Financial Crisis

[Ringo]

Fine Gael leader Enda Kenny has said his party will be voting against the National Asset Management Agency when it comes before the Dáil next month.

Speaking at the Humbert Summer School in Co Mayo, Deputy Kenny said the Government had refused to consider any alternative to its bad bank solution and described it as a €90bn 'double or quits gamble' with taxpayers. It is the first time the Fine Gael leader confirmed that his party will vote against NAMA, which he called a 'sweetheart deal for the banks'.

However, the Taoiseach said there will be no change to the fundamental thrust of the Government's proposals on the National Asset Management Agency.

The party leader also criticised the McCarthy report's recommendation to cut the number of local authorities from 34 to 22, saying it was 'misguided' and undermined local democracy.

I think there wrong in terms of the local authorities. The 'sweetheart deal for the banks', is playing to the crowd.

[OneRedArmy]

Fine Gael's proposals are light on detail, to say the least. And ref my previous post, someone might want to ask them who would buy all the sovereign debt the country is issuing if they nationalise all the banks.

I still believe NAMA is the least worst option to deal with the bad loans, as the taxpayer will end up paying whatever happens. We seem to be stuck in some kind of perpetual loop of doom where every time we try to deal with the steaming pile of poo, the wailing and gnashing of teeth about why it happened starts again. Limiting the loss to the country from the bad loans should be the number one priority.

What I am worried about(yet not at all surprised), is that the changes to governance and accountability that need to take place in order to limit the likelihood of this happening again, both in the banks and in government (FinReg, Central Bank, Dept of Finance etc.) don't seem to be moving particularly quickly.

But by far and away the worst idea of all is a referendum for NAMA. When half the politicians can't tell the difference between and asset and a liability on a banks balance sheet (the loan is the asset stoopid...) you've got to wonder what hilarity putting it to the people will throw up.

[Macy]

Fine Gael's proposals are light on detail, to say the least. And ref my previous post, someone might want to ask them who would buy all the sovereign debt the country is issuing if they nationalise all the banks.

FG don't want to nationalise the banks, they want to let them fold and let the investors take the hit. It's conjecture how that'd effect sales of bonds, but it would reduce our overall debt levels, by billions.

Labour say nationalise, and so do the IMF as it happens if NAMA is to be the way!

I still believe NAMA is the least worst option to deal with the bad loans, as the taxpayer will end up paying whatever happens. We seem to be stuck in some kind of perpetual loop of doom where every time we try to deal with the steaming pile of poo, the wailing and gnashing of teeth about why it happened starts again. Limiting the loss to the country from the bad loans should be the number one priority.

It's how much the taxpayer will pay that's the problem. Still, I'm pleased you have faith that FF will deal with bankers and developers in a way that is to the benefit (or least damaging) to the taxpayer... I do not. They will overpay and NAMA will be soft on developers, long after Bacon has gone back to being director of various property development companies...

What I am worried about(yet not at all surprised), is that the changes to governance and accountability that need to take place in order to limit the likelihood of this happening again, both in the banks and in government (FinReg, Central Bank, Dept of Finance etc.) don't seem to be moving particularly quickly.

Of course not, as that wouldn't suit the vested interests. But yet you trust them to handle NAMA?

But by far and away the worst idea of all is a referendum for NAMA. When half the politicians can't tell the difference between and asset and a liability on a banks balance sheet (the loan is the asset stoopid...) you've got to wonder what hilarity putting it to the people will throw up.

The dealing with the entire economic fook up and the way out should be put to the country in the form of a general election. Handling the bank clean up should be part of that, along with cuts/ tax increases, stimulus packages etc. NAMA might be the way forward, but the current Government do not have the support or mandate for this or any other proposals.

[OneRedArmy]

FG don't want to nationalise the banks, they want to let them fold and let the investors take the hit. It's conjecture how that'd effect sales of bonds, but it would reduce our overall debt levels, by billions.

Labour say nationalise, and so do the IMF as it happens if NAMA is to be the way!

The reaction of debtholders of our sovereign debt to defaulting on bank debt isn't conjecture.

1) There's bucketloads of evidence, over the last decade alone, from Eastern Europe, Latin and Central America and South East Asia about exactly what happens when bank debt is defaulted on. The common denominator is EVERY case is IMF or other NGO involvement.

Defaulting bank debt therefore isn't a realistic option.

2) Irish banks proportional holding of Irish government debt is rocketing. It is highly likely this would be verboten from an EU perspective if the banks were all controlled by Government. So nationalisation isn't a realistic option.

