundamentally disagree that it will take a decade to get production up to just over 50% of 2006 levels. I’m not saying that property is the driver of the economy; I would further say I wouldn’t invest in an Irish bulky goods retail park for at least another 10 years. However property is an aspirational product that most Irish people wish to buy into. Where a lot of the bubble I think came from was the building of endless properties for the workforce that were building the units; as soon as production collapsed these guys lost their jobs and lost their homes or the intended purchasers couldn’t afford the deposits or in some cases just repatriated.

If the sectors where World Class Excellence such as IT, Pharma, Chemicals and Financial Services can be put onto a sustainable growth pattern it is the employees and directors of those enterprises that will consume the property. What I can’t see as having changed is that in 2003 when the population was lower than now; there was pent up demand in Dublin for 400,000 units (Dr. Brian Hughes DIT). To me is inconceivable is that in the intervening time when household formation patterns have led to even smaller family units that all of that demand has been satisfied and that with current demographic trends factoring in a recovery that those types of numbers can’t be hit.

@KerryBog2 wrote:

Sadly too many people in the construction sector have not yet realized that it is totally screwed. I was talking to a builder at the weekend and he is confident that he will get paid by a company that, in my opinion, will be a core constituent of NAMA. The money he is owed is now more than 12 months past due. Sad, but true. I didn’t spoil his few pints.
Care to comment on the merits of “pay when paid” contracts anyone?

Rs
K.

I work away from contracting so I have no idea what the phrase means but I would estimate that a lot of stage payments contractually due have not been made on time. What is clearly required is that the shakeout of the property investment, development and construction sectors happens and that once the viable are seperated from the failed that the sector is funded and not starved of cash to produce homes and employment.

Indications from published research indicate that Prime London Commercial stock has risen 25% in value since March. All about confidence in the rest of the economy to underpin long run average demand; 2006 levels won’t be seen in this cycle, assuming a new cycle commenced in March 2009. If Ireland had the Punt you would all be screwed luckily you still have a currency, a low corporation tax and growing markets. Cleaning up property lending excesses of the past decade is the key to the indigenous sector; doing it in a way that preserves employment is crucial.

http://www.irishtimes.com/newspaper/ireland/2009/0902/1224253665122.html

According to Moody’s credit-rating agencies, California house prices will not return to peak boom levels until 2030 😮 Anybody think Ireland will out-perform the Golden State? http://lansner.freedomblogging.com/2009/09/01/housing-price-peak/35113/

A scheme to incentive-ise buyers was put out there by Glenkerrin and McNamara’s Radora company.

Finance Minister Brian Lenihan, however, expressed concern and asked the Financial Regulator to examine the regulatory and legal implications of the scheme.

http://www.independent.ie/business/irish/firm-locks-horns-with-grehan-over-euro100000-grange-dispute-1875130.html

These are times where one should have at least one crystal ball, if not too. Morgan Kelly’s one seems to function better than most, these days.

Brian O’ Hanlon

Powerful opinion piece in today’s Irish Times by Seán Barrett, senior lecturer at the department of economics in Trinity College Dublin: “Nama is a macroeconomic three-card trick to refinance incompetent bankers and reflate a property bubble without addressing reform in the property market, banks, or bank regulation” http://www.irishtimes.com/newspaper/opinion/2009/0902/1224253663079.html

“On April 5th last year the Economist asked: “Where are house prices most overvalued?” The answer was Ireland. Almost a third of house price increases between 1997 and 2007 could not be justified by economic fundamentals. The Irish house price rise of 251 per cent between 1997 and 2007 was double the US national index and was notably uncompetitive compared to Germany, Japan, Italy, France, Denmark, Australia, Canada and Sweden, and even with other house bubble countries such as the UK and Spain.”

Thanks Trace, I was going to link that article myself, because I felt it is worth reading. I thought this was a good paragraph.

The proponents of Nama describe the sale at market prices of impaired assets as a fire sale. The description is, of course, wrong. A fire sale involves assets harmed by the fire and the damage is incorporated in the price. The sale of empty houses, shops, hotels and land bought at inflated prices arises from the economic incompetence of the builders and bankers concerned and not because of any fire damage.

http://www.irishtimes.com/newspaper/opinion/2009/0902/1224253663079.html

I for one, am sick of hearing that ‘media friendly’ phrase of fire sale prices, in relation to everything about the Zoe developments court cases. Well done, professor Barrett.

Brian O’ Hanlon

Prof. Barrett covers several of the points I’ve already made here, so it is hard to disagree with most of his article. However, much of what he writes is predicated on a supposition that NAMA will take on loans at an uneconomic value. At this stage we do not know the price/discount. Goes back to my point about a lack of communication from our Government, about which I have been rattling on for quite some time. Until we know what the discount is almost all comment is BS. In the 1630’s days of the tulip bubble, bulbs that were exchanged for houses went back to being a regular, albeit slightly expensive garden flower. Many speculative properties/sites in Ireland will never regain the prices paid. We as a nation can only hope that NAMA does not overpay, and that it will be properly constituted and managed. The longer NAMA’s launch is delayed the worse it will get.

PVC King, your comments are based on your perception of the glass being half full. From what I see in the current market, I view the glass as half empty, badly cracked and leaking.

@PVC King wrote:

However the country also has a lot of positives.
1. Eurozone membership
2. Educated workforce
3. Low Corporation taxes
4. Ability to service the MNC sector
5. Sector specific excellence in high value areas such as IT, Pharma, Organic chemicals; fund custody and management

These apply to many other EU States, all of whom, unlike us, have said YES to Lisbon. The cost of our “excellence” is also considerably higher, leading to the closure of pharma and IT companies. Ask anyone at Dell. Our much-vaunted financial skills have long been undermined, as has our total absence of financial regulation for decades, e.g. Irish Trust Bank, Merchant Banking, PMPA, InsCorp, Ruznak, Ansbacher, offshore deposits, overcharging, Parmalat, etc.

@PVC King wrote:

My problem is the continued negativity long after the worst is over

The worst is far from over. See my concluding comment below.

@PVC King wrote:

By the time you add in architects, engineers, surveyors, mortgage brokers, conveyancing solicitors, concrete producers, PVC Window makers!! and interior desigers the figure was according to the CIF a lot higher at close to 400,000.

That strengthens my argument. With a total employment force of about 2 million, we have 20% employed in one domestic sector? Eggs, basket comes to mind.

@PVC King wrote:

Where a lot of the bubble I think came from was the building of endless properties for the workforce that were building the units; as soon as production collapsed these guys lost their jobs and lost their homes or the intended purchasers couldn’t afford the deposits or in some cases just repatriated.

No. There was unwarranted building of houses in the belief that someone living in a housing estate in a city would buy a holiday home in a housing estate in a rural village, with no amenities, few services and no transport. When those houses did not sell, they were used to house the foreign workers and the rent deducted from their wages, to help the builders’ cashflow. This disguised the early signs of the collapse.

@PVC King wrote:

What is clearly required is that the shakeout of the property investment, development and construction sectors happens and that once the viable are seperated from the failed that the sector is funded and not starved of cash to produce homes and employment.

Indications from published research indicate that Prime London Commercial stock has risen 25% in value since March. All about confidence in the rest of the economy to underpin long run average demand

There is a dim glimmer in the UK property market but that is all it is. In a recent report by accountants BDO, UK manufacturing output – a key figure – remains significantly below pre-recession levels. They also estimate that there will be about 2,500 business failures in 2009, compared to the 1,600 recorded in 2008, and they estimate a figure of 2,000 for 2010. Personal bankruptcy levels are at an all-time high, and probably will exceed 120k this year. (Question – is it a matter of time before Ireland adopts a similar form of personal bankruptcy to the IVA in the UK?)

In Ireland, the rate of business failure is equally high. In the construction sector the increase in failures has been spectacular, with first-half construction failure figures for 2007,2008,2009 being 60, 130 and 250 respectively. Total insolvency figures more than doubled between H1 2008 and H1 2009, from about 300 to about 750.

When NAMA gets going we will see the start of the shake-out. Most of the contractors I have seen recently could not be classed as viable. The big guys will be defunct and will bring many more with them. The efficacy of personal guarantees will prove almost worthless, key assets will be unreachable and expensive homes will be in wives’ names. Then the subbies and suppliers will discover that they never will be paid for their debts. Their accountants will not sign off on y/e figures, or balance sheet valuations, so a lot more will fail. A contributory factor will be lack of finance due to the opaqueness of the financials, where lenders will mistrust the stated values of fixed assets and the real or true worth of the applicant’s debtors. (The same reasoning can be applied to why FG’s “Good Bank” idea is a dead duck. There currently is money available, but who would lend on an asset that cannot be properly valued and when the repayment ability is totally suspect?)

For those reasons Joe Public will be slow to buy, unsure of his investment, and the market will stagnate just as it did when the Rotweiler made his comments on Stamp Duty changes. That’s why I remain negative and cannot change until we see what NAMA brings.
Rs
K.

The efficacy of personal guarantees will prove almost worthless, key assets will be unreachable and expensive homes will be in wives’ names.

Again, I would like to agree with the above statement. A major bulk of transactions carried out in the construction sector were done with personal guarantees during boom times.

NAMA is not going to solve or even address that. Heck, we have problems in the High court case today, even trying to define in terms of the construction sector, what grossly insolvent means. If the courts are facing that problem today, NAMA will face precisely the same problem as we try to move forward.

ACC bank are probably correct in that regard. We need to establish some firm ground rules, for the market to work by, and fast.

KB is correct, the longer NAMA drags on, the worse things will get.

A contributory factor will be lack of finance due to the opaqueness of the financials, where lenders will mistrust the stated values of fixed assets and the real or true worth of the applicant’s debtors.

That applies very much to the large names in the construction industry, who did not develop skills it the area of reporting.

With one or two exceptions. I understand it, that a couple of builders are honest with their subbies, and did inform them of cash flow situations throughout the boom years. Maybe those contractors and sub-contractors will be better off.

But in most cases, sub-contractors were involved with several different contractors. So their exposure, though better in some areas, will be a lot worse in others.

Brian O’ Hanlon

I heard David McWilliams giving his opinion on Drive Time this evening with Mary Wilson. Those of you interested should check out the replay of the interview, available on the RTE website.

McWilliams wrote published something today in the Irish Independent.

http://www.independent.ie/opinion/columnists/david-mcwilliams/nama-money-pit-could-be-our-economic-stalingrad-1875206.html

John Mulligan had a letter published in today’s Indo also.

http://www.independent.ie/opinion/letters/nama-in-danger-from-overseas-1875139.html

Brian O’ Hanlon

@KerryBog2 wrote:

Prof. Barrett covers several of the points I’ve already made here, so it is hard to disagree with most of his article. However, much of what he writes is predicated on a supposition that NAMA will take on loans at an uneconomic value. At this stage we do not know the price/discount. Goes back to my point about a lack of communication from our Government, about which I have been rattling on for quite some time. Until we know what the discount is almost all comment is BS. In the 1630’s days of the tulip bubble, bulbs that were exchanged for houses went back to being a regular, albeit slightly expensive garden flower. Many speculative properties/sites in Ireland will never regain the prices paid. We as a nation can only hope that NAMA does not overpay, and that it will be properly constituted and managed. The longer NAMA’s launch is delayed the worse it will get.

PVC King, your comments are based on your perception of the glass being half full. From what I see in the current market, I view the glass as half empty, badly cracked and leaking.

http://www.rte.ie/business/2009/0902/jobless.html

The workforce only leaked 4,000 jobs last month; the worst is over. You are right the Government needs to communicate this.

EADS the parent of Airbus made their first headline investment in Ireland today

http://www.rte.ie/business/2009/0902/jobs.html

If Ireland wasn’t a place to invest they would have gone elsewhere; the UK paid £340m to get 1,200 Airbus jobs or £283k per job. I’m sure this was done on much more favourable terms.

http://www.gazetteseries.co.uk/news/4549166.Airbus_jobs_safe_thanks_to___340_million_government_grant/

@KerryBog2 wrote:

These apply to many other EU States, all of whom, unlike us, have said YES to Lisbon. The cost of our “excellence” is also considerably higher, leading to the closure of pharma and IT companies. Ask anyone at Dell. Our much-vaunted financial skills have long been undermined, as has our total absence of financial regulation for decades, e.g. Irish Trust Bank, Merchant Banking, PMPA, InsCorp, Ruznak, Ansbacher, offshore deposits, overcharging, Parmalat, etc.

The worst is far from over. See my concluding comment below..

Dell made a decision on this before the downturn; once they outsourced production to Singapore based holding company last September this was always on the cards; to have retained the back office and sales support in Cherrywood speaks volumes of the quality of the workforce. Lets not forget the fact that we harbour finance frauds I mean Nick Leeson manages Galway United, Barings still have their entire art collection and most of their clients;it is simply owned by someone else; compare any of the above excluding Parmalat which was an Italian scam on Venezeulan assets and the rest is nickle and dime stuff which happens everywhere. Disaster Myopia is alive and well once you haven’t suffered personally.

@KerryBog2 wrote:

That strengthens my argument. With a total employment force of about 2 million, we have 20% employed in one domestic sector? Eggs, basket comes to mind.

No. There was unwarranted building of houses in the belief that someone living in a housing estate in a city would buy a holiday home in a housing estate in a rural village, with no amenities, few services and no transport. When those houses did not sell, they were used to house the foreign workers and the rent deducted from their wages, to help the builders’ cashflow. This disguised the early signs of the collapse..

Can’t disagree with any of the analyses on the collapse but I would say that no banker will rush into those types of lending decisions in the name of securing market share for a very long time. It is however essential that funds are available to complete North Wall, Heuston Station and other central areas. If Nama fails and the banks default on senior debt there will be one of two outcomes; either the taxpayer will have to inject tens of billions into the banks in some other form be it equity or debt or in the absence of this no Irish bank will raise finanace on reasonable terms for a decade. The Nama formula is best as the level of discount is the only variable and once the valuation methods are transparent the market will rise in anticipation of the sceptre of the perceived fire sale disappearing.

@KerryBog2 wrote:

There is a dim glimmer in the UK property market but that is all it is. In a recent report by accountants BDO, UK manufacturing output – a key figure – remains significantly below pre-recession levels. They also estimate that there will be about 2,500 business failures in 2009, compared to the 1,600 recorded in 2008, and they estimate a figure of 2,000 for 2010. Personal bankruptcy levels are at an all-time high, and probably will exceed 120k this year. (Question – is it a matter of time before Ireland adopts a similar form of personal bankruptcy to the IVA in the UK?).

25% in 3 months is not a glimmer it is a relief rally; there is no quality stock to be bought at the moment as no one is selling. Bankrauptcy is a lagging indicator and every country in the OECD has hit records recently on personal failure. The hangover for Ireland is that interest rates were out of step with pricing pressures for a sustained period; with deflation particularly in assets such as second hand property and cars I’m sure lenders are taking a view on whether they want the collateral back.

