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Getting deeper into NAMA Wonderland

Dreaded_Estate

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True Economics: Economics 24/07/2009: getting deeper into NAMA Wonderland

Another very good piece from Constantin Gurdgiev

NAMA is a quagmire that is only getting bigger the longer we are looking at it. The latest reports now claim that the NAMA remit will be extended to cover foreign banks operating here, suggesting that cross-collateralised loans and holdings will be facing embarrassingly lengthy legal challenges otherwise. Of course, it was never the original Government intent to share the spoils of a taxpayer-paid bailout to prop up foreign banks. But hey, if sharing the trough is what it takes to rob the taxpayers, then our Government has no problem with this.

A revealing research note from Davy published today says it all: "From an equity investor’s point of view, an examinership process for a big developer such as Carroll would be preferable to
receivership/liquidation. The banks concerned would still have to take a write-down, but it offers the developer the prospect of survival and provides the banks with an opportunity to get back the remainder of their money. Having said that, it would obviously be preferable if these
actions stopped altogether, allowing NAMA to proceed unobstructed.[Read: the spoils will be richer if the lawyers stayed away from the feeding corale.] It is important to understand that examinerships are likely to occur only where developers are forced into a corner such as we have seen recently with ACC. Voluntary examinership is unlikely given that any successful restructuring of debt does not cancel a developer's personal guarantee to the lender (which many of them have)."

Now, examinerships are also possible, of course, if the developers are insolvent and have cash flow problems. But Davy would not mention that small tid-bit because they are fully aware that majority of the troubled developers are, in collusion with the banks, restructured. Anticipation of NAMA has also made many of them, undoubtedly, transfer all liquid assets to the shelters where no NAMA can touch them. So all of this implies two things:

  1. The idea that NAMA will pursue vigorously non-performing developers is bonkers - there will be nothing to pursue comes 18 months since NAMA or the banks rescue (depending on how smart a given developer was) was first rumored. By the time NAMA is operative, there will be nothing left that is held in the name of each one of these developers that has any chance of ever being liquified.
  2. The question as to whether this amazing delay in rolling out NAMA was knowingly applied by the Government to allow an escape clause for some loans holders. This is, of course, a speculation, but as any student of undergraduate economics knows, if you want to prevent people from taking preventative actions, any policy change should be unaticipated. Of course, as always, there is an alternative, but equally unpleasant, explanation as to why the Government chose to announce well in advance its desire to set up NAMA - the explanation of a panic response to a perceived crisis.
So do tell me now, how can Minister Lenihan claim that, based on the information he has seen,
it was "not inevitable" that NAMA would result in the state taking majority ownership of AIB and BofI. How? Well, this can be possible if and only if either

  1. the haircuts applied to the NAMA purchases are deep enough to compensate for the cost of bonds, plus the impairment rate on loans transferred. Do the math - at 5% over 15 years coupon, applied to a purchase yielding 3% in revenue - 26% (not factoring in any inflation), the latter is anyone's guess, but judging by NIB, ACC, Nationwide etc examples, should be around 20-30%. Do the math, or
  2. post-NAMA recapitalization of the banks will be done as a give-away of taxpayers money, while the banks post-default 'liability' on assets that Mr Lenihan was so keen to promote as a 'safeguard' for the taxpayers only few months ago will be nill.
Again, take you pick, but either the Government is aiming to be reckless with our money or deceitful.

Oh, and another thing - the new talk about NAMA liabilities being off the state balance sheet. This is kind of what Messrs Leniham and Cowman assumed will happen with the banks guarantees, until the international observers and analysts got a wind of it. Ditto with NAMA. Last week's decision by Eurostat, titled The statistical recording of public interventions to support financial institutions and financial markets during the financial crisis does allow for the possibility for Minister Leniham to hide NAMA liabilities off the front ledger of his Government. In particular, Eurostat's Section 8: Classification of certain new bodies allows the state to separately account for a funded entity "where ...the identification of an institutional unit in the national accounts requires that the body has "autonomy of decision" in respect of its principle function and either keeps a complete set of accounts or it would be possible and meaningful, from both an economic and legal viewpoint to compile a set of accounts if they were required". Now, if Cowen/Lenihan due can convince the readily convinceable EU Commission that NAMA undertaking has nothing to do with the General Government and has its own life and management. Never mind that the same taxpayers paying for Messr Lenihan and Cowen wages and their spending plans under the General Government expenditure will be underwriting NAMA. The charade of 'low debt Ireland' will then go on unperturbed.

In other words, if Lenihan is successful, some €60bn of bonds might be called something other than the official Irish Government debt. This is pure farce, but hey, may be as the taxpayers we can go on strike and tell Mr Lenihan to pay for NAMA out of its own pocket - afterall, it will be fully autonomous from the Government and therefore from us, the taxpayers?
 