So the level of the haircut then becomes somewhat meaningless as all you are discussing is at what stage Government support is provided.

But the biggest counter argument to nationalisation is Anglo itself. How has nationalisation of Anglo benefited the country? A more basic question, what have the Government done under nationalisation, other than continue to pay ridiculously lossmaking deposit rates and seek a waiver from EU minimum capital rules?

The reality is that the Government has done what it, and successive Governments have done when presented with a tough problem with no "nice solution" (ESB workers in obsolete powerplants, decentralised govt depts, health authority workers with no job to do since the HSE took over.........). Its acquiesced to the unions and stuck its head in the sand.

As someone said on the radio over the weekend, the bankers have made a complete balls of things over the last decade, but why should we entrust the management of the financial system to government/civil service that couldn't organise a driving test.

Nationalisation is a nice buzzword and carries with it a sense of punishing greedy banksters, but when you look into the detail the reality is somewhat different. You can argue that it might be different under a new Government, but
1) Unless the Greens roll back considerably we're stuck with the incumbents for a while longer
2) The civil service is apolitical and has demonstrated its inability to run itself under Governments of various colours

[Macy]

Again, I'll say that Anglo isn't an example of how nationalisation might work. It isn't, wasn't and never will be a bank of systemic importance. It was nationalised to bail out friends of FF. No more, no less.

You have a warpped view of the civil service - Government's make decisions, not civil servants. It's the most basic part of the contract, you do what your minister and the Government want, anything else is a sackable offence. You mention Decentralisation - the Dept of Finance officials recommended not going for that plan, but were overruled. What actual proposals were put to cut numbers in the HSE that were blocked by the unions?

I'd have more faith in the civil service than the same idiots - FF led Government, bankers and developers (wrapped in the remenants of the Galway Tent?) - that got us into the mess to get us out.

[dahamsta]

You have a warpped view of the civil service - Government's make decisions, not civil servants. It's the most basic part of the contract, you do what your minister and the Government want, anything else is a sackable offence.

You have to realise that that's an ideal that doesn't happen in reality though Macy? Yes, Minister might be a work of fiction, but it's funny because it's so close to reality. I've "worked" with a government department and experienced their little machinations and games once, I hope I never have to do it again.

adam

[OneRedArmy]

Again, I'll say that Anglo isn't an example of how nationalisation might work. It isn't, wasn't and never will be a bank of systemic importance. It was nationalised to bail out friends of FF. No more, no less..

So you're saying our only nationalised bank isn't a good example of how a nationalised bank would work? If NAMA is there to bail out the FF cronies (as is alleged), surely there was no need to nationalise Anglo if NAMA was going to be the bailout vehicle?!

I'd have more faith in the civil service than the same idiots - FF led Government, bankers and developers (wrapped in the remenants of the Galway Tent?) - that got us into the mess to get us out.

I wouldn't. The civil service (and the quasi-civil service of the Central Bank and Financial Regulator) have proven exactly how much they know about banking and financial services in general over the past decade or so.

Nobody has yet come up with a better plan than NAMA, at the required detailed level of how it would work and who would operate it. If anyone does, it should be discussed. FG's plan involves a significant risk that the country would go bankrupt. Labour's nationalisation plans would send the country back to the 1950's.

It all comes down to ALL politicians (and the meedja) inability and unwillingness to deal with a pretty bad list of options. Everyone is searching for a silver bullet and there isn't one, not even close, but no opposition politician wants to be the one to admit to this, lest it reduce their chance of getting elected. The best case scenario out of this is that it takes one whole generation to clean up the mess and pay down the debt. Hows that for an election slogan?

[Macy]

You have to realise that that's an ideal that doesn't happen in reality though Macy? Yes, Minister might be a work of fiction, but it's funny because it's so close to reality. I've "worked" with a government department and experienced their little machinations and games once, I hope I never have to do it again.

adam

I'm well aware of it, and it is a funny programme, but that isn't the reality in Ireland. You can look at countless examples of waste, from decentralisation to evoting, and the civil servants have recommended against. I've said elsewhere, that the reason politicians like the programme so much is because of the impression it gives that lets them off the hook.

