NAMA Scam - stop looking at where they want you to look....

The Irish Property Bubble NAMAwatch (Pt. I)
#1

Almost all the discussions so far about NAMA Act 2009 have concentrated on what the principals want you to talk about and on the areas where they want you to look. So stop playing their game by their rules. Start looking where they dont want you to look.

All good frauds are constructed the same way as a murder mystery, you start with the crime (or cash out) and work backwards from there. Working out the mechanism and the steps needed to implement it in reverse order. Meanwhile leaving lots of false trails, red herrings, surprises and various twists and turns.

There are only three rules when deconstruction a fraud…1) Follow the money; 2) Follow the money; 3) Follow the money.

Everything else is completely irrelevant. Trivia intended to confuse and distract.

So when looking at what has been released into the public domain so far the main guiding principal when analyzing it should be - follow the money. How do the various principal players benifit and how does it further their plans to cash out? The Who? The When? And The How?

The next thing to look for is what are they not saying - listen for the silences. The Bill goes into great detail in some areas but is curiously silence on several key areas. Compare and contrast with other ROI Acts, or the nearest equivalent available in English, H.R.1278, the Bill passed by Congress to set up the RTC in 1989. There is lots of detail in the NAMA Bill about how NAMA is organized, and how it acquires assets, but little or nothing (except indirectly or in very vague terms) on how, or in what form, it is to dispose of the various assets. That is the most important revealing silence.

They are silent not because they have not worked out the details of the mecahnism of disposal yet. Quite the opposite. They started with the disposal method first (the principal cashout method) and built the mechanism of the fraud around it. The silent about the disposal mechanism for the moment is very deliberate. Details will be released in dribs and drabs when it suits them but it is vital in order for the fraud to work to have its execution progress so far that it will present any future government with a fait accompli. Something that cannot be undone.

The key to the cash out mechanism for all the principal players is securitization of the bank assets aquired by NAMA. Not all of the assets, just enough to enable NAMA to pay off enought of the government supplied bonds and to publish public accounts that are politically acceptable. Enough for NAMA to hide the losses and spread them over a decade or more. And most importantly of all, enough for NAMA to front load the bail out for the various principals, in case there are any more ‘suprises’. The Banks in pole position , the Small Developers next, then the Big Developers. With the Land Bankers trailing, quietly buying back most of the land they sold during the boom.

I can just imagine the meeting (probably late last year) when some player from the IFSC first explained to Lenihan exactly what were Market Value CDO’s (thanks for the pointing me in the right direction, babytooth). Or rather what where the genral principals behind them. This was the deus ex machina moment for FF and the Golden Circle. They get to keep the loot, offload the price of the bail out onto the taxpayer, and get to hid the details of what they were really doing through opaque structures, obfuscation and obscurity.

The fact that the market for CDO’s and structured products like them has been dead for almost two years is nether here nor there. Enough people on both the buyer and seller side need instruments like this long term, so the market will revive sooner or later. And it looks like NAMA is planning on being a player.

In a nutshell this type of CDO (Collateralized Debt Obligation) allows the seller to shovel non-performing loans (and other assets) into a derivative instrument that gets the toxic crap off the sellers (NAMA’s) balance sheet and pays the buyer a very nice premium for this service. The beauty of CDO like derivatives is that they can also make completely opaque the mechanism that the seller uses to enhance the cash flow to the buyer over the life time of the instrument. The underlying assets does not recover “the long term economic value”? No problem. NAMA or one of its subsidiaries or partnerships issues more debt, or does a fancy roll over, or else goes to the government for cash, and then adds that to the SPV cash pool to pay out to the CDO holder. Think Enron. Except Enron actually made a profit…

That is how they plan to hide the huge losses over the life time of NAMA.

Result, the cost to the tax payer of the bail out is spread over a very long period and is paid out in less obvious and totally untraceable chucks. Say a few billion a year in direct cash, on top of the 100B so far committed, minus the eventual 30% recover rate from the bank assets. Net loss to the tax payer over the next decade or two, somewhere well north of 100 billion. All dumped on the national debt.

