Alternatives to NAMA

WeeBushy

A lot of people are very oppossed to NAMA, and arguably rightly so. It does strike me as being very high risk.

However it's clear that something needs to be done. Have there been any viable alternatives put forward by any other political party? Or does anyone here have ideas on what could be done instead?

EDIT: Just realised this should have been put in the Irish Economy section. Apologies about that...

evercloserunion

Labour have put forward a nationalization plan akin to Sweden's successful nationalization in the 90s. the want to nationalize the banks, clean them up, and sell them at a profit later on.

Fine Gael, being Fine Gael, have taken FF's proposal, turned it upside down and proposed it as the answer to all our problems. Whereas NAMA is a bad bank to make all the other banks good again, FG want to set up a good bank and let the others fail.

Húrin

I think that either of the proposals of Labour and Fine Gael would be better than the government's plan, which is little more than a redistribution of wealth upwards.

daithicarr

FG and FF seem to have a knee jerk reaction to do the opposite of the other.

Labours plan sounded best, if the state had control they could stop things like bonuses etc, but i dont trust FF to implement it and to go back now would probably take far too long and make the economy more unstable ???

Liam Byrne

daithicarr wrote: »

to go back now would probably take far too long and make the economy more unstable ???

Firstly, there hasn't been much of a rush to date, since it's over a year since the Anglo corruption was unearthed (anyone charged / prosecuted yet, btw ?) and the Government decided to hit us with 2 budgets and then fecked off on holidays while borrowing millions daily.

Secondly, I'd prefer to risk making the economy temporarily more unstable in the short term and get it right in the long run, than undermine it for generations.

daithicarr

i know theres been no rush, thats my point, it would be another extended period before anything is done , as we slowly sink

johnnyskeleton

WeeBushy wrote: »

However it's clear that something needs to be done.

This "something needs to be done" talk is very dangerous.

By analogy if someone has a bad stomach illness the best prescription may well be to let their body work it out on its own. However, if you decide something must be done and perform surgery on the person, you risk making it worse, and / or causing other problems. Now imagine that the surgery you are about to do is a new procedure from an obscure medical journal, and the risks and uncertainties increase substantially. Now imagine that the chief surgeon is drunk, the nurse is so incompetent its embarrassing and the hospital denies you the equipment needed because their best friends are all in for minor cosmetic surgery and they get the best of everything. That's somewhere nearer to NAMA.

The alternative to NAMA is letting the market determine the fate of the banks. Not all banks in Ireland will go bust, there's a good chance that, for example, PTSB will muddle through, and when the other banks do go bust, the profitable parts can be sold to new companies who will run them properly (i.e. with less risk). This alternative ensures: 1) no burden on taxpayer, 2) new banks will be stronger than before and 3) no one is unjustly enriched. Letting the banks fail may well be the best thing the country did.

Darsad

Yeah one alternative would be not to pay 70% for duff loans that have no chance of ever reaching anywhere near that value in 10 yrs let alone 30.The one thing that fuelled the property bubble was the availability of Finance and reckless lending and both will never be so easily available again in my life time.

Boskowski

I agree with Johnnyskeleton. It's been over a year now and apart from the cash injections very little has happened. I certainly fail to see that big imminent tidal wave hanging over us that the government is talking about all the time. And I think even the cash injections were only to a certain extent about solving a liquidity crisis. Mostly it was about preventing an Anglo bankruptcy which would have brought a lot of dirty laundry to the surface.

Also I don't think the NAMA thing will do one bit for the economy as such. It's just more spin like the 'Yes to jobs' stuff with Lisbon.
Banks will give loans to businesses if its good business to do so. They already will and they already do. The guys on 'Frontline' even said so themselves. Banks will not give loans to businesses if it's not good business to do so. Not now and not after NAMA.

So I fail to see what difference its going to make. Unless you're a developer or banker of course. And we can do without them getting all cocky again for a while...

And of course we have much better things to spend 50 billions on. Or simply not to spend on anything but keep it were it is as we don't have it in the first place.

K-9

I think we all can see the downside of NAMA.

What's the downside of Nationalising or FG's proposal?

