In the previous blog I mentioned NAMA, this is essentially a “bad bank” with a state sponsored cheque book. The basic aim is to remove the bad debts from the banks and then recapitalise them with more state money. This is being done with the objective of getting credit flowing again to people and small businesses…
NAMA is currently under the control of the Treasury Department. It is a revamped, modified version of an old Swedish bank debt management plan. The Irish NAMA plan simply aims to nationalise the banks debts (lands, properties etc.) without nationalising the banks themselves.
The Irish Government will, for its part, buy the lands and properties at artificially high prices (70% of the property’s peak value in 2006). It is believed that if anything less than 70% is paid for these loans then the banks will be insolvent and will collapse. This is not a great prospect given that these banks have billions in people’s savings on deposit, (however this money only exists on paper), it is feared these deposits would be lost to the depositors if there was a run on the banks and they subsequently forced closed. The cornerstone of any banking system is the belief that money in the bank is safe; take this security away and the banks, along with most of the financial system falls on its ass. This is why they (the government, the banks and all the other geniuses) say that we have to save them…
The money to pay for these properties will come from the IMF (International Monetary Fund) and because of Irelands reduced credit rating, the rate of interest on the debt will be much higher. This is where the private debt of developers and thus the private debt of the banks will become the sovereign debt of the Irish Republic. This is where we all come in, as it is us, the little people, who will have to take the cuts and added taxes to cover the cost of servicing the debt.
Meanwhile the government will hold these properties (many of which are in foreign countries) over a period of time so as to wait for the upturn in property prices when ever it comes, that is IF it comes… If it doesn’t come in time we could be in serious trouble. If the government gets desperate and tries to sell off the assets too soon there is a good chance that we Irish could loose a lot of money, possibly up to tens of billions. In essence it’s a gamble, but it’s always easy to gamble with someone else’s money…
Many people don’t necessarily disagree with the idea NAMA, but don’t agree with the way it is going to be managed… The lack of transparency (where is OUR money going), the gag orders on the civil servants who run it, the over-payment for properties, the poor record of our current government will mean that mis-management is inevitable and what return if any will the tax payer see?
Then there is the fact that the banks aren’t being cleaned out properly. NAMA shouldn’t just be about removing the toxic (now radioactive) debts from the banks, if we are going to bring back public confidence in the banks we should not just remove the bad debts from our banks but fire the bad bankers as well!! Their incompetence and greed landed us all in this mess, we can get foreign bankers in to do the same job, twice as good for half the price that it takes to water those turnips. The smart-ass bankers told the bank executives, “If you pay peanuts, you get monkeys“, well we paid millions and still got monkeys…
It would also be ideal if a legally binding code of ethics could be set-up for the banks to prevent the same mistakes from occurring again. This would encourage foreign investment in Ireland because it would have a well run and sustainable banking system with responsible people in charge! It is important to note that AIB had been bailed out twenty years ago. If we’re going to do the job we should get it right the first time, I don’t think our credit rating with the IMF is good enough to go back and do it again later on…
The overall goal should be to make our banks self sufficient and capable of functioning again with a strategic aim of making good profits over a long period of time with a strong deposit base. For too long the emphasis has been on short term gain which resulted in long term loss. Bad bankers got rewarded with huge bonuses for handing out loans without thinking. This was a world-wide problem!!
And finally there are those people on both the far left and far right of the political spectrum who strongly disagree with NAMA. This is because it is coming from a cash and carry styled government with strong links to the construction industry, (Galway race tent and Tom Parlon who is currently head of the Irish construction industry federation is an ex-Progressive Democrats TD). Bertie Ahern (whilst in up to his neck in his own bull-shit at the Morriarty tribuneral) told the few economists that sounded the alarm bells in 2007 to go hang themselves. So trust and legitimacy are an issue from the start.