PaddyJoe McGillycuddy

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Quote from halfway thru the post: This is kind of what Messrs Leniham and Cowman assumed will happen with the banks guarantees
Sly reference to the farmer's protests or just a Freudian slip?
 

PaddyJoe McGillycuddy

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Apart from facetious spelling quibbles it remains that Constanin Gurdgiev
and Brian Lucey have been the most effective critics of the FF response to the banking crises. As far as I recall Lucey was guesstimating the cost of the bank rescues at 25 billion back in September last year; well before any other commentator was prepared to stick the neck out and give a figure.
 

spidermom

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Possible very politically niave post coming...you have been warned...does anyone else think the delay in Nama legislation..and the "now we are going to publish it online...so everyone can discuss it"...is this really the gov hoping that the Sh!t hits the fan and they will not be the ones left with the history of this for a generation!!!...are they cowards....cunning ...or just stupid.....?


The more I learn of this the more concerned I get...this one pile of bad stuff coming down the line(economy speak....don't ya know!!!)
 

cyberianpan

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Possible very politically niave post coming...you have been warned...does anyone else think the delay in Nama legislation..and the "now we are going to publish it online...so everyone can discuss it"...is this really the gov hoping that the Sh!t hits the fan and they will not be the ones left with the history of this for a generation!!!...are they cowards....cunning ...or just stupid.....?


The more I learn of this the more concerned I get...this one pile of bad stuff coming down the line(economy speak....don't ya know!!!)
Delay?
I'm not sure there's much of a one... they said end July ... and it will make end July

Online for open debate:
Hmmmmmmm, FG & Lab will rubbish it anyway ... I suspect the aim is to pick up a few economists ... when folks see the deal with pricing (especially the way they plan to put the risk back on the banks) they'll realise it is nationalisation ... wonder will they hold their tongues ?

cYp
 

wysiwyg

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I think Spidermom it boils down to this... a beautiful line I heard from a commnetator today, in reference to the rising anger amongst the populace to the Mc Carthy report.. but which will very soon become the response to everything else which arises.. including NAMA...

He said.. if the cuts proposed in the Mc Carthy report are implemented, the country will go down in flames.. but.. if the cuts proposed in the Mc Carthy report are not implemented.. the country will go down in flames...

a bit like Bart Simpsons saying.. you're damned if you do, and damned if you don't....

Permanent TSB's actions showed today, in full view of the populace, that banks do, what banks do.. make money, no matter who gets caught under the wheels... they have to do so.. by law.. its an imperative to act with fiduciary responsibility... so, they hiked rates

AIB and BOI will follow suit shortly... when this happens, people will finally.. suddenly... wake up to what NAMA will really mean... and then... well, the lads at work are laughing at me when I say it.. but I'm more and more convinced as every day goes by... well then, it's time to stock up on tinned food and bullets
 

PaddyJoe McGillycuddy

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Possible very politically niave post coming...you have been warned...does anyone else think the delay in Nama legislation..and the "now we are going to publish it online...so everyone can discuss it"...is this really the gov hoping that the Sh!t hits the fan and they will not be the ones left with the history of this for a generation!!!...are they cowards....cunning ...or just stupid.....?


The more I learn of this the more concerned I get...this one pile of bad stuff coming down the line(economy speak....don't ya know!!!)
I don't think they have taken a deliberate decision to delay it. It was crisis mode and firefighting since the guarantee last September. After that it was very much a case of 'where do we go from here?" Remember that they didn't originally want to nationalise Anglo but were forced to in the end as the scale of the disaster became apparent. Also you had a huge collapse in AIB and BOI share prices at the end of January this year. Its obvious in retropect that Lenihan and co. were always that bit behind the ball instead of actualy directing events. Its complex stuff and until they they got some kind of handle on what was going on in other countries they weren't going to push on too fast. Looking back at the the first quarter of the year you had the crisis of interest rates on gov. borrowing as well.
I'd criticise Lenny and co. for pretty much everything but I can't see how they could have moved any faster on NAMA legislation.
 

spidermom

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Delay?
I'm not sure there's much of a one... they said end July ... and it will make end July

Online for open debate:
Hmmmmmmm, FG & Lab will rubbish it anyway ... I suspect the aim is to pick up a few economists ... when folks see the deal with pricing (especially the way they plan to put the risk back on the banks) they'll realise it is nationalisation ... wonder will they hold their tongues ?

cYp


Said I was niave...but the banking sh1te hit when......12 (almost) full months ago...what do we have...the guarantees....thats it!!..if they knew that the Nama legislation would be ready 10 days after the Dail finished...well sure hang on boyos...and we'll get it done and let them started...they have a majority afterall...they could have pushed it through..let the Nama merchants get on with it over the silly season..and job done...but no..the delay...the debate...the controversy continues....during quiet time...very un-Irish-parliamentary conduct????
 

