Lenihan's incompetence highlighted

Amhran Nua

Morgan Kelly tells it like it is in the Times...

WHILE MOST economists by now simply dismiss Brian Lenihan’s utterances on the economy as “not even wrong”, this is to miss the Minister’s almost eerie ability to predict exactly the opposite of what is going to happen. Merely to contradict Brian Lenihan is virtually to guarantee that you will later be credited with supernatural prescience.

Who else, as Irish bank shares plunged 13 months ago, could conclude: “Our banks uniquely have weathered this storm . . . We are in a zone of financial stability in a very troubled financial world.”? Two weeks later, having been panicked into his catastrophic bank liability guarantee, the Minister assured us that we had “the cheapest bailout in the world so far”, and six weeks later averred that: “It is not the function of the Government to fund or bail out the banks.”

The effortless miscalculations, the assured non sequiturs, the lofty indifference to facts: all reveal Brian Lenihan as a master of what Princeton philosopher Harry Frankfurt defined succinctly in his 1986 paper, On Bullshit .

The Nama legislation, as expected, piles up this material on an Augean scale. Prices have fallen 47 per cent; the long-term economic value of property is 30 per cent below its peak value; the loan-to-value ratio is 77 per cent; prices only need to rise by 10 per cent in 10 years for the State to break even.

To subject these almost poetic flights of ministerial imagination to any sort of rational analysis will seem to many like vandalism, but that is what God made economists for.

First, the estimate that prices have fallen 47 per cent. The reality is that prices can only exist when there is a market, and the market for commercial property and development land has disappeared.

A less futile exercise is to ask how much Nama would have cost at the end of similar credit-fuelled price bubbles. A decade after their peaks, Tokyo land prices had fallen by five-sixths, while Irish farmland, adjusted for inflation, had fallen by three-quarters. Had Brian Lenihan bought €77 billion of either, applying the proposed Nama discount of 30 per cent, he would have lost €35 billion-€40 billion on our behalf, or roughly €20,000 per taxpayer, and that is before adding interest.

At a quarter of national income, Nama would dwarf the cost of previous bank bailouts, which varied from about 3 per cent of GDP in Sweden to 14 per cent in Finland and Japan.

Most baffling of all the Nama numbers is the proposed discount of 30 per cent, implying that the “long-term economic value” of property is at 2004 prices. Not one shred of evidence is offered for this assertion, the keystone of the Government’s strategy.

alfranken

But sure he's doing his best, he comes form a good family, my house has always been a Fianna Fail house etc etc

lmimmfn

there should be a referendum on Nama and a seperate investigation into alternatives( which should have been investigated 11 months ago ). Its crazy mortgaging future generations, the state losing a fortune, crazy taxes for generations to come, the banks shareholders making a fortune in the meantime and developers laughing at how easy they got away.

voxpop

having been panicked into his catastrophic bank liability guarantee

Why was the guaranteeing of the banks a catastrophe? This was the guarantee of deposit accounts -yeah ?

Amhran Nua

voxpop wrote: »

Why was the guaranteeing of the banks a catastrophe? This was the guarantee of deposit accounts -yeah ?

It was a guarantee of everything, including interbank lending.

lmimmfn

voxpop wrote: »

Why was the guaranteeing of the banks a catastrophe? This was the guarantee of deposit accounts -yeah ?

bank liability guarantee includes propping up the banks not the deposit guarantees, Anglo Irish was an absolute disgrace of a solution and people should go to prison for that especially those in Irish Permanent who deliberately cooked the books to make it look more liquid than it actually was.

The deposit guarantee was a good move and a complete necessity following the Northern Rock bank run in the UK

AARRRGH

This bit in the article:

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.

Would someone mind explaining to me -

a. Who are the bondholders and how did they become bondholders?
b. If the ownership of the bank is transferred to the bondholders, is that a good thing or a bad thing for the bondholders?

Thanks.

Économiste Monétaire

Bondholders are investors who own debt securities issued by the bank. Depending on the seniority of that debt, you may or may not get your money back when a bank ceases operation. Whether or not it's a good thing for bondholders depends on the future of the firm in question: will the increased value of the equity holding cover your capital losses that you've realised on the swap.

lmimmfn

AARRRGH wrote: »

This bit in the article:



Would someone mind explaining to me -

a. Who are the bondholders and how did they become bondholders?
b. If the ownership of the bank is transferred to the bondholders, is that a good thing or a bad thing for the bondholders?