Once you have the NAMA securitization and asset liquidation stragey worked out then you can quickly work back upstream to structure the cash out mechanisms for the various Developers. All the clues are in the Bill. Big Developers? Development partnerships with NAMA interest being bought out when net plus again. Small developers? Indirect acquisition by NAMA agents with favorable valuations of collateral land.The Banks? Offload all toxic developer assets at full book value with a nice little premium on top for “managing” NAMA’s said assets.

And at the very end of the process when NAMA is finally wound up the tax payer gets to own all unsellable assets that no one else will buy.

There you have it, the classis FF stroke in all its glory. All very cunning and quite neat really… Except for the tax payer and the long term economic future of the country, that is.

#2

Wasn’t this always the plan though?

I mean it is a game of toxic pass the parcel and they don’t have any new ideas so SPV / CDOs and derivatives in general were always the way to go as I understood it…

#3

I think you may have the method for hiding the losses, but I also think you have hit upon something far more sinister.

NAMA is going to end up owning a lot of stuff, as a lot of the loans it has taken on will be foreclosed.

There is nothing in the bill about final disposal of real assets, as opposed to temporary offload in a security (however long temporary may be). Who is going to buy these assets? What price will it be set at? Will the price and the buyer be public? (i.e. will they be auctioned).

Any of the ‘players’ with two-bob and a credit line stand to be hugely enriched by this process. In fact, the shorter the timeframe for disposals, the greater the enrichment as the commercial and development markets are unlikely to bottom, never mind recover, for the next few years.

#4

Yeah. I thought so too. Property loans are still routinely securutised as far as i know. NAMA rubbish will be no different.

#5

Again, I thought this was taken as read.

#6

It hadn’t really occurred to me :blush:

I was wondering where the financing to buy the loans/assets could possibly come from and who could possibly have that sort of capital, but the scope for strokes (particularly given the blanket immunity to NAMA officers) was something I hadn’t considered.

#7

But what was interesting was the complete silence on the subject of disposal in the Bill. If this was the plan why is it not spelled out in the establishing bill. If they were being up front in spelling out what would turn out to be the key activity financially of the agency I would have expected as much space in the bill being given over to defining and elaborating on this function as to the asset acquisition phase.

There was no indication in the Bill that I’ve seen so far that a statuary filling out of responsibilities, roles and delineation regarding asset disposal is planned in any following bills.

If they plan to finance through CDO/SPV and this is such a vital component of NAMA why is it not in the Bill?

#8

Well, NAMA is already an SPV by design (to avoid being counted in the national debt by eurostat). And securitisation is mentioned in the bill. But CDOs are not a disposal, they is a funding mechanism and, as you’ve spotted, an effective way to obscure ongoing losses. The assets behind any busted loans will be returned to NAMA, while NAMA continues to make capital and interest payments for them. The CDO/Securitisation for performing loans continues to receive capital and interest payments or lump payments from refinancing. I am assuming that NAMA will remain the servicer and so will be responsible for actual asset disposal.

#9

Here is an interesting question, just how much securitization has been done by Irish banks over the last ten years? What type of loans were pooled?

And more importantly why were the loans in 100B billion developer pool that NAMA plans to acquire not securitized by the banks in the first place? Not all of these loans were written in the last 18 months.

I posted because you say, yeah sure, everyone knows they are going to SPV the acquired junk but when I look at the narrative in the media I see no one talking about SPV’s and what it means. And when I look at the posting here and else where I see babbling about the trivia in the bill and the spin in the media. The SPV is the big story because it is the key part of the scam, derail the SPV and you have gutted NAMA. And you start the process of derailing the SPV by trying to bring the subject to a wider public. Establish the meme, NAMA = Enron and you have made the politics of selling NAMA to an angry and suspicious public a hell of a lot more difficult.

