At the height of the boom, I got used to being accused of ‘‘talking down the economy’’. In fact, this was almost a weekly occurrence as the old vested interests tried desperately to squeeze their last greasy fiver out of the population. Back then, questioning the credit binge was dismissed as ‘‘unpatriotic’’.
Interestingly, it was not just the vested interests who bayed like sheep, but also the mainstream economics profession, the vast majority of whom said absolutely nothing about the likelihood of a crash in the property markets and the probable insolvency of our banks. Maybe they were infatuated by the intellectual game called ‘efficient markets hypothesis’. Whatever their excuse now, it is a pretty unflattering episode for the profession and clearly undermines the credibility of many who are now suggesting policy changes. Outside the economics profession and the banking industry, there was a way of dealing with dissenters; it was based on painting us as incendiary, volatile and in some way beyond the pale.
Exactly this weekend last year, I remember being on a Saturday View panel with Brian Lenihan and Richard Bruton. When I suggested that we’d have a bank crisis by Christmas, the minister slapped down such a suggestion with the retort that even suggesting such a thing was dangerous talk. Bruton agreed with the minister on that occasion, and even he reiterated that the banks were sound. In subsequent public discussions with members of the political establishment, ‘‘loose talk’’ replaced ‘‘dangerous talk’’.
All the while, the editorial line was the same. There is a pattern in the establishment’s approach to contrary ideas. It depends on the put-down rather than on persuasive analysis. Anyone who deviates from the party line is ‘‘dangerous’’ and by extension is endangering the interest of the average citizen with their questioning and their scepticism. We are seeing a similar approach with Nama.The minister is suggesting that any alternative to Nama is ‘‘dangerous’’. So we are back to the position whereby the people who got us into this mess and described those who warned of impending catastrophe as being dangerous are again, despite their own lamentable record, dismissing critics of the Nama adventure as treacherous.
As for Nama, I understand and have sympathy for what the minister is trying to do. He is trying to keep the banks afloat because he believes that they are essential and that nationalising them would be a bad thing to do. He also believes that a bank failure would be tantamount to a sovereign default because the guarantee is in place. Additionally, someone has persuaded him that the global bond trading community would never touch Ireland again if one of our banks failed. So he has concluded that it’s best for all of us to buy land that we don’t want via new government debt that will be honoured only by the European Central Bank. This doesn’t mean it’s not debt – it just means that the only institution willing to take a risk on the ‘hope value’ that Irish property prices will rise again is the politically-driven ECB.
By replacing the bad debts of the banks with the good money of the average citizen, he saves the banks with our cash in the short term.
In the medium term, he believes that the price of property will rebound in Ireland. This might minimise the taxpayers’ exposure to something the taxpayers didn’t want in the first place. If it doesn’t, he will slip the shortfall on to the now growing national debt, and no one will be any the wiser because events will have overtaken Nama, and the National Treasury Management Agency (NTMA) – the institution which will really gain from this – will issue more bonds in your name to be paid for by your children, from its now bigger empire down on Grand Canal Street.
We will then have an average European government debt to GDP ratio, but without all the roads, railways and schools. Instead ,we will have fields in Mullingar. That’s a great deal, isn’t it? But from an optics basis, the minister might ask, what’s the problem? The crisis is over, the banks have been saved and the country doesn’t have the shame of a bank default on its hands. But we don’t have much else.
This is the plan. The only flaw in it is that it doesn’t address the big question, in fact the only question, which is whether Nama will accelerate a national recovery. With high and persistent levels of unemployment, and high and persistent levels of taxation needed to pay for Nama, can the country thrive?
It will only thrive if investors decide that it is a good place to put their money. Investors are not vengeful individuals who want to make countries pay for their mistakes. That is not how traders operate. The trader wants an ‘event’ to clear the air, so that he can invest again. Financial markets have short memories.
