Lenihan comes last in FT Survey 2009(2nd last 2008!)

http://www.irishtimes.com/newspaper/breaking/2009/1117/breaking64.htm

“by Charlie Taylor:

..French finance minister Christine Legarde came out first of the 19 ministers ranked by the Financial Times in terms of their political skills and the performance of their economies.

Judges described Ms Lagarde as “a star among world financial policy-makers” and said no other finance minister had came through such a testing year in such good form.

…Under the heading ‘Desperate in Dublin’,  the newspaper  says Mr Lenihan’s “drive to bring the economy back from the brink of catastrophe is an almighty test”.

Earlier this year Mr Lenihan met with the editorial board of the Financial Times as part of a visit to European capitals as part of an effort to restore Ireland’s reputation among foreign investors. The meeting came after the newspaper had been highly critical of the Government’s economic policies.

Some of the European’s smallest countries were left out of the FT’s rankings, leaving a total of 19 ministers to be judged.

Mr Lenihan was ranked 19th in the overall ratings and also came last in the individual economic category. However, he came in at 14th place in the political category and in 16th in the credibility poll. He came second last in the 2008 rankings.

Germany’s finance minister until the recent election, Peer Steinbruck, was voted second, with Belgium’s Didier Reynders in third.  Anders Borg of Sweden came fourth, followed by Giulio Tremonti of Italy.

Britain’s Alistair Darling  came seventh.

The judging panel members were: Marco Annunziata chief economist, UniCredit; Robert Bergqvist, chief economist, SEB; Jacques Delpla, member of the Conseil d’Analyse Economique, Paris; Michael Heise, chief economist, Allianz; Gilles Moec, European economist, Deutsche Bank; Erik Nielsen, chief European economist Goldman Sachs; and Peter Vanden Houte, chief eurozone economist at ING. ”

Meanwhile http://www.irishtimes.com/newspaper/ireland/2009/1119/1224259107832.html

“by Marie O’Halloran:

THE GOVERNMENT will accept the appointment of current AIB non-executive chairman Dan O’Connor as both chairman and chief executive “on a temporary basis” despite the recommendation by consultants on corporate governance that the same person should not fill both roles.

Taoiseach Brian Cowen also confirmed in the Dáil that internal AIB candidate Colm Doherty would take up the position of managing director with immediate effect and had agreed to accept the €500,000 salary limit for senior bankers.”

Instead of a removal of the entire board of AIB and a culling of senior management at the bank, Cowen and Lenihan are presiding over a damage limitation exercise to protect the interest of the bankers (not the taxpayer) as AIB bank  drifts towards eventual nationalisation, all this while on a raft of capitalisation and bank guarantee provided by the taxpayer.

http://www.rte.ie/news/2004/0531/aib.html AIB has already in the recent past been investigated for shady share dealings

“Monday, 31 May 2004 23:56

The Revenue Commissioners have begun an investigation into all tax matters arising from the recent disclosures by AIB of inappropriate share dealings and offshore tax evasion.

The investigation into the AIB group, its related businesses and individuals will be led by the Revenue’s Investigations and Prosecutions Division.

Two former senior executives at AIB have said they were connected to the Faldor offshore investment scheme.”

http://www.greenparty.ie/en/news/news_archive/detailed_public_investigation_of_aib_must_take_place Read this on Dan Boyle and learn how with such great ease the hypocrisy of the Green party in government has seen a metamorphosis of the Greens from Robin Hood to The Sheriff of Nottingham over NAMA and blind eyes to AIB.

This is a continuance of the NAMA policy of robbing Peter( the taxpayer ) to pay Paul( the banks ) that Fianna Fail have yet to reap the full political consequences for – while the social and economic consequences of this policy are already beginning to be felt.

The public, without a full blown inquiry into the role of the banks in the economic collapse, without outside appointments to vacant posts within the banks, with the bank’s old board still in place,  instead of renewal, see  further consolidation of the old regime.

What and whose decisions  led to the banking collapse still require detailed analysis and exposure. It’s not enough that this subject matter will be left to the theses of next generation economists and other investigators, this should take place now!

As with  Hamlet, Act 1, Sc 4, Marcellus: “There is something rotten in the state of Denmark”  all the above points to nefarious shenanigans at AIB that they would really not like outsiders or a new board to see?

I wonder what they could be?

AIB is flooded with smoking guns that point to overcharging, illegal share dealing, questionable relationships with the financial regulator that go back over the whole of the past decade and now total financial collapse through the property bubble. http://archives.tcm.ie/businesspost/2009/04/05/story40779.asp .