Nationalising seems to be focussing on floating or creating a new bank which sounds great, but very little mention of the bad bank it will create.

It just seems to be NAMA backwards.

The letting them fail option sounds great, but what will it mean for the ordinary Joe?

Boskowski

K-9 wrote: »

The letting them fail option sounds great, but what will it mean for the ordinary Joe?

For starters it's not like all banks are going to bust. I reckon Anglo would go bust of course and BoI may be in difficulties and maybe one of the two building societies mentioned may also go bust. But there's still a lot of other banks doing business in Ireland that seem healthy enough like Ulster and National Irish for example. I'm pretty sure other banks would move in pretty quickly if there's any business up for grabs after one or two big ones go bust.

But honestly I haven't a clue but what would happen to Joe Soap. Deposits are guaranteed (unfortunately together with other things with Anglo) and loans will be bought buy someone else during the wind-down I imagine. So probably not much. You'd still owe the money on your house for sure.

I'd be interested to hear myself from someone who has a bit of education in that area what would really happen if we did absolutely nothing. Like zilch. Let the market regulate itself. What would happen?

lmimmfn

K-9 wrote: »

I think we all can see the downside of NAMA.

What's the downside of Nationalising or FG's proposal?

Nationalising seems to be focussing on floating or creating a new bank which sounds great, but very little mention of the bad bank it will create.

It just seems to be NAMA backwards.

The letting them fail option sounds great, but what will it mean for the ordinary Joe?

there wouldnt be a bad bank, the existing banks would have to take responsibility of their crap, the only problem with the FG solution is it wasnt costed, i.e. the governement may have to pump more money into the existing banks to keep them ticking over. Personally i like the idea for the simple fact that:
1. Thats been done already in countries like Denmark( not the good bank part, just keeping the banks afload )
2. The good bank would allow businesses to refinance immediately
3. It prevents shareholders and those in charge of the banks making a fortune when the banks share price skyrockets in a few years.
4. The good bank could be refloated in 3-5 years when the global economy has settled( meaning its a much shorter term solution than Nama )
5. Nama only has to propose a balance sheet at the end of the year but not which properties were sold, to who and at what price compared to the original estimation, therefore its impossible to determine the liquidity of Nama until the last 2-4 years ).
6. Nama is effectively a good bank solution as when properties are sold from Nama, Nama is basically going to provide the mortgage to whoever buys it and is therefor acting as a bank rather than a third party bank providing the financing and Nama just taking the cash as soon as the asset is bought. Basically its a good bank thats removing all risk from current banks, excet that those banks have no obligation to finance existing business and will most likely just want to recover completely and screw the economy for the next 2 years until the shareholders are happy.

The only major problem with the solution is that if more and more money is pumped into the existing banks to finance them there comes a point where the government would basically own them if the continually needed refinancing.

However i much much prefer it as an alternative to an 11 year long project whereby we get taxed to the hilt for 11 years and nobody will spend a cent because we dont know how badly the country is f***** for 11 years.

K-9

realcam wrote: »

For starters it's not like all banks are going to bust. I reckon Anglo would go bust of course and BoI may be in difficulties and maybe one of the two building societies mentioned may also go bust. But there's still a lot of other banks doing business in Ireland that seem healthy enough like Ulster and National Irish for example. I'm pretty sure other banks would move in pretty quickly if there's any business up for grabs after one or two big ones go bust.

But honestly I haven't a clue but what would happen to Joe Soap. Deposits are guaranteed (unfortunately together with other things with Anglo) and loans will be bought buy someone else during the wind-down I imagine. So probably not much. You'd still owe the money on your house for sure.

I'd be interested to hear myself from someone who has a bit of education in that area what would really happen if we did absolutely nothing. Like zilch. Let the market regulate itself. What would happen?

My reading is AIB are far more exposed to property than BOI. Think we all know Anglo and IN are fecked if we go the let them fail route.

My reading is AIB are 60/70% exposed to property and BOI 50/60%.

While I agree Anglo aren't systemic in that the sector they loaned to, property, isn't systemic, their size is massive.

Ulster loaned Sean Dunne the money for Jurys etc. so not much faith in them.

