Ireland: NAMA To Purchase Loans from the banks with bonds secured by the Irish taxpayers

NAMA is a semi state body set up by the government to purchase commercial and development property loans from the banks. NAMA will purchase the loans using government bonds. In short the Irish taxpayer secures the bonds.
The Irish government, under the aegis NAMA, will pay interest on these bonds to the Irish banks at initial rate of 1.5 % interest.

NAMA will pay somewhat more to the banks for the loans than their current market value, by endeavouring to estimate what the property underlying the loans will worth in five to seven years’ time, by which time it is anticipated that a recovery may have set in. The current “market value” (the actual value) is €47 billion. But the State is going to pay €54 billion - some €7 billion on top of the current market value and 70 per cent of the book value. The problem with this is that the property market may fall further. It is also possible that the property market may not recover for a prolonged period of time. If this transpires the banks will have been overpaid for the loans and the taxpayer will be left with assets, which are worth much less than it paid for them.

The ECB will lend to the Irish banks. The government-backed bonds will secure this lending. In short the Irish taxpayer provides the collateral. The taxpayer is liable for the principle and interest on these bonds.

The ECB will NOT lend to NAMA. To do so would contravene Article 101. Sean Fleming TD-on Six One News and Willie O’Dea Minister for Defence on Morning Ireland have claimed that the ECB is funding NAMA. Their assertions are factually incorrect.
The Irish taxpayer is taking the lions share of the risk. This has the potential to go seriously wrong. Quite frankly the state will pay too much for the assets. Already Bank of Ireland and AIB shares have risen sharply today with Mr Lenihan's announcement. Good news for the banks. But what about the poor taxpayer?

According to Richard Bruton:
“The Minister is asking us to give a commitment of €54 billion, €30,000 for every household in the State,” “The taxpayer is being asked not just to buy impaired loans from the banks. We are being asked to pay billions more than the market value for them. Remarkably this extraordinary act is being done without any forensic analysis of the costs and benefits, of the risks and threats.”

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Fine Gael calls for creation of 'good banks' with clean balance sheets into which the taxpayers' recapitalisation would go.

Acccording to FG the Government's recapitalisation plans may leave taxpayers' dangerously exposed to massive bad debts and the Government should urgently consider other options, including the creation of brand new 'good banks' with clean balance sheets.

Fine Gael Deputy Leader & Finance Spokesman Richard Bruton TD said today (Monday).

"It is time to look at other alternatives to the present proposal for recapitalisation.
"Fine Gael has huge concerns that the taxpayer is being asked to put money into banks without knowing the full extent of the hole in their balance sheet. There is a real risk that the only result will be to allow the existing banks to nurse along their dodgy property lending while continuing to starve viable businesses of access to the credit they so badly need.
"The taxpayers' interest is to kick-start new lending. It is not to protect the existing banks or those who knowingly took on the risk of funding their impaired lending policies.
"It is now time to look at a different model, which would create 'good banks' with clean balance sheets into which the taxpayers' recapitalisation would go.

"This would involve separating from within each bank a new bank which would hold all the state guaranteed deposits and which would buy those parts of the loan book such as residential mortgage loans and business overdrafts which can be easily valued from the existing parent bank. This would constitute a new good bank with a clean balance sheet. Its capital base would be provided by the taxpayers' recapitalisation, hopefully with other private capital, and some small shareholding could be given to the existing shareholders. These new banks would then be well capitalised with a clean balance sheet and fully open to resume lending.

"A legacy bank would be left behind in each case which would no longer engage in any lending. Its role would be to manage the remainder of the loan book and recoup maximum value from it over time. It would be managed entirely in the interest of the existing capital owners and non-guaranteed creditors. Fine Gael believes that this alternative model deserves serious assessment and could offer a much better use of scarce taxpayers' resources."

Clinton and Obama policies a recipe for economic stagnation

In the Democratic presidential debate in Cleveland, Ohio both Hillary Clinton and Barack Obama attacked NAFTA.

Hillary Clinton said:

It is not enough just to criticize NAFTA, which I have, and for some years now. I have put forward a very specific plan about what I would do, and it does include telling Canada and Mexico that we will opt out unless we renegotiate the core labor and environmental standards -- not side agreements, but core agreements; that we will enhance the enforcement mechanism; and that we will have a very clear view of how we're going to review NAFTA going forward to make sure it works, and we're going to take out the ability of foreign companies to sue us because of what we do to protect our workers.

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I will make sure that we renegotiate, in the same way that Senator Clinton talked about. And I think actually Senator Clinton's answer on this one is right. I think we should use the hammer of a potential opt-out as leverage to ensure that we actually get labor and environmental standards that are enforced. And that is not what has been happening so far. That is something that I have been consistent about. I have to say, Tim, with respect to my position on this, when I ran for the United States Senate, the Chicago Tribune, which was adamantly pro-NAFTA, noted that, in their endorsement of me, they were endorsing me despite my strong opposition to NAFTA.

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