NAMA ( Not Another Mess Again )

September 7, 2009

Having looked at the ‘aircraft’ that is proposed to take NAMA across the ocean and found the engine in a mess and the fuel tank empty, the proposed modifications to NAMA
to be published later this week don’t cut it with this commentator. NAMA amendments proposed by Fianna Fail under pressure from the Greens will have the form of risk
sharing alternatives to protect the tax payer. This is likened to half filling the aircraft with the amount of petrol required for the journey, half filling a car that’s failed its NCT..
The Greens have brought an innovative spark to government and have worked hard. On ‘Morning Ireland’  this morning, 07 September, Eamon Ryan TD, Min for
Communications, Energy and Natural Resources spoke of the amended draft of the proposed NAMA legislation that will be published later this week.
It was refreshing to hear the first Government minister in this debate speak on the subject of what exactly is to be done with this dead property that is currently frozen
cryogenically by the banks as they await the NAMA mana from heaven. Eamon spoke of hotels as nursing homes and some property being used as sheltered housing for
old people.
Then he spoke of amendments to current planning legislation to avoid Planning and Development speculation, introduce a ceiling on developer profits, currently under
negotiation with Fianna Fail, publication of the detailed outcome of these negotiations awaited.
The kernel of the Green proposals it would appear is:
Lenihan signals “risk sharing” between banks and taxpayers in “bad bank” NAMA plan
By Finfacts Team
“Prof Honohan said improved risk-sharing could be achieved in a number of ways. One simple approach is to have NAMA make only part of the payment for the acquired
assets in the form of bonds, with the remainder being made in the form of a claim on NAMA’s future recoveries.
Thus, there would be a two-part payment. One part, representing the basic price that can confidently be expected to be attainable, should be paid in bonds. For the rest, the
shareholders of the banks (and possibly other providers of risk capital to the banks) should be paid in the form of an equity stake in NAMA’s future recoveries.”
This is another attempt to own the future, another form of hedging a complex derivative that makes a future bet.
Its the type of economics that has brought the global market into disrepute. Who wants to buy a car only to find
out later there is finance owed on it. The problem is in the word ‘bonds’, the turning of physical assets into paper money.
Its a recipe for cryogenically freezing property and disposing of it in the future when times are better and the profits
will follow. Remember covenant mortgage scandals in the past when mortgage holders had to be rescued from these products.
Its a recipe to make a mess.
The Greens will show how worthy a party they are of our support in showing how they manage the NAMA( Not another Mess Again ) debacle.
If they have the political courage to drop their support of Fianna Fail and give us a new election ideally same day as Lisbon vote http://www.lisbontreaty2009.ie/
on October 2, I’ll certainly consider giving them a vote next time round. If they persist in a useless patching of disastrous and catastrophic NAMA, their fall will come about
and will be ignominious in the extreme.
On the same programme above, Richard Bruton TD, Deputy Leader of Fine Gael and Finance Spokesman, described how the French had lost 60% of tax payers money in a
failed venture similar to NAMA. He spoke of the Fine Gael proposal for a ‘Joint Venture Wholesale Recovery Bank’ that would obtain its liquidity from the ECB. Richard spoke
again on the point that the Government are not asking the bond holders of the failed banks to renegotiate. Bond holders recklessly issued credit to banks out of control
operating without regulatory prudence of any kind. There is certainly merit in a process of nationalisation that Bond Holder renegotiation should also be part of the process to
deal with this in an effective and fair way. In principle, I would not be against the Fine Gael proposal. But there are difficulties with this proposal.
1. It leaves a mess, the struggling AIB and BOI are arguably crucial to the Irish economy and need sorting out.
2. Wholesale lending at competitive rates funded by the ECB could undermine competitively other commercial banks in Ireland.
3. The introduction of non commercial credit facilities could introduce a level of political interference that could lead to corrupt practices.
4. A queue of developers with letters from their local TD may ensue.
5. ‘How’, logistics and expertise and expense in running such a bank could be difficult to obtain and set up.
6. There is little here on what should be done with the property/development subject of the toxic loans, basically, let the banks sort out their own mess. But even The
Sunday Business Post yesterday had coverage on NAMA  All The Questions You Were Afraid To Ask and mysteriously failed also to address this question.
A much better approach to stimulate availablity of credit for business would be to nationalise BOI and AIB and refloat them with a similar modus operandi of what Fine Gael
envisage for their Good Bank. The cleaned banks could use their expertise to add both commercial and state credit support to business and keep state involvement to a
minimum. Still, great things can be learned from the French e.g TIME Magazine, September 7, ’09, p44, ‘French for Entrepreneur. A new scheme in France encourages
would-be bosses by cutting red tape’.’The motor driving all that bustling start-up action is an innovative know as ‘auto entrepreneur’, a government scheme introduced
introduced in January to help would-be bosses bypass the formidable process of founding a small business.’
I’ll be voting Labour next time around. They have consistently supported the nationalisation model, the successful Swedish model, for dealing with the banking crisis.
The Labour Party Spokesperson on Finance, Deputy Joan Burton and  Eamon Gilmore TD Labour Leader have made the most erudite and smartest proposals to deal with
the banking crisis. Ironically, their method involves in the long term the least government interference in the market place.
In ‘opinion..Lenihan formula will ensure banks win and taxpayer loses, Sunday Times Business, p8, Karl Whelan, professor of economics, quotes Lenihan, “Were these
institutions in the condition which Deputy Bruton suggests, they would not have these positive market ratings and they would not have the degree of shareholder value that
they do”. Karl goes on to make the point made here in earlier posts that the only reason share prices for the stricken banks are as they are is because they see in NAMA
something they believe will pull them off the rocks. Note for a boat to float as well as draft, the amount of water/money under it, it also requires stability. NAMA is
unstable beyond repair and a disaster for the tax payer. The sooner the Greens recognise this the better for the tax payer.
For Lenihan and the shadowy NAMA supporters its all about the magic share price as it was for the Madoff and Enron scams. Do anything to get that share price up!
Fleece the taxpayer, corner the property market, as Enron tried to do with the Energy market in California during which it defrauded California out of billions during its
energy crisis. Can you see young people looking for homes in 5 years time marching down O Connell St complaining at the unreachable property prices that NAMA has
skewed, you have been warned!
http://www.boatsafe.com/kids/021598kidsques.htm Note earlier posts here on how nama will work.
next post, looking forward to the Amended Nama (Not Another Mess Again)

Comment on Alan Ahearne’s article Irish Times, Sept 5, text in full end of this post:

http://www.irishtimes.com/newspaper/opinion/
2009/0905/1224253890855.html#postcomment

Countdown timer to Brian Lenihan TD Minister of Finance announcement on September 16 added to http://www.namasayno.com

Click here for Timer Countdown :

Having looked at the ‘aircraft’ that is proposed to take NAMA across the ocean and found the engine in a mess and the fuel tank empty, the proposed modifications to NAMA to be published later this week don’t cut it with this commentator.

NAMA amendments proposed by Fianna Fail under pressure from the Greens will have the form of risk sharing alternatives to protect the tax payer. This is likened to half filling the aircraft with the amount of petrol required for the journey, half filling a car that’s failed its NCT..

The Greens have brought an innovative spark to government and have worked hard. On ‘Morning Ireland’  this morning, 07 September, Eamon Ryan TD, Min for Communications, Energy and Natural Resources spoke of the amended draft of the proposed NAMA legislation that will be published later this week.

It was refreshing to hear the first Government minister in this debate speak on the subject of what exactly is to be done with this dead property that is currently frozen cryogenically by the banks as they await the NAMA mana from heaven. Eamon spoke of hotels as nursing homes and some property being used as sheltered housing for old people. I’ll believe this when I see it, see earlier posts, NAMA designed to inflate property prices by keeping property off the market!

Then he spoke of amendments to current planning legislation to avoid Planning and Development speculation, introduce a ceiling on developer profits, currently under negotiation with Fianna Fail. Publication of the detailed outcome of these negotiations awaited…

The kernel of the Green proposals it would appear is, see Finfacts below……….:

“‘Lenihan signals “risk sharing” between banks and taxpayers in “bad bank” NAMA plan’

By Finfacts Team

http://www.finfacts.com/irishfinancenews/article_1017813.shtml

“Prof Honohan said improved risk-sharing could be achieved in a number of ways. One simple approach is to have NAMA make only part of the payment for the acquired assets in the form of bonds, with the remainder being made in the form of a claim on NAMA’s future recoveries.

Thus, there would be a two-part payment. One part, representing the basic price that can confidently be expected to be attainable, should be paid in bonds. For the rest, the shareholders of the banks (and possibly other providers of risk capital to the banks) should be paid in the form of an equity stake in NAMA’s future recoveries.”…………..

This is another attempt to own the future, another form of hedging a complex derivative that makes a future bet.

Its the type of economics that has brought the global market into disrepute. Who wants to buy a car only to find out later there is finance owed on it. The problem is in the word ‘bonds’, the turning of physical assets into paper money.

Its a recipe for cryogenically freezing property and disposing of it in the future when times are better and the profits will follow. Remember covenant mortgage scandals in the past when mortgage holders had to be rescued from these products.

Its a recipe to make a mess.

The Greens will show how worthy a party they are of our support in showing how they manage the NAMA( Not another Mess Again ) debacle.

If they have the political courage to drop their support of Fianna Fail and give us a new election IDEALLY same day as Lisbon vote http://www.lisbontreaty2009.ie/ We could have the opportunity to vote for Europe and Lisbon and vote in a new government on October 2.

I’ll certainly consider giving them a vote next time round if they lead us out of this government mess. If they persist in a useless patching of disastrous and catastrophic NAMA, their fall will come about and will be ignominious in the extreme.

On the same programme above, Richard Bruton TD, Deputy Leader of Fine Gael and Finance Spokesman, described how the French had lost 60% of tax payers money in a failed venture similar to NAMA. He spoke of the Fine Gael proposal for a ‘Joint Venture Wholesale Recovery Bank’ that would obtain its liquidity from the ECB. Richard spoke again on the point that the Government are not asking the bond holders of the failed banks to renegotiate.

Bond holders recklessly issued credit to banks out of control operating without regulatory prudence of any kind. There is certainly merit in a process of nationalisation that Bond Holder renegotiation should also be part of the process to deal with this in an effective and fair way. In principle, I would not be against the Fine Gael proposal.

But there are difficulties with this proposal.

1. It leaves a mess, the struggling AIB and BOI are arguably crucial to the Irish economy and need sorting out.

2. Wholesale lending at competitive rates funded by the ECB could undermine competitively other commercial banks in Ireland.

3. The introduction of non commercial credit facilities could introduce a level of political interference that could lead to corrupt practices.

4. A queue of developers with letters from their local TD may ensue.

5. ‘How’, logistics and expertise and expense in running such a bank could be difficult to obtain and set up.

6. There is little here on what should be done with the property/development subject of the toxic loans, basically, let the banks sort out their own mess. Its mysterious how so many commentators do not deal with the practicalities involved in disposing of property under NAMA. The truth is the whole purpose of NAMA is to put property into cold storage until such time as it can be sold at a profit to NAMA! Sunday Business Post yesterday had coverage on NAMA  All The Questions You Were Afraid To Ask and mysteriously failed also to address this.

A much better approach to stimulate availability of credit for business would be to nationalise BOI and AIB and refloat them with a similar modus operandi to what Fine Gael envisage for their Good Bank. The cleaned banks could use their expertise to add both commercial and state credit support to business and keep state involvement to a minimum. This was the Swedish experience.

Still, great things can be learned from the French e.g TIME Magazine, September 7, ’09, p44, ‘French for Entrepreneur. A new scheme in France encourages would-be bosses by cutting red tape’.’The motor driving all that bustling start-up action is an innovative known as ‘auto entrepreneur’, a government scheme introduced introduced in January to help would-be bosses bypass the formidable process of founding a small business.’ Ireland has had little support for micro business.