So you're saying our only nationalised bank isn't a good example of how a nationalised bank would work? If NAMA is there to bail out the FF cronies (as is alleged), surely there was no need to nationalise Anglo if NAMA was going to be the bailout vehicle

It isn't of systemic importance. It never lent to small businesses or ordinary customers, so it was never going to get things moving in terms of credit and money flow in the economy. There's no contradiction of saying that nationalisation was wrong, and NAMA is also wrong, because they are both intended to protect FF vested interests rather than the tax payer.

I wouldn't. The civil service (and the quasi-civil service of the Central Bank and Financial Regulator) have proven exactly how much they know about banking and financial services in general over the past decade or so.

Political decision of light touch regulation. Lenihan is continuing this by siding with the UK, against the rest of europe, and isn't even showing up at meetings to discuss stronger regulation of the financial sector. You said it yourself earlier - there's no move to increase the regulation. That's Lenihans decision, not some civil servant.

Nobody has yet come up with a better plan than NAMA, at the required detailed level of how it would work and who would operate it. If anyone does, it should be discussed. FG's plan involves a significant risk that the country would go bankrupt. Labour's nationalisation plans would send the country back to the 1950's

Well part of the problem is that the Government won't let others see the figures, including to cost their own scheme. The IMF said nationalisation should happen even with NAMA to make sure there wasn't overpayment. The tax payer is going to pay, it's all about minimising the exposure. Talk of 18-20% write down is not to the tax payers benefit - it's to the bankers, their shareholders and bondholders.

[Fr Damo]

Did anyone hear Alan Ahearn this morning on Morning Ireland? He was defending NAMA against the 30 or so "economists" who have come out with the reasons not go with NAMA over night. He made some excellant points and John Murray, who was playing devils advecate in the discussion was really and truely put in his place. Ahearn's knowledge and expertise was praised in other areas of this forum and I have to say I take his word that NAMA will be revenue Nuetral for every year of the next Ten years, at which point it will shut down and it may even turn a samll profit. Ahearn is far more credible than anyone Kenny or Gilmore has presnted or anyone else on this board (i hope he isn't on here somewhere!) I think the decision to send him on was Lenihan's and an excellant call. Lenihan should also be given some credit now that he is in the job a bit longer and grown with it, than this time last year when I agree he made a public balls of things. Sorry if the reasons I am pro NAMA are none other than I trust Ahearn.

[Macy]

Sorry if the reasons I am pro NAMA are none other than I trust Ahearn.

You do know he's on sabbatical from his "day job" and is a paid special advisor to Lenihan? He is hardly going to come out against his current boss... He was as whooly as Lucey was on actual figures, and he's supposed to be one of those that actually has access to the data.

I also think he's lost credibility by resorting to name calling in the Irish Times.

btw it was 45 economists that signed the letter.

[dahamsta]

I'm well aware of it, and it is a funny programme, but that isn't the reality in Ireland. You can look at countless examples of waste, from decentralisation to evoting, and the civil servants have recommended against.

The middle management in the HSE would beg to differ Macy. They love their jobs and they're never going to lose them, despite the fact that they're the biggest single waste of Irish employment money going. They should have been reassigned or sacked years ago. Jobs for the boys.

I'm not saying that the civil service is to blame for all our woes, not for a second, our government ministers haven't made a competent decision in a decade. However the way you're going on, you'd think the sun shone out of the arse of the civil service; and again, having had personal experience of their machinations, it doesn't, not by a long chalk.

adam

[Macy]

I just want responsibility to be allocated (and taken) where it's deserves. Light touch regulation was, and remains, a political decision. It shouldn't be hung at the door of the big bad civil service.

Similarly, The Government took a solo run on the HSE (again to dodge responsibility), and didn't make the efficiency savings. There's been no proposals for the unions/ workers to even block!

There's plenty of genuine things that people could get worked up at with regard to the civil service without taking (due) responsibility from Government.

[OneRedArmy]

You do know he's on sabbatical from his "day job" and is a paid special advisor to Lenihan? He is hardly going to come out against his current boss... He was as whooly as Lucey was on actual figures, and he's supposed to be one of those that actually has access to the data.

I also think he's lost credibility by resorting to name calling in the Irish Times.

btw it was 45 economists that signed the letter.

Somebody somewhere needs to come up with a viable well thought out alternative, and Lucey hasn't.

He's at the soundbite level along with FG (and Labour's plan is unworkable for reasons around nationalisation that we'll just have to disagree on).

The whole concept of buying the loans at a market value (FG, Lucey et al) is almost as wooly as paying a Long Term Economic Value/Through The Cycle value (NAMA approach). Here's why.

