Let property prices collapse?

August 5, 2009

Report today by Arthur Beesley, Analysis, Irish Times, Wed, Aug 5, p10:

“After a severe setback last Friday when the High Court refused to appoint an examiner to six companies in his ZOE Development group, Carroll received a temporary reprieve from the three-judge court yesterday. Protection from Zoe’s creditors, who are owed €1.2 billion, will continue until a full hearing of his appeal next Tuesday”

….”An immediate refusal to grant an examinership would swiftly prompt insolvency proceedings against Carroll before the formal establishment of NAMA, the likely destination of the bulk of his loans. This could result in a large number of property assets flooding the market at fire-sale prices.

The import of that for NAMA is that fire-sale valuations would be significantly less than the “long-term economic value” guiding the price at which it buys assets. The gap would be clearly apparent to tax payers, who will underwrite NAMA, potentially creating political difficulty for the Government”.

Wouldn’t it be great if we could all purchase our homes at the “long-term economic value” ? If we had the powers of Mandrake The Magician to foretell the future, we could do away with gambling. We don’t, and so the valuation of assets based on the spurious “long-term economic value” is ridiculous until you recognise this is an excuse to pay developer toxic assets at a lot more than the current market value.

Not only that, but if we have enough property accumulated we can control the market and sell it at an inflated price based on the spurious “long-term economic value”. So we and our children pay exorbitant prices for homes upon which large extortionate profit is paid to bankers, developers, share holders and even the government by way of stamp duty.

So NAMA borrows billions the tax payers eventually have to pay back! As well as scalping on the artificial support of inflated property prices, NAMA scalps us on having to pay back those loans through general taxation on everything else as well as property.

So tax payers pay more for inflated property prices the bankers and developers profit from. Then tax tax payers again pay property tax on inflated property prices to the government. Then through general taxation tax payers pay for NAMA’s borowed billions and the circle is complete.

Welcome to the merry go round!  You lose if you are a tax payer, but you gain if you are part of the government, a banker, a developer, a bank share holder. In fact, you probably will gain most if you have toxic assets around the 1.2 billion euro mark!

Could this be a scam ? I hope I’m wrong !

Perhaps the government should let the market, the banks, the legal system sort it out.

When the dust settles through satisfying eg the IMF and the international community with the austere measures they might require to restore fiscal balance, then  the government should borrow. 

But this time borrow to stimulate employment through eg public works projects and support for a real economy based not on smoke and mirrors, financial sleight of hand, NAMA sleight of hand! 




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