PaddyJoe McGillycuddy

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Quote: if the cuts proposed in the Mc Carthy report are implemented, the country will go down in flames.. but.. if the cuts proposed in the Mc Carthy report are not implemented.. the country will go down in flames..
Or up in flames??
Well said. Its getting very surreal at this stage. The population is going to get screwed from every possible angle: I would say that the Permanent's announcement today has been the final straw for a lot of people. Until now we only had to pay more taxes and accept reduced public services to bail out the banks. Of course that's not enough. We will also have to pay them directly to get their foot off our face.
 

cyberianpan

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Said I was niave...but the banking sh1te hit when......12 (almost) full months ago...what do we have...the guarantees....thats it!!..if they knew that the Nama legislation would be ready 10 days after the Dail finished...well sure hang on boyos...and we'll get it done and let them started...they have a majority afterall...they could have pushed it through..let the Nama merchants get on with it over the silly season..and job done...but no..the delay...the debate...the controversy continues....during quiet time...very un-Irish-parliamentary conduct????
That I understand ... the reason for the long time (but not delay) is that they are cutting the cloth to fit what we have

They are drafting the Nama legislation to cover existing loan agreements ... and they've been going through the big loan agreements one by one ... that's one of the reasons the Nama bill comes to over 200 pages

cYp

cYp
 

yehbut_nobut

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...It was crisis mode and firefighting since the guarantee last September. After that it was very much a case of 'where do we go from here?" Remember that they didn't originally want to nationalise Anglo but were forced to in the end as the scale of the disaster became apparent...
That's not actually correct. They were advised NOT to include Anglo by their officials, but Lenihan and Cowen ignored the advice and overruled them . Why?

We're in a period of false quiet, kind of unreal, but it's not going to last. I don't mean riots or revolution, I mean complete meltdown, complete failure as an independent economic entity, followed by mass emigration. I have a sense that the better-informed have already made their lifeboat arrangements...

Indeed.. theres an interesting "conspiracy" on the pin about that - I've lifted some of the salient posts into a thread here:

http://www.politics.ie/economy/88319-real-nama-scam-follow-money.html

if your susceptable to conspiracy theories, it makes for scary reading. But to be honest, very little in this country would surprise me any more.
 

spidermom

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That I understand ... the reason for the long time (but not delay) is that they are cutting the cloth to fit what we have

They are drafting the Nama legislation to cover existing loan agreements ... and they've been going through the big loan agreements one by one ... that's one of the reasons the Nama bill comes to over 200 pages

cYp

cYp

Such a calm place in a storm....wish I could really trust that this was it..!!


That skit on Newstalk's "The Emergency" many weeks back one Sat morn, where they had the Telly Tubbies and NAMA (as a gloppy heap of shiite) makes even more sense now


But I fear this is the truth of the matter!!!


Oh bu88er!!!!
 

PaddyJoe McGillycuddy

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There has been a very serious debate among academic economists about NAMA and a lot of the issues have been thrashed out by Karl Whelan, Brian Lucey, the above quoted Constatin Gurdgiev and others since March. It looks like pretty much everybody with professional economic expertise except the govt. and Peter Bacon (surprise, surprise!) are against it in its current form. Have a look at the archive of irisheconomy.ie. A lot of it is like wading through a ploughing festival in October if you're not up to date on your economics jargon but the gist is very clear.
 

spidermom

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Any chance this could be my avatar.....

 

cyberianpan

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There has been a very serious debate among academic economists about NAMA and a lot of the issues have been thrashed out by Karl Whelan, Brian Lucey, the above quoted Constatin Gurdgiev and others since March. It looks like pretty much everybody with professional economic expertise except the govt. and Peter Bacon (surprise, surprise!) are against it in its current form. Have a look at the archive of irisheconomy.ie. A lot of it is like wading through a ploughing festival in October if you're not up to date on your economics jargon but the gist is very clear.
Now the unanimity of dissent implies either of two things:


  1. The government + their advisers are wallies
  2. The government have secret information
It should appear that 2 is more likely. There's 2 direct challenges for Nama/any solution and an indirect zeroth one

0 : The government has feic all monies now
1 : How will the distressed assets be priced ?
2 : Legal issues and complexities of all the loan agreements

Nama is craftier than the alternatives for 0 as it is a kinda kick to touch

Nama in theory is worse for 1... that said the Irish banks were acting as a cartel and avoiding the issues (rolling etc) ... but threat of withdrawing the guarantee there would have worked ... so Nama is worse on 1

However Nama may well be better on 2 ... if they really have it sorted ... so long as they can take onboard everything - then cross collateralisation is less of an issue

But I'm very skeptical that this was got right ... as there's a few hundred germane loan agreements ... and they are very twisty

cYp
 


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