Illegal dealings, that were part of the property bubble, look like remaining hidden away by AIB,  NAMA  and Fianna Fail, from prying eyes.

***********************************************************************************

Eire Nua – The Scandinavian List System

Ed Walsh, whose article in the Sunday Business Post I quote in full below, is someone I’d like to salute for his insight, clear thinking, wisdom and smarts. In the world of leprechauns and the FF pot of gold that is NAMA it is refreshing to know there are people around of his calibre, who tell it like it is:

Enjoy the following, italics are my comments:

http://www.thepost.ie/commentandanalysis/its-time-to-change-the-way-this-country-is-run-45632.html

“It’s time to change the way this country is run

15 November 2009 By Ed Leahy

If Ireland were a business its directors would be held liable for reckless trading and the concern would be wound up. Angry shareholders would have good reason for demanding answers to a litany of complaints.

Why did you stimulate rather than curtail the construction bubble? Mention of a property tax and withdrawal of tax incentives would have done the job even though you no longer control interest rates or currency.

Why did you narrow rather than broaden the tax base and ignore warnings that the building bubble and the associated tax bubble were going to burst? Why did you increase public sector salaries by 25 per cent above the consumer price index since 2000 and at the same time add 71,800 people to the public payroll? As a result you have unnecessarily increased the annual tax bill by €7 billion.

Why did you fail to curtail pay increases or deal with the sustained erosion of competitiveness? Why did you fail to act prudently in regulating the banks? Why did you fail to take evidence-based policy decisions in a whole spectrum of areas that you have got seriously wrong, such as planning policy, energy policy, decentralisation policy, Irish language policy? Why did you not tidy up the 25 separate pieces of labour legislation and the seven enforcement bodies that make Ireland one of the most regulated countries in the EU and, for that reason, less attractive for foreign direct investment?

Why have our fishermen got such a bad deal from the EU compared e.g to the Spanish. Why is our agriculture industry so poorly developed with a lack of add on value, R & D, to what is arguably the best grassland in the world. Why is forestry so poorly neglected? Why is our infrastructure, broad band, rail, luas/metro system in such a minuscule state of development. Why are our universities so poorly supported. Why is our film industry in such a state of neglect. Why has our dormant Civil Service not been modernised/restructured with IT state of the art systems and training…How come our opposition parties ,  vulnerable to the most basic divide and conquer dismantling of their opposition to NAMA, have not been able to agree and coordinate an effective challenge to the  NAMA’s  illusory, leprechaun pot of gold.

From this litany of complaints must follow the key question: why has national governance been so defective?

It is not because members of the government are lazy. Anyone who is familiar with the ministerial workload can only marvel that it can be sustained. The ministerial executive role of managing a large budget, the portfolio of public organisations, party politics, ceremonial duties, media doorsteppings, exhausting international travel and the petty, but vital, constituency issues, combine to make the life of an Irish minister unenviable.

Most ministers I have had the opportunity of knowing over the years have been totally dedicated to doing their jobs in the best possible way. But the best possible way is constrained both by the extent of their own ability and the need to be re-elected.

There are vivid examples during the past decades of effective ministers who focused on major national issues of the day, who took the correct and difficult decisions but who failed to pander to their local constituents and were not re-elected.

Given this backdrop there is good reason to conclude that the solution to improving national governance can best be found in changing the electoral process. It is self-evident that the quality of national governance can not exceed the quality of those who govern. We have one of the most conservative and unaltered constitutions in Europe.

Since 1950 almost all the countries of Europe, with the exception of our nearest neighbour, have introduced new constitutions, new electoral processes and new systems of national governance: systems geared to the need for proactive response in a fast moving world. Those that had electoral systems similar to Ireland have long since abandoned them, leaving Malta, with Ireland, as fossilised remnants of an old-fashioned, unresponsive political system.

fossilised remnants of an old-fashioned, unresponsive political system. The word ‘and culture’ could be added here, there is a deep culture in Ireland that is dedicated to preserving the old hierarchy’s and attacking the new!

The new European democracies have shunned the Irish system of election and national governance. All have adopted versions of the Scandinavian List System whereby members of parliament are elected partially from local constituencies and partially from party lists of individuals who have proven records of distinguished national and international achievement: many from business and the professions.

When a government is being formed in these countries the prime minister has available a rich pool of proven talent from which to select the government. Inmost advanced democracies such as Norway, Sweden, Switzerland and the Netherlands a clear distinction is also drawn between the executive (ministers) and the legislative branches of government.

As a result those who are appointed to executive roles as ministers do not have conflicting parliamentary duties: their challenge is not to be re-elected but to make the right things happen. Without the distraction of constituency and legislative affairs, ministers, and the government as a whole, can focus on their demanding executive responsibilities and when necessary take timely and unpopular decisions that are in the best long-term interests of the country as a whole.

We should not blame the current and former members of government personally for their grave mismanagement during the past decade.

I disagree. We’ve had a cultural dislike of apportioning responsibility when things go wrong onto the shoulder of individuals in power. We prefer instead to distribute blame onto nebulous causes beyond the individual. We’ve got to get back to ‘the buck stops here’ mentality. If a minister endorses buggy voting machines that cost millions, e.g if his policy of decentralisation wastes millions and does not work, he/she should should carry the can and go.

Each has acted to the limits of their ability. Our system of election and national governance in effect deters the government from moving swiftly and taking difficult decisions. While our electoral process results in the election of a small number of excellent people, the pool from which a taoiseach draws when forming a government is limited indeed, because in effect it bypasses leaders of enterprise and the professions with the necessary strategic management skills and experience.

Our system of election draws over 80 per cent of the Oireachtas from a group of some 1,000 people: the members of local authorities. While a county or city council would certainly be a source of pleasant and well-intentioned people it would be an unlikely source of the experienced talent required to strategically guide national policy and effectively manage a multibillion budget. Every democracy needs participation from the parish pump in its parliament, but when all of its members are drawn from that same source, to the exclusion of the necessary available talent, the outcome is as we have it: not good.

Fine Gael leader Enda Kenny has shown leadership and a willingness to challenge the status quo while facing down his own colleagues. He has had the courage to address the elephant in the room: the failure of the Oireachtas and the need for radical reform. The most important element of his proposal is the introduction of the List System, since it represents the best and proven means of introducing the most experienced and talented citizens into parliament.

Whether or not the Seanad is retained, or Dáil membership reduced, are matters of lesser consequence. If the Taoiseach has a rich pool of talent from which to draw when forming a cabinet, better government can be expected irrespective of the size or structure of the Oireachtas.

Under the existing electoral system, and based on the performance of the opposition members, there is no reason to believe a change of government would significantly improve the current dire situation: opposition membership is drawn from similar sources and if in government would face the existing constraints.

Unless Ireland does as New Zealand did in 1992,along with the new European democracies at about the same time, and replaces its existing outmoded electoral system, its governments will continue to be constrained in taking difficult decisions and acting promptly. Ireland will continue to have well-intentioned but inexperienced ministers fearful of making serious mistakes as they attempt to learn on the job, or, worse than that, postpone difficult decisions indefinitely.

Ireland is in grave danger. Continuation of the kind of governance and leadership we have endured during the past decade not only threatens Ireland’s economic prospects but possibly also the stability of the state.

While demonstrations are still peaceful, and one sincerely hopes they will remain so, there is no cause for complacency. The trauma of debt, job losses, taxation, home repossession and frustration will intensify in 2010.Far better for a prime minister to give leadership and show statesmanship in a peaceful environment rather than being forced to act in what appears to be a response to street violence.

Serious unrest may well make an appearance in 2010, as it did in Iceland, unless things change, and are seen to change significantly. It is imperative that Brian Cowen acts now and behaves with the kind of statesmanship citizens expect from their prime minister at a time of great national crisis. He and his government have failed to respond swiftly and effectively since the onset of the crisis.

The Oireachtas has not risen to the occasion by conveying a new seriousness appropriate to these dangerous times; rather it has continued the pursuit of trivia and political bloodsports in a raucous way that has not enhanced its standing. It is unlikely that the Oireachtas still commands the confidence of its citizens. Both time and patience are now in short supply.

There is still hope that the Taoiseach can give the kind of strong leadership expected at a time of crisis in addressing major national issues. Reform of national governance is one of the most important. He should respond to Kenny in a spirit of partnership with a view to jointly appointing a small international commission, including former distinguished EU prime ministers, to report by next April on Oireachtas reform and a new electoral system, followed by a September referendum.

As an immediate measure Cowen could announce a government reshuffle in December and bring world-class talent and experience into the cabinet.

Were they willing to do so, people of the calibre of Intel’s Jim O’Hara or Ryanair’s Michael O’Leary could be government ministers by December 15.Howcould this happen? Article 7.2 of the Constitution permits two members of the Seanad to be members of government. Three Seanad vacancies are due to be filled on 14 December.

