“Now if you’re not seeing this then you’re not with the programme..”

In the Irish Times, Fintan O’Toole gets to the heart of the issue with NAMA – regardless of whether it can withstand the collapse of developer’s €2bn group.

Napoleon famously called the English a nation of shopkeepers. We are now to be a nation of property speculators. This is not a rhetorical exaggeration. The principal activity of this State, for this generation and probably the next, is to be the management of the biggest property company on the planet. Everything else – health, education, security, job creation – will be a side issue. We now live in Developerland – of which Ireland is a wholly-owned offshore subsidiary.

The State is taking on not just the debts of the property developers, but their habits of mind. We’re going for a grand, heady gesture: the €90 billion that’s at stake here is the same as the entire amount the Spanish government, in a vastly bigger economy, is spending on its entire bank bailout. And we’re channelling the developers’ adrenaline-fuelled love of risky behaviour.

Remember all that stuff about the wisdom of the market, which decided what things (and people) were worth and it was wrong, wrong, wrong to interfere? Scratch that. The market may think that virtually every property in what is to be the people’s portfolio is worth a fraction of what madmen paid for it at the height of the boom.

But we’re not going to buy the stuff at market rates, we’re going to buy it at some notional future value, determined by a raft of assumptions. These include the notion that the depression is a short period of readjustment and things will get better. We’re gambling on the future or, in other words, speculating.

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  • Mack

    NAMA is a disaster by the sounds of things..

    http://trueeconomics.blogspot.com/2009/08/economics-03082009-lessons-from-roubini.html

    Still we’re nearly a year into the guarantee (& NAMA won’t take affect until next year), letting the bulk of the failed banks collapse with shareholders and bond holders rather than tax payers taking the hit becomes more and more feasible.

  • elvis parker

    Gerry adams is right – a united Ireland is the imperative. Only the UK Treasury can save us now.

    Joking aside when ‘the Brits’ buy up eveything of value and essentially bale out a bankrupt country can we all give up blaming them for every ill?

  • Mack

    Good article by economist Brian Lucey in the times on NAMA

    “Country’s future mortgaged on sloppy, confused legislation”

    http://www.irishtimes.com/newspaper/opinion/2009/0801/1224251852071.html

    2030 before we see 2007 prices again, echoing calculations by Constantin Gurdgiev too.

    Our leaders don’t seem to get, it was a bubble, it’s gone, those prices (real terms) are never coming back!

  • Mack

    Elvis –

    The Brits or other foreigners won’t be buying anything, the Irish taxpayer via the National Asset Management Agency will purchase the loans against which just about everything is secured at prices way above fair value. There will be no firesale of assets, or sale of just about anything as the state will put a floor on prices at bubble levels..

    Sean and Sile taxpayer will be paying for the incompetence of others for generations.

    The people who should take the hit are

    #1 The Shareholders in the banks should be wiped out

    #2 The bond holders (those who lent the money to the Irish banks in the first place) should be wiped out

  • elvis parker

    Mack the Zoe situation may make NAMA redundant. Moreover it is based on continued govt finacial credibility.
    Your statement ‘the state will put a floor on prices at bubble levels’ gives the game away. What makes you think the Irish taxpayer can sustain that game?

  • Itwas SammyMcNally whatdoneit

    At the core of the problem is the economic cundundrum of the difference between price and value. Given that both are driven as much by faith/sentiment/confidence economic theory can be seen to be as scientific as withcraft and economists are still not able to agree on the answers to fundamental questions like whether it is would be better to Nationalise the banks or go with NAMA. The best bet therefore may lie in economic equivalent of Lourdes where we can all go and pray like feck that that things will simply get better – simply because we have the faith.

    Other than praying we could do worse than get a Jack Charlton type foreign figure (from South East Asia or perhaps Cuba) to run the show or go for my personal choice if he could be tempted away from Ryanair and promise to have proper regard for the masses.

    In times like these, even Grizzly much maligned for supposedly not understanding ROI economics has probably move up the league table of economic expertise as the quarefellahs of FF and FG (who missed the herd of elephants not just in living room but in every room in the house and sleeping in the bed beside them) must surely be in line for relegation into the lower leagues.

  • Mack

    It Was Sammy…

    There’s not much difference between nationalising the banks and NAMA. Under both circumstances the taxpayer gets lumbered with the liabilities (although nationalisation does also wipeout the shareholders).

    Elvis –

    Mack the Zoe situation may make NAMA redundant

    Hopefully.

    What makes you think the Irish taxpayer can sustain that game?

    Perhaps they can’t, but they (the state) can slow the fall for a very long time by borrowing on our behalf.