LTEV is supposed to be an average price through a 'normal' economic cycle. This requires an element of crystal ball gazing into the future, as well as taking in past data (whilst ignoring 'bubble' values) to arrive at an average. Obviously there isn't a fullproof 'right' answer and it is open to over or underpaying for loans, depending on how the future economy pans out. The working assumption is that NAMA will pay more than current market value and hope the passage of time allows them to recoup average value, or more (as in the case of Sweden which turned a small profit, after spreading the sales and workouts over a decade).

BUT market value is no easier to estimate! Market value is what someone will pay for an asset at a point in time. But as anyone who has even done basic economics knows, price is a function of supply and demand. Apply this to NAMA and take two extreme examples.
1) NAMA buys 5,000 loans and immediately puts all the empty developments, part built sites and landbanks on the market, all at once.
2) NAMA buys 5,000 loans and puts one on the market in the first year.
Its fairly obvious that under 1) the 'market' value of each asset will be dramatically impacted by oversupply and will require to drop hugely in order to stimulate demand. Vice versa, in case 2) the lack of supply will maintain a relatively higher transaction price for the asset.

Therefore when economists and politicians bandy about the term 'market value' like its a number that everyone agrees and knows, its nothing of the sort and is open to the same level of guesstimation and error as more theoretical valuation philosophies.

Again, nobody likes to say publicly they don't have a simple answer as people don't want to hear that.

[Macy]

Lucey, FG, Labour et al haven't been given access to the data to come up with a costed alternative, or even to allow them verify what The Government and their advisors are saying.

I'd rather a guess on market value which will be more realistic, than an overestimate that lets the banks off the hook. To me it looks like they're kite flying to set the price - leaks about only 18-20%, and now they back away from that...

[dahamsta]

I just want responsibility to be allocated (and taken) where it's deserves. Light touch regulation was, and remains, a political decision. It shouldn't be hung at the door of the big bad civil service.

It should be hung at the door of both Macy, since that's where the blame lies. Just because the civil service works in the background, doesn't mean they don't have a part to play in goverment decisions. Your point about the HSE is a good example: goverment ministers don't just pluck proposals out of the air, they come from their spin doctors, lobbyists, (once in a while) the public, and the civil service. In fact one could argue that because the civil service is so close to government, they have undue influence on matters such as civil service employment. Although of course I would never suggest such a thing.

Government isn't binary, laying blame at one door or another - or deflecting blame to one door or another - just isn't fixed in reality. Goverment is push and shove, everyone always gets their hands dirty.

adam

[Fr Damo]

You do know he's on sabbatical from his "day job" and is a paid special advisor to Lenihan? He is hardly going to come out against his current boss... He was as whooly as Lucey was on actual figures, and he's supposed to be one of those that actually has access to the data.

I also think he's lost credibility by resorting to name calling in the Irish Times.

btw it was 45 economists that signed the letter.

Yes I did know he is in the camp and that's why I said it was a good stroke of Lenihan's to send on this morning. Also, he was nailing the government prior to his appointment so I believe his assement is honest.
and BTW if there it's 30 45 or 100 economists it doesn't make a difference if they are all wrong. I bet you Ahearn will show you 45 who believe he is right. As ORA said, we haven't heard much else but points scoring.

[Macy]

I'd disagree about them not being just plucked out of the air, but it's with the spin doctors and advisors the power lies rather than Civil Service. The Minister tells the Civil Service what he wants to do, they'll prepare the information usually with the pros and cons and the Minister makes the decision. Or if there's a particular problem, the civil servant will present a range of options, the consequences of them, and then the Minister makes the decision.

You're giving the civil service too much credit in terms of their power, and downplaying the advisors/ lobbyist/ vested interest (i.e. the FF) side of the equation imo.

[Macy]

I bet you Ahearn will show you 45 who believe he is right.

He didn't seem to get much support when he sent around the email looking for it when he heard about Lucey's article!

Getting 5 economists to agree on something is some going, so I wouldn't discount the significance of 46 agreeing.

[John83]

... Also, he was nailing the government prior to his appointment so I believe his assement is honest...

Yes, who pays him couldn't possibly influence what he says.

[dahamsta]

The Minister tells the Civil Service what he wants to do, they'll prepare the information usually with the pros and cons and the Minister makes the decision.

Macy, I have a lot of respect for you, but that's a very naive view of how government operates, and it's not based in reality. You have your opinion and it's obvious I'm not going to change that so I won't go on about it any more. But you're wrong.