The government’s majority in both houses gives it effective control over the filling of these seats. It is expected that three county councillors will be nominated.

However, the Taoiseach has an opportunity to rise above the mundane at this time of national crisis and do the unprecedented by reaching out into the national talent pool and bringing the best of it into government.

Were he to do so, his own ratings would be transformed and a clear signal would issue nationally and internationally that the Irish government is serious about recovery and the long haul back to prosperity.”

Dr Edward Walsh is the founding president of the University of Limerick

May I humbly add my poor voice to Ed Walsh’s call for the introduction of political reform along the lines of the Scandinavian List System. May I also suggest he is well worthy to be one of the three members of government, worthy member of the Seanad to be filled on 14 December.

We urgently need political reform to bring our game up to the level of advanced democracies such as Norway, Sweden, Switzerland and the Netherlands.

I would like to absolutely endorse and humbly subscribe to the proposal put by Ed Walsh for a small international commission, including former distinguished EU prime ministers, to report by next April on Oireachtas reform and a new electoral system, followed by a September referendum.

Thank you, Ed Walsh!

NAMA – A Monopoly On Stupidity – €12bn gift to the banks!

Hi,

(italics denote my own comments into quoted text)

You’ll be sorry to hear these blogs on the topic of NAMA will soon end. Currently NAMA is going through final amendment/committee stages in the Dail. A welcome development has been the agreement to set up a committee to scrutinise the operations of NAMA on a regular ongoing basis. How this committee will be empowered to look beneath the security and confidentiality protocols used by NAMA is not yet apparent.

It was interesting to listen to An Taoiseach, Brian Cowen, speak this morning on the occasion of the 25th anniversary of Morning Ireland on radio 1 this morning. In relation to the financial crisis we are in, he used phrases like ‘taking control of our own destiny’ along with a favorite of his ‘open, equitable and fair’ all used in the context of the united actions we all need to take to tackle the crisis.

The problem is Cowen shows a strange Jekyll and Hyde personality when it comes to dealing with the banks. He turns into the misanthropic Mr Hyde with a contempt for the general taxpayer when he deals with the banks. How is this so?

I believe this is explained with reference to a failure in competence in the Department of Finance. Dept Finance should have overseen the institution of a proper regulatory body to oversee the antics of our wild banks, but they didn’t do it! Dept Finance mandarins should have been able to raise their game to look to best practice in Sweden/UK/US equity in ‘return for investment’ models, but they didn’t. Instead, they ran for cover and sought advice from the bankers themselves, both Irish and European. They washed their hands of it and handed the reins over to Europe and our wild west bankers.

The best solution for the banks, not the best solution for the taxpayer, was to persuade the Irish Government and Europe to back a plan to take away the toxic assets. It was not in the interest of the European Central Bank to have a small country like Ireland challenge the bond holders and threaten to default on loans advanced to the banks. The logic of nationalization means risk for the ECB and a potential threat of default on loans advanced, whereas the NAMA model means more support for the bankers and shareholders of the Irish banks and thus a greater degree of safety for the dig out support of the ECB for the Irish banks through NAMA. Its ironic Brian Lenihan appears regularly alongside EU commission supporters of his NAMA policy, they are the guardians of their own interests, the banks, and these are not the same interests as those of the Irish taxpayer. There again Lenihan has a background in law and has no formal background in economics.

We need PHD programmes in science engineering that will allow for secundment to government on a temporary basis of university talent capable of raising the standards required to meet our needs in the development of policy and upgrading of political and civil service structures. Contempt shown for the brave input of academic voices in the whole NAMA debate shows a deep rooted weakness in leadership and blind allegiance to ill informed, delusional bias over contructive and informed argument.

Primetime 03/11/09 had a final wrapup on NAMA prior to the legislation going through. We had Robbie Kelleher, Director of Davy Stockbrokers, arguing the banks had to be saved because they were systemic to the Irish economy and the economy would grind to a halt without them. How Anglo could be regarded as systemic is a question that could be addressed to CAP (Criminal Assets Bureau) !  Over the past year  ‘€4 bn to Anglo and 3.5 billion each to AIB and BOI already given equivalent to all the income tax the state will collect this year. Through NAMA the banks will be given €54bn which is €7bn more than the claimed market value.  According to Brian Lucey, Associate Professor of Finance, TCD, no economic models or systems or measurement protocols offered to back these figures of long term economic value up!