Thanks.

i can only go with the best of my knowledge so someone else can correct me( btw bonds are loans made by investment firms to banks/corporations/governments with a fixed return value after X years at a fixed rate and the initial sum is guaranteed to be returned ):
a) bond holders are investors( largely pension fund investors )
b) its bad but its capitalism, pension fund investors take a risk if they invest in something bad then thats life, pension funds arent guaranteed so theres feck all wrong with it. The problem is if the banks are transferred to bondholders then the bondholders lose their initial investment, not the end of the world by any means, but it means some pension funds would be fecked temporarily until the banks recover, however if this happened i dont understand what happens the shareholders in that case especially if the bonds are values less than the value of the bank.

AARRRGH

Thanks for the replies.

So, most likely, if ours banks went bust the bondholders would try to continue business as usual instead of winding up the banks? Or could they decide to wind up the banks selling off their assets?

jimmyendless

So it looks like Ireland is the titanic and Brian Lenihan is Leonardo di Caprio. We're shagged. He is sailing us into a financial iceberg (thats what happened in the movie right). So whoever stays behind in Ireland will be responsible for this mess. Will we all have to emigrate?

Économiste Monétaire

AARRRGH wrote: »

Thanks for the replies.

So, most likely, if ours banks went bust the bondholders would try to continue business as usual instead of winding up the banks? Or could they decide to wind up the banks selling off their assets?

It depends on what the loan books are worth; their capital ratios (whether they can legally continue to operate); and the profitably of the firm after the swap. You'd need legislation to enable resolution authority for a government agency to facilitate an orderly sale of the bank's assets for any of this to happen to our big banks, which I'm pretty sure we don't have. Bondholders are covered by the guarantee anyway—except for perpetual subordinated debt and I believe AIB, BOI, and Anglo have made recent debt buybacks here.

Idbatterim

I heard Lenihan was on TV or the radio the other day saying Nama would make a 5billion profit! as if it was a fact, what a stupid stupid statement, none of us have a crystal ball, nama is a total sham! that is the only fact of the matter! this is the same idiot who increases vat, travel tax etc! im not joikin when i say "how is it possible that the ones in the top positions in this country are less intelligent and less informed, than your average joe soap!!! Some of the posts on boards are light years from anything that idiot or those in cabinet could ever comprehend!

Seth Brundle

jimmyendless wrote: »

So it looks like Ireland is the titanic and Brian Lenihan is Leonardo di Caprio.

So is Harney playing the role played by Kate Winslet?

lmimmfn

Idbatterim wrote: »

I heard Lenihan was on TV or the radio the other day saying Nama would make a 5billion profit! as if it was a fact, what a stupid stupid statement, none of us have a crystal ball, nama is a total sham! that is the only fact of the matter! this is the same idiot who increases vat, travel tax etc! im not joikin when i say "how is it possible that the ones in the top positions in this country are less intelligent and less informed, than your average joe soap!!! Some of the posts on boards are light years from anything that idiot or those in cabinet could ever comprehend!

Nama will lose 5-10 billion guaranteed, come back to me in 10 years if im wrong.

lmimmfn

lmimmfn wrote: »

Nama will lose 5-10 billion guaranteed, come back to me in 10 years if im wrong.

I would be of the mindset that this will be the absolutely best scenario we face.

1 - The property is worth bugger all. We've all seen the arguments of over-supply both commercial and residential - but commercial more-so, land needing to be rezoned, derivatives etc

2 - The interest being calculated is around 16 billion? That of course is based on the levels of interest we have now - during a worldwide catastrophe.. when the rates rise, we could end up paying back alot more.

3 - The running costs are also over 2 billion I believe


The problem here is we can't become competitive/prosperous again until property prices fall. We stand to lose it all with NAMA if property prices don't rise (10% from todays value, which could be 40% from tomorrows). So the government faces 10 years of stagnation and cuts as they try to keep the NAMA train on the tracks because everything passed in the Dail will come with the question "How will this affect NAMA?"

We are borrowing 20 billion a year right now. I'm of the opinion that any spending cuts we see over the next year or two will be completely nullified by NAMA and we'll still end up getting deeper and deeper into debt while the whole time losing more and more services.

Sand

Theyve done a bit of a demolition job on the figures for NAMA business plan over at irisheconomy.ie

One of the economists there has taken the NAMA figures, put in some more realistic figures for expected default rates and reckons NAMA will lose somewhere between 10-19 billion euro. Theyve also highlighted that NAMAs supposed income from developers is exceptionally light up to 2013 (i.e. effectively a payment holiday for developers over the continuing life of this Green-Fianna Fail government) before jumping to 7.5 billion expected from 2013 on: it shifts NAMA to being the next governments problem.