As far as I can see, none of the big players are worth saving as the rest of the big players copied Anglo.

I just don't see how letting the banks fail is a better alternative and I'D like to see why it is, like yourself.

lmimmfn wrote: »

there wouldnt be a bad bank, the existing banks would have to take responsibility of their crap, the only problem with the FG solution is it wasnt costed, i.e. the governement may have to pump more money into the existing banks to keep them ticking over. Personally i like the idea for the simple fact that:
1. Thats been done already in countries like Denmark( not the good bank part, just keeping the banks afload )
2. The good bank would allow businesses to refinance immediately
3. It prevents shareholders and those in charge of the banks making a fortune when the banks share price skyrockets in a few years.
4. The good bank could be refloated in 3-5 years when the global economy has settled( meaning its a much shorter term solution than Nama )
5. Nama only has to propose a balance sheet at the end of the year but not which properties were sold, to who and at what price compared to the original estimation, therefore its impossible to determine the liquidity of Nama until the last 2-4 years ).
6. Nama is effectively a good bank solution as when properties are sold from Nama, Nama is basically going to provide the mortgage to whoever buys it and is therefor acting as a bank rather than a third party bank providing the financing and Nama just taking the cash as soon as the asset is bought. Basically its a good bank thats removing all risk from current banks, excet that those banks have no obligation to finance existing business and will most likely just want to recover completely and screw the economy for the next 2 years until the shareholders are happy.

The only major problem with the solution is that if more and more money is pumped into the existing banks to finance them there comes a point where the government would basically own them if the continually needed refinancing.

However i much much prefer it as an alternative to an 11 year long project whereby we get taxed to the hilt for 11 years and nobody will spend a cent because we dont know how badly the country is f***** for 11 years.

So FG didn't cost it. Hardly confidence inspiring.

How do the existing banks take responsibility and how does it affect Joe Soap? Why would it not effect us, if not? Saying the Govt. may have to pump money in seems a bit misleading. Of course they'll have to pump money in. Why not?

I'd be interested in how Denmark has fared and is it a direct comparison. We all know how property dependent banks became. Is Denmark in anyway comparable?

On the share price rocketing? Is that really a bad thing when the Govt. has such a big stake in the banks? Surely the Preference shares will rocket?

Thanks for the answers but it seems very optimistic. Not knocking it, but it has very few figures and examples.

On the Global Economy point, is that any different from NAMA and why?

Sorry for all the questions, I'm not convinced by NAMA or the alternatives!

prinz

realcam wrote: »

Banks will give loans to businesses if its good business to do so. They already will and they already do..

I take you don't work in the business of finance areas then, because in reality they're not.

lmimmfn

K-9 wrote: »

So FG didn't cost it. Hardly confidence inspiring.

Well dor Nama they dont even know what the actual debts are so thats hardly confidence inspiring either. FG's costing was only an approximation of 20 billion to fund the good bank, even in a worst case scenario compared to Nama thats an incredible 50billion Euro difference that they can pump into the banks( and its insane to think it would cost that )

K-9 wrote: »

How do the existing banks take responsibility and how does it affect Joe Soap?

The banks take responsibility because they have to hold on to all the $hit debts that the accumulated in the past 10 years. The only onus thats on the taxpayer is that we have to pay taxes to fund the good bank and the potential bad bank( on top if it being a much shorter solution there would be an enormous amount of money to keep the banks propped up if need be )

K-9 wrote: »

Why would it not effect us, if not? Saying the Govt. may have to pump money in seems a bit misleading. Of course they'll have to pump money in. Why not?

Of course it would affect us, but to a lesser extent and the fact that the banks are made responsible for their mistakes. No saying the government may have to pump in money is not misleading, the can pump money into the banks as and when needed.

K-9 wrote: »

I'd be interested in how Denmark has fared and is it a direct comparison. We all know how property dependent banks became. Is Denmark in anyway comparable?

No country can be compared to ireland for the simple reason that no other country was stupid enough to get into the situation we got it. My comparison with Denmark is that they just continued to loan money to the banks to prop them up at a higher interest rate than the government was borrowing the money at internationally, this is much better than Nama in the long run.

K-9 wrote: »

On the share price rocketing? Is that really a bad thing when the Govt. has such a big stake in the banks? Surely the Preference shares will rocket?

The share price rocketing is an absolute disgrace, how do you feel about getting taxed to the hilt over the next few years to not only finance the government shortfall but also to finance Nama and have very little disposible income as a result? youre financing something that shareholders will be enjoying from their shares skyrocketing, not only that but by taxing us to pay for Nama it will take money out of the economy reducing jobs, so more on welfare=more tax increases required to fund the extra welfare recipients.
On top of that youre already putting mortgage holders with negative equity under more pressure with increased taxes.

K-9 wrote: »

Thanks for the answers but it seems very optimistic. Not knocking it, but it has very few figures and examples.

No worries, dont get me wrong im not saying its a 100% fantastic solution but on paper to me anyway looks like a better deal for Joe Soap for the simple fact that it would get the economy pumping straight away( remember with Nama there is 0 obligation on the banks to start lending again and it is expected they will loan very little money over the next few years until they get their house in order, this will screw us all in the next few years ).

K-9 wrote: »

On the Global Economy point, is that any different from NAMA and why?

Other countries are only propping up the banks with direct funding/government bonds, no other country has implemented a Nama solution apart from a slightly similar scheme in Sweden in the 90's however the equalised the equation by nationalising the banks, meaning the government made the profit on the share prices of the banks skyrocketing when they became more liquid and the government refloated them.

K-9 wrote: »

Sorry for all the questions, I'm not convinced by NAMA or the alternatives!

lol, no worries, im definately not convinced by Nama, im convinced we need a solution asap, and im not 100% behind the FG solution, in fact if it were my decision i would nationalize all the banks, consolidate them all into 1 bank, have the FG good bank( which makes a profit ), then refloat the 1 consolidated bank in several years when its at least balanced the books, and float the good bank and the government makes a massive profit on it.

That way the government( we ) get the money rather than the shareholders.

orourkeda

http://www.youtube.com/watch?v=lliA2Av8dd8&feature=fvst

The queens of the stone age are on top of their sh*t

lmimmfn

orourkeda wrote: »

http://www.youtube.com/watch?v=lliA2Av8dd8&feature=fvst

The queens of the stone age are on top of their sh*t

until 3 years time.

vinylbomb

The idea of letting banks fail is just not acceptable in my view.

Given that banks are covered by the government guarantee, if they fail the government is int he sh1t for the cost, whatever it may be - I remember when the guarantee was announced the figure by something slightly north of 400 billion euro. So simply put, if the country is broke now, where will the cash come from?

On the flip side if the banks weren't covered and you let it go down the chute any money tied into the bank disappears. This would devastate the country, and anarchy would ensue. Also, don't think that things like debts would go with it, they would simply be sold onto other banks or finance agencies. So in effect you get the worst of both worlds.


I feel that the FF (and mirror image FG proposal) are workable. Labour's "buy the bank now, sell it later" is a bit to idealistic to be practical.

K-9

lmimmfn wrote: »

Well dor Nama they dont even know what the actual debts are so thats hardly confidence inspiring either. FG's costing was only an approximation of 20 billion to fund the good bank, even in a worst case scenario compared to Nama thats an incredible 50billion Euro difference that they can pump into the banks( and its insane to think it would cost that )


The banks take responsibility because they have to hold on to all the $hit debts that the accumulated in the past 10 years. The only onus thats on the taxpayer is that we have to pay taxes to fund the good bank and the potential bad bank( on top if it being a much shorter solution there would be an enormous amount of money to keep the banks propped up if need be )


Of course it would affect us, but to a lesser extent and the fact that the banks are made responsible for their mistakes. No saying the government may have to pump in money is not misleading, the can pump money into the banks as and when needed.


No country can be compared to ireland for the simple reason that no other country was stupid enough to get into the situation we got it. My comparison with Denmark is that they just continued to loan money to the banks to prop them up at a higher interest rate than the government was borrowing the money at internationally, this is much better than Nama in the long run.


The share price rocketing is an absolute disgrace, how do you feel about getting taxed to the hilt over the next few years to not only finance the government shortfall but also to finance Nama and have very little disposible income as a result? youre financing something that shareholders will be enjoying from their shares skyrocketing, not only that but by taxing us to pay for Nama it will take money out of the economy reducing jobs, so more on welfare=more tax increases required to fund the extra welfare recipients.
On top of that youre already putting mortgage holders with negative equity under more pressure with increased taxes.


No worries, dont get me wrong im not saying its a 100% fantastic solution but on paper to me anyway looks like a better deal for Joe Soap for the simple fact that it would get the economy pumping straight away( remember with Nama there is 0 obligation on the banks to start lending again and it is expected they will loan very little money over the next few years until they get their house in order, this will screw us all in the next few years ).


Other countries are only propping up the banks with direct funding/government bonds, no other country has implemented a Nama solution apart from a slightly similar scheme in Sweden in the 90's however the equalised the equation by nationalising the banks, meaning the government made the profit on the share prices of the banks skyrocketing when they became more liquid and the government refloated them.


lol, no worries, im definately not convinced by Nama, im convinced we need a solution asap, and im not 100% behind the FG solution, in fact if it were my decision i would nationalize all the banks, consolidate them all into 1 bank, have the FG good bank( which makes a profit ), then refloat the 1 consolidated bank in several years when its at least balanced the books, and float the good bank and the government makes a massive profit on it.

That way the government( we ) get the money rather than the shareholders.

Ah right. You seem to be arguing FG's proposal isn't confidence inspiring but believing it over NAMA because it isn't confidence inspiring? Fair enough.

Imimmfn wrote:

The only onus thats on the taxpayer is that we have to pay taxes to fund the good bank and the potential bad bank( on top if it being a much shorter solution there would be an enormous amount of money to keep the banks propped up if need be )

Ok, can you explain that in more lay man terms?

Imimmfn wrote:

No country can be compared to ireland for the simple reason that no other country was stupid enough to get into the situation we got it. My comparison with Denmark is that they just continued to loan money to the banks to prop them up at a higher interest rate than the government was borrowing the money at internationally, this is much better than Nama in the long run.

So it isn't a direct comparison? Would that be fair?

Imimmfn wrote:

The share price rocketing is an absolute disgrace, how do you feel about getting taxed to the hilt over the next few years to not only finance the government shortfall but also to finance Nama and have very little disposible income as a result? youre financing something that shareholders will be enjoying from their shares skyrocketing, not only that but by taxing us to pay for Nama it will take money out of the economy reducing jobs, so more on welfare=more tax increases required to fund the extra welfare recipients.

Yes, but that doesn't answer my question. The Govt. has a huge share now in the banks so anything that raises the shares means the Govt. gets more equity? Basically we are shareholders, that is taxpayers so the share price going up is in the taxpayers interest? Yes?

lmimmfn

vinylbomb wrote: »

The idea of letting banks fail is just not acceptable in my view.

Given that banks are covered by the government guarantee, if they fail the government is int he sh1t for the cost, whatever it may be - I remember when the guarantee was announced the figure by something slightly north of 400 billion euro. So simply put, if the country is broke now, where will the cash come from?

On the flip side if the banks weren't covered and you let it go down the chute any money tied into the bank disappears. This would devastate the country, and anarchy would ensue. Also, don't think that things like debts would go with it, they would simply be sold onto other banks or finance agencies. So in effect you get the worst of both worlds.


I feel that the FF (and mirror image FG proposal) are workable. Labour's "buy the bank now, sell it later" is a bit to idealistic to be practical.

agree totally the banks cant fail, and nationalisation should be the very last resort.
However banks dont disappear, they get bought out and/or the debts( mortgages etc. ) sold to other institutions( remember a lot of debts will be good debts alos ). Again worst case scenario for this is that the government takes responsibility for the bank and nationalises it or do a Nama piece meal( this would actually save a fortune for the simple fact that a bank failing means that the government would have to pay the shareholders feck all ) and just take on the good and the bad of the bank.

