Morgan Kelly on NAMA

Just a short note to highlight Morgan Kelly’s excellent article on NAMA in the Irish Times today. He proffers a good solution too –

All that needs to be done is for ownership of Irish banks to be transferred to their bondholders. This process of converting debt into equity occurs sufficiently often in banking to have a name: resolution. Resolution offers a way for Irish banks to be adequately recapitalised at no cost to the taxpayer, and able to manage their business without political interference.

Under existing Irish corporate law, this transfer would be a recipe for centuries of litigation. That is why most other industrialised economies have, or are introducing, special legislation to resolve failing banks with limited judicial review. Particularly impressive is the UK’s Special Resolution Regime introduced last February, which could easily serve as a template for similar legistlation here.

Instead we will get Nama. Brian Lenihan assures us that Fianna Fáil’s monument to a decade of waste, corruption, and ultimate ruin will not be wasteful, corrupt, and ultimately ruinous.

  • Itwas SammyMcNally whatdoneit

    With no agreed and robust methodology unperpinning the relevant economic considerations its simply lucky dip time – except if we go all ideological and run with your last paragraph which I agree with and take the view that if themmuns are for it then we should be agin it.

  • Glencoppagagh

    Mack
    “This process of converting debt into equity occurs sufficiently often in banking to have a name: resolution. Resolution offers a way for Irish banks to be adequately recapitalised at no cost to the taxpayer, and able to manage their business without political interference.”

    But who are the bondholders? I’d guess they’d probably be very reluctant shareholders which means they would not necessarily manage the banks in a manner helpful to the Irish economy. Would they lend to small businesses, for example? More likely that they would attempt to shrink the balance sheet and maximise profits from banking services: back to the bad old days of ‘traditional’ Irish banking.

  • Dave

    The smarter businessmen aren’t borrowing from Irish banks, anyway. And the ordinary business people will gradually migrate to foreign-owned banks as the Irish banks pass on the cost of servicing their debts to the customer, making them increasingly uncompetitive. Massive debts and a shrinking customer base will result in bankruptcy for these banks later than sooner thanks to the generosity of the taxpayer guaranteeing the money that these banks owe to foreign banks within the eurosystem – and that’s before interest rates rise resulting in a huge numbers of repossessions and additional write-downs. EU banks will get their money back, but not from the private businesses that they lent it to – from an Irish government that buts EU systemic risk considerations before the national interest.

    NAMA is the use of taxpayers’ money to save failed businesses and failed ‘entrepreneurs’. Debts from 1500 individuals are to be transferred to it, representing each of these individuals dumping an average of 60 million each worth of their bad debts on the taxpayer. They have no intention of every honouring their debts, and nor do they have the means to do so. That is not to say that they are bankrupt – they’re not bankrupt but their companies are. They’re all out in their villas in Spain toasting the Irish taxpayer.