None of this of course will have any impact with Greens/Fianna Fail - half of the FF spokesmen dont even know what NAMA is, none of the Greens do, but thats alright - they're still patting themselves on the back for getting a few cycle lanes opened.

I think we're back down to the nuclear option - FG or Labour announcing that when they take power, NAMA bonds will not be honoured on the basis that the government has lost the support of the people and cannot make such a momentous commitment on their behalf. Thatll completely screw the plan to use the NAMA bonds as collateral as the market will take into account the probability of them being worthless. So long as they are careful to stress the targeting of the NAMA bonds, collateral damage should be limited.

Boskowski

Sand wrote: »

I think we're back down to the nuclear option - FG or Labour announcing that when they take power, NAMA bonds will not be honoured on the basis that the government has lost the support of the people and cannot make such a momentous commitment on their behalf. Thatll completely screw the plan to use the NAMA bonds as collateral as the market will take into account the probability of them being worthless. So long as they are careful to stress the targeting of the NAMA bonds, collateral damage should be limited.

Agreed, but do you honestly believe anyone in FG/Labour has the competency and balls for such a move? I predict they're scrared-sh1t themselves and rather sit back and look forward to shoveling blame on FF for the next 20 years.

funnyname

What about the money the government has already pumped in to Anglo Irish, is this part of NAMA or has this been written off or will they privatise it between now and the end of NAMA and hope to recoup the money?

Seth Brundle

I don't think that you are meant to remember that money!

constance tench

Vincent Browne show tonight: banking consultant Peter Matthews blows NAMA (and the goons behind it) clear out of the water, and just stops short of saying 'stuff that mattress'.

http://www.tv3.ie/shows.php?request=tonightwithvincentbrowne

Sand

@realcam

Agreed, but do you honestly believe anyone in FG/Labour has the competency and balls for such a move? I predict they're scrared-sh1t themselves and rather sit back and look forward to shoveling blame on FF for the next 20 years.

Short of a sudden public spirited revolution in the Fianna Fail backbenches (LOL) or the Greens (LOL) NAMA is going to pass by this corrupt parastitic government. It then comes down to sabotaging it.

Do Fine Gael and Labour have the balls to do it? Probably not, theyre both innately conservitive parties: I can only hope they do because it would completely destroy NAMA - The Greens and Fianna Fail could shove this massive theft down Irelands throat, but the markets wouldnt bite if they understood the next government wouldnt honour the debts. And NAMA is structured in such a way that the supposed profits come in the next governments time - if that government doesnt get profits, FF and the Greens attack them from opposition, claiming they have mismanaged NAMA. All the bad NAMA news comes when FF and the Greens are in opposition and can blame others. Its in FG and Labours interests to nip it in the bud.

It would be very hard to pull off - Id never want to hear the words "Irish government debt" and "default" in the same sentence, so it would have to be exceptionally specific so as not to startle the horses. I dont think any politician would go down that route lightly, but the Greens and Fianna Fail are leaving us no choice. They wont listen to reason, they dont care what people think because they have resigned themselves to opposition and are hoping to grab bank board directorships so its down to sabotaging it outside the democratic process.

@funnyname

What about the money the government has already pumped in to Anglo Irish, is this part of NAMA or has this been written off or will they privatise it between now and the end of NAMA and hope to recoup the money?

That money is gone. Anglo Irish isnt a real bank, its a financial black hole. The only problem is its the mafias bank, and the mafia dont want their dealings released to the public eye so theyve kept the corpse upright with taxpayer money for now. But its a dead bank, and we will never see the money back.

Boskowski

Sand wrote: »

That money is gone. Anglo Irish isnt a real bank, its a financial black hole. The only problem is its the mafias bank, and the mafia dont want their dealings released to the public eye so theyve kept the corpse upright with taxpayer money for now. But its a dead bank, and we will never see the money back.

Although a lot of people won't like simplifications like that - they rather believe the rabble about how its all so complicated and only the top economists could even attempt to understand all this - I'm convinced myself that this is what it comes down to in a nutshell.

Because what people don't understand when they listen to all this economese about thousands of little factors and side-effects here and there is that this is all bull**** and most of the people repeating this stuff don't understand half of it themselves and most certainly the crooks who got us into that mess don't understand any if it and operate on rather simple terms. The rabble is just smokescreens.

