Comments on: Bile on the Seanad Floor http://doohan.org/blog/2009/10/31/bile-on-the-seanad-floor/ The answer to 'too much debt' cannot be 'more debt'. Thu, 17 Mar 2011 22:50:19 +0000 hourly 1 http://wordpress.org/?v=3.0.4 By: Eamonn76 http://doohan.org/blog/2009/10/31/bile-on-the-seanad-floor/comment-page-1/#comment-33 Eamonn76 Fri, 06 Nov 2009 00:47:21 +0000 http://doohan.org/blog/?p=385#comment-33 "What is failing to be addressed in the debate is that there is no clear, consistent, cohesive, coherent alternative". Dan must have missed this article in The Irish Times from Professor Karl Whelan: http://www.irishtimes.com/newspaper/opinion/2009/1002/1224255669771.html "The idea that the only possible way to deal with banks in difficulty is to overpay them for their assets is, frankly, ridiculous. Around the world, there are a series of well-established procedures for dealing with problem banks and none of them looks like the Government’s current Nama proposals. Banks that are insolvent can be liquidated, or taken over by other banks (with governments making up the shortfall) or nationalised. Banks that are undercapitalised are required to get outside equity investment from private investors or the government. Asset management agencies have been used elsewhere to allow banks to get impaired assets off their balance sheets and move on with their core businesses. However, where this method has been used to minimise losses to taxpayers, it has involved buying assets at realistic low prices rather than Nama’s “best of all possible worlds” approach to pricing. Brian Lenihan has argued that there is no point in considering a scenario in which property prices continue to fall because in that case, apparently, we’ll all be bankrupt. This argument ignores the future competitive benefits of cheaper housing and lower rents for businesses and appears based more on a lack of willingness to consider “appalling vistas” than on concrete economic analysis. With the Government guaranteeing almost all debts of the Irish banks and with AIB in particular appearing to be insolvent without Nama’s overpayment, there is a strong case for temporary nationalisation of at least one bank and a combination of tailored restructuring measures for the others. Any temporary nationalisation could be combined with a search for new private investors and new management. Unfortunately, in parallel with its pro-Nama spin, the Government has engaged in a sequence of anti-nationalisation arguments that are as honest as their claims about free money from Europe. One way or another, the State guarantee obligates the Government to get our banks recapitalised and the fact remains that any plan that starts out by deliberately overpaying for assets cannot, by definition, be the cheapest solution for the taxpayer. Other scaremongering comments ignore the fact that a number of troubled financial institutions around the world have been nationalised without unleashing the plagues of frogs and locusts suggested by the Minister for Finance and his stockbroker supporters. It is noteworthy that in the US, the Troubled Assets Relief Program, which had originally been based, like Nama, on the idea of overpaying for bad assets, was altered to be a programme of equity investments by the US government. These investments now look likely to provide a return to the US taxpayer. Despite what the Government tells us about Nama, it is not too late to adapt the legislation to reflect a similar change of strategy here". Dan also said: "However, if one takes the public debate involving the 45 or 46 economists who do not like NAMA, were one to place them into a room and ask what they would have instead, the likelihood is you would get 45 or 46 different responses". Invite them to a conference Dan. Ask them to come back to you with an agreed proposal within 2 weeks. NAMA as is will lose €20 Billion. I guarantee the economists will come up with a better plan than Peter Bacon. “What is failing to be addressed in the debate is that there is no clear, consistent, cohesive, coherent alternative”.

Dan must have missed this article in The Irish Times from Professor Karl Whelan:

http://www.irishtimes.com/newspaper/opinion/2009/1002/1224255669771.html

“The idea that the only possible way to deal with banks in difficulty is to overpay them for their assets is, frankly, ridiculous.

Around the world, there are a series of well-established procedures for dealing with problem banks and none of them looks like the Government’s current Nama proposals.

Banks that are insolvent can be liquidated, or taken over by other banks (with governments making up the shortfall) or nationalised. Banks that are undercapitalised are required to get outside equity investment from private investors or the government.

Asset management agencies have been used elsewhere to allow banks to get impaired assets off their balance sheets and move on with their core businesses. However, where this method has been used to minimise losses to taxpayers, it has involved buying assets at realistic low prices rather than Nama’s “best of all possible worlds” approach to pricing.

Brian Lenihan has argued that there is no point in considering a scenario in which property prices continue to fall because in that case, apparently, we’ll all be bankrupt. This argument ignores the future competitive benefits of cheaper housing and lower rents for businesses and appears based more on a lack of willingness to consider “appalling vistas” than on concrete economic analysis.

With the Government guaranteeing almost all debts of the Irish banks and with AIB in particular appearing to be insolvent without Nama’s overpayment, there is a strong case for temporary nationalisation of at least one bank and a combination of tailored restructuring measures for the others. Any temporary nationalisation could be combined with a search for new private investors and new management.

Unfortunately, in parallel with its pro-Nama spin, the Government has engaged in a sequence of anti-nationalisation arguments that are as honest as their claims about free money from Europe.

One way or another, the State guarantee obligates the Government to get our banks recapitalised and the fact remains that any plan that starts out by deliberately overpaying for assets cannot, by definition, be the cheapest solution for the taxpayer.

Other scaremongering comments ignore the fact that a number of troubled financial institutions around the world have been nationalised without unleashing the plagues of frogs and locusts suggested by the Minister for Finance and his stockbroker supporters.

It is noteworthy that in the US, the Troubled Assets Relief Program, which had originally been based, like Nama, on the idea of overpaying for bad assets, was altered to be a programme of equity investments by the US government.

These investments now look likely to provide a return to the US taxpayer. Despite what the Government tells us about Nama, it is not too late to adapt the legislation to reflect a similar change of strategy here”.

Dan also said:
“However, if one takes the public debate involving the 45 or 46 economists who do not like NAMA, were one to place them into a room and ask what they would have instead, the likelihood is you would get 45 or 46 different responses”.

Invite them to a conference Dan. Ask them to come back to you with an agreed proposal within 2 weeks. NAMA as is will lose €20 Billion. I guarantee the economists will come up with a better plan than Peter Bacon.

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