The entire story of banking crises around the globe is that the objective is to minimise the cost of the banking collapse. If the cost is too high, then let the banks go as the Swedes did. Once a deal is done with creditors, off we go again. That’s how the market works.
The last thing the trader wants is a country wracked by political instability, where taxes are rising and growth is falling. The trade has no interest in a country that is suffering unnecessarily to keep banks afloat. Why do you think we are paying a huge premium over Germany for our borrowing? It is because investors need protection because they don’t believe in Nama.
They have taken the view that no democratic government can lumber the people with taxes to pay for the sins of a few. That’s not how the world works. So they are looking at the pressure cooker, waiting for it to blow. Once it blows, the pressure eases and we are back to business. Remember: the world is full of money.
The German, Chinese, Gulf States and Japanese current-account surpluses have to be spent somewhere. But to get this cash, we have to offer an attractive option, a new option that sends a signal that everything has changed. Nama merely tells the world that the ‘lads’ are still in charge and nothing has changed. There is a better option than Nama, which will impress international bond investors much more. This is what rational businessmen would do. We’d tell the creditors of the bank that we don’t want to extend the guarantee. It will lapse, as was envisaged, on October 1, 2010.
At the moment, with the guarantee in place, the creditors know that they will get 100 per cent of their money back. On October 1, 2010, they know that they will get close to zero because the banks they took a punt on are bust. So the clock is ticking, what do they want to do? Where do they want to deal? At what price are they prepared to trade? Is it 30 cent in the euro? 50 cent?
This will focus their minds because, at the moment, it’s a one-way bet, with you and me acting as underwriters. This approach allows us, the Irish people, to get out of the way and let the creditors deal with the banks, with the government acting as broker rather than principal.
So we do a deal with the creditors and maybe give them equity in a new Irish bank in a debt-equity swap, which we will help set up. The state issues a deposit guarantee, paid for with a guarantee insurance product. We then have an orderly examinership of the bank, selling – let’s say – the branch network of AIB or other assets to the new bank, and off we go.
Problem solved. No need for Nama, and land prices stay low, allowing us to ‘lock in’ the fantastic competitive opportunity that a fall in land prices gives us. Then a New Ireland would truly be open for real business again and we could begin to talk up the economy with confidence.
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David, ok your article states the common sensical approach most if not all reasonable thinking individuals with an ounce of wherewithal in economics would arrive at. Unfortunately though, the NAMA fraud underway is not about finding the correct solution to the banking crisis. NAMA and its loony tune proponents is all about preserving the ‘old order’ going forward into a new economic paradigm, knowledge based economy. NAMA is in the eyes of the ‘old order’ / vested interests / crony capitalists / elites merely a means through which the reins of power has it’s way with the taxpaying serf. What’s… Read more »
Very good David
Remember next Saturday 12-Sept-2009 at 14:00 there will be an anti NAMA march in Dublin city centre.
Please come and show the FF/Green fools your displeasure at being robbed.
Surely there is some form of Constitutional/legal impediment to Oireachtas members with bank shares and outstanding property loans casting their vote on the #NAMA bill? Obviously, if our democracy were a healthy one, Article 45 would be adhered to. Since it is not, is there any other possible impediment? What about “conflict of interest”? How many elected representatives with property portfolios and collapsed shares would be declared bankrupt if called upon to maintain loan repayments? A bankrupt is constitutionally barred from holding a seat. Then again, since A45 is not adhered to, why should we hope that this provision would… Read more »
An article entitled ‘A global financial detox’ written by Saskia Sassen, appeared in the open democrasy.com website on 3 – 09 – 2009 . – “The world’s major economies are shackled by their financial addiction. A tax on financial transactions could be the route to a cure, says Saskia Sassen… …By September 2008, finance had run out of grist and was reduced to scraping the bottom of the barrel – taxpayers’ bailouts and (in the US) over 15 million sub-prime mortgages to modest and low-income households (most of which have or will wind up in foreclosures long after many investors… Read more »
Folks, it appears NAMA could indeed be illegal:
http://www.irishelection.com/2009/09/further-on-nama-and-illegal-state-aid-under-eu-law/
David,
Your article from February 22 2009 “my plan to save the country” proposes the NAMA plan.
http://www.davidmcwilliams.ie/2009/02/22/my-plan-to-save-the-country
Now you write against this plan.