In respect of the 35000 expected to default on mortgages over the next few years, Michael McGrath, FF, Vice Chairman, Oireachtas Committee on Finance said a balanced approach would be adopted. Defending NAMA he had little to counter arguments against NAMA. With a blind kick for touch to defend an open goal he countered that many of the figures bandied about were false as they would be the subject of individual loan assessment by NAMA. That this position gave more of an open check to NAMA than the figures announced by Brian Lenihan, was not put to him. According to JP Morgan, banking analysts,  AIB will need more than 6.8bn with BOI needing 4.8bn more total 11.6bn for minimum capitalisation requirements. One ray of hope is the fact that NAMA will have up to 10bn to give to various projects to help them finish.

Robbie Kelleher of DAVY, said ‘our own estimates give AIB requiring 2 to 2.5 bn, BOI require 1.5bn. AIB  might be able to realise that capital by selling their stake in M&G in the US and their subsidiary in Poland. According to Brian Lucey, Davy are at the low end of commentators assesssments, its going to be difficult for the banks to raise capital in the private or public markets, in addition there is uncertainty about the assets they are intending to sell off. The likely scale of the amount required to prop up the banks is €20.3 bn euro made up of

€11bn paid already to Anglo
€7.8 bn AIB & BOI
€1.5 bn Irish nationwide and EBS

So a year from now we could have full state ownership of the banks.

Peter Mathews Independent Banking Expert on the same programme challenged NAMA with the following damning figures, its simple math. ” NAMA will make a loss by definition!

The banks will sell €77bn in loans to us, the people, NAMA. The banks will be charged €54bn for them.

The €77bn are made up of performing loans and non performing loans.

40 per cent are performing = €30.8bn

60 per cent are not performing= €46.2bn

Assume all €30.8 recovered very unlikely,

You will be lucky to get 25% of non performing loans back high estimate = €11.5bn

Add €11.5 to €30.8 = €42.3bn

Subtract this from €54bn – €42.3bn = €11.7bn. You lose up front day one without taking into account the cost of collection.

That’s why its all wrong the taxpayer should be saddled with this loss on day one.”

Michael McGrath FF said the state investment in the banks was already yielding a return but had no technical data to counteract the figures above.

False assumptions in managing the financial crisis point to a failure of competence both within the Dept of Finance and within the FF party.

Both parts of government need to look at structures in place to nourish talent. We have not been smart.

That’s why the taxpayer, FF, Dept of Finance mandarins, much as we would like to persuade ourselves and others otherwise,  have been gobbled up by native and Euro banking conglomerate representives,  in a game of financial Pakman we will yet have to pay dearly for!  Enough said!

SPV’s Special Purpose Vehicles – NAMA Cloaks

The ludicrous levy proposed by the Greens and FF lampooned here in this blog recently has been u-turned by Brian Lenihan “necessary to ensure the balance sheets of the banks are not infected with a contingency that’ll devalue them”. Instead, according to the Irish Times, Oct 31, p8, there will be amendment at report stage next week “to provide for the future introduction of a future levy in the form of a tax surcharge on the participating institutions in the event of NAMA making a loss”.

This little trick pivots the levy on the profits the banks will make in the future for which they will be liable to pay corporation tax. For the banks to pay, NAMA will have to make a profit. But consider this, the damage NAMA will do to the economy in making a loss will inevitably mean the banks, who also depend on our economy, will also make a loss. In this scenario, no way will the banks have to pay a penny. At the same time, investors will still consider the banks hobbled by a future levy on profits.

I initially considered making bank shareholders the topic of this blog because there has been so little media attention and focus given to them in the current crisis. While the media have focused on developer loans and bankers in a name and shame campaign rightfully demanding the polluter pays, ‘shareholders’ has become an obscure catch all phrase to avoid delving too deeply, perhaps out of respect for their losses. We have no published lists of the major shareholders of AIB, BOI etc. Who are the larger shareholder investors in the Irish banks? However, we do know that many of the major shareholders of the Irish banks have been institutional investors representing pension funds. It would have been interesting to have been a fly on the wall of meetings between Brian Lenihan TD and their representatives who believed their investments in Irish banking shares were on a bankers’  bonfire of share values. 

NAMA was put through more committee stages leading to its passing into legislation this week. Ireland through NAMA in not following the good bank model proposed by Stiglitz and Buiter (previous post) notably enacted  in the UK this week, a Stiglitz/Buiter solution announced by Browne and Darling for Northern Rock  will prove fascinating for economists to study to compare it to the nationalization model favoured by US/UK and Sweden, equity for investment models.