Lenihan for starters hasn't a fvckin' clue whats going on.

My theory is he was told about the political fallout of an Anglo bust-up (we can only guess what a pile of stink Anglo has in its cellars and who's caught in that web) so he made those over the top guarantees. Now he has to follow through because he's stuck in it himself.

It's like someone getting caught doing something nasty but comparably small and they come up with some off the cuff bull**** cover-up story and now after holes emerge in that bull**** cover-up story they have to follow through and the cover-up story and the lies have to get bigger and bigger and more ludicrous all the time until it all spirals out of control...

If it wasn't so likely to 'succeed' and if it wasn't going to cost us a fortune it would actually be fun to get the pop-corn out and watch this unfold. It's 'Realsatire' as we call it back home.

jmayo

Sand wrote: »

Theyve done a bit of a demolition job on the figures for NAMA business plan over at irisheconomy.ie

One of the economists there has taken the NAMA figures, put in some more realistic figures for expected default rates and reckons NAMA will lose somewhere between 10-19 billion euro. Theyve also highlighted that NAMAs supposed income from developers is exceptionally light up to 2013 (i.e. effectively a payment holiday for developers over the continuing life of this Green-Fianna Fail government) before jumping to 7.5 billion expected from 2013 on: it shifts NAMA to being the next governments problem.

funnyname wrote: »

What about the money the government has already pumped in to Anglo Irish, is this part of NAMA or has this been written off or will they privatise it between now and the end of NAMA and hope to
recoup the money?

Jeeze who the f*** would want to buy Anglo.
It was a one trick pony and it's biggest market is now non existent.
The cr** spouted about it being of systemic importance is pure grade A bull****.
It was only of systemic importance to the connected few that banked with it, or were owners etc.
In other words go talk to the likes of Quinn, McNamara etc.

Sand wrote: »

@realcam

Short of a sudden public spirited revolution in the Fianna Fail backbenches (LOL) or the Greens (LOL) NAMA is going to pass by this corrupt parastitic government. It then comes down to sabotaging it.

Do Fine Gael and Labour have the balls to do it? Probably not, theyre both innately conservitive parties: I can only hope they do because it would completely destroy NAMA - The Greens and Fianna Fail could shove this massive theft down Irelands throat, but the markets wouldnt bite if they understood the next government wouldnt honour the debts. And NAMA is structured in such a way that the supposed profits come in the next governments time - if that government doesnt get profits, FF and the Greens attack them from opposition, claiming they have mismanaged NAMA. All the bad NAMA news comes when FF and the Greens are in opposition and can blame others. Its in FG and Labours interests to nip it in the bud.

God we are a subservient race, if this was most other countries the incompetents like neary, the self serving politicans protecting their connections and the bankers would be run out of the place if not bloody lynched.
Here we allow them free flights on loss making airlines as they travel to play golf all the while they spit in our faces.

What profits ?
Who the fu** wrote this draft plan, Hans Christian Lenihan ?

Sand wrote: »

@funnyname

That money is gone. Anglo Irish isnt a real bank, its a financial black hole. The only problem is its the mafias bank, and the mafia dont want their dealings released to the public eye so theyve kept the corpse upright with taxpayer money for now. But its a dead bank, and we will never see the money back.

Anlgo is a f***ing massive black hole.
How much has gone into it already, 7 odd billion ?
Then add in all the dodgy loans that it contributes to NAMA and you are talking around 30 billion AFAIK, and they would probably have the biggest number of defaulting loans.

Is it any wonder that fitzpatrick has 24 houir security.
Does anyone know if the taxpayers are paying for it ?

Amhran Nua

lmimmfn wrote: »

Nama will lose 5-10 billion guaranteed, come back to me in 10 years if im wrong.

Doesn't matter if you're right or wrong, one thing it will be almost guaranteed to do is fail, insofar as its purpose is to get the banks lending again. There is no certainty they will do so and if TARP in the US is anything to go by they won't. The focus shouldn't be on the profits or lack thereof, it should be on the fact that the entire plan has no foundation in reality.

thebman

I think the reality is the government AKA Brian Lenihan is listening to the same economists that FF have always listened to.

The same ones that said the fundamentals were sound (even when they clearly weren't leaving Bertie to tell all other economists to kill themselves). They are basically listening to people that work for the banks which seems a fatal flaw. Of course people working in banks will say save the banks at all costs :rolleyes: