Monday, August 17, 2009

NAMA 3.0 - more weight

My NAMA 3.0 - that includes also some proposals advanced first by Patrick Honohan, Brian Lucey and Karl Whelan - is gaining some speed. Here is a slightly more edited/updated version of it:

Step 1:
Require banks to take full mark-to-market writedown on their loan book. This ensures that realistic valuations will be attached to the loans and it is fully consistent with the Swedish Bad Bank model (SBB-consistent);

Step 2:
Travel down the capital ranks to draw down shareholder equity, deplete perpetual bond holders, subordinated bond holders and so on to cover the writedowns. This is a natural progression in addressing any insolvency and there is no reason as to why NAMA should be different (SBB-consistent).

Step 3:
Force senior bond holders into debt for equity swap (exchanging their bond for shares at a discount), with a possible sweetener on equity conversion formulas relative to the Exchequer valuations (meaning we convert their bonds into shares with a small sweetener or shallower discount than actual valuations will imply). By retaining these guys on board as shareholders, we ensure that the banks will not be 100% state-owned and that potential lenders will have an interest to lend because they will be shareholders in these institutions. This is consistent with GM bunkruptcy proceedings earlier this year;

Step 4:
Open enrollment for a share-participation in Irish banks recapitalization to SWFs and private capital. The Government should actively seek such external investors to increase private sector share of overall equity holdings (on top of converted bondholders - point 3 above). This should be done in the period while the banks are drawing down their capital funds to write-off losses to ensure that the banks are not fully nationalized;

Step 5:
Cover all the shortfalls in capital base through recapitalization (as in Government's NAMA - or NAMA.G - proposal) after Steps 1-4 are completed and after an independent assessment of the value of the remaining loans is carried out to determine the true extent of banks under-capitalization (SBB-consistent).

To establish independent valuations – set up a Valuations Board of NAMA consisting of 9 individuals: 1 from DofF, 1 from NAMA, 3 valuations experts, 1 finance expert (banks), 1 planning specialist, 2 independents (economist and accountant). There shall be no post-NAMA levy expsoure for the banks as the state will take ordinary shares in those institutions (reducing future uncertainty for banks), thus creating an upside potential to shares (offsetting any losses on NAMA discounts).

Recapitalization, carried out jointly with new shareholders (past bond holders, SWFs, private investors, etc) will see Irish Government taking significant/majority shares in all main banks in Ireland. However, it will not be a nationalization, as the state of Ireland will not own these shares - the shares will be held in the name of Irish taxpayers in an escrow account or holding company called NAMA3.0 (below). Furthermore, significant shareholding in at least 3 banks can be private - through the private placements (step 4 above).

This is constent with SBB, but it is also consistent with the current NAMA-G proposal, as the Government has not explicitly rulled out a possibility of nationalization of the banks in the post-NAMA recapitalization. Furthermore, NAMA3.0 reduces the extent of state ownership of the banks by committing itself to attracting some private sector shareholders - e.g former bond holders and new investors.

Step 6:
Hold equity in an escrow account (NAMA3.0) on behalf of the taxpayers, appointing
  • The members to the Supervisory Board of every bank recapitalized by the taxpayers money. These should consist of one appointee by the Minister for Finance, 1 independent representative of the taxpayers, who is charged with explicitly guarding the taxpayers' interests, 1 representative of NAMA3.0. Each member (other than those from NAMA3.0 and the bank) will hold a veto power.
  • A requirement that risk, audit and credit committees of NAMA3.0 include at 2-3 independent experts who cannot be employees of the state, NAMA3.0 or any other parties to this undertaking
  • Set up an independent, bipartisan, NAMA Oversight Oireachtas Committee consisting of non-voting Chair, 1 representative of each Party, 1 independent TD.