@KerryBog2 wrote:

In Ireland, the rate of business failure is equally high. In the construction sector the increase in failures has been spectacular, with first-half construction failure figures for 2007,2008,2009 being 60, 130 and 250 respectively. Total insolvency figures more than doubled between H1 2008 and H1 2009, from about 300 to about 750..

With so many companies having failed presumably one of two scenarios will play out; either directors of insolvant companies will start up new entities and compete with those still standing or the sector will not be funded and there will be mass emmigration.

@KerryBog2 wrote:

When NAMA gets going we will see the start of the shake-out. Most of the contractors I have seen recently could not be classed as viable. The big guys will be defunct and will bring many more with them. The efficacy of personal guarantees will prove almost worthless, key assets will be unreachable and expensive homes will be in wives’ names. Then the subbies and suppliers will discover that they never will be paid for their debts. Their accountants will not sign off on y/e figures, or balance sheet valuations, so a lot more will fail. A contributory factor will be lack of finance due to the opaqueness of the financials, where lenders will mistrust the stated values of fixed assets and the real or true worth of the applicant’s debtors. (The same reasoning can be applied to why FG’s “Good Bank” idea is a dead duck. There currently is money available, but who would lend on an asset that cannot be properly valued and when the repayment ability is totally suspect?).

I can see International pension funds filling the gap left by the developers who are now out of the market; once yields hit 7% with international tenants such as Vodafone, H & M, Pfiezer etc this ticks all the boxes of investment grade property; it is important to remember that the NAMA portfolio would be made up of loans that are split almost equally between, UK/European/US Commercial, Irish Commercial and Development land / half developed schemes. These are three very distinct asset classes; the former probably has a yield floor close to 6% or 16.67 times net rent; the Irish Commercial if International investors were targetted probably has a yield profile of about 8% although that does factor in local independents and over-rented out of town retail parks which no international investor would touch as they don’t understand the people who pay the rent or don’t as the case may be. The development category is where a third of the loans are and where you can’t accuratley assess value until a market returns for new space.

@KerryBog2 wrote:

For those reasons Joe Public will be slow to buy, unsure of his investment, and the market will stagnate just as it did when the Rotweiler made his comments on Stamp Duty changes. That’s why I remain negative and cannot change until we see what NAMA brings. K.

That it is why it is totally vital that NAMA is completed as quickly as is possible so that a market can regroup in whatever form is deemed sustainable by the participants.

Can’t disagree with any of the analyses on the collapse but I would say that no banker will rush into those types of lending decisions in the name of securing market share for a very long time. It is however essential that funds are available to complete North Wall, Heuston Station and other central areas.

Good that you mentioned Heuston Station above. It seems they were one of the more honest contractors out there.

If Nama fails and the banks default on senior debt there will be one of two outcomes; either the taxpayer will have to inject tens of billions into the banks in some other form be it equity or debt or in the absence of this no Irish bank will raise finanace on reasonable terms for a decade. The Nama formula is best as the level of discount is the only variable and once the valuation methods are transparent the market will rise in anticipation of the sceptre of the perceived fire sale disappearing.

That is great, and well understood. But what are we going to give the banks to do, in the absence of the property game?

I still agree with everything said, about North Wall Quay and Heuston Station. There is no point in the wide earthly world in leaving those sites go unfinished. There may even be additional projects in the right locations, that we need to consider building.

The problem I have, is I haven’t drove an automobile around the upper Shannon region – which Joan Burton referred to as NAMA land. I haven’t driven the ‘Ring of Kerry’ either, though I do know from trips years ago, that the house building racket was out of control in the Kerry region a long, long time ago.

Perhaps PVC King and myself are guilty of only knowing the central areas, where the story is much more positive. But someone such as KerryBog rightly deserves to be listened to, in terms of what happened around the country. I felt that KB’s point, that the 46 economists should be focussing on what masterplan is required for semi-rural Ireland, struck a particular chord with me.

Although, I am ill-qualified to understand the problems of semi-rural Ireland anymore. Chartered Surveyor, Eoin McDermott aluded to the distinction between finished, un-finished, planning permission received, refused, etc, etc sub-categories in the NAMA portfolio yesterday. But there also needs to be a distinction in the NAMA portfolio between central, strategic projects and ones that are not.

I can see International pension funds filling the gap left by the developers who are now out of the market; once yields hit 7% with international tenants such as Vodafone, H & M, Pfiezer etc this ticks all the boxes of investment grade property;

I hope you are right. Point well made.

it is important to remember that the NAMA portfolio would be made up of loans that are split almost equally between, UK/European/US Commercial, Irish Commercial and Development land / half developed schemes.

Point well made also, and in fact it is much more fine grained that that in reality. I refer you above to my point, on distressed semi-rural assets as described so well by KB and others here in discussions. Comparing those assets to ones such as North Wall Quay, Heuston Station and what have you. If the likes of those prime real estate opportunities cannot make it pay, then we might as well all hang our hat up for good.

The development category is where a third of the loans are and where you can’t accuratley assess value until a market returns for new space.

Good point.

That it is why it is totally vital that NAMA is completed as quickly as is possible so that a market can regroup in whatever form is deemed sustainable by the participants.

I am repeating myself here I guess. I have said it before. The media, and even Mr. Mulcahy may have been mistaken in saying it also. People refer to the value of ‘property’ rising in value over a period in the United States since the 1920s. What really happens of course, is that the market begins to understand, especially given such a vast space as the United States where the valuable land really is. What is created on the land, that which we call ‘property’ or construction has gone down in value over the decades.

Hence why it is so economical now to build high rise buildings, of no architectural character. Often replacing buildings with very fine architectural character. Stewart Brand’s book, How Buildings Learn has some great photos, taken of cities through the ages. Normally there is only a church or something remaining in the modern photo.

Kenneth Galbraith relates in his book about the Crash of ’29, about the Florida land rush. People were worried at one stage, that land would simply ‘run out’ in Florida before they got a chance to buy it. I think, that is something like what happened in the semi-rural portion of the Irish banks’ bad property portfolio. Somehow, an assumption became lodged in the brains of middle aged Dublin dwellers, who saw no reason to live in Dublin anymore, and found they could sell their little homes for half a million or more. They engaged in something akin to a Florida land rush. They spread into the countryside and the unknown.

It was understandable, that once they spread into that unknown, that at some stage the journey for them would raise a whole lot of ugly questions they could not cope with. Hence the ‘land rush’ finished as suddenly as it started. I know one enterprising hair dresser in Dublin city, who owned 10 acres of bogland in Laois and still believes it would be worth building a house there. Despite the fact, that the site is land locked with no road into it. He is not a stupid guy, but he grew up and lived his entire life in Dublin city centre.

The local country builders in the upper Shannon region, saw the ‘Dubs’ coming there way, and got carried away equally. But the perception started in the brains of those people who sold homes in Dublin, and possibly had never even been outside Dublin for much of their lifes. That is my greatest criticism of the Greencore masterplans for Carlow and Mallow. If Greencore doesn’t rise above their mis-perception of life outside of Ireland’s capital, they will find themselves wading beyond their depth soon also.

The trouble is though, with those native Dubs, who are very cosmopolitan, open minded and intelligent – that is their biggest problem. It is so difficult for them to admit they could be incorrect about anything. Including the ‘land rush’ into the upper Shannon region. The failure to ‘mark to market’ that sort of rubbish, both on the buyer and builder side of things, is what really will upset everything in ‘property’ terms. It will affect, viable projects such as North Wall Quay and Heuston station. It shouldn’t, in theory. But in practice, the good has got mixed up with the bad.

Brian O’ Hanlon

I really think NAMA might be missing the whole point, and mixing up what is ‘good’ or sustainable development and what is bad or un-sustainable development.

There is a lot of talk in the newspapers today about Liam Carroll’s property loans going into NAMA. I think there is absolutely nothing wrong with the Zoe developments property portfolio. It is one of the healthiest in the country, from a point of view. There should be no real rush for NAMA to deal with Liam Carroll’s loans, other than the fact that he made a royal mess out of his company. That is an entirely separate issue, to saying there is something ‘bad’ or otherwise with Liam Carroll’s property portfolio. That important distinction needs to be made.

The first loans I would probably move into NAMA, if it was up to me, are those really un-sustainable ghost towns and so-called ‘development lands’ speculatively purchased in the upper Shannon region. Which may take decades and decades to work through the system and be worth anything, if at all. But the problem with NAMA is, the big boys will be the first to be taken care of. I don’t think there is any real risk with Liam Carroll’s property though. We all know it is going to recover, be developed, leased or sold at some stage. I don’t think there need be any doubt about that.

The side of the portfolio that really worries me, is the ghost towns way out there in the sticks of NAMA land. Unfortunately, though it is causing the worst fears and doubts in terms of the bank loans, it will be last in the queue to go into NAMA. Because the smallest of the 1500 lenders in the NAMA portfolio, hold those bad developments in the upper Shannon ghost towns. If there was some way we could get them moved in the NAMA vehicle first and simply bull doze the construction, which is never going to pay for itself, I would be all for it. I don’t know how you do that in legal or financial terms though.

Also, in today’s paper.

The incumbent, John Hurley, retires on September 25.

http://www.independent.ie/business/irish/tcd-expert-to-be-named–as-central-bank-chief-1876748.html

So this is how the timeline is shaping up. The Liam Carroll High court decision, the NAMA debate and an Irish Davos all in one week from 14-18th sept. With Pat Honohan setting into his new role in the Central Banking Commission a week later on the 25th Sept.

Of course, this is not to mention, a Lisbon Treaty referendum, another budget and a possible general election.

Did someone say politicians will be handling political dynamite over the next 3 months? A lot of work for media, a lot of opportunities for speakers and all in all, a lot of ‘debating’ to be done.

Brian O’ Hanlon

Alot of spinach triangles popeye

Has anyone read the ECB’s comments about the draft NAMA legislation? I am beginning to understand further now, how NAMA has to operate within the wider Euro-system. I mean, it is the ECB who is buying the bonds, or at least the Euro-system which the ECD is responsible for managing.

I can understand now, why this NAMA thing has to work within the European context. It cannot be treated as a primarily Irish thing. We tend to think that the Irish people are paying for NAMA, and hopefully Ireland will be able to ‘settle up’ its tab at the end of the day. But in the meantime, it is the ECB who is funding the entire project.

Why hasn’t this distinction been made in most discussions?

Paragraph 2.2 specifically I am referring to in this document:

http://www.ecb.europa.eu/ecb/legal/pdf/opinion_con_2009_68_f_sign.pdf

Brian O’ Hanlon

By the way, paragraph 2.4.1 in the ECB comments is flawed. It shows exactly the limitations of doing ‘property business’ of any kind within this sort of legal and civil servant type world of EU guidelines.

It demonstrates too what David McWilliams said about NAMA. It doesn’t bring with it the point of view of the real life trader. Because it is drafted by civil servants and lawyers. That is basically what is wrong with the world today – China is more like a country which is run by engineers. Japan has even followed that trend nowadays. But in the EU zone we are getting all tangled up in legals.

The first things to go into NAMA are those ghost towns in the upper Shannon region. Taking a bull dozer to them right away would be the best thing that could happen to the Irish property portfolio. But paragraph 2.4.1 of the ECB comments states that:

Institutions with the largest concentration of impaired assets will be given priority.

Oh boy.

Brian O’ Hanlon

@garethace wrote:

…………. It cannot be treated as a primarily Irish thing. We tend to think that the Irish people are paying for NAMA, and hopefully Ireland will be able to ‘settle up’ its tab at the end of the day. But in the meantime, it is the ECB who is funding the entire project.

No, no, no.
Simplistically, Ireland issues bonds (think post-dated cheques) and uses these to buy the debts from the Irish banks. The banks then take these bonds to the ECB who exchange them for cash, which FF contend banks will lend to industry. FG say the banks will sit on it, Labour says it is all me eye and the banks should be nationalized.

It is a tenet of international finance that governments cannot “go bankrupt.” When they default, their debts are rescheduled, (Google Paris Club and you will find what you need) and payment is eventually made. Mainly used for binnned economies in Africa and Latin America. If the country is totally screwed, like Haiti, the debt is written off, which happened a few months ago.

Ireland (i.e. you & me as taxpayers, or rather our grandchildren) will have to pay for those bonds. If the EU is worried we are off-track, they will send in the ECB to make sure they get their money back.
The piper always has to be paid!
Rs
K.

PS. Haiti put me in mind of the time it closed its border with Santo Domingo. Migrant Haitian workers could not cross, so the Santo D sugar harvest was in doubt. The solution for SD? Its President told the public servants that they were to down pens, take up machetes and get out into the cane fields. Now there is a thought. The boys from Kildare St down the Bog of Allen with sleans, directed by wee Mary and Biffo!

Brian, the fundamental mechanism is called a repo arrangement.

The government will print bonds and give them to NAMA to capitalise it. In return the government gets all the equity in NAMA (a fancy way of saying the government will own NAMA). NAMA will swap the bonds for worthless loans with the banks. The banks can then borrow from the ECB using the government bonds as collateral – this is the repo arrangement. Strangely the government will end up PAYING the banks the coupon on the bonds – which from what I’ve learnt about how NAMA is to be structured will be about 1.2 – 1.5 billion a year. This will be at a floating rate (like a tracker mortgage).

When the bonds reach maturity, the government will have to pay the banks the face value of the bonds (this is the 90 billion) if they are regular bonds. (There is another type called zeros which don’t have this “interest only” behaviour – at the end of the repayment schedule you’ve discharged your debt.)

This is why the ECB has to be informed of and approve all government borrowing as every bond created by the government can be used as collateral with the ECB. So yes the ECB is vital and central to the whole plan. You could try something similar if you had your own central bank but it generally leads to the collapse of your currency ala Iceland or Zimbabwe and a flight of capital.

So to summarise: the government ends up paying the banks interest on the 90 billion (say 1.5 billion a year currently but this could rise if the ECB rates rise) plus at some date in the future will be obliged to pay them 90 billion cash. In exchange they get to own a bunch of loans to insolvent builders and developers many of whom are close to bankruptcy; the collateral for which (if the claims about O’Carroll are any guideline) is likely to be worth 30% of the value of the loan.

Thus leaving the government with some useless “development land”, a load of deserted estates in the middle of nowhere (which are likely to be energy inefficient and will be unsellable even if a bounce occurs) and some half finished building sites in exchange for at least 1.5 billion cash a year plus a 90 billion balloon payment in 10 or 15 years time to the banks which caused this disaster.

I’m not joking, this – in essence – is the great plan which is supposed to rescue the Irish economy. Instead it will fuck Ireland good and proper. Admittedly, it will rescue politicians, the shareholders and bondholders of the banks and the bank executives and employees.