This is an enormous contradiction at the heart of your writing. Please explain.
One of the main reasons given for supporting the Lisbon Treaty is that the EU has saved us from economic ruin in the past and will do so again if necessary. Well they didn’t stop either the current recession nor the one in the eighties. In fact they contributed to the boom (and therefore the inevitable consequent crash) by providing cheap credit. And now they appear to be continuing the problems for many years to come by funding NAMA with money (through the ECB) that no sane investor would provide, as the article suggests. It would be rediculous to claim… Read more »
David is right again we need land, housing costs, and rents to fall to a competive level, Irish houses are still far too high but the ruling class want them to stay that way in fact they want them to rise the scam that is nama can only work with high land and house prices but what the real enonomy needs is lower prices we can not have both the landbankers, property developers/investers, produse very little that is useful or inovative, in fact the only innovation seems to be ever smaller houses for ever larger prices ALL THESE PEOPLE ARE… Read more »
Hi David , since it is old news now ( sunday Indo ) and what Michael O Leary says about your up coming event at the Big House. I will make one suggestion on our stock pile of built houses. We could offer these to our ex pats as ‘retirement/holiday’ homes rent free for the first year they open a branch or business here and after 5 years they can purchase the house at 2009 prices … As for Biffo been up set with Ryan T on the Late Late , it wasn’t a Frost and Nixon moment that’s for… Read more »
David, I made this outline, last week where I suggested a government support bank (30%) and the rest Private. It does not matter whether it is a Bond holder conversion to equity or a new investment institution taking on the mantel, but it still remains a private institution. As you point out the bond holders have until the 1st of October to negotiate 2010 until the guarantee runs out to strike a decent enough deal. You can already see that there are cleverer bond holders who are not secured who are taking the haircut and selling for a lesser amount.… Read more »
Good Man,
Convinced that you’re right in principle.
That’s not enough though.
How to express it (partially done), and impress it (impossible almost without immersion in politics)?
We’ll see.
“He [Alan Dukes] has a feduciary duty to his bank [ANGLO], to look after their (sic) interests”,
… thus spake Richard Bruton TD (FG) this morning on Newstalk radio.
And there I was, thinking that Mr Dukes had been appointed to the Board of Directors at ANGLO to look after the taxpayers’ interests……… well, silly me.
Is it not even more apparent a week after “Stalingrad” that NAMA can be the vehicle to incorporate all aspects of the argument? Apologies in advance but I feel I must repeat my posting from last week. TIME FOR A REALITY CHECK — TIME IS NOT ON OUR SIDE Despite all of the intelligent (and not-so) contributions above, If not NAMA as a framework to go forward, what? NAMA is not written in stone yet and it is clear that Brian Lenihan is very open on its final draft. Disputing NAMA is futile without a better altenative. Fine Gael or… Read more »
David, I will never forget llast year’s Saturday afternoon radio programme where Brendan Keenan was also in attendance and at 1:55 you finally made a statement regarding the banks which was shouted down by everyone present, and perhaps beyond the listener’s perception. They would not let you question the viability of the banks. Once again, you are making sense, but of course, the establishment has already maginalised you as some sort of clown. How does it feel to be pissing into a hurricane? George Lee is similarly placed in their estimation, but the pressure is building up in the public… Read more »
GAdfly55, brings to mind what von hayek once said,,
‘Emergencies have always been the pretext
on which the safeguards of individual liberty
have been eroded’.
Noam Chomsky will be speaking in Dublin on November 2nd, see http://www.seminars.ie, worth attending!
Banksters as FDR called them!!!!