Step 7:
  • no indemnity for negligence and incompetence for any employee or director of NAMA 3.0 organization - no one in the private sector has one (SBB-consistent);
  • no cross borrowing by the Exchequer from NAMA3.0 is allowed, so Brian Lenihan and his successors cannot raid the nest egg by - at a later date - borrowing funds against NAMA-held assets to spend on other state commitments (current or new). This is SBB-consistent provision;
  • ownership of shares in the account accrues to the taxpayers, not to the state or the public sector;
  • NAMA3.0 cannot lend money to continue any of the banks' projects without specific recommendation of the risk committee (unanimous) and an authorization from the special Oversight Committee of Oireachtas;

Step 8:
  • full disclosure of all recapitalization actions and shares held in NAMA3.0 - on the web, updated live;
  • full disclosure of all salaries, bonuses etc, CVs of all managers and directors and disclosure of all potential conflicts of interest;
  • full disclosure and updating of the comprehensive NAMA3.0 balance sheet, cost/benefit analysis of the undertaking and live monthly mark-to-market report on the value of shares held;

Step 9:
Operational Efficiencies: NAMA3.0 can, with consent of the Minister for Finance and in orderly (market-respecting) fashion disburse all or a part of its shareholdings so as to maximize the return to the taxpayers. This disbursal should be fully notified to the public immediately post execution, with prices achieved and hedonic characteristics of the properties sold (barring identification information) fully disclosed. NAMA3.0 will then have 60 days to issue every resident of this country - registered at the date of creation of NAMA3.0 as being tax-compliant - his or her share of the sale proceeds net of NAMA3.0 operating costs and a special withholding tax of 40% on Capital Gains, in a form of a cheque;

Step 10:
Legal Remit Over Assets: NAMA3.0 in recapitalizing the banks will have a mandate to help the banks collect on outstanding loans by aiding them in seizing requisite collateral. In doing so, NAMA3.0 will have to agree a procedure to address problems of cross-collateralization of specific assets. NAMA3.0 will have a right to seize borrower's property (applicable only to developers) when such property has been legally shielded from authorities or banks at any time after July 2008.

Step 11:
Conditions for banks participating in NAMA3.0: banks will be required to adhere to the following rules, including, but not limited to, the caps on executive compensation at the banks set at Euro500,000 maximum with share options not to exceed 75% of the salary, to be taken in long-term options – 5+ years, with the option price to be set as the Moving Average over the last 3 years of Bank’s operations prior to option maturity). Banks must set up fully independent, veto-wielding risk assessment committee with a mandatory requirement for a position of a taxpayers' representative on the board that cannot be occupied by a civil servant or anyone who has worked in the Irish banking or development industry in the last 10 years.

In addition (all below are SBB-consistent):
  • the banks must set up independent fully shielded administration offices for managing NAMA-held loans;
  • the independent offices must compete against each other in delivering the returns to NAMA loans;
  • the annual performance of these offices must be benchmarked also against the annual performance of the banks' own books of loans with the NAMA offices within the banks achieving at least the same average rate of return on its loans as the rest of the bank (adjusted for quality of loans) without any cross-subsidisation of returns to NAMA loans from other loans managed by the banks;
  • NAMA offices within each bank must report their results separately from the bank and at the same time for all NAMA offices - quarterly and annually. NAMA3.0 will be responsible for making these reprots public after approval by NAMA board and risk, credit and audit committees.

Step 12:
Re-legitimising the public system of regulation in Financial Services: as a part of NAMA3.0, the Government must address the ever-widening crisis of markets, investors' and taxpayers' trust in the Irish system of Financial Services regulation. Many steps must be taken to address this problem, and these can be worked out over time. But in my view, there must be a stipulation that all and any regulatory authorities (and their senior level employees) that were involved in regulating the banking and housing sector in this country until now must be forced to take a mandatory pension cut of 50%, a salary cut to put them at -20% relative to their UK counterparts wages, and return any and all lump sum funds they collected upon their retirement. The Government must impose measures to prevent banks from beefing up their profit margins through squeezing their preforming customers. The measures to force the banks to reduce their cost bases by laying off surplus workers must be enforced. From now on, every regulatory office should be required to publish all minutes of its meetings, disclose all its voting, decisions and rulings to the public, create a public oversight board that must include members of the Dail from non-Governing Parties, a taxpayer representative and independent directors.


southofdub said...

Hi Constantin as a professor of economics's this all makes perfect sense to you. But if you want to sell this concept to "Joe public" you need to dumb it down a little.
"bond holders" "equity swaps" do not compute with the general public, I do not fully understand the concept.I agree that NAMA is a bad idea as it stands. My point is that if some one like you could come up with an explanation of this that "joe public" understands or can grasp, this would be valuable and would sell the concept to a much wider audience.

adrem said...

Constantin - On what basis do you argue that this proposal has gained some speed in the corridors of power?

Some of what you are saying is fine rhetoric but a lot of the underlying position is destroyed by it's utter impracticality and the fact that you are operating from a utopian idealist position.

If you require an immediate mark to market on the assumption that all the assets would be put on the market simultaneously and immediately then you would artificially reduce the value of the assets. Although Mr Lucey, on whom you rely a lot, has no background in property related research he does has a background in equity markets and even he would tell you that creating a false forced sale of all units in any asset in a closed finite market will artificially reduce the price paid. So lets nail that idea - it is bloody stupid.

Going down through the equity holders and bond holders is laughable in the context of your first step - you will have already apportioned a zero value on the equity and bond holders - the stockmarket has already pretty much done that with equity holders anyway (down about 95% plus). So you think going to the market with a story that this bank has no money, no capital and in fact is completely insolvent so we will use your first 5/6bn to get ourselves up to ground zero - you think that is sensible? Come off it.

The bottom line is that NAMA is recognised by the IMF and by the FT (as well as other independent experts who are not attention seekers) as a reasonable broad approach. The key point is the valuation mechanism coupled with the future levy on the banks. It is also an important feature of NAMA that both performing and non performing loans will be taken over - so it's not all ag. land with 100% loans that will be taken by NAMA.

I do agree with some of your points on transparency and on reform of remuneration structures in banks and in the regulators office. The top 3/4 tiers of the regulator should be removed and replaced as the current group have all been (imho) contaminated by this scandal (and yes although I defend NAMA I do feel that what got us here is scandalous).

TrueEconomics said...

Actually, my point 1 on mark to market requires no actual sale or market testing for evaluation.

Mark to market, if you care to really think about it, requires assignment of a current fair market value to the asset, not a sale of this asset. Mark-to-market accounting functions on, say, Berlshire's holdings of AIG shares without ever requiring that all AIG shares owned by Berkshire (a hypothetical example, of course)be sold in the market at the moment of valuations in one fell swoop.

I am sorry, but you either do not understand the concept of mark-to-market or have some other motives - unknown to me - for driving you to wage silly arguments.

In fact, NAMA valuations will do exactly mark-to-market valuation, for the pricing formula (per legislative proposal) will involve comparison between the current price (mark-to-market value) of the asset, followed by an estimation of the 'long-term economic value'.

I am actually tired of this daft idiocy propagated by the DofF and Alan Ahearne that we - the critics of NAMA - are calling for a fire sale of assets.

Per shareholders - last time I checked AIB and BofI are trading above €2 per share. I don't care if this is 90% or 10% below some historic high. All I care for is that my - and other people cash - is not used to prop them up at any level of shares valuation.

Why should it be otherwise? Explain to me why my work should pay for their equity? Or why my kids college fund should do so? Why I should face a risk of losing my home to rescue equity holders' remaining 5% or 10% of equity in AIB or BofI or IL&P or Nationwide?

Bond holders - well, as you can see from point 3 of my plan, senior bond holders will be offered an option of converting.

This is way more than what I and other taxpayers in this country are being given under NAMA proposal. We are given an ultimatum - pay your taxes or face jail.

Bond holders under my plan are offered a choice - convert or see your value written off. Now, as you would be familiar, these bond holder assumed risk in investing and were collecting some coupon payments to date. So justice, markets, private economy - every aspect of our lives and society - all require them to take a greater hit than the innocent taxpayers.

If taxpayer is a financier of last resort, so be it. But it should be the last resort. Not the one ahead of other players who invested in the banks and developers.

TrueEconomics said...

Per your humorous sentiment, I am not sure what is laughable - a democracy that protects bond holders rights at an expense of destroying its citizens' well-being or your criticism of my point 3.

The bottom line you refer to is simply the bottom line for anyone who believes that external validation of an idea makes this idea a good one. Surely you would be aware of a number of examples in history where external validation was obtained for some pretty nasty policy decisions.

Your reference to the valuation mechanism is actually secondary in its importance. Why? Because the main problems with NAMA are:
1) conflict of interest between payee and ownership;
2) conflict of interest between banks' own loans and the NAMA loans they will administer;
3) adverse impact of NAMA on investment and consumption in Ireland for years to come;
4) adverse impact of NAMA on households for years to come;
5) the entire structure of NAMA as another non-transparent piggy bank for the Government to rip off its own people.

Valuations come second Adrem.