(By the way, it is not fully accurate to state it’s a dig out for developers except in the sense that the government – through NAMA – are likely to be even less efficient than the banks at extracting value from loans which is a distinct possibility too given their record.)

If anyone tells you this is what Sweden did, they are telling a barefaced lie. I don’t want to drive people to suicide but if the NAMA plan goes ahead as currently planned, then for once David McWilliams will not be spouting hyperbole when he describe it (the implementation of NAMA) as a Stalingrad moment for the Irish economy.
.

The banks then take these bonds to the ECB who exchange them for cash,

Not necessarily.

The banks don’t have to cash them at all. But the bonds may add additional collateral to the Eurosystem, and be used as parts of other deals within that system. NAMA has to be careful though, in how it deals with other collateral already existing within the Eurosystem. That was stated clearly in one of their paragraphs.

What the ECB is saying in other words, is that Irish property debt is going to be exposed to the Eurosystem in order to create more liquidity within that system, and thereby, as a consequence, free up funds that will be available to the Irish banking institutions – or free up funds to the Eurosystem as a whole. It is a way for the ECB to issue more money into the system too. The ECB want this as much as anyone. The ECB is betting on Irish property debt as much as anyone else. Call it an ‘estimated risk’ or whatever you want to call it.

So what is really being tested is not only NAMA, and the long term economic valuation model (which the ECB is not that keen on) but also the wider European economic union, as a concept. It is really, when the European economic union ‘vehicle’ if that is an appropriate term to use, starts up its engines, is when Irish people will see the benefits flow into our tiny economy.

Now you may be pro- or anti- European integration. But what everyone, who has anything to do with NAMA is saying, is that greater European integration is the answer. This is a completely different debate to the one, we have engaged in here. Where we tend to talk about Ireland, as if it was an island on the edge of mainland Europe.

If this European integration thing has anything going for it, then the ECB must be ‘seen’ to be providing a solution to a remote island of little consequence in the bigger picture. It has become my view, that it is Europeans who are paying for NAMA. The same way as they paid for road infrastructure etc in the 1980s. We are back to where we started from effectively, being supported by Germans. The only difference is, in this arranagement, this time, the Irish do get to contribute down the road, to the degree to which they are able. Yeah, you could say it is taxation on the Irish, but spread out.

Now, whether you are in agreement or disagreement with that, is a whole different discussion, a wider discussion to the one I have engaged in so far.

Brian O’ Hanlon

The government will print bonds and give them to NAMA to capitalise it. In return the government gets all the equity in NAMA (a fancy way of saying the government will own NAMA). NAMA will swap the bonds for worthless loans with the banks. The banks can then borrow from the ECB using the government bonds as collateral – this is the repo arrangement. Strangely the government will end up PAYING the banks the coupon on the bonds – which from what I’ve learnt about how NAMA is to be structured will be about 1.2 – 1.5 billion a year. This will be at a floating rate (like a tracker mortgage).

Jimg,

Good explanation. You are in fact correct. I am only testing out some angles above, as usual. I am sure you will understand.

This is why the ECB has to be informed of and approve all government borrowing as every bond created by the government can be used as collateral with the ECB.

Gotcha. Now I’m getting a much clearer picture.

So yes the ECB is vital and central to the whole plan. You could try something similar if you had your own central bank but it generally leads to the collapse of your currency ala Iceland or Zimbabwe and a flight of capital.

Minister Brian Lenehan made that point on tonight’s Prime Time TV interview.

the collateral for which (if the claims about O’Carroll are any guideline) is likely to be worth 30% of the value of the loan.

I share your skepticism there by the way. Zoe did acquire a great portfolio of property and various interests. But they were very optimistic in how they looked at the portfolio’s value. Or more importantly, in my view, in their own ability to ‘extract’ value from their assets given their primitive business model. One of the main positive attributes of the Zoe model was its ability to cover great distance, at great speed. It was a blitzkreig approach if you like. The analogy with the German military machine and Zoe developments works on nearly every level. It explains, why in a fast moving environment such as the Celtic Tiger, why Zoe were able to ‘move fastest’ of the whole pack. The blitzkreig analogy also serves to explain why it caved in on itself in the end.

When I think of this NAMA business, I think of the Arabs and their oil assets. They could dispose of them very stupidly at the wrong price, depending on what their internal political structure is like, and who is calling the shots. Or they could be clever in terms of markets, trading and distribution and extract a lot more out of the whole deal for themselves. Time will tell. Ireland is in a similar situation, it depends on how clever or stupid Ireland will be. But I agree broadly with KB, Ireland is going to take a massive hit somewhere down the line. But if Ireland is clever, it can minimise the amount. This NAMA business is about the equivalent of a hundred LUAS line projects when you think of it. Bearing in mind that LUAS was built at the peak of the bubble, or damn close enough to the peak, so that costs spiralled out of control.

Thus leaving the government with some useless “development land”, a load of deserted estates in the middle of nowhere (which are likely to be energy inefficient and will be unsellable even if a bounce occurs)

It would be a disaster if anyone paid money for many of those projects, as house buyers or otherwise. Hence my wish that a bull dozer will go in and clear half of them away. KB made a good suggestion, that you could leave the odd house standing. In that regard, the estate might then turn itself into a kind of opportunity for a higher class of home buyer, who wants a house with a large spread around them of private land. That might mean, that some of the project could be worth something after all. This is something our best architects should look at.

I’m not joking, this – in essence – is the great plan which is supposed to rescue the Irish economy. Instead it will fuck Ireland good and proper. Admittedly, it will rescue politicians, the shareholders and bondholders of the banks and the bank executives and employees.

If someone such as David McWilliams was on the ball, they would put together a documentary, which compares NAMA to all of the Metro projects, national infrastructural upgrades, LUAS lines, wind farms, tidal energy projects and whatever else. The bill for NAMA would probably build a new European supergrid. Bear in mind too, that if we had pumped water storage combined with wind farms in Ireland, we wouldn’t have to burn a single kilowatt hours worth of gas fuel. We would be completely energy independent.

(By the way, it is not fully accurate to state it’s a dig out for developers except in the sense that the government – through NAMA – are likely to be even less efficient than the banks at extracting value from loans which is a distinct possibility too given their record.)

I have heard Constantin Gurdgiev make exactly the same point very recently. He made a list of most of the Irish government departments, and didn’t have much of an opinion of any, in terms of their ability to manage capital assets. I thought it was strong, even for Gurdgiev, an academic commentator, but there you go.

Brian O’ Hanlon

The credit crunch and NAMA and its banana bonds were predicted 4 years ago by McWIlliams
http://www.davidmcwilliams.ie/2005/08/03/how-secure-will-you-be-when-the-credit-runs-out

NAMA is a system for taking 60 billion euro from Irish taxpayers and using it to save two private limited companies. This is criminally stupid. There is a legally prescribed method for the wind down of the companies. It’s called liquidation and it’s paid for by the creditors of the companies concerned not the taxpayer.

take that to an EU court? conflict of interest? hehehe

@jimg wrote:

So to summarise: the government ends up paying the banks interest on the 90 billion (say 1.5 billion a year currently but this could rise if the ECB rates rise) plus at some date in the future will be obliged to pay them 90 billion cash. In exchange they get to own a bunch of loans to insolvent builders and developers many of whom are close to bankruptcy; the collateral for which (if the claims about O’Carroll are any guideline) is likely to be worth 30% of the value of the loan.

You are seriously wrong on this figure of 30% or an assumed 70% destruction of value; one third of the total loan book is development land or half completed developments. 65% – 70% is mostly tenanted commercial property of which half is outside Ireland. Wait until the valuation exercise is completed before swallowing the suicide capsule that is in you hand! I have not read such a defeatist ill informed statement previously

Pat McArdle, an economist until recently at Ulster Bank wrote a good article in today’s Irish Times newspaper.

The difference between the initial value of the projects funded, €115 billion, and the current market value of €50 billion is split 45:40:15 with the borrowers losing €30 billion equity, the banks taking a hit for €25 billion and the Government putting up €10 billion.

http://www.irishtimes.com/newspaper/opinion/2009/0904/1224253820646.html

Simon Carswell reported on what Kevin McConnell, analyst at Bloxham said on the NAMA issue.

http://www.irishtimes.com/newspaper/finance/2009/0904/1224253821195.html

Brian O’ Hanlon

I don’t know if I linked Anthony Leddin’s article from Thursday’s Irish Times or not. It is well worth hearing Leddin’s perspective too, which deals a lot with getting Ireland out of recession, as fast as possible.

WILL THE proposed Nama toxic bank prolong the recession?

http://www.irishtimes.com/newspaper/finance/2009/0904/1224253814185.html

Brian O’ Hanlon

@PVC King wrote:

Wait until the valuation exercise is completed before swallowing the suicide capsule that is in you hand! I have not read such a defeatist ill informed statement previously

Valuation exercise? Don’t make me laugh. Producing the “valuation model” will be in the hands of one of the most senior auctioneers in the country. So we have a senior auctioneer deciding how much the government should pay for bank loans.

“ill informed”? Before the start of this year I spent half a decade working in an Irish bank and now I work for an incredibly profitable proprietary trading company. I know markets and how they work, I can read balance sheets and I’ve done financial models for huge government projects. All you have contributed to this thread is a load of horse shit figures pulled from your arse mascerading as “macro economic analysis” which clearly demonstrate that you know f*ck all about macro economics or markets. Your bluster might impress people who know no better but it wont work with me. You are a bullshitter, plain and simple. You wouldn’t survive a second in the company of the people I work with.

I don’t think I’ve been as blunt with anyone else on this forum and I am almost embarrassed that I’ve risen to your bait but even missarchi provides far more enlightening input here than you. I don’t know how you’ve managed it but you’re making maramjam look good on the transport21 thread.

@jimg wrote:

Valuation exercise? Don’t make me laugh. Producing the “valuation model” will be in the hands of one of the most senior auctioneers in the country. So we have a senior auctioneer deciding how much the government should pay for bank loans.

“ill informed”? Before the start of this year I spent half a decade working in an Irish bank and now I work for an incredibly profitable proprietary trading company. I know markets and how they work, I can read balance sheets and I’ve done financial models for huge government projects. All you have contributed to this thread is a load of horse shit figures pulled from your arse mascerading as “macro economic analysis” which clearly demonstrate that you know f*ck all about macro economics or markets. Your bluster might impress people who know no better but it wont work with me. You are a bullshitter, plain and simple. You wouldn’t survive a second in the company of the people I work with.

I don’t think I’ve been as blunt with anyone else on this forum and I am almost embarrassed that I’ve risen to your bait but even missarchi provides far more enlightening input here than you. I don’t know how you’ve managed it but you’re making maramjam look good on the transport21 thread.

If you have an issue on the Transport 21 thread post it there I have no doubts €2bn to deliver 24.4m passengers is a complete white elephant.

We all know the mess caused by quants led modelling in every market from equities to currencies to commodities. There is no economic model that works in volatile markets full stop; before you to claim that anyone knows anything about what markets will do next I would refer you to Long Term Capital Managment

http://en.wikipedia.org/wiki/When_Genius_Failed:_The_Rise_and_Fall_of_Long-Term_Capital_Management

Your background is finance or trading; I have no idea how good or bad you are at it so I will not comment. However your area is not real estate and Nama is an issue dealing primarily with Real Estate a sector to which I have a lot of experience in and exposure to.

Your analysis was that Nama is a loan book of €90bn and has a net realisable value of €30bn. That unlike the LTCM fiasco which was overly complicated you view is deficient due to an oversimplification. It is like comparing equities in the US, Taiwan and the UK after the Asian crisis; every asset class has its sub markets and geographical variances.

The position with Nama is simple two thirds of the loan book can be valued very easily; it is known that prime commercial yields in London are back to c6% from recent transactions that have completed and those that have exchanged with concrete funding behind the offers. It is likely that International pension fund investors will purchase prime commercial stock in Ireland at yields of 7% – 8% if prime stock reaches the market. The potential to access a top slice of 200-300 bps with tenants they have elsewhere in their portfolios e.g. Vodafone, Citigroup etc will be too attractive to pass up; they are in effect betting on the tenant and not the property market as rent reviews are upwards only.

The final third of the loanbook is difficult to value, there is limited occupier demand for commercial space and residential value indexes being quoted in asking prices as opposed to completed transactions makes valuation difficult. However you need a set of assumptions on likely selling/rental prices, constructions costs, void period or time to let/sell and what level of discount you concede in the form of developers profit.

Until that process is complete no one will know the outcome not even those as celebrated as LTCM or Seanie Fitz

I know, guys this is dreadful times for all of us to be attempting any kind of rational debate on the issues. But I feel it is important that everyone, from every walk of life, attempts to form some kind of an opinion in their brains. That will stand to them as they try to navigate through life, either well or poorly, over the course of the next ten to twenty years. This NAMA thing, or whatever alternative there is, will see many of us into retirement or close to retirement age. It is important to start by forming some opinion, whatever kind of opinion it is today, in preparation for the coming decades. I wish everyone the best of luck in that endeavour.

I have one question for all people here. Why is it, that every time I read an article by Alan Ahearne, well structured as his arguments may sound, I don’t think that Ahearne is able to support too many ideas in his brain at the same time. Nor do I think, is Ahearne able to think more than a couple of steps out into the future. The more I read Ahearne in fact, the more I like what FG are proposing.

After US investment bank Lehman Brothers collapsed last September, cross-border flows of funds dried up as financial institutions stopped lending to each other. For a small open economy like Ireland with banks that rely heavily on financial institutions abroad for funding, the impact of the global credit crunch was devastating.

http://www.irishtimes.com/newspaper/opinion/2009/0905/1224253890855.html

I seems to me, we have three basic perspectives from which NAMA can be viewed. We have the very Eurosystem centric point of view, which minister Brian Lenehan and his team seem to be taking. Which aims to improve the amounts of collateral for deal making and banking done within the EU economic union.

We have the very Ireland as an island centric way of discussing the matter. Which sometimes, totally ignores the outside world.

Then we have the Alan Ahearne approach, which owes a lot to Ahearne’e experiences abroad in the United States and so on. Perhaps it could be argued that Pat Honohan looks at things from this perspective too.

There are a lot of things about NAMA which are hard to un-tangle. We have three different methods of property valuation – the Red Book, the market clearing price and the Celtic Tiger boom price. (Not to mention the ‘hope value’ which lies somewhere in the middle of all of that)

Then we have the point raised by Pat McArdle, a recently retired chief economist from Ulster bank.

The difference between the initial value of the projects funded, €115 billion, and the current market value of €50 billion is split 45:40:15 with the borrowers losing €30 billion equity, the banks taking a hit for €25 billion and the Government putting up €10 billion.

http://www.irishtimes.com/newspaper/opinion/2009/0904/1224253820646.html

Contained within McArdle’s statement above, is a notion I understand from Joesph Stiglitz, the assymetry of information in the marketplace. Stiglitz has written a thesis on this subject if I am not mistaken. Even in the game of chess where all of the pieces are clearly visible on the chess board, it is highly depended on the intelligence of the player, to extract what information that chess board is making available.

