“it’s good news for the Irish taxpayer.”

Green Party leader, and Irish Government Environment Minister, John Gormley has said that the party is “likely” to hold a special convention to discuss the setting up of the National Asset Management Agency (NAMA). Meanwhile, as other banks prepare to seize Liam Carroll’s Zoe group’s assets following the recent court rulings against the companies involved, in the Irish Times economist Karl Whelan argues that “the Carroll case has been very positive for the public interest.”

However, despite the reality that Carroll’s business simply could not be saved, all the Irish banks involved, apart from ACC, actively supported this survival plan, allowing Carroll to continue rolling up interest and also taking the highly unusual step of providing the funds to pay off unsecured trade creditors.

Why would the banks do this? Why would they extend further money to a clearly failing developer with a fanciful survival plan? The only possible answer is these banks were determined to maintain the illusion Carroll would one day pay back the money he owed. And the reason for this illusionist act? Nama.

Adds Healthy discussion of the IT article at IrishEconomy.

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  • LURIG

    What? No economic thread yet about The Tall Ships AND the extortionate rip off prices that are being charged by traders and stall holders. Just back and feel that Dick Turpin has emptied my pockets. Now that is an affront to Irish taxpayers.

  • Pete Baker

    And back to the topic..

  • Dave

    That’s a great article from Prof. Whelan, and a good example of how journalists/academics can be patriotic by simply telling the truth about how unpatriotic the political and business ‘elite’ are, serving their own interests at the direct expense of the national interest. If they can pull NAMA off, it will be the greatest financial swindle ever perpetrated on a nation by its own elite.

    One thing that is overlooked in this is that NAMA’s ‘business model’ claims that 100% of the book value of the toxic loans offloaded by the banks to the NAMA will still be owed to the NAMA irrespective of what price NAMA pays the banks for them in bonds. This allows the government to falsely claim that the taxpayer will not incur losses from these toxic assets. This assumes that the losses will be non-existent or less so small that the banks will be able to make good the losses. If such fantasy were so then it wouldn’t matter what discount to book value that the State receives as no contingency would be applicable. It is precisely because this is fantasy that it does matter. There is no reason to assume that these assets will regain their value or that the banks will make sufficient profits in the interim to make good the eventual shortfall.

    The figure of 90 billion is a figure that has been supplied by the same banks that misled the government to believe that they were solvent. Why does the government trust them now when they claim that their risky loans are a ‘mere’ 90 billion to developers? In case folks are confused, every loan is a risky loan when the economy is collapsing as fast as it is. Personal loans, business loans, mortgages, etc, all take on a higher risk than they had prior to the collapse. It is overlooked that AIB announced a loss of 1.54 billion for the first six months of this year compared to a profit of 756 million for the previous six months but purposely refused to give a breakdown on what sectors of its business that the losses occurred. Given that they are exposed by the Courts as propping up insolvent property developers in order to avoid assets coming onto the market which would establish precedents for their value prior to NAMA, it is a safe assumption that those losses did not occur in that sector. If not, just how badly their business and personal loans are sectors performing? And why are they pretending that all is fine and dandy there, and that all will be fine and dandy when the dodgy property loans are dumped on the State?

    There is very likelihood that these banks will still be insolvent when the dodgy property loans are dumped, and that they will be back again to the State for more support. Guaranteeing these banks is going to end up costing taxpayers hundreds of billions. Indeed, the same logic that the government is using to force the taxpayers to assume responsibility for these debts can be applied to the vast bulk of the total outstanding external debt of 1.67 trillion. If the taxpayer must repay the debts owed by private banking businesses to foreign lenders lest foreign lenders refuse to lend to Irish financial businesses, then that will apply to those companies in the IFSC who borrowed hundreds of billions and lost huge chunks of it in stock market and associated bubbles that are just as bust as the property bubbles.

    The other argument proffered by the government is that NAMA is needed to restore liquidity to the banking system. Liquidity is certainly needed, but this is not how to achieve it. That is done by establishing a ‘good bank’ that businesses can borrow from and by allowing existing solvent banks to fill the gap in the market that would be created by collapse of the failed banks or, indeed, to take over those banks after they have collapsed and those who took the risks in pursuit of personal profit accept the consequences of their actions.

    This is all about deferring the losses suffered by one generation of capitalists onto future generations, and about transferring the consequences of failure from those who exposed themselves to risk onto those who did not.

    http://nama.ie/Publications/2009/Nama_Prospective_Business_Model.pdf