Then there is the potential smoke screen to cover the arses of the developers and bankers who got us into this mess. It could well be the case that in a decade or two we may have another Tribuneral to sort out fact from fiction. But sadly, like those that came before, it will cost the tax payer millions, the legal teams will make millions, evidence such as the bank records of developers will simply get lost or misplaced, the witnesses will experience memory loss, give contradicting testimonies and in the end no one will be held to account.
Those on the left believe that NAMA is just a sham, an illusion which will only take private debt and convert it into sovereign debt. “Why should we all have to pay for the mistakes of a few” is their main question. Private profit and public liability on this scale is just plain wrong to them. They want to see temporary nationalisation of the banks to ensure that we get a return on our money. It is important to note that this was a part of the original Swedish plan, on which NAMA is loosely based. Nationalisation of these banks would ensure that the banks allow credit (the Irish peoples bail out money) to flow. It would also allow for the Irish people to get a better return for their money at the end of the process.
Those on the right believe that NAMA is a mistake, plain and simple. They feel that these banks should be left at the mercy of the very market that they themselves have touted for so long. They are annoyed greatly at the intentional over payment for the properties and the fact that we are borrowing the money for it from the International Monetary Fund at high interest. Before the recession we had a debt of E25 billion, today it stands at about E68 billion, what will it be after NAMA kicks in??
Those in favour of NAMA have pointed towards Sweden as the success story of such a plan, but, as mentioned above, they don’t realise that the Swedes actually had temporary nationalisation of their banks built into their plan… Something the current government are ideologically opposed to. As well as the fact that the Swedes were only doing this with about 20% of their banking system, we’re doing it with 90% of ours…
In my own opinion we are making a very big mistake by pinning our hopes on something that might simply flop. We are just reacting to the here and now… We aren’t looking that far down the road. The debt that is about to be dumped on us is massive and exceptionally heavy. We have very high taxes as it is and we have seen savage cuts to services (of which there are many more to follow). We also have the problem of how we were going to pay for the state pensions of our ageing population (a problem we have forgotten about since the start of the economic crisis).
I believe that once the world economic tide rises, Irelands boat won’t float, it will just sink i.e. because of unrealistically high wages (fuelled by high prices and high taxes), the fact that we can’t compete with eastern Europe or the far East and the fact that we will still have zombie banks will seal our fate. We are also bringing back student fees, so the “knowledge economy” is already a write-off because we won’t have the numbers of graduates required to fill the jobs. All of this will, if anything, scare away foreign investment. This will form a vicious cycle as a poor economy and reduced population with little or no spending power and very few services will keep property prices down for years… possibly decades.
Then there is the question of who will be paying the taxes for NAMA, or at least who will be LEFT to pay the taxes for NAMA. If the global recession ends and our one continues, then we will witness the mass emigration of skilled university and college graduates as well as our trades men to countries like the USA, Australia, Britain, Canada and New Zealand who will desperately need them and will be more than willing to take them in.
These people are essentially the cream of the crop and once they leave they won’t be in any real hurry to come back, IF they do decide to come back. These people are the core of our country, a unique resource that shouldn’t be squandered… we will never again have an abundance of such people thanks to the education cuts, 3rd level fees and cancellation of grants.
So those who are left here won’t be enough to pay off the taxes and the country will default on its sovereign debt. At this point the IMF will be calling the shots, not an Irish government. The sheer anger that is out there is growing and being told to tighten our belts in the form of the Bord Snip Nua cuts by over paid (cute hoor) politicians, moronic bankers and genius economists isn’t helping matters. It harks back to when Charlie Haughy came on RTE and told the people to tighten their belts, mean while he was on the take and doing quite well himself…
p.s. if you’re taking Fianna Fails word for it you might be making a mistake… Their “word”, like our economy has gone down in value in recent times. This one is a classic – “We are the best party to manage the economy”, that gem was from the Fianna Fail 2007 election campaign.
A new saying will emerge abroad, “there are three ways to do any thing, the right way, the wrong way and the Irish way!! (The Irish way being the wrong way – but slower)”. I think this will go great with the one about the Irish not being able to manage their own affairs…
It was a long post so thanks for reading,
Colm J. Carrigg.