In the case of the ‘NAMA tree’, the interested parties are distinguished by their respective abilities to unwrap the presents they will find underneath that tree on the 16th of September. That fact that minister Brian Lenehan isn’t allowing the parties to see their presents until then, isn’t much of an issue.

The fact will not change, that two of the three parties have the tools to understand their losses. The third party, the borrowers may take decades to try and understand their situation and still not succeed. Due to lack of the necessary skills in that department.

So this is my point, how one see’s NAMA is dictated by one’s point of view and one’s ability to compute the information. On the one hand, you might have experience in global financial markets, you might be in favour of using the market clearing price for the bad assets and you may have all the tools at your disposal to understand the losses to be absorbed by each party.

On the other hand, you might be in favour of an inflated price, you may be very Ireland centric in your point of view and you have not have any tools with which to appreciate the scale of losses that NAMA is going to crystalise.

John Waters Column

One more reminder, everyone should have a read of John Water’s column for yesterday’s Irish Times. It is refreshing to read a bit of proper journalism for a change.

A friend of mine says, “We are a family of knackers who won the Lotto”, and, although an Irish Times columnist could never endorse such a mode of expression, I have to grant him his point.

http://www.irishtimes.com/newspaper/opinion/2009/0904/1224253820608.html

Brian O’ Hanlon

@garethace wrote:

I know, guys this is dreadful times for all of us to be attempting any kind of rational debate on the issues.

What is so dreadful about it?

The property collateral tro these loans is if Pat McArdle is right was bought for €110bn

The outstanding loan book is €90bn

The Value of the collateral underpinning the loan book is undetermined.

From this point it can’t get any worse unless the position we have been led to believe i.e. the split of three classes is incorrect and a higher proportion relates to the landbank which in itself is going to be a very mixed bag.

What we do know is that outside Ireland economic activity is picking up; from an employment location point of view that commercial rents are a lot more attractive when compared to rival markets than in the recent past and that many unemployed people will be happy to work for a more competitive wage than they would have 2 years ago. Unemployment fell by 4,000 last month which is a long way from the 20,000 positions wiped out in March. The challenge is to get unemployment down and spread opportunity across a wider percentage of the population.

The first step to resolving the Nama issue has to be to get a reputable International Property Consultancy with the Geographic reach to the value assets to give a red book open market valuation of the total loan book.

The global economic pick up will feed into values over time and values will recover; if Pat McArdle is right borrowers will take a hit for €30bn or not if there loans are performing they will hold onto their equity, the three main banks have already written down close to €10bn which if you add other players such as RBS, BoSI etc you can probably double that figure to arrive at write offs to date to €20bn.

If that is the case the unprovisioned postion with the Nama loanbook is probably about €65bn from an initial purchase value of the assets being some €115bn or put another way €55bn is not the Governments problem. Looking individually at asset sub-classes the Q3 2009 book right downs on a class by class basis my look something like the figures below. Again these are worst case scenario as a lot of this debt will have been taken on long before the peak values were reached whilst the rent roll may have increased in line with the market.

The UK market is off about 30% from peak to Trough – book loss €11.5bn
Irish Commercial is off about 43% from peak to trough – book loss €16.5bn
Development land is probably off about 65% from peak to trough – book loss €24.9bn

On that basis the value of the portfolio is probably about €62bn and with €20bn already provisioned in losses that leaves a gap of €8bn or €10bn arcording to Pat McArdle to be plugged in.

Medium term commercial yields accross a European market would suggest c5.00% – 5.50% are typical; in assuming yields of 6.00% for the UK and 7.00% in Ireland there is a lot more upside than downside in the next decade.

What we do know is that outside Ireland economic activity is picking up; from an employment location point of view that commercial rents are a lot more attractive when compared to rival markets than in the recent past and that many unemployed people will be happy to work for a more competitive wage than they would have 2 years ago. Unemployment fell by 4,000 last month which is a long way from the 20,000 positions wiped out in March. The challenge is to get unemployment down and spread opportunity across a wider percentage of the population.

Point taken.

I scribbled something at Designcomment quickly this morning, ‘As seen through a lense’.

If that is the case the unprovisioned postion with the Nama loanbook is probably about €65bn from an initial purchase value of the assets being some €115bn or put another way €55bn is not the Governments problem.

Point also well made.

Medium term commercial yields accross a European market would suggest c5.00% – 5.50% are typical; in assuming yields of 6.00% for the UK and 7.00% in Ireland there is a lot more upside than downside in the next decade.

I understand you point here too, thanks for taking the effort to make it. This is the more realistic breakdown of figures I have been looking for. In fairness, the way the economist’s present the property industry, is rather like how Passive designers want to present housing design. In other words, that all dwellings should operate without consuming any fuel whatsoever.

Sure, it doesn’t take away from the fact, that we all have a huge big mess on our hands. But it is important to understand that large portions of the figures being quoted, are a standard and normal part of how business is done in this little island of ours. We should aim to make our business much more efficient, but there is always going to be capital invovled. It doesn’t run on fresh air completely.

This argument gained a lot of traction in the 1980s, particularly in the United States, when consumers became a powerful lobby. On the one hand they wanted agricultural produce, but on the other hand, they didn’t understand why it should cost any money. That is why you got the huge big factory farms in the United States. The consumer demanded its meat and grain for less. Not that I am against efficient farming production – agriculture needed to go through a revolution in order to feed people. But in recent times, with things such as bee colony collapse, the whole system threatens to fall apart – from an ecological point of view.

It is well worth reading Patrick Symth’s ‘World View’ piece in today’s Irish Times.

Ten years after the anti-tax revolt in 1988, teacher unions and education groups got their revenge by pushing through Proposition 98, mandating huge rises in education spending. It wrote into the state constitution a complex formula requiring the state to spend 40 per cent of its budget on education. Both contradictory propositions now co-exist in the state constitution, ensuring budgetary gridlock.

http://www.irishtimes.com/newspaper/opinion/2009/0905/1224253890863.html

To return again to PVC King’s comments above, in relation to the Pat McArdle Irish Times article.

When you take out a lot of the portions, which you have done about in all three categories – taxpayers, banking and borrowers – you do start to get down to figures that are more workable. It is a bit like city people who don’t understand farming. They imagine that farmers can do their business without having some of their capital tied up within the business itself. Of course farmers know that in order to farm at all, they need to have a significant amount of financial resources tied up from year to year.

Another thing about the agricultural end of things – agriculture was heavily criticised by architects I know during the Celtic Tiger boom – that agriculture had it’s own department, yet it only accounted for 3.0% of GDP. Compared to building and development at the time, which was much larger. But the fact is, we should be glad that agriculture is a small portion, and is efficiently run. We only need something such as the ‘bacon scare’ to materialise in order to understand, how much more GDP could be tied up in agriculture if things went wrong.

This is the point that Amory Lovins makes in his book Natural Capital. How do we pay designers, in order to work harder so that what they build costs a lot less to build and saves a lot more energy. Basically, in the current scheme of things, the harder you work, the less you earn as a design consultant. Which is why measures such as energy conservation are a non-runner. It should not be the case, that we require oil to surpass €200 a barrel for energy conscious design to become ‘feasible’. Which is what most energy conservation designers are proposing today.

Brian O’ Hanlon

This has been in development for quite a long time now, amongst the Green party and their associated economic policy development partners. I was pleased to read on the front page of today’s Irish Times.

GREEN PARTY Ministers are insisting on the introduction of a windfall tax on property developers as “an essential and indispensable” corollary of the Nama legislation.

http://www.irishtimes.com/newspaper/frontpage/2009/0905/1224253909839.html

The article refers to the Kenny report undertaken in the 1970’s, which I don’t remember but I have heard mention of by retired local authority planners. The article also mentions that the Atorney General’s office was looking into the legal side of implementation.

Brian O’ Hanlon

Interesting but there is the windfall expenses argument…
fuel for thought.

GREEN PARTY Ministers are insisting on the introduction of a windfall tax on property developers as “an essential and indispensable” corollary of the Nama legislation.

The example used to justify this was the Sandyford Luas Line which they do have a point on, public money created significant value for anyone who lived on the line including those who held development land. I do however feel that the game moved on after the success of that investment and the concept of specific development contributions has been accepted by all sides once the scale of the contribution is reasonable.

I do not however feel that targetting specific sectors of the economy in a uniform way for disproportionate taxation is any solution. Take a developer who has paid top dollar for a site on an existing Luas line; the value added by the piece of infrastructure has already been fully priced into what they paid for the land. The last vendor has already walked away with the value added by Government in a previous cycle.

What would be more equitable would be to set up a regional transport planning unit who would plan the number of development consents to be added in specific locations over a ten year time frame and set a level of development contribution per square meter of space.

Why that is the only equitable method is that if you take two different scenarios with a windfall tax of 27.50% in addition to the 12.50% Corporation tax; scenario 1 involves a regional housebuilder in Sligo building 16 houses of speculative quality adjoining a comuter town to Sligo; land cost €250,000, construction cost €2,400,000 including legal and auctioneer fees, sale price €3,750,000 – PBITA €1,100,000 – net profit say €660,000 net margin 25.38%

Scenario 2; development company buys parcel of land adjoining rail line in Dublin 8 to build 16 apartments; land cost €2.4m; construction cost to include decent and environmentally freindly specification €2.82m; sale price €6.4m- PBITA €1.18m – net profit say €708k – net margin 13.56%

My interpretation of Green thinking is that a large part of it stems from a frustration of people like the Healy Reas who may have encouraged people to takeg the absolute Michael in terms of site farming over a number of years and regional developers building 150 houses on the edge of towns which lacked the road, water, waste or educational infrastructure to support these developments and led to clientist TD’s demanding expensive water, road and educational investments to prevent localised meltdown in subsequent years.

What is required is that unlike the past 15 years future development occurs in the right places where the infrastructure exists; and that infrastructure planning provision drives development patterns going forward. Put simply a regional planning authorities for Dublin, Cork, Limerick and Galway that devises plans on a ten year time frame and sets out clearly in advance that specific electoral wards are in specific development zones which are subject to pre-stated infrastructural contributions to transport, water and educational levies based on a square meter or in residential unit basis. There may be an angle in using environmental performance ratings to provide discounts where it could be demonstrated that energy efficiency, bike parking etc were provided.

As for one off houses a €50,000 levy should be introduced immediately on these as the biggest subsideis of all over the past decades are the ongoing service costs of servicing population densities that would not have been permitted in any other northern european country. A reduced levy should be applied for multiple unit applications based on the additional infrastructure that they consume.

In today’s newspaper the following did catch my eye.

David McWilliam’s puts together a masterful piece of argument in the Sunday Business Post.

http://www.sbpost.ie/post/pages/p/wholestory.aspx-qqqt=DAVID+McWilliams-qqqs=commentandanalysis-qqqsectionid=3-qqqc=5.2.0.0-qqqn=1-qqqx=1.asp

Also in today’s Sunday Business Post is Philip Lane’s carefully written explantion of the Patrick Honohan argument for ‘risk sharing’. Everyone, including Green Party spokesperson Dan Boyle seems to offer their own explantion of the ‘risk sharing’ mechanism proposed by Honohan in an Irish Times article months ago. (I think I may have linked it earlier in the thread) But Lane’s Sunday Business Post piece today, is the only worthwhile, comprehensive explanation I have seen to date.

In the Sunday Tribune, political editor Shane Coleman interviewed Alan Dukes. I got more satisfaction myself out of that small piece, than out of the full page interview with finance minister Brian Lenehan, also in today’s Sunday Tribune newspaper.

http://www.tribune.ie/article/2009/sep/06/dukes-backs-governments-nama-proposal/

I think that Neil Callanan in today’s Sunday Tribune got his analysis of the ‘Phantom Equity’ problem for NAMA bang on the nail.

http://www.tribune.ie/business/article/2009/sep/06/phantom-equity-could-haunt-nama-for-years/

Everything in Callanan’s article today, conforms to my own experience working on projects during the Celtic Tiger. Specifically, the tier one larger developments where ‘nine figure’ sums were involved. The only thing I would have to add, is what ACC Bank’s council mentioned in the High Court, why are only seven of the Zoe companies represented in court. Why hasn’t the Greencore shares been presented as part of the business plan. But Callanan raises the point, of loans with personal guarantees by the Carrolls which are now worthless, would also play a part in the Zoe developments High Court case. Also that every 0.5% rise in interest rates results in an additional €40 millino to pay – €700 million worth of the €1.2 billion of Zoe’s loans are floating rate, the rest are fixed.

In the Independent, the back page had very good articles by Shane Ross and Karl Whelan, the UCD economist. Shane Ross wrote:

It later emerged that his bearishness was not unqualified. Just over two years ago, as the property market was turning downwards, the latest sailor on the sinking ship Nama had also been a bit of a bull.

http://www.independent.ie/opinion/analysis/puffers-paradise-named-nama-1879456.html

Whelan wrote:

It is a watertight tautology. The minister is watching the markets who are, in turn, watching the minister. And everyone’s agreed the banks won’t be nationalised. So they won’t be. Meanwhile the taxpayer is left carrying the can.

http://www.independent.ie/business/irish/lenihan-formula-will-ensure-banks-win-and-taxpayer-loses-1879522.html

My favourite article of all, was in the Irish independent, the interview between Ronan Quinlan and Michael O’Leary of Ryan Air.

“Liam Carroll owns lots of properties that are being let to Government institutions. These are performing assets. They can be sold tomorrow to international investors at face value. We need to sort this out. There are lots of worthwhile properties there that are saleable, but the only ones who can work that out are the bankers.

http://www.independent.ie/national-news/developers-and-banks-should-take-the-pain-oleary-1879550.html

O’Leary also mentioned correctly, that the Irish banks ‘know where the bodies are buried’. On the other hand, what McWilliam’s described as a powerful and growing stronghold on Grand Canal Street of the NTMA – all that they can do is hire an auctioneer to go out and do their dirty work for them. The exact ones who made a ‘bollocks’ of the property market.

I raised the same issue myself not too long back. Because Constantin Gurdgiev was demanding to know why the Irish taxpayer didn’t receive any deeds or title with the NAMA bound loan book – there is not a hope in hell, in my opinion, that a government agency or anyone associated with the government can be seen to be dealing with the s*** that Irish property developers handled. That is the service that the private sector property development business, in association with banking institutions provided.

I mean honestly, the Irish state institutions cannot even lease a property where there isn’t 100% assurance on the deeds and title. The fact that Carroll managed to leases so much of his commercial space to the Irish State, ensures that those properties are sound. Why aren’t those assets being presented in the High Court as part of the KPMG business plan?