Zoe Group v ACC update:
http://www.irishexaminer.com/breakingnews/ireland/high-court-sets-d-day-for-zoe-developments-425432.html
Saturday 12th September 2009 @2pm ………Berti Ahern will be 58 years old.
Folks, Prof. Brian Lucy in today’s Irish Times:
http://www.irishtimes.com/newspaper/opinion/2009/0907/1224254001191.html
Check the self-contradictions uttered by both Alan Ahearne and Brian Lenihan near the end of the article.
We are being lied to, blatently, and it is coming to light in drips. Eamonn Keane promises to deal with what Richard Bruton said (that Alan Dukes has a feduciary duty to look after the interests of ANGLO – rather than those of the taxpayer) on his lunchtime show tomorrow.
Let’s keep at it!
Tim, In paragraph 3 Brian Lucey implies that developers are being directly paid more than the value of their assets. This is utter rubbish and another example of emotive writing without foundation on fact. My understanding is that the developers will be liable to NAMA for the full amount of their debts. I think Brian needs to be more responsible than this. Check out this article by Brian Lucey in 2006? http://archives.tcm.ie/businesspost/2006/02/12/story11769.asp Some of our economic journalists seem to be engaged in, at best flip-flopping and at worst, populist rabble rousing We need to demand more from our government. We… Read more »
“LORD OF THE FLIES GOV HEALTH WARNING”
TAX COMMISSION is too divert peoples attention away from the issues of NAMA and LISBON TREATY.
Hi David, I agree with your article. Dissenters can at times call it right. I, like many, saw the property bubble and the level of attention property got (and still gets). That fever and frenzy has still not gone away, as the report on Tax shows where property gets a lot of attention and focus. Everyone in the country is still talking property, property, property. Property (H1N2) flu is what we have. We need a good bout of realism. One problem with dissention, and I have been a sole “dissenter” on several company managements, is to try and bring the… Read more »
WARNING TO ALL BLOGGERS:
DO NOT TAKE THE SWINE FLU VACCINE IT IS POISONOUS
I’m Planning to go on the No to Nama march and I’m dragging everyone I know to do the same, the future of our country is at stake.
We cannot allow these idiots to screw up again.
Really hope you all do the same and lets start taking action.
NAMA >>>>>>>>>>>>>>>>>>>>>>>>>>>>>> IS A CRONY CAPITALIST IN YOUR FACE SWINDLE. NAMA >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> IS A WOLVE IN SHEEPS CLOTHING NAMA >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> IS A WAY TO SIEZE CONTROL OF THE WHOLE MARKET MAKING FUNCTION IN THE FORM OF TARGETING PRICES DIRECTING THE PRICE OF PROPERTY TO PRE DETERMINED PRICE OBJECTIVE NAMA >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> OPENS THE DOOR FOR THE BEHIND THE SCENES SWINDLERS TO GAIN TOTAL CONTROL OVER THE PRICE DISCOVERY MECHANISM OF PROPERTY FOR YEARS TOO COME NAMA >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> IS A SWINDLE TOO SIEZE CONTROL OF THE PRICE CONTROL MECHANISM GUIDING PROPERTY VALUES NAMA >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> PRICE DISCOVERY BEEN SIEZED IS FINANCIAL TERRORISM AND… Read more »
All you pro-NAMA-ites – please face some simple facts and try not be too befuddled by the machinations of so called high finance. 1) There is no money to finance NAMA. The tax take curve is on a negative slope. NAMA merely makes this worse. Even if NAMA is ramped up, Banks will not be able to give the cash to business on a competitive basis and worse -far far so really, the input costs for doing business here will be thro’ the roof. Non one internationally will want to play in this game. Remember who we are competing with… Read more »
Wills, Tim , Deco, Furrylugs et al :
If we do not have a democratic government Now….what are we ruled
by and how will History write it down as?
Dear Puschkin the Black and White Cat,
When & where is the NAMA protest march on again?
