NAMA & Banking
Key Facts:
-Noble prize winner for economics, Prof. Joesph Stiglitz, told Irish television that the “principle of overpaying banks for loans is criminal”, when asked about NAMA.
-Other prominent economic commentators who have rejected the NAMA approach in favour of an approach more like Fine Gaels include George Soros, financier Dermot Desmond, commentator David McWilliams, and Michael O’Sullivan of Credit Suisse Private Bank.
-There is nothing in the NAMA legislation to that get credit flowing to businesses again.
-CDR, the French version of NAMA set up by the French Government in the 1990s to purchase €28 billion of toxic assets from Credit Lyonnais, incurred €15 billion worth of losses, comprising €5 billion from operating costs (including debt servicing), and €10 billion from capital losses.
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A Safer and More Effective Alternative Banking Solution to NAMA
Fine Gael cannot support the Government’s “NAMA” approach to resolving the banking crisis because of its potentially colossal cost for the country, because of its uncertain benefits for business and because of the evident unfairness of asking taxpayers to take responsibility for the reckless behaviour of developers and banks.
Changes since the draft Bill leave unresolved the three fundamental flaws of the NAMA solution to the banking crisis, namely: (1) NAMA remains a secretive, tax-funded, politically directed work-out process for 2,000 hundred of the most powerful, well connected, business people in Ireland, which international evidence suggests will be less effective at recovering the loans than private banks; (2) NAMA will provide an unnecessary bail out of the risk investors in the banks; and (3) NAMA does not provide any mechanism to get credit flowing again to businesses.
At its core, NAMA represents a €54bn double or quits gamble by Fianna Fail and the Greens on the property market – €30,000 for every household in the Country. The NAMA gamble transfers the responsibility for dealing with toxic loans from the banks who made them and the investors who funded them to the taxpayer.
Given these flaws, it is no wonder that NAMA has not received international or domestic endorsement, with domestic independent economists, the ECB and the IMF all questioning fundamental aspects of the Government’s approach.
The advantage of Fine Gael’s “Good Bank” solution, which significantly the French have adopted after their disastrous experience with their own NAMA in the 1990s, is that the risks and responsibilities associated with working out distressed developer-related loans would remain with those professional bankers and investors that funded the loans and that are best placed to recover them.
The primary responsibility of the State would be to ensure that we have a well-capitalised, functioning banking system that delivers credit to struggling businesses and households in order to get Ireland working again. This is safer for the taxpayer and better for the economy.
If the losses on loans to developers turn out to be very large, our proposals could save the taxpayer up to €15 billion.
Not only does our proposed solution have strong expert and academic support (including from Joe Stiglitz, the former chief economist of the World Bank and the 2001 winner of the Nobel Prize in Economics), but it is also being implemented in practice in other countries.
France established an equivalent of a National Recovery Bank (SFEF) in a matter of weeks last October. The UK and the USA have fixed a number of banks using variants of our proposed “good bank: bad bank” split (Northern Rock and Bradford & Bingley in the UK and Washington Mutual in the USA).