I’ll be voting Labour next time around. They have consistently supported the nationalisation model, the successful Swedish model, for dealing with the banking crisis. The Labour Party Spokesperson on Finance, Deputy Joan Burton and  Eamon Gilmore TD Labour Leader have made the most erudite and smartest proposals to deal with the banking crisis. Ironically, their method involves in the long term the least government interference in the market place.

In ‘opinion..Lenihan formula will ensure banks win and taxpayer loses, Sunday Times Business, p8, Karl Whelan, professor of economics, quotes Lenihan, “Were these institutions in the condition which Deputy Bruton suggests, they would not have these positive market ratings and they would not have the degree of shareholder value that they do”. Karl goes on to make the point made here in earlier posts that the only reason share prices for the stricken banks are as they are is because they see in NAMA something they believe will pull them off the rocks.

Note for a boat to float as well as draft, the amount of water/money under it, it also requires stability. NAMA is unstable beyond repair and a disaster for the tax payer. The sooner the Greens recognise this the better for the tax payer.

For Lenihan and the shadowy NAMA supporters its all about the magic share price as it was for the Madoff and Enron scams. Do anything to get that share price up! Fleece the taxpayer, corner the property market, as Enron tried to do with the Energy market in California during which it defrauded California out of billions during its energy crisis.

Can you see young people looking for homes in 5 years time marching down O Connell St complaining at the unreachable property prices that NAMA has skewed, you have been warned!

http://www.boatsafe.com/kids/021598kidsques.htm Note earlier posts here on how nama will work.

next post, looking forward to the Amended Nama (Not Another Mess Again)

Irish Times published comment below, see top this post:

Nationalisation worked for Sweden in 1992 under Bo Lundgren, Swedish Minister for Fiscal and

Financial Affairs and is the safest option for tax payers.

With ECB support and a specific time frame for the dry docking to complete scare mongering fears about the lack of information for investors is false and erroneous. The world, especially the investment world, knows about the toxic loans and currently has all the information it needs!

No timescale is set for NAMA, its a long term gamble. HFV ‘Hypothetical Future Value’ accounting, the basis of a scam that led to the fall of Enron has many similarities to LTEV as proposed by NAMA and the ECB has already expressed anxieties about LTEV in its opinion on NAMA. This is a gamble with tax payers money now that investors money is lost.

NAMA is an attempt to corner the property market and control the market price and could be in breach of EU rules on competition and monopolies, see http://www.colmbrazel.wordpress.com for comment on this point.

There is no provision/obligation for NAMA to get out of the market place. Its state involvement will be long term and damaging.

NAMA has little on the ‘HOW’ of the process preferring to tell us ‘WHAT’ it is about. NAMA will lead to a huge mess of individual contested evaluations for an indefinitely long period of time. Interference in the market place worthy of the Kremlin from the political and developer side could lead to enormous corruption.

The figures give by Alan are hypothical approximations based on a normal situation, not on a declining economy with a huge toxic debt overhang. I’m not a gambler, but if pushed I would agree with previous comments that write downs of the order of 80% with a maximum value of 27% of their value at the height of the boom would be a realistic benchmark.

Nationalisation should apply to BOI and AIB with other opt in banks based on equity investment on the basis of the lowest evaluations possible to avoid risk to the tax payer.

There ought to be a specific timescale set for the interference in the market place to be complete with Government exiting ASAP.

In Sweden in 1992, Lundgren’s smart move to create at least 5 property companies to move property/development frozen inside toxic debt in a fire sale saw the exercise complete successfully by 1997.

In Ireland, we could learn from this, over 5 years we could use existing market place expertise, property companies in an enlightened way, to complete a similar exercise.

Instead, there is the worry that through the stock market NAMA hopes to bundle toxic loans into derivatives based on hedging and future hypothetical value creating further havoc in the future.

Mostly, NAMA (Not Another Mess Again) is a bail out for share holders rather than tax payers!  “

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