Re: Re: National Asset Management Agency

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