Or yeah, by the way, Shane Ross points out that KPMG are the auditors of AIB who have €500 million of loans outstanding to the Zoe group.

Brian O’ Hanlon

I know that many of the posters here have opinions both for and against NAMA. I know I have found it impossible almost, no matter how I try to look at this, to make up my own mind. But for the record, having listened to the George Lee interview with Pat Kenny, I have decided to settle against NAMA and stick to supporting the Fine Gael ‘good bank’ solution.

http://www.rte.ie/radio1/podcast/podcast_patkenny.xml

I think it is worth your while downloading. I know that Lee can come across as over-excited on radio. Indeed, it is one of the reasons that he made a very good finance and business correspondent for RTE for so long. I do believe that Lee raised the crucial point in the Pat Kenny interview.

The Fianna Fail government hired 3 no. consultants to try and sort out the different problems they are facing. There is nobody joining up the dots here. All the consultants did was go off and solve the particular problems they were given from their own point of view. They were not talking to one another. In fact, our understanding of what the problem was, was very different when Peter Bacon received his brief, from what our understanding of the problem is today.

By the way, all that I can say about Dara Calleary, Minister of State at the Department of Enterprise, Trade and Employment, is we need a new minister for that position. I would nominate myself, except that would invovle becoming an elected official. Not now, perhaps in another decade, when I get to around Lee’s age.

Brian O’ Hanlon

I hope that the Sunday Business Post will have Philip Lane’s article posted soon on their website. It is the clearest explanation of Patrick Honohan’s risk sharing mechanism, I have seen to date. Not so much it’s implementation, but the reason why Honohan wanted it in the first place.

Understanding Pat Honohan’s exact reasoning for the need for risk sharing, is crucial to the national debate. I think Philip Lane has done a great job in terms of explaining it.

Brian O’ Hanlon

http://m.thepost.ie/quickPage.html?page=16693&content=20380826&pageNum=-1

Nama must play a long game
September 05, 2009 7:00 PM EDT
There is a case to employ long-term economic value in determining the price for Nama loans, but how will they decide on the figures, asks Philip Lane.

In line with the European Commission framework, the Nama draft legislation proposes to incorporate ”long-term economic value” in the method employed to determine the appropriate transfer price for loans to be acquired by Nama from the banks that participate in the scheme.

In principle, long-term economic value may be interpreted as corresponding to the expected ”hold to maturity” value of a loan. Its use can be defended on several grounds. First, where a loan is to be acquired from a bank on a voluntary basis, the transfer value should correspond to the internal shadow valuation that a bank may reasonably apply to a loan on its books.

Secondly, a key role for banks is to fund long-term investment projects, where the full value of the underlying asset is only realised over time. If funding for such projects is interrupted, the disposal value of a loan that is backed by an incompletely-developed asset lies below its potential long-term value were the project to be completed. (Clearly, this point only applies to a fraction of the loans held by Irish banks, since it does not apply with the same force to loans that are backed by mature assets.)

Indeed, this characteristic helps to explain why banking crises are so costly and how there are self-reinforcing amplifying dynamics between credit conditions and collateral values. During periods of easy credit, asset values rise which in turn may tempt some investors to exploit rising collateral values to over borrow and invest in marginal-quality projects. In the other direction, a credit crunch leads to a decline in asset values, which in turn further restricts access by investors to liquidity and the non-completion of otherwise viable projects.

While the ideal solution is for the financial regulator to engage in counter-cyclical measures and avoid the occurrence of a crisis, these amplification dynamics also provide an explanation why market values can fall below long-term economic value if regulation is inadequate and a crisis does indeed occur. For these reasons, there is a prima facie case to employ long-term economic value in determining the price for loans that will be transferred from troubled banks to Nama. However, a major implementation challenge is to develop a high quality model of long-term economic value. Such a model should have both macroeconomic and microeconomic dimensions.

Macroeconomics is required in order to establish the likely economy-wide evolution of average property values, while microeconomics is required to model the cross-sectional dispersion of individual properties around the average value.The microeconomic task can be fulfilled by those with expertise in property valuation.

A key macroeconomic issue is the likely future evolution of the aggregate consumer price level, since property price inflation is typically modelled as the sum of CPI inflation and the growth in the ”real” value of property. This is especially important, since the historical inflation data will not provide a good guide to the future for two reasons. First, the high inflation of the 1970s and early 1980s was sui generis for well known reasons and will not recur.

Second, as a member of EMU, the Irish price level is best interpreted as the sum of two components: the EMU wide price level and the deviation of the Irish price level from the EMU average level. The prospect of significant real exchange rate depreciation over the coming years may be an important drag on the evolution of nominal property prices in Ireland.

In regard to other macroeconomic factors, the Nama valuers can incorporate the projections for growth in GDP per capita, real interest rates and population size by agencies such as the ESRI and the European Commission. By relying on independent forecasts, there will be greater confidence in the objectivity of the Nama valuation method. However, it is abundantly clear that these projections are bound to be quite imprecise given the limitations of macroeconomic forecasts.

In addition to providing estimates of the evolution of long-term economic value over the coming years, it is also necessary for Nama to take a stand on the nature of the convergence process towards the long run. While the current credit crunch represents an important mechanism that acts to push current asset values below long-run equilibrium values, it is also true that current market prices may still be influenced by expectations that formed during the bubble period, with this ‘backward-looking’ influence on asset prices pushing in the opposite direction.

Accordingly, it is important that the Nama process recognises the inevitability of such uncertainty in determining long-term economic values and the nature of the convergence process. For this reason, as has been suggested by Patrick Honohan, a two-part pricing mechanism is optimal by which the initial payment for a loan reflects a discount on the ”best current estimate” for long-term economic value, with a deferred second payment that will reflect the ultimately realised loan value.

Philip R Lane is Professor of International Macroeconomics at Trinity College Dublin and founder of The Irish Economy blog.

PVC King, you are a complete bullshitter. I’m worried someone reading what you write could mistake it for being anything other than the inane ramblings of an ill-informed fool because I have to give you credit, you disguise it well.

You haven’t the slightest clue about the fundamentals of the crisis which Ireland is afflicted with. I’m highly suspicious of your claims of expertise in any field. You makes such simple errors, not just in terms of concepts but in terms of approach. ………. You think bandying about some numbers and being able to perform multiplication impresses? You obviously haven’t a clue about the cause of the Irish banking crisis as you constantly muddle it with unrelated aspects of international financial crisis but I guess you think it makes you sound erudite by mentioning LTMC or quants or whatever. You have no notion of macro economics; your claim that macro features are more predictable is absolute bollox. I could go on.

Perhaps you are a classic troll; if so – bravo – great performance.

At least Brian O’Hanlon, despite his (at times) unbearable prolix provides some interest and responds to factual corrections and moves on. You do none of these things and have just been repeating the same old sh*te over and over. I am refusing to get into a pissing contest with you, so undoubtedly, you’ll have the last word on this. But I really have better things to be doing.

http://www.irishtimes.com/newspaper/breaking/2009/0907/breaking29.htm
http://www.irishtimes.com/newspaper/opinion/2009/0907/1224254001191.html
http://www.irishtimes.com/newspaper/breaking/2009/0907/breaking24.htm

diggers… they use gas here… water tax’s… nothing is linked…
company tax remain the same?

I will have to reiterate Deputy George Lee’s point here again, which I completely agree with. The government paid different consultants to go off and solve their own little parts of the problem. They haven’t spoken to one another to try and come up with a joined-up plan at all. That is what the country is going to have to suffer from most of all, a complete absense and willingness to engage with joined-up thinking.

The Commission on Taxation has recommended the introduction of a new property tax, a carbon tax, and domestic water charges as part of a comprehensive reform package of the Irish taxation system.

http://www.irishtimes.com/newspaper/breaking/2009/0907/breaking29.htm

We have now wasted an entire year practically producing a public expenditure report, a commission on taxation report and a NAMA report. But none of this has been fitted together at all, to see if it works as a unit. This is a very costly mistake for the country, and when we realize the 3 no. separate solutions on their own are not doing the job, that needs to be done, someone like Fianna Fail will commission another spate of reports, and the whole process will start all over again. It is not that we have ‘nothing’ after a full year of ‘humming and haw-ing’. In fact, we have worse than nothing. We have a big load of complicated components, none of which fit together to make a solution.

Too much of these reports revolve around Tanaiste Mary Coughlan and Taoiseach Brian Cowen’s understanding that everything is for the press. You release the report, you do the photoshoot and make statements on RTE. That is supposedly enough, to ensure people ‘think’ the government is doing it’s job. I can tell you, it is not doing it’s job or anything like it. Deputy George Lee has seen the ‘merry-go-round’ enough of times in his previous life as an RTE news correspondant to know the score. We don’t have leaders in this country. All we have in public relations stunt men and women.

It occured to me recently, that the Irish government has 150 members not counting the Senate house, who are all willing to sign off on €50-90 billion’s worth of taxpayers money. But there is not one single ‘leader type figure’ amongst all of them, who is able to endorse payment of €1.0 million euro for anything. That is probably why we will need something akin to a Fascist regime in Ireland in the coming two decades, to ensure that people do not starve and all die. I realize now, that KB’s suggestion that Dail deputies be sent down to the midlands to cut turf with a slean, may not be hyperbole after all.

One of the biggest troubles with a ‘hire it out to consultants’ kind of approach, is that the public accounts committee have to be recognized to be minimise-ing the expenses of their consultants. That is seen as a good thing. But the end result, is that consults, being restricted to a restricted and narrow focus, only focus their resources and efforts on a small segment of the larger problem – the need to inject adequate stimulus back into the economy. Deputy George Lee is correct, the British government has realized this now, and is adopting an approach with Northern Rock bank, which is akin to what Fine Gael propose to do in Ireland. Albeit on a much smaller scale.

Brian O’ Hanlon

An interesting comment made in relation to non-performing loans at the Sunday Tribune website.

The other issue that has been completely ignored by the promoters of Nama, that in addition to 100% LTV loans, subsequently those loans became “negative amortization” loans i.e. where no principal/interest has been paid over the last 2-years or so since the property slump began. Since interest rates were 4.5% to 5.5% during this period, a EUR 100 million loan becomes bigger over time with accrued interest to something like EUR 110 million! This has not been accounted for in the Nama debate so far.

http://www.tribune.ie/business/article/2009/sep/06/phantom-equity-could-haunt-nama-for-years/

Brian O’ Hanlon

@jimg wrote:

PVC King, you are a complete bullshitter. I’m worried someone reading what you write could mistake it for being anything other than the inane ramblings of an ill-informed fool because I have to give you credit, you disguise it well.

You haven’t the slightest clue about the fundamentals of the crisis which Ireland is afflicted with. I’m highly suspicious of your claims of expertise in any field. You makes such simple errors, not just in terms of concepts but in terms of approach. You pull figures out of your ass, feed them through a few school boy calculations and expect the gullible or stupid to accept the resulting figures as having some validity; the reality is they still stink of your anus. You think bandying about some numbers and being able to perform multiplication impresses? .

I have never claimed to be an expert in anything; merely expressing an opinion that you like so many others can only see downside at a time that the rest of the World is recovering and key markets are being restored. I note that as opposed to dispute what I’ve said you have taken the soft option of personal attack devoid of anything to back up what you say; I have used figures which were clearly marked as broad brushstroke as noone knows at what the portfolio will be valued at until independant international property consultants who value portfolios day in day out for loan to value ratio tests report back.

In any event your background is financial services; have you ever fund/asset managed a real estate portfolio do you even as your initial figure clearly did not differentiate between investment property and development land.

@jimg wrote:

You obviously haven’t a clue about the cause of the Irish banking crisis as you constantly muddle it with unrelated aspects of international financial crisis but I guess you think it makes you sound erudite by mentioning LTMC or quants or whatever. You have no notion of macro economics; your claim that macro features are more predictable is absolute bollox. I could go on. .

The point on LTMC is that they who included some of the most celebrated economists on the planet at that time through the use of a quants model got it spectacularly wrong. The underlying issue is that ecomonics as a flawed science and those that make money in the absence of arbitrage do so by taking contrarian positions at times of volatility and structural change.

The fundamental point you fail to understand with Investment Property is that unlike paper or synthetic instruments they are not marked to market on a daily basis. Investment grade property involves long leases often with a 12-18 year unexpired term with no tenant break options; they are therefore insulated from oversupply in occupier markets. There are specialist investors notably German funds and Sovereign Wealth funds who buy this type of investment; at present in yield range of 5.25% – 7.00%.

The Irish investors who bought in the UK in the past decade tended to buy investment grade properties; notably tenancies include Shell, Citigroup and DeBeers. They typically bought at yields of 4.50% – 6% many of these investments have seen a lot of rental growth locked in by concluding rent reviews since purchase.

Whilst your pessimism is well placed when it copmes to rent review on the part of those tenants the landlords have the benefit of the upwards only rent review system. As much as the tenants need economic analysis from some one a lot more qualified than I to give it for their businesses unless they enter insolvency they have to keep paying the rent.

Clearly portfolio vlauers will weight covenant strength and risk of default into their calculations. There are international investors who would buy fully tenanted investments in Dublin once the tenant has an appropriate S & P scale credit rating and the yield is attractive to them; Michael O’Leary made a similar point in respect of Liam Carrolls buildings that are let or pre-let to the Government; why hold ten year bonds at 4.75% when you can acheive a yiled of 6.50% on a building let to exactly the same covenant?

The great irony of the whole thing is that in some shape of form either through Nama or an equity injection into the banks the government have turned the population into the largest landlord in London and Brussels.

The underlying issue is that ecomonics as a flawed science and those that make money in the absence of arbitrage do so by taking contrarian positions at times of volatility and structural change.

Which misses the point.

The fundamental point, is that economics is not a science at all. It should return to its origins, to where it came from. Many decades ago, it wasn’t known as plainly ‘economics’, but rather as ‘political economics’. That is according to economist Kenneth Galbraith, a man who never subscribed to any one ‘school’ or tradition within economics.

Nowhere is the need for economics to return to being ‘political economics’ more visible than in the recent weeks and months in Ireland. Because the economists have engaged again with the political process, they have suddenly found a function and are busy doing constructive work. They are also busy learning from basic lessons, as I shall describe below. In Ireland at the moment, we have witnessed ‘financially clueless’ political ministers for finance batting with the best of them, in arguments about economics. That has certainly come as a surprise to quite a few people. Conversely, we have seen the ‘real’ academic economists participate in the public discourse and commit some cardinal sins in that regard.