Isn’t this rather strange the UN making it official dropping the dollar as a reserve currency is needed. The dollar printing presses were set in motion to deliberately de base the dollar into oblivion. NAMA is tied in with the wholesale money markets and these markets were funded by the federal reserve channeling dollars into city of london and ECB in a orchestrated programme of literally looting the dollar. This is why credit bubble kicked off. A controlled demolition of the dollar with under the collusion of the worlds central banking system through BASEL. Now that the dollar is utterly… Read more »
Since most of the banks bonds were likely covered by credit default swaps, how come that we should worry about total bank failure, since the government guarantee would only cover those bonds not covered by CDSs?
It must be made incumbent on bond holders to prove that their bonds weren’t covered by such insurance before any guarantee is paid out on default. Simple principle says that you can’t claim twice on the same loss.
Ergo let the Irish banks go bust and leave the CDSs guarantors to sort out any shortfall at no cost to us.
Dave By mainstream economics profession you mean? a) There are people in the private sector who are paid to lie. No one with a brain should take them seriously. B) Academics C) Various others, ESRI, Central Bank, NESC etc I can speak of ( but not for) B. We have a day job: lecturing, writing nerdy papers for journals, grading scripts, filling-in forms (very important) etc . Most of us don’t work on housing or even Ireland and don’t have easy access to the media like you do. So I don’t feel too bad for not calling the bubble beyond… Read more »
I didn’t get to make a post in a few days. I agree with David’s article today, and would even go further than he does. Shane Ross, David McW, Eddie Hobbs, and Morgan Kelly have been the consistent dissenters with regard to the government’s entire economic policy. Konstantin Gurdgiev also offered consistent critiques of the state and the government that pointed out the absurdity of the economic policy decisions that have been made. I read the links concerning Brian Lucey. Brian Lucey’s concerns are all valid. I do not know about his record. But his current reservations are valid. Saying… Read more »
Can somebody tell why the layoffs in Waterford last week were anavoidable tragedy, but the John O’Donoghue expense scandal, the M50 cost overrun, and the fact that we have government ministers in charge of entire department without even the most basic of knowledge of their core subject area – and this is seen as something that we are only allowed talk about on bulletin boards like this ???
As was hung on a window over looking Ground Zero in 2005;
DISSENT IS PATRIOTIC…!!!
What do you folks say about this?
“He [Alan Dukes] has a feduciary duty to his bank [ANGLO], to look after their (sic) interests”,
… thus spake Richard Bruton TD (FG) this morning on Newstalk radio.
And there I was, thinking that Mr Dukes had been appointed to the Board of Directors at ANGLO to look after the taxpayers’ interests……… well, silly me.
The NAMA project was drawn up by Peter Bacon. This is the same Peter Bacon who in 1998 was writing policy documents on the Irish Property Market and who later became a Director at one of the biggest Property Developers in Ireland – Ballymore Properties. One of the largest shareholders of Ballymore Properties was Sean Mulryan – a regular at the FF Galway tent and a political “donor” to the now deceased and corrupt FF TD Liam Lawlor. In 2003 Bacon was appointed Director of ‘Clearstorm’ – a joint venture property company in which Ballymore joined forces with Michael Fingleton’s… Read more »
Folks, have a look:
http://www.oireachtas.ie/viewdoc.asp?DocID=11429
“Members’ Interests”.
http://www.youtube.com/watch?v=9yjvCpHciYQ
David is absolutely right in the concept of making bondholders share substantial pain by allowing the clock to tick towards the ending of their guarantee. A no brainer. Anything else would be tantamount to criminality-not that the current hoodlums in government lack that particular trait. instead of taxing the poor ,the sick, and the handicapped. I wonder how much Fianna Fail would raise from their Frank Fahy type tD’s by imposing a modest “wealth tax” on everybody with property and cash assets? They have such a tax here in Spain. Also there are modest-but not insubstantial- death duties to be… Read more »
Tim, that YouTube on NAMA is very apt indeed. In fact, there’s a mundaneness about it I have seen in many a company collapse (of which I have been a witness to 3 – 3 too many). Stages of a company collapse (from my memory of it) – 1) Margins are starting to get squeezed. The cultural shift from Cash is king to Revenue is king. (the start of the end of the Celtic Tiger) 2) Consultants get pulled in to advise on a range of functions. Remember, there is loads of money in the kitty. (1st Stage disconnect with… Read more »
What happens to somebody who presides over a long running farce, a Super Quango, thousands of mistakes, a unmentionable number of deaths, nepotism, incompetence, cronyism and waste. And all being carried by the PAYE taxpayer.
