Alternatives to NAMA?

What is the best course of action: NAMA or an alternative?

  • Fine Gael proposal.
  • Labour proposal.
  • Government proposal.
  • Government proposal with changes.
  • Other.
  • Do nothing.

0 voters

I’m kind of new on this board so apologies in advance for any misplaced messages. I’m a grassroots member of the Green Party and I hold no political or paid position, nor do I have any plans for such.

When GP members criticise NAMA, we’re always told: OK, so what are the alternatives? At a recent meeting I suggested simply letting the banks go to the wall and foreign banks (eg Canadian) move in: ie letting the market decide. Others felt that there would be chaos and disruption as a result and the country would go to the wall. (I’m not sure I agree with that–you could put in safeguards to protect depositors etc.)

So what are the viable alternatives? Any ideas gratefully received.

For what it’s worth, here’s my two cents …

The spin we’re been given around NAMA is that it will allow the banks to start lending again. Lines of credit are crucial to the economy. Many viable businesses are finding it increasingly difficult to get short to medium term lines of credit.

If NAMA is enacted, and IF they set a reasonable price for the toxic assets*, and IF that “slaps enough lipstick on the pigs” that, internationally, are the Irish HQ’d banks, and IF they can then get lines of credit and IF they then decide to lend that to viable businesses at reasonable rates rather then emulating most other banks internationally and hoard the cash on their balance sheets or in government bonds, then maybe, just maybe, we might see some credit trickle down to the SME’s of Ireland who are foundation of our economy. And let’s not forget, there are still significant risks to the tax payer.

Personally, I think a better and more efficient way of getting credit flowing would be the following;

Establish two “semi-state”, competing, independent banks on a purely commercial footing, with a remit to lend on a short to medium term basis, at commercial rates, to viable businesses. They will not accept deposits nor lend for long term projects or speculation. This is mostly immediate capital investment and working capital through lean periods.

Recruit bankers from outside Ireland, the UK or the US to head up each bank and make it illegal for a politician to lobby the bank or it’s staff. Make funding available to the banks from the state (a slice of the money earmarked for NAMA would make good seed capital), via a bond and allow them to borrow internationally also.

Keep the State guarantees in place for the existing banks but offer them no further support. Capital would flow to the SME’s, who wound then deposit it in their existing banks account, pay their suppliers and staff, who again, put the cash in the existing banks (or under the mattress if they were a member of FF).

Yes there is still a risk to the tax payer, but the system is far more efficient and also provides built in competition. Once the economy has stabilised, the banks could repay their loans and the state could sell them off (hopefully) at a modest profit.

Blue Horseshoe

  • A reasonable price from the point of view of the banks will be significantly in excess of current market rates.

I hold the same opinion as you, Capitalism is the solution. Let the fail, David Mcwilliams article in yesterdays Sunday Business post put it well

Allowing companies to Socialise losses and privatise gains is wrong. it will lead to more bad decisions in the future.
Imagine what risks a developer or a bank would take If they felt that there was no Downside risk on any decision they took. The taxpayer will continue to bail them out while living in poorly planned area’s that are an hours commute by car from their place of work.
The system is broken. It must fail so we can re-build a new one.

The premise of NAMA is it is there to save the banks and that property values will recover. There are two things wrong with this argument. For property values to recover it means that a small island with half the population density of mainland Europe must continue to have housing that is twice as expensive.
It follows that costs will remain high and jobs will continue to be lost because we will be uncompetitive at exporting. With less cash coming into the country we will not be able to pay high prices for property and values will crash. The second problem is in order for property values to recover the bank cannot return to prudent mortgage lending and they must continue to give out large and risky mortgages over a long time frame, it follows that we return to sub-prime lending, and 40 year terms on a small 3 bed house for someone on the average industrial wage. the very things that caused the crisis.

All your proposals are perfectly reasonable. If you accept the way the government has framed the issue.

That is one the classic tricks of politics, frame the problem so that their ‘solution’ seems not only the reasonable solution but the only viable solution. And it shuts down any substantive discussion about the real alternatives.

