Monday, August 31, 2009

NAMA: Garret Fitzgerald admits lack of competence

In an Irish Times article on Saturday Garret Fitzgerald made the case for what he termed responsible opposition on the issue of NAMA. Again today on RTE Radio’s Morning Ireland he sang a similar tune.

Both FG and Labour have serious misgivings in relation to NAMA-and rightly so. As opposition parties it is their solemn duty to point out the glaring inadequacies. Failure to do so would be highly irresponsible. In the Irish Times article he stated that "I have hitherto avoided any comment on the relative merits of NAMA vis-à-vis other possible approaches because I have not felt competent to comment on the finer points of what is a highly technical issue".

Quite frankly this is an amazing admission. Yet this morning Garret strongly criticized the 46 economists who expressed serious misgivings about NAMA. He is referring to such learned academics as Prof Brian Lucey, School of Business, Trinity College Dublin, Prof Karl Whelan, Department of Economics, University College Dublin, Dr Constantin Gurdgiev, lecturer in finance, School of Business, Trinity College Dublin,Dr Moore McDowell, senior lecturer in economics, Department of Economics, UCD amongst others. With a few dismissive comments Fitzgerald rubbished them. Garret with his admitted lack of competence knows more than all of them put together. His arrogance was breathtaking. Garret appears to want a quick fix and to hell with the long-term consequences. Now is the time to point out the glaring weaknesses in the government proposals.

Amongst the questions posed by Brian Lucey are the following:

  • What evidence does NAMA have that the current market price of property, land etc is not in fact the correct price to pay?

  • What evidence does NAMA have that the current market price of these is not in fact going to decline for a number of years, as would be the case if Ireland were to follow the common experience of previous property crashes?

  • Why would a temporary nationalisation of the banks be a bad thing, given that this would provide the taxpayer with a valuable asset which could be sold in future years?

  • Why does no independent analyst support the governments view on NAMA? This includes the Swedish finance minister who ran their bad bank system, who said to the Irish Times that he “favours the more severe mark-to-market write-down of assets rather than a ‘through the cycle’ valuation.”, and that “it (NAMA) does not sound like the right solution to buy assets from private banks.” It also includes the IMF who said " Insolvent institutions (with insufficient cash flows) should be closed, merged, or temporarily placed in public ownership until private sector solutions can be developed ... there have been numerous instances (for example, Japan, Sweden and the United States),

  • where a period of public ownership has been used to cleanse balance sheets and pave the way to sales back to the private sector", in the context of saying that the likely losses for Irish banks were such as to render them insolvent.

  • Why not force the equity and bond holders in Irish banks to take the first place in the queue to absorb the losses that the banks would have to book were current market prices to be paid for the loans made. After all, that’s what risk capital is for?

  • If the state overpays for the loans relative to current market prices, what, apart from a functioning banking system, does the taxpayer gain?

  • What percentage of book value of the loans should NAMA pay, given that current market prices for land and development properties are somewhere around 30% or less of book value?

  • If NAMA were to pay say €60b for loans that are worth only €30b, how can this transfer of a full years tax revenue to private speculators be justified in this economic time?

  • If, as is entirely possible, the loans transferred to NAMA do not provide sufficient income to meet the coupon payments of the bonds issues by NAMA, will the taxpayer, at least in the short term, not have to meet these payments?
It is particularly noticeable that Fitzgerald has failed to address these questions. Instead he has played the man and not the ball.In addition he has failed to address FG or Labour criticisms in any meaningful way. The FG proposals stand up to scrutiny. They may not be perfect but certainly protect the taxpayer to the maximum possible extent.If as appears likely the FG proposals do not find favour in the Dail, NAMA will in all probability go through in some shape or form. It must be radically changed if this generation of taxpayers is not to be paupered. Brian Lenihan must take on board the criticisms of the 46 leading economists and those of FG and Labour.
As far as Garret Fitzgerald is concerned Ireland can marry NAMA in haste and repent at leisure.


Anonymous said...


I think FG and Labor are being responsible in their opposition to NAMA.
Last week on RTE radio I heard about a mansion on a good few acres(I can't remember the exact figure), 15 new well-built holiday homes, with frontage on the river barrow, with exclusive fishing rights, near Goresbridge in Co. Kilkenny. The asking price for the whole lot was €1 million.
At the height of the boom each of the holiday homes was valued at €500,000.
The government will not make the value of these loans back unless they hold on to the properties for decades, by with time they will have decayed.


John Barry said...

I agree that FG and Labour have been very constructive. Garret Fitzgerald wants to ram through the NAMA proposals. Yet he admits he does not fully understand them.
He claims to be afraid of an imminent crisis if NAMA does not go through. This is utter nonsense. There will be a greater crisis if the current NAMA proposals go through-taxpayers will be bled dry. NAMA may bankrupt the country.
As far as I am concerned Garret Fitzgerald lacks credibility on this issue. His comments concerning the 46 economists were childish and nonsensical. It is time for Garret Fitzgerald to consider the taxpayers and not just property interests.

Fungus FitzJuggler III said...

NaMa does not stop rezoning! NaMa does not free up land, without any development upon it, for building.
This is just a way to allow new rezoning and brown bagging to take place! AS FG was up their oxters in this as much as FF, it seems that Garret the tarnished may have an interest in this too!

John Barry said...

The main reason for the banking problemm was lack of proper regulation. FG has not been in power for the last 12 years. So it is pointless blaming that party

Fungus FitzJuggler III said...

FG as an opposition, failed to oppose! They were also guilty of helping the banks not remit DIRT due on sums deposited as if by non-residents.
They also participated in brown bag re zoning.
FF are by far more responsible, but you seem to ignore FG responsibility on this issue. Why?