With the 1980s coming closer with every passing day, it won't be long before we see mullets and legwarmers in the Dáil. While waiting for this sartorial recession, we should lift our spirits and think of the good things that the 1980s brought us, including the ladies of Bananarama, led by Dublin woman Siobhan Fahey.

The wisdom of Ms Fahey and Co are particularly appropriate given the debt-o-rama the tax payer is being gifted with in the form of the National Asset Management Agency (NAMA). Despite what the minister claims (that it is not a toxic bank), he should bear in mind that as the gals so tunefully sang, 'It ain't what you do, it's the way that you do it'.

Over the past few months I and others in this newspaper have argued that the government needs to take steps towards the solving of the toxic assets of the banks. So why then do I think this proposal is perhaps close to the worst possible solution?

Let's examine the proposed structure of NAMA. In return for removing €80-€90bn of assets from the banks' balance sheets, NAMA will then issue X billion of NAMA bonds to the banks as payment for these toxins. NAMA will then work out the loans it has taken over, to recoup some of the billions we the taxpayer have handed over to the banks. If, in some unspecified future time, the inhabitants of NAMA-land determine that the returns they are getting on the assets are not enough to pay the cost of the NAMA bonds, then they will levy the banks for payment.

The first issue is the amount and extent of the handover – €90bn is 20% of the total amount of Irish banking loan books. It appears that the minister and his advisers have decided there is no point in the Irish banks managing any land or development loans, whether they are performing well or not.

This is the economics of the madhouse; what we are seeing is akin to the wildest fantasies of the far left, where productive assets are seized by the state. The consequence of this is to weaken, not strengthen the banks. Weaker banks are unlikely to extend credit to SMEs, further choking the supply of credit.

A second aspect is the value of the impaired loans and what the taxpayer will pay for them. Continuing a policy of making things up as they muddle along, Brian Lenihan suggested on radio that up to €50bn worth of NAMA bonds would be issued. He then admitted he made this up for "illustrative purposes". He would do well to recall that financial markets also draw inspiration from Bananarama as in 'I heard a rumour'. Casual suggestions of doubling the national debt on a talk show count as rumours, I submit.

Pricing distressed assets is complex, but the maximum amount that external commentators have agreed as being required to meet bad debts is €35bn. Given that the entire portfolio of loans is being handed over, logically the extent of taxpayer involvement should be less, with the good off-setting the bad in part.

This raises the third element. The summer of 2009 is shaping up to be a Cruel Cruel Summer for the Irish taxpayer. Banks are funded by three sources of finance: deposits, equity capital and loan capital. The equity capital of the banks is nominally of the order of €20bn plus the €7bn preference shares injected. The loan capital of the banking system is of the order of €10bn. Thus, there is in principle enough risk capital in the banking system to absorb the losses the system has run up. Of course, this would bankrupt the banks, and thus require the state to engage with the N-word, and nationalise them.

That would probably take €15bn or so more of taxpayers' money, but at this stage who's counting.

Doing what the government proposes lets the providers of the risk capital off the hook. It is entirely disingenuous and shows both a contempt for the taxpayer and an ignorance of the precepts of business to do other than require this capital to be the first line of loss-absorption.

Finally, there is the issue of the levy. The intent of the Nama is to work out and recoup value from the loans. If at the wind-up of NAMA, the value recouped is less than the value of the bonds issued, then a levy will be imposed on the banks. So we have the perverse situation where to relieve the banks of unquantifiable contingent liabilities the government creates an unquantifiable contingent liability for the system, and hopes that it will work. Minister, that is Really Saying Something.

Brian Lucey is associate professor of finance at TCD