As per your insistence that NAMA is ok, because it will take on 'good' loans - I already answered this point. If you think the state would invest our money (for buying good loans is an investment) to offset the cost of bad loans, then where is the analysis as to what we should be investing in (stocks? bonds? property loans? diversified portfolio of assets?). If NAMA, as you say, is an authorization for the Government to set up an investment fund, then surely the measures of its performance should be risk-weighted returns to original investment, not re-starting of lending by the banks (unmeasurable proposition - i.e non-falsifiable), nor a recovery in the property market (another non-falsifiable proposition).

If you feel that what got us here is scandalous. And if you feel that the state structures (regulatory and policies) are at least in part responsible for doing so, why do you have no problem with the State expropriating vast amounts of our incomes to run and own a massive property loans portfolio vehicle? Why not sign up to an idea that at the very least we - the taxpayers - should own the assets if we are to pay for liabilities?

Best regards,

zhou_enlai said...

Adrem - well said. Good to see you are still in action since I swore off

To implement the "Nama 3.0" proposal above one would have to nationalise straight away as there is no benefit for the banks in marking to market unless there is a guarantee of recapitalisation. Ergo, if there is no motivation for them to come willingly then the state must force the banks to do as they say.

Who knows what the consequences of such an nationalisation would be as bank employees get to enforce their contracts while left in charge of taxpayers' (i.e., other people's) money.

The stuff about having no indemnities etc is really crazy. We need people to act in the best commercial interests of the country yet this proposes to castrate their initiative with the threat of personal ruin for any mistakes. There is a reason why "negligence" is called negligence. There is also a reason why professionals can't and won't do tasks for which they are not insured.

I think some of the more ardent critics need to re-examine the intellectual foundations of their proposals. As far as I can see, most of them cannot differentiate between the mistakes and ill deeds whic have led us to this crisis and the measures needed to get us out of it.

They also need to get real about the options actually open to us at this juncture.

We have bound ourselves to our neighbours and the international markets to ensure multilateralism in market affairs in the interests of peace and prosperity. Despite this most of the media economists, commentators and some oppposition politicians think we can do whatever appeals to us from day to day. There are a lot of people with a lot of growing up to do.

In the meantime, I am glad the adults are in charge.

(I don't know how Patrick Honohan and Karl Whelan will feel about their names being put at the top of this effort. Brian Lucey is always game for a laugh but the other two are serious actors in the current crisis.)

Dreaded_Estate said...

Great work again Constantin.

Keep the pressure up on them.

TrueEconomics said...

Dear zhou-enlai.

In the spirit of this blog, I am willing to post even those responses that show no respect for myself as the owner of the blog or for some of my colleagues in the profession of economics. Perhaps, this might compel you in the future not to enter someone's home without being willing to accord them your respect.

For it is apparent that you do not hold myself, amongst others, as a serious 'actor'.

Now, I would address couple of the points you've raised.

"To implement the "Nama 3.0" proposal above one would have to nationalise straight away as there is no benefit for the banks in marking to market unless there is a guarantee of recapitalisation. Ergo, if there is no motivation for them to come willingly then the state must force the banks to do as they say."

Well, I do not see anywhere in NAMA3.0 anything about nationalizing. In fact, point 5 clearly states that I am attempting to avoid this outcome or at least to reduce it's impact and extent.

Second, the original NAMA itself might, shall you bother to consult other sources, lead to a nationalization of the banks (with the state ending up owning some of the banks outright in the post-NAMA recapitalization). Thus NAMA3.0 does not go beyond the original NAMA in this respect.

NAMA legislation contains nothing in terms of preventing the state from taking a 90 or 100 percent stake in any of the banks. So NAMA as proposed by the Government is even worse than my NAMA 3.0 in respect of nationalization.

Third, I fail to see how you can overlook the commitment to recapitalization (point 5). If you read the second paragraph of point 5 you might discover the specific part of my proposal which will mitigate nationalization.

Finally on the point of nationalization, I am glad you do not consider 20 economists who called for nationalization in the Irish Times article to be 'serious actors' in the current crisis.

Per your 'ergo' bit - have you missed the point that NAMA proposed by the Government is a compulsory, not a voluntary scheme? So is, of course, my NAMA3.0 proposal.

TrueEconomics said...

"Who knows what the consequences of such an nationalisation would be as bank employees get to enforce their contracts while left in charge of taxpayers' (i.e., other people's) money.

