Those of you who attended would remember a comment from the audience that Ireland has a debt overhang on the private economy side and that NAMA is justified as a form of correcting it. This is, in my view, the singular most problematic issue raised for five reasons:
- Logic commands us to look at a problem to determine whether or not it requires a solution. Once we deem the problem to be grave enough to require a solution, it commands us to devise an appropriate solution. I agree - debt overhang is a severe problem and it requires a solution. However, no logic requires us to undertake a wrong solution to a rightly identified problem.
- Economic efficiency argument tells us that we need to solve the problems relating to the most productive sectors of the economy first so as to rescue our productive capacity. Once that is done, only then can we have a luxury to use limited resources to address problems in less productive sectors. NAMA will concentrate solely on the problem of debt overhang on the developers' side. It will not address debt overhang on consumers' side or on the side of our businesses. Yet, while developers who are in trouble are not a part of the productive sector of our economy (they are, by and large in trouble because of highly speculative re-zoning and building projects they undertook) or at the very least not the most productive part of our economy, households and companies are the productive components of this economy. NAMA will do two things to Irish companies and consumers. It will retain their debts and magnify them by forcing banks to increase their existent loans' profit margins (as we are already seeing with variable rate mortgages and accelerated loans revisions for performing customers on the business lending side). And it will saddle companies and consumers with the debts of developers via NAMA bonds. Which part of this economic policy is economically literate?
- Financial efficiency requires us to undertake a form of solution that minimises economic and financial costs to the taxpayers. NAMA is the least economically efficient means for doing so, for an alternative - buying out the main banks or forcing a restructuring of their debts (possibly via an debt-for-equity swap) will be cheaper and will offer more control and upside potential to the taxpayers.
- Any Government policy must apply, without discriminating against or in favour of any particular group of people. And yet, NAMA will create a discriminatory structure whereby the failures in pricing risk by the banks and developers will be dumped unceremoniously onto the shoulders of the ordinary taxpayers. As a taxpayer, I face no chance of doing the same to the banks. In fact, even more egregiously, Minister Lenihan - a lawyer by training has announced recently that he cannot interfere in the 'markets' on behalf of the variable rate mortgage holders who are being fleeced by the banks hiking their rates to push up profit margins. This is the same Minister Lenihan who has no problem interfering with the 'markets' by dumping some €60bn in banks' liabilities on to the taxpayers. This is discriminatory, in so far as both actions are one way streets - the banks cannot be made accountable to the taxpayers, and the taxpayers cannot be allowed to renege on transferring their wealth to the banks.
- Political and ethical legitimacy requires that any solution that uses collective resources must address first the needs of those who provide resources. In the case of NAMA that means the ordinary people. Not of companies (they come second in the tier as employers and creators of added value) and certainly not of the developers (who come in third in the picking order). Which part of NAMA will address the needs of an ordinary family that is going to:
- Pay taxes Messrs Cowen and Lenihan levy on us, while
- Also paying for NAMA, while
- Facing a risk of financial ruin from unemployment and
- Possible home repossession should the default on a mortgage payment because their savings will be wiped out by NAMA debt burden; whilst
- Having the bleak future with no pension provision as
- The banks and Messrs Cowen and Lenihan enjoy a nice tidy rescue package paid for by the aforementioned 21st century Irish Government serfs?
So here are the slides...
9 comments:
Hi Constantin,
Yes, you are right, NAMA is a vehicle to shore up the failed risk taking in the past of private institutions and a select few companies and individuals and to be paid for by the taxpayers from this year onwards (or indeed since the state guarantee was given) and in future years.
It is completely unfair.
Those that are not getting a fair whack have only one method to affect change, and that is through the power of their own vote.
People need to vote wisely.
And if people are vexed enough, they should campaign for the option to exercise that vote power sooner rather than later. People do feel powerless BUT they have the power at the end of their pencil, presuming of course that the options on offer represent the way they want things ran!
MK1
Constantin,
Thanks for the presentation. It is one thing to put the entire bill on taxpayers. That is happening. But to put an even greater bill just so that banks can continue to make profits is a step too far.
James
Yes, James, I agree. What gets me is that as you've said correctly years ago in Irish press, all of this was coming, it was supported by the idiotic policies that kept inflating the bubble through tax system, and yet here we are now, about to impose a property tax on the market that is not getting off its knees any time soon... Continuously compounded recklessness of our politicians. And Irish Times desire for higher taxation supplies an asymptote to it all.
Hi Constantin,
This is an impressive piece of work, but unfortunately I lost the logic in many areas when studying your charts. I realise these are illustrative slides which were accompanied by a lecture, but is there any explanatory text I can refer to for guidance?
Thank you.
Did they "get it" tho, the greens?
Getting the opportunity to Vote early would be great. But would the alternatives do anything different? I suspect not.
The best way of voting is to either walk away from this land and put your money and business with a non-Irish bank.
Great presentation again, Constatin, thanks.
You seem to be more animated than native-born citizens on the point that NAMA is immoral, if not unconstitutional.
The poster MK1, among others, is happy enough to accept this rape of the tax payer, so long as we vote better the next time.
If any other electorate in Europe, nay, the world, faced this scandal, their citizens would be on the streets! The Irish have no character.
Still, there might be hope, if some of us can pool resources to challenge the NAMA Bill. Any other takers out there?
Paddy: You seem to be more animated than native-born citizens on the point that NAMA is immoral, if not unconstitutional.
The poster MK1, among others, is happy enough to accept this rape of the tax payer, so long as we vote better the next time.
No Paddy, I am far from happy and I have been SHOUTING it from the rooftops too ever since the so-called free guarantee came in last Sept.
Let me make my stance clear:
"Our" banks are not systemic to the Irish economy
The bank guarantee should never have been given
The Irish government should only buy stressed assets and institutions at market rates (which by implication means no NAMA bailout).
Its simple, the banks have been creaming it off Irish business and society for decades with their quasi-duopoloy market position, they have not been charities. As Bernanke said yesterday, bailing out these banks is sick. We should have let the sick banks fail, and let other European banks come in and provide a banking service.
In other words, let private enterprise live and die competition as it should, and those risk takers that took failed risks, let them fail. Fail, not Bail.
Remember the mantra, Lance That Boil (which is our sick banks).
And shout it from the rooftops!
MK1
The point of NAMA is to get banks out of the business of propping up developers and their loans and back to their core business of bringing in deposits (with a good interest rate - higher rates are coming) and loaning to viable businesses. That is the aim of NAMA. NAMA will have to deal directly with developers and value each of their loans appropriately.
If anyone proposed any other solution we would be able to see many downsides to it also. There is no getting away from downsides.
Those developers that can repay their loans will provide a profit for NAMA because they will be receiving a higher rate in repayments than they are paying out through a variable rate Government Bond which the banks can cash at the ECB.
Those developers who cannot repay their loans will forfeit their assets (i.e. land) to NAMA, to the state, to the citizens of the country. What will we do with this land? That I think is the key question. Any thoughts?
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