A lose / lose deal for tax payers

Long time thepropertypin.com contributor and financial industry insider “Geckko” sums up NAMA as a lose / lose deal for tax payers.

So NAMA buys these assets, but the question is how much to pay? Remember, they aren’t worth what the banks claim they are. So NAMA (i.e. the tax payer) is facing two options.

1. Pay the true market value that reflects the fact that these loans will never be repaid in full (because the people who borrowed the money effectively just wasted it) and are extremely uncertain. This will mean the banks crystallise their losses in one big hit and declare insolvency – back to nationalisation (taxpayers pouring money into the banks to own them) or deliver on the liability guarantee (effectively pay off a load of the banks creditors).

2. Pay a more generous price, justifying it on the premise that the loan money wasn’t wasted, the developers are just having a few short-term difficulties. Over time these loans will pay back a big proportion of their initial amount (yeah, right). Do that of course and NAMA is going to be a loss making venture (Ireland has too many houses, built for too much money, on land that was bought by developers for too much money).

So that is it. All government policy has been set up so that which ever way things go, taxpayers are on the hook for the losses.

Cleaning up the Irish banks

No bio, some books worth reading – The Rational Optimist: How Prosperity Evolves – Matt Ridley .

Crisis Economics: A Crash Course in the Future of Finance -Nouriel Roubini, Stephen Mihm