The stuff about having no indemnities etc is really crazy. We need people to act in the best commercial interests of the country yet this proposes to castrate their initiative with the threat of personal ruin for any mistakes."

Now, you tell in the first sentence the horrors of the employees 'enforcing their contracts' under nationalization. I agree - it is tricky. You commit a fallacy saying they will be administering taxpayers' money because you think (without any grounds for such a thought) that NAMA will be managing taxpayers' money. My beef with NAMA, and my NAMA3.0 addresses this explicitly, is that taxpayers do not hold the deeds to NAMA. You fail to see this.

You then argue that an even more extended 'insurance' or indemnity to the employees of NAMA than might apply under nationalization is a necessary condition for the 'professionals' to 'act in the best commercial interests of the country'. Your first sentence in this passage contradicts your last one.

Further per this point. In what commercial organization do you have an indemnity for employees against malpractice? or incompetence? or negligence? What planet do you inhabit? Certainly not the one I am living on. Even in academia we are encouraged to purchase indemnity insurance for consultancy contracts we carry out. And in the private sector we can certainly be fired, with no recourse to pensions and benefits (short of the defined contribution pension) in the case of gross negligence, malpractice and/or incompetence. In professional fields, you can face a sanction of being barred from practicing your profession again. In the world of companies' directors, you can be barred from serving as a director for a very long period of time. "Professionals can't and won't do tasks for which they are not insured", might be fine, but what NAMA proposal delivers is not an insurance, but a blanket indemnity. Check your facts.

TrueEconomics said...

"We have bound ourselves to our neighbours and the international markets to ensure multilateralism in market affairs in the interests of peace and prosperity."

No, zhou, no international agreement or market actually requires a perversion of the natural course of resolving the problem of the insolvent enterprise. This natural course - the legal course - of justice requires that in any commercial enterprise facing insolvency, the first hit is taken by the borrowers in delinquency, the second one - by shareholders, the third one is taken by subordinate debt holders, the fourth one is taken by senior debt holders.

You and your 'adults in charge' are applying the first and only hit to the taxpayers. Once again, what planet do you inhabit where the country own rulers sacrifice their own population to uphold international markets customs? In what international agreement that we signed 'in the name of peace and prosperity' does it say that an institutional bond holder shall be rescued at the expense of an innocent taxpayer? What international commitment of this country requires my 2 and a half year old son to pay for the errors of some developer before the shareholders of the bank who lent him the money do?

Frankly, your reference to 'international markets', 'multilateralism' and 'peace and prosperity' are sickening.

When GM went bust this year, the US markets cleaned out shareholders, then bondholders and only afterward provided funding in exchange for equity to the company. This was, in your terms of reference, an act by the US to break away from 'multilateralism', endangering 'peace and prosperity'?

In the case of the Swedish bad bank system - the Government of Sweden pretty much followed what I outlined as NAMA3.0. Was this an act by the Swedish Government to break away from 'multalateralism' you so dearly hold?

What you are supporting - namely NAMA as it is put forward by the Government - will destroy prosperity in this country and might threaten potential popular unrest when people are losing their homes while having to pay excessive costs of rescuing the banking sector.

Zhou - of all the people who commented on this site - you might be the only one who has growing up to do. I wish you the best in this process.


Adrem said...

Constantin first of all, as you raised it, my motives are simply those of an individual member of society trying to get my head around what NAMA means and will mean. I don't see it in the way you do so I challenge that in order to better my understanding - no other motives.

Mark to market - maybe I was unclear (apologies) - my point is that you look for a mark to market. You indicate that you want this mark to market to happen now and across all banks property assets - I would have thought that mark to market, whilst not requiring actual asset sales would require them to be valued on the balance sheet on the assumption that they were being simultaneously sold into the market. Otherwise it would be a false mark to market (not unlike what NAMA will do - mark to a market value that would / should be generated over a period of more normal conditions.

On the bond holders issue - I know this will be a bit odd (and perhaps betray my slightly conflicting views on this) but I never agreed with a blanket guarantee on the bond holders - deposit holders fine (prevents run on banks, gets some solidity into the retail market etc) but not the bond holders. They are supposed to be one rung up from equity holders not on a different plane. That aside I do accept that if the banks all defaulted on their interbank debt there would have been fairly serious questions raised about future ability for the banks and indeed the government to raise debt in the future - I know you can argue that the expense is partly down to the fact that the bond holders were guaranteed (size of effective govt debt etc) but I think the knock on off a default would (imho) have been worse.