#10

But jmc, NAMA is an SPV, the whole thing. It will be off-balance sheet from the state. Hence all the secrecy and the spoof. But it may be true that if you start calling it an SPV and look, this is what Enron did with SPVs.

EBS did a lot of securitisation of residential mortgages (Emerald). Others have done some too. I don’t think there is much of a market for development loans and as the existing commercial loans were recollateralised with each new development loan (and as they magically increased in value), I don’t think there was scope for it. It may also be that CMBS with private entities as the loan recipient are a no-no to the market (I don’t know this).

#11

Barking up the wrong tree jmc, the real question is do we really want to derail NAMA? That’s the question you have to address, the alternate more palatable vision you have to present the public, I’m far from convinced that a NAMA style option (done correctly) is not desirable…

It’s the bad bank by any other name…

#12

I’ve spent the last few days reading the Bill carefully doing a drafting exegesis on which bits were to the benifit of which player. My main goal was to look for the fault lines between the interests of various players with the intention of working out the best political points of attacks on the point of division. The purpose was to find traction points that would work with people beyond the pin.

Why make a big deal about NAMA as SPV? Because that is probably its weakest point politically at the moment. That is why it is not in the Bill. Talk about Enron and make the link with NAMA in general terms and people will notice. Make a best guess about the details of how the SPV is likely to be structured, and why, then the better chance one has of getting in some real hits.

Work out in detail how the tax payer is going to be screwed and work out in detail the linkage with other player pay outs and you start providing real ammunition that can be used to hurt the NAMA process. For starters, find the key subsections whose amendment could derail some key part of the NAMA mechanism, or at least make them reversible by a future government. What amendment would do the most damage to the Bill, but whose opposition to by the government coalition partners would be the most politically damaging. That sort of thing.

Here is another political weak spot. Of the 270 billion loan book why only developer loans? If NAMA is planning to SPV why not a more representative mix of loans that are more likely to have a lower loss rate when securitized? If you bring into the wider public domain the fact that these loans are going into a SPV then you shift the debate to substantive questions like, why are the banks only selling developer loans if this means that the SPV will loses more tax payers money.

The SPV aspect opens up a political can of worms that the government would rather not deal with. The SPV is the key to the cover up. The SPV aspect is best chance I see at the moment of derailing or at least seriously declawing NAMA in the political domain. Because that is the only place it can be stopped.

#13

Derail NAMA? Absolutely. The more I read the bill section by section the more it stunk to hgh heaven. This is pure CJH territory.

First start with the bank loans. If an agency takes 100 billion, it should reflect the range of the full banks loan portfolio, not just developer loans. Then there is the 30 billion to the banks. Why? And the other 10 billion…

Government guaranteed securitization is the obvious solution to trading through the bust. No problem there but if they were being honest we should have a structure outlined for doing this in the Bill. A transparent one with independent oversight completely separate from the minister. Everything in the Bill leads back to the minister having complete discretion over pretty much everything with no independent oversight or disclosure.

The Bill I read was not a responsible attempt to create an agency to deal with a banking crises, it was one long stroke. Add all bank loans to the asset list, remove all discretionary power from the minister, elaborate on a transparent valuation process using a methodology based on those used in other banking crises, and detail the asset disposal process. Then, and only then, do you start having the basis of a bill for fixing the banking system. Excise about one third of the bill, and seriously rewrite another third and then you start having a bill that is for the good of the country.

That would not be a NAMA style solution, that would be a Nordic/RTC style solution

#14

You’re talking about every bill and setting yourself an impossibly high hurdle, none of the mainstream opposition will get behind this because as Bertie famously said of appointees he made as Minister - “I appointed them because they were my friends” and that my friend, is the QED of mainstream Irish realpolitik…

#15

I was contrasting the discretionary power of the minister in the Bill in comparison with other bills. I am very familiar with the position of the minister as the final arbiter in many bills but on far too many occasions in the Bill that line seemed to be overstepped. In situations where I would have expected a responsible drafter to add a clause for referral to independent council or arbitration every time it seems the minister could make sweeping decisions without any proper recourse or oversight.