This week NAMA pulled another rabbit from its bag of toxic tricks, this was the ‘Special Purpose Vehicle’ announced by Lenihan. The crazy thing about the SPV is that those who float this believe that private investors will share their views that NAMA will make a profit and that they are almost charitable in allowing private investors a stake in their profits. Its interesting from the viewpoint that  pension funds are mentioned as some of the major investors in the soon to be SPV’s. Other questions arise as to the legality or morality of allowing banks to speculate in share dealing with pension money. Surely such investments should only be made into guaranteed Government bonds and not have any element of exposure to the vagaries of  stock market plundering.

Let’s have a look at this,( my italics as comments ):
http://www.irishtimes.com/newspaper/finance/2009/1029/1224257604260.html

Basically the idea is this, in order to take away the €54 billion from the Governments balance sheets where otherwise it would have to appear as a debt that would provide difficulties in obtaining Government loans from the financial markets, we hide away the debt. (SPV’s were made notorious by Enron executives who used them to bury debt and loss.) http://www.chron.com/disp/story.mpl/special/enron/1228645.html
The Enron people would bury some assets inside an SPV, the assets would be tied to debt, hiding them inside the SPV meant they were off the Enron debit books. Then a loan would be raised against the asset but Enron would mark down the loan as a profit on its books. Such schenanigans may yet befall NAMA unless rigorous scrutiny is put in place to oversee its operations and protect taxpayer money. Manipulation of the market place was a key component of the Enron strategy and it looks as if NAMA will also interfere with the market place in just a negative way.

The strange thing is the support of Europe for the SPV. Its rumoured Germany demanded their use in managing its debt so they had to give the same leeway to Ireland. The truth is these shady SPV’s have contributed in large part to global economic collapse and new regulatory rules should have them banned!

“The mechanism will allow the Government to exclude Nama’s €50 billion-plus liability from the national debt, and avoid a serious breach of the EU’s stability and growth pact, which limits the amounts that euro-zone states can borrow relative to the size of their economies.”

”
PRIVATE INVESTORS will own more than half of Nama’s (National Asset Management Agency) property loans, but the taxpayer will guarantee 95 per cent of their purchase price, under the scheme that the Government intends using to keep the €50 billion liability off the State’s books.

Once it is established, Nama, the agency that will take control of Irish banks’ property-backed loans, will create a separate company – known as a special purpose vehicle (SPV) – to buy and manage the debts.

Private investors will own 51 per cent of the SPV in return for a €51 million investment. Nama will own the remaining 49 per cent in return for investing €49 million, giving the SPV €100 million in capital……

Private investors have to own more than half the SPV – and thus its assets – in order to comply with EU guidelines that will allow the Government to exclude Nama’s liabilities from the national debt.

It is not clear just who the private investors will be, but the department indicated yesterday that the cash is likely to come from the financial markets. Its spokesman said that it is not possible to say whether any group, including the Irish banks who will benefit from Nama, can be specifically included or excluded.

Large Irish pension funds could be among them plus the crucial dividend returned not clear as yet but if its tied to ‘returns from Irish Government bonds’ why would any investor make the ludicrous decision to invest in this scheme with its associated risk and not just invest straight in Government Bonds? Why are Irish pension fund investments not restricted to investment in Government bonds in the first place?

If the property loans can be managed profitably, then Nama and the private backers will be paid a yearly dividend, tied to returns from Irish Government bonds. Once the entire operation is finished, the SPV will be wound up. The Government’s memo says that the investors, that is Nama and the private backers, will only be repaid their €100 million if the resources are there.

If the loans are ultimately profitable, they will be repaid their capital plus 10 per cent – €10 million – once the SPV is wound up. This means that the private backers will be repaid their €51 million, plus €5.1 million, plus any dividends they will have received along the way. Any further profits over and above these amounts will be returned to the exchequer.

Large institutional shareholders could be attracted to the guaranteed annual return plus the possibility of the windfall return at the end. The trick here for any private investors is to keep NAMA alive for long enough to return  your investment plus make a profit on it. This could be seen as payback to shareholders for losses incurred by large institutional pension fund investors. Of course all this comes from taxpayers money.

However, if the property loans are not profitable, Nama and the private investors will lose their €100 million.

”

http://www.chron.com/disp/story.mpl/special/enron/1228645.html

http://en.wikipedia.org/wiki/Special_purpose_entity

http://www.irishtimes.com/newspaper/finance/2009/1029/1224257604260.html