I think the key to the success is probably transparency - unfortunately I think that our current system of regulation and govt means that we can get that transparency better through an independent agency than through nationalisation.

Valuation is extremely important - the right price means that all the concerns you raise about indebting future generations will not arise. The future levy also helps prevent that happening.

The level of exposure is not as high as the media spins - the average LTV was c75% initially. The writedowns already taken by the banks bring that down to c65%. There will be further writedowns in the form of the famous haircut. Assuming (just for the sake of this) that the haircut is 30%. that means that the value of the underlying assets (plus any associated personal guarantees) would have to have fallen by more than 54.5% for the state to be exposed to a significant loss. Hence the importance I put on the valuation process.

Final point - one can be angered and scandalised by the behaviour of govt and it's agencies without despairing at the potential for reform. but maybe that's just me betraying my naivity !

zhou_enlai said...

First of all, apologies for comments which you found offensive in my initial post. I accept that criticism.

On your replies to my points:

1. The current NAMA proposal is voluntary as far as I know. Each bank will have to sign up to it. This si a hugely important legal point and is the mechanism that will hopefully allow is to side-step enless legal battles.

2. I agree that NAMA may lead to 99% nationlisation. However, it will not lead to immediate 100% nationlisation.

3. Whilst NAMA 3.0 does profess to seek to avoid nationalisation, it is my view that you cannot force the banks by legal constraint to involuntartily start down the road of NAMA 3.0 without 100% nationalisation from the get-go. It is a legal impossibility as far as I can see.

4. Whilst you do say recapitalisation is necessary, this comes down the line. My point was that the only way banks could be enticed into NAMA 3.0 was to promise a guaranteed level of recapitalisation at the very beginning. Obviously that will is totally impractical as not only can you not know the amount needed but any such promise will skew all negotiations with bondholders et al.

5. While the ECB is funding us we are bound to multilateralism. This is a healthy thing as the current economic problems are global in scope. I do not see the GM example as apposite as GM could conceivably have failed and the USA survived. The US Govt was is a position to play hard ball. I do not see the Swedish example as being on all fours either as Sweden itself was not borderline insolvent and reliant on the ECB as we are and was not a memebr of the Euro. There are further differences.

Unknown said...

"Force senior bond holders into debt for equity swap "

Maybe I have a naive understanding of this - but can they be "forced".
Are bonds not legally binding contracts for debt? (I do like this idea of a Debt for Equity Swap.)

Unknown said...

"always game for a laugh" ....Am I Bedale, Henry Kelly or .... Sarah Kennedy? Anyhow. Care to perhaps, in an email or better yet here outline what exactly you mean by this comment? I dont find it a bit funny that my money will be used to prop up private risk investors. But maybe I have no sense of humour.

(PS - back from a week in the sun so just catching up here).

zhou_enlai said...

Go easy BL. I already got a going over by the host. It was like the burglar who got treated to a four iron about the head - the Garda investigating said he seemed to have picked the wrong house!

Seriously though, I think that you are much more aggressive in the approach that you think we should take with senior bondholders in private institutions. I also understood your position to be that Anglo should have been let go to the wall. "Always game for a laugh" was wrong.

I hope you wore your sun screen.

jpc said...

A lucid well presented means by which to administer the recovery of the Irish banking system.
The NAMA model is a spoof in progress.
The constant fall back position of "commercially sensitive data" when trying to get explanations for "asset" pricing mechanism is wearing thin at this point in time.
How long before the public service is paid in part with ious is another question worth reflecting on.
Great blog Mr Gurdgiev

Drummer said...

Hi Professor,

I am interested in your presentation and would prefer anything that saves the taxpayers money. However, can you please elaborate on the costs to the taxpayer (directly and indirectly) in taking your approach? My understanding is some of the less desirable acts by the government (protecting subordinate bondholders etc), was more about protecting our credit rating and keeping the costs of borrowing down (v Greece, Iceland etc). Can you please clarify if this is wrong (and if so, why the government are choosing to take this stance).

What is generally agreed by most people in this debate, is that the taxpayer will have to bear some sort of cost. I usually like to hear what the downfall is, as there is no credible way of preventing some sort of loss to the taxpayer. Would you have any projected costs with your suggestion ?