nama explained in laymans terms

stepbar

SLUSK wrote: »

Nothing wrong with a bank run. Most countries also have a system to protect depositors, it is called a bank guarantee. You on the other hand seem to be hellbent on bailing out shareholders of the banks. I wonder how much money they contribute to FF. Probably alot.

Nothing wrong with a bank run eh? :rolleyes:

So tell me this, If there was a run on the likes of BOI in the morning where do you propose the Government would get the 83 odd billion needed to compensate customers under the bank guarentee scheme? (Remember that the government is now guarenteeing 100% of deposits)

Stop talking through your hat. Despite all the misgivings about NAMA no one has come with a "viable" alternative to the mess that the country is in. The problem I have with NAMA is that the discount maybe not enough to reflect the true value of the assets. As well as that NAMA proposes to take on performing loans. How does that make sence?

And BTW letting developers fail is not a serious option in light of the value of recent bank writedowns.

Purple Gorilla

herya wrote: »

If the developer in question qualifies as a "bad loan" (only such loans are bought by NAMA) I guess he's well past the looking for sweets spots stage. I find it hard to believe that NAMA will easily shift hard to sell assets and still make a profit while working against time and falling prices.

A bad loan implies that it isn't being paid back. The banks take a hit and say "I'm not getting this back, forget about it". NAMA is taking loans which are classed as risky. IE- Developer loans. Developers may still be paying the loans back, but NAMA isn't taking chances

lucky-colm

Purple Gorilla wrote: »

A bad loan implies that it isn't being paid back. The banks take a hit and say "I'm not getting this back, forget about it". NAMA is taking loans which are classed as risky. IE- Developer loans. Developers may still be paying the loans back, but NAMA isn't taking chances

yes gorilla but correct me if i'am wrong but nama is going to take good loans aswell as bad and will not neccessarily take all the bad loans from the banks books and still leave the banks a bitter pill to swallow nama will cherrypick the loans and pick loans that will have a high proability of getting the money back for nama

SLUSK

Obviously you cannot guarantee 100% of all deposit like FF promised, when the bank fail you have to say, look we cannot guarantee all deposits we pay out up to 50 000 euro instead. I hope you are proud of the Gombeen men running this country.

stepbar

SLUSK wrote: »

Obviously you cannot guarantee 100% of all deposit like FF promised, when the bank fail you have to say, look we cannot guarantee all deposits we pay out up to 50 000 euro instead. I hope you are proud of the Gombeen men running this country.

Your comment has nothing to do with the "Gombeen men" running the country. However, you are advocating that there's nothing wrong with a bank run. Your logic is astounding to say the least.

SLUSK

If you believe in the free market then there is nothing wrong with a bank run, if you on the other hand are a socialist or fascist then off course you would hate the free market mechanism to sort out problems. You obviously are against a free market economy.

herya

lucky-colm wrote: »

yes gorilla but correct me if i'am wrong but nama is going to take good loans aswell as bad and will not neccessarily take all the bad loans from the banks books and still leave the banks a bitter pill to swallow nama will cherrypick the loans and pick loans that will have a high proability of getting the money back for nama

So what's the point of the whole carry on if they leave the real stinky stuff with the bank? How does it help banks if NAMA takes away loans that could have been salvaged?

stepbar

SLUSK wrote: »

If you believe in the free market then there is nothing wrong with a bank run, if you on the other hand are a socialist or fascist then off course you would hate the free market mechanism to sort out problems. You obviously are against a free market economy.

I give up. There's no point arguing with you.

SLUSK

stepbar: do you not have fate in the free market?

Purple Gorilla

SLUSK wrote: »

Obviously you cannot guarantee 100% of all deposit like FF promised, when the bank fail you have to say, look we cannot guarantee all deposits we pay out up to 50 000 euro instead. I hope you are proud of the Gombeen men running this country.

Every western country guarantees deposits so why are our "gombeen men" any different?
You really have no clue what you are talking about. You've been proven wrong many times and now it just seems you're fighting for the sake of fighting

EDIT: Edited. Thanks stepbar

stepbar

SLUSK wrote: »

stepbar: do you not have fate in the free market?

What's even more disturbing is that you are advocating that a run on a bank is the answer to all problem. Do you seriously understand how a banking system works? Its all very well and good to spout and say leave it to the free market. The problem is that the free market does not work without serious regulation.

stepbar

Purple Gorilla wrote: »

The Irish government is guaranteeing upto €100,000 in deposits for each depositor, not €50,000. And when did the government say they'd guarantee 100% of everyone's deposits?
Every western country guarantees deposits so why are our "gombeen men" any different?
You really have no clue what you are talking about. You've been proven wrong many times and now it just seems you're fighting for the sake of fighting

The government bank guarentee covers 100% of all deposits for the majority of banks in the state.