K-9

lmimmfn wrote: »

agree totally the banks cant fail, and nationalisation should be the very last resort.
However banks dont disappear, they get bought out and/or the debts( mortgages etc. ) sold to other institutions( remember a lot of debts will be good debts alos ). Again worst case scenario for this is that the government takes responsibility for the bank and nationalises it or do a Nama piece meal( this would actually save a fortune for the simple fact that a bank failing means that the government would have to pay the shareholders feck all ) and just take on the good and the bad of the bank.

That sounds great and I'm with you.

But where does the bad loans go? They just don't disappear at no cost to us?

lmimmfn

K-9 wrote: »

Ok, can you explain that in more lay man terms?

ok,sorry. If a good bank is created by the government and the current banks are left to fend for themselves, then assuming no bank goes under the only onus on Joe Soap is that we get taxed to finance the money for the good bank, i.e. if 20 billion is needed to allow businesses to get loans and refinance themselves Ireland will borrow the 20 billion of the ECB and will have to pay the interest on that to the ECB at the current international lending rate for Ireland. If the good bank charges businesses a higher interest rate than that for the loans it gives out then it will make money, a lot of money( thats presuming the guys in charge arent as stupid as the current banks ).

Basically with the good bank solution( and best case scenario no bank goes under ) then the government will only make money on it, therefore we wont get taxed to fund it in the next few years. However thats the simplest case, chances are the banks would need more funding, however this should still be below the cost of Nama.

Again i cant provide figures in the exact same way that Nama can as we dont know the debt, dont know the debtors, dont know the guarantees against the loans and dont know the current liquidity of the debtors.

K-9 wrote: »

So it isn't a direct comparison? Would that be fair?

Yes for the simple fact that to fix a problem you need to break it down into its constituent parts. The economy has 2 problems:
1. Banks arent lending as its difficult to get cash.
2. Banks are crippled due to falling property prices( created by themselves because theyre not lending but also this was instigated by the global crisis ). Therefore due to negative equity and debtors not being able to pay they now have loaned more money than the have cash to keep them going.

In the case of Denmark, the government solved 1, we've been doing the same sofar however Nama is a proposed solution to both problems, however the good bank solves 1 and leaves the door open for the banks to continue to try and deal with 2( and as they should, banks profit from risk, its their business, if we bail them out they have no risk, become liquid and the shares become worth a fortune at our expense ).

K-9 wrote: »

Yes, but that doesn't answer my question. The Govt. has a huge share now in the banks so anything that raises the shares means the Govt. gets more equity? Basically we are shareholders, that is taxpayers so the share price going up is in the taxpayers interest? Yes?

Thats not exactly true, the government share of AIB is now at 70% however theyre not voting shares and last i heard the only stipulation is that the government have 1 person on the board of directors( i could be wrong its ages since i read about it ), but the amount of shares of the bank dont equal the banks total worth. There will be a massive number of bond holders( investments in pensions ) in the bank, those will also make a fortune on this.

K-9 wrote: »

That sounds great and I'm with you.

But where does the bad loans go? They just don't disappear at no cost to us?

Several options, lol, could do the same thing that caused the global crisis and bundle a load of junk loans with a few good ones, give it a fantastic market rating and flog it off on a profit haha, only messing.

No, they could actually force institutations to take a few bad loans with the good ones which would still leave bad loans. However those could be delt with by either nationalising the banks or forming a Nama fund but only when/if a bank goes under. The advantage of this over current Nama is it would only be a proportion of the loans currently in Nama( and again be a shorter term solution ) and if the banks are nationalised we make the money.

Regardless of either the Nama solution/good bank solution and/or nationalisation there will be a cost to the taxpayer. However the problem is that Nama takes the total cost straight away( meaning a cost of 16 billion in interest on the 56billion borrowed over the next 11 years ), that must be funded by the taxpayer or Nama making a profit, and i highly doubt Nama will make any profit whatsoever.
The other solutions are piece meal( and remember the world economy is expected to turn around in 2 years time ) therefore there will be less interest to pay and things can be handled if/when they happen. It means if banks are nationalised they can be done at an extremely reduced cost and refloated when they've become liquid( yes its far more complex than that but the probability is very high compared to Nama that this would turn a profit especially as loads of good/semi good loans could be flogged off meaning a much smaller Nama cost ).