#16

To be fair JMC has uncovered some very interesting stuff. I think if people knew about this it would force the crooks in government to play a straight game. Let’s face it we have a self serving corrupt government with an úninformed populous. If nobody steps up then we will be robbed blind. Anybody who wants a future in Ireland should seriously think about joining together to stop the government.
Any interest out there in doing so.
I’m thinking of letter writing to newspapers, politicians and German/French(to outrage their citizens into action. Believe me they’ll take action.) newspapers. Also looking for legal ways of blocking Clowen and his cronies. I’m also thinking of protests outside the dail. It involves work which I’m prepared to do. Can’t do it alone though :smiley:

#17

Thanks BB.

And to be fair to the other posters my original post was written with some umbrage after reading todays papers, and after spending the last few days plowing through the minutia of the bill not with the usual approach of working out the spirit and the letter of law behind the bill, but trying to unravel the various voices that were part of the drafting process and trying to work out the interlocking mechanisms of the scam. So in many ways my post did come out of left field.

It also suffered from extreme compression. For example I could easily expand the lines “Big Developers? Development partnerships with NAMA interest being bought out when net plus again.” into several pages showing the various evidence in the bill, wording and phraseology, that gives a good indication of how the framers of NAMA intend to use NAMA to support existing development companies until such time as the developers can buy out NAMA’s interest. Lots of historical precedence for this kind of behavior. Same goes for the SPV and the other major players, plus a couple of pages on each of the minor players (not only are the banks being payed for their ‘services’ but they can join in “profit sharing plans”. Great for the bank share holders…).

This is first real concrete declaration of intention we have had from these people in the 9 months since the banks became insolvent so its the first real occasion when one can start working out exactly what their game plan is going to look like.

Writing up my first pass annotations of the Bill could easy run to 40 pages and that’s only scratching the surface. So why does the bill have inconsistent usage of the terms “company”, “persons” and “body corporate”? Or even thought the bill suspends wide swaths of Irish Company and Contract law at the ministers discretion how will this work considering that almost all the relevant mortgages at some stage run though foreign domiciled shell companies (usually non-EU)? Etc. Etc. Then there are all the odd clauses in the bill and more than a few WTF clauses.

I’ll keep digging. It could be our role as to do the research that could be used as the basis of papers to brief against NAMA, taylored for party of choice. Or else do the preliminary research and foot work that journalists can use for stories to embarrass the government into doing the right thing.

The important thing is to try to disrupt the narrative the government are trying very very hard to create over the next three months so as to make the current NAMA bill look both inevitable and unstoppable.

#18

Well done, JMC. This is tremendous work. I have read all of the draft legislation, and wrote down some points in a Word document, but I struggled to follow it. It’s good to get these kinds of insights from someone who knows what they are talking about. What struck me more than anything else was the prominence given to the Minister in the proposed legislation, but wondered whether that might be customary in this kind of legislation.

I was also struck at the lack of reference to the consequences for the developers.

There HAVE to be consequences for them.

#19

JMC,
Your points around how defaulted loans get worked out are good. The bill is poor on detail in what I consider to be the important bits. The discount for starters. Does it cover debt forgiveness or changing loan terms?

I don’t agree with your suspicions surrounding spv’s and securitisation. This is an area I’m quite familiar with. An spv is just a company set up for a specific purpose. If you’ve ever read an offering circular for a securitisation, you’d realise that they’re a lot more detailed than the draft nama bill. They specify procedures for workouts and generally give a good level of detail on the reference pool. They also update investors monthly or quarterly.

It would be a lot easier to hide losses within nama than a npl/cmbs (cdo’s are bundles of various securities/issues).

#20

well done for all the research, but what the fupp is an SPV?

I’ve spent ten minutes googlimg and I’m still none the wiser.

And if this is the sort of thing that people like me cant explain (without jargon) to colleagues during the coffee break, then any plan to expose dodgy goings on is fecked, unfortunately.