Purple Gorilla

Thanks Edited! I was thinking of something different >_<

lucky-colm

Purple Gorilla wrote: »

Every western country guarantees deposits so why are our "gombeen men" any different?
You really have no clue what you are talking about. You've been proven wrong many times and now it just seems you're fighting for the sake of fighting

EDIT: Edited. Thanks stepbar

i agree
slusk you should really give up the battle and read up a bit on what you are talking about you will find it helps when you know what you are arguing about

lucky-colm

herya wrote: »

So what's the point of the whole carry on if they leave the real stinky stuff with the bank? How does it help banks if NAMA takes away loans that could have been salvaged?

the whole point is to remove the exposure the banks have to the property market (as they are seen as been over exposed) and make them more attractive to bigger institutions so they can borrow money at a better rate.

there is no need to be stupid as far as nama is concerned and take nothing but the worst loans as some of theese were for land and property in really stupid places with really stupid prices it would be very hard to make them repay for themselves so they will take some good ones aswell so as to cover the losses with the bad ones.

SLUSK

Modern day banking is the equivalent of a ponzi scheme. It would only be good if it collapsed and we returned to sound currency backed by real stuff like gold and silver. http://mises.org/story/3350 I do not know why the irish government decided to "guarantee" 100% of all deposits because such a guarantee is impossible to make. If this crisis you say is because of a lack of regulation in the free market system then the soviet union should have been doing great cause they had loads of regulation after all! i fail to see the logic in your arguments.

SkepticOne

Purple Gorilla wrote: »

Here's a basic example, lets say NAMA takes a loan from the bank that the developer took out in 2006 to build one house. The loan is worth the €240,000 it cost to build it. NAMA buy that at a 30% discount so they buy it at €160,000 and then sell it at cost so they make an €80,000 profit.

That's how it benefits the taxpayer

No, unfortunately not. Let us assume the discount is 30%. This discount is a discount on the book value of the loan, i.e. the amount the developer owes. But this does not mean that NAMA can sell the loan at this value and make a profit. The book value is merely the notional amount the developer has to pay back if the project survives.

The person buying the loan off NAMA will probably pay (if they can find a buyer) a lot less than what NAMA paid for the loan even with the discount.

The book value minus discount represents what is being called the long-term economic value of the loan. It is the value at some imaginary point in the future when we imagine there might be a recovery in the market. It represents a very optimistic view of the future.

This is why NAMA is being called a great gamble.

I also disagree with the idea that NAMA is not a developer bailout. It is not an official bailout of developers but it is effectively one. From the developer's point of view, 1 Billion owed to a bank that has been rolling over interest for the last few years and may at any time need to call in the loans is very different to 1 billion owed to a government agency, for whome any sort of mark-to-market that would arise if a developer goes bust is a disaster, is a very different thing.

The arguement that the builer still owes the same amount of money (an argument used by Lenihan all the time) does not stand up. A bailout is merely a loan on more favourable conditions (not necerily official conditions) than otherwise is a bailout.

So the tax payer will not only lose billions on the initial bank bailout but will lose further billions on the developer bailout waiting for an upturn in the market that never comes.

lucky-colm

SLUSK wrote: »

Modern day banking is the equivalent of a ponzi scheme. It would only be good if it collapsed and we returned to sound currency backed by real stuff like gold and silver. http://mises.org/story/3350 I do not know why the irish government decided to "guarantee" 100% of all deposits because such a guarantee is impossible to make. If this crisis you say is because of a lack of regulation in the free market system then the soviet union should have been doing great cause they had loads of regulation after all! i fail to see the logic in your arguments.

omg
i can't believe you brought the soviet union into this:D
what was wrong with the soviet union was it had nothing only corruption, true the communist ideal is good in theory but it never works because of corruption

stepbar

SLUSK wrote: »

Modern day banking is the equivalent of a ponzi scheme. It would only be good if it collapsed and we returned to sound currency backed by real stuff like gold and silver. http://mises.org/story/3350 I do not know why the irish government decided to "guarantee" 100% of all deposits because such a guarantee is impossible to make. If this crisis you say is because of a lack of regulation in the free market system then the soviet union should have been doing great cause they had loads of regulation after all! i fail to see the logic in your arguments.

The soviet union you talk of was a communist regime. The government controlled absolutely everything. There's a difference between absolute control of markets and a regulatory based method of controling markets. Absolute regulation of markets has proven not to work as people in general are not happy to accept their lot. By nature people are subconsciously greedy. As I've said a free market does not work unless there's strong regulation. And we've seen why over the course of the past 2 years and perhaps the previous 10 before that.

