September 14th 09
There is no NAMA for working families
The National (mar dhea) Assets Management Agency is the central plank of the Irish governments proposed strategy to tackle the economic crisis. It will be put to the Dáil in Leinster House on Wednesday.
Many people do not understand how it is supposed to work. So, I asked a friend of mine, Joanne, to explain NAMA –to me. This is what she said.
“Irish banks have a cash flow problem. During the boom, they lent out money to developers that they didn't really have. This money was credit on paper allowed by the European Central Bank. Now the developers can't pay it back because they can't sell the apartments, houses, offices or other developments they were building, or in some cases can't even finish their projects because the banks won’t lend them any more to continue work.
According to the government NAMA is about cleaning up the banks. It's being set up like a parallel bank. Banks can transfer over the loans they think won't be repaid, or are having trouble getting repaid, to NAMA. The Government hopes this will let the banks get back to normal, i.e. they will still have the interest on credit cards, mortgages and business loans coming in and they can use this money to start lending again.”
To this blog’s primitive mind this is another example of crony capitalism – with the taxpayer picking up the bill.
To use a basic example which Joanne offered up: Joe, the banker, has lent Mick, the developer, €200,000 to build a house that Mick wants to sell for a sizeable profit at €300,000.
Mick has built the house but can't sell it, and even if he could, he wouldn't get €300,000 for it because the housing market has collapsed. He'd be lucky if he got €100,000 for it.
So he can't pay Joe back.
Meantime, Mary has come to Joe and asked for a lend of €50.
Joe won’t lend Mary any money because he's waiting on his loan, with interest, back from Mick.
So Joe gives his buddy in NAMA a ring and asks NAMA will it take on Mick's loan and give the bank the €200,000 it lent to Mick, because at least then he'll have his original money back.
The sane thing for NAMA to do here is tell Joe that he and Mick took a mad gamble with that loan, given that house prices were on the verge of collapsing and that Mick should sell the house for what he can get and Joe should take what he can get.
Instead, NAMA says no problem - even though he's not sure Mick will ever pay him back. NAMA makes one condition. It won't give Joe the whole €200,000 because he knows houses will never sell for that much this year. But they might sell for a bit more in the future (yeah right), so he'll give Joe €180,000.
NAMA doesn't really care after all, because he’s using someone else’s money anyway; it's the taxpayers – stoopid!
NAMA says its interested in Mary getting the loan too. But both NAMA and Joe know that he’s not keen on lending Mary the loan because he just got stung by Mick and isn't sure he wants to take the risk again.
Unless NAMA promises to keep picking up the tab...
So, NAMA will help the bankers and the developers and ensure that they get most if not all of the money they speculated but with no guarantee that it will encourage the banks to lend money again.
In reality it’s another example of the government helping out its buddies.
So for those confused by it all, here’s eight reasons to say no to NAMA:
• Economists say NAMA will cost each man, woman and child in the state €15,000 (€60-€70 billion)
• The government has done nothing to help families and businesses facing reposession, negative equity and economic hardship. They have to pay their bills, while taxes are raised and public spending is cut. There is no NAMA for working families.
• NAMA pays more for developers’ loans than they are worth and lets them pay it back at their leisure.
• NAMA relies on banks to act in ‘good faith’ when giving information about the bad loans.
• The loans these developers were given inflated house prices - we’re being made to pay twice.
• NAMA will give taxpayers’ money to developers to finish projects and even force a purchase of land in the developers way.
• Finance Minister Brian Lenihan gets the power to overturn ‘independent’ valuation of developers’ loans made by NAMA and the power to pay more if he so decides.
• There is no guarantee that banks will lend even after NAMA clears their bank sheets.
What is to be done?
It will cost money to sort out the banks and the bad loans, but nationalisation would deal with the developers, kick out the corrupt management, get banks lending again, protect homeowners and businesses, and entail the least pain for the taxpayer. But that wouldn’t be crony capitalism would it? It would be fair.