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

  • cynic

    Just like Britain, America, etc etc

    The old adage holds true. If you owe the bank £1000 you have a problem. If you owe the bank £1m the bank has a problem. If you owe the bank £10bn the Government has a problem

  • John East Belfast

    Mack

    Option 1 – let the Shareholders take whatever hit is left and effectively nationalise them so that the Tax payer can pick up any long term gain.

    The UK Govt will in the long run probably come out with a profit on Lloyds & RBS.

  • blinding

    Could the assets be bought under certain conditions that if events went well that they would be bought at such a price and that if events went badly they would be bought at a lower price.

    Surely the goverment is in a strong position here as who else is going to buy them.
    Usually when there is only one buyer he gets a good price unless of course he is a poor negotiater. Oh there lies the rub whether by incompetence or design goverments appear to be poor negotiaters when it comes to banks.

  • Mack

    Blinding

    Surely the goverment is in a strong position here as who else is going to buy them.

    The problem is we had a massive bubble, the assets aren’t worth anywhere near what the government will imply when it buys the loans from the banks.

    It’s a bit like deciding to sell your house for €1 million when the house down the street is on for €250k. Sure you are in a ‘strong’ position, in that no-one is _forcing_ you to sell for less than you want, but equally no-one is going to buy it for that price. Ultimately though we will have to take the hit, and the taxpayer will pay either way. Either we pay over the odds now, or we pay later via recapitalising or nationalising the banks.

    JEB

    True. Karl Whelan has been banging on about this over at irisheconomy.ie . Nationalisation would cost the tax payer less than NAMA. Though I’d have thought letting them all go bust apart from one or two, would cost us even less again…

  • blinding

    Mack said

    “The problem is we had a massive bubble, the assets aren’t worth anywhere near what the government will imply when it buys the loans from the banks.”

    Of course if the goverment had the best intentions of the country and the vast majority of the people in the country then they would pay as little as it is sensible to pay for them.

    Alas I fear it will be more a case of transfering as much public money to their cohorts i.e. Bankers, Developers.
    Its a sort of socialism for the formerly wealthy.
    It would be nice if the people largely responsible for the collapse took at least some of the hit.

  • Mack

    It would be nice if the people largely responsible for the collapse took at least some of the hit.

    Yep.

  • Drumlins Rock

    still trying to work out how NAMA works, is the UK, USA or anywhere else doing the same thing?
    Would nationalising the banks not be the better option, they already have the AngloIrish, the Ulster is HMGs, whats left of the Northern is Danish (wonder whats going on over there!) but they are just small palyers, I guess its the BOI and AIB, any others? Once you have the banks you own the assets so why the need for this loop.

    Was also just wondering is there a massive oversupply downsouth? the UK it seems is short of housing so is prob already having a upwards pressure, NI isnt really overstocked either so far as i can see, are there vast developments lying empty round Dublin?

  • Mack

    Drumlins Rock –

    Yes, there is huge oversupply of housing in the south. Around 350k empties. The builders had to keep building even once the bust kicked in, so there is excess new stock, along with a huge amount of excess stock sold to speculators during the boom.

    The situation in NI probably isn’t as bad, but new builds did ramp up there (to nowhere near the same degree), but among the areas (proportionally) worst affected in the south are the northern border counties (Cavan, Leitrim, Donegal, Monaghan etc). That will impact price levels in the north. And of course a huge portion of the NAMA loans are to developers in the north as First Trust and BoI are among the big players there..

  • Comrade Stalin

    Agreed with JEB. Nationalizing the assets as well as the risks means that the state can hold on to the assets until they have generated a return sufficient to privatize them again.

    The British government hasn’t been entirely consistent on this mark. Lloyds is likely to work out well for the taxpayer in a few years’ time, but in other cases some strange decisions were taken. For example, with Bradford and Bingley the government nationalized the debts and more or less gave the savings accounts to Santander. You get a very distinct impression of bankers doing shady deals with politicians. A few consultancies after they step down from parliament perhaps ?

  • Drumlins Rock

    I’m not ensured how much an effect it will have mack, cavan and leitrim are a long way from belfast, mite effect fermanagh, Letterkenny will effect the northwest, that could make tihngs interesting up there, but the currency has meant from the southern point of view prices have dropped the same up here as down there i guess, is there any life in the south btw? the property market has at least registered a pulse up here, it would be interesting to know where the big guys borrowed from and and how much of that is written of completely, I hear loads of stories but notihng definate, lol

  • cynic

    “It would be nice if the people largely responsible for the collapse took at least some of the hit.”

    Liks all of those who borrowed and borrowed to the hilt to buy houses we really count afford in the hope of making even more money? Or the investors who continued to pile into the banks in the hope of making more money? Or the farmers who sold land to developers? Or those who gave / encouraged the planning permissions? Or the Governmnet who didnt regulate? Or the electors who thought theyw ere doing alright and kept re-electing them? What about God?

  • Napoleon

    Why can’t we comment on Gerry Adams’ future as Uachtarán of Sinn Féin?

  • Mack

    Liks all of those who borrowed and borrowed to the hilt to buy houses we really count afford in the hope of making even more money? Or the investors who continued to pile into the banks in the hope of making more money?

    Yep. They have and will.

    Or the farmers who sold land to developers?

    Don’t see why they should be punished for the idiocy of others.

  • aquifer

    The government could pay the developers in ‘bonds’, installments over a long period, which should appear on the bankers’ books as a big asset while interest rates are low, as they tend to be in the Euro-zone.

    At the same time they should introduce rates as a land value tax to pay for it all, and as a way of incentivising rational land use.

    The government need to tax things which tend to be imports. e.g. Fuels and VAT, that way they may keep their low corporate taxes and inward investment.

    Cash paid for irish property at current prices is also inward investment, so try to market Ireland as a liveable destination for the itinerant rich and retired. e.g. By cracking down on crime and anti-social behaviour and investing in parks culture horse racing and golf courses.

    And views. Demolishing three bungalows for a better view would make a global headline worth 13M.