I won't even start on why it would not be a good idea to return to the idea of basing currency on gold and silver because I doubt you would understand.

herya

SkepticOne wrote: »

So the tax payer will not only lose billions on the initial bank bailout but will lose further billions on the developer bailout waiting for an upturn in the market that never comes.

Thank you, you expressed my admittedly amateurish intuitions in much better manner

lucky-colm

SkepticOne wrote: »

.

I also disagree with the idea that NAMA is not a developer bailout. It is not an official bailout of developers but it is effectively one. From the developer's point of view, 1 Billion owed to a bank that has been rolling over interest for the last few years and may at any time need to call in the loans is very different to 1 billion owed to a government agency, for whome any sort of mark-to-market that would arise if a developer goes bust is a disaster, is a very different thing..

the developer will still be expected to service the loan, the difference being that if the developer goes bust the bank will sell its assets immediately and get what ever the current market value is which would result in a huge loss on the banks books nama on the other hand can wait for the property market to pick up before selling. and the developer is still subject to the same treatment from nama as he would the banks if he goes bust.

Purple Gorilla

SkepticOne wrote: »

The book value minus discount represents what is being called the long-term economic value of the loan. It is the value at some imaginary point in the future when we imagine there might be a recovery in the market. It represents a very optimistic view of the future.

How can you say it represents an optimistic view of the future when the valuation of the loans hasn't been complete or released?

herya

lucky-colm wrote: »

nama on the other hand can wait for the property market to pick up before selling.

But what happens if it never picks up? Just keeps going down and balances on some lower level?

Purple Gorilla wrote: »

How can you say it represents an optimistic view of the future when the valuation of the loans hasn't been complete or released?

The notion that the market will pick up itself is optimistic. It may very well never pick up, or it may, but it's a lot of state money to gamble on it.

lucky-colm

herya wrote: »

But what happens if it never picks up? Just keeps going down and balances on some lower level?



The notion that the market will pick up itself is optimistic. It may very well never pick up, or it may, but it's a lot of state money to gamble on it.

the market will pick up the gamble lies in when:)

SkepticOne

Purple Gorilla wrote: »

How can you say it represents an optimistic view of the future when the valuation of the loans hasn't been complete or released?

It will be an optimistic view because to do otherwise would defeat the purpose of NAMA. If NAMA were to pay strictly the market price for loans from banks then NAMA would not be needed since the banks could dispose of those loans on the market for that price. Therefore nama will pay above the market rate with the asumption (genuinely held or otherwise) that the market will pick up in the future.

SkepticOne

lucky-colm wrote: »

the developer will still be expected to service the loan, the difference being that if the developer goes bust the bank will sell its assets immediately and get what ever the current market value is which would result in a huge loss on the banks books nama on the other hand can wait for the property market to pick up before selling. and the developer is still subject to the same treatment from nama as he would the banks if he goes bust.

Provision is in the bill for NAMA to raise extra funds and lend it to developers to complete projects.

And they will do this even where the normal sane person would shut down the project. This is because of the optimistic long-term assumption of NAMA. If you believe the market is in a short temporary rough patch (as I don't) then it makes sense to keep developers going to complete their worthless projects since we are going back to time very soon when people bought rubbish simply because it was property of one sort or another.

This is why it will effectively be a bailout for developers even though officially it is not and of all industries in Ireland that should not be bailed out, it is the developers.

EastWallGirl

There are a couple fo problems in the way of NAMA success:

At the moment there are about 100,000 empty houses in this country that either cannot be rented or sold. There is a husge excess supply in the market.

Ditto for commercial space.

So who is going to buy these houses and commercial space off Nama?

If you take into consideration that people are emigrating again, i ask again who is going to buy them?

Nama can sell it for 'at cost' but the comment here that at cost is €240,000 is probabaly closer to €100,000 - this is exactly what NAMA is set up to avoid, a meltdown in the market.

The other issues I have with NAMA is that the first reveiw will not be held for 5 years and that there is no opportunity for a whistlebloer to come forward.

For this to be effective there will have to be wide ranging powers for NAMA to go through the personal assets (property, pension funds) of these developers and I would suggest also the bank employees who put these deals through.

If the government was serious about sorting this out, there would already be redundancies for those employees at Anglo with nothing to do, but no they stay, while employees in cash starved companies are put on short time or made redundant.

When the governemnt made the guarantee for the €100,000 they were clever for about 48 hours and it was done purely to improve liquidity in the Irish banks. When it started to look successful other countries offered a similiar/same guarantee and the funds have since flowed back out.

Also there is no point setting up NAMA if there is not going to be a root and branch review of banking regulation and that better regualtion is put in place.

