Cards On The Table: How seven leading commentators view NAMA

Alan Ahearne

Patrick Honohan

Eamon Gilmore

Brian Lucey

Michael Taft

Dan O'Brien

Enda Kenny

Alan Ahearne, Economic adviser to the minister for finance

The economy will not recover until the troubled loans that are preventing our banks from lending money are resolved. Nama is the best solution to our problems and will get credit flowing again in a way that minimises risks to the taxpayer and to the broader economy. This approach has been used successfully to deliver orderly resolutions in many banking crises around the world.

Under EU Commission rules, Nama can't pay more for the loans than it expects to recoup from these assets over its lifetime. Nama's projections for property prices over the next decade or so will be prudent and realistic. Nama will be equally as likely to make a profit as a loss. The taxpayer will be protected in the case of a loss by mechanisms that will throw the losses back onto the banks. If Nama makes a profit, the taxpayer will get it all. Nama is designed as a "heads the taxpayer wins, tails the banks lose" solution.

Patrick Honohan, Professor of International Financial Economics and Development, TCD

Properly set up and functioning well, with transparency and sound governance, a Nama-type operation could be a key ingredient in the challenging task of getting the banking system back on its feet and re-establishing its collective nerve to provide the lending and other financial services needed to support the economic recovery. But it is vitally important to protect the taxpayer against the risk that Nama might unintentionally overpay for the assets it acquires from the participating banks. I have suggested a two-part payment scheme that could go a long way towards providing that protection. In my scheme, the banks would get bonds only for what can be confidently expected as recoverable on the loans; in addition, bank shareholders would be given an equity stake in Nama's future recoveries. Some such scheme, with the state also taking an increased percentage equity stake in the banks in accordance with capital injected, would offer better risk-sharing between taxpayers and the banks' current shareholders.

Eamon Gilmore, Labour Party leader

The Labour Party has been entirely consistent in its opposition to the Nama proposal since it was first mooted and we have set out a clear alternative in the form of temporary nationalisation. The party will be opposing the Nama legislation when it comes before the Dáil next month.

The Labour Party shares the concern expressed by 46 economists during the week that the inevitable outcome of Nama will be that the state will end up paying grossly over the market value for loans. Under the Labour proposal, the institutions covered by the state guarantee would be taken into public ownership for a limited period, during which time their balance sheets would be cleaned up, before being reprivatised at the earliest possible date. This would involve substantial state investment, but the amount would be far less than the Nama approach.

Brian Lucey, Associate professor of finance at the TCD School of Business

One of the problems with Nama is that we are all, to some extent, working in the dark. Nama is designed to undertake the most important task of any government entity, short perhaps of the establishment of the ESB. Yet opacity reigns.

In that regard, we [who oppose Nama] are forced to rely, for estimates of likely losses, on previous research, on court judgements, on bank statements and so forth. While this approach has been described as "deluded" by Dr Alan Ahearne, it indicates that falls from a peak of 60% and more are not uncommon. Combine this with a strong suspicion that loan-to-value limits of 75% were rare in commercial property, with much "equity" being in the form of guarantees on other properties and loans taken elsewhere, and we can begin to triangulate the "real" value of the assets that underlie the Nama loans.

Paying much in excess of €30bn for these loans would represent a massive transfer of wealth from public to private purses.

Michael Taft, Research officer of the Unite trade union and author of the Notes on the Front blog

As if paying over the odds for impaired assets and [avoiding] public ownership at all costs weren't bad enough, we have the politics of postponement. If Nama can meet its annual debt costs through its performing loans, then we won't have to worry about the scale of the bail-out until it is wound down years hence. This short-termism is as unnerving as the potential hit to taxpayers.

The idea that banks will be suddenly transformed into agents of economic recovery is highly questionable, given the history of banking. To safeguard taxpayers' interests, promote economic development and protect employment, the banks should be corralled by public ownership, stronger regulation or both.

Dan O'Brien, Senior Europe editor/economist at The Economist Intelligence Unit

Because the banking and fiscal crises are now so interconnected, the rebuilding of the financial system is even more fraught. Policy-makers must now balance two risks. If they overpay for the banks' non-performing loans they will lumber taxpayers with the enormous costs of others' bad investment decisions. On the other hand, if they allow those investors to take the hit they deserve, there is a risk that those investors (broadly speaking the same ones who are lending the government hundreds of millions every week) will believe they may have to take a hit on their loans to the government. If this happened, they could stop lending. This second risk is small and difficult to quantify, but it is real: these investors now seek far higher interest on loans to the Irish government than any other in the eurozone because it is seen as so risky.

Enda Kenny, Fine Gael leader

Fine Gael's concerns about the Nama arise from its potentially colossal cost for taxpayers, its doubtful impact on credit availability and the unfairness of asking taxpayers to take responsibility for the reckless behaviour of developers and banks.

We have offered an alternative. We would push new lending by the retail banks by setting up a national recovery bank. The banks would be given until September 2010 to repair their balance sheets by selling assets, raising more deposits and negotiating down their liabilities to long-term providers of funding. Under this solution, the responsibility for recovering distressed loans would remain with those bankers and investors that funded them.

August 30, 2009

Comments

#1 jim moriarty commented, on September 3, 2009 at 10:36 p.m.:

For nama to work it has to be seen as making money in the medium to long term for the taxpayer. Asset prices will quickly increase in value if the parameters affecting supply of housing in the republic are changed. This can easily be done by A) putting a carbon tax on all new buildings coming on line. This should be at least as large as the present day service tax imposed by local councils on new houses.
B) Regulating the whole building industry by insisting that all builders carry a nama license. This license would only be issued if the builder/trademan has the proper qualifications,pays all taxes, has references,and has purchased at least 10 percent in nama bonds for any work to be carried out. eg if he is going to build a house for 100000 , then he need to hold at least 10,000 in nama bonds. this will increase the cost of building in ireland but will safeguard what left of the building industry.
3) putting a carbon tax on all imported building materials. As transport is responsible for 70 percent of consumption of all fossil fuels, this should delight the greens, produce jobs at home, and apreciate the value of nama assets.
d) put a moratarium on all stamp duty payable on houses for the next year. this will bring back buyers into the market, stabilise the housing market an increase consumer confidence. This would help the banks as it would stem the problem of negative equity and encourage them to lend again.

e) best way to protect the taxpayer is to insist that nama money be relent by banks to the irish market in the form of mortgages and loans to irish businesses. if nama losses are incurred then the size of the levy put on the bank would be proportionate to how much money they lent back out rather than used to prop up balance sheets.
jim