In the forefront of my mind, is a Newstalk radio interview between Garret Fitzgearld and Karl Whelan, where Whelan got the best dressing down he has got yet, from anyone.

http://newstalk.ie/newstalk/shows/recommendations/0209LTnama.mp3

Fitzgearld pointed out that Brian Lucey didn’t qualify what he was talking about, when he used the figure of ‘close to €30 billion’ for Ireland’s deficit. Which includes the €4 billion given to Anglo Irish bank to re-capitalise it. As that is considered an investment (despite the fact as Whelan pointed out, we will not see a brass penny back, and it is €4 billion the excequer badly needs right now) it doesn’t not need to be declared in the deficit figure to the ECB. Fitzgearld argued that the Irish deficit figure, as far as the ECB was concerned was much closer to €20 billion than €30 billion.

That is was important for Irish economists, who go on public record to sign their names to documents, that they communicate to the ECB, which debt sum they are talking about. We cannot afford to be too ‘free and easy’ when we use these figures. I think Fitzgearld or Whelan, I cannot recall whom, said that Brian Lucey’s document would have been better off leaving out the sentence with ‘close to €30 billion deficit’ entirely. That is was not relevant to Lucey’s argument, which was about NAMA moreso than the government deficit figures.

Of course, Fitzgearld didn’t need to step down and allow Whelan the oppportunity to dominate the economics point of view. Fitzgearld went one step further and took advantage of his extensive political experience to nail one on Whelan. It was good for Whelan to receive the dressing down however. Though he doesn’t believe it now, the lesson will stand to him in time.

Brian O’ Hanlon

The fundamental point you fail to understand with Investment Property is that unlike paper or synthetic instruments they are not marked to market on a daily basis.

There are two crucial aspects with regard to ‘property’. Firstly, the talents of guys such as Liam Carroll, Sean Dunne, Bernard McNamara, if they had any talent whatsoever, is they knew how to assemble different bits of freehold interest, rub out the boundary lines (not completely, they do live on) and create what is affectionately known to guys like myself as ‘a building site’. In addition to acquiring the deeds and titles, the likes of Carroll, Dunne and others did an enormous amount of wheeling and dealing. Not all people wanted to remove themselves completely from those sites. In fact, they continued to operate in those sites afterwards, in new accomodate of some kind. That is how things got taken care of. There is no one more qualified to do this sort of dealing, than property developers.

Secondly, there is the financial aspect to it. I don’t wish to display my own ignorance by pretending to know all about that, so instead I will quote something from a comment to a Sunday Tribune article about ‘Phantom Equity’.

Refinancing or “Re-Gearing” as it is more commonly known was a widespread practice, especially since land was usually purchased by the developer in an individual capacity (due to 20% CGT rate, ‘resting on contracts’ – Sec.110 of Finance Act still not signed into legislation by Minister for Finance where land is bought with power of attorney no stamp is paid as final sale deeds are never signed, and licensing practices where individual builder licensed or sub-contracted the construction to a company, often owned by himself or a family member).

So when planning approval was obtained the same site would be ‘re-geared’ to release the initial equity/cash deposit put in by the developer. Sometimes they would re-gear out a substantial profit, then use that cash as deposit for the next scheme. In essence, it is tantamount to almost infinite gearing and results in a massive ‘house-of-cards’ scenario!

Now, taking the two points above, about legal title and financing of property – that now allows me to make my real point.

After the crash of 1929, all of the books associated with stocks were money from toxic institutions by president Roosevelt to new institutions, whose job it was to clean up the mess. Everything stopped for a whole day, while that exercise was taking place. It is widely accepted now, that a lot of knowledge was lost in that transformation. Knowledge of what was contained in the various portfolios, who bought them, why they bought them etc. That was wiped out, but Roosevelt probably had no other choice.

The same thing cannot be done with property loans unfortunately. Although, it may appear to be very seductive to think that NAMA will work with the 50 guys in the NTMA Treasury building cleaning up the mess, re-packaging and re-financing, in practice it will be difficult to do. I was shocked to listen to Alan Dukes, who is on the board of directors of Anglo Irish, comment that NAMA will ‘hold onto the deeds’ as he put it. Alan obviously hasn’t ever worked in a place such as Zoe developments or anywhere else, or he would instantly know how daft a statement that was.

The other point of course, is the financing and re-financing procedures. As Michael O’Leary, the Ryan Air CEO rightly put it, only the banking institutions know where the bodies are buried. Basically, what I am saying is that NAMA want property to conform to the neat rules and regulations that bonds and stocks do – but it won’t ever.

In addition to that . . .

I contrast to what I said above, about the term ‘economics’ being incorrect – that it needs to return to being called ‘political economics’ . . . I find with the term ‘investment property’ I hope the opposite will be the case. That ‘investment property’ will cease to be. Instead we need to start thinking of ‘property’ simply as property and nothing other than that.

As economist Alan Ahearne rightly pointed out in last Saturday’s Irish Times, the property loans are now probably worth more than the properties. Ahearne is hoping that will give the Irish taxpayer some profit, because borrowers will make good on their loans, rather than default. Rather like the way many Irish people continue to pay mortgages despite being in negative equity. It is a far stretch though in terms of commercial property, but I do grant Ahearne his point. Because it helps to reinforce my own point, that ‘investment property’ is a thing of the past, when loans suddenly become more valuable that the underlying asset.

I reckon the ‘trick’ that NAMA hope to pull, it that they can re-package the LOANs together in some way, that will make it agree-able for some poor eejit investor out there to buy. That is what all of the stress testing is about, to see if this ‘trick of the loop’ will actually work. Another Celtic Tiger sized building boom, would greatly assist the ‘stress test model’ I have no doubt.

The notion of property as an investment was very specific to Ireland. Along with the fact that spreads between property prices and industrial wages grew larger than anywhere else in the world. Along with the fact, that after a property ‘crash’ of 50% reduction off peak values, we are still more expensive than anywhere else in the EU in terms of property. Along with the fact, the GDP to debt ratio is still lower than anywhere else in the EU. In other words, our government hasn’t the balls to go out and do any of the projects that need to be done.

Everything it touchs involves vast sums of money ending up in off shore bank accounts, washed by Goodbodys no less, and the taxpayer having nothing to show for it. Either that, or the unions get more money to buy Mercs. We are completely off the wall on a whole number of counts, the rest of the world is fast waking up to that fact, and we had better get our s**t together soon. Or Garret Fitzgearld correcting our wording in sentences will not be enough to save us.

The ‘bubble mentality’ is even present I dare say, in Green minister Eamon Ryan’s interview on RTE radio one, Morning Ireland. On the one hand, the green minister made some very intelligent suggestions of how we can re-think our planning and development policy and procedures. He mentioned the option to re-think the hotels that were built during the Celtic Tiger years to re-invent them as nursing homes. However, minister Ryan seems to completely miss the bigger picture that David McWilliams draws our attention to – we have to opportunity now in Ireland to buy whatever land we need, and do whatever projects we want to do. For the first time ever.

Unfortunately, minister Eamon Ryan, though I have enormous opinion of him as a politician, smacks of a guy who simply never spent a penny on a real project himself. But that is what we are stuck with. What he described on radio this morning sounded like it came straight out of a Ciaran Cuffe workshop in UCD school of architecture and design. Which is fine if you want to spend the rest of your live cocooned within a safe haven of design thoughts and aspiration. But it doesn’t cut the mustard out in the real world.

Brian O’ Hanlon

Michael O’Leary made a similar point in respect of Liam Carrolls buildings that are let or pre-let to the Government; why hold ten year bonds at 4.75% when you can acheive a yield of 6.50% on a building let to exactly the same covenant?

Brian Lucey made a point today in his article in the Irish Times. It is in relation to the variable of interest rates. If we take property valuation out of the equation for a moment. (Obviously yields being links to valuations, would mean values for need to fall, so that yields could adjust with interest rates rising)

NAMA are effectively hoping that property yields and interest rates will track one another for the next ten years. There is no evidence to suggest that may be the case. There is no evidence either to suggest that propery yields from their underlying assets will be robust enough to withstand a rise in interest rates – even if one neatly tried to match up with the other.

Brian O’ Hanlon

Karl Whelan explaing some of the ‘in’s and out’s’ of things at his blog web site.

Some people seem to believe that these assets will somehow be ”backed” by the property assets acquired by the government and that their value may fluctuate based on how these assets perform. I don’t know why these people think this. They will be government bonds backed by taxes levied on you and me.

http://www.irisheconomy.ie/index.php/2009/09/07/ecb-nama-bonds-and-the-irish-banks-as-issuers-of-sovereign-debt/

Further down the article, Whelan hypothesises:

Now, and only now, does the ECB come in to the picture. Knowing that there will only be a limited market for the NAMA bonds on the open market, it appears that the government and the banks have made something of a gentleman’s agreement not to sell many (any?) of the bonds at first. Instead, the banks can go to the ECB and look for loans. The ECB requires that a bank have eligible collateral to secure its loans. Dodgy developer loans are not on the ECB’s list of eligible collateral; government bonds are.

So it appears as though the Germans are buying into to Irish debt after all. In a round about kind of way. Something else that Whelan clears up a bit, is the following.

Note that contrary to what is commonly stated, the ECB will not be buying these bonds—they are forbidden from buying government bonds of member states—they are only requiring that the bonds be available as eligible collateral.

Brian O’ Hanlon

I always like to read Elaine Byrne’s Irish Times articles. I think it is because Byrne often manages to join up a couple of dots, in her articles. I don’t have the time available to follow in much depth every movement and development in Irish business, politics and social life. But when I read Byrne’s articles, I can benefit from some kind of overview.

I shall be telling this with a sigh

Somewhere ages and ages hence:

Two roads diverged in a wood, and I-

I took the one less traveled by,

And that has made all the difference

http://www.irishtimes.com/newspaper/opinion/2009/0908/1224254065856.html

Brian O’ Hanlon

Document published by Labour party about NAMA.

http://www.labour.ie/download/pdf/protecting_the_taxpayer.pdf

Brian O’ Hanlon

Meanwhile, Mr Sarkozy sought to blaze another new trail today, adding a “happiness index” to the usual measure of economic growth. Mr Sarkozy commissioned a report from the economists Joseph Stiglitz and Armatya Sen with the idea of shifting emphasis from gross domestic product to well-being and sustainability.

Receiving the report in the Sorbonne University, Mr Sarkozy said the old measure of GDP gave a false reading because people saw their living standards deteriorating while GDP was growing. “In the whole world, people think that they are being lied to, that the (GDP) figures are false, or worse, manipulated,” he said. “Nothing is more destructive to democracy”.

The President called for a revolution. New factors is national performance should include such things as “the services which are rendered inside the family”, the quality of public services and access to leisure activities.

http://business.timesonline.co.uk/tol/business/economics/article6833689.ece

Any thoughts?

Mr Sarkozy commissioned a report from the economists Joseph Stiglitz and Armatya Sen with the idea of shifting emphasis from gross domestic product to well-being and sustainability.

http://business.timesonline.co.uk/tol/business/economics/article6833689.ece

Three very different articles from the Sunday newspapers yesterday, tackling in detail the issues dealt with in the broad strokes by the French premier.

I read over Emmet Oliver’s article in the Sunday Tribune which uses the figure of GDP quite a bit.

http://www.tribune.ie/business/article/2009/sep/13/the-greatest-gamble-in-history-of-economy/

Vincent Browne in the SBP also refers to GDP:

http://www.sbpost.ie/commentandanalysis/the-money-is-there–its-just-not-being-shared-44282.html

The Sunday Tribune again had a piece by Mark O’Byrne is executive director of wealth manager and international bullion dealer, GoldCore, who raises important points about Gold compared to other investments.

http://www.tribune.ie/article/2009/sep/13/gold-a-safe-haven-as-all-else-fails/

Then, this evening I was reading Joan Burton’s site, where she discussed a danger of NAMA bonds coming into conflict with the Irish government’s need to issue large amounts of debt at the moment.

The Minister must set out the expected cash flows and revenues over the coming 7 to 10 years of NAMA’s life. In the legislation the banks may use the NAMA bonds with the ECB or sell them. However we do not know under what conditions and when they may be sold on the bond market and the impact of such sales on Irish Government Debt at a time when the State will be borrowing heavily to meet capital and current public spending.

http://www.joanburton.ie/?postid=1161

I suppose the point is, everyone uses GDP in order to make some point or other. It serves that purpose when it is needed to frame some other point. I can remember a number of people lately, who have criticised GDP, while at the same time using the figure, in order to make some point or other.

Brian O’ Hanlon

so what is affordable/social housing under name and how much will be provided?
What new land zonings have they invented?

over to grace the ace!~ where is the nama land bank map?

I have heard Ronan Lyons PowerPoint presentations which show a diabolical zone of negative equity combined with unemployment statistics down the middle of the map of Ireland. I think that is what the Primetime feature focussed on the most in fairness, and showed the very most depressed parts of the country, where things really are bad.

http://www.rte.ie/news/2009/0917/primetime.html

But I think it was an interesting comment by the Edenderry auctioneer I think, who claims that property in Offaly main towns like Edenderry were doing better through the recession, and more deals happening than the villages and rural areas. So it does appear, that even in the heart of NAMA-land, good, tight urban planning seems to offer us a solution.

This is really I believe, where all of the students from Bolton St, UCD, Queens, Waterford and Limerick architectural departments should be heading this year. To try and capture some of the nature of the problem – what is actually, managing to struggle on as viable, sustainable development – even in the worst case situation – the heart land of NAMA land.

Ronan’s blog entry here:

http://www.ronanlyons.com/2009/09/17/do-the-nama-figures-add-up-a-broader-and-more-realistic-assessment-of-long-term-economic-value/

Amongst others has attracted some interest.

Brian O’ Hanlon

Interesting break down of the figures; I respect his honesty in saying that he like others have no idea where residential land values are going. I do however dispute his views that foreign assets have further to fall; European long term yield averages are roughly 5%; the figure used by Nama was 6%; what caused the crash was not 6% yields or even 5% yields it was the wall of money that was lent to investors from many countries at sub 4% yields. Those sub 4% valuations will not come back any time soon except in few selected markets such as Hong Kong.

I would also look at residential yields which at 3% are below European averages of 4% -5%; residential yields will almost always be lower on the basis that lot sizes are so much smaller which makes investing in a couple of flats a lot more accessible than buying an office tower or shopping centre. Residential property is always much less risky in that finding tenants generally is easier and if you at a difficult point of the cycle do a pragmatic letting below long term value you can adjust the rent back up in a year and not 5 years as is the case with commercial lettings.

Thankfully a stable platform has now been put under the banks; the taxpayer can now appoint expert staff to maximise value of the holdings through active asset management of the portfolio. What long term economic value turns out to be will have little to do with the holdings and has everything to do with how the wider economy performs with particular reference to employment levels and salary levels.

If you click on the Late Late Show video clip here:

http://www.rte.ie/news/features/economicforum/avindex.html

Gerry Robinson makes the point about governments who run massive programs, who have no experience whatsoever running anything else in their lifes. For instance, the National Asset Management Agency, being decided upon by Green party ministers here in Ireland – none of them have ever spent a bean on construction in their lifes. But now, they are all suddenly experts in how to allocate billions and billions worth. There is a disconnection, which is worrying to me, between people forming policy and those doing the work.

The management of untold billions is a task that even the most skillful in the construction industry, anywhere in the world, including Dubai, would shy away from at the moment. What is even more saddening, is that the Green Party in Ireland have huge resources and expertise in Ireland, regarding so many things – utilities, transport, energy, communications – are perhaps neglecting those duties in order to focus on property, something they are light in terms of their knowledge. Lets face it, we should not get too hung up on property, and create too much of a Herculean task for ourselves in that sector, because it is unlikely to do much for improving the fortunes of the country.

Noel Whelan’s IT article describes some of the problem.

http://www.irishtimes.com/newspaper/opinion/2009/0919/1224254861429.html

Brian O’ Hanlon

I find Noel Whelan’s article bizarre; lets look at Noel’s background he was the first in house quants based political analyst, a role for which his analysis won universal respect. His attempts at Dail Eireann foundered in John Gormley’s constituency and no doubt Noel is convinced that the first past the post system would have of course returned Noel straight to the Dail; the tone of his article suggests that anything less than mathematical carve up of decision making based on mathematics is scientifically unfair. The conclusion of the moral tone taken in the article is that the majority party would protect their electoral superiority and assert their numerical superiority at the ballot box. I would ask Noel to run the quants on an election next February or get off his soap box. We get the government we elect and in this case it is fair to say that the Green party have signed off a number of policy agendas in areas such as road transport that they would not have had in their manifesto; whilst I disagree with them taking the decision outside their parlimentary party it is their right to do so. I would also suggest that Noel’s quants analysis would be equally accurate with their re-election chances if they took the moral high ground on a single issue.

In respect of the presumption that Gerry Robinson that ministers run multi-billion asset management / delivery programmes. I find this to be wrong outside the delivery of road and other physical infrastructure programmes which excluding the odd toll road produce assets that are of no interest to the private sector. Even in cases of the NRA/CIE/RPA there are civil service sub-departments which are charged with moulding and scoping the projects albeit that they need ministerial and cabinet sign off to receive the funding.

What makes Nama fundamentally different from running programmes is that in the remit of Nama is manage loans and not projects. Much of the portfolio deals with built assets that are in all reality semi-liquid property investments; the only decision to be made on these is whether the government instruct a policy of liquidating assets in breach of their lending covenants the second LTV or interest cover is breached or do they encourage a position of restructuring those loans to enable them to be perform to softer tests until medium term values return.

Another significant portion of the portfolio relates to what you would call the half built or untenanted properties; no government is qualified to make calls on what terms would be required to get tenants into empty buildings or which half built projects should receive further funding to be completed.

A decision needs to be made as to who makes decisions; do they hire a team made up of planners, construction managers, loan assessors and property fund managers to make those decions on their behalf or do they hand a fixed term contract to a consultancy(ies) to make those calls. Please do not try to tell me that either John O’Donaghue or the more successful Minister for Fun Michael D Higgins managed the Irish film industry; they both in their very different styles listened to the civil servants who from their professional backgrounds knew exactly where the fault lines were in every decision.

What makes Nama fundamentally different from running programmes is that in the remit of Nama is manage loans and not projects. Much of the portfolio deals with built assets that are in all reality semi-liquid property investments; the only decision to be made on these is whether the government instruct a policy of liquidating assets in breach of their lending covenants the second LTV or interest cover is breached or do they encourage a position of restructuring those loans to enable them to be perform to softer tests until medium term values return.

As negative about NAMA as I have now become, I can still manage to look at NAMA and see more positive aspects about it than that. If what you describe, is all that NAMA hopes to achieve, then why do we need a dedicated state-based unit to do it in the first place?

All of what you describe above, and a lot more can already be done by the institutions and parties involved in the loan book. There is no requirement for NAMA to get on board to perform tasks described in the above quote. Certainly, at the cost and considerable complexity that NAMA will involve.

Other, perhaps negative, commentators have offered the suggestion that NAMA is necessary to ensure a transfer of wealth out of public funds into private shareholders’ hands. Even if you took that as a goal, and did not dwell on the ‘unfairness’ of it all, then I could see why NAMA is needed. Then it would seem to me that NAMA has ‘some’ function it could perform. But what you describe in the quote above, doesn’t require a NAMA or anything like NAMA.

Another significant portion of the portfolio relates to what you would call the half built or untenanted properties; no government is qualified to make calls on what terms would be required to get tenants into empty buildings or which half built projects should receive further funding to be completed.

Again, begging the most obvious question, where does that leave NAMA. What function does it propose to serve? What exactly is it going to do?

Sorry for asking the questions, but why should Ireland be setting up another state agency, which has nothing to do? In short, why do we need NAMA if the second quotation’s statement is true?

A decision needs to be made as to who makes decisions; do they hire a team made up of planners, construction managers, loan assessors and property fund managers to make those decions on their behalf or do they hand a fixed term contract to a consultancy(ies) to make those calls.

Which brings me right back to the same place I have been. What is NAMA for? I mean seriously, we have to get a little bit real. We cannot go wasting months and months of political and parlimentary time, paying for services and advice in the order of more millions of taxpayers funds to set up an organisation which has no defined program or aims. When I read some of the above quotes, I understand why Michael Somers himself was as confused as he was. So am I, to be quite frank and honest about it.

Brian O’ Hanlon

The government has made an in principal decision to invest c€54bn of taxpayers money; clearly the government are doing this to preserve the well being of the domestic banking sector.

The Govt has made this decision following advice and come to the conclusion that they are receiving a portfolio of loans worth €47bn for the portfoio’s current value plus an estimated top slice of €7bn on the development land holdings which is estimated to be realisable when the unprecedented overhang of development land which would be offered onto the market if the banks forclosed on all loans in breach of one loan covenant or another is removed.

It is an act of faith in their ability to manage the macro economy through the current downturn and restructure the economy away from one that relied what in hindsight was at national level too high a reliance on real estate as creator of wealth and at consumer level perceived to be a one way bet that was only up for the 14 years to 2007 and only down for the past 2; in about 2 years; one would assume that subject to the productive sector retaining International competitiveness; something approaching equilibrium sentiment will return.

There are three ways that this can play out; firstly if the government issues bonds and transfers €54bn to the qualifying institutions and simply waits for the sums to be repaid or the government gets activily involved in managing the holdings via NAMA.

If it is the former clearly the original borrowers or the financial institutions who pre NAMA hold the assets will continue to hold the assets, these borrowers in many cases have no capacity to raise additional finance and these borrowers will receive all the upside. In the second scenario the banks will take over the assets and it is clear that the banks even post NAMA will be repairing their balance sheets for a number of years to come; they will not want to extend their exposure to the property sector for a number of years to come.

In the third scenario where NAMA takes greater control there would be much easier access to credit markets to procure development finance for selected projects under government guarantees where the original developer could receive a project managment fee of say 3% – 5% to act as a consultant or if the firms were to be preserved say 8% – 12.5% if the QS function were undertaken in house.

Alternatively NAMA could select a joint venture partner where the land would act as the NAMA investment stake and the selected JV partner would supply development expertise and the sums required to plan, construct and market the development; using that model the upside would be shared.

If the money is transfered and there is no downside for the original borrowers then clearly the taxpayer is getting a very bad deal and NAMA other than needing a few fund accountants to mark the value of the securities to market will be non-existant. However it could be much more but a significant level of control over the portfolio would need to transfer to NAMA.

transport 22 and the ECB

http://www.irishtimes.com/newspaper/frontpage/2009/0921/1224254911025.html
http://www.irishtimes.com/newspaper/finance/2009/0921/1224254908745.html

LUXURY goods maker Hermès is set to acquire the Bond Street store occupied by prestigious jeweller Asprey for £73.5m.

The French fashion house is buying the property, designed by Foster & Partners, from Quinlan Private, the Irish property investment firm that also owns landmark London hotels including Claridge’s and the Connaught.

Hermès is keen to expand its retail empire and is said to be interested in taking over occupation of the store for its own brand. The business is performing well despite the global recession.

Its last set of half-year financial results showed that turnover had increased by 7.6% to €875m (£802m).

In common with other property investors, Quinlan Private has seen the value of many of its holdings fall over the past year, but it has made almost £25m profit from its investment in the Asprey site.

It has owned the store since 2005, when it paid £50m to acquire the property.

In contrast to Hermès, Asprey has been finding the going tougher, racking up losses in each of the past two years, although these have been falling.
http://business.timesonline.co.uk/tol/business/industry_sectors/construction_and_property/article6851166.ece

Deal of the year by a distance; just proves that extreme quality can provoke special situations

Again proves location, location, location. The £25 mill will just about pay a month or so of interest on the two bank sites he has in London.
Hermes is owned by a family (a tiny amount of its equity is on the CAC) so they can take a longterm view. Aspreys is owned by a couple of US venture funds and has been losing money……..
Will be interesting to see if owning the property will help Hermes see off LVMH/Arnault, who were rumoured to be an interested buyer.
K.

With a jingle jangle the auld triangle

by the banks of the union canal

I think there are Vestive Interest on here

@Pot Noodle wrote:

I think there are Vestive Interest on here

Like this?

http://www.thesun.co.uk/sol/homepage/showbiz/bizarre/article2043330.ece

ANZ bank has splashed $15 million on a new logo that it claims reflects its ‘human’ side.

SPV!

How come nobody saw this coming?

This off-the-national-balance-sheet thing apparently requires the establishment of an SPV, a ”special purpose vehicle”. The SPV will be responsible for the purchase, management and disposal of loan assets identified and valued by Nama.

The SPV will be a separate legal entity jointly owned by private investors (51%) and Nama (49%)! . . . . . Who are these private investors?

This device is designed to keep the national balance sheet looking reasonably sane, so that the people we borrow money from won’t jack up the interest rate because we’re a financial basket case, . . . . but surely these people read the papers and know we’ve got this other €54 billion mortgage!

Who are these private investors, does anyone know?

I don’t want to start hearing in a few months time the old familiar names again. There has to be a case for establishing a register of the people, companies and institutions etc. whose reckless trading* got us into this mess in the first place and certainly no one on that register ought to be allowed become an investor in this new SPV.

* When an experienced property developer pays outragous prices for development land, with money borrowed from an experienced bank, how is that not reckless trading?

Why do they need nama then if it’s got no control?

Heard George Lee’s take on the Nama/SPV double act on Vincent Brown last night. Apparently it really is all smoke and mirrors, which is fine, except we’re paying for the smoke and we’re buying the mirrors.

As a couple of radio commentators have already pointed out, the interesting thing about the Nama positions, advertised today, is the inclusion of: “urban and land planning”, and “social housing and community development”, as areas where ‘expressions of interest’ are invited!

Obviously these positions could be just a fig leaf, which will be dropped once the real business of rogering the taxpayer begins, but if they are intended to be appointments to genuine positions that will be on an equal footing with the accountants, in a genuine attempt to address our dismal failures during the property bubble to really urban plan and to develop housing that is social and promotes community, then the whole Nama process will have been worth the pain in the backside.

I know we risk bringing johnglas into the discussion with imagery like this 🙂

No, I’m invisible now; haven’t you noticed?

@gunter wrote:

Heard George Lee’s take on the Nama/SPV double act on Vincent Brown last night. Apparently it really is all smoke and mirrors, which is fine, except we’re paying for the smoke and we’re buying the mirrors.

As a couple of radio commentators have already pointed out, the interesting thing about the Nama positions, advertised today, is the inclusion of: “urban and land planning”, and “social housing and community development”, as areas where ‘expressions of interest’ are invited!

Obviously these positions could be just a fig leaf, which will be dropped once the real business of rogering the taxpayer begins, but if they are intended to be appointments to genuine positions that will be on an equal footing with the accountants, in a genuine attempt to address our dismal failures during the property bubble to really urban plan and to develop housing that is social and promotes community, then the whole Nama process will have been worth the pain in the backside.

I know we risk bringing johnglas into the discussion with imagery like this 🙂

Totally agree. If these positions are more than just lip service, Nama could be a vehicle for repairing some of the damage we’ve done over the last ten to fifteen years. Using the land to provide district centres, community facilities and introducing a sense of proper urban planning could be a major claw back.

@gunter wrote:

……….Apparently it really is all smoke and mirrors, which is fine, except we’re paying for the smoke and we’re buying the mirrors.

As a couple of radio commentators have already pointed out, the interesting thing about the Nama positions, advertised today, is the inclusion of: “urban and land planning”, and “social housing and community development”, as areas where ‘expressions of interest’ are invited!

The SPV is no big deal, it is just another shell layer in the structure. What scares me is that we are again delaying the launch of NAMA and the unclarity remains as murky as months ago.

“urban and land planning”, and “social housing and community development” are just two of the fourteen sectors from which NAMA board applicants should have experience.

I ‘ll use Gunter’s phrase – ‘this is more smoke and mirrors’ – minds already are decided and “the right people” already chosen. It is just a way for the politicos being able to say “I was fair and open on the manner in which the NAMA appointments were made.”

K

@KerryBog2 wrote:

The SPV is no big deal, it is just another shell layer in the structure. What scares me is that we are again delaying the launch of NAMA and the unclarity remains as murky as months ago.

“urban and land planning”, and “social housing and community development” are just two of the fourteen sectors from which NAMA board applicants should have experience.

I ‘ll use Gunter’s phrase – ‘this is more smoke and mirrors’ – minds already are decided and “the right people” already chosen. It is just a way for the politicos being able to say “I was fair and open on the manner in which the NAMA appointments were made.”

K

KB as you may have observed I’ve always taken a sunnier view than that but if you are right it will be a missed opportunity that will not present itself again on this scale. A strong NAMA will require a multi-disciplinary approach that represents all areas of the built environment and investment community. Clearly the buyers and lessee’s will have all of the power for the foreseable future; to think that Zoe type apartments or Georges Dock type commercial architecture will hack it going forward would be a huge miscalculation.

If the product is better then the land price will form a much smaller percentage of the price enabling NAMA to acheive better returns if prices rise. The future will be much smaller projects which will only acheive profitability if they are of a sufficient quality; if the main property player is run by exclusively by bond fund managers and bankers then NAMA will come to a very bad end.

I think you will find a lot of people will want nama to come to a bad end…

demand and supply… and existing conditions….

Nama will only make a name for it shelf if it offers cheap land to every joe blow that is unemployed or doesn’t own land/house. Otherwise it will just be more of the same…

@PVC King wrote:

KB as you may have observed I’ve always taken a sunnier view than that but if you are right it will be a missed opportunity that will not present itself again on this scale. A strong NAMA will require a multi-disciplinary approach that represents all areas of the built environment and investment community. Clearly the buyers and lessee’s will have all of the power for the foreseable future; to think that Zoe type apartments or Georges Dock type commercial architecture will hack it going forward would be a huge miscalculation.