http://www.independent.ie/health/latest-news/drumm-to-step-into-8364284000–post-after-hse-1880553.html
Maybe if we replace him with a cardboard cutout, things might get better in the HSE ?
I don’t see how that will encourage lending into the economy. Isn’t that the point of NAMA. I love the idea of not taking the debts…. but how will it help the economy. Isn’t that why we’re paying 65billion for dubious debt, get the economy and employment rolling again? To prevent a lost generation a la Japan and zombie banksm etc….. More ridiculous rubbish from DMcW but entertaining as ever. How about this, we close all the banks, write off all the motgages, then our young are no longer saddled with debt and ask Canadian and Islamic capital to lend… Read more »
It seems as if the Chinese are not interested in buying anybody’s subprime bonds, bank shares, government bonds, or funny money any more…..
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100000821/china-bernanke-and-the-price-of-gold/
This is going to push up real interest rates. The countries doing the most money printing (UK in particular) are going to see some very turbulent times. Obviouly the Chinese equivalent of Brian Lenihan never heard of “NAMA-nomics”…. The ‘socialism for the rich’ policy framework that Gordon Brown describes as ‘saving the world’ has become an even bigger headach than the problem it was supposed to solve….
Everytime i listen to Lenihan talking it is always the same thing…”we must get the credit market flowing again”…In essence he wants ponzi asset bubbles. Lack of money in the local AIB branch did not close TEVA in Waterford. High ESB, high wages to compensate workers paying for overvalued property, costly cars, and the Irish concept of living closed down TEVA. And we need to fix these things. But the Greens want electricity to be expensive. Ahern’s cronies want overvalued property.The SIMI want overvalued cars. And the Irish way of life is not to be compromised (to paraphrase from Dick… Read more »
Mc Sean – Actually after the passing of NAMA and when we all become Indentured slaves forever finding a hanglider would be a great dream to escape and if you are Indiana Jones I am sure you will show us how.
Hello Tim, John Allen, Wills, Philip and all other Irish readers and bloggers . I HAVE GOOD NEWS , While we have all written about situations in Limerick a brave man has got off his arse and put together the possible alternative political solution with a mandate from energy to education. I am ( while some would say Mad ) returning again to live full time in Ireland given up Malaga , love the weather hate relationships! ,.. Now I can see NAMA ( unless September , Bertie’s birthday turns out to be the BIGGEST Protest every seen in the… Read more »
Welcome back David…. Finally some sense, your suggestion in the last paragraph is exactly what is needed. Dont set up NAMA or nationalise…. any change of ownership of these ‘assets’ will only be to the detriment of the taxpayer. NAMA as proposed is a framework for fraud. it will be the worlds largest property company with powers to issue debt, loan further moneys to developers or whoever it wants, trade in derivatives, buy and sell debt and other assets, pay over the odds, sell under cost. All subject to political interference. And all without having to pay taxes or even… Read more »
Why doesn’t everyone here just take their money out of the banks and put it elsewhere (credit unions or post offices etc.)? And then encourage all your families, friends, work-mates, employees, acquaintances, etc. to do the same. Voting with your money so to speak. They might collapse quicker (and good riddance) if they start losing all their deposits and depositors. Start a public campaign to close the banks by democratic means (mass scale withdrawals). I know if I had had an account with them, it would be closed by now.