Remove Anglo Irish from the list of Banks to be bailed out and the problem get much much simpler. In fact most of the problems go away.

Get a waiver from Basel II regulations (just like the Spanish banks have) from Brussels and Frankfort. Give BOI and AIB a small capital injection and just let them trade their way out of their problems over the next 5 years.

And Anglo? Wind it up and sell it on. And leave what remains to the bottom feeders.

What jmc said.

In addition, let the two main (and any of the other) banks set up SPVs to park their bad assets while they work them out. These ‘hard to value’ assets will be worth billions with their LTEV, so I don’t see why the socialists in Dail Eireann should steal the banks’ future profits. Let those profits accrue to the share and bond holders, those who took the risk with their capital…

I do think some form of bad bank will be required for Anglo as it has been nationalised. Much as I’d like to, I don’t think we can do much in the way of repudiation now that has happened. This will be costly, perhaps as much as 20 bn (just on the loan side), but that is cost that is going to happen anyway. Whether there are other costs in the derivative book, I don’t know; I suspect so, but again there is not much that can be done about that other than to wind the yoke down.

Zombie banks have been all the rage in Japan for years. It hasn’t stopped Japan from being the second biggest exporter in the world. There has been no lack of finance for companies that need it and that have a chance. Meanwhile, the real-estate zombies have fallen one by one and the process of cleansing the system continues. Having said that, the Japanese government has got back 0.7% of the bailout funds (some 12% of GDP) that it put into the banks. We simply cannot take the risk that we will end up in the same position, so we must start weaning ourselves off our zombie banks. We have to consider whether it is more efficient in the long run to have crippled banks, if the banks can be fixed, or if we will just be throwing good money after bad.

I’ve no objection to the setup of new state banks, but I would still rather see new foreign entrants given seed capital (possibly via the NPRF?) with a particular lending remit.

how much is a small capital injection though and does Government have funds for it

NAMA is being structured to avoid having to pay upfront and write one big cheque that we cannot afford - ECB writes the cheque for now and Government is banking on paying this off over a longer term

It is no different to any other bond. If the government wants to play the short end, they can sell t-bills for 6-12 month durations. Governments don’t pay any money for ornery bonds, just as they won’t pay any money for NAMA bonds. It is the cost of the coupon and the eventual repayment that they pay. You make it sound like the NAMA bonds are free. They aren’t.

David McWilliams is right.

No other European country that is bound by the ECB straightjacket would dare implement a scheme like NAMA. It’s fanatical.

Once more with feeling…THEY ARE LENDING


Lets not lose sight of the fact that a huge percentage of our economy was based around the construction industry and the fact is that this had a huge support structure thats not viable anymore. The economy needs to reshape.

“If is difficult to get a man to understand something when his salary depends upon his not understanding it” - Upton Sinclair

“It is impossible to begin to learn that which one thinks one already knows”. - Epictetus … 7496.shtml

NAMA will choke new construction and employment. Firesales are the quickest way to get us back up to the average of 12%.

Even with firesales we will probably have a large oversupply so we would probably hit a lower % before getting to the average.

When talking about NAMA you have to bear in mind that we dont need more debt we dont need to get banks lending again. Its all only bullshit. The facts and figures are in the thread I link above. Everyone from FF/Greens to the opposition and the media swallowed the line “we need to get the banks lending again” without looking into it.

Lets get it out in the open its about saving the banks and the fact that it might cost us more to let them fail. Dont be under the illusion that the banks can EVER repay us…they will never have the business opportunity to do so. Not for decades. Just look at the AIB bailout in the 80s. We then have to consider that will a bailout cost us more in the future in the way of more reckless lending. Is there a price we can put on the lessons the banking sector can learn by going bust?

My guess, if the guy from the Association of Chartered Certified Accountants is correct…

…is that it may be as little as a couple of billion of government underwritten bonds added to the Tier 1 capital (structured for a very aggressive multiplier) for 5 to 7 years.

The one wild card is exactly how BOI ended up with a minus 6 billion cash flow from derivatives for this financial year. I’m sure the explanation is a doozy but its nothing that could not be buried in a SPV for a few years until the carcass rots.