The Chips Are Down!

September 17, 2009

Comment added to DD’s article Irish Times, http://www.irishtimes.com/newspaper/opinion/2009/0916/1224254639563.html

Save Ireland from NAMA!

Save Ireland from NAMA!

We finally have the government proposals published for NAMA. Or have we?

NAMA, according to Brian  Lenihan TD, will pay €54 billion for €77 billion worth of property related loans held by AIB, Bank of Ireland, Anglo Irish Bank, EBS and Irish Nationwide. But this is an overall guesstimate as each of the toxic loans will have to be examined individually by the valuators before each discount is decided. Some will pay a bigger discount e.g. in the case of development land that is now worth agricultural prices.

There will be a great struggle and huge incentive for developers to challenge valuators in the courts. The whole valuation procedure has the makings of a great toxic, legal mess.

Lenihan has announced that NAMA will pay €7 billion more than the market value of €47 billion to reflect long-term economic value. The crucial aspect of this is that the market value of  €47 billion is based on the assumption that a fall of 50% in prices has occurred since 2007 and we are near the bottom of the fall in prices.

Notice the word ‘assumption’. At best, such an assumption is based on wishful thinking and has no basis in fact. One of the methodologies used to measure property prices is rental income assessment. But because clients are locked into rental/lease agreements negotiated at the height of the boom and are legally prevented from renegotiating these agreements, rental income as an instrument to measure property values is frought with risk and a highly inaccurate method. So we need much more independent and scientific insight into the precise process of measurement used in arriving at the above figures. It is highly probable that the market value is a lot less than €47 billion.

Say its nearer €30 billion, a far more realistic figure. So this gives a figure of €24 billion that Nama, if this €30 billion figure is correct, is paying more than the market value. The discount then is (30/77)*100 or almost 49%. The tax payer under these figures is paying twice what they ought to be paying. But through smoke and mirrors Lenihan is able to hide the real cost to the tax payer by stating that the real figure to be paid will be determined on a loan by loan basis and only then will it become real.

It’s like bench marking! Remember how the cost of the public service exploded under bench marking?

But there’s more smoke and mirrors. Lenihan has made the claim the ECB interest rate on borrowing is low, but this also is totally misleading in terms of how the issuing of bonds by the Irish government will work. See url below. The fact is that the banks supported by NAMA will have an exposure to rising European interest rates in the future. This has not been factored by Lenihan into his figures. So we have more gambling with tax payers money.

http://www.irisheconomy.ie/index.php/2009/09/07/ecb-nama-bonds-and-the-irish-banks-as-issuers-of-sovereign-debt/

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, the NAMA allows the banks access to a new source of liquid funds (it appears they are either at or close to their limit in terms of eligible collateral). The interest rate on the loans from the ECB will be at the main refinancing rate. This is currently 1% but it will rise at some point. 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.”

Overall NAMA has a lack of transparency, a secret organisation with  huge potential for corruption and lack of regulation. It will have a largely unknown working methodology about which much more needs to be known and investigated. Very few of the hard and detailed questions are being asked in the media with the result that  bluff and fluff are being passed and peddled as real information, instead of being exposed as  propoganda disguising a three card trick played by the government, the bankers and developers, on the Irish public.

NAMA, if passed, will be an anchor around the neck of Irish tax payers for generations, an unmitigated disaster in the making. Not only the  risk taking and gambling above is involved, but we’ve now set the precedent that bankers , share holders and developers can secretly be bailed out by NAMA and bankrolled by Europe and Irish tax payers going forward! For as long as they require it!

I recall the popularity of covenant mortgages of some decades ago. This was a deal by lenders whereby payments against a mortgage were mostly into an insurance policy that at the end of its life would pay a substantial dividend to the holder, portion of which would pay off the mortgage, the rest a lump sum profit to be paid as dividend to the holder of the covenant at the end of its life. Inevitably, investment returns fell short of expectations and government bailout especially in the UK had to be invoked to offset widespread losses on these policies.

Through Lenihan, who is betting the Irish economy on your behalf, we are all gamblers in the NAMA casino. The regulators could learn from the

NEVADA GAMING COMMISSION
and
STATE GAMING CONTROL BOARD

http://gaming.nv.gov/

If the above were to investigate NAMA, they would soon discover just how much the chips are stacked by the NAMA casino owners, the government, banks, developers and shareholders, against the Irish tax payer!

Share prices in AIB and BOI have leapt already by 10 – 20% with the news of the NAMA windfall for all who have a stake in Casino NAMA.

rgds

Colm

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One Response to “The Chips Are Down!”

  1. Thomasd said

    I personally believe that the establishment of NAMA is nothing short of selling out the Irish republics
    Independence
    Without our financial independence we are just servants to foreign bondholders.
    Bailing out the Banks and top developers in this way is just socializing the huge losses brought about by the criminal activities of the Banks and Top Developers (A la Galway Tent golden circle) and with the collusion of the government.
    Cowen and his Traitors are guilty of the biggest fraud perpetrated on the Irish Nation and must and will be brought to account.
    This blatant bail out of their friends is a scandal,
    The shear arrogance of this Government is just mind boggling.
    I am 54 years old and I am ready when called to take up arms to defend our country from these Gangsters ,I am also prepared to do the same to stop this NAMA .
    who will join me?
    http://www.thepressnet.com

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