This is not a global problem. This is a problem faced by the UK, USA and Iceland and Ireland as they opened their banking system on the USA and UK model, without the population base to bounce back if things go wrong. It is peculiar to these 4 countries. There is less credit around but other governments have ben able to focus their spend on being ready for the next upturn, not on bailing out banks.

The whole scheme is so secretive without any plans to fix the cause (lack of banking regulation) that it will be a disaster.

ei.sdraob

EastWallGirl wrote: »

There are a couple fo problems in the way of NAMA success:

At the moment there are about 100,000 empty houses in this country that either cannot be rented or sold. There is a husge excess supply in the market.

Ditto for commercial space.

So who is going to buy these houses and commercial space off Nama?

If you take into consideration that people are emigrating again, i ask again who is going to buy them?

Nama can sell it for 'at cost' but the comment here that at cost is €240,000 is probabaly closer to €100,000 - this is exactly what NAMA is set up to avoid, a meltdown in the market.

The other issues I have with NAMA is that the first reveiw will not be held for 5 years and that there is no opportunity for a whistlebloer to come forward.

For this to be effective there will have to be wide ranging powers for NAMA to go through the personal assets (property, pension funds) of these developers and I would suggest also the bank employees who put these deals through.

If the government was serious about sorting this out, there would already be redundancies for those employees at Anglo with nothing to do, but no they stay, while employees in cash starved companies are put on short time or made redundant.

When the governemnt made the guarantee for the €100,000 they were clever for about 48 hours and it was done purely to improve liquidity in the Irish banks. When it started to look successful other countries offered a similiar/same guarantee and the funds have since flowed back out.

Also there is no point setting up NAMA if there is not going to be a root and branch review of banking regulation and that better regualtion is put in place.

This is not a global problem. This is a problem faced by the UK, USA and Iceland and Ireland as they opened their banking system on the USA and UK model, without the population base to bounce back if things go wrong. It is peculiar to these 4 countries. There is less credit around but other governments have ben able to focus their spend on being ready for the next upturn, not on bailing out banks.

The whole scheme is so secretive without any plans to fix the cause (lack of banking regulation) that it will be a disaster.

Spot on instead of a quick correction in property prices as has happened in the US

http://boards.ie/vbulletin/showthread.php?t=2055634245&highlight=florida

we will drag out this property crash for decades and pay for it too


we are repeatedly being told that the banks would have gone down, no they wont, it would have forced ECBs hand to conjure up a few figures on their computers, something that they have to do anyways but in a more roundabout way

NAMA Simply Put:

NAMA is a bailout and we are overpaying, its simple to see because:
If the banks and builders sold the properties at true market price they would be selling them and we the Irish people would not need to buy them. The problem is the banks and builders will go bankrupt if they sell them at the price people can afford them at.

So we bail out the builders and the banks while at the same time keeping prices artificially higher than they would be without NAMA.

NAMA is also going to horde these properties and limit the flow onto the market. Complete control of prices. Keeping Ireland poorer as a whole by causing us to overpay for accommodation.

This affects everyone. You may have already bought your property or may want to but in the next few decades but the Government control to help the banks and the builders will mean you have less money to spend in the local economy resulting in less economic growth and high persistent unemployment.

Another way of looking at NAMA is... the banks funded the developers to build nearly 90,000 houses in one year and other huge numbers for other years while our true non bubble demand was something like 20,000 - 30,000 per annum. Now we have an overflow of properties. To sell a product in circumstances like that you must drop the price. But they havent and wont. Because we as individuals did not get mortgages out on the 300,000++ vacant properties in Ireland the Government is going to buy them on our behalf through NAMA.

Basically the country is being mortgaged for the next 30 years to bail out the builders and developers and the mortgage payments will be high and as a country we will need to cut back on other spending.


NAMA is nuts. The real alternative is to let some or all of the banks fail and create new ones employing some of the better staff from the banks and eliminating the people who are responsible for this at the top levels. Firesales are good for the economy driving costs down meaning we will become competitive again reducing unemployment. Its all linked this is why the Government is not coming out with any real employment plans. They are actually working against job creation. A protection on deposits is enough. We also need to reform the bankruptcy laws so that people who paid half a million for a 1 bed apartment in ballygobackwards can get back in the economy spending again without it taking 12 years.


http://www.facebook.com/group.php?gid=233861925262
NO TO NAMA FACEBOOK ^^

hiorta

There are no 'bad loans' or 'toxic assets'.
These euphemisms are designed to disguise the banks shabby, greedy behavior and help them get off scot-free from this disaster created in large part by themselves.
Instead of 'toxic assets' and 'bad loans' think of 'crap underwriting' by the banks and there you have it in a nutshell.