If the product is better then the land price will form a much smaller percentage of the price enabling NAMA to acheive better returns if prices rise. The future will be much smaller projects which will only acheive profitability if they are of a sufficient quality; if the main property player is run by exclusively by bond fund managers and bankers then NAMA will come to a very bad end.

Yes, PVC, you views are sunnier, but then my pension fund is almost gone and my income is a fraction of what it was, thus it is hard to remain uncynical, yet alone cheerful!

I do not want to go over old ground again, but I’ve long ago spoken about the rise in insolvencies and the site cost/land price being too high an input into the overall equation. Nama is here to stay, so it has to be made work and I agree that it needs people with a commercial outlook. Don’t hold your breath. We will see more political latchico appointees and gobshite civil servants way out beyond their depth.

What really kills me is the total lack of any
– Awareness in the population that it was partly to blame
– Credible Opposition
– Professional financial journalists
– Knowledgeable Radio/TV presenters
– Economists who are more interested in problem resolution that making a name for themselves.
– Expeditious corporate enforcement.

The FG notion of a “Good Bank” is nonsense, Bruton is a nice guy, but is not capable of being a finance minister. George bloody Lee has never achieved anything except to pontificate on the TV- he even had to repeat his Leaving to get into college. Nobody can / will lend until the financial health of industries is known. That is a Black Hole at the moment because no lender can calculate the worth of the”receivables” on a balance sheet. The dominos will start to fall when NAMA gets going and then we will see who has been bathing in the nude. That must happen before there can be more liquidity in the market.

Some time ago I spoke here about the need for the construction industry to look overseas – Parlon has been waffling on about this recently, talking about the need for “export credit”. So far, nobody has had the knowledge, cop, or basic wit to query him on what he means by this. What he really wants is financial guarantees from the State in the form of performance bonds. Given the “health” of our great names in construction, and their probable ability to complete a job, who would like to guarantee the performance of any one of them on an overseas project???

The only advantage this downturn has given me is more time out on the bog with the dog and gun. More sense out there. (Apart from the erudition here, of course:))

Rs
K.

It is a coincidence that it is just a couple of days off three months since I posted no.224 above. We are still waiting for NAMA to start. The only new thing is the departure of Mr. Lee; it has raised him in my estimation.
K.

don’t think the search function is working to well this came up 15th or something.
It’s nice not being able to print money…

I would take the 22k any day;)

http://www.irishtimes.com/newspaper/ireland/2010/0331/1224267401852.html?via=rel
http://www.irishtimes.com/newspaper/frontpage/2010/0331/1224267402017.html
http://www.irishtimes.com/newspaper/features/2010/0331/1224267397160.html?via=rel
http://www.irishtimes.com/newspaper/ireland/2010/0331/1224267401873.html?via=rel
http://www.irishtimes.com/newspaper/opinion/2010/0331/1224267399309.html?via=rel

There was some talk on the radio this morning of Cuffe setting up a ”Planning sub-committee of NAMA”, anyone got any hard info on that?

Sounds like exactly the what’s needed. Does he have the power?

Nama as enacted gives virtual control to the Minister for Finance; assuming that Cuffe has or can secure cabinet backing and that the EU Commission have no objections then there is nothing to prevent it from being established. Given the shelf life of the current government is about two years I can’t see them establishing anything that would exclude the ability of back bench TD’s going to their constituency saying that NAMA will fund development of the local commercial development and that a week after the election 3,000 jobs for locals only will be created!!!!. Planning may just get in the way of such campaigning; although ranking projects with planning as well as demand analysis as the major determinates would be very prudent.

It’s more developing a plan for the ghost estates I believe

That is certainly the context in which it was raised but as there are likely to be few estates demolished and that most of those estates are likely to the small number of semi built suburban scale estates tacked onto villages in the border counties, you would wonder why he raised the issue other than to fly a kite for a wider role for planners in the overall process.

The return to original land use is a major issue in the Mid West US from what I have read where large tracts of land had services put in waiting for phased development and that land funds are now buying them and returning them to agricultural and alternative fuel production uses.

The principle of perception versus reality in the resolution of economic difficulties.

Given that it appears that many foreign economic commentators seem to be mightily impressed with the whole NAMA thing despite the fact that we now apparently have the highest national deficit in Europe, and given that it appears that countries just have to be perceived to be sorting out their economic problems, rather than actually making them go away, should we not be applying these principles with a bit more industry.

Could we not just announce a major oil find off Dalkey, whether there’s anything there or not, and watch as our borrowing costs drop through the floor on a wave of positive sentiment, thus stimulating an actual recovery in the national balance sheet. We could probably then even afford to buy a few barrels of oil that we could casually leave lying around in Bullock Harbour just in case anyone came to check.

On the ‘Ghost Estates’, here we could use the ‘Good Bank / Bad Bank’ concept and transfer all the half-built estates to just one county [probably any county beginning with ‘L’ would get picked] and swiftly clean up the rest of the country.

Again we wouldn’t necessarily have to do this in reality, we could just photo-shop the aerial views.

In a couple of months we could be back on our feet again, virtually :rolleyes:

Coincidentally I actually thought today about the Bullock prospect that Providence are working at the moment; my thoughts turned straight to Rambo and the damage he did in 1993 in the last major downturn; once you grant the prospect on soft terms the holder can do some very basic work and sit on it until the market turns the right way as was the case with the Corrib field; truth is we are well beyond peak oil and anyone who grants cheap licenses for all but a very shortly capped development period is commiting political suicide. Not having a go at providence as the backers have a great track record of supporting indigenous businesses that employed thousands of Irish residents over the years but you get one shot at natural resources and then you are hostage to people like Hugo Chavez or worse Iran.

I get the feeling that Nama are concentrating on the larger commercial assets at this point in time for example Parkway in Limerick which has got some juicy agreement for leases i.e. Primani and Tesco which have long stop dates which will expire if not acted upon. No doubt when the more modest loans transfer the ghost estates will be looked at; the one serious silver lining is that Bank of Scotland were the real frontier trail blazers when it came to funding 100 houses in Ballyshannon or other border county locations and they are not in Nama. That said LLOY is in my portfoilio and is making exceptional progress with its UK loan book; topping up my holding in late February was a very good move. The real problem in Irish banking was the entry of HBoS to Ireland and their aggressive grab for market share they made that resulted in 2.50% interest rates; thankfully they have no exited the market and as a result more sustainable margins now prevail which should to make sure that this doesn’t happen again.

@gunter wrote:

Could we not just announce a major oil find off Dalkey, whether there’s anything there or not, and watch as our borrowing costs drop through the floor on a wave of positive sentiment, thus stimulating an actual recovery in the national balance sheet. We could probably then even afford to buy a few barrels of oil that we could casually leave lying around in Bullock Harbour just in case anyone came to check.

Great solution Gunter:)
The only bit of unreality is that Providence = O’Reilly & cronies = Waterford Glass, Indo, Fitzwilton, Crean and Atlantic Resources.
Now, would you put your money there? :eek::eek:
K.

Providence brings in Baltimore partner
Monday, 26 April 2010 10:23
Exploration company Providence Exploration says it has agreed a farm-out deal to advance its Baltimore heavy oil discovery, off the coast of Ireland.

UK independent oil and gas firm Nautical Petroleum will acquire a 40% interest in the licence in return for funding a development feasibility review. Providence retains the balancing 60%.

The deal for the site in the North Celtic Sea Basin is subject to approval from the Government.

Nautical is currently involved in a number of similar heavy oil field developments in the UK North Sea including the Kraken discovery and Mariner, which is operated by Statoil.

As requested – one oil find!!!!!
KB – The general view on Sir Anthony has been he invests when others won’t; he and his brother in law took some hit trying to save Waterford Wedgewood; anything but Crony capitalism or the firm would have been well naked before the downturn hit.

@PVC King wrote:

As requested – one oil find!!!!!
KB – The general view on Sir Anthony has been he invests when others won’t; he and his brother in law took some hit trying to save Waterford Wedgewood; anything but Crony capitalism or the firm would have been well naked before the downturn hit.

The shareholders got nothing, that is naked enough for me. I’ve spoken about this before here, so I won’t bother:mad:
That oil find is old hat. Back in the days of Atlantic I remember serious talk of strong oil prospects at the Kish Bank. The late Don Sheridan, onetime CEO of Atlantic spoke of it. The Dalkey field would be more appropriately named the Codling, as it is way to the South East of Dalkey Island and also south of the Kish bank. Wouldn’t sell papers though, not when you would not get to mention Bono & co and the prospect of roughnecks in “affluent suburbs.”
It will be interesting to see what happens when the windfarms planned for out there are launched
K.

@KerryBog2 wrote:

The shareholders got nothing,

Those are the risks with equity investment; but the largest losses were suffered by the parties to you refer; it was far from a penny stock for a long time.

FORMER CELTIC TIGERS’ BORROWING COSTS HIT BY GREEK DEFAULT FEARS – The injustice of it all! As fears of a Greek default escalate, Ireland’s 10-year borrowing cost rose above 5% on Wednesday, a 2 percentage point premium over German Bunds. In its influential Lex column, the Financial Times says that Irish finance minister Brian Lenihan has led the way among ailing peripheral euro zone economies in taking the harsh fiscal measures needed to regain investor confidence. He set the example months ago that Athens should follow now, slashing public servants’ salaries, and welfare payments. Investors rewarded him: the yield spread over Bunds narrowed. Now Dublin has given up those gains as Greece, the European Commission and the International Monetary Fund fail to agree on similar draconian measures for Athens. Ireland is no saint, the column says. Like other peripheral economies it became uncompetitive, paying itself too much and producing too little. And unfettered bank lending and limp regulation during its property boom brought deep recession when the bubble burst. The 12.5% contraction in Ireland’s gross domestic product since the end of 2007 is the euro zone’s worst. Output could shrink 1.3% this year. Furthermore, Ireland’s budget deficit, at 14.3% of GDP, is higher than Greece’s. But Ireland is not in the same league as Greece: the former Celtic Tiger has a credible recovery plan and has bounced back before.

Unlike many sections of the UK media you can always depend on Lex to stick to the underlying numbers.

NAMA GIVES FIRST CASH TO DEVELOPERS – NAMA, the toxic loans agency, has extended its first-ever funding to the country’s developers as they struggle to finish projects around the country, says the Irish Independent. The agency declined to name the developers who received the capital or the amounts they received. “NAMA has provided small amounts of urgently needed working capital to support a number of projects to date,” said a statement from the agency. A number of developers are now expected to seek permission from NAMA to roll over huge debts in the next few weeks. NAMA said yesterday it would decide on these when staff review the business plans of the developers. It is likely that major developers will now be forced to sell unprofitable or underperforming assets, following a review of their business plans. While NAMA is anxious to avoid a fire-sale of development land, trophy assets which are in the red are under scrutiny. Some of the top 10 developers have had business plans sent back because they are not judged to be realistic enough. However a number of plans are still outstanding. They disclose huge indebtedness and extensive breaches of loan covenants.

Watch this space going forward, one hopes to see a firm hand and a disciplined and patient investment approach.

a system designed to fail…
what ever happened to average Joe…

http://www.nytimes.com/interactive/2010/05/02/weekinreview/02marsh.html?ref=weekinreview

Are you not going to break down the figures between; Domestic banks, Government, Consumer, secured on PPR, foreign direct investors and non-dom funds?

@PVC King wrote:

Are you not going to break down the figures between; Domestic banks, Government, Consumer, secured on PPR, foreign direct investors and non-dom funds?

It’s all controlled by the same people isn’t it? over to you…

NAMA warning for ‘extravagant’ borrowers
Wednesday, 5 May 2010 13:23

The chairman of the National Asset Management Agency has warned that no borrower is too big to fail.

Speaking to the Chartered Accountants Leinster Society, Frank Daly, said many borrowers had not yet abandoned the extravagant mindset of the 2003 to 2007 era.

By now, NAMA has held face-to-face meetings with the top ten developers or their representatives. These are being asked to submit detailed business plans to the agency soon. Mr Daly said NAMA would approach these plans with a sense of realism – about property over-supply, prices and the prospective demand for developments.

AdvertisementNAMA has almost completed the transfer of the first batch of loans from the banks. The discount on these loans will be 51%.

The NAMA chairman today said there were a large number of borrowers who owed between €5m and 420m who were not professional property developers.

‘It is very difficult to understand how borrowers on relatively modest incomes could have been advanced large sums of money to invest in undeveloped sites in unpromising locations,’ he said. Mr Daly added that there were questions to be asked about the way banks were run in allowing this type of lending to take place.

Mr Daly also raised big questions about Ireland’s planning process in the past. He asked how many shopping centres or apartment developments could a medium-sized town accommodate?

He also said one of the more baffling features of the boom was that banks seemed oblivious to other lenders who were financing similar developments in the same area.

Mr Daly also defended the cost of professional services used by NAMA, describing it as ‘low’ and adding that the cost of these services would be recouped from the banks.

Any thoughts?

I’m totally bored of it all, I don’t care any more, I’m sick to death listening to it – more volcanoes, more volcanoes

Bank costs to swell deficit – ESRI
Wednesday, 14 July 2010 07:00
The Economic and Social Research Institute says the cost of providing extra capital to Anglo Irish Bank and Irish Nationwide will have to be included in the national accounts, and will push the government deficit from 11.5% to 19.75% of economic output – by far the highest in the developed world.

The ESRI also says money to tackle long-tern unemployment is better spent on training schemes than on building infrastructure.

In its latest quarterly survey of the Irish economy, the ESRI sees little difference to its previous outlook, with the economy broadly flat this year and modest growth next year.

But what has changed is the announcement in March of E12.9 billion of extra capital for Anglo Irish Bank and Irish Nationwide. This injection is by way of promissory note – a type of IOU under which cash can be drawn down over a ten-year period as the institutions require.

The ESRI believes the EU statistics agency Eurostat and other international bodies will want that liability written into the national accounts in full this year. That would have the effect of increasing the government deficit from the department of finance target of 11.5% to almost 20%.

The ESRI also cautions against using infrastructure spending as a job creation mechanism, saying its research suggests that money is better spent on improving workers’ skills through training programmes for long-term sustainable results.

Time to look at a bad bank split for Anglo; it is ludicrous that Anglo bonds are trading as junk and yet the government continues to pump new money in with a presumption that all bond holders will receive 100% of their money.

With NAMA the main banks such as AIB and BOI took significant write downs on the value of their property loans; why shouldn’t the bond investors who are now buying these bonds well below face value not face same as opposed to tax payers being burdened with paying for their short term profit the majority of which accrue only well after the crash resulting in taxpayers paying for this for decades to come. As BOI and AIB are now perceived to have made significant progress the downside risks appear dramatically reduced. A Nigerian Oil Field is very indicative of the approach to risk……………