    A short sharp fall in asset prices to below non-bubble levels would allow the market to clear. Businesses could reduce costs (without cutting wages) by moving to cheaper premises, buyers would come back to the housing market.

    Paying to save one or two banks, so that business can access credit, is one thing as is guaranteeing deposits, but paying to purchase every feckin dodgy loan in the state to save every developer and every bank, while guaranteeing all creditors is pure madness!

  • Itwas SammyMcNally whatdoneit

    Mack,

    as I understood it the NAMA plan is in part to keep the banks going as successful businesses, Nationlaisation would/should obviously not be about that.

    The price of houses is irrelevant until you come to buy or sell and in the case of the former the lower the price the more it benefits the ‘consumer’ – therefore bankrupt the main developers and let the price of property fall as the market is flooded with mainly unwanted flats.

    As long as personal savings are protected and interest rates remian low – so fecking what?

    With internet techology the bankes are a waste of space and can be gradually replaced by the post offices – there is NO business acumen or skill required to take money off someone and put it in a safe. The vast majority of decisions can be based on electronic form filling and credit checks. The other stuff the banks are doing i.e. betting on the markets can be done by more suitable non-banking organisations.

    Wages will probably have to fall as we have simply spent money we dont have on a gambe that hasnt paid off and lower house prices will make that easier ( in the long run) for everybody.

  • The Raven

    “there is NO business acumen or skill required to take money off someone and put it in a safe”

    And yet there is, when it comes to making decisions about lending to small business. However, this has also been removed as they have shafted just about all of them. That’s around 96% of all businesses in Northern Ireland, and I am sure it’s not far off that in the South.

  • Dave

    Mack, perhaps you’ll indulge me in an “I told you do” moment:

    [i]I think we should rename the country ‘Wonderland’ and then rename the government ‘Alice’.

    You can’t solve a debt problem by transferring the debt from the private to the public sector. The debt remains, and the only difference is that good money is then removed from the economy (because taxpayers have considerably less disposable income due to the higher taxes required to repay the debt) and bad business is absolved of its debt and left to continue as a bad business.

    This €7 billion of taxpayers’ money will vanish when the first write-down of asset value by the banks occur. Naturally, those banks have sweet FA intention of writing down their assets until after they get the taxpayers cash. Then – give it about 3 or 4 months – they’ll be back for more cash. By the time their assets are properly written down, the losses will be in the high hundreds of billions.

    Kids, property is virtually worthless and property is what these banks have injected their money into. All of the entrepreneurs you would have relied on to get you out of this don’t exist: they’ll all committed to injecting their disposable income into repaying the mortgages on vacant properties that are worth a fraction of what they paid for them. Your entrepreneurial types – an entire generation – were squandered on a racket created by cheap credit from the ECB.

    There is no magic solution to this, and given the vast amount of debt that banks and other financial institutions have accrued, your government will bankrupt you on worse terms than Iceland if you allow them to make you responsible for the debts of these private businesses. If a bank manager lent money to a business without bothering to read the due diligence report and thereby exposed the bank to a reckless risk (as the inept and risible moron Lenihan has done), we’d all be demanding his resignation. Yet, with Lenihan, we actually trust this ape and the Cowen ape who oversaw and chearled this crisis to handle a situation that presents Ireland with the greatest danger it has ever faced.

    So where is the due diligence of the citizen in all of this? The citizen is satisfied with meaningless rhetoric not supported by facts and figures along the lines of “systemic risk” and “the government is acting on advice from the Regulator/Central Bank” ect as if those phrases are acceptable substitutes for due diligence on the part of the citizen.

    The smartest thing to do at this point is to emigrate. Wonderland indeed.

    Posted by Dave on Feb 12, 2009[/i]

    As I said, the banks played the government for a bunch of mugs. Brian Lenihan went from believing that the banks were solvent to believing in they had bad debts of €90 billion. In fact, the true scale of the damage inflicted on the country by membership of the Eurozone is only being to be known. I hate to remind folks, but citizens of this State have to service an external debt of 1.67 trillion. Good luck with that when your economy is collapsing. All the borrowed wealth that flowed into this country must now flow back out of it. Shame that most of it vanished in bubbles in just about every area of enterprise, where property was just one such area. 😉

  • John45

    Elvis says – Joking aside when ‘the Brits’ buy up eveything of value and essentially bale out a bankrupt country can we all give up blaming them for every ill? –
    That old wistful dream..!

  • Wilde Rover

    Legal whorehouses, casinos and coffee shops in every town in the land should help drag the country out of the gutter.

    After all, it couldn’t be any worse than the hoors who gambled away the country like they were high on super skunk.

  • I think this has something to do with the economy.